Tuesday, June 11, 2024

Is a free trial version "commercial speech"?

Enigma Software Gp. USA LLC v. Malwarebytes Inc., 2024 WL 2883671, No. 17-cv-02915-EJD (N.D. Cal. Jun. 6, 2024)

This is the latest decision in long-running litigation over Malwarebytes’ characterization of Enigma’s competing cybersecurity and anti-malware software as “malicious,” a “threat,” and as a Potentially Unwanted Program (“PUP”). The court refuses to dismiss Malwarebyte’s claims for violations of the Lanham Act; violations of New York General Business Law § 349; and tortious interference with business (the last on the ground that the 9th Circuit already said it was sufficiently pled).

Malwarebytes argued that its characterizations of Enigma’s products as “malicious” and a “threat” didn’t occur in commercial advertising or promotion but rather as part of the operation of its products. The court characterized this as a fact-driven question (raising the issue of whether the jury will be asked to decide it).

screenshot of Malwarebytes characterizing Enigma programs as threats; green "upgrade now" button at top of screen

There’s no categorical rule that in-product statements are immune from Lanham Act claims. Here, the allegations sufficiently stated a marketing context. (It’s not clear to me, but it’s possible that the court is holding that this is true only to the extent that they were presented with the free version with an upselling invitation. I think that, as to the free trial version, this is difficult--Eric Goldman doesn't--it seems to me distinguishable from the database ROP cases where people get truthful information about other people during a free trial and also an invitation to access further/more entries in the database, because Malwarebytes is offering a non-informational service--removing programs--in the upsell, not additional noncommercial speech content. But it does seem like an edge case.)

Were the statements in an advertisement? The court reasoned that, although the words at issue—“malicious” and “threat”—were not themselves advertisements, “Enigma has alleged facts permitting an inference in its favor that Malwarebytes makes the speech in an advertising context.” Specifically, it alleged that the words appeared “during a free trial period designed to showcase Malwarebytes’s product capabilities,” so that the users experience “a marketing mechanism for Malwarebytes to entice users to ultimately purchase the Malwarebytes products.” Enigma alleged that Malwarebytes displays the challenged speech directly alongside buttons with phrases such as “Upgrade Now.” See SAC ¶¶ 118–19 (depicting scan results with “threats” near “Upgrade Now” button). This was plausibly an advertisement for purportedly superior products.

Other relevant factors—whether the speech refers to a particular product and whether the speaker has an economic motivation—also weighed in favor of characterizing this as commercial speech. (The court also cited the competition between the parties as relevant to satisfying the Gordon & Breach test for commercial advertising or promotion, even though Lexmark should probably be understood as removing that requirement.)

Enigma also sufficiently alleged that the statements were made to encourage people to buy Malwarebytes’ products and were sufficiently disseminated to the relevant purchasing public, even though only existing Malwarebytes customers saw the designations, because Enigma alleged that the majority of Malwarebytes users are free users and not paying customers, and that Malwarebytes’s sales model relies on its free programs to function as advertisements to induce users to upgrade to paid products. Malwarebytes allegedly displays the challenged designations to all consumers who seek to simultaneously deploy both Malwarebytes and Enigma products.

Material deception: Malwarebytes argued that it sufficiently disclosed to consumers its definitions for “threat” and “malicious,” as well as the specific criteria used to reach those designations, so that a reasonable consumer would understand that the challenged designations did not identify Enigma’s software as malware. In addition, it argued, because the Ninth Circuit held that the “PUP” classification was not an actionable statement of fact under the Lanham Act, the challenged designations were not materially deceptive because they were a disclosed result of the PUP classification and specifically were not statements that Enigma’s products were malware.

The court disagreed. Enigma alleged that it received hundreds of complaints from users of its products who had viewed Malwarebytes’s designations, and that the complaints included statements indicating that the users understood the designations to identify Enigma’s products as malware. Customers allegedly canceled orders for Enigma’s software and requested refunds, which allowed the court to infer that the statements influenced users’ purchasing decisions. The disclosures weren’t dispositive at the motion to dismiss stage.

The NYGBL claim survived for the same reasons.

Monday, June 10, 2024

where ingredients list can't clarify ambiguity, "manage blood sugar" claim is plausibly misleading

Prescott v. Abbott Laboratories, --- F.Supp.3d ----, 2024 WL 2843092, No. 23-cv-04348-PCP (N.D. Cal. Jun. 5, 2024)

Abbott Laboratories’s Glucerna line of powders and shakes are marketed as scientifically designed for people with diabetes to help manage blood sugar. Plaintiffs alleged that because the products contain sucralose and other additives, the products don’t provide the promised health benefits. They brought the usual California statutory claims. The court accepts the allegations as sufficient, except for standing for injunctive relief.

The challenged language includes “to help manage blood sugar,” “#1 doctor recommended brand,” and “scientifically designed for people with diabetes.” The side label states that the beverages are “designed to help minimize blood sugar spikes in people with diabetes compared to high glycemic carbohydrates.”

one of the challenged products with front label claims

“Online and in stores, Glucerna shakes and powders are placed with health and nutritional supplements near diabetes diagnostic equipment and blood glucose tests. One retailer specifically categorizes Glucerna products as ‘Diabetes Management’ on its website.” Plaintiffs alleged that the artificial sweetener used, sucralose, is associated with obesity, type 2 diabetes (as well as its precursor condition, metabolic syndrome), hypertension, and cardiovascular disease; that sucralose can deregulate blood sugar by disrupting the gut microbiome and killing pancreatic cells that release insulin; and that sucralose can cause cells to become resistant to insulin, which can lead to type 2 diabetes or obesity. Several organizations, including the World Health Organization, have advised against consuming sucralose and other artificial sweeteners. Plaintiffs cited similar scientific findings for the additional ingredients maltodextrin and carrageenan.

They alleged that “#1 doctor recommended brand” and “scientifically designed for people with diabetes” conveyed that Glucerna products “aid in managing blood sugar generally” and are “scientifically capable of the treatment of diabetes or other health conditions.”

Abbott argued that the labels didn’t make such broad claims: they didn’t plausibly advertise that the products were “over-the-counter aids to help manage diabetes and blood sugar generally” and “can be used to regulate, achieve, and manage normal and healthy blood sugar levels.” Instead, the drinks were merely intended as a “snack or meal replacement” formulated “to help minimize blood sugar spikes in people with diabetes compared to high glycemic carbohydrates.”

This was a factual question. And unlike in other cases where an ambiguous label could be easily clarified by reading the ingredient list, the side label explanation about minimizing blood sugar spikes didn’t directly contradict the claims that plaintiffs alleged they took away. “This is not the sort of ambiguity that can be definitively resolved by reference to a back label.” Plaintiffs also  plausibly alleged that the other claims on the front label—that Glucerna products are recommended by doctors and scientifically designed for diabetics—make more sweeping representations about how the products work.

As for the alleged harms of the ingredients, Abbott argued that the studies cited didn’t support the claims and that plaintiffs had layered inference on top of inference. This was a factual question that could not be resolved at this stage. “If the allegations directly contradicted the cited studies plaintiffs’ allegations might fairly be deemed implausible, but that is not the case here.” 

However, plaintiffs’ alleged intent to buy Glucerna products again in the future if they can be sure the products will provide the promised benefits was insufficient; because of the nature ofe the alleged deception, they could easily determine based on the ingredients list whether Glucerna had been reformulated without the challenged ingredients.

"#1 Brand" claim was literally false because of apples-to-oranges comparison

Zesty Paws LLC v. Nutramax Labs., Inc., No. 23 Civ. 10849 (LGS), 2024 WL 2853622 (S.D.N.Y. Jun. 4, 2024)

Finding Zesty Paws’ “#1 Brand” claim literally false, the court grants a preliminary injunction despite Zesty Paws’ attempt to create a factual dispute about what a “brand” is.

Nutramax and Zesty Paws are direct competitors in the pet supplement market. Zesty Paws’ products claim to promote joint health (Mobility Bites), behavioral health (Calming Bites), gut health (Probiotic Bites) and skin and coat health (Skin & Coat Bites). Nutramax’s products are intended to support similar pet health needs: joint health (Cosequin and Dasuquin), behavioral health (Solliquin), gut health (Proviable) and skin and coat health (Welactin).

Zesty Paws began an advertising campaign claiming to be (1) the “#1 Brand of Pet Supplements in the USA,” (2) “USA’s #1 Brand of Pet Supplements” and (3) the “#1 selling Pet Supplement Brand in the USA.” Nutramax and Zesty Paws stipulated that, at relevant times, (1) the combined sales of Nutramax pet supplement products exceeded the combined sales of Zesty Paws pet supplement products and (2) the combined sales of Zesty Paws pet supplement products exceeded the combined sales of each individual pet supplement product sold by Nutramax, including Cosequin and Dasuquin. (This seems like a classic apples-to-oranges comparison. Zesty Paws even uses “TM” on some of its advertising for, e.g., the Mobility Bites, suggesting that it’s trying to have sub-brands too, though it may have dialed back on that attempt for purposes of this litigation.)

#1 selling pet supplements brand in the USA ad from website

Mobility Bites image using TM symbol after Mobility Bites

The court found that Nutramax showed that the claims were likely literally false. The dispute turned on what a “brand” is; Zesty Paws argued that Nutramax was not a brand, but Cosequin etc. were. 

Based on the ordinary dictionary meaning of “brand,” Nutramax was a brand. Nutramax also offered two experts from business/management schools who testified that Nutramax satisfied the definition of a “distinctive feature … that identifies goods or services.” It’s used on every package and in advertising. Zesty Paws’ arguments to the contrary critiqued the strength of the brand, not its existence; Zesty Paws argued that it was the #1 “driver brand” in the US, that is, “the brand name that plays the primary driver role in a consumer’s purchase decision.”

But that didn’t create ambiguity. The ordinary meaning of “brand” didn’t include the primary driver concept. (A brand can be a limping mark!)  And there was no evidence that consumers understood the #1 Claims to refer to a “driver brand,” whether from expert opinion, survey, academic literature or even anecdotal evidence.

Zesty Paws’ expert’s survey didn’t address how consumers interpreted the #1 claims. Instead, the survey respondents saw an image of Nutramax’s Cosequin product and asked to specify “the brand name of the product, any other names the product goes by, and the manufacturer of the product.” In response, “86.8 percent of respondents identified Cosequin® as the brand name of the product,” and “10.1 percent of respondents indicated that Nutramax Labs was the brand of the product.” The main survey question asked, “Based on your review, what brand is this product? (Please be as specific as possible.)” That was less about whether respondents generally perceive NUTRAMAX to be a brand in its own right and more about whether respondents identify NUTRAMAX to be the most specific brand name of the particular Cosequin product package. Both ecommerce listings and the tamper-evident seal, not shown to respondents, referenced Nutramax.  “Even without these cues, 10.1 percent of respondents still identified NUTRAMAX as the brand for the Cosequin product. Zesty Paws’ own internal brand awareness studies from about 2020 through 2022 showed that NUTRAMAX frequently scored higher than ZESTY PAWS when respondents were presented with a list of brands that included both names.” Nor did Nutramax’s internal documents concerning a possible move to a COSEQUIN-centered branding strategy matter, because the strategy was never implemented.

Market research data that aggregated sales data under one “brand” per product were also unhelpful, since there can be several brands associated with a product, e.g., Frito Lay® Flamin’ Hot® Cheetos®.” In other words, that COSEQUIN is a brand does not mean that NUTRAMAX is not also a brand. Also, Zesty Paws suggested how one of the market research entities should make the brand comparison, encouraging it to reach out with any questions about “brand delineation” and stating, “As a reminder, please ensure all brands are evaluated at the consumer facing level (i.e. Dasuquin not Nutramax) ....” And an expert testified that “[t]here is nothing [about] Nielsen’s processes or motivations as a data seller that makes them an authority on what is and is not a brand.” They could be inaccurate and inconsistent, and they tracked only a small segment of the pet supplement market.

Thus, Nutramax would likely show literal falsity.

Materiality: Nutramax’s expert testimony satisfied its burden. One marketing expert testified that the effectiveness of various number one claims “has been studied for a long time by academic marketers and there is very consistent evidence that when you make a number one claim, you enhance the perceptions and the purchase of the claimed brand and you depress the perceptions and the purchase of the non-claimed brands.” He also testified that a number one claim in this case is “especially potent because ... we don’t actually get direct experience with these products and so we really have to rely on these claims even more than [we] would with a product like Coke or Pepsi where we get to taste it for ourselves.”

Injury: Likewise, the experts testified that this would likely harm Nutramax, both in the eyes of consumers and retailers: “[t]he belief that Zesty Paws is the market leader will likely lead retailers to give Zesty Paws more shelf space, more prominent shelf positioning and overall increased availability of Zesty Paws products.”

Irreparable harm was presumed and not rebutted by a five-month delay in bringing a preliminary injunction motion because “Nutramax first sent Zesty Paws a notice-of-dispute letter about the #1 Claims on July 17, 2023, shortly after learning of them. The parties then continued to exchange letters until they participated in an unsuccessful mediation on December 7, 2023. Zesty Paws commenced this action on December 13, 2023, and Nutramax filed its preliminary injunction motion on December 22, 2023.” That didn’t show any lack of worry about harm on Nutramax’s part.  

In addition, Nutramax’s experts specifically testified that, in the court’s words, “once a brand’s market leadership is lost, that loss is nearly always permanent along with the benefits brought by the market leadership position.” He stated: “[W]hat we find from the extensive literature is that consumers think more highly of number one brands, they perceive them to be higher quality, they are going to purchase them more frequently, [and] they’re willing to pay more for those products because of that associated higher quality.” Indeed, the court summarized, “the power of signaling market leadership is so strong that even when consumers misperceive a brand as a market leader, the misperceived brand still accrues all of the benefits of market leadership, particularly higher evaluations from consumers.” A second marketing expert testified that lost market share is difficult to regain due to habit, status quo and brand loyalty.

With that out of the way, a preliminary injunction was essentially inevitable.

Tuesday, June 04, 2024

Another challenge to "up to 8 hours of relief" proceeds

Sheiner v. Supervalu Inc., 2024 WL 2803030, No. 22 Civ. 10262 (NSR) (S.D.N.Y. May 28, 2024)

Supervalu sold a “Maximum Strength Lidocaine Patch” product which contained “topical anesthetic 4% Lidocaine” which “desensitize[s] aggravated nerves” to provide “temporary relief of pain” to the “back, neck, shoulders, knees, elbows” for “up to 8 Hours of relief.” Sheiner’s GBL claims challenged the “up to 8 hours numbing relief” claim, alleging that the patch “is unable to adhere to skin for more than four hours, often peeling off within minutes of light activity” and “did not reliably adhere to Plaintiff’s body for anywhere close to eight hours, which prevented it from providing even temporary pain relief,” also citing a study by the Journal of Pain Research.

Sheiner also challenged “Maximum Strength” because “prescription lidocaine patches exist on the market that deliver greater amounts of lidocaine to the user.” In addition, the package’s “compare to Salonpas® Lidocaine Patch active ingredient” instruction allegedly contributed to confusion because Supervalu’s product “contains roughly forty percent less lidocaine” than found in the Salonpas® OTC Lidocaine Patch product.

In addition, Steiner alleged that the phrase “numbing relief” implies the OTC Product provides relief associated with “medical treatments requiring a prescription and FDA approval,” implying that the product would “completely block and numb nerves and pain receptors, eliminate responses to painful stimuli, and can treat neuropathic and musculoskeletal pain, including back pain.”

Supervalu argued that courts have “recognized that ‘up to’ statements ‘are generally not construed as concrete promises about a product’s maximum yield.’ ” But it was “plausible to contend that the ‘Up to 8 Hours’ language on the label indicates the patch can provide pain relief for as long as eight hours, and the label says nothing about other factors relating to the patch that may result in a much shorter period of pain relief.” Compared to other situations, where self-evident or disclosed contextual factors (like the strength at which coffee is brewed affecting the number of cups that could be brewed from a given amount) informed consumers about whether they could expect to get the “up to” results, “the lidocaine patch labels at issue ‘include no identification of any factors that might limit the amount of time that the patch would remain adhered to the body and deliver relief.’ ”

The other alleged deceptions failed less well: “The argument that a consumer would expect an OTC product to be equivalent to the most powerful prescription medicine is a nonstarter.” A reasonable consumer “would plainly ‘understand that OTC products differ from products that are available with a prescription,’ ” and contain only the “maximum strength” dose available at the drug store. But 4% is the maximum lidocaine concentration allowed by law in OTC products, which this product had, and Steiner failed to identify an OTC lidocaine patch available on the market that is stronger. (The court distinguished cases reaching the opposite conclusion; they only made sense when an OTC drugmaker made a direct comparison to a prescription product.) Also, even if the FDA cautioned manufacturers not to use “Maximum Strength” claims, “the FDA’s regulations or views are irrelevant or at least not dispositive when it comes to determining whether a reasonable consumer would be deceived or misled under GBL §§ 349-50.”

Claims based on “numbing relief” also failed. The interpretation that it would completely block pain was unreasonable. The label explicitly limits its use to “temporary relief of pain,” and Steiner didn’t even allege that he believed that the product would completely block or eliminate pain. Breach of express warranty claims failed for want of timely, prelitigation notice.  

On fraud, the plaintiff failed to allege facts that give rise to a strong inference of fraudulent intent.

Monday, June 03, 2024

Second Circuit affirms rejection of "All Natural" survey as too leading

Bustamante v. KIND, LLC, 100 F.4th 419 (2d Cir. 2024)

The court of appeals affirmed summary judgment in favor of KIND on Bustamante’s false advertising consumer protection class action claims based on KIND’s “All Natural” labeling. The complaint alleged that eleven ingredients contained in some relevant KIND products were “non-natural”: Soy Lecithin; Soy Protein Isolate; Citrus Pectin; Glucose Syrup/“Non GMO” Glucose; Vegetable Glycerine; Palm Kernel Oil; Canola Oil; Ascorbic Acid; Vitamin A Acetate; D-Alpha Tocopheryl Acetate/Vitamin E; and Annatto.

Eventually, the district court excluded plaintiffs’ survey and scientific experts and granted summary judgment.

“To establish deception under the reasonable consumer standard at the summary judgment stage, plaintiffs must present admissible evidence establishing how the challenged statement – ‘All Natural’ – tends to mislead reasonable consumers acting reasonably.”

Although errors in survey methodology generally go only to weight rather than admissibility, it was not an abuse of discretion to exclude the survey expert here. The court found that the survey “does not assist the trier of fact because it is biased, leading, and to the extent it provides any insight, cannot provide the objective standard necessary to answer the key question in this case.”

The survey surveyed California, Florida, and New York consumers who had purchased KIND products, or products from a KIND competitor, in the last twelve months. Respondents saw “a mock-up of the front of a brand-neutral product package and [were instructed] to ‘examine it like you were shopping’ ” and “to assume that the nutrition snack bar is a ‘popular national brand.’ ” The mock-up label displayed the words “All Natural,” and in several respects resembled the packaging of a KIND bar.

The first relevant question asked: “Because of this descriptor [All Natural], what is your expectation for this product?” It offered three possible choices: (a) “Will NOT contain artificial and synthetic ingredients;” (b) “Will contain artificial and synthetic ingredients;” or (c) “Not sure/No expectation.” “86.4% of consumers expected the Product with the ‘All Natural’ claim ‘will NOT contain artificial and synthetic ingredients.’ ” The survey did not define the terms “artificial” or “synthetic.”

The district court found that this question didn’t help determine “in any meaningful sense how reasonable consumers understand the ‘All Natural’ claim, or to test plaintiffs’ theory.” It was “biased” and “lead[ing]” because it “improperly directs survey participants to the ‘correct’ answer” and “is plainly designed to validate plaintiffs’ theory” of liability. This characterization was not manifestly erroneous, especially because the expert conceded that he “worded [his] substantive response options on the basis of [his] understanding of the Plaintiffs’ theory of liability.” The Second Circuit has previously held that a plaintiff could not rely on a survey based on a question that, like this one, “was an obvious leading question in that it suggested its own answer.” (Citing Universal City Studios, Inc. v. Nintendo Co., 746 F.2d 112 (2d Cir. 1984), where the question was “To the best of your knowledge, was the Donkey Kong game made with the approval or under the authority of the people who produce the King Kong movies?” That’s a far more leading question; the sin here seems to have been that the question was closed-ended, even though it had a don’t know/not sure option. Would the Second Circuit be ok with starting with an open-ended question? With asking people whether “All Natural” means “no artificial/synthetic ingredients”? What else could you possibly ask to test plaintiffs’ theory of liability?)

The choice “to display the ‘All Natural’ claim in isolation, rather than as part of the ‘All Natural/Non GMO’ statement, as it always appeared on KIND labels” further undercut the relevance of the results.

The second question asked: “Because of this descriptor [All Natural], what is your expectation for this product?” The options were: (a) “Is NOT made using these chemicals: Phosphoric Acid, Hexane, Potassium Hydroxide, Ascorbic Acid”; (b) “Is made using these chemicals: Phosphoric Acid, Hexane, Potassium Hydroxide, Ascorbic Acid”; or (c) “Not sure/No expectation.” The survey didn’t describe or define these “chemicals” (court’s scare quotes). The results were similar: over 76% of respondents chose (a)

It was also not manifestly erroneous to find this irrelevant. By providing a list, the survey “led survey participants down the path of selecting the answer preferred by plaintiffs.” (Would it have been better to give them an actual ingredient list?) Also, by listing the “chemicals” without defining them, the survey failed to differentiate between “ascorbic acid,” a form of Vitamin C safe for human consumption, and “phosphoric acid,” which is “not safe for ingestion.”

Likewise, it was not an abuse of discretion to exclude the scientific expert because he wouldn’t assist in identifying what reasonable consumers considered artificial or synthetic. He developed a framework that “examined each ingredient’s origin, the extent to which the ingredient had been processed from its natural form, and the final form of the ingredient.” He opined on whether the ingredients could be classified as “natural” under his framework, but didn’t apply a definition used elsewhere, including in the complaint or by the survey. Nor did he specifically analyze KIND ingredients, only how they were “typically” sourced. “But, without some evidence to the contrary, there is no reason to assume that [the expert’s] personal understanding of the term ‘natural’ is relevant to how a reasonable consumer would understand that same term.” Because of that flaw, “the report adds no useful information that would help the trier of fact determine the answer to the relevant legal question: whether consumers were actually deceived.”

Without the expert evidence, summary judgment for KIND was appropriate. Named plaintiffs’ own testimony wasn’t enough because they didn’t provide a cohesive definition of what “All Natural” meant, whether it would mean “containing no artificial or synthetic ingredients, or what it means to be artificial or synthetic. Plaintiffs’ depositions instead showed how variable definitions of “All Natural” can be:

For example, one plaintiff testified that she expected “All Natural” to mean not synthetic. Another plaintiff testified that she expected “All Natural” to mean that the product was made from whole grains, nuts, and fruit. Yet another explained her belief that “All Natural” meant that the ingredients were literally plucked from the ground. Notably, several plaintiffs testified that consumers could have different understandings about the implications of the term “All Natural,” that these understandings could change over time, and that not everyone would agree with their particular understanding of that term. Plaintiffs fail to explain how a trier of fact could apply these shifting definitions to reach a conclusion as to whether the use of the term “All Natural” on KIND product labels was deceptive.

KIND’s own internal documents weren’t helpful because all they showed was that KIND had its own conception of the term, but didn’t show what a reasonable consumer’s understanding was. (Courts used to be more willing to say “the seller’s beliefs about what its audience wants are good circumstantial evidence, given the seller’s incentives,” and they still do in trademark cases.) The FDA’s own request for comments also demonstrated lots of varied understandings.

Nor was it enough for plaintiffs to use the dictionary. (That’s just for courts.) The definition identified, “existing in or caused by nature; not made or caused by humankind,” “is not useful when applied to a mass-produced snack bar wrapped in plastic. Such a bar is clearly made by humans.”

 

Tuesday, May 28, 2024

"up to" absorbency claims for period underwear were plausibly misleading

Gamino v. Thinx Inc., No. EDCV 23-2067 JGB (SHKx), 2024 WL 2429307 (C.D. Cal. Apr. 18, 2024)

Gamino brought a host of California statutory and common law claims against Thinx, alleging that Thinx’s period underwear didn’t function as advertised; specifically, that it was incapable of holding the amount of liquid advertised. The court declined to dismiss the complaint on a variety of grounds.  

Thinx argued that the absorbency of its products is advertised as performing “up to” a certain threshold, and that reasonable consumers therefore expect that the products’ performance could be less than the maximum. In addition, it argued that no reasonable consumer would read the phrase “prevents leaks” as guaranteeing the products will “absorb whatever amount of fluid is dispensed into them.”

The court disagreed:

The basis of Plaintiff’s claims is not that Defendant’s products occasionally perform below the maximum absorbency advertised, but that the products “do not hold” and “cannot absorb” the “claimed amounts of fluid, and instead leak.” … Plaintiff alleges that Defendant represents its products’ absorbency using specific fluid amounts on its website, product pages, and packaging. … Plaintiff also alleges that testing reveals representative Thinx products cannot absorb the amount advertised on Thinx’s packaging and website, but that each of the products leaks. …  Finally, Plaintiff alleges that other consumers of Thinx products have experienced leakage “with even the smallest amount[t] of blood” or “in less than 15 minutes.” … Based on Plaintiff’s allegations, a reasonable consumer could be misled into believing Defendant’s products can fulfill their advertised, maximum absorbency.

The court quoted prior caselaw: “[M]ultiple courts have found that ‘up to’ representations may materially mislead reasonable consumers.” The allegation that Thinx’s products lacked the capacity to absorb the advertised amounts, plus the lack of allegations that Thinx listed customer-specific factors which could reduce performance (beyond the broad statement that “individual results may vary”), meant that “up to” was no help.

Thinx also argued that Gamino did not suffer an economic injury because she could have received a refund for her purchase. That conflated injury with remedy—despite available refunds, she suffered an economic injury “as soon as she relie[d] on a defendant’s deceptive advertising and part[ed] with more money than she otherwise would have paid.”

Also, Gamino plausibly alleged lack of absorption with allegations of (1) her own experience, (2) the experiences of other consumers, and (3) testing “by using cough syrup to mimic the viscosity of menstrual flow, just as some manufacturers do to test pads and tampons.” At this stage, she didn’t need to allege “which products were tested, who did the testing, whether Thinx uses the same method to test its products,” or “how much the products absorbed when she wore them.”

Gamino also had standing to seek equitable remedies because she plausibly pled that she was still interested in period underwear and wanted to purchase it if she could rely on the advertising. “While the Court likely cannot order Defendant to manufacture a wholly new product ... it surely can issue some form of injunctive relief that would redress Plaintiff’s injury.”

Finally, the court declined to wait for the FDA under the primary jurisdiction doctrine. Among other things, “there is no concrete evidence that the FDA is currently involved in creating a new regulation about how to test the absorbency of period underwear.” Courts “have generally declined to dismiss the complaint on primary jurisdiction absent concrete evidence that the FDA is currently involved in creating a new regulation concerning the subject of the lawsuit.”

Thursday, May 16, 2024

BIPLA (Boston Intellectual Property Law Association) Writing Competition call for papers

1st Prize:$1,000 2nd Prize:$500 

BIPLA is once again holding its annual Writing Competition. Law school students are encouraged to submit papers relating to topics involving intellectual property law. Judges will consider the merits of each paper based on: (i) contribution to knowledge respecting intellectual property law; and (ii) the extent to which it displays original and creative thought or information not previously published or available. The requirements for eligibility are outlined below. 

 Content Rules

 1. Articles must be written solely by a student or students either in full-time or part-time attendance at a law school (day or evening) within the jurisdiction of the First Federal Judiciary Circuit or prepared in connection with a course at a law school in the First Circuit. 

 2. Articles must be written or published between September 1, 2023 and August 31, 2024.

 3. Articles must be submitted to the Boston Intellectual Property Law Association on or before September 30, 2024. 

 4. Papers should be no more than the equivalent of ten (10) law review pages including footnotes (30-40 pages typed copy). 

 5. Submission of the paper as a .pdf file is required. Submissions must include the submitter’s name, current address, current telephone number, law school, and employment information (if applicable). Please send all article submissions to: Kevin MacDonald, PhD Shareholder Wolf, Greenfield & Sacks, P.C. Kevin.MacDonald@wolfgreenfield.com Office: 617.646.8497

Monday, May 13, 2024

Reminder on Call for Papers: Trademark and Unfair Competition Scholarship Roundtable 2024

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

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

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

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

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

court remands NYC's false advertising case against oil companies to state court

City of New York v. Exxon Mobil Corp., 2024 WL 2091994, No. 21-CV-4807 (VEC) (S.D.N.Y. May 8, 2024)

Being a multitrillion-dollar corporation means you can survive a “ridiculous” argument or two. Here, the city successfully wins remand (and a fee award) in this opinion rejecting removal of its false advertising suit against Exxon, other fossil fuel companies, and their top trade association for violations of New York City’s Consumer Protection Law. Following a similar case, Connecticut v. Exxon Mobil Corp., 83 F.4th 122 (2d Cir. 2023), the court understandably refuses to distinguish it.

The complaint alleged that defendants “misled consumers about the impact of their products on the climate and falsely represented themselves as corporate leaders in the fight against climate change.”

Defendants removed, alleging (eventually) six bases for federal jurisdiction: (1) the City’s claims arise under federal common law because they implicate transboundary pollution and foreign affairs; (2) the action falls under the federal officer removal statute, 28 U.S.C. § 1442(a)(1); (3) Defendants’ production and sale of fossil fuels occur on “federal enclaves;” (4) the Court has diversity jurisdiction over the action under the fraudulent joinder doctrine; (5) the action is removable under the Class Action Fairness Act; and (6) the City’s claims include federal constitutional elements.

The federal removal statute allows a defendant to remove to federal court “any civil action brought in a State court of which the district courts of the United States have original jurisdiction.” “[O]ut of respect for the limited jurisdiction of the federal courts and the rights of states,” federal courts must “resolv[e] any doubts against removability.” The “well-pleaded complaint rule” provides that federal question jurisdiction “exists only when a federal question is presented on the face of the plaintiff’s properly pleaded complaint.” However, a plaintiff cannot defeat federal question jurisdiction by pleading its complaint as if it “arises under state law where the plaintiff’s suit is, in essence, based on federal law.” Nonetheless, federal question jurisdiction cannot be created “on the basis of a federal defense, ... even if the defense is anticipated in the plaintiff’s complaint, and even if both parties concede that the federal defense is the only question truly at issue.” There are only three circumstances in which a complaint that does not allege a federal claim may nevertheless “arise under” federal law for purposes of removal: “(1) if Congress expressly provides, by statute, for removal of state-law claims; (2) if the state-law claims are completely preempted by federal law; and (3) in certain cases if the vindication of a state-law right necessarily turns on a question of federal law.”

Federal common law that completely preempts state claims based on transboundary pollution and foreign affairs: That’s not a thing. False advertising claims “do not become claims about transboundary pollution and foreign affairs just because the alleged deception relates to the impact of fossil fuels on the climate.” Plus, “there is no indication that Congress expressly authorized or intended to completely preempt state laws that have a glancing relationship to transboundary pollution or foreign affairs,” and the constitutional structure doesn’t do that all on its own. “Even if federal common law could, in the abstract, have complete preemptive effect, it would not preempt Plaintiff’s claims, which are garden-variety false advertising claims…. There is simply no conflict between the State’s interest in ensuring its consumers are not misled by false advertising and any federal interest in regulating environmental pollution.” So too with foreign affairs: “[T]his Court cannot imagine any state of affairs under which [foreign affairs] would be affected by an order enjoining Defendants from disseminating misleading ads in New York City.”

Federal officer removal: The federal officer removal statute permits removal of a state court civil action “that is against or directed to ... any officer (or any person acting under that officer) of the United States or of any agency thereof ... for or relating to any act under color of such office.” For non-federal officers to invoke this statute, they “must (1) show that [they are] a person within the meaning of the statute who acted under a federal officer, (2) show that [they] performed the actions for which [they are] being sued under color of federal office, and (3) raise a colorable federal defense.” They did not.

Federal enclave jurisdiction: This is the “silliest” of defendants’ argument. Section 8 of Article I of the U.S. Constitution authorizes Congress “[t]o exercise exclusive Legislation in all Cases whatsoever ... over all Places purchased by the Consent of the Legislature of the State in which the Same shall be, for the Erection of Forts, Magazines, Arsenals, dock-Yards, and other needful Buildings.” Defendants’ theory, “contrary to fact,” was that the complaint targets their extraction, production, and sale of fossil fuels, including “operations that occur on military bases and other federal enclaves.” Also, the advertising the City alleged is false reaches federal enclaves, i.e., “API’s Super Bowl ads reach federal enclaves, such as Ellis Island and Fort Tilden.” This is silly because (1) the complaint doesn’t target extraction, production, and sale of fossil fuels, and (2) the “advertising reaches federal enclaves” argument is “ridiculous” and would federalize “all consumer protection laws that relate to advertisements (and probably everything else); it is self-evident that all advertisements on the internet, television, radio and in newspapers can be viewed or heard by persons who happen to be in a federal enclave.”

Diversity jurisdiction: Defendants argued that the only non-diverse party, ExxonMobil, was fraudulently joined. Not so.

CAFA: This was “[s]econd in absurdity.” The City was suing under its parens patriae power, not as a class action. As the court pointed out, the City can sue without proof that consumers have actually been injured, “a far cry from the basic requirement in Rule 23 that a class representative have a representative injury.”

First Amendment: Federal jurisdiction where a complaint doesn’t state a federal claim exists if a federal issue is: “(1) necessarily raised, (2) actually disputed, (3) substantial, and (4) capable of resolution in federal court without disrupting the federal-state balance.” For a federal issue to be “necessarily raised,” the “mere presence of a federal issue in a state cause of action” is inadequate; the question of federal law must be “a necessary element of one of the well-pleaded state claims.” The false advertising claim would “necessarily raise” a federal issue only if it was “affirmatively ‘premised’ on a violation of federal law.” But they didn’t: the false advertising claim requires that defendants (1) engaged in “deceptive or unconscionable trade practice[s]” and (2) those practices involved “consumer goods or services.”

Still, defendants argued that their speech was on a matter of public concern, so the court couldn’t resolve the misrepresentation claims without addressing whether the First Amendment protected the advertising. That argument confused a defense (the statements were truthful protected speech) with an element of the city’s claim. “If the law were as Defendants urge, every libel, slander, and false advertising claim in the country” would be removable.

Fee-shifting in unsuccessful removals is up to the district court’s discretion, but should deter “removals sought for the purpose of prolonging litigation and imposing costs on the opposing party.” Here, the Second Circuit rejected three of the (initially) seven grounds for removal defendants argued, plus three that weren’t before the Second Circuit, but had been “roundly rejected by countless courts throughout the country.”

Even if removal was in good faith before the Second Circuit’s ruling, the renewed motion to remand was briefed afterwards, and it made multiple already-rejected arguments. The court found it appropriate to award costs and fees “in connection with arguments that it was not reasonable for Defendants to press when the City renewed its motion for remand: arguments that had largely been decided by the Circuit in Connecticut – federal common law, federal officer removal, and First Amendment defenses, and those that were objectively absurd – federal enclaves and CAFA.” Only the diversity jurisdiction argument was not unreasonable.

Friday, May 10, 2024

reasonable consumers of ovulation test kits understand details of hormone signalling

La Rosa v. Abbott Laboratories, No. 22-CV-5435 (RER) (JRC), 2024 WL 2022297 (E.D.N.Y. May 7, 2024)

Plaintiffs alleged that defendants’ at-home ovulation test kits were deceptive because they advertised “ovulation test kits” alongside the front-of-package statement “99% ACCURATE,” which conveyed that that the tests are 99% accurate at testing for ovulation, when in fact, the products detect a surge in luteinizing hormone (LH), and not actual ovulation. “All the kits state in small writing on the side or back of the packaging that they are 99% accurate at detecting LH levels.” Some kits include an asterisk next to the claim “99% ACCURATE”;  others include statements on the front of the packaging that they detect “LH Surge” or “No LH Surge.”

As alleged, the kits detect a rise in urinary LH levels, which typically precedes ovulation by twenty-four to thirty-six hours. But LH surges may occur at other times in a person’s menstrual cycle; body mass index, age, contraceptive use, sports activity, and smoking may affect urinary LH levels; when a person has an irregular cycle, the test could inaccurately indicate that no ovulation occurred; and more than ten percent of menstrual cycles are subject to a condition known as “Luteinized Unruptured Follicle Syndrome,” during which there is a normal LH surge and menstruation, but no egg releases. LH surges may also be detected in women who are infertile. The only current method for predicting ovulation with “a high degree of accuracy” is an invasive transvaginal ultrasound.

The court found that plaintiffs failed to state a claim under NY and California consumer protection law. Courts sometimes demand a lot of “reasonable” consumers—here, the court reasoned that reasonable consumers know the scientific details of fertility and should know the difference between LH surges and ovulation, especially given the package disclosures:

First, a key contextual inference arises from the products themselves: it is impossible to test for actual ovulation. A reasonable consumer does not expect to purchase a product that is impossible to find in the marketplace. … The FDA explains that at-home ovulation urine tests measure LH to detect ovulation and are successful at doing so “reliably about 9 times out of 10[.]” This explains that tests that reveal actual ovulation do not exist. Although a reasonable consumer is not expected to have medical expertise, in the context of a niche, specialty product, purchasers exhibit a higher degree of care. And indeed, Defendants’ products are a specialty item targeted to a class of informed consumers to aid in their attempts to become pregnant. Many buyers of ovulation test kits have had trouble getting pregnant in the past, and as such, seek help from various sources. According to Plaintiffs, “[a]s of 2015, an estimated 7.3 million women had received some sort of infertility service[.]” In turn, many ovulation test kit consumers would be expected to have at least some information leading up to their purchase, and therefore know what to expect to find in the marketplace—they do not expect to find at-home test kits that indicate actual ovulation.

This does not seem to me—as someone who has indeed been in the general market for this type of product—to be a description of reasonable consumers of specialized medical services, who tend to outsource a lot of the details to presumed experts.

In addition, the court reasoned,

a reasonable purchaser of Defendants’ products necessarily looks to the side and back of the box to understand how to use the products. Alongside these directions, the boxes for all the products in question clarify that the products test for LH, not for ovulation itself, and that an LH surge typically precedes ovulation. By contrast, a consumer of something such as a basic food item is not expected to flip over the packaging to look for clarification or disclaimers.

Read together, “Ovulation Test Kit” and “99% Accurate” could imply 99% accuracy at testing for ovulation, but the two phrases could also be read separately. And, true, some products include phrases on the front like, “Predicts Your 2 Most Fertile Days” and “Early ovulation test ... tells you the best 2 days to conceive.” Nonetheless, “regardless of where the front package falls on the spectrum, the product requires a standard of care that necessitates looking at the complete package.” And it wasn’t alleged that the tests didn’t reliably predict ovulation, even if not at the 99% accuracy level. Thus, “the clarifying language on the side or back of the packaging dispels any confusion.”

Tuesday, May 07, 2024

online ingredients list can't avoid deception claim, at least where survey suggests deception

Duncan v. Kahala Franchising, L.L.C., --- F.Supp.3d ----, CV 22-7841 (GRB)(AYS), 2024 WL 1936053 (E.D.N.Y. May 2, 2024)

Lots of ice cream jokes/quotes in here, but the basic question is: “should consumers ordering pistachio ice cream at one of [Cold Stone Creamery’s] establishments expect that that product will contain actual pistachios?” Because it doesn’t, the consumer protection claim survives.

To bolster the plausibility of her claims, plaintiff alleged that industry practice was to the contrary: Häagen-Dazs Pistachio Ice Cream and Ben and Jerry’s Pistachio Ice Cream both include actual pistachios, as does Thrifty brand ice cream, disparagingly described as “a less premium brand than Cold Stone Creamery.” And Cold Stone Creamery’s “strawberry ice cream contains strawberry, banana ice cream contains banana, and its chocolate hazelnut ice cream contains chocolate and hazelnut.”  Duncan also surveyed more than 400 U.S. consumers, each of whom had purchased ice cream within the preceding three months. Respondents asked “When viewing the image above, what ingredients do you believe would be included in the Pistachio ice cream? Select all that apply.” There was a list of ten potential ingredients, including pistachio and flavor agents, as well as the option “none of the above.” About 85% of the respondents believed that pistachio would be included; likewise, 88.6% of respondents expected that the Mint ice cream contains “mint.” (Plaintiff also challenged the absence of mango, coconut, mint and orange in those respective flavors, and the absence of butter in butter pecan, but there was no survey on anything but pistachio and mint.)

Given that the “vanilla” cases often dismiss claims at the pleading stage, should the court do so here? The court identified relevant factors in previous cases:

[T]he presence or absence of express representations regarding the ingredients used, such as “made with”; the availability of an ingredients list to the purchasing consumer; whether the flavor designation employed finds use as both a noun and an adjective; and the availability and significance of consumer survey evidence.

In addition, the court considered “allegations concerning competitor products giving rise to an inference about consumer expectations.”

There was no express “made with pistachio” representation here, but that wasn’t dispositive. Context includes the ingredients list and the visual appearance of the product. The fact that the ingredient list was available online was not helpful to defendant. While back-of-package ingredients lists can clarify any ambiguity, the analogy to online ingredients lists “fail[ed] spectacularly.”

Courts have rejected defense arguments based on ingredients lists that are difficult for a consumer to access. [Citing cases rejecting reliance on small-print or hard-to-find disclosures.] These typographic barriers pale in comparison to the physical segregation presented in this case: defendant is not attempting to rely on an ingredients list on the package or in small print on a sign, which might require a consumer to inspect a side panel or reach for a pair of reading glasses. Rather, examining defendant’s ingredients list requires access to an Internet-capable device and conducting a web search to locate it. If “a reasonable consumer should not be expected to consult the Nutrition Facts panel on the side of the box to correct misleading information set forth in large bold type on the front of the box,” it seems inconceivable that such a consumer should have to search online to find the relevant web page while waiting in line to order a scoop of ice cream.

 

In addition, requiring consumers to check online “also seems antithetical to the experience offered by defendant to the public, as described on another section of its website:… We like to think we’re really in the business of making people happy ... It’s all about what we call the 10-Minute Vacation® ... that 10-minute getaway you deserve from the world outside our doors. Just head inside any Cold Stone Creamery, and that’s what you’ll get.” That was inconsistent with a duty to locate, read, and analyze online ingredient statements.

Defendant also argued that the visual appearance of the ice cream—smooth and without apparent chunks of pistachio—avoided any deception, but that wasn’t apparent from the face of the complaint.

Adjectival use as a flavor name favored the defendant, but that too wasn’t enough for pistachio; it was weightier for mint, because “as an ingredient descriptor, it is highly unspecific [as to spearmint, peppermint, etc.], whereas it commonly finds use as a flavor descriptor without any reasonable expectation that the leaves of a particular mint plant will be involved.”

Use of actual pistachios in competitive products favored the plaintiff, again only as to pistachio.

The survey was the most helpful. “Defendant attempts to quarrel with the survey methodology, an effort which proves both unpersuasive and misplaced at this juncture, as the open-ended questioning here stands in stark contrast to leading questions asked in other cases.” The nearly 90% results were also significant, though not as persuasive for mint.

While 88% of the respondents indicated that they expected to find “mint” among the included ingredients, it is impossible to say what this means. Did they believe that the ice cream contained mint leaves or the extract of a mint plant? As “mint” encompasses an entire family of plants as well as common candies that bear the flavor of mint, this result proves far less compelling. Perhaps, after all, some respondents expected to find “chunks of red and green mint candy,” the advertised feature of Hershey’s Premium Peppermint Stick ice cream ….

Thus, the false advertising consumer protection claim was plausible as to pistachio, not as to the other flavors. It’s always so interesting seeing what generalizations about consumer beliefs courts are willing to make. I guess they have to re-run the survey with each flavor, and also with a list of mint plants? Would “mint from a mint plant such as spearmint or peppermint” be an acceptable category?

Monday, April 29, 2024

Tiktok's other, smaller legal problem

Beijing Meishe Network Technology Co. v. Tiktok Inc., 2024 WL 1772833, No. 23-cv-06012-SI (N.D. Cal. Apr. 23, 2024)

Skipping the copyright and trade secrets part of the case. (In brief: Meishe argued that Tiktok copied its code via an employee who departed. The court found aspects of the copyright/§1202 claims claim insufficiently specifically pled and granted leave to amend, including to add sufficient detail to establish that the works at issue were not US works and thus exempt from the pre-suit registration requirement. The trade secret claims were likewise dismissed with leave to amend, including to specify what acts in furtherance of the offense were committed in the US.)

False designation of origin: Meishe alleged that “TikTok informs users that it owns and has proper rights to the code it uses in its applications”; defendants “have represented that they value intellectual property and would not infringe others’ intellectual property, but have done so as described in this Complaint” and defendants “willfully continued to represent the software as their own, not credited Meishe with being the owners or author of portions of Defendants’ products or code, and not stopped distributing infringing and misappropriated code.” This was classic Dastar. As stated in Luxul Technology Inc. v. Nectarlux, LLC, 78 F. Supp. 3d 1156 (N.D. Cal. 2015) “in this circuit, a reverse passing off claim requires the alteration of a product and a subsequent sale.”

False advertising: Meishe pointed to statements defendants made in their copyright notice at tiktok.com, in the ByteDance Code of Conduct, in TikTok’s Intellectual Property Policy, and in TikTok’s terms of service. But it wasn’t clear that any of these statements were made on the context of “commercial advertising or promotion” or how these statements were likely to influence purchasing decisions by consumers. The court granted leave to amend, but it’s hard to imagine how this gets plausible under the Lanham Act.

 

 

Hetronic remand: the continued rise of "use"

Hetronic International, Inc. v. Hetronic Germany GmbH, --- F.4th ----, Nos. 20-6057 & 20-6100, 2024 WL 1724995 (10th Cir. Apr. 23, 2024)

Hetronic has US registrations; Abitron sold Hetronic-branded products without permission to customers around the world, including in the United States. The Supreme Court remanded for the court of appeals to revisit its decision that Lanham Act penalties extended to Abitron’s foreign sales to foreign customers because the foreign sales substantially affected U.S. commerce. The court of appeals remands, after a discussion of what the district court is to do on remand. Look for the cross-issue use of the idea of "use in commerce," including the cited cases.

Hetronic makes radio remote controls used to operate large industrial equipment. It executed licensing and distribution agreements for the remotes with two European companies, collectively Abitron. Abitron decided that it owned some of Hetronic’s IP under a years-old research-and-development agreement. Abitron began assembling Hetronic-branded remotes with parts that it sourced from unauthorized suppliers, in violation of its agreements with Hetronic, and sold the remotes to foreign and American customers. Hetronic terminated its licensing and distribution agreements with Abitron, but Abitron continued to sell Hetronic-branded remotes without Hetronic’s authorization.

The products circulate worldwide; “a product manufactured in Germany is often destined for another country, like the United States.” Abitron usually sold remotes to OEMs, like manufacturers of cranes. A crane manufacturer would install the remotes in its cranes, and then send the cranes around the world, including to the US. Knowing this, Abitron secured the required FCC certifications and hired a U.S.-based distributor to service Abitron’s U.S. products and to market them at U.S. tradeshows.

Hetronic understandably sued Abitron; a jury found for Hetronic on all its claims, including that Abitron had willfully infringed the Hetronic trademarks, and awarded Hetronic about $96 million in damages related to the Lanham Act violations, along with compensatory and punitive damages for the state-law claims. The district court enjoined further infringing uses of Hetronic trademarks “within and outside of the United States.”

After Abitron, the keystone for liability is the “specific action” that the alleged infringer took in the United States, and whether that action contravened the Act’s focus. Footnote: The concurrence for four Justices would have regarded domestic confusion as the key, not domestic conduct. Ultimately, a domestic, infringing “ ‘use in commerce’ of a trademark” draws “the dividing line between foreign and domestic applications” of the Lanham Act.

What to do here?  

The relevant conduct is use of a trademark “in commerce” “in connection with any goods or services,” specifically “the sale, offering for sale, distribution, or advertising,” in a manner “likely to cause confusion.” So (?), the court first looked at which Abitron’s allegedly infringing activities amounted to an infringing use of Hetronic trademarks. Once there was an infringing use, the court then considered where that use occurred—domestically or overseas—to determine whether the Lanham Act applied. (Citation: 15 U.S.C. § 1117;  see also 1-800 Contacts, Inc. v. WhenU.Com, Inc., 414 F.3d 400, 412 (2d Cir. 2005) [a resurrected blast from the past; why “use as a mark” may be a very interesting doctrine going forward].

Direct sales to US customers: obviously covered. But Abitron contested the amount of those sales that could have caused confusion—all but about €1500 of sales went to Hetronic’s US-based affiliates, and Abitron argued that they had to have known what they were buying and that any confusion stemmed from confusion about “whether [the goods] were constructed with the parts Hetronic requested,” which goes to the “contractual obligations” between Abitron and Hetronic, not to “the goods’ source.” The court wasn’t going to touch the jury finding of likely confusion. And the confusion posited by Abitron was sponsorship/affiliation confusion, anyway. “[E]ven if Hetronic’s affiliates knew that Abitron sourced the remotes, part of a mark’s core function is to help consumers ‘quickly and easily’ identify that ‘this item—the item with this mark—is made by the same producer as other similarly marked items that he or she liked (or disliked) in the past.’” That quality assurance was gone if Abitron sold products under Hetronic trademarks that “varied substantively” from those affiliated with the Hetronic brand, as the evidence showed.

What about foreign sales?

In the initial appeal, this panel held that some of Abitron’s foreign sales triggered a domestic application of the Lanham Act either because the goods wound up in the United States or the foreign sales diverted customers from Hetronic, costing Hetronic tens of millions of dollars in sales that “would have flowed into the U.S. economy but for [Abitron’s] conduct infringing a U.S. trademark.” But neither theory works under the Supreme Court’s new framework.

€1.7 million of Abitron’s foreign sales “ended up” in the United States, but “the ultimate destination of the infringing goods” lacked significance compared to “the location of the conduct relevant to the focus” of the Lanham Act. Because that focus is “the punishment of illegal trademark uses in U.S. commerce detrimental to U.S. businesses and consumers,” foreign sales don’t trigger Lanham Act liability, even if they cause losses in the US. “[P]urely foreign conduct—that is, foreign sales to foreign customers”—can’t be the basis for Lanham Act liability.

There was other domestic conduct than direct US sales, though. “Use in commerce” covers “the sale, offering for sale, distributing, or advertising of any goods or services ... which ... is likely to cause confusion, or to cause mistake, or to deceive.” Thus, any marketing, advertising, and distributing activities that Abitron undertook in the United States were also “uses in commerce.”

What about downstream sales from OEMs to end-users? Justice Jackson thinks they’re infringing, and Hetronic relied on her concurrence to argue that these “goods [were] intended to be sold downstream” and that Abitron “took ... steps to facilitate downstream sales in the United States,” making those sales “sufficiently domestic” for Lanham Act purposes.

Abitron pointed out that, even if that happened, the uses would be uses by the OEM, not by Abitron. Anyway, Justice Jackson joined the majority in full, and also she was making a different point: She argued that use in commerce occurs “wherever the mark serves its source-identifying function.” But she also reasoned that, in the panel’s words, “infringing goods do not offend the Lanham Act merely by their presence in the United States.” Only resale would trigger Justice Jackson’s definition of “use.” Hetronic didn’t show that remotes originally sold abroad were then resold in the US; only then would the goods have begun “serving a source-identifying function in the way Congress described.” Hetronic didn’t introduce evidence that U.S. end-users ever resold Abitron products in U.S. commerce. And allegedly infringing uses in the US by other entities weren’t Abitron’s domestic infringing uses. “Hetronic’s downstream-sales theory strikes us as the sort of ‘repackag[ing]’ [of foreign conduct as domestic] the majority sought to prevent. Hetronic needs to keep its eye on the prize: Abitron’s infringement of Hetronic trademarks in U.S. commerce.”

What about the steps Abitron took to facilitate US sales: obtaining FCC licenses and hiring a U.S.-based distributor? Hetronic argued that these were “essential steps” towards US sales, as in Steele v. Bulova Watch Co. But Steele is “outdated” and the new test gives no weight to Steele’s considerations. “[T]he majority eschewed everything Steele stood for: that any ‘essential steps’ taken domestically to facilitate trademark infringement abroad subject infringers to Lanham Act liability.” (Presumably contributory infringement is still available.)  Thus, Abitron’s acquiring FCC licenses, hiring a U.S. distributor, or repairing a broken part didn’t count as infringing domestic conduct because “none of those actions require using Hetronic trademarks in commerce.” Citing U.S. Surgical Corp. v. Orris, Inc., 5 F. Supp. 2d 1201, 1208–09 (D. Kan. 1998) (rejecting the plaintiff’s claim that defendant’s “conduct in receiving, reprocessing, and returning the instruments” constituted uses in commerce under the Lanham Act); Soc. Techs. LLC v. Apple Inc., 4 F.4th 811, 817 (9th Cir. 2021) (“[U]se in commerce within the meaning of the Lanham Act requires use of a genuine character,” meaning a use “sufficiently public to identify or distinguish the marked goods in an appropriate segment of the public mind.” (citation omitted)). “[T]hese behaviors strike us as merely intermediary or incidental to Abitron’s foreign infringement because none involve affixing Hetronic’s trademark to goods and introducing those goods into U.S. commerce by selling, advertising, marketing, or distributing them to American consumers.”

However, the U.S. distributor’s advertising at U.S. tradeshows or marketing Abitron’s infringing products online to U.S. customers would qualify as domestic infringing uses in commerce under Abitron. “[A]ny activities that Abitron engaged in through its U.S. distributor to sell, market, advertise, or distribute infringing goods to U.S. consumers do violate the Lanham Act.” (Why is this direct liability? Is it a vicarious liability analysis?)

Turning now to disgorgement:  Any portion of the disgorgement award based on Abitron’s foreign sales was improper, assuming those sales were unconnected to any infringing use of Hetronic trademarks in domestic commerce. Disgorgement should account for Abitron’s foreign sales that flowed from its domestic infringing conduct, like advertising, but Abitron argued that the record was insufficient to tether its foreign sales to its infringing domestic conduct. “Hetronic bears the burden of proving the connection between Abitron’s domestic infringing conduct and its foreign sales.” (The court of appeals proceeded in ignorance of Romag, but since the jury found willfulness, that didn’t matter.)\

The plaintiff’s burden is to identify the “total sales” that resulted “from the [defendant’s] infringing activity with reasonable certainty.” That requires more than showing the defendant’s gross revenues, though an estimation of infringed profits based on gross revenues is sufficient. “Above all,” the plaintiff needs to “show some connection between the identified ‘sales’ and the alleged infringement.” This is a proximate cause requirement (citing Lexmark).

Neither side requested a new trial, but the parties on remand could put on “limited opinion evidence as necessary for the district court to interpret which of Abitron’s domestic activities meet the infringing ‘uses in commerce’ threshold.” Hetronic argued that the district court should take into account that it declined to pursue attorney’s fees and treble damages; the court of appeals expressed no opinion on this (which is weird since it held a bunch of other arguments waived) and just said the district court has discretionary authority under the statute (which isn’t even fully accurate, since treble damages have to be compensatory and not a penalty).

Injunctive relief:  Can only cover domestic conduct.

Abitron sought a new trial on the state law claims, arguing that they were tainted by the now-irrelevant foreign conduct evidence, but that was waived.

 

Measuring device (c)able under Star Athletica; ignoring Dastar, court also allows false advertising claim

Leszczynski v. Kitchen Cube LLC, 2024 WL 1829620, No. 8-23-cv-01698-MEMF-ADS (C.D. Cal. Apr. 17, 2024)

Leszczynski invented a measuring cube that combines various measuring volumes into a single cubical structure. He posted the Cube design and 3D print files on Thingiverse.com, the largest site for 3D print objects. The Cube file was provided under a Creative Commons, non-commercial, no derivatives license.

Thingiverse cube

Kitchen Cube made and sold copies of the Cube. It advertised “This device was one of the most popular items on a popular 3D printing website with over 20,000 unique downloads” on its website, at a time when Leszczynski’s Thingiverse page displayed that his Cube had been downloaded 20,000 times. Kitchen Cube also stated on its website that “we designed and manufactured every kitchen measuring device in one easy to use gadget.” Kitchen Cube filed a patent application for the Cube. Other defendants manufactured and sold the Cube with their unique branding through Kitchen Cube’s affiliate program.

Kitchen Cube cube
Leszczynski sued for (1) copyright infringement; (2) violation of Creative Commons license terms; and (3) false advertising and misrepresentation.

After dealing with jurisdiction/proof of service, the court dismissed the copyright infringement claim because no registration had yet been received.

The breach of contract claim survived. Kitchen Cube argued that mutual consent and consideration were missing, but defendants’ act of downloading or utilizing the Cube file from Leszczynski’s Thingiverse page could constitute acceptance. Consideration was also alleged because the design conferred benefits to defendants, and Leszczynski received reputational benefits as a result of making the design available.

Even though the copyright was unregistered, Leszczynski could still have one. The court also found, at this stage, separability under Star Athletica, essentially because it was a 3D object (and thus could be made at a scale that would make it useless as a measuring device). I still don’t think that can be the test; that isn’t in fact imagining the design separately from the useful article, just imagining the useful article at a useless scale, like a skyscraper-sized shovel.

At this stage, Leszczynski sufficiently alleged that manufacturing and selling the Cube constituted commercial use of the Cube, and was prohibited under the Creative Commons license. He pled that his actual damages from the breach and/or the copyright infringement can be measured by multiplying the number of units sold by each defendant by $10 per unit, which sufficed. He could seek a remedy other than termination of the license, since the license didn’t exclude the right to seek damages.

False advertising: Only ok against Kitchen Cube. At this stage, Leszczynski sufficiently alleged that “Kitchen Cube’s behavior misleads the public regarding the Cube’s origin which affects Leszczynski’s market.” This claim of reputational injury seems to require secondary meaning, which seems like it would only be allowed under §(a)(1)(A), which would then generate a pretty significant Dastar problem—even under (B), the “origin” here is not physical origin.

The alleged falsehoods: (1) that Kitchen Cube “designed and manufactured” the Cube; and (2) that Kitchen Cube filed a patent application on the Cube. Kitchen Cube argued that Leszczynski admits that the alleged first false statements are true, as his copyright infringement claim is about Kitchen Cube’s manufacturing of the Cube, and that Kitchen Cube made a change to the original Cube design.

But he clearly alleged that the statement Kitchen Cube “designed and manufactured [the Cube]” was misleading because Kitchen Cube did not design it, but rather used Leszczynski’s design without authorization, even if it also made changes. (Somebody really needs to mention Dastar.) He also properly alleged a misstatement in the patent application because Kitchen Cube falsely claimed to have invented the Cube (which is not in “commercial advertising or promotion”). The court also didn’t discuss materiality (further suggesting this is really a §43(a)(1)(A) claim).

Monday, April 15, 2024

Use of competitor's photo in comparative ads caused no (c) damage, appeals court holds

I Dig Texas, LLC v. Creager, --- F.4th ----, 2024 WL 1590590, No. 23-5046 (10th Cir. Apr. 12, 2024)

The district court found that use of a competitor’s photos in comparative advertising was fair use; the court of appeals affirms on the alternative ground that no copyright damages can be traced to the use of the photos, holding that a plaintiff seeking defendant’s profits must show a nexus between the use of the copyrighted works and the profits. It also affirms the conclusion that it was not literally false to claim that machinery was American-made when it was assembled in the US from materials including foreign-sourced components.

Appellee I Dig Texas tried to appeal to consumers’ preference for American-made products; it used Creager’s photographs of its China-made Montana Post Drivers as part of its advertising.

Rather than ruling on fair use, the court reached the alternative ground of lack of any nexus to damage, which was fully briefed below.

Profits can be either direct or indirect; indirect profits would include “enhance[ing] operations by infringing on a copyright or “add[ing] sales because [defendant’s] advertisements included copyrighted images. Appellant Creager “bore the initial burden to show a nexus between I Dig Texas’s infringement and making of a profit.” Once the nexus has been established, the burden would be on defendant to show which profits didn’t come from infringement, but that first step still exists. Showing a nexus requires more than speculation.  

Although the photos depicted Creager’s products, “there’s no evidence that I Dig Texas sold any more products because the advertisements had included these photographs.” [I will note there’s a subterranean fair use rationale, still, since if the photos hadn’t been used for critical purposes but to show the appeal of defendant’s lookalike products no one would have failed to infer a nexus. This might be another knock-on effect of Goldsmith: courts now afraid to say that anything is transformative, even straight-up criticism.] There was no showing that I Dig Texas “made any money from the advertisements bearing the copyrighted images.” The existence of the ads wasn’t “evidence that anyone had bought something from I Dig Texas because of these advertisements. And even if someone had bought something from I Dig Texas based on these advertisements, there’s no reason to believe that the two photographs would have made a difference to any consumers.”

Nor were the ads literally false (again, an alternative ground: the district court found that the components were disclosed, but the court of appeals noted that at least some of the ads didn’t contain all the relevant information). “[A]n ambiguous statement can’t be literally false.”

Some I Dig Texas products were assembled in the United States, others in China. “Even for the products that I Dig Texas had assembled in the United States, some components had come from overseas. For example, I Dig Texas had used a nitrogen power cell made in China. And some of the nuts and bolts had come from Canada.” The court of appeals reasoned that “make” “could refer either to the origin of the components or to the assembly of the product itself.” Since some of the products were assembled in the US, the ads were ambiguous and not literally false.

What about the ones assembled overseas? Well, the ads didn’t say “all.”  I Dig Texas said on its website: “We Provide 100% American Made Skid Steer Attachments.” And a statement can be literally false by necessary implication. But that 100% was still ambiguous: it could mean “that only some of the products consist entirely of domestic components assembled in the United States. Or 100% could refer only to assembly of the final product rather than the origin of the components.” [Not discussed: were either of these true?] Nor could the court rely on FTC standards in a Lanham Act case, especially when the FTC noted that there was no bright line.

Likewise, patriotic symbols like the American flag could imply US manufacture, but they couldn’t “objectively be verified as true or false,” so they couldn’t be literally false. [Actually, that suggests they couldn’t be misleading, either, but the court seems a bit unclear about that.]