unclean hands destroys false advertising damages award

FLIR Systems, Inc. v. Sierra Media, Inc., 2013 WL 4046323 (D. Or. Aug. 8, 2013) (magistrate judge)

After expressing sadness that the parties had not decided to chill, Mattel, Inc. v. MCA Records, Inc., 296 F.3d 896 (9th Cir. 2002), the judge turned to the “raft of unfocused issues raised by the parties.”  After a 9-day trial on FLIR’s claims and Fluke’s counterclaims, the jury returned a verdict in FLIR’s favor on its false advertising claim, awarding $103,000 in damages.  The jury also returned a verdict in Fluke’s favor on some of its false advertising claims, awarding over $4.1 million in damages.  Further motions followed.

Defendant Sierra (Fluke’s media/marketing company) moved for a fee award based on the court’s conclusion at summary judgment that FLIR lacked prudential standing to sue Sierra for false advertising since they weren’t competitors (even though contributory liability would seem possible given appropriate facts, as I noted in an earlier discussion).  Sierra argued that FLIR’s claim against it was groundless; FLIR relied on Second Circuit cases, but the court found that the Ninth Circuit has a different standing test.  FLIR argued that it was merely making a good faith attempt to extend the law of the circuit.  Sierra also argued that the claim was factually groundless because FLIR knew Sierra wasn’t a competitor.  But that didn’t matter to FLIR’s legal theory.  Also, the court didn’t find bad faith or unreasonable litigation conduct against Sierra.

Despite the court’s strong finding in Sierra’s favor, the judge wasn’t ready to say that FLIR’s stance was legally groundless or that it rested on “absurd” or “just short of frivolous” contentions of law. There were some 9^th Circuit cases that arguably provided some support for its position, though they were distinguishable, e.g., a case finding that a defendant’s corporate officer was individually liable for false advertising.  Thus, this was not an exceptional case.

Fluke also asked the court to adopt the jury’s factual findings on Fluke’s unclean hands defense and enter judgment for Fluke on FLIR’s false advertising claim.  FLIR sued Fluke over allegations that Fluke’s drop test video falsely depicted the abilities of both parties’ cameras to withstand a two-meter drop onto concrete.  The jury found for FLIR, but also found that FLIR falsely advertised its E-series cameras’ ability to pass a two-meter drop test.  The court applied the clear and convincing evidence standard to determine whether FLIR’s damages award should stand; the jury found FLIR’s statements false by a preponderance of the evidence, so the court had to make its own determination.

Unclean hands requires inequitable conduct with an immediate and necessary relation to the subject matter of the plaintiff’s claims.  For false advertising, the unclean hands must relate to the same type of product. The extent of harm caused by the plaintiff is relevant, but the defendant need not show prejudice.

FLIR argued that its conduct wasn’t inequitable because it believed in good faith that it could meet the two-meter drop test when it submitted that specification for publication six months in advance of the release of its new E-series.  It also argued that its conduct wasn’t related to Fluke’s drop test video and methodology because FLIR didn’t falsely depict the results of a particular drop test, deceptively compare the parties’ cameras, or deliberately include the “stamp of approval” of a purportedly “independent, third party” as Fluke did. The court disagreed and found clear, convincing evidence of inequitable conduct related to the subject matter of the other party’s false advertising.  It didn’t matter that FLIR’s ad wasn’t comparative: both false ads were about the same product, a thermal imaging camera, and the same drop test.  Plus, FLIR’s claim was in response to the advantage it perceived Fluke was gaining with its drop test claims.

The falsity of FLIR’s claim was uncontroverted; internal results reported “[s]erious failures in every drop” and an internal email among high-ranking employees stated, “at launch we don’t we think we can have [a] camera that withstand[s][a] 2m drop.”  Two million individuals apparently received the catalog with the false claims in hard copy.  FLIR argued that it acted in good faith by attempting to correct the print version, but it was too late to remove the 2-meter drop test specification because it had already gone to print.  But there was no evidence FLIR ever tried to remove the specification from the associated website, which could’ve been done.  The timing was bad: “FLIR made a representation to a major distributor in August 2010—the same month that this suit was filed—knowing at the time that it was not yet true.”

Thus, FLIR was not entitled to the jury’s award of $103,000 in damages for Fluke’s false advertising because of its own inequitable conduct.  (I thought damages were a legal remedy.  But this whole law/equity thing has rarely made much sense to me.)

Unclean hands didn’t preclude injunctive relief, though, given that the law involved was really for the protection of the public.  A material, literally false statement with a tendency to deceive justifies an injunction. The voluntary removal of the drop test video (which the court found wasn’t entirely successful, since it could still be found online) was insufficient.

As for attorney’s fees and costs, the court noted that there could be more than one prevailing party when there were multiple claims: fees could even be awarded to both parties, given that a single Lanham Act lawsuit can have distinctly different claims that can be treated as if they’d been raised in separate lawsuits.  So, the court undertook a situation-specific exceptionality inquiry turning on “the nature of the conduct for which the opposing party was held liable or which was enjoined,” and not on FLIR’s inequitable conduct.   FLIR was a prevailing party on its claim, and the case was exceptional. Though FLIR didn’t get damages, its judgment and injunction benefited consumers and vindicated its right to a market free of false advertising.  Fluke’s deliberate publication of a literally false ad warranted a fee award.

Literal falsity required a showing that the drop test “was not sufficiently reliable to permit one to conclude with reasonably certainty that the test established the proposition for which it was cited.”  And the evidence there was abundant, including: (1) Fluke used essentially a home-made drop apparatus; (2) Fluke did not subject its own comparable camera to the drop test; (3) FLIR’s cameras were placed in far more precarious positions; (4) Fluke’s own employee extensively participated in what was supposed to be an independent test; and (5) Fluke was never able to produce the camera shown in the drop test video.

Fluke also sought judgment in its favor on its trademark-related claims, while FLIR argued that its claims were barred by laches and that Fluke’s “IR Fusion” trademark was invalid.  On laches, the court looked to the two-year statute of limitations for fraud, which begins to run when a party knew or should’ve known about its potential claims.  The jury determined that Fluke knew or should’ve known of its potential claims by April 15, 2008, but it didn’t pursue its claims until after FLIR sued in in August 2010. 

(A presumption of both unreasonable delay and prejudice arises after two years, but the presumption evaporates if there are disputed issues of material fact about the claimant’s knowledge.  The court seemed to hold that this was also true of the presumption of prejudice, though logically I don’t see how that’s entailed—there was a factual issue on when Fluke knew or should’ve known of its claims, obviously precluding summary judgment, but once that’s been resolved against Fluke and thus we know Fluke delayed more than two years after it knew about its claim, why shouldn’t we go back to presuming prejudice?  Still, the court found that, having gone past summary judgment, the burden was on FLIR to show prejudice by a preponderance of the evidence. Fortunately for FLIR, ti did so here.)

The facts underlying the delay: In Sept. 2007, Fluke’s senior product marketing manager informed over 60 Fluke employees that FLIR had “introduced some new thermal imagers with what they say is ‘F[LIR] Fusion.’”  Seven months later, Fluke’s counsel sent a C&D stating that FLIR’s use of IR FUSION infringed Fluke’s IR Fusion mark.  The jury found that this was the point at which Fluke knew or should’ve known of its trademark-related claims.  Shortly thereafter, FLIR’s counsel responded, disputing the validity of IR-FUSION as a mark and denying that it made any use of that term “in a trademark sense, versus a descriptive, generic, or other sense.”  However, to avoid dispute, the letter continued that FLIR had taken “reasonable steps to avoid any use of the term ‘IR–FUSION’ in any way that could even be argued to be a trademark use,” including removing uses of the term on its website and in marketing materials.  The letter continued that, “although FLIR plans to aggressively promote its own fusion functionality, FLIR has no intention of registering ‘IR–FUSION’ as a trademark or domain name.”  This clearly indicated that Fluke knew that FLIR contested the validity of the mark and intended to continue promoting fusion functionality; all it agreed to do was stop using the specific term “IR Fusion.”

In December 2008, Fluke conducted a survey, which found that consumers “expect[ed]” thermal imagers to have “[f]usion,” which they “[a]ttributed to F[LIR],” and found “NO differentiation in performance of [f]usion by brand.”  Fluke’s own branding expert testified that Fluke was less than diligent in enforcing its claimed mark (it apparently missed one FLIR use of IR-Fusion in September 2008, after the agreement to stop). Fluke still didn’t send a second C&D until August 2010, until after FLIR expressed concerns about the drop test video.  A relevant Fluke employee testified that she monitored FLIR’s advertising when she took her position in June 2009, and that it was standard practice to do so; she noted FLIR’s ads using fusion and fusion-related terms. 

As the court summarized, despite this knowledge, and despite the survey “showing, in Fluke’s view, arguable dilution of Fluke’s trademark that it considered its most important intellectual property, Fluke did nothing further to protect itself.  Instead, Fluke appears to have set out on a course of almost vigilante-like punishment of FLIR” with the false drop test video.  “[R]ather than enforce its trademark, Fluke chose to ignore those rights in favor of a frontal assault on the FLIR product line as less rugged than the Fluke thermal imagers, and the jury determined it did this with false advertising.”  Only when Fluke discovered that its media/marketing company had received document requests about the drop test video did it raise trademark claims.

FLIR’s employee testified without contradiction that FLIR invested heavily in marketing its fusion functionality, by that name, during this period, and that it would’ve done something else to resolve the issue if Fluke had pressed its objection earlier.  The court relied on “the public association that FLIR has built between the term fusion and its thermal imagers, as demonstrated (at its infancy) by Fluke’s December 2008 consumer survey.” 

Expectation-based prejudice would be sufficient, but Fluke’s delay also caused evidentiary prejudice: at trial, Fluke’s counsel attacked FLIR’s secondary meaning survey because it was conducted in 2012, several years after the marketplace had been subjected to FLIR’s alleged infringement.  But based on Fluke’s extended lack of objection, it was “hardly surprising” that FLIR didn’t have an earlier survey.  And Fluke was “adamant” that the jury be instructed that timing was important because the crucial date for determining secondary meaning is the date on which the alleged infringer entered the market.  “Fluke cannot argue to the jury on the one hand that this survey by FLIR is entitled to little weight given its timing, and later argue that FLIR’s evidence was not negatively affected by the delay in its origination.”  The weight accorded to FLIR’s survey was vital to its defense given that “IR Fusion” was at best a descriptive term that needed secondary meaning for trademark protection.

Fluke argued that FLIR’s willful infringement justified rejecting laches.  But the evidence was insufficient to demonstrate that FLIR knowingly engaged in infringement. Before FLIR asked Fluke’s marketing company for the drop test evidence, Fluke submitted an application to the PTO stating that “Those skilled in the art [of thermography] call th[e] merging of images ‘fusion’”; that’s the kind of evidence that makes a belief in descriptive use reasonable.

Laches generally doesn’t bar prospective relief, and the court found that a prospective injunction could be fashioned in a way that wouldn’t prejudice FLIR (presumably by only barring it from using “IR Fusion,” at least I’d hope so) and protect Fluke.  Fluke’s entitlement to an injunction “weighs heavily” in favor of awarding it attorney’s fees.  (Hunh?  This has got to be the wrong standard; winning doesn’t constitute exceptionality.  There may be more in the court’s desire for the parties to have chilled.)  The court would consider the “unlawfulness of FLIR’s conduct” at a later hearing on the terms of the injunction.

Turning to FLIR’s invalidity argument, FLIR argued that both “IR Fusion” and “fusion” were “descriptive of the technological process of blending infrared and visible light images, and no secondary meaning exists with either of these terms.”  The court had little difficulty concluding that IR Fusion was descriptive, as Fluke’s own arguments indicated.  Fluke’s own survey showed that consumers consider fusion technology “‘table stakes’ (i.e., a basic feature included on a thermal imager) and ‘expect products to have Fusion.’”  The real issue was proof of secondary meaning.  The burden of proving secondary meaning didn’t shift just because the PTO registered the mark, absent evidence that the PTO registered the mark upon finding that it had acquired secondary meaning.  (This is some incentive not to push too hard to get your descriptive mark deemed suggestive by an examiner unfamiliar with the relevant terminology; if a court later disagrees with the classification, you’re in trouble.)  Here, because the PTO registered IR Fusion without requiring proof of secondary meaning, and because IR Fusion was actually a descriptive term, Fluke bore the burden of proving secondary meaning at the time FLIR began its allegedly infringing activities.

The court considered FLIR’s entitlement to judgment as a matter of law or a new trial on validity “close.”  (Then how could the court even be considering fees, even absent laches?  On the drop test video, it makes some sense to call Fluke’s conduct exceptional given that it really should’ve known better than to use such a biased test.  The same doesn’t seem true here.)  Fluke presented some evidence on various circumstantial factors considered for secondary meaning, but not much over a year after Fluke became aware of FLIR’s “F Fusion” cameras, and just six months after the PTO registered IR Fusion, Fluke’s survey indicated that consumers expect thermal imagers to be equipped with fusion technology.  “If consumers considered fusion technology ‘table stakes,’ ‘expect[ed] products to have Fusion,’ and saw ‘NO differentiation in performance of Fusion by brand’ in December 2008, it seems highly unlikely that the significance of the term ‘IR Fusion’ in the minds of the consuming public could have been anything other than a feature of the product or any thermal imager a little over a year earlier.”

FLIR’s secondary meaning survey, conducted in 2012, also supported FLIR’s position.  Secondary meaning requires that a significant or substantial part of the buying class use a term to identify a single source.  Figures of 46% and 37% have been found sufficient, but FLIR’s survey indicated that: (1) 34% of respondents associated the term “IR Fusion” with thermal imaging cameras; (2) 9% associated the term “IR Fusion” with Fluke; and (3) the measured level of secondary meaning in the term “IR Fusion” was only 7%.  True, that was in 2012, but given the 2008 survey, it was “doubtful” that a significant or substantial part of the market thought the term identified a single source in September 2007 or at any other time.  “[T]he evidentiary burden necessary to establish secondary meaning is substantial where the mark applie[s] to an article designate[d] a principal ingredient desired by the [buying class].” The survey could simply show that the public never identified fusion with Fluke regardless of infringement; likewise, the December 2008 survey results might have been as much or more due to FLIR’s earlier development of fusion functionality as to any FLIR advertising in 2008.

But the court ultimately concluded that laches offered the clearest reason that Fluke’s damages award couldn’t stand.  Laches mooted secondary meaning, accounted for FLIR’s prejudice, and allowed the court to address injunctive relief as an appropriate framework for defining Fluke’s protection, so there was no need to rule on invalidity as a matter of law/a new trial.  (Hunh?  FLIR’s argument, which the court makes seem well taken, is that Fluke is entitled to zero protection for “fusion” and “IR Fusion.”  I don’t see how the court can avoid resolving invalidity if it's going to consider injunctive relief.  Perhaps it's planning to find mootness if FLIR promises not to use "IR Fusion" again?)

Finally, the jury found false advertising in two FLIR ads.  FLIR argued that Fluke didn’t show the scope of the use of the ads and that FLIR had ceased all use of the ads and instituted controls to prevent their further use. Voluntary cessation moots the need for a permanent injunction, if the cessation is “irrefutably demonstrated and total.”  The court found it to be so here.

advertisers couldn't go after publisher for competing fake ads

SuperMedia LLC v. Baldino’s Lock & Key Service, Inc., 2013 WL 4176955 (D. Md. Aug. 13, 2013) (magistrate judge)

Defendants contracted for directory and advertising services with SuperMedia; SuperMedia sued to collect unpaid money for services provided 2008-2010. The court denied leave to amend defendants’ counterclaims as futile.  They proposed to allege that SuperMedia “unilaterally flood[ed] the locksmith section of its print directories and superpages.com with false information that was designed to steal business of Baldino’s and other legitimate locksmiths.”  These unlicensed locksmiths allegedly didn’t pay SuperMedia for listing services, but rather SuperMedia got the information from phone companies and published it, in print and online, as part of a scam by the “phony” locksmiths to extort customers.  The judge held that there was no cause of action making SuperMedia liable to defendants for publishing false locksmith listings.

SuperMedia owed no duty of care to defendants based on the contract; it was only obligated to provide them with advertising and listing services and had no independent duty to monitor the content of other listings.  This was different than negligence with respect to an advertiser’s own information after the advertiser paid for a listing.

For similar reasons, the Texas Deceptive Trade Practices Act provided no help.  Defendants alleged that SuperMedia orally promised that it would remove the false listings in order to induce them to renew their contract.  But publishing ads for third party businesses didn’t make any representation about goods or services—such representations are made by the business listed, and the DTPA imposes no duty to monitor the listings for accuracy.  (That doesn’t quite seem responsive to the argument defendants made.)  A DTPA violation requires more than a breach of contract; oral representations inducing a party to contract aren’t enough, and that situation is governed by contract law.  And anyway, defendants’ documents stated that SuperMedia told them that only Verizon could remove the fake listings; after they contacted Verizon, the listings at issue were removed.

The Lanham Act didn’t apply because SuperMedia “did not make any representation in a commercial advertisement or otherwise.”  It just published information provided by defendants and other businesses.  Defendants didn’t have standing to bring a claim against the publisher of ads containing representations made by other advertisers (citing Am. Ass’n of Orthodontists v. Yellow Book USA, Inc., 434 F.3d 1100 (8th Cir. 2006), though secondary liability principles would’ve been a much more sensible way to deal with this, especially since the Lanham Act has a whole provision about this, 15 U.S.C. § 1114(2)(B)), and it would’ve avoided the need to discuss whether competition was required or a multifactor test should instead be used; the judge concluded that defendants lacked standing either way).

Welcome to Night Vale

Excellent podcast.  Today's question:  evaluate the Night Vale NRA Bumper Stickers:



(Mouseprint: This message brought to you by the Night Vale chapter of the N.R.A.)  If this is actionable, what about the podcast itself, which initially introduced the slogans as part of its regular content?

Lexmark v. Static Controls: Lexmark's merits brief

Has been filed.

Standing not enough for grab bag of food allegations

Trazo v. Nestlé USA, Inc., 2013 WL 4083218 (N.D. Cal. Aug. 9, 2013) (magistrate judge)

Plaintiffs alleged they’d purchased a number of Nestlé products in reliance on false/misleading claims.  The products were the Dark Chocolate Eskimo Pie, Juicy Juice, Buitoni Shrimp and Lobster Ravioli, Dreyer’s All Natural Fruit Bars, Toll House Peanut Butter and Milk Chocolate Morsels, Toll House Dark Chocolate Morsels, Milk Chocolate Raisinets, Lean Pockets Breakfast Sandwiches, Hot Pockets Breakfast Sandwiches, Coffee Mate, Rich Milk Chocolate Cocoa, Nesquik Chocolate Syrup, and Buitoni Alfredo Sauce.

There were nine alleged legal violations: (1) products labeled or advertised “No Sugar Added” but which, in violation of FDA regulations, contain concentrated fruit juice or other added sugars, and/or provide more than 40 calories per reference amount but do not disclose that the product is not “low calorie” or “calorie reduced” and direct the consumer’s attention to the nutrition panel for further information; (2) products using the ingredient name “Evaporated Cane Juice”: (3) products using “All Natural” or “Natural,” despite artificial ingredients, flavoring, added coloring, and/or chemical preservatives; (4) products making an antioxidant claim for a nutrient lacking a Daily Value or lacking the minimum Daily Value specified for the claim made; (5) products making a nutrient content claim despite containing fat, saturated fat, sodium, or cholesterol in excess of disqualifying amounts under the regulations; (6) products using “No Sugar Added” on food intended for use by infants less than two years of age;(7) products making an unauthorized health claim; (8) products using an unlawful serving size; and (9) products packaged with nonfunctional slack-fill.  Plaintiffs brought the usual California claims.

The court here used the same reasoning on standing as the just-blogged Clancy case.  Plaintiffs alleged that they bought the named products based on Nestlé’s deceptive claims.  That gave them standing:

Nestlé may be right that claims involving other products, never seen or purchased by Plaintiffs, have no business in this case. But standing is merely a threshold inquiry that requires the class action plaintiff to demonstrate she suffered economic injury by virtue of the purchases she herself made, not for the other transactions that she seeks to represent. The court therefore confines the standing inquiry to the named plaintiffs’ individual claims alone, and defers questions of sufficient similarity to the class certification stage. (footnotes omitted)

The magistrate judge went on to reject Nestlé’s broad preemption argument, but accept some more specific arguments.  Preemption is an affirmative defense on which Nestlé bore the burden; mere assertions that plaintiffs were attempting to impose standards the FDA didn’t require were insufficient.

Here, the result was different than in Clancy: plaintiffs’ antioxidant claims against Dark Chocolate Raisinets and Dark Chocolate Toll House Morsels were based on Nestlé’s use of “source.”  While “good source” is regulated, the judge concluded that “source” was not, and that because the regulation specified “good source,” “contains,” and “provides,” without including lesser or similar terms, the FDA had decided to leave “source” unregulated, thus preempting plaintiffs’ claim.  Expressio unius est exclusio alterius.  [On the merits, regardless of the conflict with Clancy, this seems unpersuasive.  There’s little rational reason for FDA to leave “source” unregulated if it’s regulating “contains” and “provides.”]

However, the judge rejected the general idea that the FDCA impliedly preempts state-law claims, because its express preemption provision is pretty clear that identical state-law claims can stick around.  Similarly, the primary jurisdiction doctrine wasn’t applicable, absent concrete evidence that the FDA was currently involved in creating a new regulation on the subject of the lawsuit.

However, the judge agreed that the Federal Meat Inspection Act (FMIA) and the Poultry Products Inspection Act (PPIA) expressly preempted claims relating to Hot Pockets and Lean Pockets. These acts govern all meat and poultry products through the USDA’s Food Safety and Inspection Service (FSIS), which regulates labeling.  Unlike non-meat food, meat products are preapproved by the USDA, including their labels.  Hot Pockets and Lean Pockets bear USDA approved stickers. 

The FMIA and PPIA include express preemption clauses barring any state law imposing labeling, packaging, or ingredient requirements in addition to, or different than, the federal law.  The judge concluded that, because the Sherman Law isn’t parallel to either the FMIA or PIPA, but rather the FDCA, it was preempted.  “Although the USDA adopts similar nutrition labeling regulations as imposed by the FDCA ‘to the extent possible,’ the fact remains that the USDA and FDA are able to adopt their own regulations to govern their respective realms.” (I’m not sure I fully get this—why wouldn’t the Sherman Act be preempted only to the extent it imposed non-identical requirements?  Why isn’t there any analysis of whether the claims at issue allege conduct that would violate FMIA/PIPA?  It seems that the judge concluded that USDA approval precludes any argument that there was a violation of the law that the USDA didn’t detect, which is certainly a possibility, but then the reason for preemption is not that the Sherman Law isn’t identical to federal law but rather that federal law occupies the field.  But that doesn’t seem consistent with the non-identicality language of the preemption provisions.) 

Plaintiffs argued that the FDA believes it has some jurisdiction over these products, but that’s not the question—the question is whether California has any jurisdiction.  And anyway USDA apparently has the controlling hand even when the FDA wants to exercise its jurisdiction—the FDA will only prosecute a violation if the USDA doesn’t want to do so.  Thus, to be permissible, state laws must parallel the FMIA and PIPA and FSIS regulations, not the FDCA and its regulations.

Getting more towards field preemption, the judge wrote that even if the Sherman Law’s requirements were parallel to those of FMIA/PIPA, “allowing a jury to weigh in on preapproved USDA labels would surely conflict with the federal regulatory scheme.”  It might be different if the USDA hadn’t already “passed judgment” on the products at issue, but here the USDA approved seal indicated that the USDA had determined that the labels weren’t false or misleading.  (The regulatory gap created here seems pretty obvious: USDA is not really in a great position to evaluate non-meat claims about the products, even if meat is a component.)

The judge then turned to specific nonpreempted claims.  With respect to the “No Sugar Added” claims against Eskimo Pie and Juicy Juice, the regulations provided that a product that uses “no sugar added” but that is not “low calorie” must include on its label a statement that directs the consumer to the nutrition panel for further information on sugar and calorie content. The regulation details how to identify “low calorie” foods; while plaintiffs pled that the products didn’t meet those requirements, they didn’t explain why.  Thus, their allegations were merely conclusory and insufficient.

The claim that Nestlé’s Buitoni Shrimp & Lobster Ravioli wrongly used “evaporated cane juice” to describe sugar was plausible, given the common/usual name regulations and FDA’s draft guidance on the matter. Likewise, plaintiffs successfully alleged that Coffee-Mate’s “0g Trans Fat” claim was an improper nutrient content claim because the product contained disqualifying levels of saturated fat under the regulations.

Plaintiffs alleged that Toll House Peanut Butter & Milk Chocolate Morsels were not actually “Naturally Flavored” because the product contained the artificial flavor vanillin.  But it wasn’t clear from the complaint that vanilla was a characterizing flavor of the morsels; plaintiffs needed to provide further explanation about how the use of artificially flavored vanilla made the product violate the regulations.

For reasons covered above in preemption, the court also dismissed the antioxidant claims against Dark Chocolate Morsels and Dark Chocolate Raisinets: “natural source of antioxidants” didn’t “characterize the level” of the antioxidants and thus wasn’t a nutrient content claim.

The judge also dismissed plaintiffs’ claims against statements on labels for Dark Chocolate Raisinets (“help to maintain good health”) and Rich Milk Chocolate Cocoa (“antioxidants help to protect cells from damage and calcium to build strong bones”) based on violation of the nutrient content regulations.  The relevant regulation only applied if a statement was “made in connection with an explicit or implicit statement about a nutrient,” and it wasn’t clear whether these statements were made in connection with a nutrient content claim.  But the regulations also cover “health claims” separate from “nutrient content claims,” and these were health claims, so that part of the claim survived.  Also, the good health claim wasn’t a drug claim to cure/mitigate/treat/prevent disease. But “antioxidants help to protect cells from damage and calcium to build strong bones” could be interpreted as aiming to mitigate cancerous conditions in cells; while extrinsic facts could show that Nestlé’s products weren’t intended for use as drugs, that wasn’t appropriate for a motion to dismiss.

The judge then turned to overall failure to state a claim; Nestlé challenged the specificity of the allegations.  Plaintiffs failed to allege either that a reasonable consumer would be deceived or their own interpretations.  “While regulatory violations might suggest that these statements might be misleading to a reasonable consumer, that alone is not enough to plead a claim under the FAL, CLRA, or the misleading/false advertising prongs of the UCL.”  Any repled complaint needed to “connect the dots showing how the alleged misbranding misled plaintiffs in a way that a reasonable consumer would be deceived.”  So, while the plaintiffs might have read nutrient content claims such as “0g Trans Fat” and been misled into thinking the product was overall low in fat, they failed to allege that.

The unjust enrichment, Song-Beverly Act, and Magnuson-Moss Act claims went for the usual reasons.

The class allegations also fared badly.  Nestlé’s main argument was that the complaint was “a tangled web of nine separate and unrelated misbranding theories, which are associated with an open-ended list of products that includes ones not named in the complaint.”  The complaint needed to make a prima facie showing that FRCP 23 could be satisfied.  Here, the complaint failed to allege typicality.  Since other courts used the “sufficient similarity” test to determine both typicality and standing, the judge did the same.  Claims can proceed even when the plaintiff didn’t buy the other products in the class if “product composition is less important” and “the alleged misrepresentations are sufficiently similar across product lines.”  This can occur when the challenged products are of the same kind, comprised of largely the same ingredients, and bear the same alleged mislabeling.

The test wasn’t satisfied.  Plaintiffs’ claims encompassed all products with labels containing certain key words (i.e., “health” and “all natural”), or having certain attributes (having the “wrong serving size” or containing “unlawful slack fill”), but that didn’t limit the class to sufficiently similar product lines. “No Sugar Added,” for example, “might be portrayed on different parts of the package, in different sizes, on wildly different products such as apple juice versus cheese, which would result in very different analysis to determine if the statements were false or misleading.”  All the claims here depended on similar context-specific analysis that required information about the food composition or actual labels.  The complaint didn’t provide that information, not even the names of all the challenged products.

For the same reason, the classes weren’t ascertainable.  “Courts have gone so far as to require plaintiffs to provide the actual labels relied upon. Without actual labels or product lists, how can potential class members determine whether they have purchased infringing products?” A notice to all people who bought products containing “unlawful slack fill” according to federal regulations would do nothing to inform potential class members.

Likewise, the complaint made clear that commonality couldn’t be satisfied.  Plaintiffs’ claims spanned nine different misbranding theories involving different legal and factual questions.  Plaintiffs responded that there were common questions, such as “May a food manufacturer add sugar (evaporated cane juice) to its product and then label the product as “No Sugar Added?”  But this purported common question applies only to one misbranding theory, not the class action as a whole. “While different products, if sufficiently similar, might be certified regarding one or similar misbranding theories, a class action suit involving nine unrelated theories cannot as a matter of law be certified.”

Don't call every attack on legal sufficiency a standing challenge, court says

Clancy v. The Bromley Tea Company, 2013 WL 4081632 (N.D. Cal. Aug. 9, 2013)

Clancy alleged that he bought Bromley’s products, including Pure Green Tea and 100% Organic Pure Black Tea, after relying on the packaging labels as well as Bromley’s website, both of which make health claims, including the label phrase “natural source of antioxidants.” The website makes such claims as “Antioxidants in Green and Black Tea is brimming with Antioxidants, the disease-fighting compounds that help your body stave off illness” and “Green Tea Extract May Lower Blood Pressure....” He alleged the usual California claims.

Bromley argued that Clancy lacked standing to assert claims based on products he never bought and website statements he never saw.  There’s no controlling precedent, and the cases are mixed.  Some cases agree with Bromley (except that of course a class representative always brings claims based on events s/he didn’t personally experience).  Others look for sufficient similarity between the purchased and unpurchased products; standing exists when an individualized factual inquiry wouldn’t be needed for each product (which again shows how we’ve shoved questions like commonality/predominance into the useless label “standing”).  A third rule is that, as long as the named plaintiff has standing for products s/he actually bought, the question of whether the class includes claims related to other products is properly addressed at the certification stage, where it will be evaluated in terms of typicality/adequacy.  The court analyzed the relevant Supreme Court precedents, and concluded that they only stated that a named plaintiff must have suffered injury in fact.  And, citing the Supreme Court’s recent case on affirmative action, “if the named plaintiffs in Gratz had ‘standing’ to seek to prospective relief against a school to which they were not applying, then Mr. Clancy has ‘standing’ to assert claims relating to products he did not buy.”  Sauce for the goose?

The court continued—winning my heart—that “‘standing’ does not seem to be the proper framework for that question or for this one. Transmogrifying typicality or commonality into an issue of standing would undermine the well-established principles that ‘[i]n a class action, standing is satisfied if at least one named plaintiff meets the requirements.’”  The court was unwilling to decide on the pleadings that Clancy couldn’t represent a class who purchased any different products, given the usual requirements that typicality exists when claims are “reasonably coextensive” and need not be substantially identical.  Sufficient similarity is an appropriate inquiry, “but it does not relate to standing: a plaintiff has no more standing to assert claims relating to a ‘similar’ product he did not buy than he does to assert claims relating to a ‘dissimilar’ product he did not buy. Seen this way, analyzing the ‘sufficient similarity’ of the products is not a standing inquiry, but rather an early analysis of the typicality, adequacy, and commonality requirements of Rule 23” (emphasis added).  Defendants’ best argument is that they shouldn’t be burdened with discovery regarding class allegations not specifically defined or directly connected to the named plaintiff’s alleged injiury.  But the court could address that valid concern with careful case management.

In summary:

The named plaintiff has standing to assert claims relative to the products he purchased. He does not claim to have standing to assert claims related to other products. What he does claim is that he may be a potential representative of a class of people who have such standing. He may or may not be able to certify such a class, and he may or may not be an adequate representative. But applying the concept of standing to dismiss proposed class action allegations is a category mistake.

What about statements he didn’t see before purchase? Well, he specifically pled that he read statements on Bromley’s website before buying, which should be sufficient under normal pleading standards.  To the extent Bromley sought more specificity, this was about Rule 9(b), not about standing.  And to the extent Bromley argued that more was required under the UCL, the court didn’t agree.  Bromley relied on Rice v. Fox Broad. Co., 330 F.3d 1170 (9th Cir. 2003), in which the Ninth Circuit found a plaintiff failed to allege a valid Lanham Act and UCL claim “because there is no evidence that a potential consumer could view the offending videotape jacket prior to purchase, [and thus] any deception relating to advertisement of the videos must be immaterial.” Rice didn’t hold that the named plaintiff must see the ads; “it holds that it must have been possible for potential customers to see them.”  Plus, Tobacco II provided controlling authority, and under that case the degree of specificity in the complaint was sufficient under the UCL.  When “a plaintiff alleges exposure to a long-term advertising campaign, the plaintiff is not required to plead with an unrealistic degree of specificity that the plaintiff relied on particular advertisements or statements.”  As for whether he could represent class members who relied on different ads, that too was a class certification issue.

Bromley also asked the court to dismiss the nationwide class allegations under Mazza.  But Mazza didn’t establish a bright-line rule against nationwide California law classes. The fact-heavy choice of law inquiry should occur during the class certification stage, after discovery.

The court turned to Bromley’s preemption arguments.  The FDCA, though it has no private right of action, does not preempt claims to enforce California’s labeling requirements, which are identical to federal requirements.  Here, Clancy was suing for conduct that allegedly violated the FDCA, but not (merely) because the conduct violated the FDCA; the duties imposed by California law exist independently of the FDA, and would still operate if the FDA ceased to exist.  Pom Wonderful was not to the contrary; it was a Lanham Act case and left open state-law claims.

Clancy’s claims would be preempted if they sought to impose requirements different from those imposed by the FDA.  Under the relevant regulations, a nutrient content claim regarding the level of antioxidants in a food may be used on a food label only if certain conditions are met, e.g., the label must exist the specific nutrient, and may only do so if a Reference Daily Intake (RDI) has been established for the nutrient.

Bromley argued that its terms, “contain” and “source of,” weren’t defined by federal regulation as characterizing the level of a nutrient, and thus that Clancy was seeking to impose additional requirements.  But the FDA hadn’t been silent about them: it had sent a warning letter to someone else indicating that “source” claims were (barred) nutrient content claims.  Thus, the claim was not preempted at this stage (stay tuned for a case finding the exact opposite!).

The court also rejected Bromley’s 9(b) challenge.  The who was Bromley; the what was nine discrete types of unlawful/deceptive claims on Bromley’s labeling, packaging, and website; the when was since 2008 through the class period; and the where was the labels and websites.  Clancy alleged violation of the law and his reasonable reliance thereon to buy products he wouldn’t have bought absent the deceptive statements, which was the how. That was enough.

Clancy’s unjust enrichment claims didn’t survive as a separate cause of action. The breach of warranty claims were also thrown out: the Song-Beverly Act didn’t apply because Bromley’s products are consumables.  The Magnuson-Moss Act didn’t apply because the representations here were product descriptions, not promises of freedom from defect or of a level of performance over a specific period; because Magnuson-Moss is “expressly ‘inapplicable to any written warranty the making or content of which is otherwise governed by Federal law,’” here the FDCA; and because Clancy failed to allege that the products at issue cost more than $5.

Limitations period bars Lanham Act claim even without laches

Baby Trend, Inc. v. Playtex Products, LLC, 2013 WL 4039451 (C.D. Cal. Aug. 7, 2013)

The parties compete in the diaper pail market.  Starting as early as September 2008, Playtex nationally advertised that its Diaper Genie II Elite diaper-pail system was “Proven # 1 in Odor Control.”  Baby Trend sued, alleging literal falsity causing it to suffer steady sales declines since 2008, in April 2013.  The court dismissed without leave to amend.

The court first ruled that California’s statute of limitations for fraud applied.  Because the Lanham Act has no limitations period of its own, courts borrow from the analogous state law cause of action, here fraud claims.  The Ninth Circuit hasn’t completely resolved the interplay between laches and the statute of limitations, but held that “if a § 43(a) claim is filed within the analogous state limitations period, the strong presumption is that laches is inapplicable; if the claim is filed after the analogous limitations period has expired, the presumption is that laches is a bar to the suit.”  Later cases at least suggested a statute of limitations defense, so the court held that California’s limitations period, which is three years.  (This seems like overreading to me and deprives laches of any independent force after the limitations period has run, contrary to the language of “presumption”; anything that would serve to toll the statute would also prevent laches.)

On these facts, Baby Trend’s Lanham Act claim was time-barred.  The period runs from when the plaintiff knew or should have known about its cause of action.  Fraudulent concealment to toll the statute requires that the defendant affirmatively engaged in conduct that would lead a prospective plaintiff to reasonably believe that he had no claim.. Silence or passive conduct is not fraudulent.  On the face of the complaint, April 2010 (three years before filing) was more than a year and a half after Playtex allegedly began its campaign, and more than a year after Baby Trend first realized “steady and substantial sales declines.”  Baby Trend also alleged direct competition, and that the parties products were “commonly sold on the same store shelves.”  Reasonable diligence should have discovered the falsity of Playtex’s statements shortly after the ad campaign or sales declines began.  Baby Trend’s argument that it didn’t question the truth of the “Proven #1” claim until it became aware of the verdict in a related case “flies in the face of the purpose of having statutes of limitations.”

The discovery rule also didn’t apply.  The discovery rule requires (a) lack of actual or constructive knowledge; (b) lack of means of obtaining knowledge earlier through reasonable diligence; and (c) evidence of how and when the plaintiff actually discovered the fraud. Baby Trend failed to allege that it took steps to investigate the validity of Playtex’s claim, nor how it lacked means for discovering the truth.

Because the court saw no additional set of facts that could cure the statute of limitations bar, it dismissed the case with prejudice.

Puffery with a price: 9th circuit affirms dismissal in razor case

Edmundson v. The Procter & Gamble Co., 2013 WL 4035434 (9^th Cir. Aug. 9, 2013)

Edmundson filed a putative class action against P&G, alleging that its ads for Fusion Power shaving handles and razor cartridges violated the UCL and CLRA. The court of appeals affirmed the dismissal of the claims on puffery grounds.  P&G’s claim that Fusion Power blades “have a patented blade coating for incredible comfort” was not a claim of superiority to Fusion Manual cartridges, and, in any event, was puffery: general, subjective, and untestable. Any superiority message conveyed by P&G’s names and color coding for the two types of cartridges, or by the fact that P & G charges more for Fusion Power cartridges, was “even less specific and verifiable.”  (A strikingly clear example of puffery the advertiser intends to be material, and seemingly is: anyone who buys the more expensive variant apparently gets nothing measurable for that, as a matter of law.)

Edmundson failed to identify a claim that was sufficiently specific with reference to particular product characteristics or criteria for measuring a “better” shave that could be tested.  Even assuming that P&G’s ads conveyed a superiority message for Fusion Power, the ads didn’t assert superiority on specific attributes such as closeness, comfort, irritation and pressure.  Instead, the Fusion Power packaging just said that the blades “have a patented bladed coating for incredible comfort.”  Phrases such as “less irritation,” “more comfort” and “reduce[d] pressure” were on the packaging for all Fusion cartridges, and the comparison was between Fusion and P&G’s MACH3, not between Fusion Power and Fusion Manual.

failure to communicate with borrower causes cognizable UCL harm

Boessenecker v. JPMorgan Chase Bank, 2013 WL 3856242 (N.D. Cal. July 24, 2013)

I expect to see a lot more mortgage-related consumer protection claims working their way through the courts.  The complaint alleged as follows: Plaintiffs bought a home in 2007 from defendant, and refinanced with JPM in 2010.  They received a letter from JPM that the loan was paid in full.  But over two months later, they got another letter informing them that they owed $5176 “due to ‘shortage’ in pay off amount.”  They sent letters and emails to JPM asking for an explanation, understandably, and a month later received an email telling them that the shortage “pertain[ed] to an internal issue regarding the payoff amount that [defendant] confirmed during the refinancing,” but were told to “not be alarmed” and that they would “not be negatively impacted.”  

 

But a few weeks later, they got another letter telling them that the payoff was short by almost $3700.  They again sought an explanation from JPM, which two weeks later told them that the first “shortage” “pertained to an insurance disbursement” that “has been resolved” and that the second occurred because the tax department had “overpaid [the] county” and was awaiting a refund.  (Why was this plaintiffs’ problem?  Who knows?)  On the same day, JPM told plaintiffs that it might have to take the funds out of their escrow account, requiring them to increase their monthly payment in order to refill the account. 

Plaintiffs promptly requested a reconciliation and resolution of the issue.  Eight months later, they got a letter telling them that their payments were increasing by $465 due to an “impound shortage.”  They called JPM and were told the problem was a shortage in the escrow account. They contacted JPM several times, but didn’t receive any explanation that made sense.  In order to avoid credit problems, they made the increased payments.  A year later, JPM told them that their monthly payment was decreasing by $320 a month. They again requested a reconciliation, but didn’t get one.  Thereafter, they sent, through counsel, two Qualified Written Requests (“QWRs”) to JPM.  JPM didn’t include the requested information in its response to the first and failed to respond to the second.

At the time of suit, plaintiffs hadn’t received a response about their refinanced loan, and didn’t know whether their first loan was paid in full or why their payments increased then decreased.  While this was going on, interest rates reached an historic low.  They wanted to refinance to take advantage of this and reduce their monthly payments, but without understanding the status of their current and past loans were too uncertain to take any action.

They sued for violation of the Real Estate Settlement Procedures Act and California’s related Rosenthal Act governing debt collection, both of which claims the court declined to dismiss.  They also alleged violation of the UCL, negligence, and negligent/intentional infliction of emotional distress.  The UCL borrows violation of other laws, and the RESPA violation qualified.  JPM argued that plaintiffs lacked standing because they didn’t allege they suffered any actual harm.  (I know why defendants do this, but it bugs me that now any failure to state a claim is labeled “standing.”  Don’t we have a rich and highly developed vocabulary for reasons a claim might fail?)  Here, plaintiffs alleged that as a result of JPM’s failure to respond to their QWRs, they “have not been able to refinance their loan to take advantage of the low interest rates and save thousands per year on their mortgage payments.”  That was enough to plead actual harm.

Turning to the negligence claim, JPM argued that plaintiffs failed to plead facts showing it owed them any duty of care.  “As a general rule, a financial institution owes no duty of care to a borrower when the institution’s involvement in the loan transaction does not exceed the scope of its conventional role as a mere lender of money.”  Because plaintiffs based their claims on conduct occurring in the ordinary course and scope of defendant’s participation in the loan transaction, no duty of care arose and the claim was dismissed.

Likewise, plaintiffs failed to plead extreme and outrageous conduct, so the emotional distress claims failed.

Siri, does this complaint state a claim?

In re iPhone 4S Consumer Litigation, 2013 WL 3829653, (N.D. Cal. July 23, 2013)

The court dismissed consumers’ claims based on Siri’s failure to perform as well in real life as it did in ads, but granted leave to amend.  Apple allegedly advertised the iPhone 4S with heavy emphasis on how good Siri was at interpreting voice questions/commands, e.g.:

if you ask “Will I need an umbrella this weekend?” it understands you are looking for a weather forecast. Siri is also smart about using the personal information you allow it to access, for example, if you tell Siri “Remind me to call Mom when I get home” it can find “Mom” in your address book, or ask Siri “What’s the traffic like around here?” and it can figure out where “here” is based on your current location.

During an interactive demo, Siri responded promptly and appropriately to questions and requests, such as displaying the time in Paris, setting an alarm for the next day at 6 am, and finding a “great Greek restaurant” in Palo Alto.  Apple claimed that Siri was easy to use and didn’t require precise wording, though various speakers mentioned that Siri was in beta/not perfect. 

Its national ad campaign showcased Siri; 4 out of 7 recent TV ads focused solely on Siri, including showing it understanding and responding to a voice command given by a person who was running and showing it answering the question “[How do I play] a B Minor Ninth?” with the proper notes, chord and sheet music. Likewise, in response to, “Tell Julie and Kate our band is playing at the garage tonight,” Siri stated, “Here is your message to Julie and Kate,” and immediately showed on the user’s iPhone 4S screen a message to “Julie, Kate” that read “Our band is playing at the garage tonight.” Its website also touted Siri as a major selling point.

Plaintiffs alleged that they bought an iPhone 4S in reliance on Apple’s claims about Siri, but found that it didn’t perform as advertised and couldn’t answer specific questions such as ones asking it to compare the fat content between two meals, to find the location of a children’s party venue, to find information related to the “guided reading” teaching method and to provide directions to a doctor’s office located in Brooklyn.  Another plaintiff attempted to mirror the commands shown in the ads, with no success. For example, he asked Siri: “how do you play an A chord?” and Siri answered, “OK, how about a web search for ‘how do you plan a quart?’ ” “How do you play a B minor chord?” got, “looking for B minor chord,” followed by “still thinking,” and eventually responded, “Sorry, I couldn’t find B minor chord in your music.” Another plaintiff found that, when he tried to make phone calls or send emails, Siri repeatedly gave the wrong names and numbers of people that he was trying to contact. When he asked, “When is St Patrick’s Day?” Siri responded, “Sorry, I don’t understand ‘When is St Patrick’s Day.’”  Etc.

Plaintiffs weren’t alone. The Huffington Post published an article, Apple’s Siri ‘Rock God’ Commercial: How Accurate Is It, Really?, accompanied by a video called A Scientific Ex-Siri-Ment. This showed a blogger repeating every voice command prompt in Apple’s “Rock God” commercial word for word, but Siri responded to only two of seven prompts on the first try as it did in the ads, including one response that came after an extreme time lag. In response to, “Tell Julie and Kate our band is playing at the garage tonight,” Siri responded with “Are band is playing at the garage tonight.”

Most of the marketing and advertising, including the TV ads, didn’t mention the word “beta” or other limits on Siri, though a Siri FAQ “buried” on Apple’s website stated “Siri is currently in beta and we’ll continue to improve it over time.” Apple mentioned that Siri was in “beta” without elaboration on several other pages.

Plaintiffs brought the usual California claims.  The court took judicial notice of a few key documents, but not those that were neither mentioned in the complaint nor that consumers would have to have encountered (that is, it refused to take judicial notice of the Siri Features Webpage, which Apple failed to show that users would necessarily have seen).

Apple challenged the standing of out-of-state plaintiffs Fazio and Balassone, who weren’t California residents and didn’t buy their devices in California. This conflated the extraterritorial application of California consumer protection laws (the ability of a nonresidential plaintiff to assert a claim) and choice of law.  California statutory remedies can be invoked when out of state parties are harmed by wrongful conduct occurring in California, and here plaintiffs alleged that all critical decisions about the allegedly misleading marketing and advertising were made in-state.  This was sufficient at the motion to dimiss stage.  Apple relied on Mazza to argue that non-California plaintiffs lacked standing, but Mazza wasn’t a standing case.  Certification of a nationwide class wasn’t before the court presently and choice of law isn’t standing.  Anyway, choice of law analysis must be done on a case by case basis; Mazza’s finding of material differences in state law was based on the facts before it, not on a necessary conflict between the laws of California and other states under any and all circumstances.

Apple then argued that plaintiffs failed to satisfy Rule 9(b).  Plaintiffs did allege the contents of some specific ads, including TV commercials, the press release, and statements on Apple’s website.  But plaintiffs didn’t sufficiently allege how the statements were false or fraudulent and how Siri failed to perform as advertised.  They didn’t make clear whether their theory was that the ads were misleading “because Siri never responds to questions or is always inaccurate, does so more slowly than shown in the ads, uses more data than advertised or is less consistent than shown in the ads.”  They needed to better allege the “how” of the misrepresentations.  They didn’t explain what exactly Apple led consumers to believe through the ads, through what particular representations, or what was false about those representations.  They needed to specify “how Siri failed to meet the representations that they claim Apple made, what the truth about Siri’s performance actually was and how Apple knew or should have known that these representations were false.”  (Separately, the court dismissed the UCL claims on similar grounds, this time framing it (of course) as an issue of standing: plaintiffs failed to sufficiently allege how they’d lost money or property as a result of specific misrepresentations.)

Perhaps assuming there’d be an amended complaint, the court dealt with several of Apple’s other arguments.  Apple also argued that plaintiffs were selectively reading its ads and that it had adequately disclosed Siri’s beta status.  Freeman v. Time, Inc., 68 F.3d 285 (9th Cir. 1995), upheld the dismissal of UCL and FAL claims, rejecting as unpersuasive the plaintiff’s argument that readers will read only the large print on a promotion document and “ignore the qualifying language in small print.” In that case, the promotions “expressly and repeatedly state[d] the conditions,” and none of the qualifying language was “hidden or unreadably small”; it appeared immediately next to the representations it qualified “and no reasonable reader could ignore it.”  Anyone who read enough to comply with the instructions for entering the sweepstakes would be put on notice of the qualifying language. But this set of allegations was quite different: the commercials themselves didn’t disclose that Siri was in beta/unfinished; some website pages did, but not all, and the disclosure was separated from the primary discussion of Siri’s features.  Though Apple might be able to show its qualifications as a defense, this wasn’t enough as a matter of law to require dismissal.

Apple argued that many of the statements cited were puffery, such as “the best iPhone yet,” “How do you improve on something so extraordinary? Now we’re introducing Siri,” and descriptions of Siri as an “amazing assistant,” “amazing,” and “impressive.” Plaintiffs rejoined that they weren’t basing their claims on these statements, but rather on specific representations of how Siri was supposed to function.  The court agreed with plaintiffs.

Apple’s next argument was that plaintiffs failed to specify on which particular ads they relied.  One plaintiff specifically alleged that he relied on “the statements and interactive demonstrations performed at Apple’s October 4, 2011 press conference,” but also that he relied upon “other representations,” without saying which others, and the others didn’t specify even that much, just alleging reliance on TV ads, “various” presentations, and the website.  Plaintiffs argued that the misrepresentations “were part of a consistent, broad marketing campaign by Apple over time,” so they were “not required to specify each and every time they were exposed to one of Apple’s misrepresentations.” But Tobacco II, on which they relied, didn’t and couldn’t support relaxing Rule 9(b)’s pleading requirements, and anyway this wasn’t a years-long ad campaign.

Apple’s next argument was that there could be no CLRA claim because the Siri software isn’t a good or service.  The court went with plaintiffs: the subject of their claims was the iPhone 4S itself, a good, and Siri was a feature thereof, so that Apple represented the iPhone 4S to have characteristics and features that it didn’t have, etc., as proscribed by the CLRA.  The CLRA claim wasn’t based on the download or purchase of software.

On the breach of express warranty claim, California requires pre-suit notice within a reasonable time after discovery of the breach, and failure to comply bars the buyer from any remedy.  In order to fulfil its purpose of allowing nonjudicial resolution, notice must be served prior to service of the complaint.  For one plaintiff, the letter allegedly providing notice was sent on the same day the original complaint was filed, and couldn’t serve as notice.  Thee other plaintiffs sent a letter four days before their complaints were filed, but these letters weren’t alleged and the plaintiffs didn’t request judicial notice.  They argued that Apple was on notice of the defects from numerous media reports, but cited no precedent in which notice from media outlets met the statutory notice requirement.

Under California law, any affirmation of fact or promise that becomes part of the basis of the bargain creates an express warranty, but plaintiffs must plead the exact terms of that warranty, and here they didn’t.  General assertions of reliance on a commercial or ads aren’t equivalent to identifying the exact terms of a warranty. At least, plaintiffs needed to allege the particular commercials and webpages they relied on, describe their content with particularity, and allege reasonable reliance thereon with specificity.  “Plaintiffs’ allegations at this time are not sufficiently detailed to provide Apple with meaningful notice of which particular advertisements and webpages form the basis of their claim, or of what warranty terms Plaintiffs maintain were created by those commercials and pages.”

Plaintiffs also alleged breach of the implied warranty of merchantability: that the goods would be fit for their ordinary purposes.  Apple argued that it disclaimed the implied warranty of merchantability in its one-year hardware warranty and software license agreement.  Disclaimer is an affirmative defense that can only be raised on a motion to dismiss if it raises no disputed issues of fact, and requires that the buyer must know or be chargeable with notice of the disclaimer before the bargain is complete.  Apple argued that its disclaimer was in the iPhone 4S packaging, and customers could’ve returned their iPhones within 30 days after they reviewed the warranty if they didn’t want to consent.  There was some precedent supporting this method of disclaiming the warranty, but plaintiffs didn’t plead that there was an unqualified return period and Apple provided no evidence suitable for judicial notice.

This didn’t matter, though, because plaintiffs didn’t plausibly plead that the iPhone 4S’s “ordinary and intended purpose” was to use Siri “to send messages, schedule appointments, seek information and directions and to learn new tasks,” instead of being a cell phone.  The iPhone 4S’s intended and ordinary use was as a smartphone, for calls, text messages, and mobile apps, and plaintiffs didn’t allege that the iPhone 4S was deficient in any of those functions—just in providing Siri to access those functions.

Regardless, even if using Siri was part of the ordinary purpose of the phone, plaintiffs didn’t sufficiently plead breach.  They alleged that Siri was usable to some extent, but wasn’t “a consistent intelligent assistant.” Breach of the implied warranty of merchantability requires a showing that the product “did not possess even the most basic degree of fitness for ordinary use.” Because plaintiffs didn’t allege that the function was unusable, the court granted the motion to dismiss this claim, albeit with leave to amend.

The alleged violation of the Magnuson-Moss Warranty Act fell with the alleged state law violations, and the unjust enrichment claim went because it wasn’t a standalone cause of action.

The IP attorney Tumblr

A mostly patent lawyer's life, expressed in the form of gifsets. Insert your own fair use joke.

On fine print

The New Inquiry (excellent publication) has an essay about fine print by Kevin Breathnach:

“Always read the fine print.” With its definite article serving at once to distance and to universalize the practice, the old adage is deemed fair warning. And yet fine print asks specifically not to be read. It is a deliberately non-communicative speech act, erasing itself by miniaturization, accumulation, and esotericism….

Magritte is said to be pointing out the unbridgeable divide between representation and reality. His painted pipe is not an actual pipe. Contracts and (particularly) advertisements that use fine print operate on a similar level. The ad’s loudly stated, carefully worded attractions are representations of a proposed deal, the legitimacy of which the fine print discretely disavows. “This is not the deal,” the fine print says. On the subject of Magritte’s painting, Foucault speaks of an “operation cancelled as soon as performed,” a line that might as easily apply to advertising that offers deals too good to be true. Foucault’s second reading of The Treachery of Images is a little subtler. He suggests that what the sentence “ceci n’est pas une pipe” actually refers to is itself: “this is not a pipe” is not a pipe. In recent years it has become common for fine print to include “unilateral amendment provisions” that entitle the company to change the terms of the deal at anytime as long as they give you written notice. In such cases, the fine print is also referring to itself when it whispers “this is not the deal.”

Changed meaning is fair use, but can't justify fee award

Seltzer v. Green Day, Inc., No. 11-56573 (9th Cir. Aug. 7, 2013)

The court of appeals affirmed a fair use finding by the district court over the use of an illustration in the video backdrop of Green Day’s stage show, but reversed the award of attorneys’ fees to Green Day.  Derek Seltzer created Scream Icon, a drawing of a screaming, contorted face, in 2003:

He made copies, including large posters and smaller prints with adhesive backs, which he sold and gave away.  Many posters were plastered on walls as street art in LA and elsewhere.  Seltzer at times used Scream Icon to identify himself or his work in ads for his gallery appearances, and he licensed it for use in a music video.

Defendant Roger Staub, a photographer and professional set-lighting and video designer, photographed a brick wall at the corner of Sunset Boulevard and Gardner Avenue in LA in 2008. It was covered in graffiti and posters, including a “weathered and torn” copy of Scream Icon:

Staub created the video backdrops for Green Day’s tour in support of its 2009 album.  Each of the 32 songs on the set list got its own video backdrop, which Staub created after repeatedly listening to the new album and studied the album art, which used graffiti and street art as significant visual elements.  For the eighth song on the album, East Jesus Nowhere, Staub created a backdrop with the goal of conveying the song’s “mood, tone or themes”; he saw the theme as “the hypocrisy of some religious people who preach one thing but act otherwise. . . . The song is about the violence that is done in the name of religion.”  The resulting video was approximately four minutes long.  It depicted a brick alleyway covered in graffiti:

[S]everal days pass at an accelerated pace and graffiti artists come and go, adding new art, posters, and tags to the brick alleyway. The graffiti includes at least three images of Jesus Christ, which are defaced over the course of the video. Throughout the video, the center of the frame is dominated by an unchanging, but modified, Scream Icon.

Staub used his photo, cut out the image of Scream Icon, and modified it by adding a large red “spray-painted” cross over the middle of the screaming face. “He also changed the contrast and color and added black streaks running down the right side of the face. Staub’s image further differs from Scream Icon because Staub’s original photograph was of a weathered, slightly defaced, and torn poster.”  Still, the work was nonetheless clearly identifiable in the middle of the screen throughout the video.

This video was played behind Green Day during the performance of East Jesus Nowhere at about 70 concerts and also during Green Day’s performance of the song at the MTV Video Music Awards.  Afterwards, Seltzer registered his copyright in Scream Icon; Green Day stopped using the video backdrop, and Seltzer sued.  After the district court granted Green Day summary judgment on the copyright, Lanham Act, and related state law claims, it awarded Green Day over $200,000 in attorneys’ fees on the theory that Seltzer’s claims were objectively unreasonable.

Fair use is a mixed question of law and fact, reviewed de novo.  “Where no material, historical facts are at issue and the parties dispute only the ultimate conclusions to be drawn from those facts, we may draw those conclusions without usurping the function of the jury.”

Transformativeness is often hotly contested.  The court here drew on Judge Leval’s 1990 article defining transformative use as a use that is productive and employs the “quoted matter” in a different manner or for a different purpose than the original.  “[I]f the quoted matter is used as raw material, transformed in the creation of new information, new aesthetics, new insights and understandings … this is the very type of activity that the fair use doctrine intends to protect for the enrichment of society.”

Under this standard, Green Day’s use was transformative. Scream Icon was “raw material” in the construction of the four-minute video backdrop.  It wasn’t simply quotation or republication.  Though Scream Icon was prominent, it was “only a component of what is essentially a street-art focused music video about religion and especially about Christianity.”  By contrast, the message and meaning of the original work was debatable.  To the court of appeals, “it appears to be a directionless anguished screaming face.” Seltzer testified: “It addresses themes of youth culture, skateboard culture, insider/outsider culture, . . . it’s an iconic reference to a culture and time in Los Angeles when the image was made.” The court of appeals noted that, “regardless of the meaning of the original, it clearly says nothing about religion.”  With the cross added on top, “in the context of a song about the hypocrisy of religion, surrounded by religious iconography, Staub’s video backdrop using Scream Icon conveys ‘new information, new aesthetics, new insights and understandings’ that are plainly distinct from those of the original piece.”  Seltzer acknowledged this in his deposition, when he said that the backdrop “tainted the original message of the image and [] made it now synonymous with lyrics, a video, and concert tour that it was not originally intended to be used with.”

(Note: this language fits with my general argument that the juxtaposition of music and images each change the way the other is perceived, as I presented on at IPSC.  And it is good support for the fair use arguments of vidders, who use music and images that weren’t intended to go together to achieve precisely this transformation.  The Ninth Circuit is clearly following the lead of Prince v. Cariou in separating transformativeness from a requirement of critique, as long as the new work has new meaning and independent expressive value.)

The case law is splintered, but the court here deemed its conclusion “in line” with other appellate authority.  Publishing photos of a secret wedding, by contrast, weren’t transformative because they didn’t alter the first work with new expression, meaning, or message, and using clips of Elvis’s TV appearances also wasn’t transformative when the clips were played without much interruption and served the same intrinsic entertainment value (Elvis Presley Enters., Inc. v. Passport Video, 349 F.3d 622, 629 (9th Cir. 2003)).  The court also distinguished L.A. News Serv. v. CBS Broad., Inc., 305 F.3d 924 (9th Cir. 2002), as involving only “plucking the most visually arresting excerpt” from riot footage, and Ringgold v. Black Entm’t Television, Inc., 126 F.3d 70 (2d Cir. 1997), which possibly might have seemed like Seltzer’s best bet, since that involved use of a poster as a decoration on a TV show; again, the poster was used for “precisely a central purpose for which it was created” and defendants hadn’t added anything new (except the surrounding show). 

This case was more like other cases finding transformativeness “as long as new expressive content or message is apparent,” even where “the allegedly infringing work makes few physical changes to the original or fails to comment on the original.”  (Citing Cariou; Dorling Kindersley; Blanch v. Koons; Kelly v. Arriba Soft; and the other L.A. News Service holding that a montage was transformative.) There seems to be an underlying concept of integration: conceptually, the Scream Icon was integrated into, and thus transformed by, the rest of the work.  It’s hard to see a bright line between this type of integration and, say, the news reporting/documentary-lite in L.A. News Service and Elvis Presley, but that’s not a new problem, as reflected by the fact that both of those plaintiffs have also lost cases when defendants’ treatment of clips was different/added new meaning in the courts’ view.

Transformativeness plus the fact that the commercial nature of the use was limited favored Green Day: it was incidental use as part of a commercial enterprise, not exploitation of the copyright for commercial gain: the image was never used to market the concert, CDs, or merchandise.

Nature of the work: Scream Icon was creative, meriting “strong” protection, but it had already been published and widely distributed, making it more likely to qualify as fair use.  Seltzer was able to control the first public appearance of his work, which weighed in Green Day’s favor, making the overall factor weigh only slightly in Seltzer’s favor.

Factor three: Green Day copied most of Scream Icon, quantitatively and qualitatively, but the image wasn’t meaningfully divisible. In such cases, this factor doesn’t weigh against an alleged infringer, even one who copies the whole work, if it takes no more than necessary for an intended use.  This factor interacts with factor one, and here the use of the entire work was necessary to achieve Green Day’s new expression, meaning, or message.

Factor four: when a use doesn’t substitute for the original and serves a different market function, that weighs in favor of fair use.  Seltzer repeatedly testified at his deposition that the value of his work was unchanged, but that he just didn’t like Green Day’s use.  Rather than arguing that he’d lost sales, he claimed that Scream Icon was “tarnished” for him personally.  Green Day presented evidence that its video backdrop had a different market function than the original, which was primarily intended as street art.  Green Day’s use was “never placed on merchandise, albums, or promotional material and was used for only one song in the middle of a three hour touring show.”  There was no reasonable argument that this type of conduct substituted for Seltzer’s primary market.

How about traditional, reasonable, or likely to be developed markets?  Seltzer declared that Scream Icon was licensed in a music video by a band named “People.”  But he didn’t explain how much revenue he earned, how the band used the music video, or how the music video used Scream Icon. Without more, this fact didn’t show that Green Day harmed any existing or likely-to-be-developed market.  This factor weighed in Green Day’s favor.  Overall, it was a fair use.

The court of appeals turned to the Lanham Act claims.  The district court concluded that Seltzer failed to show that he used the image as a mark in the sale of goods or services.  He argued that he put Scream Icon on certain ads for his appearance at an art gallery show, but that wasn’t enough evidence that the use of the mark was “sufficiently public to identify or distinguish the marked goods in an appropriate segment of the public mind.” He didn’t show how the ads were distributed, who might’ve seen them, when they were distributed, to what shows they were connected, or any other facts that might be necessary to evaluate trademark protection.  Summary judgment was proper.  This doomed the state law claims as well.

Seltzer did get off the hook for Green Day’s attorneys’ fees.  When a defendant wins a fair use case, the key question is whether the successful defense furthered the purpose of the Copyright Act, but the loser doesn’t always have to pay.  The district court found Seltzer’s claim objectively unreasonable, given that Seltzer lost on summary judgment because three of the four fair use factors favored Green Day, and that his deposition testimony effectively conceded transformative use because he claimed that the new use “tainted the original message” and “devalue[d] the original intent” of Scream Icon.

 

But the “mere fact” that he lost didn’t show objective unreasonability, and Green Day only won on two of the four factors (the two the court had just declared the most important, sigh) and a third was neutral.  And his deposition statement only expressed his opinion and couldn’t concede transformativeness, since how the reasonable observer sees the work is critical and not what the artist says.  (Citing Cariou, which is relevant to Eva Subotnik’s paper from IPSC, I think.)  Thus, the district court abused its discretion in concluding that Seltzer’s case was objectively unreasonable when he brought it; the case was “close and difficult.”  The transformation “was far from obvious given Green Day’s only slight alterations to the original.”  There was no reason to believe that Seltzer should’ve known from the outset that his chances of success were slim to none, and so the court of appeals vacated the award.