Plus ça change

Michael Stamm, The Sound of Print: Newspapers and the Public Promotion of Early Radio Broadcasting in the United States, in Sound in the Age of Mechanical Reproduction, eds. David Suisman & Susan Strasser, 221, 231-32 (2010):

Publishers charged that radio news was harmful to society because it reached the public through sound, a method of delivery that many claimed was vastly inferior to print. The radio listener, in the minds of many publishers, was an easily satisfied and even lazy citizen who did not want to commit to the hard work of reading…. [P]rint required a greater commitment from readers than radio did from listeners, and this 1930s critique of ‘sound-bite’ news promoted newspaper reading as the means to obtain news and information in the more legitimate form….

The campaigns by anti-radio publishers to contain the perceived threat posed by radio news culminated in December 1933, when representatives from the radio and newspaper industries gathered at the Biltmore Hotel in New York City to negotiate the so-called Biltmore agreement. … Under the Agreement, radio stations would receive two daily press reports from the wire services and be allowed two daily five-minute news broadcasts, one in the morning and one in the evening. The morning report could not be given before 9:30 A.M., and the evening report could not be given before 9:00 P.M. The overriding goal of the Biltmore Agreement was to limit radio’s ability to compete directly with newspapers in the dissemination of news ….

Spoiler alert: it didn’t work.

ABA Antitrust Section Spring Meeting part 1

This year, the Antitrust Section had a full consumer protection slate--very exciting.

Handling State Attorney General Advertising Cases: Substantive and Procedural Considerations

Presented by the Consumer Protection and State Enforcement Committees

Session Chair and Moderator: Kevin J. O’Connor, Godfrey & Kahn SC, Madison, WI

William Brauch, Director, Consumer Protection Division, Iowa Attorney General’s Office

Jurisdiction is broad, including business-to-business and nonprofit/charitable solicitation. National Ass’n of AGs issues a monthly report on cases, to which one can subscribe.

Multistate actions in recent years (they date to the 1970s) have several common themes. Several involve big pharma: offlabel uses or misleading claims in general—Zyprexa, Celebrex, Yaz, cold remedies. Also: Enviga claims to burn 60-100 calories from drinking the beverage; Miller’s caffeinated alcohol beverage, Sparks (now no longer contains caffeine). Health consequences are of particular concern, such as potential misperceptions that people can avoid the inebriating effects of alcohol by adding caffeine.

Lifelock: protection of consumer financial information; settlement included restitution of $11 million—this is a harbinger of future FTC-state collaboration. Financial: top priority over past few years is mortgage lending. Numerous cases against foreclosure rescue operations, the vast majority of which appear to be outright scams. People spend thousands up front and get little or nothing for it. Illinois probably leads the country in cases filed, but many states have done so, participating in an FTC sweep. Similar area: debt settlement/management, targeting desperate consumers and squeezing their last dollars through fraud.

Real estate sales: states help each other. PA AG alerted FL AG to a Pennsylvania-based owner of a Florida real estate company; ended in Florida lawsuit.

Traditional areas: automobile cases. Effort in recent years to pursue false auto ads, promoted by “agencies” that offer services to new car dealers to promote used inventory—ads falsely represent that someone is bringing used vehicles/repos/cars from bankrupt company and thus bear a good price. But in fact those are the usual used car inventory from no particular source; scam also often includes specialized sales staff that strongarm consumers. Free gas as another deceptive practice: consumers who attempt to use the coupon find out there’s no free gas—dealers often end up feeling ripped off too, though they should have known better than to hire such an “agency.”

Electronic smoking: with fun flavors like chocolate, banana, etc. and a promotional video with Howard Stern saying “kids love ‘em.” Targeting kids gets AGs’ attention, as does targeting seniors.

There are also the traditional cases of generally deceptive conduct. Lifestyle Lift: in NY, gone after for posting fake consumer reviews. Verizon: settled charges over charges for ringtones marketed as free—traditional enforcement activity. Settlement over tax “refunds” (advertised) versus refund anticipation loans (delivered)—a pretty classic case.

O’Connor: how can a competitor alert the AGs to a problem?

Paul L. Singer, Assistant Attorney General, Consumer Protection and Public Health Division, Texas Attorney General’s Office

Complaints start a case; we’re all consumers, so things we/people in our offices see may start a case. (1) There’s a common misconception that for state regulators to bring a case there has to be a certain number/type of consumer complaints. It’s a common defense that there are no complaints. But state UDAP laws give authority to bring a case when there’s a potential violation of the law, regardless of specific complaints: proactive. (2) Process varies from state to state. Only 17 states left only accept complaints by mail; the rest take them online. This allows an increase in complaints, but they tend to be less specific because people can’t easily attach documents/ads. So we can struggle to figure out the underlying issue.

Q: doesn’t the lack of complaint show that a reasonable consumer isn’t being misled? When you do get complaints, what if there are a million transactions and 12 complaints—what’s de minimis?

Singer: That’s relevant. But there are a lot of industries where, because of the sensitivity of the transaction or other features, consumers may be unwilling to file complaints: debt settlement for example. It’s not because consumers weren’t misled or because the service worked, it’s because they’re embarrassed. Percentage is worth considering, but complaints are always just the tip of the iceberg, especially since complaints go to other places like the BBB as well.

Braich: predatory lending—transactions can be so complex that consumers don’t understand what went wrong. Ameriquest settlement was one of the biggest frauds he’d seen, but consumers hadn’t complained much.

Robert M. Langer, Wiggin and Dana LLP, Hartford, CT

To get AG attention, get an editorial about the practice in the NYT! That will attract interest. Malpractice in 2-3 easy lessons: fail to understand how to approach AG/Consumer Protection office—he wrote an article about this some years back. General rule: no surprises. To the extent one knows that there’s a request/civil investigative demand/other indication of state interest, you need to understand the issue, whether it’s likely to generate multistate/FTC interest—very rare that one can sit back and say a prayer, hoping it goes away.

Singer: Before the demand stage: while most every state offers some complaint mediation, it’s not true that every complaint received by every office gets to the company automatically—in Texas, use is generally internal rather than being passed on. A proactive effort to check in with the AG can be a preemptive effort to avoid the next step.

Q: What determines whether you send it on to the complainee?

Singer: If we’re looking at someone and want to see the response; if there’s something unique about the complaint and we’re trying to figure out what’s going on. It’s not necessarily a bad sign, but we want some answers if you get a batch of complaints from your office. Might be worthwhile to pick up the phone.

Langer: Look at the complaints. If you believe that the complaints are simply wrong, and you can back that up, you can let the AG know. Before things fester, talk about it. Unfiltered complaints v. investigated complaints: do client a big favor (and the AG too) by providing input early on.

Braich: in most states complaints and responses are open records. So the last thing a company wants is an unresponded-to complaint; Texas is perhaps unusual in not passing them on routinely.

Singer: if there’s a significant issue with real consumer impact, a competitor’s message can be well-received. But if the company does fieldwork and comes in with a packet of ads and consumer complaints, it’s not a competitor complaint any more, and that’s likely to be better received.

Langer: competitors can prepare documentation and legal analysis, providing an overview/explanation.

Statutory basis: Most states apply the FTC Cliffdale Associates standards (likely to deceive a reasonable consumer acting reasonably), though a few continue to apply the tendency to capacity or deceive standard. As a practical matter there’s almost no analytical difference, and multistate there’s a common approach. Other than private causes of action requiring causation/intent, there aren’t differences. You know deceptiveness when you see it.

Unfairness is a much more complicated concept. The FTC follows a substantial injury standard (that can’t be reasonably avoided by the consumer), but states vary: violation of statute or common law; some other standard of bad behavior. 16 states that have a Little FTC Act continue to follow the older FTC rule barring immoral/unscrupulous/unethical behavior; 4 have adopted Section 5(n) of the FTC Act’s substantial injury. 6 states don’t seem to have looked at the issue. Maryland has adopted the FTC policy statement by judicial decree. In Connecticut alone, dozens of cases focus on immoral/unscrupulous/unethical behavior as the sole basis for finding a violation—the law is more complicated than with respect to deception.

Patricia A. Conners, Associate Deputy Attorney General, Florida Attorney General’s Office

Oversees a lot of different enforcement units. States are taking a real interest in enforcing federal statutes—Consumer Protection Safety Act authority just achieved in Florida; TILA. Continuing trend from CAN-SPAM act and other provisions of federal law, where perhaps before there was local/state focus—perhaps due to the internet, where the AGs all start to see the same thing at the same time.

Trends: more states focusing on internet fraud and cybersafety, because that’s not going to go away. NY has an internet fraud unit, and Florida has a cybercrime subunit. Florida did “free” ringtones as part of this—cellphone companies had to treat this as their problem, because they made 40% of the profit from the ringtone companies for whose behavior the cellphone companies had previously disavowed responsibility.

UDAP statutes are really broad; in a lot of cases a violation of some specific regulatory statute (insurance, etc.) is also a violation of the UDAP law. Will work with other state agencies to ensure more aggressive enforcement where an agency is thinking like a regulator rather than an enforcer.

Braich: concealed harm, where something in the stream of commerce can hurt you can be unfair—Firestone tires; lead in products. The ability to enforce federal law is not so much about expanding jurisdiction, because UDAP is so broad, but giving us strategic opportunities—generally couldn’t join together before except in isolated circumstances. Ability to enforce HIPAA, for example, in federal court, is new and promising.

Langer: Some law out there already that under CAFA even state AG actions for restitution may be removable. Waiting for a 2d Circuit case on the issue. State AGs would go ballistic, though.

Conners: CAFA had a draft provision exempting state AGs, but was taken out, but with assurances to the state AGs that it was not intended to be interpreted as applying to the AGs.

Comment from audience: we had a case in 11^th Circuit where the AG was unable to secure a remand.

Connors: Compared to the states, the FTC creates more transparency with guidelines; constantly revising and seeking comments on policy statements and guidelines to help industries. Telemarketing rule; negative option rule; etc.

Braich: compared to FTC, our injunctions tend to be more detailed: a really specific behavior we want to stop. Class actions: we don’t like it when a settlement says that consumers won’t complain to state AGs—we will go after that every time.

Conners: Pharma offlabel marketing cases have strong injunctive provisions in them. Likewise sales of tobacco products to minors.

Braich: note that if a company doesn’t respond to a civil investigative demand, a number of states allow the AG to sue on that ground alone and suspend the ability to do business in the state.

Singer: In Texas failure to respond is even a criminal offense.

Panel was asked how far up the chain you need to go to start process—answer, not very far. Singer: before we issued a demand, our executive administration would approve the general investigation.

Conners: As the 3d largest state, we have almost 100 consumer protection lawyers and 5 offices; division director in Talahassee has a lot of discretion.

Braich: same in Iowa—individual lawyers don’t seek specific authority to investigate/issue a CID, though there’s generally knowledge & approval.

Langer: some states don’t use the AG as the principal administrator of the consumer protection law, but the AG can still issue an investigatory letter. Issues: whether the AG has that authority. In-house counsel assume that the AG’s request means the AG has authority to issue a subpoena, but it’s sometimes not true. That means the information you supply might not be subject to any confidentiality requirements and could end up on the front page. Need to investigate!

O’Connor: let’s talk multistate initiatives.

Connors: Multistate initiatives get formed for several reasons. A handful of states are typical initators, asking around for other states’ interest. If there is common conduct, states would ask each other what they’re doing. NAAG allows people to keep each other apprised. Toyota: much in the news. Is multistate relief more appropriate? Strong injunctive relief, for example, in offlabel pharma cases—means that each state may need to get a consent order in its own courts.

O’Connor: then don’t you end up with multiple different courts, since the standards for relief are different?

Langer: that can be like herding cats.

Connors: with settlements, there’d be a standard agreement negotiated by an executive committee made up of 3-4 states. But if you litigated it out, yes, it would have to be state by state.

Braich: usually there’s an executive committee or a lead state that does most of the work (and may end up with a larger share of the relief).

Singer: sometimes a group of states have all sent subpoenas. But other times one/small group will be doing the investigation and figuring out ways to meet confidentiality obligations while sharing information. One key factor for multistates: it’s a balance between efficiency/coordination problems—a longer process—and a global resolution.

O’Connor: how confidential is the state investigative process? How do you deal with state open records laws?

Singer: Texas has a confidentiality statute: specifically designates documents as confidential, limited to producing party and AG’s office. But the AG can use documents in any way to enforce, including in court. Just means they can say no to an open records request. But if the info is provided voluntarily then that restriction doesn’t apply. If it’s not produced in response to a civil investigative demand, it may not be protected, even if it’s produced in response to a follow-up to a CID. Practice: one lawyer provides a notice with every followup document that it’s produced in response to a CID (even though Singer thinks this is sometimes not true).

Braich: Opposite of Texas: if we compel it, we have less ability to keep it confidential against an open records request than if we get it voluntarily. But we can provide notice and opportunity for target to go to court. We won’t assert confidentiality on behalf of complying party, but we will withhold it and let them litigate.

Langer: If we produce something to Texas that is confidential then send it on to Florida, Florida will respect the Texas confidentiality. Other possibility: give it to repository (private law firm) and ask Florida AG to review it off government property.

O’Connor: what if party asks for no sharing with another state?

Braich: we’d try to work out a solution that fits the states.

Singer: states wouldn’t agree to subvert their open records laws with confidentiality agreements—that’s actually against the law.

Langer: private practitioners can easily commit malpractice. You’d better know who’s involved with the investigation, and in what states.

Connors: Florida’s public records law are only applicable in consumer protection context, not antitrust. Anything produced through a subpoena is public information. But if we get it from another state that deems it confidential, we can keep it confidential. A subject of a subpoena can go to court and get a protective order for trade secrets or other confidential information. Like Iowa, AG won’t assert confidentiality on target’s behalf, but won’t fight. There are no resources for reviewing confidentiality: good advice is for the target to pick a small pile of documents and ask for protective order where the need for confidentiality is clear; otherwise that litigation will take on a life of its own and tick off the AG.

O’Connor: focus, early on, on negotiating confidentiality if you’re dealing with a multistate process.

O’Connor: what is the end game?

Braich: Deterrence and public education. Generally we can’t recover damages, only restitution. Outright scams, we want out of business.

Singer: sometimes you can tell that a guy is a real bad actor—may have 500 domain names and a clear intent to change the name and the details and start all over again.

Conners: Rural sheriffs are stumbling on foreclosure schemes where houses are being bought for use as grow houses—the rescue is a front to get houses to grow pot in! You have to go to criminal law enforcement.

A couple of panelists suggested that they might show a business a draft press release before putting it on the AG’s site, as incentive for compliance. General agreement that the AG's public statements might credit a business for cooperation, assuming that was true.

Langer: better know what the AG will say publicly before you settle. If you go through a process in good faith and end up excoriated as part of the settlement, the client may well be unhappy.

O’Connor: AGs have to issue press releases; it’s part of communicating with constituency.

Singer: you need to make sure you’re talking with the right people in the office. He’s often asked to show targets the press release. But Singer has no authority to do this, and he does not have control over the people in the press office.

Connors: Multistate—they share template press releases. So generally you know the flavor of the press release in any given state. But in certain cases there have been understandings with defense lawyers that there won’t be an announcement until a certain time. On occasion, companies get cute and jump the gun—e.g., talk to the WSJ—to get the story spun their way. That is not forgotten in the next interaction with the company or with the lawyers.

Q: ever filed your own suit because the class action settlement was so bad?

Connors: we get CAFA notices at the eleventh hour and we don’t know what they’re about. We’d have to conduct a whole investigation to figure out whether to do that (though objecting to settlements is a different matter on occasion). We talk to the lawyers, who tend to say that the merits are weak enough to justify a small settlement; we’d have to roll out a full investigation to say yea or nay to that.

Singer: it’s not uncommon for us to issue a CID that is “give us all the discovery produced in this action”—allows us to check what we’ve heard from class counsel.

$10 million verdict in false advertising case

Michael Atkins first reported on literal falsity claims involving mounting systems for laptops in emergency vehicles. Defendant's endorser, who had credibility in the industry, said in a marketing video that he'd analyzed and investigated the systems, but in fact he just read a script. The jury found literal falsity on this and another claim about the competing restraint systems and awarded $10 million in damages.

Insurer can tell insured to buzz off

Harleysville Mutual Ins. Co. v. Buzz Off Insect Shield, L.L.C., --- S.E.2d ----, 2010 WL 1492136 (N.C.)

S.C. Johnson & Son (SCJ) sued Buzz Off and International Garment Technologies (IGT) alleging false advertising of the attributes of their insect-repelling clothing. The parties here were fighting over whether IGT’s commercial general liability insurance carriers were required to defend it against SCJ’s claims. The policies cover injuries resulting from some false statements in ads, but exclude from covered “advertising injury” the failure of the insured’s goods to conform to statements about quality or performance. The question was whether SCJ alleged injury resulting solely from Buzz Off and IGT’s allegedly false statements about their own products, or also injury from false statements about SCJ’s products. Because SCJ only alleged the former, the failure to conform exclusion applied. There was no duty to defend.

The court rejected the argument that the failure to conform exclusion was there to prevent consumers from bringing products liability actions veiled as false advertising claims and shouldn’t apply to competitor false advertising claims. There is a difference, IGT argued, between being injured by a product’s failure to perform as advertised and being injured by the ad; SCJ’s alleged injury was the latter. And it’s true that SCJ’s injury (lost sales and profits) would have occurred whether or not the ads were true. But SCJ can only recover damages if the ad is false, and the policies here only cover “offenses.” IGT’s argument didn’t create any ambiguity in the policy provision, and thus the court applied it as written.

So the only question was the nature of SCJ’s claims. SCJ identified many offensive statements in its complaint, many of which repeated the claim that insect repellents (such as SCJ’s OFF!) are messy and require frequent reapplication (thus making Buzz Off and IGT’s clothing comparatively advantageous); others mentioned “chemicals” in spray repellents, implying that topical repellents were less safe than Buzz Off’s clothing. Still, the North Carolina Supreme Court concluded, the essential allegation of the complaint was that Buzz Off’s statements about its own products—that they offered protection from insects--were false.

The court found “support” for the argument that these allegations involved false statements about SCJ’s products. Still, SCJ was attacking allegedly false superiority/equivalence claims, which if false are false because of the failure of Buzz Off’s products to perform as claimed. As for the messy/nasty/unappetizing/greasy descriptions of topical repellents, SCJ never contended that these were false descriptions. And, given their subjectivity, the court questioned whether they were actionable statements of fact. (Surely that last bit can’t be enough to get rid of the duty to defend, though.) Finally, though SCJ alleged that defendants made false statements indicating that their insect repellent was naturally derived, that doesn’t equate to a characterization of topical repellents as unsafe. SCJ’s claim was clearly that defendants’ repellent was in fact synthetic, not natural. Again, that’s failure to conform.

My lede would have been "Marvel seeks UAE TM counsel"

Spider Style opens office in the UAE. Window washers dressed in Spiderman outfits. Who knows, it's possible this is licensed.

Photographer loses photo alteration case

Murphy v. Millennium Radio Group LLC, No. 08-1743 (D.N.J. 3/31/2010)

Peter Murphy, a photographer, sued Millennium (MRG), which owns radio station WKXW 101.5, and two of its shock jocks, Craig Carton and Ray Rossi. In March 2006, New Jersey Monthly magazine published a feature, “Best of New Jersey,” naming Carton and Rossi as the best shock jocks in New Jersey that year. Murphy’s photo of them appeared in the print edition; he worked as an independent contractor. The photo showed them semi-nude while holding a WKXW logo in front of themselves.

WKXW scanned a copy and posted the image, which also showed up on myspacetv.com (though it’s not clear to me whether WKXW controlled the MySpace site, or whether it’s an unofficial fan page). There was no copyright notice on the pages of the New Jersey Monthly on which the photo was printed, and no watermark embedded into the photo. A credit for Murphy, along with other photographers, appeared in the gutter of the printed page.

Soon after the photo appeared on WKXW’s site, visitors began sending in their own versions of the photo. One such altered image had Carton and Rossi in bikini tops and displayed the phrase “2007 Jersey Girls Calendar” in place of the station’s logo on the sign held by the pair. Some images contained “significant alterations” while others “reflected only minor changes.” The radio station encouraged visitors to create these images with the invitation, “Send in your Photoshopped alterations of The Jersey Guys NJ Monthly photo” on the station’s website. The station displayed the altered photos on its site.

Sometime around June, Murphy’s attorney sent a threat letter, after which WKXW removed the photo and all the altered versions. Murphy alleged that sometime thereafter, Carton and Rossi used their show to impugn his personal integrity, characterizing him as “‘a man not to be trusted’ in a business environment; a man who ‘will sue you’ if you have business dealings with him and, in substance, as a man with whom ‘a person[] should avoid doing business.’” In addition, Murphy alleged that Carton and Rossi implied he was gay. (Okay, the complaint says “inferred Plaintiff was a homosexual,” but I’m fixing it.)

Murphy sued for copyright infringement, vicarious and contributory infringement, violation of the DMCA’s CMI provisions, and defamation. The district court granted summary judgment on all claims.

First, on the DMCA §1202 claim, the court found that defendants hadn’t removed “copyright management information,” here the fine print gutter credit on the magazine page. The information here didn’t function as a component of an automated copyright protection or management system, and thus wasn’t within the scope of the law. An alternate interpretation would make virtually all garden-variety copyright infringement claims into DMCA claims, supplanting the original Copyright Act.

The court also held that both the unaltered and altered photos on the site constituted fair use. First, the initial use of the unaltered photograph had a different purpose than the original use: it was designed to inform visitors to the station’s website of the New Jersey Monthly feature, with text below it stating, “Craig and Ray bare it all for New Jersey Monthly.” (The court did not specify the initial purpose of the photo, which was presumably something like “identifying Carton and Rossi for New Jersey Monthly’s readers.”) The altered photos were transformative because they added something new and changed the character and message of the original, using the photo for comic effect or poking fun at the photographer’s chosen pose. “Although some may view the altered photographs and feel that the comedic efforts on the part of some may not have been particularly successful, this does not effect the fair use analysis.” Transformation doesn’t require achieving one’s intended purpose. And, to the extent that the use was commercial, that was outweighed by the transformative nature of the use.

Given transformativeness, the nature of the work factor was of little aid, and was neutral. Likewise, the reasonableness of the amount taken depends on the weight of factors one and four. Beause those factors weighed in favor of fair use, this factor was of “little help” to Murphy.

Finally, defendants also did well on factor four. The only economic impact Murphy identified is that he would “likely” have offered a license for the use had defendants asked. But courts have rejected this argument because, stated that way, it would always favor the copyright owner. This was fair use.

Comment: Murphy may have been harmed here by going after the visitor-submitted photos. (Especially contributory/vicarious infringement, which would require the court to conclude that visitors’ very creation of the altered photos was not fair use.) If he’d only asked for damages based on the unaltered photo, the fair use argument might have been harder—certainly there might have been less bleedthrough on transformativeness in the factor three analysis, and the circularity problem on factor four would have been less troubling, since there’s a more robust established market for pure reproductions than for alterations.

The defamation claims failed because the alleged statements were rhetorical hyperbole: mere insults and name-calling that were not verifiable. The context—during a shock jock radio show in which Rossi and Carton typically delivered provocative and caustic dialogue—was underscored by the very photo in suit. Murphy “attempted to portray the show’s controversial and humorous character by having the two shock jocks pose seemingly nude behind their radio station’s logo.” Given this context, there were no actionable factual statements.

Moreover, even if the court had found that the statements were not rhetorical hyperbole, it is no longer defamatory to suggest that someone is homosexual. Though there’s a New Jersey appellate division case from 2001 holding that a false accusation of homosexuality is reasonably susceptible to a defamatory meaning, the New Jersey Supreme Court in 2006 held that the equal protection clause of the New Jersey Constitution requires committed same-sex couples to be allowed access to the same rights and benefits as married heterosexuals. The court detailed developing public policy against discrimination against gays and lesbians, noting that “[t]imes and attitudes have changed.” Subsequently, the state created civil unions. Thus, the court ruled, it was unlikely that New Jersey would “legitimize discrimination against gays and lesbians by concluding that referring to someone as homosexual ‘tends so to harm the reputation of that person as to lower him in the estimation of the community as to deter third person from associating or dealing with him,’” as required for defamation.

Lanham Act remedies are same for false advertising, trademark

Rexall Sundown, Inc. v. Perrigo Co., 2010 WL 1438789 (E.D.N.Y.)

Previous discussion. The parties sell glucosamine chondroitin nutritional supplements. Their false advertising claims went to a jury. Rexall sought to recover Perrigo’s profits, and the court ruled that Perrigo bore the burden of making any apportionment with respect to profits. The plaintiff must establish only the defendant’s sales of the product at issue. The defendant bears the burden of showing all costs and deductions, including any portion of sales that was not due to the allegedly false advertising. Perrigo argued that past precedents involved trademark infringement, not false advertising. But §1117(a) of the Lanham Act, which provides for damages, applies to trademark infringement, false designation of origin, false advertising, dilution, and cyberpiracy. Nothing in its text, governing precedent, or history indicated that the burden of apportionment varied with the cause of action asserted.

The court did note that any profit award under the Lanham Act is subject to the principles of equity. So, even if Perrigo couldn’t apportion profits, Rexall wouldn’t necessarily have been entitled to all its profits from the sale of products bearing the challenged Compare To statements, if a different amount would be just.

Note that this ruling is independent of the jury verdict. I am told that the jury found that Rexall failed to prove that Perrigo's use of "compare to" statements constituted a "statement of fact" under the Lanham Act and found for Perrigo on its remaining
counterclaim.

Misrepresentation of inventorship is actionable

PhotoMedex, Inc. v. Irwin, --- F.3d ----, 2010 WL 1462377 (9th Cir.)

PhotoMedex lost summary judgment on its Lanham Act and California false advertising/unfair competition claims and appealed, alleging that defendants misrepresented (1) FDA clearance to market their dermatological laser device, (2) the anticipated date their laser would be available for purchase, and (3) Irwin’s role as inventor of PhotoMedex’s laser device. Irwin was formerly on PhotoMedex’s development team, before he left to cofound codefendant Ra Medical.

The FDA permits manufacturers such as defendants to determine in the first instance whether their laser device was covered by clearance previously given a similar device, and also permits them to market the device without an affirmative statement of FDA approval. In these particular circumstances, when the FDA declined to make a finding that there was no valid clearance and declined to bring an enforcement action itself, claim (1) couldn’t proceed.

The court of appeals held that “when, as here, the claim would require litigation of the alleged underlying FDCA violation in a circumstance where the FDA has not itself concluded that there was such a violation.” To win, PhotoMedex would have had to show that there were significant differences between the FDA-cleared device and the device actually sold, but the determination of significant difference was a matter for the FDA (which had expressed uncertainty on the matter but never took enforcement action). This was not to say that the Lanham Act can never support private party claims involving FDA approval or clearance. For example, if it were clear that an affirmative statement of FDA approval was required and that no such FDA approval had been granted, “a Lanham Act claim could be pursued for injuries suffered by a competitor as a result of a false assertion that approval had been granted.”

In a footnote, the court commented rather pointedly that, unlike premarket approval, the clearance available to these device manufacturers “does not in any way denote official approval of the device.” 21 C.F.R. § 807.97. PhotoMedex didn’t argue that defendants’ “FDA approved” statement was in itself false or misleading because these devices were not “approved” in the way that other devices (and drugs) are, “perhaps because it too advertised its XTRAC laser as ‘FDA approved.’” The court explicitly reserved decision on whether representing such a device as having “FDA approval” may be actionable on the grounds that these devices are not actually subject to premarket approval.

But (2) and (3) were potentially viable. As for (2), false projections of market availability: though a forecast of future events “may ordinarily be a statement of opinion upon which such claims cannot be based,” it can be actionable if the speaker knew when the statement was made that it was false or lacked a good faith belief in its truth. Here, defendants distributed a brochure at a March 2003 trade show proclaiming that its Pharos laser was “FDA approved” and claimed that it would be available for purchase within a few months. But they didn’t ship the Pharos until September 2004 (and the laser they shipped differed in some respects from the FDA-cleared laser). Defendants argued that they were delayed in part by PhotoMedex’s multiple lawsuits. The district court thought that the release date predictions were mere statements of opinion regarding future events, which are “generally not actionable.” But there’s a well-established exception if the speaker knows of facts that make the opinion unwarranted. If defendants knew that the Pharos couldn’t actually be available until a substantially later date, they can be liable for misrepresentation.

The difference between nonactionable opinion and actionable factual misrepresentation is for the jury, as PhotoMedex offered sufficient evidence to survive summary judgment. Irwin told FDA officials that the design plan for the Pharos was developed in March 2003, and PhotoMedex’s expert testified that it would take 12 to 18 months to move from design to production, assuming everything was complete and well-documented; the expert further testified that Ra Medical’s work was not complete and well-documented. Thus, the expert concluded, it wouldn’t have been reasonable to project delivery for any time in 2003, but only in the second half of 2004; and a person knowledgeable in the field would have known this. This testimony raised a genuine issue of material fact.

The motivation for and harm from such a misrepresentation was obvious. Defendants might have persuaded clients not to buy PhotoMedex’s available device, leaving them “open” to buying defendants’ product later.

The “commercial depiction” of Irwin as inventor was actionable because it might misrepresent his actual contribution. Defendants’ marketing materials described him as “inventor of the first FDA approved excimer laser for phototherapy” (which was PhotoMedex’s laser). PhotoMedex argued that he was neither the only nor the primary inventor of the PhotoMedex laser. Defendants argued that he was VP of engineering, where he was “intimately involved” in the development of the laser, and that he invented particular components. But this depiction was actionable “to the extent it misled consumers into believing that Irwin was the sole inventor or made more than his actual share of inventive contributions.” Irwin was only named as inventor in patents for the laser’s cooling apparatus; other individuals designed the “bulk” of the system. (Interesting that there’s no discussion of materiality, though I can easily see the argument for same.)

When should a misleadingness claim be dismissed on the pleadings?

Everett Laboratories, Inc. v. River’s Edge Pharmaceuticals, LLC, 2010 WL 1424017 (D.N.J.)

The parties compete in the market for prenatal vitamins. Everett asserted patent and trademark claims. River’s Edge counterclaimed for, among other things, false advertising, arguing that Everett falsely advertised its VITAFOL as FDA “approved” and falsely claimed that VITAFOL was a registered trademark. Everett argued that it only advertised VITAFOL as “FDA-regulated” and that VITAFOL is a registered mark.

The question was whether Everett’s ad describing VITAFOL as an “FDA regulated, prescription nutritional product[ ]” would lead consumers to believe that it was FDA-approved. The court didn’t address Everett’s FDA preclusion argument because it found the counterclaim insufficiently well-pled under Rule 8(a). Because the claim was misleadingness and not falsity (thus requiring evidence of consumer perception), and because River’s Edge only baldly asserted that the ad was “likely to cause confusion, or to cause mistake, or to deceive as to the approval” of VITAFOL, there was no basis for the court fo find that consumers would be misled. This was mere conjecture as to the effect of Everett’s language and thus failed to state a claim.

Comment: This approach, if it catches on and if it means more than that the plaintiff must explain its theory of how consumers are misled in more detail, might be a big deal, especially if courts apply it to cases in which falsity and misleadingness are pled in the alternative. Kicking out a misleadingness claim at the pleading stage would change many cases substantially.

River’s Edge also argued that the actual registered mark is VITAFÔL, with a diacritical mark over the O. Everett argued tacking: if an alteration is not material and creates the same commercial impression, it’s not abandoned. The court found that the difference between the two forms was too small to render VITAFOL unprotected by actual registration of VITAFÔL. The overall commercial impression was the same and the key element was preserved. Thus, the counterclaim was dismissed. (Materiality would have seemed to be an obvious barrier, too, but that might not work on a motion to dismiss, though I can easily see an aggressive application of Iqbal/Twombly, not dissimilar to what the court did with the misleadingness claim, that would have done so.)

Swimsuit claim sinks

TYR Sport, Inc. v. Warnaco Swimwear, Inc., --- F.Supp.2d ----, 2010 WL 1192438 (C.D. Cal.)

TYR and Warnaco (Speedo) make high-end swimwear and accessories for competitive swimmers. USA Swimming is the national governing body of US swimming. In 2006, USA Swimming hired Mark Schubert as National and Olympic Team head coach and general manager, while Schubert was and remained a paid Speedo spokesman. Speedo also has an exclusive sponsorship agreement with USA Swimming dating to 1984.

TYR alleged a combination to make USA Swimming a de facto sales agent for Speedo, which included false statements by Schubert to promote Speedo’s products and disparage TYR’s. In the run-up to the 2008 Olympic games, high-end swimsuit manufacturers were engaged in an arms race. Speedo’s LZR Racer, released in early 2008, was an upgrade from its previous Fast Skin Pro. TYR was working on its own Tracer Rise. Schubert touted the LZR Racer as offering a 2% advantage, something he said to the National Team members at a meet in Manchester directly as well as to reporters. He said that swimmers should wear the Speedo suit at trials or they might end up at home watching the Olympics on NBC.

Erik Vendt, an American swimmer with an endorsement deal with TYR, became dissatisfied with his TYR suit in late 2007 and made several calls to Schubert, his coach (both on the National team and previously at USC). Schubert recalled telling Vendt to talk to his agent and TYR about his concerns. TYR invited him to test the unreleased Tracer Rise and he was apparently very happy with it. Two weeks later, though, he told TYR that he planned to wear a Speedo, and TYR cancelled his endorsement deal.

By the time of the US Olympic trials, only one of the TYR-sponsored swimmers to whom Schubert had spoken at the Manchester meet had switched from TYR to Speedo. Several wore a TYR suit and qualified. Matt Grevers won two gold medals, a silver, and set a world record while wearing the Tracer Rise. “Meanwhile, the Speedo-wearing swimmers experienced unparalleled success at the Olympics. All told, 86% of the swimming medals in Beijing, including 91% of the gold medals, were won by swimmers wearing the LZR Racer.” The arms race continued after the Olympics; other competitors sometimes overtook the Speedo and TYR suits. But Schubert continued promoting Speedo, at one point advising two swimmers on the Junior National Team to wear the LZR Racer because it was “faster” than the TYR and Blue 70 suits they were wearing at the time.

In July 2009, the sport’s international governing body banned the high-performance full-body suits from competition, ending the market.

TYR’s claims asserted violations of the Sherman Act and California’s Cartwright Act (also a monopoly act), as well as false advertising under the Lanham Act and tortious interference with contractual relations. I focus here on the false advertising claims, though the court allowed TYR’s theory that disparagement using the prestige and apparent impartiality of USA Swimming could violate the Sherman Act. False statements about rivals can obstruct competition without competitive justification, so defendants weren’t entitled to summary judgment on that theory. However, the standard for antitrust violations of this sort is very high, so the court was willing to entertain a further summary judgment motion now that the parties were focused on the issue. Disparaging statements “must have a significant and enduring adverse impact on competition itself in the relevant markets to rise to the level of an antitrust violation.”

The Lanham Act claim was based on the 2% advantage and “faster” statements. Speedo argued that Schubert’s statement at Manchester was to an audience of 25 swimmers, only one of whom switched from TYR to Speedo, and that months later after a poor race in her TYR suit; she testified that Schubert’s 2% comment had nothing to do with her decision. The statement to the two youth swimmers similarly failed to result in lost sales: one tried the Speedo suit for one race and then switched back to TYR because he didn’t like the feel of the Speedo, and the other didn’t use a TYR.

TYR argued that literal falsity in a comparative claim obviated the need to prove injury. But the presumption from such literal falsity is one of deception and reliance—causation—and not injury. It didn’t cure TYR’s failure to show lost sales. Moreover, the presumption is rebuttable, and had been rebutted. And any claim for injunctive relief was moot, because there’s now no market for high-performance swimsuits among elite swimmers.

But there was a similar 2% statement to a reporter. Speedo argued that this wasn’t commercial advertising or promotion, because it was made to the press about a matter of public concern. The court agreed: Schubert was addressing a public debate about the effect of Speedo’s new suit on swimmers’ performance. The article in which the statement appeared was clearly protected speech, and Schubert’s statement was inextricably intertwined with the reporter’s coverage of the topic.

Is undisclosed paid-for content noncommercial speech?

Edward B. Beharry & Co., Ltd. v. Bedessee Imports Inc., 2010 WL 1223590 (E.D.N.Y.)

Beharry sells various spices under the INDI brand, including Special Madras Curry Power. Bedessee is a competitor. In 2006, Beharry sued Bedessee for counterfeiting, trademark infringement, and related claims. In 2007, the court entered a final judgment that, among other things, prohibited defendants from “objecting, interfering, contesting or opposing the use and/or registration by [plaintiff] of the INDI Curry Mark.”

In 2008, The Carribean New Yorker, read by the parties’ customer base, ran an article, “FDA warns of filthy ‘Special Madras Curry Powder.’” It said that Beharry’s Special Madras Curry Power posed a threat to the public; specifically that the FDA had rejected a June 2008 shipment because it was “filthy.” The article then explained that FDA guidelines define an article as “filthy” if it “appears to consist in whole or in part of a filthy, putrid or decomposed substance or to be otherwise unfit for food.” The article stated, “[c]ontradicting Beharry’s claim of pride in providing its customers with high quality products and services, its ‘famous’ Indi brand curry was denied entry to the United States.” The article continued that the FDA had rejected entry to shipments of INDI curry powder repeatedly during the mid-1980s on similar grounds. Moreover, the FDA had issued a warning on Beharry custard powder for containing “non-permitted and undeclared tartrazine.” The article concluded that “[t]he West-Indian community must be made aware of repeated adverse FDA actions regarding Beharry’s food products and any corollary health risks,” and provided links to the FDA announcements, though the links were broken and one contained a typographical error.

Beharry alleged that Bedessee “contributed to, authored, conceived, submitted and/or otherwise caused” the piece to be published. Moreover, Beharry alleged that individual defendant Invor Bedessee circulated the full article by email to distributors and the customer base, though Bedessee claimed that the email didn’t go to anyone in New York or even in the United States.

Beharry first claimed for common-law commercial defamation based on the “threat … to the public” and “[c]ontradicting Beharry’s claim of pride in providing its customers with high quality products” statements, alleging a 75% loss in sales.

The court denied Bedessee’s motion to dismiss. Bedessee’s denial of any connection to the publication didn’t warrant dismissal, but merely created a factual dispute. Beharry noted that the publication didn’t contain a byline, and claimed that the piece was a paid ad rather than a news article. Bedessee’s email could raise additional suspicion, because he expressly characterized it in quotation marks as a “‘public article.’” (Or he, like lots of people, might not know how to use quote marks—while I’m not sure the email is evidence of anything, I agree that there is a factual issue.) The court further found that the litigious history between the parties supported the allegation of a connection with the article.

(There’s a very interesting question left open here: what if Bedessee is “connected” to the article in the sense of convincing the magazine that it was a worthwhile story to run, but didn’t pay for it to appear?)

Bedessee also argued substantial truth, based on the FDA websites referenced in the complaint. The court agreed with Beharry that, though the statements accurately report on the denial of entry, the publication went “well beyond the scope of the FDA report, creating a false and misleading impression regarding all of plaintiff's products.” The very first sentence warns of an ongoing threat that the curry powder “and other products” pose to public health. Such an inference doesn’t necessarily follow from a single seizure of curry powder in 2008, similar seizures in the mid-1980s, and warnings about tartrazine in custard powder in 2008. A reasonable reader could find the gist or sting more serious than that which was fairly suggested by the FDA’s findings (though I would think a reasonable reader could also follow the article’s logic).

Similarly, Bedessee was not protected by the fair report privilege, which requires substantial accuracy. Given that the article speaks of an ongoing threat from curry powder “and other products,” a reasonable jury could find that this wasn’t a fair and true representation of official proceedings.

(I have to wonder whether you’d get the same result in a suit against the Carribean New Yorker itself. Maybe—though actual malice would likely be a separate problem.)

Was there a violation of the consent judgment? Beharry argued that Bedessee “interfer[ed]” with the use of the INDI trademark by making false or misleading representations regarding the quality of its INDI products. Defendants argued that the publication was substantially true and protected by the First Amendment; the court wasn’t persuaded. (I would have thought that a better argument would be that the parties couldn’t have intended “interference” to mean anything so broad; under Beharry’s interpretation, completely fair competition in the market that drove Beharry out of business would seem to constitute an “interference” with the “use” of the mark. A better interpretation would seem to be that Bedessee wasn’t allowed to do anything to set up a legal barrier to the use of the mark.)

Beharry also claimed violation of the Lanham Act. Now what seems to me to be weirdness: Bedessee argued that the Lanham Act claim failed because the article wasn’t commercial speech. The court agreed. “No named defendant appears anywhere in the publication, nor do any of defendants’ products, prices, or business contacts. As the public would have no reason to associate the publication with defendants, it cannot possibly propose a commercial transaction between defendants and readers of The Caribbean New Yorker. Even if defendants paid to run the piece with a motivation toward indirectly influencing customers to buy their goods, such a motivation does not transform the piece into commercial speech” (citing Bolger v. Youngs Drug Products Corp., 463 U.S. 60, 66 (1983), for the proposition that economic motivation alone can’t make something commercial speech).

Comment: So basically, you can say nasty things about your competition—and even nice things about yourself—if the public wouldn’t attribute the statements to you? Or does the court think that any mention of Bedessee, even in something that appeared to be editorial content, would give the public “reason to associate the publication with defendants”? Either alternative seems very troubling to me. This holding is inconsistent with the ruling on defamation. If the defendant paid for this content to appear in the publication, it's an ad. If failing to label an ad as an ad moves content from commercial speech to noncommercial speech, we've now created both a huge gap in advertising regulation and a huge incentive to arbitrage. (And note that if you say, "no problem, because stuff that's just disparaging the competition will be rare, and most paid-placement content will mention the advertiser and thus be an ad again," you are taking the position that consumers must--descriptively or normatively or both--expect any mention of an advertiser in apparently editorial content to be sponsored by the advertiser, which has serious consequences for trademark law and puts a ton of pressure on things like nominative fair use.)

In any event, the court also ruled that the email inviting recipients to discuss the article wasn’t commercial speech, because it was unclear what, if anything, Bedessee actually discussed with any of the recipients. And it was “evident” that a reproduction of the article with an invitation to discuss it was not a commercial proposition or ad. (This seems to me inconsistent with the core Gordon & Breach case used to define advertising for false advertising purposes—that case involved an article, not actionable commercial speech itself, that the court held could constitute advertising when repurposed by a competitor to attack the plaintiff.) Result: motion to dismiss Lanham Act claims granted.

On the New York false advertising and deceptive business practices claims, the court agreed that the claims had to be dismissed because of failure to allege consumer harm or injury to the public interest, only harm to the plaintiff’s own business interests.

On the New York tarnishment and blurring claims, the court first ruled that Beharry had adequately pled that INDI was strong enough to qualify for protection, since Beharry alleged that it has been used for 30 years, is distinctive, represents significant investment in advertising and promotion, and has generated valuable goodwill. The blurring claim, but not the tarnishment claim, was dismissed because the mark was not associated with any other goods and services, and thus the publication didn’t lessen the capacity of the mark to identify Beharry’s goods or distinguish them from others. The tarnishment claim, apparently on a Deere theory, survived (which goes to show what’s wrong with Deere: if there’s no actionable falsehood—which of course remains to be seen—no plaintiff should be able to use dilution to avoid the constraints, many of them constitutional, on defamation/false advertising).

In New York, common law product disparagement claims cover only false statements about the quality of goods and services, and require malice and special damages. Special damages must be pled with sufficient particularity to identify actual losses, and the individuals who ceased to be customers or refused to purchase must be named. Beharry argued that it pled lost sales, not lost customers. But such round figures, with no itemization, are only general damages, not special damages, and Beharry didn’t plead that the nature of its business makes it difficult to identify its losses with sufficient specificity. Thus, the product disparagement claims were dismissed.

OASIS gets no respite from organic litigation

All One God Faith, Inc. v. Organic and Sustainable Industry Standards, Inc., --- Cal. Rptr. 3d --, 2010 WL 1450925 (Cal. App. 1 Dist.)

The federal government has mandatory standards for “organic” food and agricultural products, but only voluntary and permissive criteria for “organic” personal care products. Defendant OASIS seeks to develop a beauty/personal care product-specific standard that would allow its members to use an “OASIS Organic” seal. Plaintiff (d/b/a Dr. Bronner’s Magic Soaps) sued OASIS and some of its members for unfair competition and misleading advertising. OASIS moved to strike pursuant to the anti-SLAPP statute, and the trial court denied the motion. The appellate court affirmed.

Dr. Bronner’s products are labeled either “Made with Organic Oils” or “Organic” under USDA’s voluntary criteria under the National Organic Program (NOP). The NOP regulations don’t apply to personal care products that call themselves organic but don’t purport to comply with NOP and don’t carry or imply that they carry the USDA organic seal. Under NOP criteria, “Organic” products must contain at least 95 percent organically produced ingredients (excluding water and salt) and remaining ingredients must consist of approved nonagricultural substances or nonorganically produced agricultural products that are not commercially available in organic form. Furthermore, a personal care product labeled “Organic” or “Made with Organic [ingredients]” can’t contain any cleansing or moisturizing agents made of synthetic petrochemicals or petrochemical compounds. Hydrogenation and sulfation are not permitted to produce such agents.

Dr. Bronner alleged that OASIS is a commercial trade association and that it is an agent for its members, who include many of the other named defendants, who sell competing personal care products. In order to promote its members’ sales, it allegedly issued a new standard that would allow an “Organic” label for products that contained cleansing agents made from nonorganic material that has been hydrogenated and/or sulfated, and preserved with synthetic petrochemicals. Defendant Estée Lauder allegedly plans imminently to label its products as certified Organic in accordance with this standard. Dr. Bronner asked for a permanent injunction against OASIS certification of any product that doesn’t comply with the NOP criteria.

OASIS moved to strike the claims against it, arguing that it was being sued for exercising its right to free speech: articulating and publishing the OASIS Organic standard. It’s a trade association that doesn’t produce or manufacture any cosmetic or personal care products. Instead, its aims are to set certification standards and educate consumers and members of the health and beauty industry. Its board has ten members, three of whom are affiliated with other defendants in the case. According to its declarations, Estée Lauder doesn’t dominate or control it and didn’t play the leading role in creating or promoting the OASIS Organic standard.

OASIS hadn’t yet completed its standard when it filed the motion to strike, but it had released a series of draft standards for comment, and had received about 50 inquiries from members of the public about the draft standards. OASIS doesn’t plan to certify any products itself; members will have to use third parties to certify that they meet the standards.

Dr. Bronner argued that it had not challenged speech “in connection with a public issue or an issue of public interest,” as required by the anti-SLAPP law. Alternatively, Dr. Bronner argued that OASIS’s commercial speech was specifically exempted from the protections of the anti-SLAPP statute. The trial court ruled in Dr. Bronner’s favor on the first ground, and also held that OASIS’s conduct didn’t fall under the commercial speech exclusion because, though OASIS is a trade group acting on behalf of its commercial members, is not itself “a person primarily engaged in the business of selling or leasing goods or services” as required by the exclusion.

The appellate court agreed that OASIS failed to meet its burden of showing that Dr. Bronner’s claims arose from protected activity under the anti-SLAPP statute. While the act of formulating a proposed organic standard might constitute protected activity, Dr. Bronner wants to enjoin certification of products, which is not protected activity. Nor is certification “conduct in furtherance” of the formulation of the standard, which would also give it protection. Even if a cause of action may arguably have been triggered by protected activity, a reviewing court must focus on the substance of the plaintiff’s lawsuit. The critical point is whether the cause of action itself is based on an act in furtherance of the defendant’s right of petition or free speech. In particular, OASIS didn’t demonstrate that its activity was on an issue of “public interest.” Dr. Bronner’s claims didn’t arise out of the articulation of the OASIS Organic standard in the abstract, but rather on the fact that OASIS will authorize its members to use the OASIS Organic seal on their products that don’t meet the NOP standard, at which point Dr. Bronner alleges it will suffer injury because consumers will be misled. ‘

This certification would not be “in furtherance” of OASIS’s articulation and dissemination of a standard regarding what makes a personal care product truly organic. The articulation of the standard will necessarily be complete before any certification occurs, so adding the seal to any particular product wouldn’t help a debate on the meaning of “organic.” Once it’s on a product, the seal is merely a representation about the product’s ingredients and quality. Though OASIS stated that it would require members using the seal to direct consumers to details of the standard, the record had nothing indicating how that would be achieved. Unlike the draft standards, nothing in the record indicated that actual use on a product would invite comment from the public, or that the standard will necessarily “evolve over time,” as suggested by the dissent. Once affixed to a product, the purpose of the seal is to promote the sale of the product, not the standard or its elements. It’s not necessary for OASIS to certify individual products and authorize use of its seal on products in order for OASIS to express its general opinion about what constitutes an “organic” personal care product.

Although certification provides valuable information, at the point of purchase “[i]t is the marks themselves, as representations of quality, upon which consumers rely in purchasing decisions, and the well-established reputations of the entities which authorize them, not the standards upon which the product certifications are based. We are not persuaded that many, if any, consumers themselves investigate the basis for an Underwriter’s Laboratory label upon a product, or offer comments on the testing protocols used to achieve it.” Thus, that there may be a logical nexus between protected conduct and the ultimate affixation of the seal does not make the affixation itself protected conduct; to do so would expand the anti-SLAPP statute too far.

Moreover, the appellate court concluded that OASIS’s commercial speech was not protected activity on an issue of public interest. OASIS’s purpose is to support its members’ commercial activities and help them sell stuff to consumers. Only paying members will be allowed to use the OASIS Organic seal, and only members who plan to use the seal are eligible to become voting members. Thus, this isn’t true third-party endorsement or criticism, or consumer protection information.

OASIS conceded that its speech was commercial under Kasky. Though Kasky didn’t involve the anti-SLAPP statute, recent cases have drawn on it to conclude that a manufacturer’s advertising statements about a product aren’t protected by the anti-SLAPP law when the specific nature of the speech, “rather than the generalities that might be abstracted from it,” doesn’t involve a matter of public interest. Using the OASIS Organic seal on member products is only about the contents and quality of the product, like any ingredient list. It doesn’t contribute to the debate on the merits of a particular definition of “organic.”

On the other hand, the exclusion for “commercial activity” added to the law in 2003 doesn’t apply. That exclusion exempts from the anti-SLAPP law any cause of action brought “against a person primarily engaged in the business of selling or leasing goods or services … arising from any statement or conduct by that person” if (1) the statement or conduct consists of factual representations about that person’s or a competitor’s business operations, goods, or services (etc.) and (2) the intended audience is an actual or potential buyer or customer or person likely to repeat the statement to same or otherwise influence them (etc.). Though OASIS’s members are primarily engaged in the business of selling goods, and though OASIS acts on their behalf, OASIS is not itself covered by the exclusion. The exclusion does not cover “someone acting on behalf of” a person primarily engaged in the business of selling or leasing goods or services, and it easily could have done so. Indeed, the legislature knew how to write broadly when it covered statements made to people likely to influence potential customers. Indeed, the legislature considered and rejected an exception that would have applied to an entity merely involved in the stream of commerce. Only a subset of commercial speech is covered by the exception. (So, it would seem ad agencies can bring anti-SLAPP motions to strike, but not their clients.)

The court of appeals also rejected, as unsupported, Dr. Bronner’s argument that, once OASIS authorizes its members to use its certification mark, OASIS adopts those goods as its own within the meaning of the law. Because Dr. Bronner failed to raise this argument in the trial court, the court also refused to address Dr. Bronner’s theory that OASIS is primarily engaged in the business of selling its certification services and made the challenged statements in the course of delivering those services.

A dissent argued that the formulation of the OASIS Organic standard was speech in connection with a public issue; indeed, the majority apparently acknowledged this. There’s no consensus on the definition of “organic” for personal care products. Whether the NOP standards should remain voluntary as to such products, and whether better standards exist, is a matter of public interest. The OASIS standard “may influence not only the definition of organic as applied to personal care products, but it also may play a role in the federal government's decision whether to leave the NOP criteria voluntary or to encourage the development of further nongovernmental standards for organic personal care products.”

Further, OASIS’s role in the certification process, the dissent argued, should be deemed protected content. As trademark law recognizes, certification marks provide useful information in a competitive market, providing third-party assurance of some feature. Thus, authorizing the use of a certification mark is protected conduct. The majority’s holding that “consumers do not care about the standards underlying product certifications” proved too much by challenging the underlying rationale for certification marks, which is informing consumers that a product has certain characteristics. The facts of this case show that consumers would be getting important information: if they see one product with a USDA organic seal and another with an OASIS Organic seal, they might have an interest in ascertaining what standard OASIS Organic represents. Because the federal scheme authorizing certification marks serves the purpose of providing useful consumer information, those who disagree with the standard should be subject to the anti-SLAPP standard if they sue the certifier.

(I’m closer to the majority on this: most consumers use certification marks as a shortcut, as they’re supposed to be—consumers trust the certifier rather than investigating the actual standards applied. Consumers are extremely unlikely to be thinking in any detail about what those standards are.)

Furthermore, the dissent argued, the certification process enhances the debate around the formulation of the OASIS Organic standard and promotes the standard itself, thus entitling OASIS to protection because the process is “in furtherance” of protected conduct, which is within the scope of the anti-SLAPP statute. “Furtherance” means helping. (Of course, this can’t be taken too far: earning money is in furtherance of further message-spreading.) Interest in OASIS’s standard is “materially enhanced” because the standard will ultimately be attached to certain products. If the standard, once finalized, were just available on OASIS’s website, it would generate far less consumer attention. The plan to certify promotes interest and participation in the debate over what the certification standard should be. And the certification process creates ongoing interest in the standard—OASIS and its members will have incentive to promote it to convince consumers of its reliability and utility. The majority’s rule, the dissent suggested, impermissibly cabined the scope of the anti-SLAPP statute to speech that was “necessary” to express a view, whereas a better view is that speakers should have the right to choose the means of expression, because different means aren’t fungible.

Though courts have consistently held that promotional statements on products that are designed to sell those products aren’t “in connection with a public issue or an issue of public interest” within the meaning of the anti-SLAPP law. But the OASIS Organic seal does more than promote a product: it advocates for the OASIS organic standard. “OASIS’s interest is in public acceptance of its standard, not the sale of any particular product.”

The dissent concluded that its preferred result wouldn’t immunize OASIS from liability for false or misleading aspects of its certification mark. To survive the motion to strike, Dr. Bronner would just have to show a probability of prevailing on the merits. (Nor did the dissent take any position on whether a manufacturer’s act of applying the seal to its own products would also qualify for anti-SLAPP protection.)

Mismatched dose claim survives preemption

In re Bayer Corp. Combination Aspirin Products Marketing and Sales Practices Litig., --- F.Supp.2d ----, 2010 WL 1268196 (E.D.N.Y.)

This multidistrict litigation involves claims that Bayer misrepresented its Women’s Low Dose Aspirin + Calcium (Bayer Calcium) and Aspirin with Heart Advantage (which combines low-dose aspirin with phytosterols, marketing them as if they were FDA-approved, appropriate for long-term use, and provided health benefits (a source of calcium and cardiovascular benefits, respectively). Allegedly, none of this was true; a person couldn’t take either combination product and get both the recommended daily dose of aspirin and the recommended daily dose of calcium or phytosterols. Taking the recommended amount of aspirin would leave you with one-third the recommended amount of calcium and one-half the recommended amount of phytosterols, respectively. Plaintiffs alleged that the labeling was confusing, commingling statements about the virtues of low-dose aspirin with those about the health benefits of calcium and phytosterols: a whole less than the sum of its parts.

Any aspirin maker can sell aspirin under the FDA aspirin monograph as long as it makes only permitted claims and includes standard directions and warnings, including that a low-dose aspirin regimen should be pursued only under a doctor’s supervision. Bayer sells its low-dose aspirin under the FDA monograph.

The FDA has approved unqualified health claims for calcium, for reducing the risk of osteoporosis, and phytosterols, for lowering cholesterol and reducing the risk of heart disease, reflecting significant scientific agreement on the claim. Food and dietary supplements with the requisite levels of these ingredients can put health claims on their labels.

Bayer promotes Bayer Calcium and Heart Advantage with qualified health claims about low-dose aspirin and the health benefic claims authorized for high-calcium and high-phystosterol foods, respectively.

Bayer Calcium’s package states, “Provides 300 mg of Calcium Which Helps Strengthen Bones To Help Fight Osteoporosis” and “Aspirin Protects Your Heart by Keeping Your Blood Flowing Freely.” In 2008, the FDA warned Bayer that, because of Bayer Calcium’s combined active ingredients and combined labeled uses, it was a new drug that couldn’t be sold OTC, and its current marketing constituted misbranding because it didn’t have “directions under which the layman can use a drug safely for the purposes for which it is intended.”

Heart Advantage likewise has the standard daily dose of aspirin and half the recommended daily dose of phytosterols. The label says it’s Bayer aspirin “Plus Cholesterol Lowering Phytosterols,” “[t]he only product that contains ... aspirin, to protect your heart by keeping your blood flowing freely [and] Phytosterols, to help lower bad cholesterol.” The FDA sent the same warning letter about Heart Advantage.

The named plaintiffs alleged that they bought one of the products based on Bayer’s promises of decreased risk of osteoporosis or lowered cholesterol. Had they known that they wouldn’t get a full dose of calcium/phytosterols, they alleged, they would have purchased other low-dose aspirin, which cost a lot less (as low as 2 cents per pill, compared to 18 cents per pill for the Bayer version). Doubling the Bayer dose to get the recommended daily dose of phytosterols would have subjected them to risks from the extra aspirin. In sum, it would be impossible for them to get both the recommended daily amount of low-dose aspirin and phytosterols/calcium from the products.

The alleged harm is that the plaintiffs paid a premium for a product they thought was superior due to Bayer’s false representations, and that they wouldn’t have bought the products at all without those representations. Thus, they claim to be entitled to a full refund of the purchase price. They sued under the consumer protection laws of their states of residency (New York, New Jersey (for a nationwide class), California (a subclass), and Illinois) and, in the alternative, similar statutes of 43 other states. State consumer protection claims may require Rule 9(b)’s heightened pleading. “Notably, the named plaintiffs have each specified where they saw the misleadingly packaged Heart Advantage or Bayer Calcium; where their purchases occurred; how long they continued purchasing the product; and how they were deceived.”

Bayer argued that plaintiffs were impermissibly trying to enforce the FDCA, arguing that allegations of substantive defects in the products (the dose mismatch between the two components) were irrelevant because there was no claim of physical injury. A viable state-law claim must be premised on conduct that would give rise to recovery under state law even in the absence of the FDCA. But this statement won’t entirely work because the FDCA does exist, making possible things like misrepresentations about FDA approval. So the state law claim can incorporate FDCA violations, but must not depend entirely on them. State consumer protection law, and the Lanham Act, complement FDCA labeling requirements. To thread the needle, a plaintiff must show an FDCA violation, but also that defendant’s wrongdoing would entitle plaintiff to recover under traditional common-law principles. Thus, Wyeth v.Levine, --- U.S. -- (2009), allowed a failure to warn claim despite FDA approval of a drug’s labeling. State common law is an extra layer of protection, focused on the truth or falsity of advertising claims as the FDCA is not. False or misleading claims made in connection with drug marketing can be actionable, even if their truth is generally within the FDA’s purview.

Plaintiffs have failed when they argued that merely placing drugs on the market with standard inserts falsely implies FDA approval. Plaintiffs must point to some claim or representation that is reasonably clear from the advertising or inserts. False representations of FDA approval are evaluated the same as claims about misrepresentations about other aspects: “where plaintiffs sufficiently detail their allegations and point to specific instances where defendants have made false or misleading representations, they have actionable claims.” So one case found a well-pleaded claim of false implication of FDA approval when defendants placed drugs on comparative clinical databases. It wasn’t the simple fact of marketing a nonapproved drug that was the problem, but the particular form of the marketing, a form that allegedly carried certain false implications.

Applying these principles, the court refused to dismiss the claim. Plaintiffs argued that Bayer’s reputation itself gave the combination products the imprimatur of FDA approval, cemented by Bayer’s repetition of claims for low-dose aspirin and use of FDA-approved health benefit claims for phytosterols and calcium. By using FDA-approved statements about the component parts, Bayer allegedly falsely implied that the combination products were themselves FDA-approved. Bayer argued that this was precisely what FDA approval of the claims allowed it to do, even though the FDA never approved any combination product or any claims related to a combination product.

Plaintiffs also argued that, because of the dose mismatch, Bayer misrepresented the safety and efficacy of its products: one could not receive the benefit of one component without taking the wrong dose of the other.

The court held that plaintiffs had identified specific instances of the alleged implications of FDA approval. Moreover, the dose discrepancy claims were traditional claims of misrepresentation, not an attempt to enforce FDCA labeling requirements. Though the claims “ouch on areas regulated by the FDA, and may even require reference to FDA definitions as to what the requirements are for adequate sources of calcium and phytosterols and what the dangers of larger doses of aspirin are, they are not preempted.” Whether the claims are misleading can be verified without relying on any special FDA expertise.

Bayer argued that the FDA’s silence since its 2008 warning letters meant tacit approval of the advertising, preempting state law claims. This was the reasoning rejected in Wyeth. Even if the labeling meets the federal floor, it could still be actionable under state consumer protection law.

The court also refused to dismiss plaintiffs’ claims under the laws of states other than those in which the named plaintiffs reside (claims made in the alternative to using New Jersey law; plaintiffs also broke out a California subclass). There was no constitutional standing problem because plaintiffs weren’t bringing claims on their own behalf, but only seeking to represent other similarly situated consumers in those states. Class action certification, of course, is an issue for another day.

Bayer also argued that plaintiffs lacked standing because they hadn’t suffered physical injury. But economic injury, including loss of the benefit of one’s bargain, is sufficient for standing.

The court further refused the motion to dismiss under other states’ laws for failure to state a claim. Choice of law is determined at the class certification stage. Plaintiffs can’t use class actions to escape pleading requirements, though. The court found that the pleadings set forth sufficient information to outline the elements of the claim or permit the inference that those elements existed. Plaintiffs did more than list the state consumer fraud statutes; they connected the statutes to Bayer’s conduct. “Cursory, yes, but especially when considered in conjunction with the detailed choice of law analysis to be conducted at class certification, the allegations are sufficient to survive defendant's motion to dismiss.” Focusing on the New Jersey law, as the parties did, the court found the allegations specific enough, including a causal nexus between Bayer’s allegedly unlawful practice and plaintiffs’ ascertainable losses.

Bayer argued that plaintiffs got what they were promised: a combination of low-dose aspirin and phytosterols or calcium. The court found that this ignored the dose mismatch argument. Moreover, rather than arguing a price inflation theory (which has been rejected), plaintiffs argued that the misrepresentations were the reason for their purchases. They alleged a defect in the product and a failure to perform as advertised. But for the misrepresentations, they alleged, they would have purchased an available less expensive alternative. This is not necessarily the same as a fraud on the market theory and could be sufficient to allege injury; it was inappropriate to dismiss the case on the pleadings. Moreover, other courts have accepted “benefit of the bargain” damages, in the alternative.

Similar analysis preserved plaintiffs’ breach of warranty and unjust enrichment claims.