product changes as false advertising: TM may serve as express warranty of formulation & quality

Starr v. VSL Pharmaceuticals, Inc., No. TDC-19-2173, 2020 WL 7694480 (D. Md. Dec. 28, 2020)

This putative class action is related to the longstanding trademark/false advertising litigation between the VSL parties and Claudio De Simone parties, and probably qualifies as a follow-on class action.

Plaintiffs alleged violation of RICO, breach of express warranty, unjust enrichment, and violations of various state consumer protection statutes. Many claims survive, including RICO claims—at least at the motion to dismiss stage.

The relevant proprietary probiotic formulation, aka the De Simone Formulation, was sold for many years under the name “VSL#3,” a trademark owned by VSL. Relevant VSL parties are now enjoined from (1) stating or suggesting in VSL#3 promotional materials directed at United States consumers that the present version of VSL#3 produced in Italy continues to contain the De Simone Formulation, including by stating that VSL#3 contains the “original proprietary blend” or the “same mix in the same proportions” as the earlier version of VSL#3; and (2) “citing to or referring to any clinical studies performed on the De Simone Formulation or earlier versions of VSL#3 as relevant or applicable to Italian VSL#3.” Plaintiffs allege that defendants made equivalence claims despite scientific evidence establishing that the new VSL#3 was neither the same, nor as clinically effective, as the De Simone Formulation.

In addition, plaintiffs alleged that “Defendants improperly continued to use the VSL#3 trademark to identify the new probiotic, even though that mark had become associated with the De Simone Formulation.” At some point, the packaging was changed to remove listing specific bacterial strains, but on the product information sheet inside the package, defendants allegedly continued to state that the new VSL#3 had been the subject of extensive clinical research and cited to clinical studies establishing the efficacy of the De Simone Formulation, not the new formulation. Defendant Leadiant also sent a letter to all health care providers who had previously recommended VSL#3 to their patients stating that production of VSL#3 would be moving to Italy but assuring customers that they would be receiving “the same quality product, containing the same genus and species of bacteria, in the same proportions you have come to expect.” “Other Leadiant marketing materials made similar representations,” such as that the new VSL#3 remained “the same multi-strain probiotic” and was “supported by more than 170 studies.” Defendant Alfasigma took over the distribution of VSL#3 and allegedly advertised the same message, including in an August 2016 press release asserting that the new VSL#3 “maintain[ed] the original proprietary mix of eight strains of live bacteria” and was “supported by more than 170 published studies over the past 15 years.”

The named plaintiffs alleged that they purchased the new VSL#3 in reliance on the packaging and marketing materials and the recommendation of their doctors, believing that the new VSL#3 continued to contain the De Simone Formulation.

As mentioned, the RICO claims survived because the misrepresentations were sufficiently alleged.

Express warranty: Was there an express affirmation of fact or promise as to the quality or characteristics of VSL#3? Plaintiffs identified the product information sheet statement that “VSL#3 has been the subject of extensive clinical research in the dietary management of IBS, UC, and an ileal pouch” and that seemed to be an affirmation of fact or promise about the new VSL#3.

Plaintiffs also alleged that the continued use of the term “VSL#3” on the packaging of the new VSL#3 itself constituted an affirmation of fact that the product was the same as the prior version of VSL#3. This was a more interesting argument, because defendants rejoined that this was just a trademark use, rather than a warrant of particular ingredients and of particular quality. The court was not persuaded by cases finding no warranty in the use of “Gap” on clothing or “Apple” on electronics: “[T]hese cases focus on the meaning conveyed by the use of a brand name or trademark for multiple products at the same time and do not address the present issue of whether a brand name or trademark can, over time, become so identified with a particular product that its continued use constitutes an affirmation of fact of continuity.” McCarthy holds that “a sudden or substantial change in the nature or quality of the goods sold under a mark may so change the nature of the thing symbolized that the mark becomes fraudulent.” 3 McCarthy on Trademarks and Unfair Competition § 17:24 (5th ed. 2020). In Royal Baking Powder Company v. Federal Trade Commission, 281 F. 744 (2d Cir. 1922), Royal Baking had for 60 years produced a “superior” baking powder under the brand name “Dr. Price’s Cream Baking Powder” which contained cream of tartar, rather than phosphate or alum, and had in its advertising touted the benefits of cream of tartar while warning of the dangers of phosphate and alum. When it substituted phosphate in place of cream of tartar for cost reasons, but kept the same product name and used the reference “Makers for 60 years,” the court upheld an FTC cease and desist order unless the word “cream” was omitted and the word “phosphate” included, because it was a “deception of the public” to sell an “inferior powder” “under an impression induced by its advertisements that the product purchased was the same in kind and as superior as that which had been so long manufactured by it.” Likewise, the Eighth Circuit held that “[i]f the manufacturer makes a change in the article and that change be of a character which would, considering all of the attendant circumstances, naturally affect the attitude of the purchasers of that article, fair dealing and the law require that such purchasers be effectively informed of that change.” Royal Baking Powder Co. v. Emerson, 270 F. 429, 440 (8th Cir. 1920).

The case law supported the conclusion that “a brand name can come to function as a representation of a continuity of product contents and quality that could deceive those ‘familiar with the old brand and ignorant of any change.’” Thus, the trademark-as-warranty legal theory was at least plausible, especially when accompanied by a product information sheet containing more specific false affirmations.

Defendants argued that the product information sheet wasn’t visible pre-purchase and thus couldn’t become part of the agreement. But “[t]he focus is not on any particular language at a particular point in time but whether the seller’s actions or language when viewed in light of his relationship with the buyer were fairly regarded as part of the contract to purchase the good.” No dismissal at the pleading stage.

Defendants also argued that privity was required for express warranty claims under various state laws, but the court noted that many states relax that requirement where the manufacturer makes warranties directly to the consumer on product packaging, though Tennessee and Michigan did not and so those claims were dismissed. Of the claims under the surviving state laws, where reliance was required, plaintiffs adequately pled it, based on pleading past purchases under the VSL#3 brand name.

Consumer protection claims under Florida and Texas survived, but the court thought that the Michigan, and California law claims didn’t plead reliance sufficiently, which I find a bit puzzling given that the allegations are the same. The court treated the consumer protection claims as largely resting on failure to disclose, which can be harder to plead, but I would think the affirmative misrepresentation argument is the same here: VSL#3 allegedly had a meaning and defendants did not honor that meaning. If they’d sold margarine as butter based on an undisclosed definition of “butter” that included all dairy-like spreads, we’d easily see that as deceptive. Challenges to the plaintiffs’ claims under the consumer protection statutes of Washington, Wisconsin, Illinois, Tennessee, Massachusetts, and New Jersey under the heading of causation failed; causation is typically a factual question, and plaintiffs sufficiently alleged that, where the VSL#3 packaging identified no material change to the product, they bought VSL#3 believing it to continue to contain the De Simone Formulation, “resulting in the foreseeable loss of monies spent on a product that was no longer of the quality and content that it appeared to be.” To the extent required, plaintiffs also sufficiently alleged intentional deception.

Ascertainable loss: In general, there is “no pleading requirement of a specific quantity inherent in this term.” But for New Jersey, the state supreme court emphasized the importance of the ascertainable loss requirement “as an integral check upon the balance struck” under the New Jersey Consumer Fraud Act “between the consuming public and sellers of goods.” Thus, courts applying New Jersey law have required pleading an actual quantification of the loss, even if not entirely specific. Thus, the NJCFA claim was dismissed.

claims for ab exercise device going beyond FDA clearance are actionable

Loomis v. Slendertone Distrib., Inc., 2019 WL 5790136, No. 3:19-cv-854 - MMA (KSC) (S.D. Cal. Nov. 6, 2019)

Loomis brought the usual California claims based on ads for the Flex Belt, a purported ab-exercise device. While denying standing for injunctive relief and finding a bunch of the challenged claims to be puffery, there was still enough to continue, and the court also rejected an FDA preemption argument.

Preemption: Slendertone argued that the Flex Belt had been FDA cleared [NB: not approved] “for Toning, Firming and Strengthening the stomach muscles,” and thus the claims were preempted. States can adopt FDCA rules for their own law, but parallel state “consumer protection laws, such as the UCL, FAL, and CRLA, are nonetheless preempted if they seek to impose requirements that contravene the requirements set forth by federal law.” But Loomis didn’t challenge whether the FDA should have cleared the Flex Belt or whether the specific FDA-cleared statement is misleading, and this was a case involving a Class II medical device, not FDA approval.

Actionable statements: because the FDA cleared the Flex Belt as an EMS device for toning, firming, and strengthening abdominal muscles, “such representations cannot be deceptive to a reasonable person.” But it would be deceptive to market an EMS device as cleared by the FDA “for weight loss, girth reduction, or for obtaining ‘rock hard’ abs.” Much of the advertising Loomis cited was puffery, such as the testimonials:

With my schedule I can’t do an ab workout every day, but with The Flex Belt® I’ll put it on every day because I’m doing things at the same time. So it’s really just being smart. It’s easy, I wear it every day and my abs are there to show for it! My abs feel like I’ve had the most amazing workout and I just wore The Flex Belt® around the house for 30 minutes.

The Flex Belt® tightens, tones, and strengthens my stomach without me even having to think about it. It has taken my abs to a whole new level... it does all the work, and I get the results.

These statements were “highly subjective to the individuals giving the statements,” although I think they’re misleading. There was nothing actionable about the claims on Amazon to “stimulate all your major stomach muscles at the same time providing you with the perfect abdominal contraction ….You don’t have to worry about your form or come up with the time to get it done.” That didn’t claim that the Flex belt alone will result in weight loss, girth reduction, or an attractive appearance. [I don’t think it’s “alone” that’s the problem. I think the problem is that the Flex belt doesn’t produce a marginal effect on any of these, and the implication is that it does.]  “GREAT ABS START HERE,” “Maximum Core Strength,” and “Ultimate Toning Technology” were also puffery.  [But if it doesn’t work at all, then it’s not exaggeration, it’s just … not true.]

In the ads, “any reference to fat loss is accompanied by disclaiming language that the Flex Belt is insufficient to achieve weight loss and that a more attractive abdominal area requires proper diet and exercise,” e.g., the “Flex Belt does not remove inches of fat but it tones, tightens, and strengthens your stomach muscles. Using The Flex Belt in conjunction with your dedication to Diet, Nutrition and Exercise can help you achieve your goals of a more attractive stomach as well!”

Still, there were specific statements, in context, that were plausibly deceptive to a reasonable person.  E.g., “Who Should Use the Flex Belt®?...Anyone that wants more attractive abs, regardless of current fitness levels”; “With The Flex Belt®, it doesn’t matter what your current exercise status is because there will always be time to build firmer, stronger abs. This product is perfect for … anyone that wants more attractive abs, regardless of current fitness levels”; and touting the product “[f]or those looking for a convenient way to tone, strengthen and flatten the abdominal area.”

These claims made it “probable that a significant portion of the general consuming public or of targeted consumers, acting reasonably in the circumstances, could be misled” to believe the Flex Belt could help consumers achieve more attractive abdominal muscles. It was contradictory to make misleading statements as to improved abdominal appearance while simultaneously disclaiming that “The Flex Belt does not remove inches of fat.” In addition, although the testimonials and pictures of six-pack abdominal muscles were puffery, they “contribute[d] ‘to the deceptive context of the packaging as a whole.”

UCL unlawful and unfair claims also survived, as did claims for breach of express warranty, despite a limited warranty addressing product defects stating that “THIS LIMITED WARRANTY IS THE ONLY WARRANTY FOR THE PRODUCT, AND THERE ARE NO OTHER EXPRESS WARRANTIES, ORAL OR WRITTEN, PROVIDED BY [Slendertone].”

Under California law, “[w]ords or conduct relevant to the creation of an express warranty and words or conduct tending to negate or limit warranty shall be construed wherever reasonable as consistent with each other.” Limitation of warranties are allowed “only by means of [w]ords that clearly communicate that a particular risk falls on the buyer.” Further, disclaimers or modifications “must be strictly construed against the seller.” “Noting the presumption of construing warranties as consistent with one another, the burden against the seller, and the fact the limited warranty was included in the packaging for the Flex Belt after Plaintiff purchased it, the Court finds that the limited warranty does not upset Plaintiff’s alleged express warranty cause of action.”

Neighboring farmers have Lanham Act standing where false ads allegedly prompted pesticide use

In re Dicamba Herbicides Litig., MDL No. 2820, 2019 WL 460500 (E.D. Mo. Feb. 6, 2019)

Plaintiffs, twenty-one soybean farmers from eight states (Arkansas, Illinois, Kansas, Mississippi, Missouri, Nebraska, South Dakota, and Tennessee), alleged that their soybean crops were damaged by the herbicide dicamba when neighboring farmers planted genetically modified dicamba-resistant seeds and sprayed that crop with dicamba. USDA permitted the sale of the dicamba-resistant seeds in January 2015, but the plaintiffs argue that commercial sale was wrongful because the EPA hadn’t yet approved a dicamba herbicide for use over the top of crops grown from those seeds. (The seeds could allegedly tolerate other herbicides, like Monsanto’s Roundup.)  Allegedly, the amount of dispersal of an herbicide varies and there are other herbicides that wouldn’t have drifted in the same way; dicamba had previously been a problem because of its volatility and propensity to drift, sometimes taking other herbicides with it. In 2017, the EPA approved new low-volality dicamba herbicides for over-the-top crop use during the growing season, XtendiMax and Engenia.

However, the plaintiffs alleged that the new herbicides are “unsuitable for in-crop use because they too, like the earlier versions of dicamba, are volatile and prone to move off-target and damage nearby, sensitive crops.” This is allegedly a further win for defendants insofar as it induces farmers to defensively purchase dicamba-resistant seed to avoid damages.

I’m here for the Lanham Act claim, though the other claims are also interesting. On causation, Monsanto argued that it wasn’t the source of the old, pre-2017 herbicide, but the causation theory was that “Monsanto marketed and sold its dicamba-resistant seed to third-party farmers knowing that they would spray dicamba that may harm nearby, non-resistant crops.” The only reason to buy and plant the seeds, the plaintiffs alleged, was to use it with dicamba herbicides, whether new or old.  The manufacturer of the herbicide wasn’t the key to causation.

Defendants challenged plaintiffs’ Lanham Act standing. The alleged false advertising was that the Xtend seeds could be safely employed utilizing over-the-top application of dicamba herbicides and that the dicamba would not drift.  Lexmark requires a plaintiff to plead: (1) an injury within the “zone-of-interest,” that is, “to a commercial interest in sales or business reputation,” (2) that was “proximately caused by the defendant’s misrepresentations.” Plaintiffs need not be defendants’ competitors to state a claim. The plaintiff must be a commercial actor suffering commercial injuries instead of being a “consumer who is hoodwinked into purchasing a disappointing product.” That was sufficiently pled here: the plaintiffs were commercial actors, not consumers of defendants’ products, and thus they fell within the Lanham Act’s zone of interest.

Monsanto argued that there was no standing for 2016 claims because it was illegal for third party farmers to use dicamba herbicides with its Xtend seeds in 2016, so the intervening criminal conduct severed the causal chain connecting Monsanto’s misrepresentations to any wrongdoing. That is not an automatic Article III rule; standing was sufficiently alleged.

Proximate cause: Monsanto argued that the plaintiffs were at best indirect victims of the allegedly false advertising. But consumer deception is always an intervening step before the harm materializes in a false advertising case (and in a Lanham Act case it materializes to a third party, usually the competitor who’s lost a sale as a result, even if it also materializes as harm to the consumer). Monsanto argued that there had to be harm to a consumer for there to be proximate cause, but the court recognized that this made no sense.  (The Lanham Act should be triggered where there is false advertising that changes consumer behavior—if the plaintiff’s product was exactly the same as the defendant’s and exactly the same price and there was nothing better on the market, a misrepresentation of superiority that diverted purchasers to the defendant wouldn’t necessarily harm those purchasers in a tangible way, setting aside the moral disrespect of fraud, but it distorts the competitive environment and harms other market actors, who are the targets of the Lanham Act’s solicitude per Lexmark.)  Even if the direct victims of Monsanto’s fraud ended up with crops that were fine, plaintiffs still alleged commercial injury because Monsanto’s misrepresentations caused third parties to use dicamba that destroyed plaintiffs’ crop, so plaintiffs had no soybeans to sell.

Interestingly, the fact that plaintiffs successfully pled a Lanham Act claim seemed to comfort the court in concluding that they couldn’t bring tort claims based on ultrahazardous activity—that concept usually involves only the actual use of the product in question, not promotion of its use.  “Ultimately, plaintiffs’ claim is that “lying” about the safety of an ultrahazardous activity—the spraying of dicamba—is itself an ultrahazardous activity. That claim is certainly actionable, but not under the ultrahazardous activity doctrine.” 

So too with trespass and nuisance—Monsanto’s extensive seed licensing agreement with farmers did not allow it to terminate the agreement for misuse of dicamba, so they didn’t control whether the dicamba particles migrated to plaintiffs’ land. There was no “ongoing” promotion, aiding, abetting, assisting, or contributing to the trespass/nuisance, and no need to hybridize a cause of action using trespass/nuisance plus misrepresentation theories. 

Failure to warn claims/consumer fraud act claims under the laws of Illinois and Nebraska: Monsanto argued that FIFRA preempted these claims.  Plaintiffs argued that FIFRA preempts labeling-based claims, but that their claims were based in part on non-labeling material, such as in-person discussion and websites (Facebook, Twitter, Instagram, YouTube, Snapchat, Pinterest, and Linked In).  (Today I learned that Monsanto or its agents allegedly use Snapchat.)  Though a few cases hold otherwise, the court approved a more literal reading of the preemption statute, limiting its reach to labeling and packaging.

Second, plaintiffs argued that they weren’t seeking requirements that are “in addition to or different from” FIFRA, as required for preemption. FIFRA bars “misbranding,” which occurs if a label contains a “false or misleading” statement or if it “does not contain adequate instructions for use, or if its label omits necessary warnings or cautionary statements.” Although FIFRA doesn’t provide a private cause of action for misbranding, states are allowed to do so.  The state law requirement need only be substantively identical; it need not be phrased in the identical language.  To the extent that plaintiffs alleged that the labels failed to contain instructions that would, if followed “prevent harm to the environment,” that did go beyond FIFRA, which only requires instructions that will, if followed, prevent “unreasonable harm,” so their claim was preempted to a tiny extent, but there was still room for their failure to warn claims.

The court reached a similar result on Nebraska Consumer Protection Act and Illinois Consumer Fraud Act claims. However, the court dismissed the Nebraska statutory claim because of its regulatory state harbor. Both states’ laws have safe harbors; Illinois says: “Nothing in this Act shall apply to any of the following: (1) Actions or transactions specifically authorized by laws administered by any regulatory body or officer acting under statutory authority of this State or the United States.”  Although Monsanto’s advertising claims were submitted to the EPA as part of EPA registration procedures, “exemption is not available for statements that manage to be in technical compliance with federal regulations, but which are so misleading or deceptive in context that federal law itself might not regard them as adequate.”

However, Nebraska’s exemption was broader: “the Consumer Protection Act shall not apply to actions or transactions otherwise permitted, prohibited, or regulated under laws administered by the Director of Insurance, the Public Service Commission, the Federal Energy Regulatory Commission, or any other regulatory body or officer acting under statutory authority of this state or the United States.”  Being “regulated” is enough, rather than being “specifically authorized.” Thus plaintiffs’ statutory claim failed. I think this reading doesn’t make much sense, insofar as the FTCA and other federal statutes regulate pretty much any commerce you can think of; in this interpretation, the only commercial transactions covered by Nebraska’s consumer protection law would be those that did not arise “in commerce” for purposes of allowing the federal government to exercise its Commerce Clause authority—what is likely a null set even after the ACA case.  I have my doubts that Nebraska could have meant to negate its law entirely in this way.  But since EPA regulates pesticide ads under FIFRA, Monsanto’s conduct was within the safe harbor.  [What about seed ads? I thought those were the real problem.]

The Illinois Consumer Fraud Act protects “any person who suffers actual damages as a result of a violation of the Act.” Non-consumers “may sue under the ICFA if they allege (and ultimately prove) the nexus between the objectionable conduct and the consumer injury or harm.” A non-consumer has standing to sue under the ICFA where the “conduct involves trade practices addressed to the market generally or otherwise implicates consumer protection concerns.” The allegedly unfair and deceptive conduct—the publishing of false information to cause farmers to defensively buy dicamba-resistant seed—sufficiently implicated consumer protection concerns.  The complaint also satisfied Rule 9(b), whether or not that was required for all ICFA claims.

Breach of warranty claims met varying fates depending on the state. In Kansas, a non-purchasing, non-using third party can only recover for breach if they’re (1) “expected to use, consume or be affected by the goods,” and (2) “injured in person by breach of the warranty.” That didn’t happen here.  Arkansas, South Dakota, and Tennessee gave effect to defendants’ prominent disclaimers of implied warranties of fitness and merchantability, even though plaintiffs, as nonpurchasers, couldn’t have read those disclaimers. “[T]o give the non-purchasing plaintiffs more rights than purchasers themselves would have is an untenable result.”

The Magnuson-Moss Warranty Act prohibits disclaimers of implied warranties when an express warranty is provided, but only applies to consumer products, not agricultural products.

Also, Missouri has a law protecting crops, who knew?  It is unlawful for anyone intentionally to cause the loss of any crop. Further, “any person or entity who knowingly damages or destroys any field crop product that is grown for personal or commercial purposes…shall be liable for double damages.” A claim under this law was properly alleged, as was a design defect claim.

False indication of Hawaiian origin might violate consumer protection law, not warranty

Broomfield v. Craft Brew Alliance, Inc., No. 17-cv-01027, 2017 WL 3838453 (N.D. Cal. Sept. 1, 2017)

“Hawaii is a state as well as a state of mind. When adults want to escape the mainland, they can go to their local grocery store, purchase a package of Kona Brewing Company beer, and feel as though they are transported to the beaches of Hawaii. This case is about the importance of where that beer actually is brewed.” Defendant CBA, d/b/a Kona Brewing Co., allegedly intentionally misled consumers into believing that Kona Brewing Company beer was exclusively brewed in Hawaii.  The court granted in part and denied in part CBA’s motion to dismiss the resulting claims.

The Kona brand includes a variety of beer that references Kona’s Hawaiian origins, including “Longboard Island Lager,” “Big Wave Golden Ale,” “Fire Rock Pale Ale,” “Wailua Wheat Ale,” “Hanalei Island IPA,” “Castaway IPA,” “Lavaman Red Ale,” “Lemongrass Luau,” “Koko Brown,” and “Pipeline Porter.” Kona has a Hawaiian brewery that makes its draft beer sold in Hawaii, but all of its bottled and canned beer, as well as its draft beer sold outside of Hawaii, are brewed in Oregon, Washington, New Hampshire, and Tennessee.  Despite this, on the top of the box for twelve-packs of Kona beer there is an image of a map of Hawaii which marks the location of the Kona Brewing Co. Brewery on the Big Island. The packaging also includes the statement: “We invite you to visit our brewery and pubs whenever you are in Hawaii.” An image of the Hawaiian island chain and the phrase “Liquid Aloha” are embossed on the front of each bottle, and each variety’s packaging has its own Hawaiian-related images, including orchid flowers, volcanoes, palm trees, surfers, canoes, waterfalls, and hula dancers. The bottom of the package for the six-pack includes the image of a Hawaiian island, such as Oahu, the Big Island, or Molokai. Plaintiffs alleged that the only address listed on the packaging was “75-5629 Kuakini Highway, Kailua-Kona, Hawaii 96740,” though CBA indicated that its Island Hopper Variety twelve-pack included a list of five brewing locations next to the address in Kona.

Plaintiffs also allged that CBA misrepresented Kona as “craft beer” when it isn’t, though they argued that this claim went to CBA’s intent to deceive rather than to a deception that they relied upon.

First, CBA argued that the words and images on the packaging were “mere puffery,” and that no reasonable consumer would be misled into believing that the Kona beer he or she purchased was brewed exclusively in Hawaii. The court disagreed.  Deceptiveness is usually a question of fact.  CBA argued that none of its “references” to Hawaii was “ a specific and measurable factual statement about where the beer is made.” The labels disclosde five locations where the beer is brewed, only one of which is Hawaii, so representations on the six- and twelve-pack packaging couldn’t amount to actionable misrepresentations. While “pictures of surfboards and the vague phrase ‘Liquid Aloha’ on the beer packaging” would be insufficient, the fact that the only listed address on the outer packaging was Hawaiian, the image of the Hawaiian map identifying the location of Kona’s Big Island Brewery, and the invitation to visit “our brewery” whenever you are in Hawaii were “specific and measurable representations of fact that could deceive a reasonable consumer into believing that the six- and twelve-packs of Kona beer were brewed in Hawaii.” “[M]erely referencing Hawaii and its culture on the packaging is not enough on its own to confuse a reasonable consumer regarding the origin of the beer” (citing Pernod Ricard USA, LLC v. Bacardi U.S.A., Inc., 653 F.3d 241 (3d Cir. 2011)).  But the address, map, and invitation went beyond those references to spirit or style.

CBA argued that the disclaimer on the labels of Kona beer was enough to contradict the representations on the outer packaging. But reasonable consumers are “not required to open a carton or remove a product from its outer packaging in order to ascertain whether representations made on the face of the packaging are misleading.” There was no disclaimer identifying Kona’s brewing locations on the packaging except on the Island Hopper Variety twelve-pack.  Plus, the disclaimer on the beer label listed five locations, including “Kona, HI, Portland, OR, Woodinville, WA, Portsmouth, NH, and Memphis, TN” which encompass “all locations where the beers are brewed.” “A list of multiple locations on a product label does not amount to an explicit statement that the beer is brewed and packaged at a particular location.” A reasonable consumer could easily think that the beer was brewed in Kona—and plaintiffs alleged that no bottled or canned beer bearing the Kona label was actually brewed in Kona. Thus, even consumers who read this “vague” disclaimer could be deceived.

 

Label, with locations listed on left side

While the consumer protection claims survived, the express warranty claims failed because the representations weren’t “an unequivocal statement or promise to the consumer that Kona beer is brewed exclusively in Hawaii.” The implied warranty claim also failed without an affirmative misrepresentation; the factual claims on the label were true, albeit potentially misleading.

Injunctive relief claims were dismissed for lack of standing (noting that, even if plaintiffs would be willing to buy properly labeled beer in the future, they alleged they wouldn’t have bought it at Kona’s price/they paid extra for beer they thought was from Hawaii.)

Placebo effect means customer satisfaction doesn't disprove harm; suggestive TM can be fact claim

In re 5-hour ENERGY Marketing & Sales Practices Litig., No. MDL 13-2438, 2017 WL 385042 (C.D. Cal. Jan. 24, 2017)

Plaintiffs alleged that defendants engaged in deceptive and unfair business practices under the laws of various states and the Magnuson-Moss Warranty Act in selling 5-hour ENERGY, including  both representations on the 5HE packaging and off of it.  On-label representations include the product’s name and the claims to provide “five hours of energy” or “hours of energy,” and “no crash.” These statements were allegedly misleading because 5HE provides only a few minutes of energy, at most, and results in a “crash” at the end of the five hours.  Plaintiffs alleged that they used 5HE for a while—up to 1300 times for one plaintiff—before discontinuing use.

Defendants argued that the repeat purchases showed that plaintiffs weren’t injured and that, after their first purchase, they couldn’t have been deceived because they had personal experience with the product and no longer required the statements on the packaging to understand the product’s effects.  However, as a matter of law, repeat purchase isn’t proof of lack of injury; injury is a matter for the jury.  Federal Trade Commission v. Pantron I Corp., 33 F.3d 1088, 1097 (9th Cir. 1994) (even if some consumers were satisfied and became repeat purchasers, claims were false as a matter of law).  In particular, the Pantron court said, “Where, as here, a product’s effectiveness arises solely as a result of the placebo effect, a representation that the product is effective constitutes a ‘false advertisement’ even though some consumers may experience positive results.” Or, as the court here says, “what mattered most in a false advertising claim was not how consumers felt about the product but what the product actually did.” The case law establishes that “evidence of consumer satisfaction takes a backseat to scientific evidence showing that the product’s claims are verifiably false.”

So too with defendants’ reliance argument based on plaintiffs’ personal experiences.  Cases accepting similar arguments concerned “items like a lipstick that promises 24-hour coverage or a ‘fresh’ orange juice—products where the consumer can quickly tell whether the representations on the products’ packaging are true.”  But, as the lipstick case recognized, for things like “dietary supplements”—exactly the issue here—it might be harder to tell for some products.  [That is, 5HE is at least partially a credence good, not an experience good.] Here, plaintiffs testified that they weren’t sure or that they thought they should give the product a chance.  “Although the Court is skeptical that the Plaintiffs on the far end of the spectrum—those who purchased 5HE several hundred times before discontinuing use—can state a false advertising claim for their later purchases, Plaintiffs have raised a genuine dispute of fact that at least some subsequent purchases satisfy the reliance requirement.” A trier of fact should decide when the “reasonable consumer” would learn of the efficacy of the product, especially given that “consumers may operate for some time under a ‘placebo’ effect before realizing that the product lacks efficacy.”

Although plaintiffs couldn’t plead the off-label representations they relied on with sufficient specificity, the court found that some state consumer protection laws didn’t impose reliance requirements, only exposure to the misrepresentation: New York, New Jersey, and New Mexico don’t have reliance.  So too with NJ and California warranty law.  Defendants argued that causation was still required, but “[t]o prove causation in a state that does not impose a reliance requirement, the plaintiff need only prove that the reasonable consumer is ‘likely to be deceived,’” which would be better decided by the trier of fact.

Courts have required that a “written warranty” under the Magnuson-Moss Warranty Act reference a “specified period of time” in order to be actionable. Plaintiffs argued that the 5HE trademark, the “five hours of energy,” and the “no crash” statements qualified, but defendants argued that the 5HE trademark couldn’t be the basis for an MMWA claim because it’s suggestive as a matter of law, not descriptive, and “is used to indicate the source of goods, not to provide a warranty to customers.”  The case law holds that trademarks can be warranties.  The Sixth Circuit’s conclusion that the trademark was suggestive rather than descriptive had “little relevance.”  “It is unclear to the Court why trademark classifications should play any role in determining whether the trademark constituted a ‘written promise’ to consumers. As simple as it is, the 5HE trademark meets the standard required by the MMWA.”

The court dismissed claims related to decaffeinated 5HE packaging because none of the named plaintiffs had bought it.  Though the alleged misstatements on the packaging were the same, the ingredients differed significantly—6 mg of caffeine compared to 200 mg.  The composition of the product would be very important to the issue of whether the product provided “five hours of energy” and caused a “crash” at the end of the five hours, and no remaining named plaintiff could testify about their experiences with the decaffeinated product.

Insert scatological pun here: cities' lawsuit over flushable wipes mostly continues

City of Wyoming v. Procter & Gamble Co., 2016 WL 5496321, No. 15-2101 (D. Minn. Sept. 28, 2016)

“Hygienic wipes labeled and sold as ‘flushable’ have caused and are continuing to cause increased costs and property damage to the governmental entities that operate sewer systems and water treatment facilities.” Municipalities in Minnesota and Wisconsin sued over the costs and property damage they say they have suffered due to false advertising of “flushable” wipes. The court allowed some of their claims to proceed.

Plaintiffs alleged that each defendant represents that its respective wipes are “flushable.” Some, like Cottonelle, made additional claims such as “Sewer and Septic Safe” and “break up like toilet paper after flushing.” Defendant Tufco allegedly made “flushable” wipes for private label customers.  Plaintiffs alleged that approximately 25% of their sewer clogs could be attributed to flushable wipes clogging pipes.  Further, they alleged that defendants were members of the Association of Nonwoven Fabrics Industry (INDA), a trade association that created “Guidelines for Assessing the Flushability of Disposable Nonwoven Products.” Defendants, through their membership in INDA, allegedly “manipulated [INDA’s] test standards and guidelines making them weaker to guarantee [Defendants’] products could be marketed as ‘flushable’ under the INDA guidelines.”

Standing: defendants argued that plaintiffs didn’t detail exactly how defendants caused their injuries.   It was enough for the municipalities to explicitly make allegations that they are injured by wipes marketed as flushable, that defendants each produce and sell these “flushable” wipes, and that it is “Defendants’ continued sale and promotion of wipes as ‘flushable’ and ‘sewer and septic safe’ ” that has caused and is causing Plaintiffs’ injury.” The court here distinguished Wallace v. ConAgra Foods, Inc., 747 F.3d 1025 (8th Cir. 2014), in which plaintiffs alleged that not all Hebrew National hot dogs were 100% kosher, as ConAgra had advertised. The Eighth Circuit found that because plaintiffs had not alleged that they themselves had actually purchased or consumed any defective non-kosher hot dogs, plaintiffs had not pleaded an injury for standing purposes.  But, unlike Wallace, this wasn’t a manufacturing defect case.  The municipalities weren’t arguing that some poorly-made subset of flushable wipes was responsible for their injuries, but that falsely advertising an entire class of wipes as flushable harmed them.  The Wallace plaintiffs “never claimed to have actually come into contact with the offending non-kosher hot dogs, while Plaintiffs here have repeatedly alleged that not-actually-flushable ‘flushable’ wipes are clogging their water treatment facilities.”  Defendants’ manipulation of INDA also plausibly caused the municipalities an injury.

Nor was it fatal that clogs can be traced to numerous different causes.  “A plaintiff is not deprived of standing merely because he or she alleges a defendant’s actions were a contributing cause instead of the lone cause of the plaintiff’s injury.” Article III standing is not proximate causation.  Flushable wipes allegedly caused one in four clogs, which was enough for standing.  Plus, the municipalities plausibly alleged a risk of future harm, which couldn’t be accompanied with a perfectly detailed causal chain. The court did find that plaintiffs couldn’t proceed with a Declaratory Judgment Act claim because it wasn’t a real claim.

But more importantly, breach of warranty and consumer protection claims survived. Breach of warranty: In Minnesota, “where a third-party suffers property damage from a product, that person may constitute a third-party beneficiary even if the party never used, purchased, or otherwise acquired the product,” and that was properly alleged here.  Defendants argued that plaintiffs’ claims were time-barred by the four-year statute of limitations, since the wipes have been on the market since at least 2008.  But the warranty at issue here, that the wipes are actually flushable, “extends to future performance of the goods” – the flushing of the wipe. The cause of action does not accrue until the date “the breach is or should have been discovered,” which is no earlier than the date the consumer flushes the wipe down the toilet. Thus there was no time bar “for at least a great portion of the wipes that are allegedly clogging and will clog Plaintiffs’ sewer systems.”  Nor was there a failure to provide pre-suit notice, as required by Minnesota law.

Express warranty: Minnesota, adopting the UCC, takes the position that: “In actual practice, affirmations of fact made by the seller about the goods during a bargain are regarded as part of the description of those goods; hence no particular reliance on such statements need be shown in order to weave them into the fabric of the agreement.” The wipes say “flushable”; this affirmation of fact was woven into the fabric of the agreement.

Implied warranty of merchantability: Defendants argued that a reasonable person might think a wipe was “flushable” as long as it passed through their toilet’s piping.  But the municipalities properly alleged that the defendants described their wipes as safe not just for toilets, but also for wastewater treatment facilities. “A reasonable person would undoubtedly expect that a product represented to be safe for sewer systems actually be safe for sewer systems – not just for the consumer’s own piping.”  However, the court dismissed claims based on the implied warranty of fitness for a particular purpose.

Minnesota consumer protection statutes: the municipalities weren’t purchasers, but the state law doesn’t require them to be.  Grp. Health Plan, Inc. v. Phillip Morris Inc., 621 N.W.2d 2 (Minn. 2001) (“[T]o state a claim that any of the substantive [consumer protection] statutes has been violated, the plaintiff need only plead that the defendant engaged in conduct prohibited by the statutes and that the plaintiff was damaged thereby.”)  Nor did Minnesota’s deceptive trade practices statute require competition between the parties.  Lexmark was persuasive, but not state law, “and cannot overcome the text of Minnesota’s statute: Plaintiffs ‘need not prove competition’ in Minnesota. Minn. Stat. § 325D.44, subd. 2.”

The Wisconsin Tort Reform Act didn’t defeat these claims either.  The legislature was trying to bar plaintiffs from recovering “even when a plaintiff could identify only a class of products, made and sold by a class of companies, as the source of the plaintiff’s injury.” The plaintiff in a product liability case must therefore “prove that the defendant is associated with ‘the specific product alleged to have caused the claimant’s injury or harm.’”  There were no cases interpreting the statute.

Nonetheless, the court declined to dismiss most of the claims. First, the Tort Reform Act was a burden of proof rule, not a pleading rule.  Under Twiqbal, plaintiffs’ complaint satisfied the Act’s requirements; they alleged injury by the specific wipes produced by these defendants. The municipalities also alleged that they could determine which wipes were in which particular plaintiff’s wastewater treatment facilities. “[I]t is a close question whether it is plausible that each and every specific product is causing each and every plaintiff harm – but when examined on a product by product basis, it is plausible that each product has been sold to customers in the vicinity of Plaintiffs’ sewer systems and has entered their piping and caused them the harm that they allege to have taken place.”

Plaintiffs also pled a public nuisance claim.  In Wisconsin, a public nuisance is “a condition or activity which substantially or unduly interferes with the use of a public place or with the activities of an entire community.” The allegations that defendants’ products were drastically increasing the cost of water treatment facilities, and that these facilities were used to clean the water for the public health, were sufficient. Defendants’ main argument was that they weren’t responsible for the literal clogs, but rather the allegedly inadequate or false warnings that indirectly led to the clogs.  But Wisconsin didn’t require direct causation, only that the defendant (1) had “either actual or constructive” notice of the alleged public nuisance, and (2) failed to “abate” the public nuisance causing the plaintiff’s injury.  Representing that wipes were flushable could be a covered nuisance “activity.”

Tufco brought a separate motion to dismiss. Because it makes wipes for private label customers and is “apparently not a consumer-facing company,” tracking Tufco’s responsibility was more difficult. Still, plaintiffs did allege that Tufco “clearly advertises ‘flushable’ wipes for its consumers” on its website, and it was more than plausible to suggest that this claim mattered to private label customers.  However, for Wisconsin claims, the Tort Reform Act required more.  Plaintiffs needed to allege that Tufco made wipes for a specific company, and that those wipes caused them harm.

it's illegal to say that use of non-manufacturer accessories voids a warranty

EMED Technologies Corp.  v. Repro–Med Systems, Inc., No. 13–cv–1957, 2015 WL 3794967 (E.D. Cal. June 16, 2015)

 

The parties compete to supply components of medical devices used to administer immunoglobulin (human plasma and antibodies) to patients suffering from a particular immunodeficiency disorder.  This therapy is increasingly administered at home, instead of in medical offices and hospitals. Ten major customers in the U.S. purchase the majority of the devices, and EMED and RMS are the two primary U.S. manufacturers. 

 

The devices relevant to this lawsuit are: (1) mechanical infusion pumps; (2) rate sets; and (3) subcutaneous needle sets. RMS makes a Freedom 60 infusion pump, which was cleared by the FDA in 1994 and which has become the dominant pump in the market.  Pumps can last 10-15 years, but rate sets and needle sets are single-use accessories.  Rate sets are a type of tubing that regulate the flow of infusion between the pump and the needle sets, and the parties are the only two suppliers of rate sets for use with the Freedom 60.  EMED developed two different rate sets: (1) “Infusets,” intended to compete directly with RMS on design and price; and (2) “VersaRate,” which allow the user to adjust the flow rate. EMED claimed that Infusets were FDA cleared via 510(k)s from 1994 and May 2014, and that VersaRate sets were FDA cleared via a 2012 501(k).

 

EMED alleged that RMS tried to push it out of business through false and misleading statements, including a 2012 “Safety Bulletin” to customers claiming that when it learned of attempts to “encourage” use of non-RMS rate sets with the Freedom 60, it was

 

concerned because, to the best of our knowledge, such knock-off tubing has not been cleared by the FDA for use with the FREEDOM60 pump, nor tested in accordance with our stringent release criteria to confirm that it can be safely and effectively used in the RMS FREEDOM60 Syringe Infusion System. RMS believes this knock-off tubing, marketed as the same product, fails to meet RMS specifications. Furthermore, we believe that using such non-RMS tubing with the FREEDOM60 Syringe Infusion System could potentially result in uncontrolled flows that could lead to patient injury or death.

While RMS investigates whether legal action against unauthorized sets is necessary to protect customers and patients, we urge you to use caution and refer to the product labeling …:

Caution: Use only FREEDOM60 tubing sets manufactured by RMS Medical Products. Use of any other tubing may cause the syringe to eject from the pump and eventually cause internal damage to the pump. Use of any other flow rate control tubing set may cause over or under delivery or medication to the patient, which could result in injury or death.

Please keep in mind that patient safety may be compromised by the use of unapproved and incompatible flow control tubing sets to deliver drugs. In addition, regulatory, patent infringement, reimbursement, and other issues may also arise. Moreover, use of non-RMS flow rate tubing voids the warranty for the FREEDOM60 Syringe Infusion Pump….

 

RMS’ SEC Form 10-Q in 2013 mentioned the Safety Bulletin and said that any non-RMS product could be “unsafe” and even cause death.  Its 2014 SEC Form 10-Q said that it didn’t believe that EMED’s product had FDA clearance. Its website said that it had the “only tubing specifically designed and FDA-cleared to have the accuracy necessary for the safe, controlled, dynamically-responsive infusions of the FREEDOM 60.”  In addition, statements that use of non-RMS rate sets voids the warranty for the Freedom 60 appeared in RMS’ four most recent SEC Form 10–Q’s.  And the Freedom 60’s user manual contained a warranty provision saying that “use with non-approved accessories or disposable items” voids the warranty.  Similar statements appeared in a 2014 article on NASDAQ.com and used words like “knock-off.”

 

EMED alleged that these were false statements that harmed its sales.  For example, a customer wrote to EMED stating: “The Freedom 60 warranty is voided if we use sets other than the RMS products. This is documented in the user manual. Accordingly, the EMED sets have not been proven to be accurate with the use of the Freedom 60 pump. Taking these things into consideration, I have asked our locations to discontinue use of the EMED sets.”  Others expressed concerns about FDA approval and safety, based on RMS’ claims.  Others required EMED to indemnify them before agreeing to purchase rate sets.  EMED claimed a loss of roughly 33% in related revenue since January 2014.

 

RMS sued EMED for patent infringement; EMED counterclaimed for false advertising.  The court first found “serious questions going to the merits” (still an alternative to likely success on the merits in the 9^th Circuit).  EMED claimed that, from 2002 to 2005, RMS contracted with EMED for the “manufacture of microbore tubing for RMS’ branded rate sets,” and during this time EMED sold at least 155,000 units of microbore tubing to RMS. RMS provided EMED with specifications necessary to manufacture the tubing, which allowed EMED to specifically design its rate sets for the Freedom 60 pump.  For years, RMS allegedly provided consumers with instructions for using EMED needle sets. Thus, the claim that EMED accessories couldn’t be used with RMS products was false.

RMS responded that, before issuing its Safety Bulletin, RMS tested EMED’s products and found that EMED’s Infuset products did not provide flow rates that are compatible with the advertised RMS equivalent.  RMS argued that EMED tested its products improperly, using fluids of the wrong viscosity.  EMED never made complete tubing sets, and thus didn’t have the complete specifications.  RMS attributed EMED’s revenue decline to RMS’ ability to sell a total system for treating patients. 

 

The court found that the facts were disputed as to whether EMED’s testing procedures were equivalent to RMS’, or whether the alleged superiority of RMS’ “total system” was the reason for EMED’s decline in revenue.

 

So what about those 510(k)s?  A 510(k) clearance means that there’s substantial equivalence to another legally marketed device, with either the same technological characteristics or differences that don’t raise new questions of safety and effectiveness.  EMED’s 2012 clearance didn’t specifically mention the Freedom 60, but the May 2014 clearance for Infusets did.  Internal EMED emails, construed in a light favorable to RMS, showed doubt over whether EMED previously had FDA clearance, though EMED’s position was that its VersaRate clearance covered a variety of pumps, including the Freedom 60; the court couldn’t make a definitive finding at this time, or a definitive finding that Infusets were covered by the 1994 510(k), even though RMS’ argument that Infusets weren’t covered was “unconvincing.” 

 

However, it was undisputed that there was clearance for Infusets to be used with the Freedom 60 as of May 2014. After that time, the Safety Bulletin warning of “death” was still available on RMS’ website, and showed up as the top Google search entry when typing in “Freedom60 customers.” It wasn’t clear how much RMS participated in the NASDAQ.com article, but the article tracked the statements in the Safety Bulletin, and those statements were false or misleading, because they contradict the fact that Infusets were FDA cleared to be used safely with the Freedom 60.  Likewise, as of September 2014, the RMS website still said “That’s why it has to be Precision—it’s the only tubing specifically designed and FDA-cleared to have the accuracy necessary for the safe, controlled, dynamically-responsive infusions of the FREEDOM 60.” RMS argued that even if Infusets received FDA clearance they still were not FDA cleared and designed for accuracy with the Freedom 60. Still, it was misleading in light of the 510(k). The court found that EMED raised serious questions going to the merits on falsity and misleadingness as of May 2014.

 

In addition, EMED argued that RMS’ claims about voiding the warranty violated the Magnuson–Moss Act, Section 2302(c) of which states:

 

No warrantor of a consumer product may condition his written or implied warranty of such product on the consumer’s using, in connection with such product, any article or service (other than article or service provided without charge under the terms of the warranty) which is identified by brand, trade, or corporate name ...

 

Comment: News to me!  That is a very interesting provision, and I wonder if it’s underlitigated compared to other claims.  RMS said EMED didn’t have standing to enforce the law, which permits suits by the AG, the FTC, and consumers.  But California’s UCL converts violations of other laws into violations of the UCL, and RMS was allowed to sue under the UCL.

 

RMS argued that it didn’t know about the law, but that doesn’t change the fact that voiding the Freedom 60’s warranty based on use of non-RMS products would actually violate the Magnuson–Moss Act.  The Safety Bulletin thus described an unlawful warranty, apparently directed specifically at EMED, which again raised serious questions going to the merits of a claim for “unfair or fraudulent” practices or “unfair, deceptive, untrue, or misleading advertising.”

 

Turning to the remaining preliminary injunction factors: RMS argued that EMED had unclean hands because a draft user manual for its products had the same provision, but that was just a draft. The current user manual states: “Limited Warranty: EMED Technologies Corporation (“Manufacturer”) warrants the SCIg60 Infuser to be free from defects in materials and workmanship under normal use.”

 

The balance of hardships tipped “sharply” in EMED’s favor, given the evidence of negative customer response, indemnity agreements demanded by customers, and declining revenues.  Enjoining RMS to stop its false or misleading statements would cause minimal to no hardship.

 

RMS argued that EMED’s delay in seeking a preliminary injunction cut against a finding of irreparable harm.  EMED waited for nearly two years to use after receiving December 2012 customer emails expressing concerns; it waited over 16 months after sending its first cease-and-desist letter to RMS and one year aftter sending its second; and it waited 11 months after asserting its counterclaims. EMED argued that it acted after RMS continued to claim that only its products could be safely used with the Freedom 60 even after the May 2014 510(k).  The court agreed that the delay was long, given EMED’s position that its rate sets were FDA cleared even before May 2014, but delay is just a single factor and courts are reluctant to withhold relief solely on this ground.

 

EMED supported its irreparable harm claim with evidence that the Safety Bulletin raised customer concerns about safety and voiding the warranty, plus allegations of lost revenue.  Given all this, an injunction against false and misleading advertising was in the public interest.

Ninth Circuit revives consumer claims against Sony

In re Sony PS3 “Other OS” Litig., 551 Fed.Appx. 916, No. 11–18066 (9^th Cir. Jan. 6, 2014) (belated; just showed up in Westclip)

The court of appeals partially reversed the dismissal of plaintiffs’ claims against Sony for disabling the ability of the PS3 to use other operating systems (enabling the machine to run as a computer) via a software update. There was no breach of express warranty, though promotional materials allegedly promised that this feature would be available for the advertised ten-year lifespan of the PS3.  The statements didn’t include those exact terms, and the ToS expressly informed consumers that updates and services “may cause some loss of functionality.”  The express one-year warranty applied instead, and the update came after a year.  Similarly, the claims for breach of the implied warranties of merchantability and fitness for a particular purpose were properly dismissed, as was the federal Magnuson-Moss Warranty Act claim.

However, some of the CLRA claims shouldn’t have been dismissed.  Plaintiffs alleged that Sony’s representations at the time of sale “mischaracterized the dual functionality of the PS3—and were likely to deceive members of the public—because Sony later restricted users to using either the Other OS feature or accessing the PSN [PlayStation Network] feature, but not both.”  Plaintiffs alleged that they reviewed Sony’s website, relevant internet articles, and the box label before buying, and that they relied on Sony’s representations. They also alleged damages because they paid more for the PS3 than they otherwise would.  This was enough.  The CLRA claim that required pleading fraud was properly dismissed because plaintiffs failed to allege the requisite intent; it wasn’t enough to plead that Sony believed that it could terminate the dual functionality when they didn’t allege that Sony planned to terminate the dual functionality at the time of sale.  CLRA claims based on unconscionability also failed.  Plaintiffs failed to allege any underlying “agreement” that promised them dual functionality for the lifespan of the PS3. 

Based on this result, FAL and UCL claims, including UCL unfairness claims, were also revived. For unfairness, plaintiffs sufficiently alleged that Sony caused them substantial injury by charging a premium for the PS3’s dual functionality and then discontinuing access to both the Other OS and PSN features. They also alleged that they could not have reasonably avoided this injury because they would have lost access to the PSN if they chose not to download the update which disabled the Other OS feature, and that there were no countervailing benefits to consumers or competition that outweigh the substantial injury to consumers.

CFAA claims and unjust enrichment claims were also properly kicked out (the software was voluntarily installed and there were adequate legal remedies available, respectively).

Lance Armstrong has a rare good day: consumer protection claims dismissed

Martin v. FRS Company, No. CV-13-01456 (C.D. Cal. Feb. 25, 2014)

FRS makes energy and sports drinks and related goods. Lance Armstrong was an equity owner and brand ambassador for FRS who participated in FRS’s marketing and ad strategy. Martin and other plaintiffs brought the usual California claims, including warranty claims, based on ads starring Armstrong (who at the time had yet to admit his use of performance enhancing drugs and had yet to be stripped of his titles).

An allegedly representative ad asked “What is Lance Armstrong’s Secret What is Lance Armstrong’s Secret . . .” over images of him training. Armstrong finished the question by looking into the camera and stating “Weapon?” The ad continued: “FRS with Quercetin,” “Keep it Real” while showing images of FRS energy drinks. The three key deceptions identified by plaintiffs were: (1) Armstrong was the only 7-time Tour de France champ; (2) FRS products were closely associated with his abilities and achievements; and (3) FRS products – and not illegal performance-enhancing substances – were the “secret weapon” that enabled those achievements and abilities.

Breach of warranty: plaintiffs didn’t comply with California’s pre-suit notification requirement. Regardless, the claims at issue were mere puffery (of which more below) and thus couldn’t form the basis of a warranty claim.

Consumer protection claims: puffery can often be resolved at the motion to dismiss stage. Williams v. Gerber Products Co., 552 F.3d 934 (9th Cir. 2008), is not to the contrary. In Williams, the plaintiffs got the benefit of the doubt because they alleged that the products weren’t “nutritious” and didn’t contain juice from the fruits displayed on the packaging, thus the products didn’t provide the advertised results. But plaintiffs didn’t allege that the products here didn’t provide the advertised benefits of fighting fatigue and supporting the immune system.

The phrase “secret weapon” was unquantifiable. Plaintiffs argued that in this circumstance it was quantifiable: Armstrong was actually using drugs as his secret weapon. The court was unconvinced; “secret weapon” was more like “high-quality,” “more innovative,” “of superb quality” and “packed with power,” all found to be non-actionable puffery. The phrase said nothing about the specific characteristics or components of FRS products. (Query: if the ads weren’t about linking Armstrong’s performance with his use of FRS products, what were they about? The opinion references an NAD decision finding that Armstrong’s appearance was as an endorser, and thus found an implied claim that his endorsement is that he drinks the product because it enhances his performance capability as an elite athlete, but the court here said that wasn’t enough to make it not puffery.)

Plus, the allegations required an unreasonable inference: that defendants’ products were the source of his success, rather than illegal performance enhancing drug use. But Armstrong didn’t make specific representations about the products. And plaintiffs didn’t allege that the products didn’t work or that Armstrong didn’t actually use the products. (Note: I can’t see why that matters, if the claim is that Armstrong’s “secret weapon” claim and not the other claims triggered a purchase.)

Plaintiffs argued that defendants were capitalizing on the controversy surrounding his wins and the rumors of illegal drug use—and they apparently did so with enough of a wink and a nudge to escape liability. “[T]he reasonable consumer would not make the inference that a healthy energy drink could be the proprietary reason a decorated cyclist achieves success. Such an inference requires the reasonable consumer to discount extensive training, natural ability or even illegal PEDs use.” Plus, Armstrong didn’t endorse the products until two years after his last Tour de France win. This was like the statement in TYR Sport, Inc. v. Warnaco Swimwear, Inc., 709 F. Supp. 2d 821, 830 (C.D. Cal 2010), that “athletes [should] wear Speedo equipment if they wanted to compete at the highest level”: classic puffery. 

Also, taking the ads this literally, the ads would reveal the “secret,” showing that a “secret weapon” advertisement is a self-defeating concept. (Okay, I understand this decision, but that’s going way too far. The plaintiffs’ arguments don’t entail that kind of interpretation.)

Plaintiffs also tried actionable omission, which requires some kind of duty to disclose. A duty occurs (1) when the defendant is the plaintiff's fiduciary; (2) when the defendant has exclusive knowledge of material facts not known or reasonably accessible to the plaintiff; (3) when the defendant actively conceals a material fact from the plaintiff; or (4) when the defendant makes partial representations that are misleading because some other material fact has not been disclosed. They argued that the “7 Time Tour de France Winner” was deceptive, but though Armstrong knew he won them illegally, he still won them, and there was no allegation that he knew he’d be stripped of his title; the allegations didn’t say that the ads ran after he was stripped of his titles. Fraud by hindsight isn’t fraud. Nor was “secret weapon.”

Plaintiffs argued that Armstrong knew about his own doping activities, but, even imputing that knowledge to FRS, that wasn’t enough, because the cases discuss omissions about products, not about their endorsers. Because “secret weapon” was puffery, Armstrong’s use of performance enhancing drugs wasn’t material.

Separately, plaintiffs failed to meet Rule 9(b)’s heightened pleading standard. They alleged exposure to the ads only in conclusory fashion (e.g., a plaintiff was “generally aware” of the Armstrong-FRS association). They didn’t identify the specific products they purchased, or specify the time and place of the alleged misrepresentations (note that other courts hold that identifying the relevant ads does that without specifying when they were broadcast/where they were seen). They also didn’t specifically allege reliance.

Finally, the court understandably disapproved of quotes of the ads with inserted bracketed language that changed the essence of the ad. One ad said: “if it’s good enough for Lance, it is good enough for me!” The complaint alleged: “if it’s good enough for Lance [to win 7 Tour de France world titles], it is good enough for me!” (You know, I would think that’s enough to allege that Armstrong was representing that the product helped his performance, even without the alterations.) Nor did plaintiffs sufficiently plead enough to satisfy even the vague unfairness prong of the UCL, since they didn’t specify why the FTC’s guidelines for unfairness (assuming they applied) had been violated.