Friday, January 27, 2023

rebinding books doesn't create derivative works but may be actionable under Lanham Act

Steeplechase Arts & Productions, L.L.C. v. Wisdom Paths, Inc., 2023 WL 416080, No. 22-02031 (KM)(MAH) (D.N.J. Jan. 26, 2023)

In this pre-discovery summary judgment ruling, the court adopts the correct view of whether rebinding creates a derivative work (no) but finds that there could still be trademark infringement, in the process suggesting that a defendant might not be responsible if an online portal forces it to choose from condition descriptions, none of which quite fits. Defendant does business as Spiralverse; it bought lawfully made Steeplechase books and rebound them with spiral binding. (It tried to get “rebinding rights” but Steeplechase said no.)

Steeplechase has a copyright for the book, “Piano Book for Adult Beginners: Teach Yourself How to Play Famous Piano Songs, Read Music, Theory & Technique” and registered trademark rights in STEEPLECHASE ARTS & PRODUCTIONS for, among other things, music instruction books, including for the Piano Book. As initially produced, the Piano Book is paperback with glue binding. Spiralverse removed the original paperback glue bindings from the copies it purchased, punched holes in the pages, and installed spiral bindings. At least some of the spiralbound books have a front label, which states: “The original binding was removed and replaced with a spiral binding by Spiralverse.com.” Spiralverse listed its modified copies for sale on Amazon at prices of $29.99 and up—reflecting a markup from the prices at which it bought the paperbacks—and a large number of those books were sold to consumers. The Amazon listing indicated that (i) the condition of the books was “new,” (ii) the format was “spiralbound,” and (iii) the seller was either “Wisdom Paths,” “Wisdoms Paths,” or “Your Name Books.”

The rebinding leaves glue residue between the cover and the first page of the modified copies and obscures some of the printed matter, but the parties dispute how significant the obstruction is. It’s desirable for making it easier to turn pages for performance etc.

Copyright infringement: Rebinding doesn’t create a derivative work. A derivative work must involve an original work being “recast,” “transformed,” or “adapted,” and nothing like that took place here.

False advertising: Spiralverse allegedly falsely advertised its version of the Piano Book on Amazon as “new,” despite the rebinding, residue, and front labels. Was this literally false? According to the Amazon condition guidelines for books, “new” means “[a] brand-new copy with cover and original protective wrapping intact. Books with markings of any kind on the cover or pages, books marked as ‘Bargain’ or ‘Remainder,’ or with any other labels attached may not be listed as New condition.” But the only condition options aside from “new” are “used – like new;” “used – very good;” “used – good;” “used – acceptable;” and “unacceptable.” If “new” means “not used,” that’s the case here: “The books had not previously been used to perform or learn music, says Spiralverse, had no signs of wear, and therefore could permissibly be described as ‘new.’” “Modified” is not an option on Amazon.

On the current record, the court couldn’t conclude that Spiralverse’s Amazon listing was unambiguously false. Neither “new” nor “used” really fit a product that has not been used by a consumer, but has been altered by a third-party seller. “The Amazon condition guidelines are relevant, at least to the extent that consumers are aware of them, but there is no evidence either way as to whether they are.” Those guidelines suggested that previous use wasn’t the only thing that made a book not “new”—cosmetic defects  could count. “It is highly counterintuitive, for example, that a product, because it has not been used by a consumer, could be listed as ‘new’ despite being severely damaged.” Still, the extent of the modifications and their effects on consumers was disputed.  In a footnote, the court commented that, “[i]f Amazon did not require a seller to choose between a fixed set of options and instead allowed the seller to describe the condition of a book using words of the seller’s choosing, I would be more inclined to find that Spiralverse’s listing was unambiguous and literally false. The record does not conclusively establish whether a seller has any flexibility in this regard.”

Steeplechase also argued misleadingness, arguing that multiple consumer reviews on Amazon demonstrate that purchasers of the Spiralverse book did not receive what they expected. But ruling on that was premature before discovery.

False designation of origin: Spiralverse argued that its label notifies consumers that “[t]he original binding was removed and replaced with a spiral binding by Spiralverse.com.” Steeplechase argued that this didn’t alleviate confusion but instead creates the impression that Steeplechase authorized the rebinding, especially since Spiralverse lists its books as “new” on Amazon.

The court declined to rule on this at this time. “There is insufficient evidence in the record to demonstrate that consumers likely understood that the rebinding was done without the permission of Steeplechase, or that consumers were likely confused about who was responsible.” First sale defense: This requires resale of a genuine product, meaning that there are no material differences. Courts say a bunch of things about this, not noticing that they are in tension in terms of what needs to be proven; this court does much better than usual. While the “material differences” test is “a means to determine whether the allegedly infringing products are likely to injure the goodwill developed by the trademark owner in the trademark goods,” courts often don’t pay attention to the fact that lack of material differences is one reason that there might be no harm to the trademark owner.

Although there were material differences between the parties’ books, the court was sympathetic to the argument that there can be no liability

where the reseller clearly communicates to consumers any material alterations that the seller has made to the product. Although Spiralverse did not cite any cases in support of this argument, it has intuitive appeal. If a consumer understands that the reseller is responsible for any material differences between the resold and genuine product, then the owner’s goodwill in the trademarked product is unlikely to be damaged.

But it still wasn’t clear whether the label

alleviates all confusion about which entity is responsible for the rebinding, particularly in light of the fact that Spiralverse advertises its version of the Piano Book as ‘new.’” If consumers understand that Spiralverse modified the binding but believe that it did so with the permission of or in association with Steeplechase, the goodwill of the Steeplechase Mark could still be affected.

And here we get the fundamental overexpansiveness of modern trademark law: the court recognized that you should be looking for harm to goodwill for first sale, but skipped over that entirely for permission/association: in what way could it harm Steeplechase if consumers were mistaken about this? Anyway, to get first sale protection, Spiralverse apparently has to show that it has also disclaimed permission or association. Note that this reasoning also applies to resellers of unmodified used goods truthfully marked as used, as Chanel has asserted against Therealreal.


"out of stock" not shown to be misleading when Walmart stopped stocking P's product

Stiles v. Walmart, Inc., --- F.Supp.3d ----, 2022 WL 16806210, No. 2:14-cv-02234-DAD-DMC (E.D. Cal. Nov. 8, 2022)

Stiles invented the “Stiles Razor,” a patented disposable razor with a narrow blade for precise shaving. Many years ago, Walmart agreed to sell the Stiles Razor in its stores, but about ten years ago, Walmart terminated the relationship. Stiles alleged that it sold knockoff razors instead, infringing her patents, violating trademark and antitrust law, and interfering with her economic interests. The court granted partial summary judgment to Walmart.

The Stiles razor appeals to people who want more precision than a wider-bladed disposable razor can offer, for example with goatees, moustaches, sideburns, eyebrows, and bikini lines. Walmart shelved it with other hair-removal products in the “wet shave” department, including standard-size razors, eyebrow razors, tweezers, waxing strips, and other depilatories. “Despite some early success, sales of the razor did not meet Walmart’s or Stiles’s expectations in the long term.” Walmart moved her razors to the beauty department, but that didn’t help enough. Stiles argued that, when it moved her razors, Walmart was already offering a similar razor, at least in part because (according to sales meeting notes) “[Walmart] benefits from not needing a one sku vendor.” It accepted a proposal from another supplier that made a lot of stuff for it, at a cost and price point similar to the Stiles Razor. That supplier worked with a foreign supplier to mimic the Stiles Razor, using “photographs and physical samples of the Stiles razor as references.”

comparisons

The antitrust claims failed because they were antitrust claims.

The remaining design patent claims also failed.

design patent

First, the court filtered out the functional features: the narrow head that allowed detailed or precise shaving; the handle angle and length that allowed a comfortable shaving position; the gripping surface for a secure hold and precise control.

At least four ornamental aspects remained, two of them prominent: the gripping surface was cylindrical, and it had a constant radius along the handle’s axis, and the end of the razor opposite the shaving head was flat, not rounded. But ea side-by-side comparison of the two designs showed they were dissimilar overall:

In the accused design, the grip was much wider than the handle, but in only one dimension, and the bulge had a diamond-like shape, not a cylinder with a constant radius. The accused design’s grip was also contoured and textured, not angular and smooth. At the end of the handle, the accused design was rounded; the Stiles design was flat. “Overall, these and other features give the American razor a flowing, contoured look and the Stiles Razor an angular, minimalistic look.”

Even if differences are harder to see when the razors are still in their packaging, that’s not the test, and anyway “the differences described above are plain even when the razors are still in their packaging.”

Utility patent claims against one version also failed for noninfringement.

False advertising: Stiles alleged that Walmart showed her razor on its website even after Walmart terminated their relationship, but stated that the razor was “out of stock,” allowing Walmart to market its own razors to people searching for her razor. But she needed to show that consumers actually received the allegedly misleading message. It wasn’t enough that people have said they were frustrated not to find her razors in Walmart stores.

statements to investors not probative of commercial ad/promotion in Lanham Act case

Strategic Partners, Inc. v. FIGS, Inc., 2022 WL 18399950, No. 2:19-cv-02286-JWH-KS (C.D. Cal. Sept. 26, 2022)

[much other stuff skipped] The parties had a false advertising dispute that went to a jury, which found that FIGS wasn’t liable for falsely advertising the antimicrobial properties of its scrubs. Since the court had some interesting evidentiary rulings, I’m blogging that here.

First, FIGS successfully excluded four documents that allegedly contain investor-related communications on the basis that “[o]nly ‘commercial speech’ that is made ‘for the purpose of influencing consumers to buy defendant’s goods or services’ is actionable under the Lanham Act.” Because none of those communications was directed at consumers, they failed as a matter of law to support SPI’s Lanham Act claims. “Even if the documents at issue were aimed at brand builders and consultants, without a showing that those communications were aimed at consumers they cannot serve as commercial speech for Lanham Act purposes.” Motion in limine granted.

Evidence relating to dismissed trade secret etc. claims: Not sufficiently related to false advertising because there was no evidence that the allegedly misappropriated info showed up in advertising. FIGS’ alleged copying of SPI’s products was not relevant to false advertising. And SPI wouldn’t need this to counter FIGS’ allegedly “fraudulent” origin narrative unless FIGS opened the door with that narrative.

However, the court would not exclude SPI’s evidence about the Silvadur trademark guidelines from non-party Dow Chemical. FIGS argued they weren’t probative of falsity or misleadingness, or of intent, because it was never licensed by Dow to use the Silvadur trademark. The issue is that the guidelines disavow anti-microbial qualities, and FIGS apparently relied on Silvadur for its antimicrobial claims. “Although it would be remarkable for Dow to have inaccurately disavowed the antimicrobial properties of Silvadur in its Trademark Guidelines, the ability of FIGS to prove the antimicrobial properties of Silvadur at trial through its own scientific testing does not exclude the ability of SPI to rely on the Trademark Guidelines.” After all, defendants relied on Dow’s published descriptions of Silvadur for its claims that “FIGS antimicrobial fabric reduces hospital-acquired infections by 66%” and in other ways. “FIGS cannot rely on Dow’s published guidance on Silvadur’s antimicrobial properties and then disown it. FIGS may be correct that scientific testing has demonstrated that its claims about Silvadur are true, but SPI has relevant and admissible grounds for referencing the Trademark Guidelines.”


Dastar bars federal anticopying claims, but not state ones?

Williams-Sonoma, Inc. v. Wayfair Inc., --- F.Supp.3d ----, 2023 WL 371035, No. 1:21-12063-PBS (D. Mass. Jan. 24, 2023)

WS sued Wayfair, alleging patent infringement, Lanham Act false advertising, Massachusetts and California statutory unfair competition and Massachusetts false advertising based on alleged copying of West Elm products. Wayfair moved to dismiss the false advertising and unfair competition claims. The Lanham Act and California claims failed, but the Massachusetts claim survived.

WS has nine relevant design patents, which it alleged Wayfair infringed. Example: 

False advertising: In a video ad for its Foundstone collection, Wayfair included images of a designer sketching products, which WS alleged would lead consumers to believe that Wayfair designed the products copied from WS’s patented designs. Multiple third parties have noted the similar nature of the products, e.g. referring to Wayfair’s Foundstone products as “look-alikes,” “identical” or “mirroring” West Elm, a “West-Elm-Inspired Collection,” and that it “could easily be confused for West Elm. Again, it’s not a knock-off, but it’s fair to call it a dead ringer.” Wayfair states that products from Foundstone are available “only at Wayfair” or are “a Wayfair exclusive collection,” or “looks you’ll only find at Wayfair.”

Lanham Act: Wayfair argued that, read in context, these claims related to the collections, not to every individual product: “Foundstone” followed by the text “Only at Wayfair”; Wayfair’s “exclusive brands team has been hard at work on Foundstone a Wayfair-exclusive collection of attainable and updated mid-century furniture and d├ęcor”; and Wayfair’s “hand-curated collections are filled with the best in popular pieces, timeless designs, and looks you’ll find only at Wayfair—all at prices that fit your budget.”

The court didn’t resolve that question because it found Wayfair’s Dastar argument persuasive: the physical origin of these goods was Wayfair. And the court agreed with other courts that have held that authorship does not constitute part of the “nature, characteristics, or qualities of a good for sale” and thus isn’t the proper subject of a false advertising claim.

“However, a Chapter 93A claim can survive even if Dastar precludes a Lanham Act claim.” The court didn’t explain why; the logic of Dastar strongly suggests that copyright conflict preemption would apply if a federal claim is Dastar-barred.

California claims: No standing for a competitor-plaintiff who can’t allege its own reliance on the false or misleading statements. [Also not explaining why the court rejects the minority view that this doesn’t make sense.]

Monday, January 23, 2023

bioengineering disclosures mostly survive APA, First Amendment attack

Natural Grocers v. Vilsack, --- F.Supp.3d ----, 2022 WL 4227248, No. 20-cv-05151-JD (N.D. Cal. Sept. 13, 2022)

An appeal has been filed in this case upholding USDA regulations promulgated to deal with bioengineering disclosures. Congress declared that the purpose of the disclosure statute was “to preempt state and local actions that mandate labeling of whether a food or seed is genetically engineered, and establish a mandatory uniform national disclosure standard for human food that is or may be bioengineered.”

Plaintiffs, retail stores that sell natural and organic food products, and organizations engaged in food safety advocacy, challenged the disclosure statute and implementing regulations promulgated by the USDA. They objected under the APA to regulations that: (1) permit a text message disclosure option as an alternative to an electronic or digital link disclosure; (2) require disclosures to use the word “bioengineered”; and (3) exclude highly refined foods that do not contain detectable amounts of modified genetic material. They also alleged that the word-use regulations restricted their speech in violation of the First and Fifth Amendments to, and preemption of state labeling laws for genetically engineered (GE) seeds violates the Tenth Amendment. I’ll focus on the First Amendment, but the court did grant summary judgment to plaintiffs under the APA for the text message disclosure regulation.

Congress required that a bioengineering disclosure on labels for consumers take the form of “a text, symbol, or electronic or digital link,” with the “disclosure option to be selected by the food manufacturer.” It required that the electronic or digital link be accompanied by “on-package language” indicating that the link provides access to food information, along with “a telephone number that provides access to the bioengineering disclosure.” If a statutorily required study determined “that consumers, while shopping, would not have sufficient access to the bioengineering disclosure through electronic or digital disclosure methods,” the USDA was to “provide additional and comparable options to access the bioengineering disclosure.” The resulting Deloitte study found that “key technological challenges,” including a lack of technical knowledge and a lack of infrastructure, “prevented nearly all participants from obtaining the information through electronic or digital disclosure methods.” It also found that the telephone numbers accompanying the electronic disclosure “do not provide a viable means of accessing the bioengineering disclosure.” The study recommended “on-package identification,” such as “a landline-enabled bioengineering disclosure” with “24-hour disclosure information via an automated recording,” and “a text message alternative for consumers who have access to a mobile phone.” The regulations thus created a fourth disclosure option of text messaging separate from the electronic disclosure method.

Note that Congress contemplated that some options for disclosure wouldn’t necessarily need to involve putting “bioengineered” on the package, if they had an electronic or digital disclosure link offering “more food information”; the text message disclosure would say “Text [command word] to [number] for bioengineered food information.” But the regs required “bioengineered” in all disclosures because the “statutory term, ‘bioengineering,’ adequately describes food products of the technology that Congress intended to be within the scope of the [regulations].” The agency rejected GE or GMO as alternatives, which might “create inconsistencies with the preemption provisions or muddy the scope of disclosure,” and limiting mandatory disclosure language to bioengineered would provide “disclosure consistency” and minimize “marketplace confusion.” However, “regulated entities are perfectly free to make additional statements about bioengineered foods so long as they are consistent with federal laws generally.”

The regs defined bioengineering to exclude highly refined foods which had undetectable modified genetic material even if they were produced from bioengineered crops. They adopted a “List of Bioengineered Foods,” which are crops and food ingredients presumed to be bioengineered. “A highly refined food produced with a listed item as an ingredient is presumed to require disclosure, and would be exempted only if the regulated entity proved that the product is not bioengineered.” This is likely overinclusive, and the regs state that many highly refined foods may not require a bioengineering disclosure even with the use of a listed ingredient because “the refining process removes the genetic material so that it can no longer be detected. If the genetic material is not detected, then it is not possible to conclude that the food product or ingredient contains modified genetic material.”

The plaintiffs didn’t challenge the mandatory disclaimer language, but only argued that they were forbidden from using additional terms like GE or GMO. The court disagreed with them that the regs did any such thing. The “whole purpose of the disclosure statute” was “the use of standardized language to ensure that consumers get the same baseline information about bioengineered food irrespective of where they buy it, or from whom. After that, plaintiffs are perfectly free to speak their minds in any manner they choose.” The regs were quite clear: “[N]othing in the final rule prohibits regulated entities from providing additional statements or other claims regarding bioengineered foods and bioengineered food ingredients, so long as such statements are consistent with all other applicable laws and regulations.” Indeed, plaintiffs lacked a well-founded fear of enforcement for using GE, GMO, or any other words above and beyond the mandatory disclosure terminology and didn’t have standing to challenge the statute or regulations on First or Fifth Amendment grounds.

So too with plaintiffs’ objection to a provision that prohibits labeling meat or dairy products as bioengineered solely because the products were derived from livestock fed GE feed; they didn’t demonstrate concrete plans to use a “bioengineered” label on any meat or dairy products. Nor did they have concrete plans to use “may be bioengineered,” another phrase rejected by the regs as confusing.

On the APA challenge, the court concluded that the “decision to provide a separate text message disclosure option did nothing to fix the problem of inaccessible electronic disclosures.” The additional disclosure option didn’t change that a regulated entity could simply choose the standalone electronic disclosure option, even though the study showed it wouldn’t be accessible to many consumers.

APA challenges to the mandated use of “bioengineered” failed, however.

how can one show false advertising injury to get a presumption of irreparable harm?

Santos Elecs. Inc. v. Outlaw Audio, LLC, No. 8:22-cv-827-JVS-KESx, 2022 WL 18396275 (C.D. Cal. Dec. 12, 2022)

Reconsidering its previous decision as to the Lanham Act claim, the court granted a preliminary injunction against counterclaim defendant Santos dba OSD. The parties compete in the market for audio products and sell competing models of multichannel amplifiers on different platforms, including Amazon.

The false statement at issue is OSD’s claim that one of its products, an amplifier, has a signal-to-noise ratio of 115 decibels. “The signal-to-noise ratio measures the difference between the amplified signal coming out of a power amplifier and the inherent noise that already exists. The lower the total harmonic distortion and the higher the signal-to-noise ratio, the better audio experience is for a user.” This ratio is “extremely important” to consumers.

OSD’s signal-to-noise statement was literally false because it advertised its amplifier as having 115 decibels on numerous websites even though OSD said in other statements under penalty of perjury that the signal-to-noise ratio was 104 decibels, and it didn’t submit test results or objective evidence that it was 115.

Likely injury: Unlike a trademark claim, false advertising has injury as an element of the claim, and thus the statutory presumption of irreparable injury is less helpful to false advertising plaintiffs. Injury requires evidence of causality and consumer deception. But the Ninth Circuit says that commercial injury can be “generally presumed” when the parties “are direct competitors and defendant’s misrepresentation has a tendency to mislead consumers.” Still, the court here thought that, while causation of injury may be presumed when there’s a literally false statement and direct competitors, evidence of injury is still needed. Even without a presumption of injury, a plaintiff may “establish an injury by creating a chain of inferences showing how defendant’s false advertising could harm plaintiff’s business,” even “without direct evidence of lost sales or concrete proof of injury.”

The parties here sell the same products on the same platforms using substantially similar graphics, photos, and descriptions of the products. Outlaw submitted proof that its sales have declined as a result of OSD’s false signal-to-noise ratio statements on third-party websites and advertisements. OSD argued that Outlaw couldn’t establish causation because the sales were declining even before the alleged misrepresentation. Still, a portion of the decline could still be attributable to the false statement. This was enough to create a presumption of commercial injury.

Once this was done, there was a rebuttable presumption of irreparable harm, which was not rebutted. Injunction against the statement granted.

Friday, January 20, 2023

A landline war in ED Tex--AT&T loses bid to enjoin T-Mobile

AT&T Mobility LLC v. T-Mobile USA Inc., No. 4:22-cv-00760, 2023 WL 311287 (E.D. Tex. Jan. 18, 2023)

T-Mobile’s “Banned Seniors” was a nationwide marketing and advertising campaign intended to attract customers over the age of fifty-five. Its website, www.BannedSeniors.com, says that AT&T “ban[s] senior discounts” outside of Florida. It says “92% of seniors in the U.S. can’t get a 55+ discount from ... AT&T because they don’t live in Florida” and offers non-Floridian seniors three options for obtaining a “55+ Discount”: (1) Switch to T-Mobile; (2) Move to Florida; or (3) Get a Virtual Florida Mailbox. (After AT&T sued, T-Mobile changed the website by including “senior” or “55+” before every reference to a “discount.”) On the website’s map, Florida is the only state in which customers can receive AT&T’s “discounted 55+ plan,” while T-Mobile is shown offering discounts in each of the lower forty-eight states.

"Verizon and AT&T ban senior discounts" website image

three options image

website graphic

AT&T’s Unlimited 55+ plan is a “special deal for Floridians 55 and over” where Floridians means “have a Florida billing address.” This is AT&T’s only discount program that is age restricted. But it has a “member savings” program for members of the American Association of Retired Persons (AARP), available to all AARP members irrespective of their age or billing address.

AT&T did not show likely success on the merits of its Lanham Act false advertising claim and did not receive a preliminary injunction. The problem was falsity.

AT&T argued literal falsity, which requires a “rigorous” showing. Mixing several circuits’ standards, the court invoked the Seventh Circuit’s extreme and not really serious “bald-faced, egregious, undeniable, [and] over the top” standard as well as the more common “unambiguous” standard.  AT&T argued that it was literally false to say (1) that AT&T “ban[s]” senior discounts and (2) that “92% of seniors in the U.S. can’t get a wireless discount from ... AT&T unless they live in Florida,” given the AARP discount.

T-Mobile rejoined that the AARP discount was a “member discount” available to all AARP members, rather than a “senior discount,” defined as a discount that is available to all customers over a threshold age.

At this stage, there were significant factual disputes given that both parties presented reasonable interpretations of the key terms (1) “senior discount” and (2) and “ban.”

T-Mobile argued that a senior discount is one that is “available to all consumers over a threshold age” and pointed to several other businesses who advertise senior discount programs as “discounts that are available to any person over a specified age.” This interpretation was reasonable “because the term itself necessarily implies that age, rather than membership in any organization, is the sole quality that defines eligibility for the discount.”

AT&T argued that a “senior discount” is simply “a discount available to seniors,” and its AARP discount meets this definition, but that wasn’t the only reasonable interpretation.

Likewise, “ban” could mean “prohibit” as AT&T argued, and AT&T does not prohibit anyone from receiving its Unlimited 55+ discount—it simply does not offer the discount outside of Florida. T-Mobile argued that “ban” also means to “refuse to allow.” This was not “unambiguously false.” In context, the challenged website statements, including the graphics, could be reasonably interpreted “as merely stating that AT&T chooses not to offer its Unlimited 55+ plan—its only discount that is available to all consumers over a threshold age—outside of Florida. This statement is objectively true.”

AT&T also argued that the statements conveyed the message that AT&T bans seniors from obtaining “any wireless discounts” But the modifications include the term “senior” or “55+” before every reference to a “discount,” preventing an unambiguous message that seniors are categorically ineligible for any AT&T discounts. Plus, this was an implicit falsity argument, because it required consumers to “make the inferential leap that AT&T categorically excludes seniors from all discount programs.”

Wednesday, January 18, 2023

"no preservatives" plausibly misleading where ingredients had preservative function

Kelly v. Beliv LLC, --- F.Supp.3d ----, 2022 WL 16836985, No. 21-cv-08134 (LJL) (S.D.N.Y. Nov. 9, 2022)

Kelly sued Beliv based on the “No Preservatives” claim on its juice-based beverage Nectar Petit, alleging violations of NYGBL §§ 349 and 350 and the corresponding consumer fraud statutes of Connecticut and Massachusetts; violations of the Magnuson-Moss Warranty Act (MMWA); breaches of express warranty and the implied warranty of merchantability; as well as negligent misrepresentation, fraud, and unjust enrichment. The core NYGBL claims survived, as did Massachusetts-based claims and express warranty claims.

The complaint alleged that market research indicates that many Americans prefer foods and drinks with “free from” claims because they believe such products are more natural, healthier, and less processed, and that they are willing to pay more for such products. But citric acid and ascorbic acid are two of the ingredients, and the FDA has identified citric acid and ascorbic acid as “Names Found on Product Labels” that consumers should look for to determine if a food contains preservatives. In 2010, the FDA issued a warning to a different food and beverage company, stating that its products were mislabeled “in that they contain the chemical preservative[s] ascorbic acid and citric acid but their labels fail to declare these preservatives with a description of their functions.”

The label here “identifies ascorbic acid as an ingredient, but places the words ‘ascorbic acid’ in parentheses after ‘Vitamin C,’ implying that the terms are equivalent: ‘Vitamin C (as Ascorbic Acid).’” While the FDA has authorized the use of ascorbic acid as a synonym for Vitamin C for purposes of describing a product’s nutritional content, it has not authorized it as a synonym for Vitamin C for purposes of an ingredient list. The ingredient list also identifies citric acid “as an acidulant, a compound that confers a tart, sour, or acidic flavor to foods,” but not as a preservative.

At this stage, Kelly plausibly alleged misleadingness. The court rejected Beliv’s argument that a “preservative” must “actually function” in a specific product to preserve a given product. While that was one plausible meaning, another, according to dictionary definitions, was “an ingredient that has the power or the tendency to preserve, regardless of whether it has a preserving function in a specific product.”

While Kelly didn’t lack standing to bring claims under other states’ substantively identical consumer protection statutes, the Connecticut claims went because CUTPA bars a nonresident of Connecticut who was injured outside of Connecticut from bringing class action claims under CUTPA.

Express warranty claims survived because the NYGBL claim did, but implied warranty claims didn’t because Kelly didn’t allege that the product was unfit for human consumption, or that there was privity, which is required except for personal injuries.

Magnuson-Moss Warranty Act claims failed because the statement “No Preservatives” didn’t meet MMWA’s definition of a “written warranty,” which is “any affirmation of fact or written promise ... which ... affirms or promises that such material ... will meet a specified level of performance over a specified period of time.”

Negligent misrepresentation: no plausible allegation of the existence of a special relationship or a privity-like relationship.

Fraud: the allegations didn’t give rise to an inference of fraudulent intent. “The simple knowledge that a statement is false is not sufficient to establish fraudulent intent, nor is a defendant’s ‘generalized motive to satisfy consumers’ desires [or] increase sales and profits.’ ” Unjust enrichment: duplicative.

Injunctive relief: no standing.

Tuesday, January 17, 2023

False CMI isn't plausibly related to consumers' decisions to buy/watch TV show

Livn Worldwide Ltd. v. Vubiquity Inc., 2022 WL 18278580, No. 21-cv-09589-AB-KS (C.D. Cal. Jul. 22, 2022)

Interesting Dastar case thrown up by Westlaw. LW alleged that it was the exclusive licensee allowed to distribute and sell a 60-episode series, Martial Universe, in the US. As part of preliminary discussions with Vubiquity about a distribution agreement for iTunes, LW provided master copies of all 60 episodes, but no agreement was ever reached. Nonetheless, Vubiquity allegedly uploaded the series to iTunes for sale and download. This allegedly involved false copyright and release date information, as well as “drastically low bargain-rate prices” and failure to distinguish between HD and SD versions.  

LW sued for copyright infringement, violations of both sections of Lanham Act §43(a), §1202 CMI violations, fraud, and state-law statutory unfair competition.

Both §43(a)(1)(A) and (B) claims failed. §43(a)(1)(A):

[U]nder Dastar’s interpretation of “origin of goods,” the origin of the Martial Universe episodes on the iTunes platform is not determined by who originated or created the ideas behind the Series (Plaintiff). Instead, the origin of the episodes, as it relates to the Lanham Act, is the producer of the Series on iTunes for sale, which is Defendant because Defendant made the content available for sale on the platform. But neither of Plaintiff’s Lanham Act claims rely on allegations that Defendant caused confusion about who placed the Series on iTunes. Instead, Plaintiff’s Lanham Act claims assert that Defendant incorrectly identified the copyright owner of the Series, which is not within the scope of the Lanham Act.

False advertising: Sybersound Recs., Inc. v. UAV Corp., 517 F.3d 1137 (9th Cir. 2008), held that misrepresentations about copyright licensing status did not relate to the “nature, characteristics, and quality” of a good under §43(a)(1)(B), unlike “the visual and audio quality of the good.” So too with the allegedly inaccurate release date information.

The fraud claim was preempted by §301 of the Copyright Act. The allegations that defendant (1) generated images from the series to sell it on iTunes; (2) knowingly provided false CMI to induce the public to buy it; and (3) priced the content badly, in ways that didn’t signal its value, did not provide qualitatively distinct extra elements. The fraud claim was, at its core, about “unauthorized use, reproduction and distribution of the Series.” As to pricing, LW didn’t identify what was concealed or misrepresented. Claims under California Business & Professions Code § 17200, which prohibits “unfair competition,” were preempted for the same reason.

CMI: § 1202(a) requires that the plaintiff “plausibly allege that the defendant knowingly provided false copyright information and that the defendant did so with the intent to induce, enable, facilitate, or conceal an infringement.” It’s not enough to allege that a defendant provided false information about the copyright owner without the resulting inducement etc.

First, a release date is not CMI.

Copyright ownership information is CMI. But LW didn’t allege facts sufficient to plausibly establish that Defendant knowingly distributed that false CMI with the intent to induce infringement:

Plaintiff argues that by distributing false copyright ownership information, Defendant had to have done so with the intent to induce and enable iTunes subscribers to purchase and download the content, thereby satisfying the intent requirement of section 1202(a). However, “formulaic recitation of the elements of a cause of action, including allegations regarding a defendant’s state of mind, are not sufficient to satisfy Rule 8.” … [F]alsely identifying a copyright owner does not seem to further, or have any correlation with, iTunes subscribers buying the series, or with any sort of infringement in this case. In other words, regardless of who Defendant said the copyright owner of the Series was, it is not plausible that the number of purchasers and downloaders of the content would change.

[This seems absolutely correct as to purchasers/downloaders. But surely the copyright ownership claims affected Apple’s behavior. But then again, does Apple look at CMI on/associated with works, or is there a separate form, and would that separate form constitute CMI?]

Likewise, LW failed to allege facts showing injury based on the use of its name as opposed to its licensor’s name or nothing at all.

Because distribution rights weren’t violated merely by “making available” the work, or allowing subscribers to download or stream copies, the copyright claims were dismissed in part, but obviously the core copyright claim remains.

CFP--Yale/Harvard/Stanford Junior Faculty Forum: please disseminate widely!

 

Request for Submissions
Harvard/Stanford/Yale Junior Faculty Forum

June 29-30, 2023, Yale Law School

Harvard, Stanford, and Yale Law Schools are soliciting submissions for the 2023 Harvard/Stanford/Yale Junior Faculty Forum, to be held at Yale Law School on June 29-30, 2023. Twelve to twenty junior scholars (with one to seven years in teaching) will be chosen, through a double-blind selection process, to present their work at the Forum. A senior scholar will comment on each paper. The audience will include the participating junior faculty, senior faculty from the host institutions, and invited guests. The goal of the Forum is to promote in-depth discussion about particular papers and more general reflections on broader methodological issues, as well as to foster a stronger sense of community among American legal scholars, particularly by strengthening ties between new and veteran professors.

 

TOPICS: Each year the Forum invites submissions on selected topics in public and private law, legal theory, and law and humanities topics, alternating loosely between public law and humanities subjects in one year, and private law and dispute resolution in the next. For the upcoming 2023 meeting, the topics will cover these areas of the law:

Administrative Law

Antidiscrimination Law and Theory

Constitutional Lawtheoretical foundations 

Constitutional Lawhistorical foundations
Criminal Law

Critical Legal Studies 

Environmental Law 

Family Law

Jurisprudence and Philosophy 

Law and Humanities

Legislation and Statutory Interpretation 

Public International Law

Workplace Law and Social Welfare Policy


A jury of accomplished scholars will choose the papers to be presented. There is no publication commitment. Yale Law School will pay presenters’ travel expenses, though international flights may be only partially reimbursed.

QUALIFICATIONS: Authors who teach law in the U.S. in a tenured or tenure-track position and have not been teaching at either of those ranks for a total of more than seven years are eligible to submit their work. American citizens or permanent residents teaching abroad are also eligible provided that they have held a faculty position or the equivalent, including positions comparable to junior faculty positions in research institutions, for less than seven years and that they earned their last degree after 2013. We accept jointly authored submissions, but each of the coauthors must be individually eligible to participate in the Forum. Papers that will be published prior to Forum are not eligible. There is no limit on the number of submissions by any individual author. Faculty from Harvard, Stanford, and Yale Law Schools are not eligible.


PAPER SUBMISSION PROCEDURE: Electronic submissions should be sent to Christine Jolls at
christine.jolls@yale.edu with the subject line “Junior Faculty Forum.” The deadline for submissions is February 17, 2023. Remove all references to the author(s) in the paper. Please include in the text of the email and also as a separate attachment a cover letter listing your name, the title of your paper, your contact email and address through June 2023, and under which topic your paper falls. Each paper may only be considered under one topic. Any questions about the submission procedure should be directed to Christine Jolls.

FURTHER INFORMATION: Inquiries concerning the Forum should be sent to
Christine Jolls or Yair Listokin (yair.listokin@yale.edu) at Yale Law School, Matthew Stephenson (mstephen@law.harvard.edu) or Rebecca Tushnet (rtushnet@law.harvard.edu) at Harvard Law School, or Norman Spaulding (nspaulding@stanford.law.edu) at Stanford Law School.

Christine Jolls

Yair Listokin

Matthew Stephenson

Rebecca Tushnet

Norman Spaulding

Monday, January 16, 2023

survey + D's own website plausibly show materiality of presence of even small amounts of phthalates

Stuve v. Kraft Heinz Co., 2023 WL 184235, No. 21-CV-1845 (N.D. Ill. Jan. 12, 2023)

Plaintiffs alleged that Kraft Mac & Cheese deceptively omitted information, misleading purchasers into believing that Kraft Mac & Cheese is free from phthalates—“plasticizing chemicals that, at certain levels, can be dangerous to consume.” Plaintiffs filed this complaint in federal court pursuant to the Class Action Fairness Act of 2005, They alleged violations of multiple state consumer fraud and deceptive business practice laws; unjust enrichment; and breach of warranty. The court dismissed claims for false or misleading statements, breach of implied warranty for all non-Massachusetts plaintiffs, and breach of express warranty, but declined to dismiss claims based on material omissions and unjust enrichment.

“Each day, Kraft sells more than a million boxes of Kraft Mac & Cheese.” The front of the box tells consumers that inside is “The Taste You Love” with “NO Artificial Flavors,” “NO Artificial Preservatives,” and “NO Artificial Dyes.”

However, plaintiffs allege that phthalates “enter food during processing and packaging” and “escape from food contact materials such as processing equipment and food packaging material into the cheese powder.” Phthalates make plastics flexible, but also disrupt endocrines, and plaintiffs alleged that scientific studies have linked excessive consumption of phthalates to adverse health effects including decreased semen quality in men; endometriosis in women; asthma, allergies, and bronchial obstruction in children; and harms to developing fetuses.

In 2017, the Coalition for Safer Food Processing and Packaging, a group of nonprofit health and food safety advocacy organizations, allegedly detected phthalates in nine of the ten tested cheese powder products and found that the phthalate levels in those cheese powders were on average four times higher than in the 15 natural cheeses tested.

Kraft is aware that some consumers are concerned about phthalates. On its website, the first of its published “Frequently Asked Questions” queries, “Should I be concerned about food and phthalates?” Kraft’s response acknowledges that customers have inquired about phthalates in its Mac & Cheese and states, “We take your questions about phthalates and food safety and quality very seriously because we know moms and dads trust Kraft Mac & Cheese as a quality, tasty, and safe food for the family.” The website also seeks to dispel concerns about phthalates in its Mac & Cheese by stating that

[t]he safety of phthalates has been assessed by the US Food and Drug Administration and other authorities, such as the Centers for Disease Control. The trace levels found in the one limited test of mac & cheese are well below any level of concern. Hundreds of servings of mac & cheese would need to be consumed daily over an entire lifetime in order to exceed levels determined as safe.

Plaintiffs, however, alleged that “a Kraft Mac & Cheese packet could indeed constitute a large enough slice of a person’s daily-intake pie chart to warrant a warning label.” Alleging that the effect of phthalates is cumulative, plaintiffs alleged that, even if an amount of phthalates in the product is small in absolute terms, the amount is significant relative to other sources of phthalate exposure, which may move a consumer away from choosing the product in favor of a potentially healthier option.

The FDA has not set a specific threshold for the level of phthalates it allows in food, but permits the use of phthalates in food contact applications, such as processing tools and packaging materials.  The court rejected the argument that FDA’s regulations/lack of regulatios preempted the claims.  “[E]ven if Kraft is correct that FDA regulations must be interpreted as allowance for the presence of some amount of phthalates in consumable food, the FDA regulation would not make it impossible for Kraft to comply with state labeling laws.” Kraft might well be able to win summary judgment on whether the level of phthalates allegedly in a box of Kraft Mac & Cheese even comes close to approaching the amount that the FDA has deemed a “tolerable intake” via oral exposure, but that was a fact issue.

Neither did the NLEA preempt the claims, even though the FDA has issued a regulation exempting manufacturers from the obligation to disclose “[i]ncidental additives that are present in a food at insignificant levels and do not have any technical or functional effect in that food.” “Incidental additives” include “[s]ubstances migrating to food from equipment or packaging or otherwise affecting food” so long as they are “not food additives,” or, if they are food additives, “are used in conformity with regulations established pursuant to section 409 of the act.” The court couldn’t determine whether this exemption applied, because whether phthalates are present only at an “insignificant level” was a question of fact. Plaintiffs expressly contested the meaning of “insignificant level” and alleged that consumers care about the amount of phthalates in Kraft Mac & Cheese even in very small amounts.

Turning to materiality, which is what I find most interesting, the court rejected (at this stage) Kraft’s argument that the amount of phthalates allegedly present in its Mac & Cheese was too miniscule to be material to reasonable consumers. Plaintiffs plausibly alleged

that reasonable consumers do care about the presence of phthalates in their food, even in small amounts. As a matter of common sense, it is plausible that a reasonable consumer would choose to avoid foods at risk of containing phthalates in light of the list of health problems allegedly caused by phthalate consumption—including endocrine disruption, cancer, and neurodevelopmental problems. It is not obvious from the pleadings that safety risks associated with even small amounts of phthalates are “non-existent and hypothetical” such that Kraft had no duty to disclose the presence of phthalates in its macaroni and cheese to consumers.

The court pointed to Kraft’s own website as “arguably” confirming this point. “That content reflects Kraft’s understanding that its customers consider the presence of phthalates in food to be important information.” Even if Kraft was ultimately right in its reassurances, “the website confirms that Kraft is conscious of its consumers’ concerns about phthalates and has expended resources in responding publicly to those concerns. Absent evidence to the contrary, Kraft’s acknowledgement of consumer concerns supports a finding that it is plausible that phthalate content in food, even in small amounts, is material to reasonable consumers.”

Further, plaintiffs alleged that survey data shows consumers do care about the presence of phthalates in food. “Plaintiffs’ counsel asked 400 adult consumers who bought boxed macaroni and cheese within the preceding six months if the presence or risk of even a small amount of phthalates in products would be important to their purchasing decision, and approximately 89.5% answered that it would be either important or very important.” At this stage, the court wouldn’t discard the survey as biased or flawed.

True, Becerra v. Dr. Pepper/Seven Up, Inc., 945 F.3d 1225 (9th Cir. 2019), held that a survey purportedly showing that consumers understood the term “diet soda” to mean that the drink would “either help them lose weight, or help maintain or not affect their weight” was irrelevant to what a reasonable consumer would understand “diet” to mean. “But there is a significant difference between a survey asking about a person’s understanding of the meaning of a word in context and one asking about a person’s own concerns…. The reasonableness of those concerns depends on whether those phthalates are present in an ‘insignificant amount,’ which is an open question of fact at this stage of the litigation.”

However, the affirmative “NO Dyes,” “NO Artificial Flavors,” “NO Artificial Preservatives,” and the phrase “gooey, cheesy goodness” were not plausibly misleading on the facts alleged:

Plaintiffs didn’t allege that Kraft Mac & Cheese does contain artificial preservatives, flavors, or dyes. Instead, they alleged that the statements “lead reasonable consumers to believe that the Products are wholesome, safe, and healthy, and do not contain dangerous chemicals or artificial substances, like phthalates.” But “[t]he alleged presence of a negative substance does not prohibit a manufacturer from advertising a product’s positive qualities.” And “The Taste You Love” and “Gooey, Cheesy Goodness” were “textbook puffery.”

 

Artpusher, Copenhagen

 Seen by an eagle-eyed correspondent, Artpusher has some interesting art on display featuring some well-known and litigious brands, including:

The artist in a "Murder King" shirt, also featured in his art; No. 19 Covid/China neon art; protest sign

The No. 19 Covid/China image has generated some controversy.

Some other art, including Supreme State of Mind:


Murder King:

In the style of Tintin + Lego minifigs, Elon Musk/Destination Mars:
There are also wearables:





Friday, January 13, 2023

false advertising doesn't get around Dastar without some direct statements

Wolf Designs LLC v. Five 18 Designs LLC, --- F.Supp.3d ----, 2022 WL 10551564, No. CV-21-01789-PHX-ROS (D. Ariz. Oct. 18, 2022)

Wolf designs and installs “vehicle wraps,” large vinyl graphics or decals applied to car bodies. Five 18 is a direct competitor of Wolf that allegedly copied its designs and stole its customers in violation of copyright law and the Lanham Act, and engaged in tortious interference and unfair competition. The court kicked out some but not all of the claims.

Copyright: Three of Wolf’s customers allegedly opted to hire Five 18 to install vehicle wraps featuring designs Wolf owned. A stipulated preliminary injunction barred defendants from reproducing, preparing, distributing, or displaying specific vehicle wraps.

The complaint was partially time-barred with respect to one copyright, as to which Wolf alleged awareness of the infringement in early 2018; the three-year statute of limitations ran before Wolf sued. In general, a court won’t dismiss only a portion of a cause of action, but that requires a true single claim (e.g., defendant denies it distributed a work but the claim asserts violation of both reproduction and distribution rights as to that work). Here there were different claims, each premised on different works, creating “three entirely independent instances of alleged infringement.”

Statutory damages/attorneys’ fees: Five 18 argued that Wolf didn’t register any of the named copyrights within three months of publication, and that  the alleged infringements of the copyrights predated the effective dates of registration. But at least one copyright was allegedly timely registered as part of a group (the “at least one” signals why group registrations can be troubling—the court doesn’t yet know what was in the group). Five 18 argued that this registration was invalid because it erroneously stated all of the copyrights were unpublished, when, in fact, they had all already been published. The court, noting the lack of authority on this question, first held that a group registration “suffices to render the group registration effective for the purposes of assessing statutory damages.” And Five 18’s argument for invalidity failed at this stage, since whether the inaccuracy would have caused the Register to refuse registration was a fact question.

Lanham Act: Five 18 allegedly violated the Lanham Act by replicating and publishing Wolf’s designs while holding themselves out as the creators of the designs, confusing the public and consumers. Dastar barred a passing off claim. But what about false advertising? Wolf argued that defendants’ Instagram post touting their work was commercial speech, and the claim on the post that the vehicle wrap was “only available from Five 18 Designs” was made for the purpose of influencing a consumer to purchase Five 18’s goods and misrepresented that the design was not also available to purchase from Wolf. However, the phrase “only available from Five 18 Designs” was attached as a caption to a different post made the following day, not to the image of the allegedly infringing vehicle wrap. Thus, Wolf didn’t plead the requisite “false statement of fact” in a “commercial advertisement.” However, defendants’ request for fees was premature and the claim was dismissed with leave to amend; an amendment “must specifically allege what particular commercial speech made by the Defendants constituted a false statement such that Defendants might be liable under the Lanham Act.”

Tortious interference: Not sufficiently pled. Unfair competition: Not sufficiently pled in a way that avoided copyright preemption, because Wolf didn’t sufficiently plead passing off. (The court didn’t consider whether Dastar would also bar such a claim.) An amended complaint would have to allege “how Defendants advertised their vehicle wraps such that they intended to pass off their wraps as Plaintiff’s.” [This would seem to bring Dastar to the fore.]

putting a label on a product you produce isn't direct false advertising, but could be direct false association

OK, I admit I'm pretty baffled by this.

Hawaii Foodservice Alliance, LLC v. Meadow Gold Dairies Hawaii, LLC, 2023 WL 159907, No. 21-00460 LEK-WRP (D. Hawai’i Jan. 11, 2023)

Plaintiff alleged that defendant MGD advertises and sells milk that is one hundred percent from cows outside of Hawai‘i. Defendant dairy farmers allegedly apply labels to the pre-packaged milk products “indicating such products originate from ‘Hawaii’s Dairy,’ are ‘Made with Aloha,’ and, in some instances, are associated with the farmers in Oahu who produced milk from their cows in Hawaii through the ‘Dairymen’s Association’ beginning in the late 1800s, before they are shipped to MGD in Hawaii.” Some mainland milk was allegedly pasteurized in California, shipped to and re-pasteurized on the Island of Hawaii, and then packaged by MGD with identical labeling. “Hawaii’s Dairy” and “Made with Aloha” on the labels allegedly falsely represented origin, as did MGD’s website claims of “AN ISLAND TRADITION,” “that MGD is proud to be locally owned and operated” and MGD “continue[s] to produce your Meadow Gold favorites always made with aloha.” “MGD’s website also prominently features the MGD mascot known as ‘Lani Moo’ in local Hawaii attire, along with several photographs of farmland and a cow in Hawaii[.]” Plaintiff alleged, however, that “MGD owns zero cows in Hawaii ... and owns zero dairy farms in Hawaii.” Allegedly, a different “Meadow Gold” entity long ago operated dairy farms in Hawaii, but MGD didn’t.

Plaintiffs’ claims sought to hold the dairy farmers directly or contributorily liable under the Lanham Act, and alleged unfair competition/false advertising/deceptive trade practices under Hawaii law. The dairy farmers sought dismissal.

Was a false geographic origin claim one for false association, § 1125(a)(1)(A), or false advertising, § 1125(a)(1)(B)? Courts have treated them as one, the other, or both; the court here said that they could be both.

Why does this matter? Perhaps because courts are tougher on false advertising claims in a lot of ways, including with precedent that, for false advertising, direct liability only attaches to actors who actively make false or misleading claims, while false association allows direct liability for those who only “use” such claims (note this doesn’t actually matter to the outcome of this case, but it matters to retailers). Here, under §43(a)(1)(A), “Plaintiff need only allege that the Dairy Farmers used in commerce any word (or words) which is likely to cause confusion as to the geographic origin of their milk products by another person.” That was sufficiently alleged. The defendants allegedly put the products in interstate commerce and applied the labels to them. The court didn’t bother to analyze contributory liability.

What about direct liability for false advertising? Defendants argued that there was no literal falsity, but misleadingness and materiality was also alleged. Here, the dairy farmers allegedly individually produced, packaged, and labeled the milk products on the mainland then sent them to Hawai’i for MGD to sell on the island.  “[H]owever, Plaintiff does not allege that the Dairy Farmers had control over, or involvement in, creating the statements on the labels. Thus, the Court cannot determine whether the Dairy Farmers are the entities that made ‘the specific, false statements at issue in the litigation[,]’ even if they ultimately applied the labels to the products.” [This strikes me as a really constrained reading of direct liability, and very much in contrast to the leniency IP claimants get. Compare an allegedly false statement presented in an ad as a quote from an endorser: would the advertiser not be directly liable because it wasn’t the first to make the statement?] Thus, the direct liability claim for false advertising was dismissed with leave to amend.

Contributory false advertising: This requires that the defendant contributed to direct false advertising either by knowingly inducing or causing the conduct, or by materially participating in it. Participation can occur when “the defendant directly controlled or monitored the third party’s false advertising,” or possibly when the defendant provided “a necessary product or service, without which the false advertising would not be possible.” On a motion to dismiss, courts look for a plausible inference of knowing or intentional participation, examining “the nature and extent of the communication” between the third party and the defendant regarding the false advertising; “whether or not the [defendant] explicitly or implicitly encouraged” the false advertising; whether the false advertising “is serious and widespread,” making it more likely that the defendant “kn[ew] about and condone[d] the acts”; and whether the defendant engaged in “bad faith refusal to exercise a clear contractual power to halt” the false advertising.

Here, plaintiff sufficiently alleged direct false advertising against MGD.  And it alleged that the milk producers knew that their respective milk products were not sourced from Hawai‘i and that the labels they applied to those products were false, misleading, and/or deceptive, but supplied the milk products to MGD nonetheless.

But plaintiff didn’t adequately allege that the Dairy Farmers “intended to participate or actually knew about the false advertising.” Labeling products with packaging that said “Hawaii’s Dairy” and “Made with Aloha,” does not on its own “suggest[ ] a plausible inference of knowing or intentional participation.” [Um, if they were doing it on the mainland, why not? Surely they knew they were doing it on the mainland, and not in Hawai’i?] Plaintiff failed to allege “the nature and extent of the communications between” the dairy farmers and MGD regarding the statements and thus they didn’t allege material participation. [I also have no idea how a plaintiff is supposed to allege internal communications.]

In addition, plaintiff failed to plead the requisite knowledge with particularity. [I’m not a civ pro expert, but I thought that, even with fraud, knowledge and intent can be alleged generally as matters entirely within the knowledge of the defendant.]

“Ultimately, Plaintiff does not sufficiently allege the Dairy Farmers induced, caused, or worked to bring about the alleged misleading statements.” But there was leave to amend.

Unfair competition under Hawai’i law: This requires unfair conduct that “offends established public policy and … is immoral, unethical, oppressive, unscrupulous or substantially injurious to consumers,” plus injury that negatively affects competition or harms fair competition. This too failed as to the dairy farmers, who allegedly did nothing more than labeling and packaging their milk product. So too with state law false advertising.

Deceptive trade practices: This applied to a person who, inter alia, caused likely confusion about source etc. or used deceptive representations or designations of geographic origin. This was plausibly alleged. The dairy farmers “used those labels and statements insofar as they packaged, labeled, and shipped the milk products to Hawai’i.”

statutory ban on nonfunctional slack fill doesn't show misleadingness/materiality as a matter of law

Clevenger v. Welch Foods Inc., 2022 WL 18228293, No.: SACV 20-01859-CJC (JDEx) (C.D. Cal. Dec. 28, 2022)

The court denied plaintiffs’ motion to exclude expert testimony in this consumer protection case about nonfunctional slack fill under the CLRA. Defendants’ consumer survey expert concluded that the slack fill was not a material factor impacting consumer purchase interest or perception of the price. Indeed, a “higher percentage of respondents were ‘definitely interested’ in purchasing” a smaller box of fruit snacks than the actual, larger box of fruit snacks, which “shows that the purported headspace does not impact the purchasing behavior of consumers and consumers are not misled into buying” the larger box. Based on a second consumer survey, the expert opined that “the first time that consumers purchased the fruit snacks boxes included in the survey, these consumers felt that the box contained the amount of product expected more than 84 percent of the time,” and that “only one respondent out of 566 (or 0.2 percent) answered that the box contained less product than expected and that the respondent did not purchase it again.”

Plaintiffs argued that the expert opinion was inadmissible as a matter of law, because the relevant statutes declared slack fill to be misleading, which also incorporated materiality. The court disagreed, because the CLRA claim was governed by the reasonable consumer test. “Whether a reasonable consumer is deceived cannot be determined unless and until all the circumstances surrounding the packaging of the product are considered.”

Hinojos v. Kohl’s Corp., 718 F.3d 1098 (9th Cir. 2013), stated that “[t]he legislature’s decision to prohibit a particular misleading advertising practice is evidence that the legislature has deemed that the practice constitutes a ‘material’ misrepresentation, and courts must defer to that determination.” But this was not a holding that a legislative decision that a practice is misleading “must be treated as dispositive regarding materiality and thus shut the door on any further evidence or inquiry.”  Hinojos also said in a footnote that materiality was a fact issue rarely resolvable on a motion to dismiss. In context, “the Ninth Circuit was not precluding the presentation of evidence at trial on whether a particular misrepresentation was material to a reasonable consumer. It was merely stating what was sufficient to satisfy the economic injury pleading requirement for standing.”