UK ASA rejects "#sp" as insufficient to show editorial control over endorser

From a ruling on a sponsored Instagram post for Britvic soft drinks:

We considered consumers needed to be aware that they were viewing marketing content prior to engagement, meaning that they should know that they were selecting an ad to view before they watched it. We considered the branded shot clearly contributed to the ad being identifiable as such, but that it was nevertheless not sufficient to ensure that was obvious, because it appeared at the end of the video. In addition, we considered it was unlikely to be immediately apparent to consumers what the hashtag “#sp” was intended to refer to and, as such, it was also not sufficient to ensure it was obvious the post was a marketing communication. While we understood that “#sp” was intended to communicate that the material was a ‘sponsored post’, sponsored content was a category distinct from that over which an advertiser retained editorial control. We therefore considered it was not a sufficiently accurate label for the ad, even if the meaning had been immediately apparent to consumers. Finally, we considered the text “More of my #BlendRecommends with @drinkj2o Spritz to come!”, in particular because it identified Millie Mackintosh’s relationship “with” J2O, might indicate to some consumers that the brand had been involved in the process but that it did not clearly indicate that the post was a marketing communication, as opposed to, for example, material that had been financially sponsored, but over which the creator retained editorial control. For the reasons given, we considered consumers would not be aware before engagement that the post was an ad.

Trademark question of the day, Hamilton edition

Yes, this is a Hamilton blog for the foreseeable future.  As they say, sorry not sorry.  Last night, Bernie Sanders sent me this email:

Fellow Hamiltunes fans (many of whom are almost certainly in Sanders' target demographic, like me) will recognize the subject line.  Does the First Amendment protect Sanders' use?  I'll tell you this: he earned a bunch of goodwill with me!

Manufacturer not liable for distributor's false ads

GOJO Industries, Inc. v. Innovative Biodefense, Inc., 2015 WL 7019836, No. 15 Civ. 2946 (S.D.N.Y. Nov. 12, 2015)

 

Defendant IBD moved for a preliminary injunction against GOJO and nonparty distributors of GOJO products barring them from making representations that GOJO products are FDA approved and from using government agency logos in an online video. The court denied the motion.

 

GOJO sued IBD for falsely advertising that its Zylast hand sanitizing products were “FDA approved” and for deceptively using the FDA logo in ads, as well as for making false claims about GOJO’s Purell hand sanitizing products. The parties stipulated to an order preliminarily enjoining IBD and its authorized agent from representing that Zylast products were FDA approved and from using the FDA logo in advertisements.  IBD then sought a preliminary injunction against similar “FDA approved” representations in the sale of GOJO products and use of CDC, World Health Organization, and Health Canada logos in an educational handwashing video on the Purell website.  IBD’s evidence about “FDA approved” was from websites belonging to nonparty distributors and a nonparty independent sales rep.  A March 2014 email chain between GOJO’s National Account Director and an independent distributor in which the GOJO employee provided instructions on the correct names for GOJO products and also provided current product images.

 

GOJO argued that the nonparty distributors were not GOJO’s agents or under GOJO’s control and that it had removed the logos from the educational video on the Purell website. “In order for a nonparty to be bound, that entity must either aid and abet the defendant or be legally identified with it.” IBD didn’t introduce evidence of an agency relationship with any of the distributors. Providing basic information about product names and images wasn’t enough.

Christmas in November: No TRO for alleged false advertising because no showing of irreparable harm

Balsam Brands Inc. v. Cinmar, LLC, 2015 WL 7015417, No. 15-cv-04829 (N.D. Cal. Nov. 12, 2015)

 

Balsam sought a TRO based on claimed patent rights in an invertible artificial Christmas tree, the “Flip Tree,” that includes a “pivot joint” in the trunk that separates the trunk into two parts and allows the tree to fold for simplified set up and storage. They sued Cinmar, aka Frontgate, for selling allegedly infringing artificial Christmas trees, as well as for false marking/false advertising.

 

Plaintiffs failed to show standing to sue for patent infringement, and also defendants raised a substantial question of whether the accused trees were infringing.  For the non-patent claims, Balsam didn’t show irreparable harm.  Balsam alleged that (1) Frontgate has marketed the accused trees as “featuring patented inversion technology,” but Frontgate lacks patent rights in the inversion technology featured in the trees; and (2) Frontgate has marketed the accused trees as featuring “exclusive inversion technology,” but the inversion technology featured in the trees is not exclusive to it, because plaintiffs also use the same technology.

 

The only evidence of irreparable harm came from Balsam’s CEO, whose declaration said:

 

Based on Frontgate’s holiday marketing promotions in past years, Balsam expects Frontgate to advertise a variety of price promotions and discounts throughout the Christmas selling season. For example, over the October 24 weekend, Frontgate is offering $50 back for every $200 spent, resulting in a 25% discount. Balsam will soon need to decide whether to lower its own prices to compete with Frontgate’s infringing products.

Frontgate’s sale of infringing invertible trees, and its false advertising claiming it’s the exclusive provider of such trees and that it even owns the patent on them, erodes Balsam Hill’s identity as an innovation leader. Frontgate’s actions also discredit our marketing campaign promoting our exclusive right to the Flip Trees.

Frontgate’s actions are also costing us sales and market share. Catalog and ecommerce businesses depend on acquiring new customers and then benefiting from the lifetime value of those customers. Typical ecommerce or catalog retailers like Frontgate may break even or even lose money on initial sales to new customers. Their strategy is to acquire customers and then build lifetime relationships that lead to downstream sales. Former Frontgate employees have told me that Frontgate in particular uses trees as its acquisition tool, and then later sells décor and many other products to those customers.

Each lifetime customer relationship Frontgate builds using infringing trees and false advertising is a lifetime relationship potentially lost to Balsam Hill. And because our brand and not just our Flip Tree is under fire, we also stand to lose downstream customers and sales across our whole product line. This includes conventional Christmas trees, wreaths, garlands, ornaments, stockings, tree skirts, and other products. These losses may last a lifetime.

Christmas trees are highly seasonal. Our business grows tremendously each week in October and November and hits a fever pitch by the Thanksgiving holiday weekend. Based on 2013 and 2014 sales data, … A single poor Christmas season could be devastating to the company.

 

Whether the false advertising claims actually go to anything material, you have to admit, that’s a lot better than many harm declarations do.  However, the court noted, the majority of the irreparable harm came from the fact of the allegedly infringing sales, not from the allegedly false advertising.  Without additional evidence of “eroded identity as an innovation leader,” “discredited exclusive right,” or “lost lifetime customer relationships” actually occurring, the claim of immediate irreparable harm was too speculative.

 

In addition, Frontgate submitted a declaration that its description of its trees as “featuring patented inversion technology” was based on its misunderstanding that the pending application on the slotted hinge technology had already issued, and that it had since removed the offending language from its website.  The only allegedly false statements in Frontgate’s catalogs were that Frontgate’s trees feature “exclusive, state-of-the-art technology guaranteed to make setup a snap,” and that Frontgate’s “exclusive new Inversion tree goes from packed-away to put-up in about a minute.” Plaintiffs didn’t show a likelihood of immediate harm from those statements that couldn’t be adequately addressed by money damages.

 

Finally, plaintiffs’ delay in seeking a TRO was also noticeable.  Plaintiffs allegedly learned on August 18, 2015 that Frontgate was selling the accused trees, and presumably learned of the alleged false advertising around the same time. But they didn’t file their complaint until October 20, 2015 and did not seek a TRO until October 26, 2015, just days before the start of the month when Balsam alleged that they generally earn approximately 50 percent of their annual revenue. A ten-week delay “would be of little if any concern in most circumstances, given the extent to which plaintiffs emphasize the importance of the holiday shopping season in claiming that they will suffer irreparable harm, their failure to seek injunctive relief sooner further weighs against this claim.”

Up stone creek without a paddle: Dawn Donut precludes relief for distant plaintiff

Stone Creek Inc. v. Omnia Italian Design Inc., 2015 WL 6865704, No. CV-13-00688 (D. Az. Nov. 9, 2015)

 

Stone Creek makes and sells furniture in Arizona, operating only out of Phoenix, except for a short-lived 2004-2008 expansion to Dallas, Texas.  Its mark, as of 1990, was a “red oval- shape circle around the words ‘Stone Creek.’ ”  It has a registration (filing date 2011) for furniture for STONE CREEK in standard character form as well as for its logo.  The defendant copied its logo exactly and used it for furniture sold in the upper Midwest; the court denies all relief, reaffirming Dawn Donut’s applicability in the internet age, and reinforcing that the “exclusive nationwide rights” granted by a federal registration are only as exclusive as courts allow.

 

The court found that household furniture “is typically sold locally to customers living within a drivable radius from the furniture outlet retail store,” given the size, weight, and shipping costs of furniture, as well the customers’ preference to see and sit on the furniture.  Stone Creek had a website, but didn’t sell furniture directly through its site or otherwise sell via the internet.  Stone Creek would have liked to expand, but there were no actual plans to do so after the closing of the Dallas operations.

 

Meanwhile, defendant Bon-Ton was a large retailer that operates furniture galleries in Illinois, Wisconsin, Pennsylvania, Ohio, and Michigan.  Defendant Omnia’s products were sold to purchasers living within 200 miles of a Bon-Ton Furniture gallery, including portions of Iowa, Indiana, Ohio, Wisconsin, Pennsylvania, Illinois, and Michigan, aka the Bon Ton trading territory (BTTT).  The parties’ territories were separated by over 1000 miles at the closest.

 

In 1993-1998, Stone Creek advertised in Southwest Airlines Spirit magazine and America West’s in-flight magazine, whose airlines travelled throughout the BTTT.  Still, the airline magazines and Stone Creek’s other advertising venues didn’t have a significant presence in the BTTT, and the court found that none of them created awareness of Stone Creek in the BTTT.

 

Stone Creek put its mark on its website, stonecreekfurniture.com, as early as 2000, and hired a SEO firm, which enabled consumers to find Stone Creek’s website by going to stonecreekfurniture.com or by searching for “stone creek” and “leather,” “furniture” or “sofa.”  Nonetheless, the court found that the website didn’t create awareness of Stone Creek in the BTTT, and that the “vast majority” of Google searches for Stone Creek Furniture originated in Arizona; only a negligible number were from the BTTT.  Many non-furniture businesses in the BTTT used the name “Stone Creek.”  In defendants’ survey, 99.75% of BTTT respondents were not familiar with Stone Creek in Arizona.

 

Stone Creek’s sales were over $200 million since inception, but only approximately 0.3% of its total sales occurred in the BTTT.  The largest sales were in Illinois, with about $350,000 in sales from 1996-2009 and 2011-2013, representing more than half of the total BTTT sales.  The total came from approximately 150 customers, out of 65,000 transactions total since Stone Creek’s inception. These numbers were “trivial,” the court said, and there was no evidence about how these 150 customers discovered Stone Creek.

 

In 2003, Stone Creek met Omnia, a California-based manufacturer of leather furniture, at a trade show in San Francisco. They entered into an agreement that Omnia would make leather branded with Stone Creek’s mark for Stone Creek, an agreement that lasted until 2012. 

 

Bon-Ton had been one of Omnia’s significant customers since 2008, and it wanted a private label brand to avoid competition with Omnia’s other customers, ideally a label with an “American made name.” Omnia’s president offered several suggestions, including STONE CREEK, which Bon Ton liked; Omnia offered it because it “sounded American” and because marketing materials and a logo were already prepared. Omnia copied the mark from Stone Creek-provided materials, including the identical logo. However, the court found that Omnia didn’t intend to trade off Stone Creek’s goodwill. Omnia never consulted an attorney about this. Omnia’s president understood that Stone Creek sold in the Phoenix area, but he never researched where Stone Creek sold its furniture.

 

From 2008-2013, Omnia sold leather furniture to Bon-Ton branded with the STONE CREEK mark. That year, after inquiries from individuals in the BTTT, Stone Creek asked Omnia if it sold products under the STONE CREEK mark to other companies. Stone Creek’s president also fielded a telephone call about a customer concerned about a warranty issue on a leather sofa. The customer indicated that he purchased the sofa from a Bon-Ton store in Chicago and that he had a warranty document with the STONE CREEK mark on it, from which he ended up at Stone Creek’s website.

 

Omnia’s VP of sales confirmed to Stone Creek: “Ron, yes, we do sell our products to those stores under their marketing name ‘Stone Creek Leather.’ … In this day of internet shopping and surfing, it is unfortunate and probably a nuisance for you that your stores are receiving inquiries regarding these products due to the similar name…” 

 

After Stone Creek complained, Omnia changed Stone Creek to Red Canyon. The court found that Stone Creek’s mark had no goodwill, reputation, or consumer recognition in the BTTT, and that there was no actual confusion by a consumer who bought Omnia Stone Creek furniture in the BTTT.

 

Stone Creek failed to meet its burden of showing likely, not merely possible, confusion.  Even if Stone Creek had shown that a trivial number of purchasers had been actually confused, a trivial number wasn’t enough.

 

Although the Stone Creek mark was strong in Arizona, it wasn’t recognized in the BTTT for its relationship to Stone Creek; the goods and marks were the same, but the parties had distinct marketing channels “with no opportunity for crossover” because of the local nature of the furniture industry.  Because furniture is expensive, consumers are supposed to exercise greater care.  Bon-Ton selected the mark because it had an American sound to it, and because the marketing material and logo already existed and were in the possession of Omnia, without intent to trade off of Stone Creek’s goodwill.  And Stone Creek had no plans to expand.  Thus the factors favored Bon-Ton.

Under Dawn Donut, “Even where the Sleekcraft factors weigh in favor of the [plaintiff],...territorial divisions may prevent confusion. An unauthorized junior mark user...can contest likelihood of confusion by arguing that, since ‘the registrant and the unauthorized user are confined to two sufficiently distinct and geographically separate markets,’ there is no likelihood of confusion.” Also, though the court doesn’t discuss this, because of the timing of the registration application, it appears that Bon-Ton was a §33(b) local user, protected against liability because it began use before the application date.  (Though no longer protected, because its use has now ceased.)  Thus, even likely confusion wouldn’t have entitled Stone Creek to prevail … but if I were Bon-Ton, I’d be pretty mad at Omnia for getting us into this.

FTC is entitled to presumption of reliance in enforcing consent order

FTC v. BlueHippo Funding, LLC, No. 1:08-cv-01819 (S.D.N.Y. Nov. 6, 2015)

 

BlueHippo stipulated to a final judgment and permanent injunction against certain sales practices.  The FTC moved for a contempt finding based on the practices described below, which was granted in part and denied in part; the Second Circuit vacated the damages portion of the order (the denial) and remanded for consideration of whether a presumption of consumer reliance applied to the facts of the case.  The court here held that it did.

 

The facts: BlueHippo was an installment credit company that marketed computers and other electronic products to “credit-challenged” consumers who’d make an initial down payment followed by thirteen additional payments.  Consumers who successfully made that series of payments would get a computer and would be enrolled in BlueHippo’s financing plan to pay the remaining balance.

 

BlueHippo’s challenged store credit and refund policy was to refuse a refund after seven days of the first payment, instead offering store credits.  But BlueHippo didn’t tell consumers at the time of their initial payment that store credits could not be applied to any applicable shipping and handling fees or taxes. The FTC alleged that BlueHippo had violated the part of the consent order enjoining it from making representations about its “refund, cancellation, exchange, or repurchase policy without disclosing clearly and conspicuously, prior to receiving any payment from customers all material terms and conditions of any refund, cancellation, exchange, or repurchase policy.” The FTC sought $14 million in damages, which represented the losses of the 55,892 customers that had made at least one payment in the relevant time period, but had received neither a computer nor store merchandise.

 

Previously, the court awarded $610,000 in damages, representing the losses of the 677 consumers who had made all of the requisite installment payments to qualify for BlueHippo’s financing plan but had received neither a computer nor store credit.  But it held the FTC failed to show damages for the others.  The Second Circuit, in vacating, emphasized that information about the shipping and handling fees and taxes, “if it had been revealed to consumers before they purchased computers from BlueHippo, in all likelihood would have influenced their purchasing decisions.”

 

Recognizing the “inherent difficulty of demonstrating individual harm,” the Second Circuit wrote that “[p]ermitting a presumption of reliance in FTC claims for contempt damages would thus further the Commission’s statutory purpose to protect consumers.” The presumption is triggered by “showing that (1) the defendant made material misrepresentations or omissions that were of a kind usually relied upon by reasonable prudent persons; (2) the misrepresentations or omissions were widely disseminated; and (3) consumers actually purchased the defendants’ products.”  If the presumption is satisfied, then the FTC starts with the defendant’s gross receipts and the defendant can prove offsets.

 

At this point, defendants argued only that the FDC didn’t meet its burden of showing misrepresentations or omissions of the kind usually relied upon by reasonable prudent persons.  The FTC didn’t show that BlueHippo actually charged shipping, handling, or taxes to a significant number of consumers, so there was nothing “usual” about the omissions.  But “the injury to the consumer (and thus BlueHippo’s violation) occurs at the moment the consumer makes his or her initial payment.”  Consumers were led to believe that they were making essentially risk-free payments: they’d either get a computer or they’d be able to apply their payments to purchases from the online store.  But in fact consumers would have to make additional payments in the form of shipping, handling, or taxes if they sought to utilize the online store option.  “Even if few or no consumers actually paid shipping, handling or taxes … , that says nothing about whether those fees, when eventually disclosed, deterred cash-strapped consumers from making online purchases at all. Indeed, the FTC introduced evidence of exactly that occurring.” Thus, the FTC was entitled to a presumption of reliance and damages starting with defendants’ gross receipts.

Why we need an anti-SLAPP law: skeptic's articles still not commercial speech

Tobinick v. Novella, No. 9:14–CV–80781, 2015 WL 6777458 (S.D. Fla. Sept. 30, 2015)

 

This case is a good example of the need for a federal anti-SLAPP statute.  Although many claims have been dismissed, the court here finally resolved Lanham Act false advertising/state law unfair competition claims against Dr. Steven Novella, who wrote two articles published online atsciencebasedmedicine.org. Both articles address the practice of Dr. Edward Tobinick, who provides medical treatment to patients with “unmet medical needs.”  The first article, “Enbrel for Stroke and Alzheimer’s,” responded to a piece published in the Los Angeles Times. As Novella described it,

 

The [Times ] story revolves around Dr. Edward Tobinick and his practice of perispinal etanercept (Enbrel) for a long and apparently growing list of conditions. Enbrel is an FDA-approved drug for the treatment of severe rheumatoid arthritis. …Tobinick is using Enbrel for many off-label indications, one of which is Alzheimer’s disease (the focus of the LA Times story).

 

The allegedly false statements concerned the viability of Tobinick’s treatments, the scientific literature discussing those treatments, the size and locations of Tobinick’s businesses, and the categorization of Tobinick’s practice as “health fraud.” Novella’s second article, “Another Lawsuit To Suppress Legitimate Criticism – This Time SBM,” came out after Novella first sued. It largely restated the content of the first, and also said Novella couldn’t find double-blind placebo-controlled clinical trials for the treatment provided by Tobinick.

 

Gordon & Breach supplies the test for what’s commercial advertising or promotion, but post-Lexmark, it’s minus the commercial competition prong.  So: (1) commercial speech; (2) for the purpose of influencing consumers to buy defendant’s goods or services; (3) disseminated sufficiently to the relevant purchasing public to constitute “advertising” or “promotion” within that industry.

 

“Commercial speech” was dispositive here. Central Hudson described commercial speech as “expression related solely to the economic interests of the speaker and its audience.” Bolger “suggest[s] certain guideposts for classifying speech that contains both commercial and noncommercial elements; relevant considerations include whether: (1) the speech is an advertisement; (2) the speech refers to a specific product; and (3) the speaker has an economic motivation for the speech.”   

 

The articles here proposed no commercial transaction, and weren’t related solely to the economic interests of the speaker and its audience. They clearly intended to raise public awareness about issues pertaining to Tobinick’s treatments.  They were also unlike the commercial speech in Bolger: they were not concededly advertisements; the only products referenced were Tobinick’s treatments; to the extent the second article referred to Novella’s practice, “it is in direct response to the instant litigation as opposed to an independent plug for that practice.” 

 

Finally, the court didn’t find that the alleged “economic motivation” for the speech was sufficient, even though SGU Productions, a for-profit company controlled by Novella, earns money by selling advertisements on its website (skepticsguide.net), advertisements in a podcast, memberships, and goods such as t-shirts.  Speech isn’t commercial speech just because it’s sold for profit.  Plus, the specific evidence here didn’t point to a strong economic motive for the speech: there was no evidence that Novella earned any money from SGU, whose goal was “to educate people in science and critical thinking.”

 

The state law claims fell because the Lanham Act claims did.

 

The court has already denied a fee request in another iteration of this case, which seems odd to me, but that just highlights the insufficiency of speech protections for critics under current law.

Instant lack of gratification: coffee class certified

Suchanek v. Sturm Foods, Inc., 2015 WL 6689359, No. 11-CV-565 (S.D. Ill. Nov. 3, 2015)

 

After the district court’s initial dismissal of this class action case was resoundingly reversed, the case returned and was here certified by a new district judge, the prior judge having retired during the pendency of the appeal.  In Seventh Circuit style, the opinion also resolves a number of evidentiary challenges to plaintiffs’ claim that Sturm falsely advertised its instant coffee as ground.

 

Sturm made single-serve coffee cups for use in Keurig machines under the name Grove Square Coffee (GSC). While Sturm allegedly sold GSC as premium, ground coffee, it was actually more than 95% instant coffee. Plaintiffs sued Sturm for violating the consumer protection statutes and unjust enrichment laws of Alabama, California, Illinois, New Jersey, New York, North Carolina, South Carolina, and Tennessee.

 

Plaintiff submitted the testimony of Bobby Calder, a professor at Northwestern University who teaches consumer behavior and marketing strategies. Plaintiffs submitted his opinions to show that the issue of liability is capable of resolution on a class-wide basis and predominates over the individual issues.  Calder’s report had two sets of opinions. The first, based on his review of GSC packaging, Sturm’s marketing documents, and consumer complaints, concluded that:

 

A reasonable consumer would have been led to falsely believe that [GSC] contained regular ground coffee for brewing in a Keurig machine....Usage of the word “instant” on the package in a non-prominent way would not have been sufficient to prevent consumers being misled and deceived....(and) Sturm’s plan for marketing the [GSC] product was at its heart intended to distract consumers from realizing that the product quality or standard was instant coffee and not regular ground coffee for brewing.

 

Sturm argued that this opinion should be excluded because it wasn’t based on evidence of actual consumer perceptions, specifically a survey.  But a consumer survey is not the only acceptable evidence of consumer deception; testimony from consumers or appropriate experts can also suffice.  Calder had plenty of evidence that went to consumer deception:  Sturm’s own research showed that Keurig users did not want instant coffee, so Sturm avoided using the word “instant” on the label. Sturm also conducted product testing to see if consumers noticed the physical differences between GSC cups and regular K-cups that signaled GSC was instant coffee. Most importantly, in hundreds of consumer complaints, people said they felt “disappointed, dissatisfied, displeased, disgusted, swindled, robbed, cheated, ripped off, duped, and misled. Others said GSC was a hoax, deceptive, an absolute fraud, a rip off, a sad joke, a gross misrepresentation, a clearly substandard instant coffee disguised as a Keurig k-cup, and a waste of money.”  Calder didn’t need a survey when he had “oodles” of complaints that were explicit about what consumers thought.

 

Calder also designed and conducted a study in which he interviewed twenty-three randomly recruited individuals in Chicago who owned and used Keurig machines. The participants overwhelmingly identified single-serve brands with the quality of ground roasted coffees, not instant coffees, and therefore expected GSC “to be a traditional ground coffee filtered from roasted beans that did not contain instant coffee.” After a product demonstration, the participants “changed their minds dramatically.” Qualitative results also showed the participants “for the most part realized that they had been misled.”

 

Sturm challenged the survey, and frankly if Sturm hadn’t been such an obvious bad actor here (try to imagine a survey that wouldn’t have found confusion!) I’d have had sympathy for it.  I would not use this case to argue for the admissibility of similar surveys in closer cases. Sturm argued that Calder used an improper universe, an unrepresentative sample from the universe, and ambiguous, imprecise, and biased questions.  Nor did he use a control group, replicate the store environment, or use a double-blind format. 

 

But the court found that Calder’s opinions based on this survey weren’t critical to class certification, and in any event it wasn’t so fundamentally flawed as to be inadmissible. The universe of current Keurig users was close enough to the set of potential GSC consumers, and Calder’s use of a convenience sample was routine in surveys conducted by experts in marketing and in deceptive advertising cases. After all, Sturm’s own market research comprised interviews with only seven consumers  Nor did Calder bias participants by displaying a GSC cup and a Green Mountain cup simultaneously at the beginning of the study and then asking if single-serve coffee cups were more similar to ground coffee or instant coffee. Sturm didn’t explain how the simple presence of the Green Mountain cup injected an impermissible bias into the study.

 

The questions weren’t so flawed as to make the study excludable.  “To the extent Calder’s questions elicited ambiguous responses, participants immediately explained their responses.”  Though the questions were close-ended, that can be ok, especially “for assessing choices between well-identified options or obtaining rating on a clear set of alternatives.” Nor did the absence of a “no opinion” or “don’t know” option invalidate the study, because participants were still able to indicate neutrality and were encouraged to offer commentary during their interview. “Despite the lack of a ‘don’t know’ option, participants commented on their uncertainty in a number of instances. Calder also told the participants that if they were unsure about a question, they should ask him for an explanation.”

 

Nor did the lack of a control group make the study inadmissible, because in the before and after format (in which the truth was revealed to consumers and then they were asked about GSC again) each participant served as his or her own control.  “Likewise, the failure to conduct a double-blind study does not make Calder’s study wholly inadmissible; it simply limits the reliability of it.”  (This is the weakest point.) 

 

Finally, the study wasn’t inadmissible because Calder pointed out and read aloud six sections of the GSC package that plaintiffs contended were deceptive, unlike what would happen in a real store.  The point was to figure out whether those sections were misleading, so reading them was necessary to ensure that the participants saw that information, an approach used in other surveys as well.

 

The court also rejected challenges to plaintiffs’ damages expert Candace Preston.  Sturm argued that her model was unreliable because it assumed that, if GSC had been marketed truthfully, consumers wouldn’t have bought it at all.  This assumption was supported by Calder’s opinion and by customer complaints.  Sturm further argued that Preston’s assumption was contradicted by favorable consumer comments, but “[t]his argument is laughable. Ten positive reviews do not somehow negate the hundreds, if not thousands, of bad (sometimes scathing) reviews, particularly when there is evidence that Defendants had their employees write fake, positive reviews.”  Yikes. 

 

Further, after the Seventh Circuit suggested that a partial refund might be appropriate relief here (cold comfort for coffee drinkers who never wanted to buy instant in the first place, but ok), Preston developed a model for calculating the amount of such a refund, which the court refused to exclude.  Using the cost of other instant coffees as a measure seemed perfectly appropriate.  “Defendants quibble that this fails to take into account any value associated with the k-cup brewing system ….”  But so what? As one of Calder’s interviewees said, “It’s kind of like why bother to have a Keurig with Grove Square? Add the water and call it a day. You’re paying for the separate tubs. I could just take a spoon and drop it in if that’s all the Grove Square is.”

 

Defendant’s expert, Neal Roese, was a social psychologist at Northwestern University with expertise on judgment and decision-making. He opined that there was no uniform or typical consumer decision process across consumers who have purchased GSC; instead, there were significant variations.  Although he relied on the named plaintiffs’ deposition testimony about their individual purchase decisions, and plaintiffs thought he should have interviewed other purchasers, the court didn’t think that mattered.  “Regardless of what he read or who he talked to, Roese was going to reach the conclusion that there was a significant variation in consumers’ decision-making process when it came to purchasing GSC.”  (Ulp.)  Of course no two decisions are exactly the same.  That did not show lack of typicality or that individual issues predominated.  The report wasn’t unreliable or irrelevant under Daubert; it just wasn’t useful.

 

Sturm did win exclusion of the opinions of Robert Klein, an expert witness in Keurig’s false advertising lawsuit against Sturm, since he wasn’t disclosed as an expert before the deadlines had passed, and his testimony was not admissible under any other theory.

 

On to class certification, excluding online purchasers and no longer seeking injunctive relief. Moreover, since plaintiffs failed to brief unjust enrichment, the court only ruled on the consumer protection law claims.

 

The Seventh Circuit set forth the law of the case on commonality: “The question whether the GSC packaging was likely to mislead a reasonable consumer is common to the claims of every class member.”  Its reasoning also strongly suggested that typicality was satisfied. Typicality means that the named representative’s claim “arises from the same event or practice or course of conduct that gives rise to the claims of other class members and...[the] claims are based on the same legal theory.”  As the court of appeals said, “the plaintiffs’ claims and those of the class they would like to represent all derive from a single course of conduct by Sturm: the marketing and packaging of GSC.” It continued: “[t]he same legal standards govern every class member’s claim; [Defendant] admits in its brief that ‘[a]ll of the applicable state consumer protection laws require proof that a statement is either (1) literally false, or (2) likely to mislead (either through a statement or material omission) a reasonable consumer.’ ” Sturm nonetheless argued that typicality was not satisfied because the class members “bought GSC for different reasons and formed their beliefs about it for different reasons.”  For example, “[s]ome Plaintiffs bought GSC because a retailer placed it on a shelf near the Keurig k-cups. Others bought GSC because they wanted to try something new. Still others bought GSC because of its low price.”  But typicality didn’t require all class members to have the same perceptions and knowledge about GSC and the same preferences and reasons. “In fact, when it comes to consumer fraud class actions, individual differences are to be expected.”

The class members here were exposed to the same misrepresentations, and their claims were essentially the same: they were duped into believing they were purchasing ground coffee, and they would not have purchased GSC (or paid as much as they did) had they known it was actually instant coffee. 

 

Likewise, though different named plaintiffs identified different parts of the packaging as deceptive, they were adequate, especially given record evidence showed that “hundreds, if not thousands, of other consumers held the same mistaken belief and were equally disappointed upon learning the true nature of the product.”  It didn’t matter whether some were misled solely by affirmative misrepresentations and images versus material omissions versus a combination of the above.  “[A]ll of their claims stand or fall on the issue of whether a reasonable consumer was likely to be misled by the overall packaging, not any one particular attribute or omission.”  And they all suffered the same injury: overpaying or buying a product they wouldn’t have bought if they’d known the truth.  Any differences wouldn’t create misaligned incentives among class members and the class representatives, which is the concern behind the adequacy requirement.

 

Under Rule 23(b)(3), damages must be susceptible of measurement across the entire class, which requires “a single or common method that can be used to measure and quantify the damages of each class member.” A full refund would be justified if the product was worthless to its purchasers.  Sturm argued that GSC wasn’t completely worthless because it provided convenience, hydration, and caffeine, and cited four cases rejecting full refunds in cases involving deceptive food/beverage packaging. But two were unpublished, one had minimal analysis, and one explicitly distinguished Sturm. 

 

The court shares my reaction: “if there was ever a case where [a full refund] theory was appropriate, this may be it,” given the extensive evidence of but-for causation.  Only consumers who owned a Keurig machine, or were buying for an owner, would buy GSC, and “there is plenty of evidence showing that, when it came to coffee, Keurig machine owners wanted to brew only premium, fresh, ground coffee.” Further, Sturm was fully aware of Keurig machine owners’ preferences and “went to great lengths to disguise the fact that GSC was not premium, fresh, ground coffee,” with the result that hundreds of consumers complained.  There was on the other side “absolutely no evidence that some consumers may have still purchased GSC had they known GSC was instant coffee,” or that some consumers did know the truth but still bought it.  A finder of fact could conclude that the product was worthless to its consumers.

 

Plus, if a full refund wasn’t appropriate, damages could still be calculated by subtracting the actual value of GSC, which could be calculated from the price per cup of equivalent instant coffee.

 

Predominance: liability for deception was particularly appropriate for class-wide resolution, because all of the applicable consumer protection statutes required proof that Sturm’s statement was “likely to mislead a reasonable consumer.”  The necessary proof, survey evidence and expert testimony, was common to all class members, and was costly enough to make multiple individual lawsuits duplicative and wasteful, though of course they wouldn’t even happen.

 

Proximate causation and reliance might require individualized proof, but these were much simpler issues than liability, and the necessary information was more accessible to individual litigants, who knew their own mental states, than the information needed to prove liability. Thus, plaintiffs showed predominance and superiority.

 

The class was ascertainable by reference to objective criteria: in-store purchasers of GSC defrauded by packaging during a specific period in particular states.  The Seventh Circuit has explicitly rejected a heightened (receipt-based) ascertainability requirement as inconsistent with the purpose of class actions. Nor was the class overbroad because some consumers might not have been deceived; there’s a difference between class members who could not have been harmed and those who were not harmed.  Though Sturm modified the package to change it from saying “soluble and microground” to “instant and microground” during the class period, Sturm didn’t show how many purchasers of the modified packaging existed, and plaintiffs in any event provided evidence that this change didn’t prevent deception and that complaints continued. As far as the court could tell, the modified package kept all the other allegedly deceptive features, and in any event, the basic problem—that the K-cup form misrepresented the true nature of the product—remained the same.

 

Alabama, Tennessee, and South Carolina consumer protection statutes allow only individual actions, but Shady Grove Orthopedic Assoc., P.A. v. Allstate Ins. Co., 559 U.S. 393 (2010), held that a nearly identical New York rule shouldn’t be applied in federal court, because Rule 23 controlled and didn’t alter substantive rights.  Although the Supreme Court was divided 4-1-4, it clearly held that the New York rule didn’t apply in federal court, and Sturm identified no legal differences between the New York provision and the state provisions at issue here.

 

Seriously, guys: get out the checkbook and start writing.

estimated retail value claim isn't puffery

Kabbash v. Jewelry Channel, Inc. USA, 2015 WL 6690236 (C.D. Cal. Nov. 2, 2015)

 

Holding of most general interest: “Estimated retail value” statements and statements of discount or savings amounts at check-out where the discount calculations were based on that estimated retail value were not puffery, because they were specific and quantifiable.  The phrase “estimated retail value” “can reasonably be read to imply that the figure is at least measurably based on a list retail price that is presumed to be suggested by the manufacturer and capable of verification,” reinforced by a checkout notice such as, “You saved $130.00 today!” with the dollar figure in bold type.”  Defendant argued that the estimated retail value was merely an opinion—an estimate (opinion) of value (also opinion).  That ignored the meaning of “retail” in the phrase—individually, those terms could be puffery, but “estimated retail value” “is anchored in fact by a quantifiable retail price.”  The FTC and securities cases have also agreed that misrepresentations of costs can be misleading and are too specific to be puffery.

 

The court also, contrary to a number of district courts in the Ninth Circuit, found that the named plaintiffs could seek injunctive relief on behalf of a class, given the purpose of California’s consumer protection laws.  “Because some members of the class do not have the same knowledge as Plaintiffs now do, there is a likelihood of repeat injury for the class as a whole, and on the basis of ‘class standing,’ the claims may proceed.”

Transformative work of the day, Star Wars (not extended) edition

Galactic History, or Galactic Folk Tale?, by Max Gladstone/Doctor Flox Beelthrak & Djane Lel (PS: Fantasy fans, check out Gladstone's Craft series, where magic works like law, in that magicians are litigators and contract drafters, and loopholes can do you great good or evil.)

Cert petition in right of publicity case

I joined this brief in support of cert in EA v. Davis, as Jennifer Rothman reports.

Every Single Word, spoken no longer due to abusive copyright claim

Dylan Marron's "Every Single Word Spoken by a Person of Color in [X]" series, where X is a mainstream film, is a powerful indictment of popular culture.  Too powerful for Warner Brothers when it came to Gone With the Wind, apparently, as this notice indicates--and it's not a DMCA claim, either; Google went along with it.

When does "no contract" mean "mandatory arbitration contract"?

Barraza v. Cricket Wireless LLC, 2015 WL 6689396, No. C 15-02471 (N.D. Cal. Nov. 3, 2015)

 

Cricket advertised a “No Contract” wireless phone plan with an arbitration clause in its purported contract terms.  As Omri Ben-Shahar pointed out, advertising “No Contract” has some risks in terms of … contract formation.  Here, Cricket still gets a chance to prove that there was a contract, but it can’t force these false advertising plaintiffs immediately to arbitration.

 

Until May 2014, Cricket advertised “No Contract” wireless service, then switched to “No Annual Contract.” Plaintiffs bought wireless service and accompanying phones at Cricket-owned stores; employees opened the boxes and activated the phones. One panel on those boxes  included a paragraph that discussed signal frequency and battery performance, and also said: “Use of phone requires purchase of Cricket® service, which must be purchased separately. By activating Cricket® service, you agree to the enclosed terms and conditions of the service.”  The terms and conditions were in in a 3x4 inch booklet titled “Quick Start Guide.”

 

The first page of the Quick Start Guide described Cricket as “the home of no contract, no hassle wireless,” and did not mention that the booklet contained terms and conditions for the use of Cricket’s service. Pages 6-15 had “numerous terms and conditions written in a smaller font than the rest of the contents of the booklet.”  These included (in much smaller font than here displayed):

 

IMPORTANT: WHEN YOU START SERVICE OR USE THE SERVICE … YOU INDICATE YOUR ACCEPTANCE OF THIS AGREEMENT. IN ADDITION, EACH TIME YOU PAY FOR SERVICE FROM US, YOU CONFIRM YOUR ACCEPTANCE OF THIS AGREEMENT. IF YOU DO NOT WANT TO ACCEPT THIS AGREEMENT, DO NOT START SERVICE OR USE THE SERVICE AND RETURN YOUR WIRELESS DEVICE...FOR A REFUND

 

The Quick Start Guide also included an arbitration provision and class-action waiver:

 

YOU AND WE ARE WAIVING RIGHTS TO PARTICIPATE IN CLASS ACTIONS …

 

Cricket also required its employees to hand any customer purchasing a new phone Cricket’s “Half Is More” promotional pamphlet (or to have it stapled to the receipt), which stated, “Terms, conditions and other restrictions apply” to Cricket’s services, written in five-point font.  Cricket made yet another handbook called “My Cricket Guide” available within its stores, which also said in five-point font that “Your Agreement … includes terms of your service plan  …. Carefully read all the Cricket Terms and Conditions of Service which include, among other things, a MANDATORY ARBITRATION of disputes provision.”  The named plaintiffs averred that they saw the “Half as More” pamphlet and “My Cricket Guide” handbook on display, but that they weren’t given those materials and never reviewed them.

 

One of the plaintiffs also purchased a Cricket PAYGo card in 2013 at a gas station in order to reload the balance on her account. That card read, “By using your Cricket service or phone, or by increasing your account balance, you acknowledge your consent to the current Cricket Terms and Conditions of Service.” Cricket also argued that she went to a store to change her service;  the back of Cricket’s printed receipts in the store included a reference to the terms and conditions, including that the terms and conditions included an “agreement to dispute resolution by binding individual arbitration instead of jury trials or class actions.”

 

The FAA governs the enforcement of the arbitration provisions. The “existence of a contract as a whole must be determined by the court prior to ordering arbitration.” Although a party generally cannot avoid the terms of a contract because she failed to read it, that rule does not apply “when the writing does not appear to be a contract and the terms are not called to the attention of the recipient.”  Here, “the Quick Start Guide lacked any indication of its contractual nature.” Thus, its inclusion in the box was insufficient to place plaintiffs on inquiry notice of the terms and conditions.  By opening the boxes before giving them to plaintiffs, Cricket’s employees “obviated the need for plaintiffs to review the Quick Start Guide and signaled that it was unimportant to review the text on the box before activating the service.”

 

Cricket argued that plaintiffs had 60 days to opt out of the arbitration provisions and that numerous consumers exercised that option, but that didn’t matter if plaintiffs never agreed to be bound by the provisions in the first place. “An employee of a telephone service provider or an attorney may be attuned to the possibility that an arbitration agreement would be buried in a document titled ‘Quick Start Guide,’ while a reasonable consumer is unaware of that possibility.”  Nor did plaintiffs have reason to consult the other materials in the store, or to read the inconspicuous references to terms and conditions on the back of a PAYGo card or an in-store receipt.

 

The court did, however, reject plaintiffs’ argument that equitable estoppel applied based on the “No Contract” ads.  It is “[a]n essential element of equitable estoppel is that the party to be estopped...‘intended by [its] conduct to induce reliance by the other party, or acted so as to cause the other party reasonably to believe reliance was intended.’ ”  Even if plaintiffs relied on the “No Contract” ads to buy wireless service, “they have failed to demonstrate that Cricket acted with the intention or expectation that Cricket intended such reliance.”  “No Contract” claims are meant to distinguish services with annual commitments to those without such commitments; there was no evidence that Cricket intended to get consumers to assent to arbitration instead of to convey that more limited message. Nonetheless, at the upcoming summary trial to determine whether a contract was actually formed (and to assess the credibility of named plaintiffs’ claims that they didn’t review the materials), the “No Contract” ads could be taken into account in determining the reasonable expectations of the parties.

In which I read the proceedings of the 2009 Fordham IP conference

Intellectual Property Law &; Policy, Vol. 12, ed. Hugh Hansen: Proceedings from a 2009 conference by a high-protectionist, with occasional interventions from people who don’t believe that more IP is always better. Confirms my belief that it’s a bad idea to make predictions; five years later they may be very embarrassing. The AP predicted that it would be out of the news business soon if new protections for it weren’t enacted. A Paramount VP told us that “no one is going to be making a special-effects film or a film with famous talent for a YouTube market where there is little or no revenue.” Time Warner’s representative told us that, as the internet matured, people were going to stop making their own mashups or “blogs” and instead just “Twitter” and comment on favorite scenes from a movie; users were more interested in consuming works and interacting with each other than in “expending the effort and the energy needed to interact with a work creatively in a very deep way.” (Your condescension is returned with interest, Time Warner!) Best of all, I learned that ACTAwas a done deal and that, once enforcement was taken care of, IP was going to fade away from business and political discussions. “And who can be against enforcement? It is a question of logic.”

I also learned that the reason that the term “three strikes” was abandoned for copyright infringement notices from ISPs, in favor of “graduated response,” was that people outside the US “do not understand that ‘three strikes and you’re out’ refers to baseball and not violence.” Other things I had not thought of: copying levies on equipment, imposed in many countries outside the US, have trouble dealing with the fact that now one consumer may have multiple copies—on her phone, her laptop, her car, etc.—but the economic effect/value of those copies is not really different than the single copy she would’ve had many years ago. Also, other intermediaries in the value chain oppose making the levies transparent to consumers, because they believe, not without reason, that a consumer who understands that she’s already paid a fee for copying music when she buys an empty hard drive will not want to pay again for a music service.

  Separately, when IP’s proponents argue that developing countries should strengthen IP laws so that there’ll be improved tech transfer, that’s actually a pretty colonialist treatment, in that they don’t suggest that increased IP rights would lead to increased innovation from within the country. Peter Yu also made some excellent points about China—piracy rates in the US and other high-income countries are 20-40% for software; they’ve had strong IP rights for decades, so is it really more distressing that China has an 80% piracy rate? Meanwhile, the high-protectionists claimed that there’s so much piracy in developing nations that there was no need for exceptions and limitations to copyright, only for more robust rights. Jamie Love responded quite well, pointing out that if there’s a lot of outright copying there’s not much need for exceptions and limitations; only if there’s enforcement do the needs for exceptions and limitations become clear. Jessica Litman has eloquently made a related point: it’s kind of strange to think that you can expand copyright law to vast new fields while not expanding the limitations that were always part of copyright law, as if a child were growing up while its eyes and nose remained the same size.

Only connect: security company enjoined from false association with ADT

ADT, LLC v. Capital Connect, Inc., 2015 WL 6549277, No. 3:15-CV-2252 (N.D. Tex. Oct. 28, 2015)

 

ADT provides electronic security services and equipment to nearly one quarter of those American homes that are equipped with alarm systems. It sued Capital Connect, four other alarm-service sale companies, and five individual alarm-service sales persons, alleging that they sell alarm systems in unannounced door-to-door sales visits, during which the defendants “confuse the homeowners into believing that the defendants are somehow affiliated with ADT.”

 

Capital Connect claims to use independent contractors to sell its services in 10 states.  It’s a dealer for one of ADT’s rival security monitoring service companies, Monitronics International.  Its sales force allegedly misled “ADT’s customers into believing that [Capital Connect] represent[s] ADT, or that ADT has exited the market, or that ADT’s installed equipment is outdated and in need of an ‘upgrade.’ ” ADT’s litigation manager indicated that the number of customer complaints about these practices nearly tripled in 2015, from 42 complaints during the same period in 2014 to 112 complaints this year. ADT claimed “50 reports of false sales pitches occurring in May 2015 alone ... plus another 41 for the first three weeks of June 2015.”  ADT argued that this rapid escalation, and the risk that Capital Connect would hire college students for the summer, evidenced the need for a preliminary injunction. Though summer is over, the court found that ADT presented enough evidence of continuing use of illegal sales tactics to warrant a preliminary injunction.

 

Customer declarations recounted a variety of ADT-related sales tactics, including claims that ADT has gone out of business; claims that Capital Connect had acquired ADT; claims that Capital Connect was a contractor for ADT; claims that Capital Connect was affiliated with ADT in some manner, such as being the manufacturer that made the equipment that ADT installed; claims that ADT had left the local market; claims that ADT’s equipment was susceptible to malfunction, or tampering; claims that the Capital Connect sales associate was at the home to “upgrade” or “update” its alarm system; claims that ADT customers would not be able to reach 911 in case of an emergency; and claims that the sales associates were sent by ADT to check or replace ADT equipment.  [Interesting that the disparagement is mixed in with the association claims; not something you’d expect side by side.]

 

Capital Connect argued that it had adopted several measures to govern its sales force.  Its training manual warned sales associates of the harm a single damaging story on the local news covering its sales tactics could do to the company.  In fact, there had been several TV stories in local markets about Capital Connect’s sales tactics.

 

Capital Connect also required its sales force to agree to its “Code of Conduct, Sales Rules, and Sales Ethics Agreement,” and dressed its sales force in Capital Connect labeled polo shirts, with photo identification cards labeling the sales associate as a representative from Capital Connect. “Sales Rules” prohibited the sales associates from engaging in inappropriate sales tactics, including a prohibition against “tell[ing] a potential customer that has an existing system with monitoring services that their existing alarm company (1) has been bought out/merged with Capital Connect, (2) is no longer monitoring their system, (3) has sent you to their home to upgrade their alarm ....” In addition, Capital Connect requires new customers who had a pre-existing alarm service agreement with a different monitoring service to sign an “Alarm Upgrade Agreement,” which expressly disclaims any connection between Capital Connect and the current alarm monitoring company. Finally, Capital Connect made quality assurance calls, during which a Capital Connect representative asked the customer if he/she understood that Capital Connect was not affiliated with ADT and that the customer had the responsibility to cancel his/her current contract with ADT.

 

Nonetheless, ADT’s customers continued to report the prohibited behavior, including 70 complaints to ADT in June and 57 complaints in July, equaling 269 complaints in 2015.  (Although ADT cited studies to support its claim that complaints represented only a fraction of the time the tactics were used, since under 5% of consumers take the time to complain, the court didn’t rely on those studies to support its grant of a preliminary injunction.

 

The court extensively discussed the sufficiency of declaration evidence on a motion for preliminary injunction without a hearing; otherwise inadmissible evidence may be considered for a preliminary injunction.  Most of the declarants’ out-of-court statements weren’t hearsay in that they were offered to show customers’ state of mind, or to show that Capital Connect sales associates made the statements claimed: a verbal act.  

 

Capital Connect attacked the credibility of some of ADT’s declarants through transcripts of recorded quality assurance calls. Ten of them had recorded quality assurance calls and signed Alarm Upgrade Agreements in which they denied any confusion about whether Capital Connect is affiliated with ADT by initialing next to the line in the contract. Two customer declarants also corrected the typed declaration with hand-written notes.  However, Capital Connect didn’t deny that its sales force (1) claimed to have been affiliated with ADT, (2) misrepresented the quality of ADT’s equipment to gain favor of the customers, (3) claimed that Capital Connect has bought out or taken over ADT, (4) stated that Capital Connect has purchased the customer’s account from ADT, (5) misrepresented that ADT have either gone out of business or left the local market, or (6) made other misrepresentations or false statements. Although Capital Connect disputed certain facts and raised credibility issues regarding roughly thirteen of ADT’s declarants, it didn’t present evidence contradicting allegations central to the merits of the motion for preliminary injunction and it failed to attack the credibility of ADT’s remaining 55 declarants. It could have offered declarations from its sales associates to dispute the statements reported by ADT’s declarants, so it failed to present a factual dispute.

 

The court didn’t extensively analyze all the parts of the multifactor confusion test because, for purposes of a preliminary injunction, ADT adequately offered sufficient evidence of actual confusion, which can be shown by anecdotal instances.  Capital Connect argued that ADT has not reported nearly enough instances of confusion given the size of the market. But the court was satisfied by the 55 declarations, four local news reports, and an employee affidavit regarding 269 complaints processed in 2015.  The news reports were hearsay, but could be considered on a motion for preliminary injunction, and the reports were also admissible to “show public perceptions” of Capital Connect’s conduct.

 

In any event, very little evidence is required to show actual confusion. This was more than a fleeting mix-up.  The affidavits, even disregarding the ones for which Capital Connect offered allegedly conflicting transcripts of phone calls with the same customer, showed “actual confusion about what entity the sales associate at the door represented, with what entity the sales associate was affiliated, how the sales associate came to arrive at the door, and the purpose for which he/she was at the door.”

 

Capital Connect also argued that the confused customers in the declarations weren’t reasonably prudent purchasers, given Capital Connect’s measures to prevent confusion such as requiring its sales force to wear Capital Connect gear.  But where there is an “explicit representation of a relationship” between the violator and the claimant, a customer is more likely to be confused, and only a few declarants claimed that the Capital Connect’s sales associate actually pretended to be an ADT agent. Thus, different gear wasn’t enough to avoid affiliation confusion.

 

Capiral Connect argued that it used disclaimers in its agreement and a follow up telephone call disclosing that it was not affiliated in any way with ADT. ADT, in response, argued initial interest confusion.  Some scholars (hi!) have argued that Lexmark should end IIC as a doctrine because IIC does not represent proximate cause. “See, e.g., Deborah R. Gerhardt, Lexmark and the Death of Initial Interest Confusion, 7 Landslide 22, 27 (2014); Jennifer E. Rothman, Initial Interest Confusion: Standing at the Crossroads of Trademark Law, 27 Cardozo L. Rev. 105, 189–91 (2005).”  But despite Professor Gerhardt’s prediction, no court has applied Lexmark to IIC or “unfair competition claims generally.”  Lexmark’s statement comes

 

from a section of the opinion in which the Supreme Court holds that the proximate causation principle from common law torts applies to a Section 43(a) claim, thus narrowing the class of third parties who can claim to have been injured by a Lanham Act violation. It does not directly relate to the issue before the court here. 

 

[Actually, it does: ADT is a “third party” relative to Capital Connect’s representations to potential customers.  That doesn’t mean there’s no proximate causation!  But it does mean  that Lexmark should be considered (as does the plain language of Lexmark, which interpreted the language of the purpose clause of the Lanham Act and §43(a), not the language of §43(a)(1)(B)).]

 

IIC still appears to be a valid theory in the Fifth Circuit after Lexmark, but the court didn’t rest its likely success finding on IIC. Instead, ADT presented sufficient evidence that Capital Connect’s false sales pitches actually confused customers into thinking there was some affiliation with ADT or that ADT’s equipment was faulty.

 

Capital Connect argued that it wasn’t liable for the unauthorized conduct of its independent contractors.  ADT argued that principal-agent liability applied, and the court agreed, even if the sales force was classifed as independent contractors.  Capital Connect exerted sufficient control over the sales force to make them agents: it required its sales force to wear Capital Connect gear; to complete training; to sign a Code of Conduct; to wear a Capital Connect badge; and to obey its sales rules, all on pain of punishment.  Anything that occured during the sales pitch of the sales associate was clearly within the scope of the agency, as it was the central purpose of the principal-agency relationship.

 

ADT further alleged that Capital Connect misled consumers by falsely associating itself with ADT through the use of the terms “upgrade” and “update.” In Stokely–Van Camp, Inc. v. Coca–Cola Company, 646 F.Supp.2d 510 (S.D.N.Y.2009), a district judge in the Southern District of New York held that Powerade’s use of the phrase “Upgrade your formula. Upgrade your Game” on its labels was not “literally false” or “false by necessary implication” because reasonable consumers could interpret the phrase to compare Powerade to Gatorade, or could compare this new Powerade drink to older Powerade drinks. But context is key to misleadingness.  Here, the sales associates referred to the security alarm system already installed, implying a relationship with ADT.  Anyway, the declarations of dozens of customers saying they were confused by the use of the terms “upgrade” and “update,” plus four news reports citing the misleading statements, showed actual deception by these ambiguous terms.

 

Irreparable harm: Along with eBay and Winter, Lexmark arguably supports the argument that there should be no presumption of irreparable injury in Lanham Act cases, as it says that a plaintiff couldn’t obtain relief “without evidence of injury proximately caused by Lexmark’s alleged misrepresentations.”  It’s not clear whether the Fifth Circuit still recognizes the presumption, and it still won’t be, because the court here didn’t rely on a presumption. 

 

Instead, the court found irreparable harm because the evidence showed that the sales reps were continuing to cast aspersions on ADT and misrepresent Capital Connect’s relationship with ADT.  As long as that was true, “ADT has lost control of its brand.” And “if one trademark user cannot control the quality of the unauthorized user’s goods and services, he can suffer irreparable harm.” [Here’s where the magic happens!  “Can” suffer becomes “likely” to suffer—except that it’s not.]   ADT’s inability to control its reputation meant that it was suffering irreparable harm without an injunction, since harm to brand reputation and goodwill “is impossible to calculate.” Capital Connect “unfairly exploited” ADT’s “time, effort, and expense exerted to create and define its brand.”  [Again, how Capital Connect’s benefit is ADT’s loss is not clear.]

 

Moreover, money damages were inadequate because  Capital Connect was disparaging ADT’s brand and was continuing to use ADT’s reputation and good will to mislead ADT’s customers into buying Capital Connect’s services; this sort of damage is difficult to quantify.

 

Capital Connect argued that harm wasn’t imminent because ADT’s customer declarations dated from 2013.  But Capital Connect continued to use the challenged tactics, and ADT’s delay wasn’t too great given that it was investigating in good faith before, and that the number of complaints spiked in 2015.  Nor did Capital Connect’s safeguards preclude a finding of irreparable harm, because of the evidence that its sales reps were continuing their misrepresentations.

 

Capital Connect argued that its lawful interests would be harmed by an injunction, but the injunction would only prevent illegal unfair competition. “[P]reventing one’s agents from breaking federal law is not impossible to monitor and accepting that argument would be against public policy.”  Plus, the court narrowed the scope of the injunction from ADT’s requests.

 

As for the scope of the injunction, the Fifth Circuit said that a “competitive business once convicted of unfair competition ... should thereafter be required to keep a safe distance away from the margin line even if that requirement involves a handicap as compared with those who have not disqualified themselves.”  Capital Connect was enjoined from suggesting endorsement by, sponsorship by, or affiliation with ADT.  However, the court didn’t enjoin the use of the word “outdated,” “because preventing a competitor from discussing the age of equipment unduly restrains Capital Connect’s speech in its sales pitches.” 

 

Nor would Capital Connect’s reps be required to use a script.  “Requiring Capital Connect’s sales force to pursue sales like a robot, regurgitating a court ordered script imposes too much restraint on Capital Connect. Capital Connect’s sales force may refer to themselves as representatives of an alarm company or a security company.”  The court also refused to specify the clothing Capital Connect reps must wear. Instead, it expected Capital Connect to enforce, and ensure compliance with, its company policies and code of conduct, “which the record shows it has not sufficiently accomplished thus far.”