DC Court of Appeals revives greenwashing suit against Coca-Cola

Earth Island Institute v. Coca-Cola Co., --- A.3d ----, 2024 WL 3976560, No. 22-CV-0895 (D.C. Aug. 29, 2024)

Earth Island sued Coca-Cola under the D.C. Consumer Protection Procedures Act, alleging that Coca-Cola engages in deceptive marketing that “misleads consumers into thinking that its business is environmentally sustainable, or at least that it is currently making serious strides toward environmental sustainability.” In fact, Earth Island alleged, “the sheer scale on which Coca-Cola relies on single-use plastics in its packaging—and the scale on which it intends to continue using them—renders it an environmental blight and a fundamentally unsustainable business.” Coca-Cola touts its efforts to increase recyclability and use more recycled material, but this allegedly hid “the reality that recycling is not a viable means of mitigating the environmental harm that Coca-Cola inflicts via its mass production of single-use plastics—less than ten percent of recyclable plastics are in fact recycled in the United States.” Coca-Cola allegedly “represents itself as working toward environmental sustainability, despite no serious intention of doing the one thing that could actually achieve that goal: severely scaling down its plastic production.”

The court first found that Earth Justice had standing under DC law (the DC courts are not Article III federal courts). Despite the patchwork of sources—Twitter, the Coca-Cola website, other places—from which the complaint quoted, it was plausible that the general public targeted by the ads, including in DC, received the basic message “that Coca-Cola is a company that cares about, and is working meaningfully toward, environmental sustainability” even if no one person saw all the ads.

Reversing the trial court, DC’s highest court held that this greenwashing complaint stated a claim.

The most concrete statements outlined Coca-Cola’s goals: (1) “Make 100% of our packaging recyclable globally by 2025. Use at least 50% recycled material in our packaging by 2030” And (2) “Part of our sustainability plan is to help collect and recycle a bottle or can for every one we sell globally by 2030.” Vaguer statements were more in the vein: “Business and sustainability are not separate stories for The Coca-Cola Company—but different facets of the same story.” And Coca-Cola cosigned a statement from the American Beverage Association: “Together, we’re committed to getting every bottle back. ... Our goal is for every bottle to become a new bottle, and not end up in oceans, rivers, beaches and landfills. ... This unprecedented commitment includes ... [p]artnering with [other organizations] to improve recycling access, provide education to residents and modernize the recycling infrastructure in communities across the country.”

Earth Island specifically alleged that Coca-Cola wasn’t taking the steps necessary to meet its concrete benchmarks of (1) making 100% of its packaging recyclable by 2025, (2) using 50% recycled material in its packaging by 2030, and (3) recycling a bottle or can for every one it sells by 2030. And, it argues, Coca-Cola has a “history of making sustainability promises and failing to deliver on them,” which is “a history that is bound to repeat itself given that none of Coca-Cola’s business plans or lobbying efforts would enable it to actually achieve its alleged recycling goals.” Also, given low recycling rates, even if Coca-Cola could hit the benchmark of making 100% of its packaging recyclable by 2025, it would allegedly still be “push[ing] ineffective ‘recycling’ as a viable tool to assuage their environmental pollution.”

The trial court thought that the challenged statements were merely aspirational/puffery.  But “even aspirational statements can be actionable under the CPPA because they can convey to reasonable consumers that a speaker is taking (or intends to take) steps that at least have the potential of fulfilling those aspirations. Earth Island alleges that Coca-Cola neither takes nor intends to take any such steps, and if that is correct, then its representations could mislead reasonable consumers.”

It was facially plausible that

(1) Coca-Cola is a fundamentally unsustainable business because of its heavy reliance on single-use plastics that it has no immediate intentions of eliminating or substantially reducing; (2) Coca-Cola misleads consumers into thinking that it is serious about hitting its specific sustainability goals, when its practices say otherwise; and (3) Coca-Cola’s statements create the misimpression that recycling is a viable method for substantially mitigating the harm its plastic products cause to the environment, when it is not.

The court analogized to marketing “light” or “low tar” cigarettes; marketing them as a healthier option was misleading when they didn’t offer much if any benefit versus full tar and when they posed substantial health dangers. Given how Coca-Cola promotes its “World Without Waste” initiative and trumpets how it is “[s]caling sustainability solutions,” “a reasonable consumer could plausibly think that its recycling efforts will put a serious dent in its environmental impacts.” But Earth Island plausibly alleged that it wouldn’t given low recycling rates of recyclable plastics. “That is, when it promotes its recycling efforts, it omits the fact that those efforts will not prevent the vast bulk of its plastic products from ending up as waste or pollution, a deception that Earth Island alleges Coca-Cola very much intends.” Likewise, it was plausible that “a reasonable consumer would think Coca-Cola was taking the steps necessary to achieve its stated goals,” and it allegedly was not.

Of course, this was all subject to proof:

We do not presume to know what reasonable consumers understand a company to mean when it claims that it is working to be “more sustainable” or the like. For all we know, reasonable consumers would immediately dismiss that type of speech as vacuous corporate jargon, not to be relied upon. But that is not obviously true; the concerted efforts that companies like Coca-Cola make to cultivate an image of being environmentally friendly strongly suggests that even their vague assurances have a real impact on consumers. Further, even if reasonable consumers take Coca-Cola’s statements to mean that it is taking substantial strides to improve the environment, it is not at all obvious at this stage of the proceedings whether Coca-Cola’s efforts on the ground align with those statements. But those are questions of proof that cannot be settled at the motion to dismiss stage.

So, puffery was still an issue, but it was an issue for the factfinder.

The court rejected “more rigid approaches” to puffery, such as that where a statement’s “truth or falsity ... cannot be precisely determined,” it is puffery. But the cited case that puffery includes “the exaggerations reasonably to be expected of a seller as to the degree of quality of his product, the truth or falsity of which cannot be precisely determined.” The first part of that definition—reasonably expected exaggerations—was vital to the second. “[B]usinesses cannot insulate themselves from suit simply by avoiding concrete claims. Vague and ambiguous statements, incapable of being strictly true or false, may yet be actionable as misrepresentations.” The court here preferred defining puffery as (1) “general claim[s] of superiority ... so vague that [they] can be understood as nothing more than a mere expression of opinion,” and (2) “exaggerated, blustering, and boasting statement[s],” quite capable of being adjudged false, but “upon which no reasonable buyer would be justified in relying.” “Red Bull gives you wings” can’t be taken literally, but “might be actionable if it gave reasonable consumers the impression that Red Bell provided significant benefits over a cup of coffee or caffeine pill, at least if that were not the case.” In short, “statements that might be deemed puffery if interpreted to mean one thing in one context, might very well be actionable misrepresentations if taken to mean a different thing in a different context. The doctrine is not conducive to hard-and-fast rules, and typically raises a question for the factfinder.”

The court also rejected Bimbo Bakeries USA, Inc. v. Sycamore, 29 F.4th 630 (10th Cir. 2022), which overturned a jury verdict finding that a bakery engaged in false advertising when it billed baked goods it sold in Utah as “local,” despite the fact that they were made exclusively out-of-state, as far away as Alaska. The Bimbo Bakeries court concluded that the word “local” was “an indeterminate and unverifiable adjective,” so it was not any “description of fact,” because “the word local cannot be ‘adjudged true or false in a way that admits of empirical verification.’ ” Of course “local” has a range of meanings.

[I]t is just as obviously true that some things fall outside that range of meanings, often depending on context. To illustrate, here in the District, if somebody says they support the “local” NFL team, you would most naturally think they are supporters of the Washington Commanders, though they might also fairly be referring to the Baltimore Ravens, given that Baltimore is less than forty miles away (i.e., there’s a range that “local” might fairly apply to). But if they are in fact fans of the Los Angeles Rams—a team that hails from more than two thousand miles from here (just as some of the baked goods in Bimbo Bakeries came from Alaska, more than two thousand miles away from Utah)—then they have undoubtedly deceived you.

The court here also specifically rejected Bimbo Bakeries’s “hostility toward consumer survey evidence as one viable evidentiary tool for discerning how reasonable consumers understand various advertisements.” The court further noted that the Fifth Circuit’s analysis in Papa John’s contradicted Bimbo Bakeries—Papa John’s held that even a claim as vague and opinion-laced as “Better ingredients. Better Pizza.” could be actionable “when coupled with a comparison to a competitor’s ingredients that were not discernibly different.”

Nor was it dispositive that the statements were aspirational. An aspirational statement can be reasonably “interpreted to be a representation about the defendant’s present intent ... to act as stated.” Mere failure to achieve stated goals couldn’t support a misrepresentation claim, but a showing that Coca-Cola never even intended to do anything that could achieve them would.

Coca-Cola next argued that the statements at issue weren’t about “goods and services” as required by the CPPA. But claims about plastic packaging were very much about “goods and services,” defined broadly in the law to include “any and all parts of the economic output of society, at any stage or related ... in the economic process.”

Finally, the statements could properly be considered in the aggregate, although a litigant would not be allowed to “unfairly strip isolated statements out of their context and then cobble them together to form an unrepresentative tapestry of what has been conveyed.” Earth Island was targeting only statements that Coca-Cola was still making today. Discovery and trial could be reasonably tailored to those. Earth Island was not offering a “grab bag” of statements nor arguing that they should be read out of context. “Businesses can drive points home through repetition or supplementation, and where a consumer sees Coca-Cola billing itself as sustainable in one ad on a Monday, and then sees a different ad on Thursday with a similar message, the mere repetition of a point can have a cumulative effect on a reasonable consumer.” Maybe consumers wouldn’t have reacted that way, maybe not; “[i]t is plausible enough that a consumer curious about Coca-Cola’s environmental impacts would come across the variety of statements relied upon by Earth Island through some casual Googling.”

The First Amendment didn’t bar the suit. Earth Island challenged Coca-Cola’s commercial speech about its goods and services, although relief would have to preserve its First Amendment rights.

FTC lacks jurisdiction over most nonprofits, even sham ones, court rules

Federal Trade Commission v. Grand Canyon Education, Inc., --- F.Supp.3d ----, 2024 WL 3825087, No. CV-23-02711-PHX-DWL (D. Ariz. Aug. 15, 2024)

The court here holds that the FTC lacks §5 jurisdiction over a nonprofit, even if the nonprofit was in fact a sham diverting money to its controller. I wonder if the FTC will appeal, or accept the court’s baby-splitting of allowing it to sue the principal controller.

The FTC sued Grand Canyon Education, Inc.; Grand Canyon University; and Mueller, GCU’s president and GCE’s CEO and chairman of the board, for (1) making deceptive representations concerning GCU’s status as a non-profit institution; (2) making deceptive representations concerning GCU’s doctoral programs; (3) making both sets of deceptive representations in connection with the telemarketing of educational services; (4) initiating telemarketing calls to persons who requested that GCU not contact them; and (5) initiating telemarketing calls to persons registered on the national Do-Not-Call Registry.

Nonprofit allegations: In 2004, GCE—which became a publicly traded company—purchased what is now GCU and began operating it as a for-profit institution. In 2014, GCE chartered GCU as an Arizona nonprofit corporation. Mueller has continuously been in charge since 2017. He received salary, bonuses, and other compensation from both GCU and GCE. His compensation included cash and stock incentives linked to GCE’s financial performance. Despite GCU’s classification as a nonprofit, the FTC alleged that it “was, in fact, organized by GCE and Defendant Mueller to advance GCE’s for-profit business and advance Defendant Mueller’s interests as officer, chairman, director, stockholder and promoter of investment in GCE” and therefore is “operated to carry on business for its own profit or that of its members, within the meaning of Section 4 of the FTC Act.”

In 2018, GCE transferred the trademarks, campus, and certain assets and liabilities of the institution that GCE had operated as ‘Grand Canyon University,’ to GCU in exchange for GCU agreeing to pay GCE more than $870 million plus 6% annual interest.” A master services agreement “executed as part of this transaction makes GCE the service provider for certain essential GCU operations in exchange for a bundled fee that is equal to 60% of GCU’s ‘Adjusted Gross Revenue.’ ” GCE has since been the exclusive marketing provider for GCU, responsible for communicating with prospective GCU students regarding applications, program requirements, and financing options. GCE is also the exclusive provider for GCU of student support services and counseling, technology (including GCU’s platform for online education) and budget analysis services. GCU isn’t permitted to contract with any third party for these services. And GCE is the sole provider of GCU’s student records management, curriculum services, accounting services, technology services, financial aid services, human resources services, procurement, and faculty payroll and training.”

The fees are allegedly not limited and not proportionate to GCE’s costs: “GCE receives 60% of GCU’s revenue from tuition and fees from students, including 60% of charitable contributions to GCU for payment of student tuition and fees. … In addition, GCE does not provide services for student housing, food services, operation of the GCU hotel conference center, or athletic arena, but still receives 60% of the revenue from these operations.” GCU has consistently generated profit for GCE, and is GCE’s most significant source of revenue.

Nonetheless, defendants allegedly promoted GCU in advertising and telemarketing as a private ‘nonprofit’ university and disseminated digital and print advertising” suggesting that “GCU had gone ‘Back to Non-Profit Roots’ and ‘transitioned back to a nonprofit institution.’ ” Mueller said in 2018 that “the characterization of GCU as a non-profit educational institution is a tremendous advantage. We can recruit in high schools that would not let us in the past. We’re just 90 days into this, but we’re experiencing, we believe, a tailwind already just because of how many students didn’t pick up the phone because we were for-profit.” He made a similar statement in 2019 during a GCE earnings call attributing unexpectedly good new student online growth to the non-profit advertising.

In 2019, the US Department of Education “rejected GCU’s request that it be recognized as a nonprofit institution under the Higher Education Act, and classified GCU as a for-profit participant in federal education programs.” The DOE also ordered GCU to cease advertising “nonprofit” status. Defendants mostly complied.  

Telemarketing: GCE has hundreds of sales reps who engage in telemarketing GCU. It has initiated tens of millions of telemarketing calls on behalf of GCU. It allegedly did not respect either individual do not call requests or the National Do Not Call Registry, making more than a million calls in defiance thereof.

Doctoral program: The FTC alleged that defendants marketed “‘accelerated’ programs that enable students to quickly complete their degree, including quickly completing a dissertation.” Its materials allegedly described the GCU programs as twenty course programs that require a total of 60 credits. For example, an enrollment agreement for a “Doctor of Business Administration: Marketing (Qualitative Research)” stated the program costs $702 per credit, lists a “Total Program Tuition and Fees” of “$43,720” based on the 60 credits, and also stated that “[p]rogram cost is estimated based on current tuition rates and fees.” The FTC alleged that this was misleading:

GCU’s requirements for dissertations include eight distinct levels of review that students must complete from the initial prospectus to final approval. Throughout the multi-level review process, GCU requires students to produce multiple drafts with extensive revisions. After a student has completed two years of coursework, GCU appoints one or more faculty members to supervise satisfaction of the requirements. GCU often imposes these dissertation requirements in courses after the three dissertation courses listed in the agreements and requires any student satisfying these requirements to enroll in, and pay additional tuition for, ‘continuation courses.’ … The number of continuation courses and time required for doctoral students to advance through GCU’s doctoral program depends, in substantial part, on services provided by GCU. Students’ ability to satisfy GCU’s requirements may be, and has been, thwarted and delayed by GCU’s actions or inaction, such as reassignment of faculty, inconsistent demands during the dissertation review process, and delays caused by the conduct of faculty appointed by GCU to various roles in the dissertation review process.

In practice, the FTC alleged, GCU rarely awarded a doctoral degree after 60 credits. The average number of courses GCU required for graduates awarded degrees over 2019-2022 was 31—at a cost of over $10,000 to each student. And, unsurprisingly, “[m]ost of the students that enroll in GCU doctoral programs never receive the doctoral degree for which they enrolled. Many of these students are thwarted because they cannot afford the additional costs and time necessary to fulfill GCU’s requirements beyond the twenty courses identified as required.” Any disclosures, the FTC alleged, were insufficient.

The court initially rejected a constitutional challenge to the FTC’s enforcement authority. The Supreme Court both explicitly upheld the constitutionality of the FTC’s commission structure in Humphrey’s Executor v. United States, 295 U.S. 602 (1935), and explicitly distinguished its more recent holding on the President’s removal power as to single-head agencies therefrom, Seila Law LLC v. CFPB, 591 U.S. 197 (2020). Unlike some other district courts I could name, the court here thought those cases—along with binding circuit precedent specifically upholding the FTC’s post-1935 expanded enforcement powers as constitutional—meant that it wasn’t going to toss out those enforcement powers. Pointedly, the court noted that even the Fifth Circuit has yet to go so far. Illumina, Inc. v. FTC, 88 F.4th 1036 (5th Cir. 2023) (“[A]lthough the FTC’s powers may have changed since Humphrey’s Executor was decided, the question of whether the FTC’s authority has changed so fundamentally as to render Humphrey’s Executor no longer binding is for the Supreme Court, not us, to answer.”).

However, GCU’s argument that it wasn’t a “corporation” under the FTC and the Telemarketing Sales Rule fared better.

The FTC has jurisdiction over “persons, partnerships, or corporations.” As to that last, it only covers a company/trust/association that is “organized to carry on business for its own profit or that of its members.” The FTC responded that it sufficiently alleged that GCU was, in fact, for-profit “because it was organized to, and does, benefit its for-profit founder, GCE, and President, Defendant Mueller” and because “[a] genuine nonprofit does not siphon its earnings to its founder, or the members of its board, or their families, or anyone else fairly to be described as an insider.” 

The key question: was GCU “organized to carry on business for its own profit or that of its members”? The FTC argued that the answer was yes, because it was set up and operated for profit. But the court didn’t think that was the same thing as “organized” for profit. After all, GCU, had a nonprofit charter under state law, and its “articles of incorporation ... represent that it is organized and operated exclusively for charitable, religious, and scientific purposes within the meaning of Section 501(c)(3) of the Internal Revenue Code.”

Does the FTC’s authority depend on state corporation filings or IRS status? In a footnote, the court acknowledged that several courts have agreed with the FTC that it doesn’t, but the court here disagreed because “organized” for profit is not the same as “operated” for profit. [Not a very consumer-protection-friendly interpretation of the law.]

Congress has specified in other contexts (that is, the tax law itself) that an entity should be treated as a nonprofit only if it was both “organized” as a nonprofit and thereafter “operated” as a nonprofit. But it only authorized the FTC to pursue claims against an entity that is “organized to carry on business for its own profit or that of its members.” That at least raised an inference that the certificate of incorporation did determine the FTC’s authority.

Still, GCU was willing to rely on a narrower argument, which was that the FTC didn’t make the necessary showing that GCU was in fact organized to profit itself or its members. Mueller wasn’t actually a member of GCU. The court didn’t accept the FTC’s theory that, if an ostensible nonprofit entity is being operated to benefit “insiders,” “related ... businesses,” or “officers” that are not members, it qualifies as a company “organized to carry on business for its own profit” within the meaning of the FTCA. But this theory had never been adopted by a court and the court found that, while “debatable,” the better plain-language meaning was that it wasn’t a viable theory. Congress could have said that the law covered fake nonprofits; the tax code specifically requires an evaluation of whether any “part of the net earnings” of an asserted nonprofit charity “inures to the benefit of any private shareholder or individual.” “Although there may be persuasive policy reasons why the FTC should be allowed to pursue claims against nonprofits that operate for the benefit of non-member insiders, related businesses, and officers, the Court must take the statute as written.”

The statutory reference to the corporation’s “own” profit couldn’t be extended to “insiders,” “related businesses,” or “officers.” [I’m not sure there’s consistency in the greater law of agency, but I am pretty sure that for some purposes, agency law is totally happy to make this attribution.] That was “a seemingly unlimited list of third-party beneficiaries” and would make “own” superfluous.

This result kicked out both §5 and TSR claims against GCU.

But there were still claims against Mueller. Mueller argued that the “nonprofit” statements were truthful, because GCU was “organized as a nonprofit under Arizona law and recognized by the IRS as a 501(c)(3) tax-exempt entity.” The DOE’s disagreement, they argued, was not relevant or material, and students couldn’t have been deceived before the DOE ordered defendants to stop the ads.

The court allowed the claims to proceed. The FTC disputed whether the IRS had found GCU to be a nonprofit at the time defendants marketed it as one, and argued that the Arizona Corporation Commission and Higher Learning Commission never made an actual finding that GCU qualified as a nonprofit. “If, as the FTC seems to contend, Defendants made false representations to the IRS to secure GCU’s nonprofit classification,” then there wouldn’t be a binding government determination of status.

Additionally, FTCA liability turns on misleadingness to a reasonable consumer. Whatever the legal niceties, whether “nonprofit” advertising meant something other than the legal definition to students and was deceptive needed factual development. Mueller’s own statements “easily suffice[d]” to raise a plausible inference of materiality.

Doctoral degree misrepresentations: Mueller argued that there was no deceptiveness because GCU tells students the doctoral programs usually require additional coursework. All the representations referred to 20 courses/60 credits as a minimum, and they said a doctoral degree could be completed in less than seven years, not that it typically is. The FTC pointed out that the complaint identified a lot of 20 courses/60 credits claims, including enrollment agreements listing “ ‘Total Program Credits 60,’ and ‘Total Tuition Program and Fees:’ followed by a dollar figure based on the tuition and fees for twenty courses.” And it pointed out that disclaimers that don’t work don’t stop deceptiveness. The court agreed that there was a factual issue, despite some “non-actionable puffery” in the allegations related to an “accelerated path” to a doctorate.

The court also noted that, although some of the challenged representations appeared on GCU’s website and GCU was now out of the case, the allegations that GCE prepared all marketing materials plausibly kept the website in.

The court declined to require the TSR claims to meet the heightened pleading requirement of Rule 9(b), although it noted that the allegations were specific enough to do so. The FTC’s claims generally didn’t require knowledge of falsity or intent to defraud.

Individual claims against Mueller: There were no allegations in the complaint specific to his role in crafting GCE’s challenged representations concerning GCU’s doctoral degree requirements or addressing his knowledge of the alleged inaccuracy of those representations. Individual monetary liability for a corporation’s violations of § 5 of the FTC Act requires proof of both (1) authority to control the challenged representations and (2) some degree of awareness of, or reckless disregard concerning, the challenged representations. The FTC plausibly alleged (1) because he was GCE’s CEO. And there were extensive allegations about Mueller’s role in structuring the operations of GCU and GCE and overseeing the operations of both entities in his roles as president (of GCU) and CEO and chairman of the board (of GCE). That was sufficient to plausibly establish knowledge or recklessness for purposes of individual liability at the pleading stage.

In addition, “when the FTC seeks injunctive relief against an individual based on corporate-entity violations, the only required showing is that the individual participated directly in the violations or had authority to control the entity.”

The same analysis applied to individual liability for TSR violations.

Organic search results aren't TM "use"

Alsa Refinish LLC v. Walmart Inc., 2024 WL 3914512, No. 2:23-cv-08536-SVW-MAR (C.D. Cal. Jul. 31, 2024)

In 2024, people are still bringing keyword advertising cases. Walmart wins summary judgment.

Alsa sells paint, including chrome paint, and claims common-law rights in  “Alsa,” “Alsa Chrome Paint,” “Alsa Easy Chrome,” “Easy Chrome,” “Mirrachrome,” and “Mirra chrome.” Walmart offers an online marketplace on which it and third parties sell products. There are no infringing products on Walmart.com. Thus, searching Walmart’s website with Alsa’s claimed marks results in search listings that aren’t related to Alsa.

Still, Alsa argued that Walmart was using its marks in advertising in confusing ways. Walmart does pay for keyword ads. It does not pay for organic search listings.  

Presumably because Walmart is a big seller, a search for the term “easy chrome paint walmart” results in several sponsored links to products on Walmart.com along with an organic link for a Walmart webpage named “Easy Chrome Paint,” and a search for “walmart alsa easy chrome paint” results in a Walmart webpage named “Alsa Easy Chrome.”

"easy chrome paint walmart" search with sponsored Walmart results and organic result

Google result for "walmart alsa easy chrome paint" showing organic Walmart result "Alsa Easy Chrome(256)"

But Alsa couldn’t identify any sponsored keyword ads that used Alsa’s marks. Walmart did bid $0.45 for the phrase “Alsa Chrome Paint,” but received zero impressions as a result. Alsa focused on organic search results. Those organic results were

the same webpages one would arrive at by navigating to Walmart.com and entering the alleged Marks (e.g., “Alsa Easy Chrome”) into Walmart’s own search bar. This happens because when a term is entered into the search bar on Walmart’s website, the URL (i.e., the web address) for the Walmart search results page will often include the terms that were searched. For example, when a user searches “Alsa Chrome Paint” on Walmart.com, the URL for the search results page is listed as follows: https://www.walmart.com/search?q=%22ALSA+CHROME+PAINT%22. A Walmart search results page such as this will periodically be “indexed” by Google so that the page appears on Google’s own search results.

If a user clicks on the organic result, they will go to the same page on Walmart.com that they would have gotten to by putting the same phrase in the Walmart search bar.

 Under 9^th Circuit precedent, a court can conclude that summary judgment in a keyword case is appropriate “without delving into any factors other than: (1) the type of goods and the degree of care likely to be exercised by the purchaser; and (2) the labeling and appearance of the products for sale and the surrounding context on the screen displaying the results page.”

First, “[b]ecause Walmart does not pay search engines to return organic search results or index webpages, it does not ‘use’ the marks in connection with the sale or advertisement of goods.” The fact that Google sometimes indexed search result pages on Walmart didn’t change that. “Plaintiff does not show that the alleged Marks appear anywhere else on Walmart.com apart from where they are inputted as search terms. Walmart’s website does not label any of its products under the alleged Marks or contain any infringing products. Ultimately, Plaintiff has pointed out no evidence that Walmart did anything to appear on these unsponsored Google search results.”

As to “Alsa Chrome Paint,” there were no clicks, meaning no infringement was possible.

As to Walmart-sponsored results to the query “easy chrome paint Walmart,” the court agreed with Walmart that those links were not triggered by use of “easy chrome,” but by the separate words “easy,” “chrome,” and “paint.” (I would think "Walmart" probably also played some role in triggering Walmart-sponsored results.) This too did not constitute a “use” of Alsa’s putative mark. Even assuming that it did, running sponsored ads in response to a Google search for “easy chrome paint Walmart” didn’t cause likely confusion.

There was no source confusion because Walmart didn’t sell any infringing products. There was also no initial interest confusion. Plaintiff’s cheapest product was $59, and “chrome paint products appear to be specialized or even ‘sophisticated’ items rather than everyday goods.” A reasonably prudent consumer accustomed to shopping online would exercise greater care. Moreover, each Walmart product in Google’s “sponsored” results was clearly labeled with the name of the product along with a photograph, and with the word “Walmart.” None of the sponsored products made any reference to the phrase “Easy Chrome” or the other putative marks. And finally, the sponsored results were “clearly distinguishable from objective search results.” Thus, confusion was unlikely.

Dilution also failed for want of “use.”

6th Circuit applies JDI to political speech, but holds that disclaimers avoid confusion

Libertarian National Committee, Inc. v. Saliba, No. 23-1856 (6th Cir. Aug. 28, 2024)

Dissenting members of the Libertarian Party of Michigan maintain that they are the true Michigan affiliate. The Libertarian National Committee sued and the district court enjoined them from using the Libertarian Party mark. In an opinion that follows JDI in insisting that “use as a mark” is the appropriate speech-protective line, the court of appeals mostly affirms, though it vacates the injunction as to fundraising that uses a pop-up disclaimer to inform donors of the substance of the dispute, which the court of appeals finds avoids likely confusion. [This is probably best understood as a normative version of “reasonable consumers wouldn’t be confused.”]

Defendants, even after the dispute began, kept identifying themselves as the Libertarian Party of Michigan in connection with soliciting donations, filing campaign finance paperwork, and promulgating platform positions, endorsements, and commentary critical of the Chadderdon-chaired group. The core holding: “[D]efendants’ use of the LNC’s mark to, among other things, solicit party donations, fill out campaign finance paperwork, advertise events, and espouse political platform positions and commentary falls within the scope of the Lanham Act.” “Services” are broadly defined, and the Lanham Act reaches noncommercial speech at least to the extent of covering uses as a mark. Although prior cases protecting noncommercial/political actors have sometimes reasoned that political positions etc. aren’t “services” within the scope of the Act, they are better understood as in fact standing for the principle that, for example, discussing and critiquing the trademark owner is not a source-identifying use. 

For what it’s worth, this distinction roughly tracks my pre-JDI proposal to focus on whether reasonable citizens can tell who is speaking when it comes to noncommercial speech, although my version notably relies on traditional First Amendment tiers of scrutiny and—perhaps foretelling coming Supreme Court moves—the court here does not. This is going to create further doctrinal crinkles when trademark owners assert that noncommercial uses cause sponsorship/affiliation confusion; one of the merits of tiers of scrutiny, which can concededly be replicated by other methods with which modern courts have less experience, is that they provide a framework for assessing the strength of the relevant interests and the fit between a particular imposition of liability and those interests.

“[I]n the narrow context where a defendant uses the trademark as a source identifier, the Lanham Act does not offend the First Amendment by imposing liability in the political arena.” The court is right to say that the results of previous cases, if not their language/statutory interpretation, are relatively consistent with the line it draws—if you agree that none of the previously protected uses, including domain names like taubmansucks.com, were “source-identifying” if they didn’t sell (competing?) goods. But what this means is that now most of the speech-protective work will be done in the “source-identifying” inquiry. This is easy with people calling themselves the Libertarian Party, and has been relatively easy for courts dealing with individual “articles” (how the court describes both Farah v. Esquire Magazine, 736 F.3d 528 (D.C. Cir. 2013), and the Radiance Foundation “National Association for the Abortion of Colored People” case). But plaintiffs will adapt, and it might not stay easy for lots of representational art.

Thus, without going into factor analysis, the court of appeals found that most of the challenged uses were unauthorized and likely to be confusing. However:

Defendants also used the LNC’s trademark on their website to solicit donations. In connection with the donation tab, defendants displayed one of two pop-up disclaimers notifying the potential donor of the governance dispute, the LNC’s recognition of the Chadderdon-led faction, and that any donations would be going solely to defendants. The disclaimers also included hyperlinks to the Chadderdon-led affiliate’s website. By clearly explaining the identity of the donation recipient, these disclaimers ameliorated the confusion the Lanham Act seeks to prevent. The disclaimers also resemble those we have previously found sufficient to eliminate a likelihood of confusion. Accordingly, defendants’ use of the trademark in connection with their online solicitation of donations, when accompanied by appropriate disclaimers, does not create a sufficient likelihood of confusion as to the recipient of the funds and thus cannot be the predicate for Lanham Act liability.

Query: are defendants therefore entitled to a modification of the injunction to allow them to apply the same disclaimers to other things they do, like running the rest of the website or sending materials to officials?

unexplained "3x more cutting power" could be false advertising when comparator was unexpected

Fiskars Finland OY AB v. Woodland Tools Inc., No. 22-cv-540-jdp, 2024 WL 3936444 (W.D. Wis. Aug. 26, 2024)

The parties compete in the hand-held gardening tool market. Most of the claims failed on summary judgment, but part of Woodland’s claim against Fiskars for false advertising, based on Fiskars’s statements about the cutting power of its tools, and some of its statements that certain products were designed in the United States, did create factual issues for trial. (Unsurprisingly, this is a former employee case with many different claims, most of which I will ignore, including design patent claims that fail because no reasonable jury could find the protectable elements confusingly similar in light of the prior art.)

Fiskars alleged that Woodland engaged in false advertising when it described its Regular Duty Bypass Pruner as “designed in the USA” because Woodland actually copied Fiskars’s version of the tool—which would mean that Woodland did not design its tools at all. Fiskars presented no evidence of consumer deception, and didn’t show literal falsity. “Woodand’s founders testified that they designed at least some part of every Woodland product in the United States, and Fiskars does not offer any evidence to contest that testimony.”

Woodland’s false advertising counterclaims focused on: (1) statements that certain Fiskars products will cut three times easier or with up to three times more power; (2) statements that its products are designed in the United States; and (3) statements about certain Fiskars products having a titanium blade coating.

Fiskars first argued that Woodland had no statutory right to bring any false advertising claims prior to January 2022, because it could not have suffered any injury from the alleged false advertising before its entry into the market. But Lexmark didn’t preclude this claim. [Weird misdescription of Lexmark follows, but I don’t think it bears on the correctness of the ultimate conclusion.] There was no dispute here that Woodland was a direct competitor “within the zone of interests protected by the statute” whose alleged harm of delayed entry into the market has “a sufficiently close connection to the conduct that statute prohibits” to satisfy the proximate cause requirement for standing. Still, it was common sense that injury didn’t occur before Woodland existed as a company, so it would have to show post-existence evidence of harm to win. And that would also influence any disgorgement award. Still, conduct before Woodland entered the market was relevant to the claim.

Fiskars advertises some of its products as having “up to 3x more cutting power.” Woodland alleged that this statement and similar “2x” or “3x” power-based claims were ambiguous and misleading to consumers because the advertisements/packages didn’t identify what other tools Fiskars’s tools are more powerful than. Ambiguity means consumer confusion evidence is required. Woodland’s survey expert used a test stimulus with the advertised statement “up to 3X more power,” along with a control statement that said, “more power than non-geared tools.” The survey found that, compared to control, an additional 20.1 percent of respondents interpreted the phrase to mean that the advertised tool has up to 3X more cutting power than earlier versions of Fiskars’s product or other competitive products on the market. A reasonable jury could accept this as evidence of deceptiveness. And a reasonable jury could generalize from the one product he tested to the effects of similar phrases such as “cuts 3X easier” and “3X more cutting power.”

Woodlands also challenged packaging stating that certain products are “designed in the United States,” when those specific products weren’t. Fiskars argued that the statements couldn’t be literally false because the term “designed” is ambiguous.  

As to one product, Fiskars admitted it was designed in Finland. And Fiskars didn’t identify multiple reasonable interpretations of “designed.” In the context of manufacturing a product, design means to “decide upon the look and functioning of (a building, garment, or other object), typically by making a detailed drawing or it.” There were genuine disputes of fact on where other products were designed, although not when the only piece of evidence of non-US design was a utility patent listed on the package as covering the product, whose inventors/assignee were all located in Finland. “But the location of an inventor or assignee of a patent does not necessarily dictate where the commercial embodiments of the patent are designed.”

Fiskars also advertises seven of its products as having a titanium blade coating. Woodland’s blade coating testing showed that the products at issue in this claim had less than seven percent titanium in the coating. But the phrase “titanium blade coating” had more than one reasonable interpretation. “It could plausibly mean either that the coating is made entirely of titanium or that the coating contains some amount of titanium, mixed with other compounds that make up the coating.” And Fiskars did satisfy the second meaning. There was no evidence of consumer confusion.

using results from one product to tout another isn't passing off, but could be false advertising

Ortho-Tain, Inc. v. Colorado Vivos Therapeutics, Inc., 2024 WL 3925408, No. 20 C 4301 (N.D. Ill. Aug. 23, 2024)

Ortho-Tain sued defendants (including a bunch of former employees); I’ll focus only on the Lanham Act claims alleging that they falsely took credit for favorable results achieved by Ortho-Tain’s orthodontic appliance products used to treat various conditions such as sleep disordered breathing. Basically, dentists working as paid presenters showcased case studies of several pediatric patients who had achieved favorable results using Ortho-Tain’s orthodontic appliances. Defendant Vivos sponsored similar presentations, as well as a “parent webinar,” using the same exact case studies. The slides displayed the name “Vivos” and the presenters attributed the favorable results to Vivos’ products, not Ortho-Tain.

This could not be brought as a §43(a)(1)(A) claim because of Dastar. There was neither forward nor reverse passing off of the devices themselves, only of the results: “the connection between the favorable results and appliances is an intangible idea or concept.” It wasn’t about the source of the tangible good sold in the marketplace.

But (a)(1)(B) also exists! The presentations were plausibly “commercial advertising or promotion” even if described as “seminars” and “continuing education courses.” The Seventh Circuit has said that face to face communication isn’t “commercial advertising or promotion” [though query whether that makes any sense if there’s a repeated script]. It sufficed at the pleading stage for Ortho-Tain to allege that the Vivos “course” was presented via online broadcast and live to in-person attendees on at least 26 occasions; another event was a multi-date online recorded presentation that thousands of medical professionals registered for; and the parent webinar was made available online.

And Ortho-Tain plausibly alleged falsity, or at least misleadingness. “If not explicit, the clear inference to be drawn by attendees was that the case studies showed results achieved by Vivos’ products.” In addition, and more controversially, Vivos statements about creating “revolutionary technology” and the “first-ever hope for a lasting solution to the problem of sleep apnea” were not “mere puffery.” “In the context of a scientific field made of up highly educated individuals, it is reasonable to infer at the pleading stage that ‘revolutionary’ and ‘first-ever’ carry specific meanings as to the novel nature or method of the appliance being described.”

Vizzy gets no kick from champagne, and that's ok

West v. Molson Coors Beverage Co. USA, No. 23-cv-7547 (BMC), 2024 WL 3718613 (E.D.N.Y. Aug. 7. 2024)

Plaintiffs alleged that Molson deceived consumers into thinking that Vizzy contained champagne (used as a generic term throughout!) when it didn’t. The court found the allegations implausible, using what may become a popular framework recently distilled from the cases about how reasonable consumers think. [This framework isn’t all that bad, but I do note that it is not based on any qualitative or quantitative evidence about how consumers actually think except insofar as a poll of chambers might be qualitative evidence.]

Vizzy costs $17.99 per 12-can box and looks like this:

ingredients list with "alcohol"

First, for standing, plaintiffs didn’t need to allege a price premium over a comparable product. “[C]onsumers suffer an injury in fact when, in reliance on alleged misrepresentations, they buy a product that they otherwise would not have purchased. I fail to see a meaningful distinction between a price-premium injury and a but-for purchasing injury.”

Nonetheless, it was unreasonable to think Vizzy would have champagne, based on five considerations: “(1) the presence or absence of express representations, (2) context of the alleged misrepresentation, (3) etymological analysis, (4) allegations about competitor products and (5) consumer survey evidence.”

There were no express representations about champagne, weighing against plausibility.

Etymology: a mimosa is a champagne drink, or at least a sparkling wine drink.  Molson argued that the phrase “hard seltzer” modified the word “mimosa,” which makes clear to consumers that the beverage is not a mimosa at all.

But what is a hard seltzer? By long tradition, “hard” connotes “alcoholic,” and “seltzer” means “sparkling water.” “The alcohol in a generic hard seltzer could theoretically be any type of consumable alcohol, including champagne. Although defendant’s proffered definitions do not identify the types of alcohol commonly used in hard seltzer, other definitions specify fermented cane sugar and malted barley – not champagne or any other type of wine – as the usual suspects.” Overall, “mimosa” “strongly suggests” the presence of champagne, and “hard seltzer” doesn’t exclude it. So etymology “slightly” favored the plaintiffs.

“But the full context of the packaging, viewed through the eyes of a reasonable consumer, sharply reduces any ambiguity caused by the etymological association between mimosas and champagne.” The court rejected plaintiffs’ argument that the tagline “Brunch Just Got Real” reinforced the champagne connection.

This was basically a familiar issue: “whether a food or beverage ought to include ingredients associated with its purported flavor, or whether the presence of the flavor itself, regardless of its source, is sufficient to make the description accurate.” We also need to know how consumers think about new/unfamiliar products: product categories “act like lenses, modifying how consumers see other aspects of those products and form their reasonable expectations about them.”

True, many cases say that, on a motion to dismiss, “a federal trial judge, with a background and experience unlike that of most consumers, is hardly in a position to declare” what consumers know. But it is proper to consider whether a statement would deceive a reasonable consumer, which requires considering “what reasonable consumers know about the products they purchase.” [This is usually resolved by saying that some situations can be resolved as a matter of law, but not all.]

Reasonable consumers would read “mimosa hard seltzer” together, and there were no allegations that hard seltzers ordinarily, or even occasionally, contain champagne. “Because a champagne-based hard seltzer is not the norm, a reasonable consumer would expect that if a hard seltzer had champagne in it, the packaging would make that fact abundantly clear.” Any ambiguity could be resolved by looking at the ingredient list, which makes no reference to champagne, only to “alcohol.” “[G]iven plaintiffs’ allegation that consumers actively seek out drinks with champagne, in addition to their failure to allege hard seltzers are ordinarily (or ever) made with champagne, it would be odd that Vizzy would have spiked its seltzer with champagne without making that abundantly clear.” A reasonable consumer would have “serious doubts” after reading the ingredients. Similarly, there were no pictures of mimosas, champagne, or grapes anywhere on the packaging. “Vizzy’s direct references to orange juice, juxtaposed against its lack of reference to champagne, should make the confused consumer think again: if the product contained champagne, why not say so?”

Molson argued two additional factors: Vizzy’s allegedly comparatively low price and the location of purchase (stores prohibited by NY law from selling beverages containing wine). The latter just didn’t work: “It is unreasonable to assume that an ordinary consumer has a sufficiently intimate familiarity with the New York Alcoholic Beverage Control Law to know that bodegas and grocery stores cannot sell wine.” The former was more persuasive: “Although it is possible that a seltzer made with a particularly inexpensive champagne could sell at the same price point as those made with cheaper forms of alcohol (approximately $1.50 per 12-ounce can), all else equal, a reasonable consumer would assume that a champagne-based seltzer would sell at a price premium.”

The court also weighed the interest in innovation: “Lest we stifle development and distribution of innovative forms of consumer products in the name of avoiding consumer ‘deception,’ we have to give manufacturers reasonable leeway in marketing their products without handcuffing them with lawsuits.” This is a consideration that only fits into a normative conception of the reasonable consumer, not an empirical one: manufacturers should be able to push the definition of terms because that gets us cheaper goods. It has nothing to do with whether people would be materially deceived. That doesn’t mean it’s wrong, but courts that go back and forth between normative and empirical concepts of what’s deceptive to a reasonable consumer become hard to predict.

The court cautioned that it wasn’t endorsing trickery, but rather “tastes like” marketing. “If the manufacturer’s advertising is wrong, and it does not taste like what the label says it tastes like, then the consumer is not going to buy it again and the product will fail. The market is a much more efficient check on that kind of representation than lawsuits.” [GI proponents should strongly object to this argument.]

 

9th Circuit orders district court to reconsider statutory damages award to NY class under NY law

Montera v. Premier Nutrition Corporation, --- F.4th ----, 2024 WL 3659589, No. 22-16375, 22-16622 (9^th Cir. Aug. 6, 2024)

The key legal issue here arises from the quirk that NY bans GBL §§ 349 and 350 class actions in state court, but they can be brought in federal court. Premier sold Joint Juice for treating/preventing joint pain; a jury found it liable to a consumer class for false advertising under NY law; and the district court awarded statutory damages to the class, but cut them by over 90%. The court of appeals affirms liability/class certification and remands for recalculation based on an intervening appellate decision, as well as reversing the grant of prejudgment interest—overall, seems like a win for Montera.

The evidence showed that Premier targeted Joint Juice ads to people who suffer joint pain as a result of osteoarthritis. The packaging used the Arthritis Foundation logo and name, and made claims such as “Use Daily for Healthy, Flexible Joints” and “A full day’s supply of glucosamine combined with chondroitin helps keep cartilage lubricated and flexible.” On liability, “Montera introduced peer-reviewed, non-industry-funded studies finding that Joint Juice’s key ingredients, glucosamine and chondroitin, have no effect on joint function or pain; Premier maintained the product’s efficacy based on industry-funded studies.” Premier was aware of the no-effect studies; in 2011, the brand director for Joint Juice wrote, “there is no scientific evidence for chondroitin at 200 mg.” When Premier considered running its own study, its president wrote: “if poor—don’t publish.”

Montera’s expert testified that 92.5 percent of respondents to his study “believed that the product packaging was communicating one or more of [the packaging’s claimed] joint health benefits,” and 56% of respondents said that Joint Juice’s claimed joint health benefits “were material to their purchase decisions.” Montera also introduced Premier’s internal customer survey in which 96% of those surveyed said they were managing chronic pain, 75% said they bought Joint Juice because they have joint pain and thought the drink would help them, and 56% said they had been diagnosed with arthritis. In Premier’s expert’s survey, 21.5% of respondents said that information on Joint Juice’s packaging influenced their purchase decisions, and 32.3% said they had generally heard about the benefits of glucosamine.

GBL §§ 349 and 350 require courts to award the greater of actual damages or statutory damages of $50 or $500, respectively. Montera sought $550 per unit sold in statutory damages, totaling over $91 million. The district court, though, thought that would violate due process and awarded statutory damages of $50 per unit sold—the amount available under § 349—totaling roughly $8.3 million, along with roughly $4.5 million in prejudgment interest.

The court of appeals rejected Premier’s argument that there could be no misleadingness as a matter of law because it possessed substantiation for its claims. But deceptiveness is a question of fact, and the jury appropriately considered the studies introduced by both sides. This wasn’t a case where the plaintiff’s interpretations were implausible or unrealistic.

The court of appeals also rejected Premier’s argument that it was entitled to an instruction on safe harbors: Section 349 provides that “it shall be a complete defense” to liability if a challenged practice is “subject to and complies with the rules and regulations of” a federal regulatory agency. Premier argued that it complied with the FDA’s supplement regulations, which permit structure/function claims as long as those aren’t disease claims. But, to comply with this regulation, “a manufacturer must notify the FDA within 30 days of first marketing a supplement that the product’s label includes a qualifying claim, and certify that the claim is substantiated, among other requirements.” Premier didn’t dispute that it failed to comply with the 30-day notice—it began making the claims at issue in 2009 but didn’t notify the FDA until 2012. There was no evidence that the FDA excused its failure to comply or that the 2012 notification cured the earlier noncompliance. Thus, the district court did not err by declining to instruct the jury on the safe harbor provision.

Injury: The district court instructed the jury that the class was “injured by purchasing Joint Juice if it was valueless for its advertised purpose.” The jury found, by special verdict, that the class was injured by purchasing Joint Juice, and it awarded damages equal to the total amount spent on Joint Juice during the class period based on average purchase price. It thus the jury declined to reduce the damages amount on account of Joint Juice having any residual value for hydration/containing vitamin C apart from its advertised purpose.

NY law does not require a price premium or a physical injury. It requires only, as here, that class members didn’t get what they paid for: they bought a product that was advertised to improve joint health but in reality did not.  Indeed, “this case arguably takes the price premium theory to its logical endpoint: the jury found that Joint Juice was entirely ‘valueless for its advertised purpose,’ so the entirety of the purchase price could be viewed as a price premium.” Adopting Premier’s view would “immunize from liability the age-old deceptive tactics of the ‘grifting snake oil salesman,’ which spurred the adoption of some of the earliest consumer protection laws in this country.”

The court next rejected Premier’s argument that Montera did not show that each one of the class members’ injuries were caused by the statements on Joint Juice’s packaging. But that’s not the rule in NY. It is emphatically the law that reliance isn’t required to show causation under GBL §§ 349 and 350. New York uses “an objective definition of deceptive acts and practices.” Liability “turns on what a reasonable consumer, not a particular consumer, would do.” “Because the test is objective and turns upon the reasonable consumer, reliance is not at issue, and the individual reason for purchasing a product becomes irrelevant and subsumed under the reasonable consumer standard, i.e., whether the deception could likely have misled someone, and not, whether it in fact did.” As a result, “Rule 23(b)(3)’s predominance requirement poses no barrier to class treatment of [§ 349] claims because it’s unnecessary to make any individualized inquiry into what each plaintiff knew and relied on in purchasing his or her [product].”

The court also rejected challenges to certain evidentiary rulings at trial. Montera offered, among other things, “a list of Google AdWords that Premier purchased to market Joint Juice, many of which related to arthritis, and a television commercial featuring a celebrity recommending Joint Juice to help joint stiffness.” Although not every NY purchaser would have seen these, the evidence was not irrelevant; it was relevant to show the message conveyed by the packaging, including that the packaging was meant to convey a disease claim, not a structure/function claim. The trial court also properly instructed the jury to limit its analysis to the packaging.

Likewise, it wasn’t improper to admit a letter Premier’s tax advisor sent to the California Department of Resources Recovery and Recycling in 2010. The letter argued that Joint Juice should not be subject to a five-cent bottle deposit tax because it did not qualify as a “beverage” under California law, but rather was a “medical supplement” and “over-the-counter medication.” The letter also stated that “the only reason to purchase Joint Juice® supplement is for the medicinal value of the glucosamine and chondroitin it contains.” [On the one hand, ouch; on the other, this is glaringly obvious.] Again, this was relevant to the structure/function versus disease claims argument, and references to California law were not unduly confusing.

Likewise, Montera’s counsel’s arguments were not unduly inflammatory. Suggesting that Premier was “prey[ing] on the vulnerable” was allowed because counsel “is allowed to argue reasonable inferences based on the evidence,” and counsel’s argument that “Joint Juice set out to target people who suffer from arthritis” was consistent with the evidence of Premier’s marketing strategy. Counsel’s argument that Premier used “paid hacks and certified [q]uacks in the articles that they publish” was not “untethered from the record; it was consistent with evidence about Premier relying on industry-backed studies, evidence that some of the sponsoring companies refused to release the underlying data for external review, and the note written by Premier’s president not to publish the study Premier contemplated if it yielded unfavorable results.” References to the company’s size/consumers banding together were limited and not inappropriate as a response to defense counsel’s suggestion that Premier was a small company.

Statutory damages: The relevant statutes aren’t explicit about whether statutory damages are calculated on a per-person or per-violation basis. The district court, looking at federal cases (remember, there can’t be state cases on this), concluded that the statutory damages should be assessed on a per-unit basis. The court reasoned that GBL §§ 349 and 350 create private causes of action for persons “injured by reason of any violation” of either statute. “In our view, the plainest reading of that phrase is that a cause of action arises for each violation. Here, a class member suffered a violation each time they purchased a unit of Joint Juice bearing a deceptive label, whether packaged in a six-or thirty-pack, and New York law entitled them to receive either actual or statutory damages for each violation.” The history and consumer protection purpose of the statutes supported this reading, including an increase from $50 to $500 for § 350 because “[c]urrent limits are too low to be effective.”

The court noted that, given that class actions are not allowed in state court, “the Legislature was surely aware that the statutes’ deterrent function would not be accomplished by aggregating statutory damages across a large number of plaintiffs.” Individual filing fees were at least $400 when NY amended the law; using a per-person calculation would mean that “a consumer deceived into making several purchases of the same low-cost item might have to pay $400 in up-front filing fees to potentially recover $550 in combined statutory damages under §§ 349 and 350. We are not persuaded that the Legislature would have considered that such a meager incentive would accomplish the Legislature’s express goal of deterring statutory violations.”

So, does a $91 million statutory damages award violate due process? Wakefield v. ViSalus, Inc., 51 F.4th 1109 (9th Cir. 2022), concerned a company that placed over 1.8 million robocalls in violation of the Telephone Consumer Protection Act (TCPA). The TCPA’s statutory penalty is $500 “for each [ ] violation.” The district court ordered the defendant to pay $925.2 million. Instead of using the factors the Supreme Court has applied to common-law torts, the 9^th Circuit mandated the use of seven factors to decide “when an award is extremely disproportionate to the offense and ‘obviously’ unreasonable”: “1) the amount of award to each plaintiff, 2) the total award, 3) the nature and persistence of the violations, 4) the extent of the defendant’s culpability, 5) damage awards in similar cases, 6) the substantive or technical nature of the violation, and 7) the circumstance of each case.” This was intervening precedent because of how long 9^th Circuit cases take. [The underlying precedent is Lochner-era caselaw letting courts strike down statutory damages as excessive as a matter of substantive due process. Judicial supremacy over legislators strikes again, I guess. Compare how courts treat this argument in copyright cases.]

The court thus remanded without expressing an opinion about what would be unreasonable. The district court previously considered the NY legislature’s goals in barring aggregate damages in class actions, and concluded that such an intent supported reducing the total damages award. On remand, it should also consider the legislature’s goals for deterrence and compensation in enacting GBL §§ 349 and 350.

Prejudgment interest was unwarranted because the statutory damages award wasn’t compensatory; it exceeded the jury’s actual damages award of roughly $1.5 million, and thus awarding both statutory damages and prejudgment interest would constitute a windfall.

FDCA doesn't preclude lawsuit based on allegedly false claims about compounding drugs

Pacira Biosciences, Inc. v. Nephron Sterile Compounding Center, LLC, No. 3:23-5552-CMC, 2024 WL 3656489 (D.S.C. Jul. 15, 2024)

Pacira, which sells non-opioid pain management products, including Exparel, sued Nephron for false advertising. Exparel is “bupivacaine suspended in multivesicular liposomes,” and is injected at a surgical site during or shortly after surgery to manage and reduce post-surgical pain.

Nephron allegedly operates a compounding pharmacy that compounds BKK, comprised of ketorolac, ketamine, and bupivacaine in a syringe for combined use, and RKK, a compounded drug consisting of syringes of ketorolac, ketamine, and ropivacaine for combined use.

Compounded drugs are not FDA-approved, but may be made and sold under certain circumstances, including rules about outsourcing facilities, which may not compound using bulk drug substances unless the bulk drug substances are on a relevant FDA list of clinical need/shortage drugs.

Pacira alleged that the production of BKK and RKK was not covered by the FDCA’s protection for compounded drugs because (1) BKK and RKK do not appear on the FDA’s drug shortage list, and (2) the bulk drug substances from which BKK and RKK are made do not appear on the FDA’s list of bulk drug substances for which there is a clinical need. But, of course, the FDCA may not be enforced by private parties, so Pacira turned to the Lanham Act.

Thus, Pacira alleged that defendants “have engaged in a sustained campaign to promote their drug cocktail products as safe and effective opioid alternatives through demonstrably false and misleading advertisements – including blatantly false statements that their drugs are safer and more effective than EXPAREL.” They also allegedly claimed or implied that BKK and RKK compounds have been approved by the FDA and/or subjected to clinical studies and trials.

Caption: Nephron is fully inspected and approved by the FDA!

Footer with FDA approved logo

Nephron argued that its website was not false: The allegedly deceptive statements, a “Nephron is fully inspected and approved by the FDA!” banner and “FDA APPROVED” logo at the foot of Nephron’s website appeared in the same place on every page of Nephron’s website, including its landing page. It argued that, in context, the banner and footer, which included other logos, such as “MADE IN U.S.A.,” obviously referenced only Nephron, and Nephron is, in fact, a registered 503B outsourcing facility both certified and regularly inspected by the FDA. Anyway, it argued, implicit misrepresentations of FDA approval weren’t actionable.

Pacira responded that (1) the FDA doesn’t approve facilities, (2) the statements would be attributed to BKK and RKK’s FDA approval, (3) customers looking for information on those specific products wouldn’t necessarily peruse every page to see what repeats, and (4) “Made in the USA” is the kind of statement that consumers would attribute to the products, not the facilities, so the footer logos encouraged confusion rather than diminished it.

Despite the plausibility of these arguments, the court adopted the rule that “the law does not impute representations of government approval ... in the absence of explicit claims.”

example of product benefit claims for pain, complications, etc.

slide specifically claiming superiority to Exparel and identifying it as "competition"

Allegedly false claims to hospitals and providers in presentation and other marketing materials about the efficacy, safety, and superiority of BKK and RKK: First, it was plausible to attribute those to Nephron because it hired the person who created the slide show and conducted the presentations. He allegedly “not only developed advertisements and marketing materials for BKK, but he also actively participated in sales pitches and other promotional events nationwide to sell.” This was enough at the pleading stage to impute his actions to Nephron. However, the same “implicit misrepresentation of government approval” rule applied to FDA-approval-related claims. But Pacira also alleged that claims of improved patient safety, satisfaction, recovery time, outcomes, and patient experience were false and misleading. It also alleged that Nephron’s superiority claims, including that BKK and RKK are more “efficacious for long term analgesia” and “post operative pain” than Exparel were literally false. At this stage, the allegations were sufficient as to the safety, efficacy, etc. statements.

footer claiming that Nephron is a 503B outsourcing facility

503B outsourcing facility claim as part of Nephron logo

Somewhat puzzlingly to me, the court also allowed claims based on the idea that the logo indicating Nephron is a 503B outsourcing facility conveys the false impression that BKK and RKK products are produced by a 503B-compliant facility. A facility isn’t compliant if it compounds drugs it shouldn’t, and Pacira alleged that this was the case. “Nephron’s claim it is a 503B outsourcing facility, even if true, could falsely imply BKK and RKK satisfy the requirements of § 353b, if, indeed, they do not.” Pacira also alleged reasonable consumer reliance on the misrepresentation by alleging that, “[o]n information and belief, healthcare providers and consumers have reasonably relied on Defendants’ false and misleading statements when deciding to purchase BKK or RKK instead of EXPAREL” and that if they’d known the truth, they wouldn’t have bought the drugs.

What about “commercial advertising or promotion”? Nephron objected that Pacira didn’t define the relevant market or allege to whom the presentations were disseminated. First, the statements were commercial speech promoting Pacira’s products that were provided to a relevant market – healthcare providers. But were such “product overview” statements in presentations just medical education? No; “it would strain credulity to find Nephron did not intend to turn a profit convincing its target audience to purchase BKK and RKK.”

Pacira sufficiently alleged injury.

Were the Lanham Act claims precluded by the FDCA? Nephron argued that it could only be found to be falsely advertising if the court interpreted the FDCA and determined that it was violating the compounding regulations, but that interpretation/determination is for the FDCA. [Side note: does this argument work in an age of lack of deference to agencies? Especially if the question is what conduct satisfies the legal standard set out in the law? Without Chevron, is a decision really committed to the FDA, or to a court? I think I just found an interesting student note topic.]

Pom Wonderful LLC v. Coca-Cola Co., 573 U.S. 102 (2014), provides the governing law. [This isn’t really correct—Pom involved a deception theory that didn’t rely on the FDA’s rules and Coca-Cola argued that its compliance with FDA’s rules precluded the deception theory. Here, the deception theory does rely on the FDA’s rules.] The court here relied on Pom’s policy-based reasoning: The FDA is for health and safety, not primarily consumer protection; the Lanham Act is primarily about consumer protection. The FDA lacks expertise in assessing whether people are deceived. [Again, while I’m substantively in sympathy with Pacira on the policy, that may be true—but the FDA is the expert on whether compounding facilities are complying with its rules, which is factual key to this specific theory of deception.] Thus, while characterizing defendant’s conduct as “illegal,” “unlawful,” and posing “significant risks to patient safety and health” in the complaint was “overzealous” because it could “implicate the need for enforcement by the FDCA,” the gravamen of Pacira’s allegations were falsity and misleadingness and resulting harm to Pacira.

Lanham Act unclean hands defenses are hard to win

World Nutrition Inc. v. Advanced Enzymes USA, No. CV-19-00265-PHX-GMS, 2024 WL 3665360 (D. Ariz. Aug. 6, 2024)

The parties—here WNI and AST—sell enzyme supplements and sued each other under the Lanham Act, and both prevailed on their affirmative claims and got disgorgement. The claims generally related to enteric coating (that is, its absence despite the parties’ representations), though WNI also falsely advertised certain certifications. WNI got a permanent injunction. WNI’s award of disgorged profits was larger than AST’s, so AST was ordered to pay WNI $1,827,651.68.

What about unclean hands? This requires a defendant to show by clear and convincing evidence (1) “that the plaintiff’s conduct is inequitable,” and (2) “that the conduct relates to the subject matter of its claims.” Of relevance to dueling false advertising claims: “Factual similarity between the misconduct that forms the basis for an unclean hands defense and the plaintiff’s allegations in the lawsuit is not sufficient.” The defense only protects those who “have acted fairly and without fraud or deceit as to the controversy in issue.” And, in the Lanham Act context, “fraudulent intent” is required. Plus, unclean hands isn’t automatic even then; it depends on what justice requires.

Given this high mountain, AST didn’t show that it was protected by WNI’s unclean hands. AST falsely advertised with literally false claims about enteric coating. WNI’s claims of a buffer-enteric coating and manufacturing compliance were also literally false, but AST failed to show that WNI’s products were not enterically coated. If AST had proved that WNI’s claim its products had an enteric coating that was 100% effective was false, the court would have reached a different result on this part of the inquiry, and would rule that justice was best served by offsetting damages. “The fact that AST ultimately owes WNI damages is a reflection of two things: (1) each party’s ability to prove damages and (2) the fact that AST earned more profits while misleading consumers.”

Court accepts survey with disclaimer control that causes 38% confusion

 Another ruling in the PNC v. Plaid case:

PNC Financial Services Gp. v. Plaid Inc., 2024 WL 3691607, No. 2:20-cv-1977 (W.D. Pa. Aug. 7, 2024)

Daubert motions for this case. I’ll only discuss the stuff I find interesting.  

Kivetz was PNC’s survey expert. The survey showed respondents a 22-second video clip simulating the user flow within fintech app Venmo from 2019: the Venmo home screen that an already-registered Venmo user would see when they opened the app, then a cursor moving between the Venmo screens. The survey then showed a series of static screens that a consumer would see when connecting a bank account to their Venmo account, including the Plaid Link consent, institution select, and credentials panes. There were limited interactive elements on the screens.

The test group for this survey was shown the Plaid user interface that allegedly appropriated PNC’s marks. The control group was shown a “workup” of what a “Plaid branding only” user interface would look like.

Test stimulus, L; control stimulus, R

Richard Craswell's work on controls in surveys remains a must-read in this area: choosing a noninfringing control is often very important because it can determine the amount of net confusion. One particularly interesting point here: the "control" shows very high levels of confusion (38%), which would ordinarily seem like a lot. PNC would ordinarily have a strong incentive to argue that disclaimers don't work. But that would run up against a strong preference for truthful speech, especially if the alternative seems to be that PNC can control what apps its customers can use. There'd be some obvious competition law problems with that as well as nominative fair use (what Plaid argued before PNC dropped the argument that the current screen, which is not entirely unlike the control, infringed). Craswell makes the argument that there is an implicit cost-benefit analysis in control selection: we're asking what's the least confusing option that's worth it. If some confusion is irreducible but we still want the activity to continue, that's the level of confusion we should accept. That could indeed justify a control with 38% confusion, but that may not be something many TM owners want to admit. And it calls into question the broad definition of "affiliation" confusion that courts have adopted--often by assuming that "affiliation" in the Lanham Act means whatever consumers think it means in response to survey questions, although it could reasonably be read more strongly or consumers could be educated/asked for their definitions thereof.

Anyway, after the survey showed the stimuli, it then asked: “which company provides this credentials screen,” “does the company that provides this credential screen have a business affiliation or connection with another company or companies,” “with which other company or companies does the company that provides this credentials screen have a business affiliation or business connection,” and “did...the company that provides this credentials screen receive approval or sponsorship from another company or companies?”

PNC’s expert Kivetz concluded that 79% of the participants in the test group were confused into believing that the company that provides that credentials screen either (1) was PNC (75%); (2) has a business affiliation or connection with PNC (5.9%); and (3) received approval or sponsorship from PNC (5.4%). (Id. at 59–60). In contrast, participants in the control group experienced a confusion rate of 38.1%. The net confusion rate (the difference between the two confusion rates) was 41.3%.

Plaid challenged the survey based on the control, the lack of an interactive process in the survey, and the failure to limit the survey to PNC customers. The sample issue didn’t merit exclusion; the survey included potential PNC customers by asking potential respondents whether they engage in online banking and geographically limiting the population to states in which PNC had a physical branch location. Anyway, any effect of the allegedly skewed sample was “speculative,” since the broader question was about “whether the average consumer who connects a bank account to cash payment and investment account fintech applications would be confused by the use of a given set of marks (PNC’s) on Plaid’s user interface(s) during the connection process.” So too with the static visuals—that increased survey completion, and if respondents had actual options they might have tried to reach a different bank’s credentials login screen. The survey explained to respondents what was happening; they could click on and read the Plaid privacy policy before going forward.

The control group argument gave the court more pause. The control screen “displayed a disclaimer that was not present in the Plaid Link user interface, at least at the later stages of a consumer’s interactions with Plaid Link.” This could have been “so visually different (and perhaps, so obviously affiliated with Plaid) from the PNC institutional and credentials login screens that it diluted the confusion results on that side of the survey.” But the control was also similar, though not identical, to the credentials screen Plaid actually uses today. This was a question of weight, not admissibility. The disclaimer left nearly 2/5 of respondents confused, which undermined the assertion that the control wrongly pushed people away from PNC.

However, the expert’s opinion on “tarnishment” was excluded since it relied on non-record evidence of “bad acts” by Plaid and he only speculatively linked that to PNC, rather than showing a basis relying on a reliable process or analysis.

Plaid’s consumer confusion expert, Dhar, used a “consumer journey approach,” designed to mimic what users would be seeing when deciding whether to buy or use a given product or service. He opined that users were unlikely to be confused by Plaid’s use of PNC’s marks, especially given consumers’ ultimate goal of connecting their bank accounts to a given fintech app. He also opined that any confusion wasn’t material, based on internal Plaid testing, “which purportedly shows that the effect of the usage of bank marks on the institutional login and credentials login screens had minimal impact on consumer conversion (that is, minimal effect on whether consumers entered their banking information into the fintech app via Plaid Link).”

The court declined to exclude Dhar’s testimony. He provided context that might assist a jury, opining that “by the time a given user encountered a Plaid Link screen within a fintech app, the decisions to (1) download the app, (2) use it, and (3) link a bank account were likely already made,” meaning that confusion was unlikely. “While an expert’s application of their own experience and of principles in the field may not be as empirically rigorous as an experiment or a survey, FRE 702 does not bar the admission of more ‘qualitative’ expert testimony.” His methodology was not novel or pseudoscience; the consumer journey approach is “well recognized” in the field of consumer behavior.  

He wouldn’t be permitted to testify on the ultimate likelihood of consumer confusion, but he could testify as an expert about how the considerations outlined in his report impact the applicable factors: “the care consumers take in using fintech apps and Plaid Link and/or the relationship of Plaid Link and PNC in the minds of consumers.”

The court also allowed Dhar’s materiality opinion.  “Plaid ran a series of internal tests and studies that addressed the impact of Plaid’s use of bank logos in its user interface, and the notion that the data were unreliable solely because the data came from Plaid is inaccurate.” He explained the internal testing in his expert report, with detailed descriptions, and he applied scientific principles to the data, including in his visualizations. “Plaid was experimenting with different institutional selection and credentials panes for years, seeking to measure conversion rate, i.e., whether users would be more inclined to enter their banking information depending on the presentation of the given user interface. These tests are squarely applicable to one of the ultimate merits issues in this case: whether consumers were more or less likely to enter their banking credentials when Plaid used PNC’s marks.”

The court allowed PNC’s damages expert’s disgorgement analysis, though not his “contributed capital” damages theory, which was based on the idea that Plaid’s use of PNC’s marks constituted a forced investment in Plaid by PNC. That latter had issues of fit and reliability.

“PNC never made an investment in Plaid, and the notion that the fact finder in this case should view a portion of Plaid’s enhanced valuation over time as directly and proportionally attributable to the connections that Plaid made between PNC consumers and fintech apps during a one-year span in Plaid’s early days in a straight-line fashion is the kind of speculative opinion, unmoored from scientific rigor, that courts are to exclude under FRE 702.”

The disgorgement opinion, though, was fine because, given the statutory burden-shifting, it was ok to assume that 100% of PNC conversions were attributable to Plaid’s use of PNC’s marks.

Plaid’s damages expert, like its consumer expert, relied on Plaid’s internal testing suggesting that PNC customers using Plaid Link to connect their bank account to a fintech app “would still have connected their PNC account...95 percent to 99 percent of the time,” regardless of whether PNC’s marks were displayed. It was ok for the expert to rely on studies she didn’t conduct, especially a study that perfectly fit a key question here.

Duelling marketing experts also mostly got in. PNC’s marketing expert opined that Plaid benefited from the usage of PNC’s marks and that Plaid’s usage of PNC’s marks harmed PNC’s brand. His report purported “to demonstrate how PNC built its brand, how it continues to invest in its brand, how valuable its brand is, how Plaid utilized PNC’s brand (and the brands of other banks), and how that usage impacted PNC’s brand.” The court excluded his opinion regarding the general risk of harm to PNC’s brand from Plaid’s use, but not the rest of it. (Given that 2019 is now several years in the past, presumably there’s also real-world data about whether the brand was harmed.)

It was ok to use a qualitative analysis of “bad press” that allegedly came about from Plaid’s screens’/CSRs’ criticism of PNC. This went to the claim that required evidence of damage to goodwill (that is, false advertising). But his opinion that the mere use of PNC’s marks, in and of itself, put PNC’s brand at risk wasn’t reliable; it was speculation rather than expert analysis.

Beyond that, it also appears to the Court to be nothing more than an argumentative truism, akin to saying that a person lending her car to another necessarily places all of the assets of the lender at risk in the event the loaned car becomes involved in an accident. Adding the patina of an expert opinion to such a truism does not aid the finder of fact and is therefore unnecessary, as that is an argument that PNC can make without relying on expert testimony. Under FRE 702, PNC has not met its burden in demonstrating the reliability of this particular opinion. This specific aspect of Dr. Carpenter’s testimony—that Plaid’s use of PNC’s marks inherently placed PNC’s brand at considerable risk—is therefore excluded.

Plaid’s marketing expert rebutted PNC’s experts. It was also ok for him to use qualitative analysis.

PNC also offered proposed expert testimony on Plaid’s cybersecurity in “seeking as part of its damages out-of-pocket costs incurred [by PNC] from fraud on PNC customers that used Plaid Link.”  But the expert was unable to link the use of the trademarks to that harm, as opposed to Plaid’s retention of customer authentication information. Here, it mattered that the record showed that “at least some meaningful portion of PNC customers would have used Plaid Link even without visibility of PNC marks.” And Plaid’s central causal contribution was allegedly storing PNC customer data and then, critically, “auto populating” the “challenge question” authentication credentials that a PNC customer previously entered into the Plaid Link screens. That just wasn’t sufficiently tied to the trademark claims. The experts were unable to quantify or differentiate the harms to PNC that were caused by the marginal customers who might have been driven by the use of the marks.

However, if Plaid relied on its own cybersecurity processes or questioned those of PNC, expressly or by implication, the court might allow an expert to opine on “the mechanics of how authentication credentials operate generally and any vulnerabilities such would foster.”

Also, PNC would be allowed to use lay witness testimony that it contended demonstrates that “Plaid’s true purpose in using PNC’s marks was not to ease consumer use in connecting to fintech apps but was instead to increase Plaid’s data repository of consumer banking information for its own purposes.” And PNC would be permitted via lay witnesses to state generally what motivated it to alter how it dealt with Plaid, and how/why its limitations on PNC customer access to fintech apps via Plaid Link came to be, since that’s relevant to intent. “Lay or expert testimony as to who caused/did not cause the 2019 Cybersecurity Event, and the details ‘under the hood’ and/or explanations of that Event, will not be permitted, as such would readily lead to substantial jury confusion in light of the actual claims/defenses in this case and would likely generate substantial undue prejudice that eclipses any probative value under FRE 403.”