"pure" chocolate may be deceptive if it has too much heavy metal

In re Theos Dark Chocolate Litigation, 2024 WL 4336631, No. 23-cv-02739-HSG, --- F.Supp.3d ---- (N.D. Cal. Sept. 27, 2024)

Plaintiffs alleged that Theo’s dark chocolate bars contained, or risked containing, the heavy metals cadmium, lead, and arsenic at levels exceeding California’s then-governing Maximum Allowable Daily Level, as revealed by Consumer Reports in December 2022 and subsequently confirmed by plaintiffs’ independent testing. These heavy metals allegedly cause “harmful effects, particularly in children,” putting children at risk for lowered IQ, behavioral problems (such as attention deficit hyperactivity disorder), type 2 diabetes, and adults face an increased risk of “cancer, cognitive reproductive problems, and other adverse conditions” from just a “modest amount” of exposure. Plaintiffs alleged that because “[i]t is possible to reduce or even eliminate toxic heavy metals in the Products,” “Theo could have implemented changes to its business and manufacturing practices to control and eliminate the heavy metals in the Products it sold to Plaintiffs and the public,” but that it has failed to do so. Certain products’ outside labels promote the product as “pure,” which was allegedly deceptive because it “suggest[s] the absence of adulterants in the Products.” Plaintiffs also argued that the heavy metals were deceptively omitted from the ingredient list. And some plaintiffs allegedly relied on the inside of the wrapper, which stated that Theo “pay[s] higher prices for quality cacao beans,” that the products are “from farm to bar to you,” and that they are “organic chocolate you can feel good about” eating.

Plaintiffs sued for violations of Washington’s Unfair Business Practices and Consumer Protection Act, the usual California statutes, the New Jersey Consumer Fraud Act, and common law negligent misrepresentation, unjust enrichment, breach of implied warranty of merchantability, and breach of express warranties.

Article III standing was present because of the alleged price premium paid. Standing for injunctive relief was present because of the alleged inability to rely on the advertising/labeling in the future despite plaintiffs’ desire to purchase Theo dark chocolate bars if the claims suggesting the absence of heavy metals were true, given that they explicitly allege that “[i]t is possible to reduce or even eliminate toxic heavy metals in the Products,” and discuss various ways that reduction and elimination may be accomplished. This was made even more plausible by the allegation that “competing dark chocolate producers are able to manufacture products” with lower levels of heavy metals.

Theo also argued that plaintiffs couldn’t bring claims on behalf of nationwide class under the laws of 48 other states, but plaintiffs argued that their nationwide claims were based on the law of Theo’s home state, Washington, so that was ok for now.

Nor did the doctrine of primary jurisdiction bar the claims. “This case is far less about the science of food safety than it is about whether a product label is misleading. Plaintiffs present a deceptive labeling case well within this Court’s domain, as ‘this is not a technical area in which the FDA has greater technical expertise than the courts – every day courts decide whether conduct is misleading.’” Furthermore, “[t]he Court has no reason to believe that the FDA is currently conducting a binding investigation or rulemaking process regarding heavy metals in dark chocolate that will conclude soon, and therefore sees no reason to defer to the FDA’s jurisdiction on the matter.”

Nor did a consent judgment entered into under California’s Proposition 65 with several chocolate manufacturers bar the claims. This was not a claim of failure to warn under Proposition 65, but an independent false advertising claim.

Statutory consumer protection claims survived; all three states use the reasonable consumer standard. The theory of deception here involved both affirmative misrepresentations and omissions. Any claims based on statements on Theo’s website failed because plaintiffs didn’t plead reliance on those alleged misrepresentations.

So, the relevant representations included the descriptor “Pure” on the outside label, and the statements on the inside label that the products are “from farm to bar to you,” contain “quality cacao beans,” and are “organic chocolate you can feel good about” eating. Theo argued that “pure”/ “purity” was just a product descriptor and differentiated products containing added ingredients such as fruit and nuts from bars compromised solely of dark chocolate, not communicate an absence of heavy metals. And it argued that the other statements were just puffery.

The court agreed that “Farm to bar to you” and “chocolate you can feel good about” were nonactionable puffery, as reasonable consumers would not rely on these aspirational statements as reliable promises about the cacao bean’s journey from seed to shelf or how a consumer might feel about their chocolate. But “pay[s] higher prices for quality cacao beans,” was a factual assertion that Theo was selective about its cacao beans and chose to invest in a superior raw product; it didn’t understand Theo to have challenged “pure” as puffery (rather than just as having a different factual meaning); and “quality cacao bean” could plausibly mislead consumers about heavy metal content. A reasonable consumer could conceivably understand these statements to suggest the absence of contaminants like heavy metals. The court expressed its doubts that plaintiffs would be able to prove this—but that’s not a question for the motion to dismiss stage.

However, the omission of warnings about heavy metal content wasn’t actionable. To plausibly allege a fraudulent omission, the omission must either (1) “be contrary to a representation actually made by the defendant,” or (2) “an omission of a fact the defendant was obliged to disclose.” “[A] defendant only has a duty to disclose when either (1) the defect at issue relates to an unreasonable safety hazard or (2) the defect is material, ‘central to the product’s function,’ and the plaintiff alleges one of four situations established by California law.  As to safety, plaintiffs argued that no amount of lead is safe and that even low levels of cadmium and “long-term ingestion of even small amounts of arsenic” (in its inorganic form) can cause health concerns. But they didn’t plead that the amounts of heavy metals that occur in Theo’s products have caused harm or create an unreasonable safety hazard; they didn’t show that the levels exceeded the limits imposed by California’s new limits under the consent judgment mentioned above.

Under the second theory, plaintiffs alleged that the levels of lead or cadmium in the Products affect the central functionality of the products because “[t]he central function of food, even in the form of chocolate, is to provide nutrition and this is contradicted by the presence of heavy metals,” which plaintiffs allege are unsafe even in trace amounts. But they didn’t plausibly plead that chocolate containing trace amounts of heavy metals ceases to function as food – or ceases to provide any nutritional value. So the omission theory failed.

Negligent misrepresentation and unjust enrichment claims survived (for now); breach of implied warranty claims failed because plaintiffs didn’t plead the products were unfit for use as food; but express warranty claims survived because of the affirmative misrepresentation theory above.

UCL unlawful claim: Theo argued that it wasn’t “required to list the possible presence of heavy metals as separate ingredients in the Products’ ingredients lists” and need not disclose “incidental additives.” The FDA exempts manufacturers from the obligation to disclose “[i]ncidental additives that are present in a food at insignificant levels and do not have any technical or functional effect in that food.” “Incidental additives” include “[s]ubstances migrating to food from equipment or packaging or otherwise affecting food” provided they are “not food additives,” or, if they are food additives, “are used in conformity with regulations established pursuant to [the Federal Food, Drug, and Cosmetic Act (FDCA)].”

But plaintiffs alleged that the levels are significant—both to consumers and in numerical quantity. This was a factual question that couldn’t be resolved at this stage.

Nor was the issue expressly preempted by the FDCA. Plaintiffs brought their unlawful misbranding claim under California’s Sherman Law, “which expressly adopts federal labeling requirements in their entirety and without modification.” But Theo argued that heavy metals are not “ingredients” or “incidental additives” at all and are thereby exempt from federal labeling disclosure requirements, which would make plaintiffs’ theory non-identical to federal law. The court rejected that argument:

While Defendant may disagree with Plaintiffs as to the meaning of the FDA requirements at issue and whether its products conform to those requirements, that disagreement does not mean that Plaintiffs are trying to impose additional requirements. Moreover, according to Plaintiffs’ allegations, Heavy Metals “get into cacao after beans are harvested,” during “post-harvest processing,” and when the beans are cleaned at factories. Therefore, as alleged, the Heavy Metals are plausibly incidental additives, potentially subject to disclosure under FDA regulations.

At this stage, the court also declined to dismiss plaintiffs’ claims for equitable remedies; they alleged that the available legal remedies are inadequate, especially for prospective harms.

Reading list: The Patterns of Digital Deception, Gregory Dickinson

B.C.L.R. (2024). From the introduction:

… In contrast with the mass emails of old, scammers now stalk and target their victims with expert precision. … To bolster the FTC’s traditional, case-by-case approach to combating unfair competition, lawmakers have proposed (and in some instances enacted) new statutes and regulations to restrict the digital technologies that power online deception. The idea is to preserve the FTC’s scarce enforcement resources by enacting prophylactic restrictions on the technologies that drive deception instead of waiting to pursue wrongdoers after the fact.

This Article warns that that approach is a mistake for two reasons. First, what is new and dangerous about technology-powered scams is not any special power to deceive but their unprecedented efficiency.  …

Second, although across-the-board restrictions on digital technologies might have some effect on online fraud, they would do so only at a major cost to innovation…. Across-the-board regulation of key technologies would increase costs and reduce product quality for everyone, for a comparatively minor benefit: scammers would be forced to adopt new tools or, more likely, to ignore the restrictions altogether.

Instead of enacting new technology restrictions, this Article argues, regulators should bolster enforcement efforts in a different way—by coordinating governmental enforcement efforts with those of private litigants….

In particular, four types of online schemes—what this Article identifies as the patterns of deception—have been especially resistant to private enforcement efforts: (1) fly-by-nighters, whose highly mobile operations or location in foreign jurisdictions makes private enforcement difficult; (2) nickel-and-dimers, who operate at a large scale but extract small sums of money from people who individually lack sufficient interest to pursue litigation; (3) user-interface shapeshifters, whose varied and quickly changing user interfaces pose an obstacle to aggregate litigation; and (4) calculated arbitrators, whose terms of service include agreements requiring individualized arbitration of claims and barring consumers from seeking class relief.

… Focus on these legal patterns of deception will offset the procedural limitations of private litigation, thereby enhancing the overall effectiveness of efforts to combat online fraud, while avoiding the impediments to technological innovation that would come from across-the-board technology restrictions.

false advertising claim survives because math is hard for reasonable consumers

Robertson v. Clean Control Corp., No. 5:24-cv-01478-SSS-DTBx, 2024 WL 5193852 (C.D. Cal. Dec. 18, 2024)

Robertson bought Odoban, a concentrated multi-purpose cleaning product, which states “Makes up to 32 Gallons” on the front label. That principally describes Odoban as a “Disinfectant” usable as “Laundry & Air Freshener.” When using Odoban for nine of its ten advertised uses, the concentrate does not produce up to 32 gallons. When using Odoban for laundry, it only produces one gallon, and when using Odoban as an air freshener, it produces 6.8 gallons. Only when using Odoban as a “cleaning solution” does the product deliver up to 32 gallons. Robertson brought CLRA and UCL claims, as well as breach of express warranty claims, seeking monetary and injunctive relief.

Odoban argued that the back of the label clarified what “up to” meant by providing instructions and stating that some uses “require more concentrate” and “will provide less than the maximum yield.” But a front label is only ambiguous enough to require a reasonable consumer to read the back label “if ‘reasonable consumers would necessarily require more information before they could reasonably conclude’ that the front label was making a specific representation.” Here, “a reasonable consumer would likely conclude the concentrate produces ‘up to 32 gallons’ of laundry and air freshener, the only two cleaning uses named on the front-label.” That’s not true, and it’s not true by a lot: Odoban can only make 1 gallon of laundry detergent and 6.8 gallons of air freshener. “Makes up to 32 Gallons,” like “One a Day,” states a “concrete number” which “carries a tangible meaning to a reasonable consumer.” “Though reasonable consumers may wonder which of Odoban’s many uses will result in 32 gallons of cleaning product, it is reasonable to assume the only two named uses on the front-label –laundry and air freshener – would, at the bare minimum, produce a quantity in the ballpark of 32 gallons. Some reasonable consumers may even assume the majority of Odoban’s uses would result in 32 gallons.”

The court also noted an FTC report attached to the complaint that studied the effects of “up to” in ads, which found that “a significant proportion of people” exposed to “up to” advertisements “saw the ad as communicating that [product] users would typically” reach the “up to” quantity.

Further, even with the back label, it was plausible that a “significant portion of the general consuming public ... could be misled.” “Understanding which cleaning uses result in 32 gallons, and which result in substantially less, requires math more complicated than a reasonable consumer should be expected to calculate.”

The front label has the “up to” representation and states that a bottle has “1 Gallon (3.79 L[iters]).” The back label instructs consumers to mix a certain number of ounces of Odoban per gallon of water.

Thus, to understand how many gallons of cleaning product a bottle of Odoban produces, a consumer would need to (1) know how many ounces are in a gallon (i.e., 128 ounces), and (2) divide that number by ounces of Odoban used per cleaning product (ex. 22 ounces per gallon of water for air freshener) to arrive at the number of gallons of specified cleaning product (ex. 5.8181811). “Barring a consumer’s exceptional skill” at long division, “it is difficult to imagine how a consumer could generate an accurate estimate” of which cleaning products make up to 32 gallons.

Indeed, the court noted, the complaint pled that one gallon of Odoban produces 6.8 gallons of air freshener when using Clean Control’s suggested 22 ounces per gallon of water. But 128 divided by 22 is 5.818181. “Robertson’s mathematical error further underscores how unreasonable it is to expect consumers, much less those with professional degrees, to calculate the gallons of cleaning product Odoban can produce.” (Or is it that you get 6.8 gallons of air freshener comprised of 5.8 gallons of water and 1 gallon of Odoban? Anyway, the court’s point is made either way, it seems to me.) “Odoban’s label does not clarify which of its ten advertised uses produces 32 gallons of cleaning product, instead relying on consumers to conduct long division in the aisle of a general store.”

Likewise, “Makes up to 32 Gallons” is a specific promise to consumers, one with a set meaning, such that Odoban’s label creates an express warranty.

And, for similar reasons, Robertson had standing to pursue injunctive relief, because there was still a threat of future harm.  She might reasonably, but incorrectly, assume the product was improved in the future.

Two recent amicus briefs: Santos v. Kimmel and Sedlik v. Von Drachtenberg

 In the Second Circuit, supporting fair use on a motion to dismiss in Santos v. Kimmel, and in the Ninth Circuit, supporting the jury's verdict of lack of substantial similarity in Sedlik v. Von Drachtenberg. 

Celebration on Rimini Street as it achieves significant (c)/Lanham Act victories in 9th Circuit

Oracle Int’l Corp. v. Rimini Street, Inc., --- F.4th ----, No. 23-16038, 2024 WL 5114449 (9^th Cir. Dec. 16, 2024)

Rimini Street gets a reasonably substantial victory in its long-running battle with Oracle in this appeal.

Prior rulings held that Rimini’s processes for serving clients who use Oracle’s software programs infringed on Oracle’s copyrights. Rimini therefore developed new processes for servicing its Oracle-using clients. After a bench trial, the district court ruled that many of these new processes still infringed Oracle’s copyrights and found that certain security-related statements violated the Lanham Act. The court of appeals vacated in part, reversed in part, and remanded.

Oracle’s programs include PeopleSoft, which can be customized to manage all sorts of business processes, including HR processes such as timekeeping, benefits administration, and recruitment and financial processes such as expense tracking and payroll. Oracle also provides optional software support for PeopleSoft, including updates to reflect changes to tax laws and other regulations. Customers can also modify and customize the software themselves or through third-party providers.

“Rimini Street is a third-party provider and direct competitor with Oracle in the support-services market.” Its services include troubleshooting support and software updates, including creating files that only work with Oracle’s products. After the first Oracle lawsuit in 2010, the court found that Rimini infringed Oracle’s copyrights by engaging in “cross-use” and creating copies of Oracle’s materials on Rimini’s computer systems. The court of appeals largely affirmed the district court’s permanent injunction. The district court later found that Rimini violated the injunction and held it in contempt on five issues, four of which the court of appeals upheld. Rimini changed aspects of its business model and sought declaratory judgment that its revised process, “Process 2.0,” did not infringe. Oracle counterclaimed for copyright infringement and violations of the Lanham Act. The district court held that Rimini had, in fact, infringed by engaging in cross-use prohibited by PeopleSoft license agreements and that an update created for the City of Eugene’s PeopleSoft software environment was a “derivative work.” After Oracle abandoned claims for monetary relief, the district court held a bench trial and additionally found that Rimini (1) created infringing derivative works, (2) violated Oracle’s PeopleSoft and Database licensing agreements, and (3) made several statements violating the Lanham Act.

Derivative works: The court says several useful things, in line with Pam Samuelson’s exposition of the derivative works right. (I note amicus support from, among others, EFF, Glynn Lunney, and Betsy Rosenblatt.) The district court held that Rimini’s Process 2.0 files and updates were infringing derivative works because they “only interact[ ] and [are] useable with” Oracle software. But this was the wrong test.  

The Copyright Act defines a “derivative work” as:

a work based upon one or more preexisting works, such as a translation, musical arrangement, dramatization, fictionalization, motion picture version, sound recording, art reproduction, abridgment, condensation, or any other form in which a work may be recast, transformed, or adapted.

This “broad” language nonetheless has limits. The text starts with examples. Although “such as” means the list isn’t exhaustive, it still indicates the “kind” of works covered. Thus, “based upon” requires “copying of the kind exhibited in translations, movie adaptations, and reproductions. Mere interoperability isn’t enough.” I would have thought that this was the canon of noscitur a sociis, which means we define a term by “the company it keeps,” but the court treats that as a second principle: “[t]he examples of derivative works provided by the Act all physically incorporate the underlying work or works.” Thus, a derivative work “must be in the subset of works substantially incorporating the preexisting work.” That substantiality can be literal or nonliteral, in total concept and feel.

Here, though there were several examples of literal copying, Rimini challenged only the ruling that Rimini’s programs were derivative works “even if the work[s] do[ ] not contain any of [Oracle’s] copyrighted code … because they interact only with PeopleSoft,” “are extensions to and modifications of Oracle’s copyrighted software” and they “cannot be used with any software programs other than PeopleSoft.” But without more, “derivative status does not turn on interoperability, even exclusive interoperability, if the work doesn’t substantially incorporate the preexisting work’s copyrighted material.” Because the district court applied the wrong legal standard, the court remanded and didn’t reach Rimini’s alternative argument that Oracle’s licensing agreements nonetheless authorize any derivative work or analyze whether Rimini’s programs incorporated protectable nonliteral elements of Oracle’s programs.

In addition, the district court applied the wrong legal standard on Rimini’s § 117(a) defense, which provides that it’s not infringing when an “owner of a copy of a computer program ... mak[es] ... another copy or adaptation of that computer program” for certain purposes, such as when it’s an “essential step” in using the program. At the pleading stage, the district court struck this affirmative defense because it found that “Oracle’s customers only license, rather than buy, Oracle’s copyrighted software.”

In the Ninth Circuit, courts look for “sufficient incidents of ownership” to distinguish a license to a copy from ownership of the copy. Mere labeling of an arrangement as a license, while relevant, is not itself dispositive. Courts also consider whether the parties’ arrangement “significantly restricts the user’s ability to transfer the software” and whether the agreement “imposes notable use restrictions.” Because the concern is ownership of the copy of the copyright, not of the copyright itself, use restrictions that only protect against the infringement of the copyrighted material are less relevant. Instead, courts should attend to use restrictions that affect using the copy of the computer program, such as limiting the user to “one working and one back up copy of the software,” forbidding the “examination, disclosure, copying, modification, adaptation, and visual display of the software,” and permitting the “software use on [a] single computer, [while] prohibit[ing] multicomputer and multi-user arrangements, and permitt[ing] transfer to another computer no more than once every thirty days.” Other “incidents of ownership” may be considered, including whether the user paid “significant consideration to develop the programs for [the user’s] sole benefit” and whether the user could use the “programs ‘forever,’ regardless of whether the parties’ relationship terminated.”

The district court seemed to rely only on the labeling of the agreements between Oracle and its customers as a “license,” and that wasn’t enough. Remand again, both on ownership and on the other elements of the §117 “required step” defense.

The court of appeals also found that the Oracle Database licensing agreement did not prohibit third-party support providers, like Rimini, from possessing a copy of Oracle’s software to further a client’s “internal business operations,” requiring reversal of the district court’s conclusion that it infringed Oracle’s copyright in Database.

A similar ruling about Rimini’s delivery of PeopleSoft updates to clients was intertwined with the derivative works ruling above and needed further sorting out.

Lanham Act: The district court found that Rimini engaged in false advertising; Rimini challenged whether 12 statements about its security services could be found to be misleading.

Oracle provides periodic security patches, aka “Critical Patch Updates,” to customers who buy Oracle software support. Rimini offers its own security service using a technology called “virtual patching.” Unlike Oracle’s patches, virtual patching does not modify source code. Instead, it acts as a firewall for software programs, attempting to intercept and block any exploits. Rimini’s statements covered: (1) statements about the relative security of the parties’ services; (2) statements that Rimini offers “holistic” security; and (3) statements about the need for software patching.

(1) “Relative security” statements:

• “Security professionals have found that traditional vendor security patching models are outdated and provide ineffective security protection.”

• Oracle’s [Critical Patch Updates] are unnecessary to be secure.

• It is not risky to switch to Rimini and forgo receiving [Critical Patch Updates] from Oracle.

• Virtual patching can serve as a replacement for [Oracle] patching.

• “Virtual patching can be more comprehensive, more effective, faster, safer, and easier to apply than traditional [Oracle] patching.”

• “Rimini Security Support Services helps clients proactively maintain a more secure application compared to [Oracle’s] support program which offers only software package-centric fixes.”

• Rimini provides more security as compared to Oracle.

• Rimini’s [Global Security Services] can “pinpoint and circumvent vulnerabilities months and even years before they are discovered and addressed by the software vendor.”

These statements were puffery.

Comparative assertions about effectiveness, riskiness, and security are the kinds of generalized statements of product superiority that we have routinely found to be nonactionable. Here, neither Oracle nor the district court provided any objective, quantifiable metric to measure software’s security, risk to vulnerabilities, or security protocols’ effectiveness to prove the falsity of Rimini’s statements. Indeed, the possibility of exploitation by hackers always exists. No product can offer complete “security” or eliminate all “risk.” Without an objective measure of the difference between perfect security and the security programs offered by Rimini’s and Oracle’s products, any statement about comparative security is necessarily tinged with subjectivity. As Oracle’s security expert acknowledged, “security experts can reasonably disagree on what constitutes adequate security.”

The district court held that Rimini’s statement that its security services could “pinpoint” future vulnerabilities “before they even exist” was literally false because such technology is “not technically feasible.” But “Rimini never claimed clairvoyance in spotting vulnerabilities; instead, it was merely claiming that its products can spot problems before they are ‘discovered and addressed by the software vendor.’” That was “a comparative statement of superiority—not a statement of psychic ability. Indeed, Rimini presented evidence that it had identified and addressed specific vulnerabilities before Oracle released a patch to address them.” Reversed.

(2) Rimini's “holistic security” claim:

The district court found that “holistic security” is a term of art within the world of software security that refers to “a comprehensive approach to security at all layers of a system, and includes security patching at the software level.” Because “industry standards can provide objective meaning to otherwise subjective or ambiguous terms in particular contexts,” the statement was actionable.

If “holistic security” means “multi-layered security protection including at the source-code level” that’s a “binary determination” with “falsifiable criteria.” The district court found that Rimini doesn’t offer multi-level security, so the court of appeals affirmed.

(3) Rimini's “No need for software patching” statements:

• Oracle’s [Critical Patch Updates] provide little to no value to customers and are no longer relevant.

• Once an Oracle ERP platform is stable, there is no real need for additional patches from Oracle.

• If you are operating a stable version of an Oracle application platform, especially with customizations, you probably cannot apply or do not even need the latest patches.

The district court held that these statements were misleading because the “security community recognizes that software-level patching is one of the most important aspects of any modern IT security strategy.” These too were puffery.

The record showed that Oracle’s customers are “some of the most sophisticated companies in the world” and “take the security of their systems seriously.” Whether to deploy or skip software patching is a matter of subjective discretion. One Oracle customer testified that it made the decision not to apply Oracle’s Critical Patching Updates because it focused on its firewall security and believed that the patches could introduce new problems—all before it considered signing up with Rimini. Thus, it is doubtful that any of Oracle’s customers would be fooled about its own security needs merely based on Rimini’s fanciful but vague statements. Indeed, Oracle could not identify “any customers that left Oracle and went to Rimini because of a statement about security.” Nor did Oracle present any evidence of a security breach suffered by a Rimini client. So while these statements border on falsehood, we cannot say that they are so specific and measurable to become actionable under the Lanham Act. We thus reverse.

All this also required the district court to reconsider the scope of the injunction.

Judge Bybee dissented in part, and would have found that the statement “Oracle’s [Critical Patch Updates] provide little or no value to customers and are no longer relevant” was not puffery.  “Little or no value” and “no longer relevant” were “absolute characteristics” that could be “falsified”—Oracle’s product was either valueless and irrelevant or not, even if using software patching is a discretionary decision, and even if Oracle’s “sophisticated” customers would not be “fooled” by this statement. Rimini “internally acknowledges that patching ... is necessary,” and has said that “no one is thinking of not applying patches at all.” Most of Rimini’s statements were puffery because they used qualifiers like “probably,” “can,” and “more”—and made generalized statements. [FWIW, the “qualifiers” justification doesn’t persuade me—most studies I’ve seen show that consumers don’t distinguish in that way.]

Reading list: Carys Craig, The AI-Copyright Trap

 The AI-Copyright Trap

Carys J. Craig

Abstract

As AI tools proliferate, policy makers are increasingly being called upon to protect creators and the cultural industries from the extractive, exploitative, and even existential threats posed by generative AI. In their haste to act, however, they risk running headlong into the Copyright Trap: the mistaken conviction that copyright law is the best tool to support human creators and culture in our new technological reality (when in fact it is likely to do more harm than good). It is a trap in the sense that it may satisfy the wants of a small group of powerful stakeholders, but it will harm the interests of the more vulnerable actors who are, perhaps, most drawn to it. Once entered, it will also prove practically impossible to escape. I identify three routes in to the copyright trap in current AI debates: first is the "if value, then (property) right" fallacy; second is the idea that unauthorized copying is inherently wrongful; and third is the resurrection of the starving artist trope to justify copyright's expansion. Ultimately, this article urges AI critics to sidestep the copyright trap, resisting the lure of its proprietary logic in favor of more appropriate routes towards addressing the risks and harms of generative AI.

incontestable LIZZIE BORDEN registration + actual confusion insufficient to overcome weight of history, 1st Circuit rules

US Ghost Adventures, LLC v. Miss Lizzie’s Coffee LLC, No. 23-2000 (1^st Cir. Nov. 15, 2024)

The Lizzie Borden House “bears a storied history that originates with the still-unsolved murders — in 1892 — of Lizzie Borden’s father and stepmother.” Ghost Adventures “provides ghost tours and related hospitality services across the United States.” It owns a bed and breakfast operated out of the Lizzie Borden House featuring a museum, “ghost tours,” and kindred activities. 

bed & breakfast sign

Its success “depends in large part on the Lizzie Borden name and lore.” Ghost Adventures owns incontestable trademark registrations for both the name “Lizzie Borden” for hotel and restaurant services and for a realistic hatchet logo displaying a notched blade (a reference to the implement that allegedly killed Borden’s parents).

Ghost Adventures' registered logo

Miss Lizzie’s Coffee LLC recently opened a coffee shop next door to the Lizzie Borden House. You will not be surprised to learn that it, too, markets itself by reference to the Lizzie Borden saga. One sign says “Miss Lizzie’s Coffee” between a cup of coffee and a stylized bloody hatchet. A second sign advertises Miss Lizzie’s as “The Most Haunted Coffee Shop in the World!” “The hatchets on both signs include handles and dramatic blood splatters.”

2 hatchets and blood splatters, "The Most Haunted Coffee Shop in the World!"

Miss Lizzie's Coffee in Sweeney Todd-like font and a bloody hatchet

Some visitors have incorrectly assumed that the Lizzie Borden House and Miss Lizzie’s are affiliated or asked about whether such a relationship existed. Some guests of the Lizzie Borden House were frustrated to learn that they could not bring Miss Lizzie’s coffee on their tours of the Lizzie Borden House, having bought the coffee under the erroneous impression that the coffee shop was affiliated with the historical site. A Fall River city official called Ghost Adventures to discuss its “new business in the building next door named Miss Lizzie’s.”

Ghost Adventures sought to enjoin Miss Lizzie’s from using either the “Lizzie Borden” trademark or the hatchet logo in the coffee shop’s trade names, trade dress, and marketing materials.

The core problem here was causation. Ghost Adventures needed to show that Miss Lizzie’s used its mark in commerce in a way that caused confusion, not the Lizzie Borden mythos. The district court found that the hatchet displayed on Miss Lizzie’s signage was “not at all the hatchet trademarked by Ghost Adventures” nor even “a colorable imitation of it.” It continued: “Miss Lizzie’s mark associates its business with the historical story of Lizzie Borden, not the mark ‘Lizzie Borden’” that Ghost Adventures owns. Although “Ghost Adventures has an ‘incontestable’ trademark in ‘Lizzie Borden’ and its hatchet, Miss Lizzie’s is using neither the mark ‘Lizzie Borden’ nor the Ghost Adventures hatchet.” “Ghost Adventures has not demonstrated that its mark bears the strength which might give it the ‘secondary meaning’ reach that, for example, ‘Sam Adams Beer’ might claim regarding the historical figure Sam Adams.”

The court found the consumer confusion “limited” and caused mainly by physical proximity, their common but independent reliance on the shared Lizzie Borden mythos, and the tendency to associate services related to a historical site with the site itself, not by the similarity of the businesses’ marks. After all, “the same issues would arise if Miss Lizzie’s called its cafe ‘Forty Whacks Coffee’ and used a different image as its logo.”

The district court also noted that the parties’ services were different: “on one hand, sophisticated buyers who come from afar with tickets or reservations to experience the Lizzie Borden House; and the other, buyers seeking food or coffee.”

The parties also rely on different forms of advertising, and a sign on Miss Lizzie’s storefront explicitly disclaimed any relationship with the neighboring Lizzie Borden House. Such a disclaimer can “tip the scales to a finding of no likelihood of confusion and no infringement” where, as here, “the multi-factor analysis points to a low likelihood of confusion.”

disclaimer of affiliation or association in window

The court of appeals affirmed, noting, for example, that “Miss Lizzie’s hatchet spews blood, whereas Ghost Adventures’ is spotless. Indeed, it appears that the only similarity between the hatchet logos is that they both depict hatchets. The court, then, did not clearly err in finding that the hatchet logos are facially dissimilar.” Also, “the district court supportably found that Miss Lizzie’s reference to ‘Lizzie’ was to the lore of Lizzie Borden — which Ghost Adventures does not own — rather than to the mark ‘Lizzie Borden.’ Thus, the meaning associated with the name ‘Miss Lizzie’s Coffee’ is only incidentally similar to that of the ‘Lizzie Borden House.’” Ghost Adventures didn’t persuade the court of appeals that consumers would associate “Lizzie Borden” with its services rather than with Lizzie Borden herself.

Likewise, the district court permissibly viewed the parties’ differences as more important than their joint presence in the broad hospitality industry. “Ghost Adventures’ registration of the mark ‘Lizzie Borden’ did not prohibit other businesses in the hospitality industry from setting up shop in the vicinity of the Lizzie Borden House. Nor did it prohibit such businesses from marketing themselves by the use of Lizzie Borden’s story.”

What about actual confusion?

The relevant consumer confusion in a trademark infringement action is confusion caused by an infringing mark. Consumer confusion due to non-trademarked similarities between businesses or products does not indicate infringement. For example, if two outdoor Saturday farmers’ markets opened on the same block, causing wandering shoppers to think that they were affiliated, their proximity and similar business models, without more, would not be suggestive of trademark infringement. This basic principle tracks a core purpose of trademark law: to prevent a copycat from appropriating the goodwill of a brand by wrongly copying the brand’s mark. Because the district court supportably found that the source of consumer confusion was not the similarity of their marks, but something else altogether, the evidence of confusion relied upon by Ghost Adventures is of no consequence. (emphasis added)

Of course, this means that we have to be very sure what you can and can’t own as a mark! The foundational proposition of the district court and court of appeals here is “Ghost Adventures can’t own the Lizzie Borden mythos, even if consumers think they do.” I agree! But apparently a beer company might own the Sam Adams mythos, at least for sufficiently beer-related activities? This is of course related to the difference between owning a mark for something and confusion about affiliation, which is a very different animal.

What about intent? Ghost Adventures argued that the coffee shop “opened a location in immediate proximity to [Ghost Adventures’] business” and “intentionally used the word ‘Lizzie’ and a hatchet in [its] name and signage.” The district court supportably found that Miss Lizzie’s sought to benefit from the Lizzie Borden story in its own right, “not from the manner in which Ghost Adventures used that story.” It was not clear error to decide, “given the historical significance of the location,” neither Miss Lizzie’s acts alone nor those acts “considered in light of the entire record” evinced an intent to appropriate Ghost Adventures’ trademark.

What about incontestability? It didn’t affect the marketplace strength of the mark, which was not strong enough to displace consumers’ association with the real Lizzie Borden. 

The district court also pointed to a sign taped to the physical storefront that conspicuously reads: “Miss Lizzie’s Coffee is NOT ASSOCIATED, NOR AFFILIATED in any way with the Lizzie Borden Museum or Bed and Breakfast next door, nor any other business.” The district court supportably found that this clarification “further distinguish[ed] the businesses,” noting that effective disclaimers can “tip the scales to a finding of no likelihood of confusion and no infringement.”

allegations of copied instructions lead to finding of noninfringement and possible 512(f) violation

MFB Fertility, Inc. v. Action Care Mobile Veterinary Clinic, LLC, --- F.Supp.3d ----, 2024 WL 1719347, No. 23 cv 3854 (N.D. Ill. Apr. 22, 2024)

MFB sued Action Care for copyright and trademark infringement; Action Care counterclaimed for misrepresentation under 17 U.S.C. § 512(f), tortious interference, defamation per se and per quod, and cancellation of Plaintiff’s “PROOV” trademark. Defendant won dismissal of the copyright claim and plaintiff won partial dismissal of the counterclaims.

MFB was founded by fertility expert Dr. Amy Beckley, who invented PROOV to measure the presence of progesterone (PdG) metabolites in urine and to allow women to confirm successful ovulation by tracking their PdG levels. Through Amazon and its website proovtest.com, MFB “promotes, offers for sale, and sells products ... under the trademark PROOV.” Proov products include ads and instructions, such as FDA-required labels and their website’s Frequently Asked Questions page, so that Proov can be readily used by unskilled persons at home.

Competitor Action Care also specializes in the sale of PdG ovulation test strips. Action Care’s PdG test is called OvuProof, using Amazon  and buyovuproof.com.

MFB sent a DMCA takedown notice to Amazon in 2023 targeting Action Care, resulting in at least 174 units of Action Care’s products being stranded or lost. MFB’s DMCA Takedown Notice included, along with the statutorily required language, the following statements:

They [Action Care] found a cheap Chinese manufacturer to copy our tests then used all of our wording on the product page and product inserts. Copyrighted content: They copied all of our FAQs and product description from this product page [ ] They also took wording from our FAQ on our website: https://proovtest.com/products/proov-test-strips including the ‘who might have a problem with ovulation, comment FAQ, when to test, and what is successful ovulation.

Action Care counternoticed, but MFB sued, sent its complaint to Amazon, and got Amazon to take down OvuProof again. The putative copyright infringement is here:

 

comparison of instructions (far from identical)

Action Care’s legal strategy (waiting on the trademark part, which courts are often reluctant to decide on a motion to dismiss) was good here, and Amazon might well be willing to restore its storefront, though I have no insight into its decisionmaking. The court reasoned that MFB’s works were “scientific and factual,” “entitled to the narrowest copyright protections.”

It is “axiomatic” that copyright law denies protection to “fragmentary words and phrases” and to “forms of expression dictated solely at functional considerations” on the grounds that “these materials do not exhibit the minimal level of creativity necessary to warrant copyright protection.” “[L]anguage describing what a product does and how it is used is generally noncopyrightable; and even where it is copyrightable, infringement can be demonstrated only by precise copying.” Even assuming validity of MFB’s copyright and access, there was no substantial similarity given the highly factual nature of the works and the lack of striking similarity, a limit imposed to avoid “monopolistic stagnation.” There was no verbatim copying here; any overlap was necessary to describe an unprotected process.

MFB’s own claims of similarity showed their weakness:

• “The term ‘Cycle’ is identical to the term ‘Cycle.’ ”

• “The phrase ‘Works Great with Tests’ is substantially similar to the phrase ‘Works Well with Ovulation/LH Tests.’ ”

• “The term ‘PdG Test Strips’ is identical to the term “ ‘PdG Test Strips.’ ”

• “The term ‘CONFIRM OVULATION’ is identical to the term ‘CONFIRM OVULATION,’ and both are used in the first paragraphs of their respective works as a way to distinguish from predicting ovulation.”

• “The phrases ‘THE ONLY FDA-CLEARED PdG Test’ is substantially similar to the phrase ‘OvuProof is FDA registered,’ and each work includes that point in the third paragraph of their respective works.”

“In fact, under MFB’s construction, Action Care would ostensibly be required to violate the FDA’s labeling requirements for in vitro diagnostic products to bypass MFB’s copyright.” The court cited Feist in support of the idea that regulatorily mandated statements may not be original; here the FDA requires name and intended use(s), a statement of warnings or precautions, and other key details. “This functional, regulated language is precisely the ‘expression’ that MFB improperly claims intellectual property over.” Any copying was “limited to fragments that are descriptive of its product and is compelled by the legislature. MFB cannot claim ownership of medical terms such as ‘cycle’ or ‘PdG Test Strips’ no more than Pfizer or Moderna can claim ownership over ‘COVID-19 vaccine.’”

512(f) misrepresentation: Given the lack of binding precedent, the court looked at Lenz; did Action Care plausibly plead a lack of good faith? MFB’s DMCA notification represents that Action Care copied “all” of MFB’s Copyrighted Works. The word “all” means 100 percent, or verbatim. That was false as a matter of law, rendering Action Care’s allegations significantly more plausible than in other cases, and Lenz makes willful blindness actionable as well. “[W]hether a copyright owner formed a subjective good faith belief is, in most instances, a factual issue that is not appropriate for resolution on a motion to dismiss.” Thus, “a DMCA notice submitter like MFB must proactively consider the potential that similarities in materials are unprotectable. … Given the discrepancy between ‘all’ and, apparently, no copying …, there is a triable issue as to whether the MFB formed a subjective good faith belief that Action Care’s sale of its OvuProof was infringing, or if instead MFB were willfully blind to the fact that Action Care was not infringing in violation of 512(f).”

Defamation and tortious interference claims based on statements to Amazon also proceeded.  (It does not appear that MFB argued that 512(f) had preemptive effect.)

But the trademark cancellation claim failed because Action Care argued that there was no likelihood of confusion, depriving Action Care of standing.

Right of publicity question of the day, Duolingo edition

 Should Rogers apply to this language learning app? What about the transformative use test? 

Duolingo screenshot showing response to perfect lesson: "Are you Beyonce? You made 0 mistakes. You're flawless."

individual pitches/RFPs are advertising/promotion, but not user support/FAQ pages

Spotlight Ticket Management, Inc. v. Concierge Live LLC, No. 2:24-cv-00859-WLH-SSC, 2024 WL 4866813 (C.D. Cal. Aug. 30, 2024)

Spotlight provides ticket and event management enterprise solutions. It entered into an exclusive agreement with Ticketmaster, a ticket sales and distribution company, giving it “the exclusive right to directly integrate its technology with Ticketmaster’s software and systems platform.” Integration means “the ability to access Ticketmaster’s application programming interfaces (‘API’) to automatically and directly move Ticketmaster tickets without needing to go through the Ticketmaster website....” In exchange, Spotlight pays Ticketmaster an annual fee and a percentage of its revenue—millions of dollars for “a significant competitive edge in relation to its competitors.”

Concierge competes with Spotlight to provide similar ticket and event management services. Spotlight alleged that Concierge falsely advertised through its “public website, marketing materials, and direct communications with potential clients” in pitch meetings that it has the same functionality and integration capability with Ticketmaster as Spotlight does, and falsely characterizes Spotlight’s relationship with Ticketmaster as merely a marketing agreement, and not an exclusive agreement.

For example, Spotlight alleged that it lost out on a pitch to an online food ordering and delivery company because Concierge “falsely represented... that it could perform all the same functionality as [Plaintiff]—including integrations with Ticketmaster—but for a lower cost.” It brought false advertising claims under California and federal law along with tortious interference claims.

When brought by competitors, California UCL/FAL claims are basically Lanham Act claims, so they were analyzed together; the court applied Rule 9(b)’s heightened pleading standard, and found that the complaint passed it because it identified several specific pitches/requests for proposals. “While Plaintiff fails to allege the ‘who’ including the individuals present at the meetings (other than the Defendant and the entity issuing the RFP), the ‘where’ including the location or place of the pitches/RFPs, and the specific content of the allegedly false representations including a statement about why each statement is false, this is because Plaintiff was not in the room during the pitches.”) Spotlight provided enough, including discussing whether the statements were contained in marketing materials, the RFP, or were provided orally.

However, applying the Lanham Act’s “commercial advertising or promotion” requirement to both state and federal claims, some of the alleged false statements didn’t qualify. Specifically, Concierge’s public website’s user support articles weren’t advertising. The titles included “How do I add Ticketmaster inventory into Concierge Live?” and “How do I add Ticketmaster inventory into Concierge Live?” Plaintiff’s characterization of these as “marketing materials” did not persuade the court, since they were under the support subdomain, and the content was “written in a question-and-answer format suggesting that this material is a guide for users of Defendant’s platform.” These were “more akin to guides or instruction manuals and not commercial advertisement.”

Tortious interference with contractual relations: Spotlight didn’t sufficiently allege Concierge’s knowledge of its contract with Ticketmaster or the exclusive agreement; it wasn’t enough to allege that Ticketmaster issued a public letter in 2021 stating that it was in an exclusive partnership with Spotlight.

Tortious interference with prospective economic advantage: There was no independent tort alleged other than the alleged misrepresentations on Concierge’s website, which the court had just held not actionable.