Friday, December 02, 2022

court accepts survey universe of respondents who'd logically be interested in D's products despite possible overbreadth

Kodiak Cakes, LLC v. JRM Nutrasciences, LLC, 2022 WL 17340660, No. 2:20-cv-00581-DBB-JCB (D. Utah Nov. 30, 2022)

Extensive discussion of Lanham Act survey admissibility, finding this trademark survey admissible. Kodiak Cakes sells “Protein Power Cakes” products: pancake and waffle baking mixes with added protein. It currently has the second bestselling pancake mix brand in the United States by dollar sales. Kodiak Cakes sued JRM for trademark infringement and unfair competition based on its use of KODIAK SPORTS NUTRITION for nutritional supplements such as protein power.

Kodiak Cakes’ expert Prof. David Franklyn conducted two Squirt/Modified Lineup surveys, an Eveready survey, and a brand recognition survey, all four of which were run online two times.

The opinion usefully recites quality control measures for online surveys, including barring participants from taking the survey on a mobile device to ensure they had a clear view of the stimuli, removing any survey takers who entered gibberish into the open-ended responses were removed, and removing any survey takers who took any survey in less than half the median survey completion time or longer than four times the median survey completion time.

The survey screened for US respondents over 18 who had purchased protein powder or foods with added protein in the past 12 months or were likely to do so in the next 12 months.

Survey one showed respondents six images of products with added protein presented in random order: Oikos Triple Zero Yogurt, Kodiak Cakes Power Cakes, Protein Pretzel Sticks, Kodiak 1Whey, Quest Peanut Butter Cups, and Modern Table Mac & Cheese. In the control cell, the Kodiak name and bear logo had been removed from the shrink band around the cap of 1Whey. Respondents were asked whether they thought any of the products came from the same company/were affiliated and, if yes, why they said that, and could answer “yes” up to four times.

test

control
one display of products

In the test cell, 34% of participants indicated two or more products were from the same (or affiliated or connected) company. In the control cell, 22% of participants did so. But 19% of test cell participants linked the parties’ products, while in the control cell, only 2.3% did so, so Prof. Franklyn concluded that the survey showed a 17.5% level of confusion. [This suggests that, in the test cell, 15% of respondents linked products not in suit, while in the control cell,  19.5% did so, suggesting fairly high levels of noise since those products should have behaved the same in both cells.] In the test cell, 52 out of 53 respondents who linked the parties’ products explained that they thought the two products were related because of the presence of the word “Kodiak” on both products. In the control cell, no respondent explicitly said “Kodiak” as a reason for believing there was a relationship between the products.

Survey two had slightly different products and showed respondents six images of websites offering products with added protein. The questions were the same. The results were similar, with responses running a few points higher across the board; Prof. Franklyn calculated 19.7% net confusion.

Survey 3 was an Eveready survey in which respondents were asked to review an image of 1Whey protein powder; the control again had Kodiak and the bear logo removed. Respondents were asked “What company makes or puts out this product?” and why. They were also asked whether they believed the product is sponsored or approved by another company, is not sponsored or approved by another company, or “I don’t know or have no opinion” and, if yes, asked what other company and why, and asked the same question except with “business affiliation or connection.”

77% of respondents in the test cell responded “Kodiak,” while only 1% of respondents in the control cell did so. When asked what other products were made by the company shown in the image, 14.2% directly referenced products by Kodiak Cakes.

Survey four was a brand recognition survey with generally favorable results for Kodiak Cakes.

The court found that Prof. Franklyn was generally qualified and that the surveys were the product of reliable principles reliably applied. The proper universe is potential buyers of the junior user’s goods or services. While a survey that “provides information about a wholly irrelevant population is itself irrelevant,” usually “the selection of an inappropriate universe will lessen the weight of the resulting survey data, not result in its inadmissibility.”

While the survey targeted individuals over 18 years of age who had either purchased protein powder or foods with added protein in the past 12 months or were likely to in the next 12 months, JRM argued that this was inappropriately overbroad, because its products are protein supplements, not “foods with added protein,” and its target market is 18–35-year-olds. Although this was a logical criticism, in that foods with added protein appear to be a separate product category from protein supplements, consumers of foods with added protein seemed likely to be potential buyers of JRM’s goods given the similarities of the products. “Notably, had the survey screened for whether the potential participant had or intended to purchase protein products, rather than specifying ‘foods with added protein’ and ‘protein supplements,’ the screened participants would have remained consistent—but the hook for Defendants’ argument would have disappeared.” [I’m not convinced that’s true, since then the definition might have been overbroad, but ok.]

Ultimately the potential buyer universe did not need to be defined as granularly as JRM argued. It would have been overbroad to include “respondents who were not in the market for protein food products of any kind (for example, people interested in building muscle mass through exercise alone and not diet)” or “purchasers of food,” but that’s not what happened here. Nor was the survey underinclusive by excluding an entire category of defendant’s purchasers.

In contrast to “surveys that were so overinclusive as to drown out any probative value: there was a probability that none of the participants were potential consumers of the junior user’s products,” even if the survey included only past and potential purchasers of “foods with added protein”—the senior user’s goods—there was “a significant likelihood that that same market will be interested in the junior user’s goods: also protein-focused.”



Thursday, December 01, 2022

painful vaccination is injury for NY GBL purposes

DeCostanzo v. GlaxoSmithKline PLC, 2022 WL 17338047, No. 21-CV-4869 (GRB)(AYS) (E.D.N.Y. Nov. 29, 2022)

DeCostanzo’s putative class action alleged that GSK’s ad campaign for the whooping cough vaccine Boostrix misled consumers into believing the vaccine would help prevent transmission of the disease to infants when in fact it increases the risk of unwittingly transmitting the disease (because Boostrix-vaccinated people may acquire and transmit whooping cough despite being asymptomatic). She brought claims under NY GBL §§ 349, 350, state consumer protection statutes, the Magnuson-Moss Warranty Act, breach of express warranty, breach of implied warranty of merchantability, breach of implied warranty of fitness for a particular purpose, unjust enrichment, fraud, and negligent misrepresentation. The court dismissed the unjust enrichment claim as duplicative but otherwise denied GSK’s motion to dismiss.

First, accepting that she was required to exhaust administrative remedies in vaccine court under the National Childhood Vaccine Injury Act of 1986, she’d done so (this basically just requires submitting a petition, waiting 240 days, and withdrawing the petition, a workaround approved by previous court cases). Nor did the primary jurisdiction doctrine apply, even though the FDA found Boostrix “safe and effective” when approving the vaccine and the CDC recommends adults get a Tdap vaccine, especially if they are around infants.

Whether GSK engaged in a deceptive practice or false advertising was “well within the conventional experience of judges and only indirectly involves technical matters regarding vaccine efficacy which are within the ambit of the agency’s expertise.” The claims turned on GSK’s marketing of Boostrix, not the FDA or CDC’s licensing or promotion of the vaccine. There was also no substantial danger of inconsistent rulings “since the FDA has already found that acellular pertussis vaccines such as Boostrix do not prevent transmission.”

Did plaintiff allege cognizable injury? She didn’t pay for the vaccination, which was covered by insurance. She alleged injury because the vaccine created “a defective immunity to pertussis that will last the remainder of [her] li[fe],” she received a “painful injection of various substances” she would not have otherwise received, she “expend[ed] time and resources to seek out and obtain Boostrix, paying, directly or indirectly, in whole or in part, for Boostrix,” and she has suffered the emotional injury of fearing she will spread the whooping cough because “the product has actually rendered [her] more likely to spread pertussis.”

The court accepted that “a painful vaccine shot in the arm which she would not have received but for GSK’s allegedly misleading ad campaign” was a cognizable injury. However, a price premium theory was unavailable since she didn't pay, and the deception itself couldn't satisfy the injury requirement. Although the risk of transmitting whooping cough to others was arguably too speculative, another alleged injury was “the defective immunity which currently renders her vulnerable to asymptomatic infection, which “is a cognizable injury because it is a biologically disadvantageous condition.”

I don't quite get the defective immunity theory. If she hadn't gotten the shot, wouldn't she have had an equally defective non-boosted immune system? I guess the idea is that if she wasn't boosted and got sick, she'd be symptomatic and know it--but that's not really the same as having a presently defective immune system.

user manuals aren't "commercial advertising or promotion" but do have thin copyright

Santos Elecs. Inc. v. Outlaw Audio, LLC, No. 8:22-cv-827-JVS-KESx, 2022 WL 17328411 (C.D. Cal. Oct. 28, 2022)

Outlaw lost its bid for a preliminary injunction enjoining Santos, aka OSD Audio, from selling products containing user manuals that allegedly infringed Outlaw’s copyright, falsely represented OSD Audio products’ specifications, and falsely represented that OSD Audio and Outlaw’s products are similar. The parties compete in the market for audio products, specifically multichannel amplifiers, and sell online, including on Amazon.

Outlaw allegedly sent Amazon a complaint that claimed OSD Audio “stole[ ] [Outlaw’s] IP relating to custom images and written content” in its OSD5180 user manual; Amazon removed the product from its marketplace. OSD Audio denied Outlaw’s claims but redesigned its user manual, and Amazon reinstated the product. Outlaw then filed two more takedown notices, each of which led to a brief interruption in the availability of the product on Amazon.

OSD Audio then sued Outlaw under §512(f), and Outlaw counterclaimed for false advertising and unfair competition under the Lanham Act, copyright infringement, and trade libel.

Lanham Act: The user manual did not constitute “commercial advertising or promotion.” Outlaw argued that the OSD5180 user manual’s references to the product’s LED blue ring on the front panel and two-way remote manual / trigger switch were literally false because the OSD5180 does not posses these features. But “[n]ot all commercial speech is promotional.” Prager Univ. v. Google LLC, 951 F.3d 991 (9th Cir. 2020). “Statements in a user manual are ‘made to explain a user tool, not for a promotional purpose to penetrate the relevant market of the viewing public.’” Likewise, “OSD Audio did not publish the OSD5180 user manual for economic advantage, but rather to teach its customers how to use its product.”

Outlaw argued that consumers now make their decisions on the Internet, where they can view the manual concurrently with the description of the product. Nonetheless, “a manual’s primary purpose and driving use is still educational.”

Outlaw also challenged OSD Audio’s claims about OSD5180’s signal-to-noise ratio.  While OSD Audio advertised the OSD5180’s signal-to-noise ratio as 115 decibels on third-party websites, it conceded that the OSD5180’s signal-to-noise ratio is 104 decibels. Given this literal falsity, the court presumed that OSD Audio’s statements were material and actually deceived consumers.

But Outlaw presented no evidence of likely injury to itself from loss of sales or goodwill based on the signal-to-noise ratio misrepresentation. Outlaw relied on cases indicating that “where plaintiffs and defendants are direct competitors and there is a literal false statement by a competitor, actual injury may be presumed,” as well as on the 2020 amendment to the Lanham Act providing that likelihood of success on the merits generates a rebuttable presumption of irreparable harm. But it raised these arguments too late (after the court issued its initial denial).

I note that, in a crowded/multiplayer market, presuming injury from a falsehood about the speaker’s own goods is a heavier lift than presuming injury from a falsehood about the target, though in a concentrated market it seems much more likely that there’s not much difference in the effects of the two kinds of falsehoods. As for the 2020 amendment, many courts have yet to grapple with the fact that the modern likely confusion test doesn’t have a harm requirement as an element, while the modern false advertising test does. This means that a trademark plaintiff is never required to show any harm at all before showing likely success on the merits and benefiting from a presumption of irreparable harm, which seems like the wrong result, whereas a false advertising plaintiff will have to show some kind of harm unless Congress also intended to lift that burden (and can constitutionally do so).

 There was no separately cognizable unfair competition claim: “[w]hile Outlaw presents one example of a customer confusing the OSD5180 and Model5000, noting the amplifiers ‘look exactly the same’ and ‘have the exact same spec[ifications],’ there is no evidence this confusion resulted from the specific misrepresentation of the OSD5180’s signal-to-noise ratio.”

Copyright infringement: Outlaw was likely to succeed in showing that it owned a copyright in the manual. Although a user manual receives only “thin” copyright protection, a large swath of the instruction text had apparently been copied verbatim, and the photos and diagrams were also strikingly similar. Thus, Outlaw showed likely success on the merits of this claim.

Trade libel: This was based on a complaint made by an individual working for OSD Audio to Amazon claiming that an Outlaw Model7000x he purchased from the retailer was defective. This allegedly caused Amazon to remove Outlaw’s “Big Box” feature from the platform, a “function that allows Amazon customers to easily add products to a shopping cart instead of going through a multi-step process to add the product to their shopping cart.” But Outlaw failed to provide evidence supporting special damages, which is required for trade libel, and it didn’t provide evidence of falsity, only alleging that it tested and inspected the amplifier and found it to be wholly free from defects without providing evidence of the findings from these tests or inspections.

For the copyright claim, Outlaw didn’t show irreparable harm. OSD Audio showed that it changed the manual in response to Outlaw’s complaints, removing the similarities in design, font, color scheme, and text. “While Outlaw argues that it would still suffer irreparable harm because it has not been confirmed that the infringing manuals were not replaced in the physical copies, it does not identify any adverse effects that would result specifically from having the revisions only online.” Plus, Outlaw didn’t explain its delay in suing—the allegedly infringing manual entered the market in 2017, but Outlaw didn’t sue until March 2022, when OSD Audio sued it. A “long delay before seeking a preliminary injunction implies a lack of urgency and irreparable harm.”

As for false advertising, Outlaw submitted screen shots of Amazon customer reviews discussing the missing features of the OSD5180 as described by its former user manual, as well as online forum posts discussing the similarities of the OSD5180 and Model 5000. Herb Reed: “This evidence, however, simply underscores customer confusion, not irreparable harm.” “Without evidence demonstrating a loss of sales or goodwill, Outlaw fails to satisfy its burden of irreparable harm on its Lanham Act claims necessary for a preliminary injunction.”

The balance of equities tipped in Outlaw’s favor for the Lanham Act claim, but not for copyright infringement. Ultimately, no injunction.

plaintiffs fail to show Lexmark proximate cause where D's statements were part of a larger public controversy

McNeil v. Mount Carmel Health Sys., No. 2:20-cv-258 (S.D. Ohio Nov. 29, 2022)

Plaintiffs, eight former Mount Carmel nurses and one former Mount Carmel pharmacist, worked with and around a Dr. Husel, whose employment termination and subsequent criminal proceedings were highly publicized. Plaintiffs alleged that Mount Carmel engaged in a false advertising campaign aimed at convincing the general public that Dr. Husel, with plaintiffs’ assistance, either harmed or killed up to 35 actively dying patients with excessive pain medication. They sued for defamation, wrongful termination, and false advertising under both the Lanham Act and the Ohio Deceptive Trade Practices Act. The court found lack of statutory standing on the Lanham Act claim and declined to exercise jurisdiction over the state-law claims.

Some additional facts: The PR firm retained to help strategize about the investigation into Dr. Husel’s dosing practices advised Mount Carmel of a concern that it lacked policies or standards governing medications and dosages in connection with withdrawals of non-palliative care for dying patients. The firm “noted that criminal charges against Dr. Husel or any of the nurses would be helpful to Mount Carmel and Trinity Health’s public perception.” Eventually, the public PR strategy included the key message “The acts of this doctor, along with the involved clinical staff, were a clear violation of how we care for patients at Mount Carmel.” The PR strategy identified key audiences including both internal (e.g., Mount Carmel’s board, executive leaders, and employees and doctors) and external (e.g., patients, regulators elected officials, local and national media, and Catholic leaders). Along with other public comments, Mount Carmel announced that “48 nurses and pharmacists,” a group encompassing all the plaintiffs here, were “under review” and had been placed on administrative leave. It eventually announced that its investigation was complete, and that it was terminating a number of involved employees. Media coverage also generally mentioned the staff, and so did lawsuits, although a number of nurses were dismissed from lawsuits.

Plaintiffs alleged that, as the result of Mount Carmel’s public statements, each one of them “faced significant impediments to obtaining similar work following his or her exit from Mount Carmel.”

The alleged damage to their professional reputations was damage to a commercial interest that brought plaintiffs within the zone of interests covered by the Lanham Act. But proximate cause was a fatal hurdle. The statements made by Mount Carmel were only part of the public discourse: “numerous parties made numerous public statements concerning Dr. Husel, making it ‘impossible to trace a straight line’ from Defendants’ statements to the media to the employment decisions of Plaintiff’s prospective employers.” [Here the court recounts lots of attacks on Dr. Husel, but the quoted materials don’t mention the staff, by name or otherwise, which makes reliance on them a bit thin.] “Plaintiffs fail to explain why Defendants’ statements, rather than the plethora of other attention-grabbing public statements (many of which arose from separate investigations into Dr. Husel), determined the hiring decisions of Plaintiffs’ prospective employers.”

Likewise, prospective employers “exercised their independent judgment” when declining to hire plaintiffs. [This seems to directly conflict with Lexmark, which points out that false advertising always involves a consumer deciding to act differently because of [allegedly false] information and that this decision can’t therefore remove proximate cause.] But plaintiffs couldn’t “disentangle the alleged reputational harm caused by Defendants’ statements from the other public statements discussed above, as well as the ‘unique combination of internal and external variables’ that drive hiring decisions.”

The remaining claims were thus remanded to state court (removal had been based on the Lanham Act claim).


11th Circuit affirms Viacom's Rogers-based win for MTV Floribama Shore

MGFB Properties, Inc. v. Viacom Inc, No. 21-13458 (11th Cir.  Nov. 29, 2022)

MGFB runs the Flora-Bama Lounge, Package and Oyster Bar on the Florida-Alabama border. “The Lounge has been in operation since 1964 and has gained regional fame by hosting many entertainment and athletic events.” Viacom made the Jersey Shore spin-off MTV Floribama Shore. The court of appeals affirms, on Rogers v. Grimaldi grounds, the district court’s grant of summary judgment to MTV on the resulting trademark claims.

MGFB has a federal registration for FLORA-BAMA for “bar and restaurant services” and several entertainment services, including “social entertainment events,” live musical performances, and “competitions for fish throwing.”

Flora-Bama logo

The Flora-Bama has been featured in artistic works by third parties. In “Ragtop Day,” Jimmy Buffett sings, “Get ourselves a cool one at the Flora-Bama, ya!” Two songs are named after the Lounge: Kenny Chesney’s “Flora-Bama” and Neil Dover’s “FloraBama Time,” purportedly with the permission of MGFB. It’s also featured in book titles Food n’ Fun at the Flora-Bama, Bushwhacked at the Flora-Bama, and If the Flora-Bama Walls Could Talk, by an author who “obtained a license” to use the title—the written agreement for which was entered into several years after publication and a few weeks after MFBG sued in this case, though MFBG contended that the written license reflected a prior oral agreement. “Flora-Bama” is also featured in a few films, “such as Mullet Men (a documentary about Flora-Bama’s fish-throwing competition that Plaintiffs sell at the Lounge’s giftshop) and Last American Roadhouse: The Documentary of the Flora-Bama (a DVD that Plaintiffs sell at the Lounge’s gift shop).”

Chesney also performed on the Lounge’s beachfront stage at a 2014 concert broadcast as “Kenny Chesney: Live at the Flora-Bama” on Country Music Television (CMT), a Viacom channel. “The agreement granting CMT a license to broadcast that program does not mention Plaintiffs. But Plaintiffs contend they ‘verbally’ licensed their trademark to Kenny Chesney and the company that represents him, Blue Chair Bay Records, and then Blue Chair Bay Records sublicensed the rights to Viacom for the broadcast on CMT.” The production company for the Shore series also had a few casting calls at the Flora-Bama.

Viacom’s seventh Shore series focused on Southern beach culture from the Florida panhandle into Alabama and Mississippi. MTV’s survey of 300 young people familiar with the region resulted in a slide deck noting that the “Flora-Bama [Lounge]” is a “[f]amous, open-air bar,” but it also used the term “Florabama” to describe the region. The slide deck called the city of Gulf Shores “[t]he epitome of ‘Florabama’— mix of nice, relaxing Florida beaches with the down-home Southern vibe of Alabama.” In the survey, about 34% of respondents had heard of the term “Flora-bama,” with half of the 34% identifying it as the bar and the other half identifying it as the region. Viacom also engaged a market research company to learn more about “southern beach culture,” which suggested that the term Flora-bama was “either unknown or though [sic] to refer strictly to the bar.”

MTV’s head of unscripted television testified that the name MTV Floribama Shore  was driven by finding a title that would “define the subculture” featured in the series. Another Viacom witness testified that “Floribama” offered “a very distinct sense of what part of the country and subculture that is,” and that, because Florida has “multiple subcultures,” a name like “Florida Shore” would not have sufficiently identified the Gulf Coast setting. “Florida Shore” would include Miami, a very different vibe. Viacom rejected “Gulf Shore” as insufficiently Jerseyesque; “Floribama” “scream[ed] louder” than “Gulf Shore,” and “Gulf Shore” also sounded too much like another MTV series airing at the time called Siesta Key. Viacom added “MTV” to tie the series to the network and “Shore” to tie the series to the Shore franchise.

MTV Floribama Shore logo

Original Jersey Shore logo

MGFB’s Flora-Bama featured in many of Viacom’s email exchanges. Viacom’s executive producer of the series, for exapmle, emailed her team noting that the first episode “should tell the viewer what Floribama is, although the tricky thing is I’m not sure anyone actually calls it that. All my googling kept taking me to the Florabama bar.” Another employee noted that “Google automatically assumes you mean [the F]lora[-B]ama [Lounge].”

Because “Floribama Shore” wasn’t as geographically descriptive or widely known as “Jersey Shore,” Viacom used graphics and scripted lines read by the cast to explain the meaning. “In the premiere, the television series displayed its logo on top of a map of the South, and its cast read lines such as ‘That whole stretch of beach along the Gulf Coast from Alabama to Tallahassee—we call it Floribama’; and ‘THAT’S what it means to be from Floribama!’”  In an email instructing cast members to read the scripted lines, an executive wrote, “I know, I know  Floribama is just a bar. Ignore that part for now.”

MGFB submitted evidence of confusion, e.g., a musician who often performed at the Lounge said multiple people asked her about the series “and if [she] had met any of the people on the television show.” Several employees were repeatedly asked about the series, including when certain cast members would be around, and an elderly patron criticized one of the Lounge’s owners “for allowing MTV to air such a terrible depiction of the Flora-Bama.” An online article used photos of the Lounge in its coverage of the series, and MGFB also submitted social media posts. The spelling difference didn’t help and sometimes didn’t stick. The production company’s president, for example, tweeted “Yup one of a kind #Florabama @FloribamaShore @495Prods” right before the premiere, then tweeted “[Jersey Shore’s] southern cousin is fun #MTV florabama shore.”

Plaintiffs’ social media expert opined that the show meant that Internet searches for “Florabama” or “Flora-Bama” led to “blurred” results filled with MTV Floribama Shore content. And their survey expert found that 22% of respondents were confused as to the sponsorship, approval, or affiliation between the Lounge and MTV Floribama Shore.

The Eleventh Circuit adopted Rogers v. Grimaldi, 875 F.2d 994 (2d Cir. 1989) in Univ. of Ala. Bd. of Trs. v. New Life Art, Inc., 683 F.3d 1266 (11th Cir. 2012). Specifically, in evaluating the sports art at issue in that case, the court held that there was “no evidence that Moore ever marketed an unlicensed item as ‘endorsed’ or ‘sponsored’ by the University, or otherwise specifically stated that such items were affiliated with the University.” Though some members of the public might “draw the incorrect inference” that the University was in some way involved with Moore’s works, that risk of misunderstanding was “so outweighed by the interests in artistic expression as to preclude any violation of the Lanham Act.”

The court here agreed that artistic relevance merely requires some relationship “above zero” between the title and the underlying work. Here, that was clearly satisfied, because “Floribama” “describes the subculture profiled in the series and the geographic area exemplified by the subculture.” There was no requirement that the use be “necessary” to the art. Nor was referential use required. Given that the term had artistic relevance to the MTV show “independent of referring to Plaintiffs’ establishment, artistic relevance does not turn on whether the work is about the trademark or its holder.” It’s not courts’ job to decide what expression is necessary, including whether a particular degree of realism is called for (citing Bleistein). This was not a case like Parks because there was “no doubt” that the title was artistically relevant to the content.

Nor was the use explicitly misleading. The court asked whether (1) the secondary user overtly “marketed” the protected work “as ‘endorsed’ or ‘sponsored’” by the primary user or (2) “otherwise explicitly stated” that the protected work was “affiliated” with the primary user. There was no evidence of either of these. To the contrary, Viacom used its own house mark MTV and the name of one of its “iconic” franchises, Shore. The survey was irrelevant because any misunderstanding represented by the survey data was “not engendered by any overt claim.” Following the Ninth Circuit, “[t]he evidence must relate to the nature of the behavior of the defendant, not the impact of the defendant’s use.”

So too with the misspelled tweets. Though the production company president used “#florabama” and “Florabama” in two tweets about the series, “she did so in conjunction with references to Defendant 495 Productions and MTV. Such uses of Plaintiffs’ spelling of the term rather than ‘Floribama’ cannot be understood as misleading about the source of Defendants’ show because of Salsano’s accompanying references to Defendants and their house mark.”

Deliberate copying was irrelevant. In a Rogers case, intentional copying alone cannot justify an inference of copying with intent to confuse, even if that can occur in cases that don’t “implicate” the First Amendment. “[I]n Rogers, filmmaker Federico Fellini intentionally copied the name to evoke the relationship between Fred and Ginger, and in University of Alabama, Moore intentionally made an almost exact copy of the University’s trademarked uniforms. Yet both artists won.”

The title-v-title exception to original-recipe Rogers didn’t apply, because the bar’s name is not the title of an artistic work. The majority declined to address whether it would adopt the title-v-title exception or join the Ninth Circuit in rejecting it. Although “third parties have used Flora-Bama in the titles of third parties’ artistic works with Plaintiffs’ oral or written permission,” that doesn’t make this a title-v-title case:

Basic trademark law demonstrates why.

Telling here, third parties are not using Flora-Bama in their titles to their artistic works—songs, books, or a concert—to indicate their works are created, sung, or authored by the Plaintiffs. The titles are being used to identify what the song or the book is about, rather than who produced it.

It is so satisfying to see a court understand this. “Simply put, the titles are not being used as trademarks to identify and distinguish the source of the artistic works. Plaintiffs have presented no evidence that any of these titles to the third parties’ artistic works have any source-identifying function.” Likewise, they submitted no evidence of confusion between any of those works and MTV’s show. Nor did plaintiffs show that they owned any interest in those works as trademarks for their own goods or services. “Indeed, nothing in the record would allow a reasonable jury to conclude that the public views Plaintiffs as the source of these artistic works.” As one of MGFB’s principals testified as to Kenny Chesney’s televised concert:

[H]e asked permission to do it, and we told him it was fine. Because it -- specifically it wasn’t the Flora-Bama-- I mean it wasn’t Flora-Bama putting it out. It was him. It was his product. He plays at the Flora-Bama like he plays at a lot of the places. And he wanted to use “Live at the Flora-Bama.” And we agreed to let him do that.

“In other words, Plaintiffs understood what everyone else understood: it was Kenny Chesney’s concert, not Plaintiffs’.”

Judge Brasher concurred to dump on the title-v-title exception, mostly persuasively. (I personally am not as against a title-v-title exception as others such as Mark McKenna, given (1) the employment of a different heightened confusion standard in title-v-title cases to protect free speech, as the Second Circuit has done, and (2) the equitable pull of a confusion claim when a specific title does seem to indicate source in the market; the absence of a title-v-title exception is, I think, what led to the disaster of Gordon v. Drape, which then contaminates the Rogers test as a whole. But I certainly see the point of the arguments on the other side.)

Initially, the concurrence reasoned that the First Amendment interests in using a title are equally strong regardless of the source of the trademark interests asserted against it. [Side note: I wonder here about the effects of the metaphor of balancing. I can imagine someone saying “the First Amendment interest is less strong when using another’s title,” cf. Eldred, but I think the absolutism of much present First Amendment discourse may lead to the conception “it’s just as strong, even if the consumer-protection interest on the other side could be weightier”; I wonder whether that conception changes the likelihood that the balancing will favor the person claiming free speech rights.]

Slightly less persuasively, the concurrence worries that “this exception would give the first person who uses a mark in a title to an artistic work a monopoly over the use of that mark in the titles to other artistic works.” [An unfortunate contrast to the majority—that claim skips over the requirement of trademark function. Though such function is too easy to claim, and that risk might justify some prophylactic rule, the title-v-title exception nonetheless doesn’t provide any “monopoly” in the absence of secondary meaning.]

What, the concurrence asks, might justify a title-v-title exception? Obviously, titles warrant “the same degree of First Amendment protection as the other parts of an artistic work. … The title of an artistic work is almost always itself artistic because it conveys an idea or point of view about the work.” [Citing Punchbowl.] From the defendant title-user’s perspective, “it makes little sense to establish an exception to Rogers’s First Amendment protections in cases involving titles—an area where First Amendment protection should arguably be higher, not lower. At a minimum, there is nothing about titles that reduces the weight of the First Amendment interests against Lanham Act liability identified in Rogers” (my emphasis).

Or we could have a vision of the First Amendment where government may grant exclusion rights to some speakers to improve the speech environment overall. “The implicit idea behind the Rogers footnote may be that, in a true title-versus-title dispute, both the plaintiff and the defendant have a First Amendment interest on their side.” But that isn’t good enough, since the First Amendment is a nonintervention regime where ideas fight it out in the marketplace.

But liability under the Lanham Act gives priority in the marketplace of ideas to whoever speaks first and silences the speech of the second speaker…. Even if both parties are using a trademark in the title of an artistic work, the First-Amendment question is the same: should the court invoke the Lanham Act to silence the second speaker’s speech? And the answer should be the same as well. “The First Amendment forbids the government to regulate speech in ways that favor some viewpoints or ideas at the expense of others.” Matal v. Tam, 137 S. Ct. 1744, 1757 (2017)…. Absent a neutral time, place, or manner restriction, one person’s right to speak cannot justify silencing a second person’s speech. Another way to say it: no one has a First Amendment right to stop someone else from speaking.

Trademark liability is a bad idea if the accused use is artistic and not expressly misleading, and it isn’t a better idea when the trademark right is asserted by another speaker.

This could easily become viewpoint discrimination. The court posited a work that used a company’s trademark

as the title of a documentary about its business, which casts the business in a flattering light. If someone later produces a documentary that casts the company in an unfavorable light, the company could wield its trademark and the title-versus-title exception to require that the second documentary not use the company’s mark in its title. The result is that the company’s favorable documentary would have an advantage in the marketplace of ideas over the critical documentary—only the company’s documentary would be able to identify itself by using the mark. Under the First Amendment, the government has no business promoting the first documentary over the second. It simply doesn’t matter that the favorable documentary is also an artistic work.

[My biggest quibble with this is that there’s a strong likelihood courts would figure out other ways to dismiss such claims early, whether by hiking the secondary meaning pleading standard or as nominative or descriptive use as a matter of law or otherwise—but given the costs of litigating claims and the importance of strong guardrails to prevent the large from silencing the small, a prophylactic rule is certainly justified, given the vanishingly tiny percentage of valid claims of this type.]

Finally, the strongest justification for the title-v-title exception is the public interest against confusion between the sources of two artistic works. Moviegoers should be able to identify the movie they want to see. This justification is at least consistent with the core idea of trademark law. But Rogers itself already solves this problem, because it doesn’t protect “parts of artistic works— whether titles or not—that ‘explicitly mislead’ as to their source or content.”

[First, there’s a deadly ambiguity in “parts”—could you argue that a title is explicitly misleading if you can’t figure out who made the work from the title alone? Second, of course, confusing and explicitly misleading are two very different things—even “fraudulent” and explicitly misleading are two very different things, which is one reason that Lanham Act false advertising cases have developed workarounds to treat deliberately misleading ads the same way as explicitly false ads. A key question for any First Amendment scrutiny of trademark law is what kind of government interest there is in prohibiting non-fraudulent behavior that nonetheless results in consumer confusion of, say, 12%.]

Anyway, the exclusion for explicit misleadingness “is already consistent with the historical and traditional goals of trademark law. There is no need for a separate exception that applies to “confusingly similar” titles alone.” One could argue that confusion can occur even without explicit misleadingness, but that “strays from the core historical justification of trademark law, which is identifying the source of a good.” [There actually has to be a very thick theory of source identification underlying this—but it is certainly true that almost all the surveys in Rogers cases (and many non-Rogers cases) get most of their oomph from confusion over sponsorship, affiliation, or approval, and to say that avoiding source confusion is a compelling or substantial government interest is not to say that avoiding those other kinds of confusion is as well.]

Anyway, it’s just as possible for a use of a mark that’s not a title to be “confusingly similar” to a title. [I think the Rogers reasoning is more about false positives: it’s equally possible, but much more likely, that someone who’s developed secondary meaning of a title as a title is correct when they allege material confusion than it is that there was material confusion when, e.g., Campbell’s Soup contemplated suing Warhol for his Campbell’s Soup series.]

Additionally, the concurrence reasoned, title-v-title is impractical in application even if ok in principle. “The facts and procedural history of this case convince me that it is not a workable test to apply.” The concurrence agreed that here, there wasn’t evidence of trademark function. But: “Famous trademark holders use their marks to brand and market all sorts of goods—some of which are artistic in nature…. If Starbucks uses its mark as the title to a music album that it sells in its coffee shops, does a dispute about a book or documentary with “Starbucks” in the title fall under a title-versus-title exception? A broad understanding of title-versus-title would give trademark holders a powerful a tool to stifle expression by merely placing their mark in the title of an artistic work that they endorse. That doesn’t seem right.”

We could try to limit title-v-title to “only when the primary purpose of a trademark is to identify the source of an artistic work.” But how will courts decide that? “Does it matter which use of the mark is more famous? If a commercial establishment airs a TV show about itself, and the TV show’s fame rivals that of the establishment, would the title-versus-title exception then apply to an unauthorized book or documentary that used the establishment’s name in its title? Who knows.” [Paging Netflix’s Blockbuster.]

A little uncertainty is fine. “But we should not expect a judicially created defense to be so complicated that a court needs extensive fact-finding just to determine if an exception to that defense is implicated. And certainty is especially important in an area like this one where even the prospect of liability has the effect of chilling constitutionally protected speech. See Glynn Lunney, Trademark’s Judicial De-Evolution: Why Courts Get Trademark Cases Wrong Repeatedly, 106 Calif. L. Rev. 1195, 1201 (2018).”

Also, applying title-v-title just means doing regular confusion analysis, instead of limiting the inquiry to explicit misleadingness.  But “[i]t cannot be that a defense against Lanham Act liability fails simply because a defendant would otherwise be liable under the Lanham Act. If proving a defense requires disproving liability, it is no defense at all.” [This part’s … invited error. Rogers doesn’t work like a true defense, no matter how much people shorthand it as such. It’s a replacement jurisdictional test: if defendant’s accused product is an artistic work, then the Lanham Act won’t apply unless, etc. So it doesn’t need to differ from the underlying confusion test. Also, the Second Circuit has dealt with this problem by requiring a “particularly compelling” showing of confusion in artistic work-v-artistic work cases, which it said was consistent with Rogers.  But district courts in the Second Circuit then confused the matter somewhat by taking that holding—in which the court of appeals applied a sort of quick-look analysis of the Polaroid factors—as standard for all Rogers cases, even non-title-v-title ones.]

 


Tuesday, November 29, 2022

Today at noon EST: Incorporating Online Learning into Law Teaching: Insights from Successful Adopters

Register at this link. Concrete examples of what worked. Hear from Jessica M. Erickson, the Nancy Litchfield Hicks Professor of Law at the University of Richmond, who has written extensively about online teaching; Michael McCann, Founding Director of the Sports and Entertainment Law Institute, University of New Hampshire School of Law (which includes an online certificate program); and Leah Plunkett, the inaugural Assistant Dean for Learning Experience & Technology and Meyer Research Lecturer on Law at Harvard Law School, where she heads the Learning Experience & Technology (LXT) team.

Monday, November 28, 2022

9th Circuit courts are very committed to letting juries hear testimony about surveys

Monster Energy Co. v. Vital Pharmaceuticals, Inc., 2022 WL 17218077, No. EDCV 18-1882 JGB (SHKx) (C.D. Cal. Aug. 2, 2022)

Before the jury verdict in favor of Monster’s false advertising claim was this opinion resolving evidentiary issues. I have tried to avoid scientific disputes about creatine and focus on the consumer survey side, which might be more generalizable.

Monster sought to exclude Vital’s expert Dr. Chiagouris, who conducted two surveys to assess the materiality of Super Creatine to Bang energy drink consumers. Dr. Chiagouris opined that, based on his survey results, “[t]he presence of the words ‘Super Creatine’ included on the Defendants’ cans has no impact on the purchasing decisions by consumers.” Monster argued that the relevant surveys failed to test materiality, used misleading pictures, surveyed an overbroad audience, and failed to exclude nonresponsive answers.

“The Ninth Circuit has stated that surveys in trademark cases are to be admitted as long as they are conducted according to accepted principles” and “relevant.” Critiques about “issues of methodology, survey design, reliability, the experience and reputation of the expert, critique of conclusions, and the like go to the weight of the survey rather than its admissibility.” Materiality was relevant, so the court asked whether Monster’s criticisms of the surveys showed a failure to apply accepted survey principles or merely raised issues that went to their weight.

Some participants were shown Bang cans and labels with “Super Creatine,” and others saw altered Bang cans and labels without that phrase. They were asked to describe what they saw and how likely they were to purchase Bang generally. They weren’t directly asked about the phrase “Super Creatine,” whether participants had prior experiences with or opinions of Bang, or whether they had seen Vital’s advertising in the market. Thus, Monster argued that the survey only tested responses to Bang cans and labels, rather than the entirety of Vital’s advertisements.

Although “the sloppy questions are problematic and the sweeping conclusions are careless,” the questions were not so broad that they “lack [ ] relevance to the pertinent issues” in this case.

Monster then argued that the picture of the Bang can was taken at an angle that obscures the words “Super Creatine,” and that the survey should  have used a picture that clearly showed the top half of the can and the phrase “Super Creatine.”

“Leading images in surveys have the potential to ‘infect[ ] the entire study with an unacceptable degree of bias.’” But the pictures here didn’t rise to that level. While the picture of the Bang can partially obscured “Super Creatine,” the image of the flattened Bang label clearly showed the phrase. The surveys also allowed respondents to view the image for as long as they needed and told respondents that they could click on the image and zoom in.

Surveying all energy drink consumers, rather than only Bang consumers, and arguably underweighting young men between 18 and 29 years old who are the relevant demographic were not flaws meriting exclusion.

Dr. Chiagouris also opined on two Monster-commissioned surveys conducted by InfoScout, a market research firm. Monster argues that these opinions were unreliable because he lacked foundational information about the surveys, only looked at one of the surveys and not the second, and they were methodologically flawed. Although the surveys themselves were inadmissible because they contained hearsay, “the record fails to show that the surveys are atypical of the kind of evidence that consumer experts rely on. Accordingly, they are admissible to examine Dr. Chiagouris on the basis of his opinions.”

The InfoScout surveys looked at Bang purchasers, and they were relevant to show what aspects of Bang are material to its purchasers. “Monster’s criticisms that the survey respondents were disproportionately women and grocery-store shoppers raise concerns about the surveys’ reliability, not their relevance.” But there wasn’t evidence in the record about whether they were conducted using accepted survey techniques. Thus, they were not supported by sufficient guarantees of trustworthiness to be admitted under a residual hearsay exception.

The court also excluded evidence about Monster’s existing line of non-creatine-containing energy drinks that allegedly claim unsupported health benefits without identifying ingredient amounts as irrelevant to Monster’s claims here, which were only about creatine. Unclean hands requires a showing of inequitable conduct relating to the subject matter of the plaintiff’s claims. “Here, Defendants allege that Monster’s hands are dirty because it has engaged in the same kind of activity of which Defendants have been accused: the misrepresentation of certain benefits or ingredients in its drinks. However, they fail to show that Monster dirtied its hands to make the false advertising claims now alleged against Defendants.” General factual similarity wasn’t enough.

Vital also wanted to talk about Monster’s purported development of energy drinks that contained a manufactured creatine supplement. That was relevant: if Monster considered adding a manufactured creatine supplement in its own drinks, that would help “illuminate what constitutes ‘creatine’ and is probative of a key element in this case: whether Defendants’ claims about Super Creatine are literally false or misleading.” But it wouldn’t be relevant to affirmative defenses like unclean hands or estoppel, which require some element of prejudice to or reliance by defendants, and there was no evidence Vital knew of Monster’s efforts.

Evidence that Monster interfered with VPX’s shelf space was also excluded as not relevant to unclean hands, which when it comes to tortious interference with contractual relations requires that the plaintiff’s misconduct relate to “the contract [the plaintiff] seeks to enforce” or be “responsible” for the plaintiff’s acquisition of the contractual rights at issue. Here, Monster’s alleged interference with Vital’s contracts was unrelated to the contracts Monster sought to enforce.  So too with alleged trade secret misappropriation by Monster.

Allegations that Monster’s Reign energy drink was a “copy-cat” of Bang (and the subject of an unsuccessful trade dress suit by Vital in Florida): Vital argued that these were relevant because Reign was creatine-free, arguably showing that even Monster believed that caffeine, rather than Super Creatine or creatine, was material to Bang purchasers. But “[w]hat Monster believed set Bang apart from competitor energy drinks has little relevance to what consumers believed set Bang apart from other energy drinks.” I think this is wrong: successful participants in the market can be expected to have special knowledge about what sells products; even if they’re not perfect, they should be better than average in predicting what’s material to consumers. Nonetheless, while Monster’s survey of Bang consumers in connection with Reign’s development was admissible, the “copy-cat” allegations were neither necessary nor probative of Monster’s false advertising claims, nor did they aid in any defense. So too with evidence related to the history of adverse health events for Monster’s products and evidence of Monster’s general litigiousness (despite Vital’s argument that this bore on the credibility of its claims and alleged damages here).

Defendants moved to exclude the testimony of Monster’s marketing expert Dr. Carpenter, who reviewed Vital’s marketing of Bang Energy drinks, including their use of the term “Super Creatine” and “sugar crash” claims, to determine whether such marketing and promotion (a) impacted consumers’ decision to purchase these drinks, and (b) harmed Monster. There was no dispute that Dr. Carpenter’s opinions and testimony concerning marketing principles and strategies were admissible. But opinions that (1) Super Creatine is not creatine, (2) Super Creatine provides no health benefits, and (3) a “sugar crash” from consumption of Monster’s energy drinks is unlikely were not within the scope of his expertise. Monster argued that these were his assumptions, not his opinions. He was qualified to offer “marketing opinions about what VPX promised or claimed to consumers,” but not to make scientific claims, e.g., that a sugar crash from Monster’s energy drinks is unlikely. His report acknowledged that those statements were based on assumptions he made, accepting the conclusions of Monster’s scientific experts about creatine and sugar crashes. That’s ok for background reliance, but not for “principal conclusions.” He was not qualified to opine that a consumer who drinks a can of Bang may feel energized due “to the caffeine in Bang Energy drink, a placebo effect, or some unrelated cause such as receiving an uplifting phone call,” that “[f]or a consumer, determining the actual cause of that sensation is scientifically impossible,” and that “[b]y drinking Bang Energy drink, consumers ‘learn’ that Super Creatine provides health benefits because their experience ‘confirms’ that it does, based on VPX’s advertising, even when the consumer experience is entirely ambiguous.” “Dr. Carpenter may not opine on what consumers experience when they drink Bang or whether they can identify the cause of any effects they feel when they drink Bang.”

In addition, Dr. Carpenter could not tell the jury that Vital’s advertising was “false” or “misleading.” His conclusions were based entirely on his scientific assumptions, and he even testified in his deposition that he would have to “rethink” his opinion if the scientific opinions on which he relied were not true. Thus, his conclusions about Vital’s allegedly false or misleading advertising were not sufficiently reliable. Stripped of his assumptions, they were “conclusory statements that an advertisement that conveys a false or misleading statement is a false or misleading advertisement. This is ‘common sense and well within the knowledge or experience of lay people.’”

Vital also sought to exclude Dr. Carpenter’s opinions about the impact of Defendants’ marketing strategies on Bang consumers, arguing that his review of social media posts was not sound methodology, and that his reliance on an assertedly flawed consumer survey prepared by Monster’s expert Dr. Cowan made his opinions unreliable.

The court found his methodology “shaky at best.” He primarily focused on Vital’s and third-party posts on Instagram as evidence of Vital’s marketing strategies and consumers’ purported understanding of those claims. His reason for doing so was vague: Vital used Instagram “extensive[ly]” and that “Instagram has become an important advertising platform for companies, with its rising popularity among consumers.” But he failed to describe which Instagram posts he reviewed and why. For example, he noted that Vital employed “hundreds” of social media influencers and brand ambassadors, including on Instagram, but only identified posts from eight “VPX Influencers” and ambassadors. But “[s]hakiness [ ] does not require exclusion,” and went only to weight. “While slim, his report points to some marketing principles—such as a ‘brand promise,’ ‘brand positioning,’ and ‘marketing’—to explain how Defendants’ claims reflect those principles,” and could be used in forming opinions “based on his many years of marketing experience.”

However, Dr. Carpenter could not opine about the beliefs of the individuals whose social media posts he reviewed. He could infer from his experience and the documents reviewed what “a reasonable consumer would expect” or believe from Vital’s advertising, but he lacked any basis for determining how a specific consumer “interpreted the intended message.”

However, he could rely on Monster’s survey, which was admissible; he wasn’t required to conduct his own survey.

Dr. Cowan’s 2020 survey for Monster: Although Vital argued that it came too late to measure Bang’s effects in 2012-2019, even if that was true, it was still probative of materiality. The survey was not “infected with blatant bias” in a way that required exclusion. Survey participants included the relevant audience: purchasers of energy drinks, including Bang. It did not misrepresent the challenged statements. It included control questions. It did not exaggerate product features that were not at issue. And the answers were not suggestively worded.

Vital argued that the survey failed to rule out unfamiliar and unreliable respondents, asked open-ended questions, included other ingredients prominently featured on Bang cans, and used a control label in addition to a Bang label. But such challenges to “the basis of the test protocol used, the universe defined and tested, and the questions asked …go to the weight, not the admissibility of the survey.”

Finally, Vital moved to exclude evidence of defendant VPX’s work environment, specifically regarding VPX employee terminations, human resources issues, and other personnel matters. Monster argued that evidence of the principal’s management style “tends to show that VPX employees feared reprisal from him and furnishes a motive for why VPX employees may have allegedly misappropriated trade secrets, engaged in shelf space interference, or published false advertisements.”

Evidence that employers “terminated employees or threatened termination as retaliation for failure to engage in alleged misconduct may be relevant if it shows an employee’s motive.” But Monster’s evidence does not show any employee who had been terminated because he or she had challenged or refused to comply with Super Creatine claims or any shelf space interference and trade secret misappropriation, or any employee who allegedly engaged in false advertising, shelf space interference, or trade secret misappropriation out of fear of retaliation. “Absent this kind of proof, the Court agrees that general evidence of Mr. Owoc’s personality or his acts of firing employees is ‘[e]vidence of a person’s character or character trait [that] is not admissible to prove that on a particular occasion the person acted in accordance with the character or trait.’”

Overpayment is injury for Article III purposes, for now

In re Evenflo Company, Inc., Marketing, Sales Practices & Prods. Liab. Litig., 2022 WL 17174950, -- F.4th ---, No. 22-1133 (1st Cir. Nov. 23, 2022)

Manufacturers lose an opportunity to create a circuit split on whether overpaying for a product that generally has a defect, which defect did not manifest for the class plaintiffs but plausibly reduced the value of the product, provides standing for a false advertising monetary relief claim. It does, because the harm is not the defect, but the loss of the benefit of the bargain when the plaintiffs received a product worth less than represented to them. (It does not, however, provide standing for declaratory or injunctive relief.)

The district court dismissed the operative complaint in this putative class action for lack of Article III standing. The complaint alleged several misrepresentations about the safety and testing of its children’s Big Kid car booster seat and that the plaintiffs bought the seat relying on those misrepresentations. But for Evenflo’s misrepresentations, the plaintiffs allegedly would not have purchased the seat, would have paid less for it, and/or would have bought a safer alternative. The court of appeals reversed as to monetary relief.

Evenflo allegedly misrepresented its Big Kid seat as safe for children as small as thirty pounds, despite being aware “[a]s early as 1992 ... that booster seats were not safe for children under 40 pounds.” Highway safety and child safety experts allegedly kept sounding the alarm, and in 2012, “Evenflo’s top booster seat engineer” delivered an internal presentation that Evenflo should “modify[ ] the [Big Kid’s] weight rating to 40 [pounds]” in order to “discourage early transitions to booster seats,” which place younger children at an “increased risk of injury.” A senior marketing director allegedly “vetoed” this and another weight recommendation.

Evenflo also allegedly misrepresented that the Big Kid had been “side impact tested,” describing its tests as meeting or exceeding federal standards and “simulat[ing] the government side impact tests conducted for automobiles.” But federal side impact testing allegedly assesses the damage done to crash test dummies after (1) crashing “a 3,015 pound moving barrier ... at 38.5 miles per hour into a standing vehicle” and (2) pulling “a vehicle angled at 75 degrees ... sideways at 20 miles per hour into a 25 cm diameter pole at the driver’s seating location.” By contrast, Evenflo’s test was allegedly “performed by placing a product on a bench (resembling a car seat), moving that bench at 20 miles per hour, then suddenly decelerating it.” And Evenflo considered a booster seat to have failed this test only if “(1) ... a child-sized dummy escape[d] its restraint entirely, ... or (2) the booster seat itself [broke] into pieces.” An Evenflo engineer allegedly “admitted under oath that, when real children move in [ways displayed by crash test dummies in tests considered successful by Evenflo], they are at risk for injurious head contact.”

The district court reasoned that the plaintiffs had failed to establish any economic injury sufficient to pursue monetary relief because (1) the complaint did not allege that the seats failed to perform -- such that the plaintiffs had necessarily received the benefit of the bargain in purchasing them -- and (2) the plaintiffs had not plausibly shown that the seats were worth less than what they had paid for them or estimated their true value.

The complaint alleged only economic injury in the form of overpayment.  The court of appeals rejected Evenflo’s “sweeping” argument that “where a plaintiff is not actually injured by an allegedly unsafe product, she does not have standing to pursue a claim for damages.” “This court has repeatedly recognized overpayment as a cognizable form of Article III injury.” So have the other circuits in false advertising cases (as opposed to product liability cases).

“Evenflo, supported by its amici, argues that this body of precedent recognizing overpayment injuries is in tension with the Supreme Court’s recent decisions in Spokeo v. Robins, 578 U.S. 330 (2016), and TransUnion.” Those decisions require injury to be “real, and not abstract.” But they also “made clear that monetary harms such as those alleged here fall firmly on the real, concrete side of the divide. TransUnion in fact described ‘monetary harms’ as ‘traditional tangible harms’ that ‘readily qualify as concrete injuries under Article III,’ and contrasted such harms with more abstract -- although still concrete -- forms of injury, such as ‘reputational harms, disclosure of private information, and intrusion upon seclusion.’” The court here commented: “Nothing in TransUnion indicated that some monetary harms are concrete while others are not; the Court there held that properly pleaded monetary harms -- like those asserted by the plaintiffs here -- are sufficiently concrete, as compared to other, nonmonetary forms of injury, which may or may not be concrete.”

Did the complaint allege sufficient facts to plausibly demonstrate that, as a result of Evenflo’s misrepresentations, the plaintiffs spent more money than they otherwise would have? Yes. As to each plaintiff, the complaint typically alleged that “[h]ad [the plaintiffs] known about the defective nature of Evenflo’s Big Kid booster seat[ ], [they] would not have purchased the seat, would have paid less for it, or instead would have purchased one of many safer available alternatives.” Evenflo argued that the plaintiffs’ proposed alternatives were implausible because plaintiffs plausibly “forgo buying [any] car seat, given that the use of a car seat is required by law in each state where the [p]laintiffs reside.” But the complaint alleged that booster seats are meant to be used only when children outgrow other models of car seat, some of which allegedly children up to 90 pounds, and that Evenflo’s marketing the seat as appropriate for smaller children over thirty pounds “presented the product as safe for use (and purchase) sooner than it actually was, making it reasonable to infer that parents could have continued using other models rather than choosing to buy a new seat.”

Evenflo also attacked the “would have paid less for the Big Kid” option as offering no measurement for the decreased price. “But it is a reasonable inference that, if Evenflo had not marketed the Big Kid as safe for children as small as thirty pounds and as side impact tested, the product would have commanded a lower price, allowing the plaintiffs to pay less for it.” That was enough to survive a motion to dismiss on standing grounds “even without quantification of the change in market value.” Citation of scientific studies or marketing expert testimony was not required where the theory of harm was plausible based on common sense.

What about buying a safer alternative seat? Evenflo pointed out that the complaint does not allege that such alternatives would have been cheaper -- and in fact alleges that the Big Kid was roughly $10 cheaper than its chief competitor. “This argument has some force, but we conclude that, at the pleading stage, it does not defeat the plaintiffs’ standing. Given that purchasing a different seat is only one of the three alternative courses of action described in the complaint and the possibility that a cheaper alternative exists, the complaint, taken as a whole, plausibly supports the plaintiffs’ argument that Evenflo’s misrepresentations caused them to overpay.”

Evenflo also argued that the plaintiffs must at least offer “the formula” for measuring damages. “But at the pleading stage, to demonstrate Article III standing, plaintiffs need not quantify or offer a formula for quantifying their injury.”

As for injunctive relief: “The plaintiffs’ assertions about their past behavior do not plausibly allege any likelihood of relying on Evenflo’s advertising or purchasing Big Kids in the future, and so there is no impending future injury that an injunction might redress. … [A] hypothetical future injury to other unnamed ‘parents and grandparents’ does not give these plaintiffs standing.” But that dismissal would be without prejudice, as required for a dismissal on Article III standing grounds.

Wednesday, November 23, 2022

Retailer has standing to assert Lanham Act false advertising claims against its own supplier

AHBP LLC v. Lynd Co., No. SA-22-CV-00096-XR, 2022 WL 17086368 (W.D. Tex. Nov. 18, 2022)

Lexmark provides standing to a purchaser because the harms it alleged are “commercial” harms. In summer 2020, AHBP began negotiating with the Lynd defendants for the exclusive license to market and sell a surface disinfectant/cleaner known as “Bioprotect 500” in Argentina. The Lynd defendants allegedly made false representations about the quality of the product, including that it was effective against the virus that causes COVID-19 and that it would meet the governmental standards for approval required to sell it in Argentina. Lynd issued a press release, “LYND To Disinfect & Protect Apartments with BIOPROTECTUs System.” Lynd advertised the Product as effective against the coronavirus.

Ultimately, AHBP took an exclusive license to sell the product in Argentina, with purchasing and advertising/marketing spend minimums. Defendants allegedly repeatedly promised to provide AHBP with information supporting the product’s purported two-year shelf life and identifying its composition, manufacturing and quality controls, and toxicology. In reliance, AHBP allegedly hired employees and designers, consulted with lawyers, accountants, biologists and virologists, rented warehouse and office space, and entered into contracts with buyers in Argentina. Then defendants allegedly provided a lab report that had been altered by defendants and that was run on a different disinfectant with nearly 15 times as much of the active ingredient. In early 2021, the EPA issued a Stop Sale, Use or Removal Order to defendant Via Clean ordering it stop marketing the product with claims that it was effective against public health-related pathogens, including coronavirus.

AHBP alleged that it was therefore unable to sell the product where it was licensed to do so. Its buyers allegedly refused to continue doing business with it because it couldn’t fulfill its obligations to deliver the product, it suffered severe harm to its business reputation, and its pursuit of the media campaign was rendered a total loss, causing $90 million in damages (mostly lost sales).

Unsurprisingly, fraudulent inducement, common-law fraud, and negligent inducement claims survived.

More surprisingly (perhaps the court wanted to be sure it retained jurisdiction regardless of diversity?), the Lanham Act false advertising claim survived. Lexmark says that “to come within the zone of interests in a suit for false advertising under § 1125(a), a plaintiff must allege an injury to a commercial interest in reputation or sales.” As the court here paraphrased: “Consumers or businesses that are misled into purchasing an inferior product are generally not considered within the zone of interest,” even a business misled by a supplier. Likewise, a plaintiff must show proximate cause: “ordinarily … economic or reputational injury flowing directly from the deception wrought by the defendant’s advertising; and that occurs when deception of consumers causes them to withhold trade from the plaintiff.”

First, the injuries alleged here—“lost profits and loss of goodwill”— “are injuries to precisely the sorts of commercial interests the Act protects. AHBP is suing not as a deceived consumer, but as a ‘perso[n] engaged in’ ‘commerce within the control of Congress,’ whose position in the marketplace has been damaged by the [defendants’] false advertising as to the quality of their product.”

The Third Circuit has said that businesses don’t have standing when misled by suppliers, relying on Lexmark, including that latter case’s statement that “[a] consumer who is hoodwinked into purchasing a disappointing product may well have an injury-in-fact cognizable under Article III, but he cannot invoke the protection of the Lanham Act—a conclusion reached by every Circuit to consider the question.”

But here, the court said, it was “neither bound nor persuaded by this apparently categorical rule that a business entity can never assert a claim for false advertising under the Lanham Act against one of its suppliers.” It seems to me that the court is at least bound by it, given the direct quote from Lexmark, though the gloss given here is not illogical. I can see why the court says that this isn’t an ordinary disappointed consumer case because plaintiff alleged that its goodwill was harmed as a result of the disappointment, and that doesn’t usually happen when a business buys a product for consumption, not for resale. But see The Knit With v. Knitting Fever, Inc., 625 F. App'x 27 (3d Cir. 2015) (finding no standing where supplier’s false representations allegedly damaged retailer’s reputation with its own consumers).

A blanket rule “disregards the economic realities of modern supply chains in favor of a shallow and artificially narrow understanding of the distinction between consumers and competitors.” The key was not “place in the supply chain” but “the manner in which [an entity’s] interests have allegedly been harmed.”

And proximate cause? Ordinarily requires “economic or reputational injury flowing directly from the deception wrought by the defendant’s advertising; and that that occurs when deception of consumers causes them to withhold trade from the plaintiff. That showing is generally not made when the deception produces injuries to a fellow commercial actor that in turn affect the plaintiff.”

The court distinguished the facts alleged here from other businesses-as-consumers cases. A restaurant could not recover under the Lanham Act for harm to its commercial interests

arising out of its purchase of an inferior sanitizer based on false advertising about its quality and efficacy. Even assuming that business slowed down after several instances of food poisoning, the restaurant’s injuries—in the form of lost profits and reputational harm—would not fall within the scope of the Lanham Act because it was harmed, like any other consumer, by its use of the product. Conversely, a co-distributer of the sanitizer that suffered losses as a result of the supplier’s overstatements of the product’s quality would suffer lost profits and reputational harm as a distributer rather than as a consumer.

[That’s really got to be proximate cause in disguise, because the type of harm—commercial reputation—is the same either way.] The complaint alleged that both sides were “distributors in the market for sanitizing products” and thus competitors. Even if that weren’t true, the plaintiff would have standing under the Lanham Act because it lost sales as a result of the Lynd defendants’ false advertising.

Comment: This is a proximate cause question. Those lost sales weren’t the result of people believing the false advertising—they were the result of the scheme being exposed. That seems to be a different type of causation. The court says that proximate cause is present because plaintiff alleged “both economic and reputational injury flowing directly from the Lynd Defendants’ deceptive advertising as to the quality of the Product. Plaintiff was allegedly unable to sell the Product as a result of the Lynd Defendants’ false advertising as to its efficacy.” But “directly” and “as a result” are merely asserted (as perhaps they always are). The false advertising plausibly caused the plaintiff to enter into the contract with the defendant. But it did not thereby cause the lost sales. The fact that plaintiff figured out that the claims were false caused the lost sales.

I don’t really have anything against this holding, or a strong enough commitment to a theory of proximate cause to say the line should be drawn differently. But it’s always a little weird to me that it’s much easier for a business to win a false advertising case against a rival than for a consumer—the one directly harmed—to do so, and so a little weird to see doctrine stretched to some consumers, but only consumers that are businesses, because suffering harm to goodwill is so much more important than having been ordinarily defrauded.

With that out of the way, plaintiffs sufficiently pled a Lanham Act violation: false representations about the quality of the disinfectant that it licensed to the plaintiff, made in a press release. [Consider, for causation analysis, the chain between press release and harm to plaintiff’s goodwill compared to the chain between ad and harm in the standard Lanham Act false advertising case.] The press release was also “the kind of commercial promotion governed by the Lanham Act.”

Business disparagement claims failed, however, because the allegedly false information in the lab report wasn’t plausibly disparaging of the quality of the product or of AHBP. Breach of contract survived.

Monday, November 21, 2022

Google's "order delivery/takeout" results aren't misleading/TM infringement

Left Field Holdings v. Google LLC, 2022 WL 17072948, No. 22-cv-01462-VC (N.D. Cal. Nov. 18, 2022)

Short opinion, summarized by the opening paragraph:

The plaintiffs in this case don’t like how Google facilitates online orders from their restaurants. They try to articulate claims for trademark infringement, counterfeiting, false association, and false advertising. They don’t succeed, especially considering Rule 9(b)’s heightened pleading requirements for claims sounding in fraud.

The court analyzes in detail only the theory that the “Order Online” or “Order Delivery” button is misleading by itself “because it is near the restaurant’s name and is surrounded by links that would otherwise ‘directly connect the consumer to the restaurant,’” that is, the “Website” and “Call” links. But the “Directions” link is also right there and whether that would produce a direct connection is “debatable,” and so is a button to save the restaurant to one’s own Google account, as is a star rating and a blue link to “Google reviews,” “which are obviously not provided by the restaurant.” Thus, “[i]n context, the contested button is not false association or false advertising.”

The use of the restaurant’s name was “a textbook example of nominative fair use: There is no other way to identify the restaurant; Google uses only the plain name, not a stylized logo; and there is no improper suggestion of sponsorship or endorsement.”

The plaintiffs argued that “Order Online” or “Order Delivery” led users to a third-party delivery provider “unbeknownst to the restaurant.” “But the involvement of a delivery provider is not hidden from the user.” Plaintiffs’ screenshots showed that the delivery provider’s name was disclosed, and the complaint alleged that, if there are multiple delivery providers available, the user selects which to use. “Those facts are not consistent with false association or false advertising,” and using the restaurant’s name here was also nominative fair use. Nor was this counterfeiting: “A customer who places an order gets food from the restaurant, not Google.”

In cases where users didn’t get a “storefront” page to place an order, they would see a “landing” page offering “a list of options to place an order for pickup or delivery.” The court couldn’t imagine how this page would support any of the plaintiffs’ claims, especially since the plaintiffs’ submissions omitted the page footer and its prominent Google logo, undercutting any misleadingness argument. Yikes: “[I]n a complaint alleging misleading design choices, cropping out such an important part of the page raises serious Rule 11 concerns about the twelve lawyers who signed the amended complaint.”

But there’s leave to amend!

 

Monday, November 14, 2022

9th Circuit clarifies that Rogers v. Grimaldi covers news/political speech, not just "art"

Logical, but this is the clearest statement yet. Opinion here. The court also clarifies that, when Gordon v. Drape said that courts should consider whether the parties made the same type of use, the level of generality had to be pretty specific--it was not enough that both parties made "source-identifying" use if they did not identify the same product, and it was also not enough that they were both "online" services. Also of note: Although identifying the actual authors in prominent places was helpful to avoid explicit misleadingness, it wasn't required "at every possible turn."

Friday, November 11, 2022

contempt finding saves FTC's $120 million victory against real estate scammer even after AMG Capital

Federal Trade Commission v. Pukke, --- F.4th ----, 2022 WL 16568278, No. 20-2215, No. 21-1454, No. 21-1520, No. 21-1521, No. 21-1591, No. 21-1592 (4th Cir. Nov. 1, 2022)

Court’s intro:

Andris Pukke and other appellants sought to develop thousands of acres of land in Belize, which they marketed as a luxury resort called “Sanctuary Belize.” In their sales-pitch to U.S. consumers, many promises were made but not kept. In 2018, the FTC shut this down, calling Sanctuary Belize a “scam,” and alleging violations of the Federal Trade Commission Act and the Telemarketing Sales Rule for making misrepresentations to consumers. The FTC also brought contempt charges against Pukke stemming from past judgments against him. After an extensive bench trial, the district court found ample evidence of violative and contumacious conduct, ultimately ruling in the FTC’s favor. Pukke and others now appeal, raising a host of issues. None of their arguments have legal merit, nor can they overcome the evidence against them. We thus affirm in large part, the one exception being vacating the equitable monetary judgments in accordance with the Supreme Court’s decision in AMG Capital Management, LLC v. Federal Trade Commission, ––– U.S. ––––, 141 S. Ct. 1341 (2021) (holding that the FTC has no authority to seek monetary relief under Section 13(b) of the FTC Act).

After extensive hearings, the district court found that SBE had violated the FTC Act and TSR, and it held Pukke and others in contempt for violating a previous order. The defendants lied by claiming that the development had no debt; that the money collected would go back into developing the site; whether there would be amenities “comparable to those of a small American city” when it was completed; that it would be completed within two to five years; that there was a strong resale market for lots; and that Pukke wasn’t meaningfullly involved in Sanctuary Belize (he’d been convicted for obstruction of justice for lying to the FTC before, so SBE knew it would scare away purchasers if Pukke’s involvement were discovered).

These misrepresentations violated the FTC Act and the Telemarketing Sales Rule and permanently enjoined Pukke from engaging in any real estate ventures, from any involvement in telemarketing, and from making material misrepresentations in connection with the sale of any goods or services. The court permanently enjoined two other defendants from telemarketing and making material misrepresentations as well.

Under Section 13(b), the court entered an equitable monetary judgment of $120.2 million against defendants.  In addition, Pukke and the two others were in contempt of permanent injunctions entered in an earlier case: Pukke helped found a company called AmeriDebt, which turned out to be a credit counseling scam. The stipulated judgment required him to pay $172 million in restitution to the FTC, but all but $35 million was suspended on the condition that Pukke “cooperate fully” with the FTC. The judgment also permanently enjoined Pukke from making false representations in connection with the telemarketing of any good or service.  “Rather than cooperate, however, they conspired to hide their assets. As a result, in 2007, Pukke and Baker were held in contempt and incarcerated in order to coerce compliance with the court’s AmeriDebt orders.” But they didn’t turn over their holdings in the Belize land.

The court found Pukke and others in contempt of the AmeriDebt judgment when they committed telemarketing violations, and Pukke in contempt for repaying a loan made to him ostensibly to pay the FTC before fully satisfying his debt to the FTC.

The contempt order of $120.2 million “represent[ed] the total consumer loss their contumacious conduct caused,” and it “represent[ed] consumer loss caused by their violation of the Telemarketing Order [from AmeriDebt], which prohibited any false or misleading representation in connection with ‘telemarketing.’ ” That is, the district court found, “the harm” from the “contumacious conduct is indeed the same as the harm caused by the FTC Act violations, in the present case $120.2 million.”

In addition, Pukke did not fully cooperate with the FTC and now owed the full $172 million of the AmeriDebt judgment to the FTC rather than the suspended amount of $35 million. “Pukke must account for the difference between the $4.26 million that Pukke” diverted from Sanctuary Belize to repay the loan and the “$4.112 million [the lender] paid the FTC, approximately $148,000—the exact number to be determined after an accounting.”

There were also default judgments against one individual and several corporations, permanently enjoining them from involvement in real estate ventures, telemarketing, and misrepresentations in future sales and holding them liable for $120.2 million.

The Pukke and two key individual defendants and some of the defaulted corporations timely appealed.

To establish civil contempt, the FTC needed to prove by clear and convincing evidence “(1) the existence of a valid decree of which the alleged contemnor had actual or constructive knowledge; (2) that the decree was in the movant’s favor; (3) that the alleged contemnor by its conduct violated the terms of the decree, and had knowledge (at least constructive knowledge) of such violations; and (4) that the movant suffered harm as a result.”  There was “no hint of an abuse of discretion” in the district court’s findings that this standard was satisfied for the two contumacious courses of action at issue.

Pukke argued that AMG Capital made the $172 million AmeriDebt judgment unlawful. But the AmeriDebt judgment was made final nearly twenty years ago, and “appeal from a postjudgment order does not revive a lost opportunity to appeal the judgment.” The court was not about to allow him to “defy injunctions with impunity over the span of nearly two decades.” Anyway, he agreed to “waive all rights to seek judicial review or otherwise challenge or contest the validity of [the] Order” when he consented to the AmeriDebt final judgment, trading certainty for the ability to challenge it in the future.

It was ok to impose the $120.2 million judgment against them as part of a telemarketing contempt order because the contempt motions were consolidated with the Sanctuary Belize case, giving the district court “a precise idea of the harm to consumers caused by the violations of the telemarketing injunction.”

Direct liability under the FTC Act and the Telemarketing Sales Rule was also present. The TSR prohibits deceptive acts or practices that “misrepresent[ ], directly or by implication ... [a]ny material aspect of the performance, efficacy, nature, or central characteristics of goods or services that are the subject of a sales offer.” The TSR also makes it a violation to “provide substantial assistance or support to any seller or telemarketer when that person knows or consciously avoids knowing that the seller or telemarketer is engaged in” a deceptive act or practice.  

While AMG Capital held that Section 5 of the FTCA does not authorize the FTC to seek, or a court to award, “equitable monetary relief such as restitution or disgorgement,” vacating that judgment was no help to Pukke, because he already had an overlapping $120.2 million judgment against him for contempt of the telemarketing injunction, so the FTC didn’t need to defend the award under Section 5/the TSR. Plus, the judgment entered under Section 13(b) included permanent injunctions and appointed a receiver. Those were ok, because “AMG did not impair courts’ ability to enter injunctive relief under Section 13(b).” Perhaps because of this overlap/the FTC’s reliance on the contempt award, the court did not explain that AMG Capital also did not address how penalties would be calculated for violating a Rule.

The default judgments were also fine.

Pukke argued that the TSR didn’t apply to selling real estate in Sanctuary Belize because the TSR only prohibits misrepresentations in the sale of “goods or services.” “It is generally true that the sale of real estate, of itself, does not constitute a good or service. But here Sanctuary Belize’s sales pitch inextricably linked the lots to many promised services and amenities when salespersons marketed the real estate as part of a luxury resort. That is, the services and amenities to be provided were fundamental to the telemarketing scheme.” They included promises of “paved roads, fresh drinking water, wastewater management, electrical service, a stable canal system, and security,” along with a hospital, medical center, “world class” marina, casino, golf course, and an airport, “which all certainly count as promises of goods or services intertwined with the sale of real estate.” “When the sale of real estate is so closely tied to promises of goods and services, the TSR is properly implicated, and the district court did not err in its analysis.”

Pukke argued that AMG Capital required nullification of the district court’s appointment of a receiver and everything the receiver has done. Not so. “The appointment of a receiver has long been considered an ancillary power that a court can deploy to effectuate its injunctive relief,” which, again, remains available under §13(b).

Appellants also argued that the contempt judgments and the permanent injunctions against them were time-barred by the statute of limitations contained in 28 U.S.C. § 2462, which requires that a “proceeding for the enforcement of any civil fine, penalty, or forfeiture” be “commenced within five years from the date when the claim first accrued.” But neither a contempt judgment nor a permanent injunction is a “penalty” as described in Section 2462, and even if it were a penalty, the statute of limitations hadn’t run. A contempt sanction is not a penalty because it does not redress a violation not of public laws; it redresses violation of a court order. Also, “a penalty punishes past acts whereas an injunction prohibits future conduct.” Separately, the district court found that Pukke’s contumacious and violative conduct ran from the early 2000s up through 2018 when the FTC brought suit, meaning there was no time bar.

Pukke further argued that laches should apply because the contempt sanction was entered 15 years after the claimed violation. But laches is about equity and there was nothing inequitable here. “Pukke’s violations did not start and end 15 years ago; Pukke’s violations have occurred continuously for nearly two decades. Moreover, any alleged delay was caused at least in part by Pukke’s efforts to conceal his Sanctuary Belize malfeasance through misrepresentations and aliases.”

The injunctions also were not unduly broad. “Here, the district court found extensive misrepresentations regarding telemarketing and the sale of real estate intertwined with the promotion of goods and services. Thus, the various permanent injunctions—including the prohibition of SBE individuals and entities from engaging in further misrepresentations—are appropriately tailored to prevent similar scams in the future. Appellants ‘must remember that those caught violating the [FTC] Act must expect some fencing in.’”