Forthcoming article: Michael A. Carrier & Rebecca Tushnet, An Antitrust Framework for False Advertising

Michael A. Carrier & Rebecca Tushnet, An Antitrust Framework for False Advertising, Iowa Law Review, Forthcoming

Abstract:

Federal law presumes that false advertising harms competition. Federal law also presumes that false advertising is harmless or even helpful to competition. Contradiction is not unknown to the law, of course. This contradiction, though, is acute. For not only are both regimes at issue designed to protect competition, but they are both enforced by the same agency: the Federal Trade Commission, which targets “unfair competition” through antitrust and consumer protection enforcement. Courts’ treatment of false advertising in antitrust cases makes no sense. While courts have reasonably evidenced concern that not all false advertising violates antitrust law, the remedy is not to abandon the false advertising/antitrust interface. Instead, the solution is to focus on the actors most likely to harm the market: monopolists and attempted monopolists. This Essay proposes an antitrust framework for false advertising claims. It introduces a presumption that monopolists engaging in false advertising violate antitrust law and a rebuttal if the false advertising is ineffective. The framework also applies to attempted monopolization by incorporating factors such as falsity, materiality, and harm inherent in false advertising law, along with competition-centered issues like targeting new market entrants. Antitrust has dismissed false advertising that entrenches monopoly power for too long. This Essay seeks to resolve the contradiction in the law by showing how false advertising threatens the proper functioning of markets. Such an approach promises benefits for false advertising law, antitrust law, and consumers.

circumventing insurance can violate consumer protection law

Franks v Sykes, No. W2018-00654-SC-R11-CV, 2020 WL 2097544, -- S.W.3d --- (Tenn. May 1, 2020)

I usually try to stick to advertising-related UDAP claims but this practice was just so astonishingly awful that I could not resist.  Plaintiffs were injured in car accidents and received hospital treatment. Instead of billing plaintiffs’ insurance companies for the negotiated rates, the hospitals instead filed liens against the plaintiffs’ claims for damages for the “full amount” (scare quotes because of how badly medical billing works in this country). The Kentucky Supreme Court held that its state consumer protection law applied to health care providers when they are acting in their business capacities, although it doesn’t apply to treatment (which is not a “consumer transaction”).

Rule: “[W]hen a plaintiff alleges an injury caused by a health care provider’s business practices—including, but not limited to, deceptive practices in advertising, billing, or collections—the plaintiff may state a claim under the Act. When a plaintiff asserts a claim that an injury is caused by a health care provider’s professional conduct, such as a deviation from the applicable standard of medical care, then the Act does not apply because that claim would be based on medical negligence under the Tennessee Health Care Liability Act.”

Reading List: Greg Klass on false advertising law as private law

Gregory Klass, FalseAdvertising Law and New Private Law, Forthcoming as: False Advertising Law, in Oxford Handbook of New Private Law (Andrew Gold et al. eds., Oxford Univ. Pr.) 

One might reasonably wonder why a chapter on false advertising law appears in a volume on private law theory. In the United States false advertising law lives in statutes and regulations; it is enforced by federal agencies and state attorneys general; and its rules can seem designed more to promote consumer welfare and market efficiency than to enforce interpersonal obligations or compensate for wrongful losses. If one views the divide between public and private law as a fixed border between independent regions, false advertising law appears to fall in the domain of public law.This chapter’s working hypothesis is that that picture is a false one.Although it can be helpful to distinguish private from public law, the line between them is not so sharp. Laws that fall on the private side of the divide can be designed in light of purposes and principles commonly associated with public law, and vice versa. U.S. false advertising law provides an example.Despite the fact that it is commonly classified as public law, one can find in it structures, functions, and values commonly associated with private law. The structural features include horizontal duties, transfer remedies, private enforcement, and judge-made rules. These features are partly remnants of earlier private law causes of action. But as legislators and courts adapted those old actions to the new phenomenon of mass consumer marketing, they imposed on advertisers new types of obligations. Those obligations suggest, to use Henry Smith’s term, an emergent ethics of false advertising. Although it differs from its common law ancestors, false advertising law can be understood within the private law framework.False advertising law is unusual in that it imposes on advertisers one duty owed to two distinct categories of persons. The duty not to engage in deceptive advertising is owed both to consumers, who might be deceived by an advertisement, and to honest competitors, who might lose sales as a result of consumer deception.The content of the duty differs from false advertising law’s common law ancestors. With respect to consumers, common law duties not to lie or negligently make false statements are replaced by the responsibility not to cause consumers to hold false beliefs. Inquiries into meaning and truth thus give way to questions about cause and effect. With respect to competitors, common law duties not to defame are replaced by a duty to adhere to commonly recognized rules of the marketplace. The wrong of calumny is supplanted by the wrong of cheating. Like other areas of private law, there are ethical aspects to these legal obligations. But they differ from those of false advertising law’s common law ancestors.This chapter argues also that although an advertiser’s duties can be understood in private law terms, advertising’s one-to-many structure poses practical challenges to traditional private law mechanisms and the values sometimes associated with them. Despite the fact that U.S. false advertising law includes backward-looking consumer remedies, the small sums at stake, the difficulty of proving causation and individual loss, and the costs of distributing awards make it difficult to fully compensate consumer victims. For some of the same reasons, consumers often do not exercise their power to sue false advertisers. Finally, although the relevant statutes are drafted to invite judges to develop something like a common law of false advertising, courts of general jurisdiction are ill-equipped to make many of the factual determinations false advertising law requires.Part One provides a brief introduction to U.S. false advertising law and identifies several structural features associated with the private law. Part Two analyzes false advertising law’s consumer-oriented duties. Part Three discusses an advertiser’s duties to its competitors. Part Four examines practical impediments to consumer lawsuits, consumer oriented remedies, and adjudicative resolution of false advertising claims. These impediments suggest often unnoticed factual predicates of the traditional private law framework. 

9th Circuit panel divides on evidence of injury in false advertising case

VBS Distribution, Inc. v. Nutrivita Laboratories, Inc., --- Fed.Appx. ----, 2020 WL 2086557, No. 18-56317 (9th Cir. Apr. 30, 2020)

The parties compete in the market for nutritional supplements and television programs. VBS sued for Lanham Act and California state unfair competition law violations, as well as other claims, and the district court granted summary judgment to defendants on everything. The court of appeals affirmed on false advertising over a dissent, affirmed on trade dress claims, and reversed and remanded on trade secret/related claims.

One of the big post-Lexmark questions was: while Lexmark made clear that disparagement was actionable, would the standard it articulated for harm make it harder for non-dominant firms to challenge competitors’ false, but nondisparaging, claims about themselves?  The answer, I think, is yes, it’s somewhat harder.

The district court granted summary judgment on VBS’s false advertising claim because it found “no evidence [that VBS] suffered any economic or reputational injury” from defendants’ claim that their supplement was “100% natural herbal” (translated). It was not enough to submit a declaration from the CEO stating “These false Advertisements have deprived us from being able to fairly compete in the marketplace, and have diverted sales away from us. When customers see the two similar products they will be persuaded by the content on the packaging, such as the false claims made in the Advertisements. The false claims cause consumers to believe their product is superior to ours, and that causes consumers to purchase their product over ours.” It was a “conclusory, self-serving affidavit, lacking detailed facts and any supporting evidence, … insufficient to create a genuine issue of material fact.” Moreover, the CEO’s declaration wasn’t specific to the “100% natural herbal” statement, but referred collectively to various allegedly false statements, most of which were no longer at issue.  This wasn’t the kind of evidence required (citing cases involving testimony from consumer survey and economics expert, or evidence of a wholesale distributor switching products). “The dissent’s contrary approach would enable every Lanham Act plaintiff to survive summary judgment, which is not correct.”

Trade dress: the district court found that VBS didn’t show that its claimed trade dress (a TV show format) was nonfunctional. The court of appeals affirmed.

Trade secret: reversed, because there were disputed issues of fact as to whether VBS took reasonable measures to ensure the secrecy of its customer lists. Although VBS admitted that it shared the identity of its customers with its vendors, “[p]roviding alleged trade secrets to third parties does not undermine a trade-secret claim, so long as the information was ‘provided on an understanding of confidentiality.’” And VBS’s CEO testified that he orally conveyed VBS’s confidentiality policy to vendors; one vendor’s declaration confirmed this even absent a provision in their written agreement. Also: “Multiple declarations from VBS employees confirmed that VBS’s customer lists are stored on computers that are password-protected,” VBS required its employees to sign confidentiality agreements, and its employment agreements with one of the appellees obligated her to keep VBS’s “customer lists” confidential.  Reversed for further proceedings, along with VBS’s breach of fiduciary duty and civil conspiracy claims.

Judge Bybee partially dissented on the false advertising claim: The plaintiff’s burden on injury at the summary judgment stage is “quite lenient,” given that “an inability to show actual damages does not alone preclude a recovery under” the Lanham Act. Damages may be awarded “even without a showing of actual consumer confusion” as long as there is evidence tending to show that the false advertisement “likely” caused injury. VBS’s “sparse” evidence should have been sufficient to survive summary judgment. The dissent pointed out that the parties seem to be competing for the same subpopulation.  “VBS’s evidence shows that, where JN-7 Best is sold, Arthro-7 is sometimes the only competing product and is displayed alongside JN-7 Best on the same shelf.”  VBS also provided evidence of falsity and materiality to the target population (Vietnamese individuals who “value vegetarianism”), as well as evidence that the falsity appeared in multiple ads, including a well-circulated Vietnamese newspaper, making it “reasonably likely that the false statement induced some consumers to purchase Arthro-7 rather than JN-7 Best.” 

This case was distinguishable from cases where there wasn’t “any” evidence of injury.  “At trial, VBS may well lose if it is unable to provide anything stronger. But at this stage of the proceedings, we are not permitted to ‘weigh the evidence.’” The dissent’s approach wouldn’t let every plaintiff survive summary judgment—there has to be a material issue on all the elements of a Lanham Act claim, including falsity/misleadingness and materiality. “Although our precedents have applied a more lenient standard to the element of injury, no such leniency has been applied to the other four elements. Thus, my approach is relevant only when, as here, the plaintiff has already demonstrated a genuine dispute as to those other elements.”

TM may look like a certification mark, but that doesn't harm a competing trade organization

North American Olive Oil Ass’n v. D’avolio Inc., 16-CV-6986 (SJF) (ARL), 2020 WL 2079421 (E.D.N.Y. Apr. 30, 2020)

NAOOA, a trade association for olive oil marketers/sellers/etc., sued a number of defendants for false advertising about olive oil sold by others. The court dismisses the complaint without leave to amend.

NAOOA members pledge to abide by olive oil quality and purity standards established by the International Olive Council, and NAOOA “offers a Certified Quality Seal Program to indicate compliance with global trade standards.” Its members account for approximately 55-60% of total olive oil sales in the United States.

Defendant VFC produces olive oil and uses the “Ultra Premium” designation, a category created by VFC which purportedly represents the highest quality olive oil in the world. VFC’s website claims that the UP standard “is reserved for the finest extra virgin olive oils in the world, and as such, the UP grade exceeds all existing [standards] for the grade known as extra virgin olive oil.” VFC registered the UP mark and the word mark “UP ULTRA PREMIUM EXTRA VIRGIN OLIVE OIL CERTIFIED LAB TESTED SENSORY EVALUATED HIGHEST STANDARD” (not as certification marks). NAOOA alleged that defendants disparaged its members’ olive oil and NAOOA’s own reputation, and that its UP grade was deceptive.

VFC’s website states that “[o]ver 50% of the oil produced in the Mediterranean area is of such poor quality that it must be refined to produce an edible product.” D’Avolio allegedly “distorts findings of an alleged industry report to represent to consumers that various brands sold in supermarkets hold no health benefits,” referencing a study undertaken by the University of California at Davis in 2010 and stating that the study examined “numerous supermarket brands” and found that 70% “failed to qualify chemically as Extra Virgin Olive Oil and was so old ... to hold no health benefit. This study not only demonstrated that extra virgin olive oil is a term that is often misused, but also that the organic certification process does not take in to account quality, authenticity, or health benefits.” Defendant O Live Brooklyn’s owner gave an interview in which he stated that “if you’re buying olive oil from a supermarket, it might not be real olive oil, or it might be old,” in which case it has “lost all of the goodness and freshness in it.” He also advised readers to “avoid major brands. Those bottles have been sitting around on shelves for God knows how long.” Defendant The Crushed Olive’s website states that “[t]he market has become flooded with these oils that are regulated by absurdly low standards and fostered by numerous trade associations that sacrifice quality for price.” NAOOA is allegedly widely recognized as the leading olive oil trade association in North America.”

As for the UP designation, NAOOA alleged that defendants market their olive oils to mislead consumers “into falsely believing that the recognized benefits of olive oil can only be achieved by consuming olive oil” meeting the UP standard and certification, but consumers are unaware that the UP mark cannot be displayed on the product of other olive oil producers even if they meet or exceed UP standards because it’s a trademark.  This allegedly falsely leads consumers to believe that the olive oil was certified, sponsored, or approved by a third party.

NAOOA had standing to sue on its own behalf, but not on behalf of its members. Thus, the court focused on harms to NAOOA itself.

First, the complaint didn’t sufficiently allege joint liability in an organized campaign to penetrate the olive oil market.  Merely selling VFC-produced olive oils bearing the UP mark wasn’t sufficient to tie the retailer defendants together; the complaint didn’t allege they sold only VFC-produced olive oil, and it alleged “only minimal, stray conduct by the Defendants individually.”

Considering the different statements on their own, there was no plausible theory that a statement about the nature, quality, and characteristics of supermarket olive oils had “any bearing on NAOOA itself.” Anyway, statements like “[o]ver 50% of the oil produced in the Mediterranean area is of such poor quality that it must be refined to produce an edible product” and “...if you’re buying olive oil from a supermarket, it might not be real olive oil, or it might be old. In this case, it’s lost all of the goodness and freshness in it” had not been alleged to be false with non-conclusory facts. “NAOOA does not suggest that olive oil is immune from diminution of quality over time,” so it was illogical to think that the statement about old olive oil was literally false. Nor did defendants’ use of the UC Davis report qualify as successfully pled falsity.  NAOOA contended that the report was “widely discredited,” but cases discussing the report merely pointed out the limitations imposed on a consumer relying on it as the basis for a suit related to the purchase of items produced by one of the brands discussed in the study, given its small sample size, ties to one geographic region, and time elapsed since the study.  Regardless, the complaint didn’t explain how any of the statements related to any goods or services of NAOOA’s.

Also, most of the statements were puffery: “vague and lacking in precise meaning.” “[A]bsurdly low standards,” “might not be real olive oil, or it might be old,” and over 50% of olive oil from the Mediterranean is of “such poor quality” and requires refining to “produce an edible product” were all puffery: “generalized or exaggerated statements which a reasonable consumer would not interpret as a factual claim upon which he could rely.” The court doesn’t explain why “real” and “over 50%” don’t indicate the existence of standards by which the claims could be evaluated (even if ordinary consumers don’t have the ability to do so).

There were no allegations that the retail defendants used the UP mark or helped create it. Selling products with the UP mark wasn’t enough. And the complaint failed to plausibly allege that VFC’s use of the UP mark affected NAOOA by causing consumers to believe that NAOOA wasn’t reputable or reliable.

The UP mark includes the language “Highest Standard” and “Certified*Lab Tested*Sensory Evaluated.” NAOOA argued that “certification” was misleading because “there is no third party that certifies the quality of the olive oils that bear the UP designation.” But there was no caselaw indicating that the mere use of “certified” was misleading, and NAOOA didn’t allege that VFC’s products didn’t meet its own standards or that the standards were themselves fraudulent. “In the absence of allegations regarding the certification process itself as applied to VFC’s products, the actual identity of the tester is not material to the quality and characteristics of the product. In other words, NAOOA has not plausibly alleged that the mere omission of the identity of the tester alone is likely to influence the purchasing decision of a consumer.”  [I suspect many consumers would find independent certification far more valuable than self-certification; there is some litigation over things like the “Green Check” mark for household cleaning products in this vein, and the FTC might also not be super happy with this practice.]

As a separate theory, NAOOA alleged that VFC marketed olive oil with the UP mark to “mislead consumers into falsely believing that the recognized health benefits of olive oil can only be achieved by consuming olive oil bearing” the UP mark, but there were no specific factual allegations supporting this theory. VFC’s website said that “[t]he UP standards is reserved for the finest extra virgin olive oils in the world, as such, the UP grade exceeds all existing [standards] for the grade known as extra virgin olive oil. In order to qualify for the UP grade, the extra virgin olive oil must meet or exceed a comprehensive set of Production, Storage, transportation, Testing, Chemistry, and Organoleptic requirements [created by VFC].” But that wasn’t enough for NAOOA’s theory of falsity.

The court also dismissed NAOOA’s claim for cancellation of the registration.  Rejecting its argument that it falsely presented itself as a certification mark, the court ruled that the UP mark didn’t misrepresent the source of the goods. I wonder if this theory would have gone better at the TTAB in a cancellation petition; the court doesn’t seem particularly attentive to what the differences are supposed to be/why certification marks are not supposed to discriminate in terms of who can use them as long as their standards are met.

Coordinate state law claims also failed.

Seventh Circuit mostly ends corn syrup war: Coors can't bar AB from touting "ingredients"

Molson Coors Beverage Co. USA v. Anheuser-Busch Cos., Nos. 19-2200, 19-2713, 19-2782, 19-3097 & 19-3116 (7th Cir. May 1, 2020)

I think of the Second Circuit as usually the most formalist Lanham Act court (you have to say the magic words when it comes to the likelihood of confusion test, for example), while the Seventh Circuit is the most formless: it reaches the result it thinks correct as a matter of common sense in any given case, while giving the absolute minimum in the way of principles or rules. Honestly, this case may do better than average in rule-giving, at least because of the way the court characterized the facts (noticeably, without describing any of the relevant ads or the way that AB framed corn syrup as similar to high-fructose corn syrup): Because both parties agree that AB’s beer is made using corn syrup, even if no corn syrup is in the final beverage, Coors is allowed to advertise that fact.  This is a version of reading misleadingness out of the test for false advertising, which the Seventh Circuit often (but not always!) does.

The district court split the baby, allowing AB to advertise that Bud Light is made using rice while Coors’s products are made using corn syrup, but not to use ads that cause consumers to think that Coors contains corn syrup. The court of appeals simply rejected the idea that the true statement “their beer is made using corn syrup and ours isn’t” could falsly imply that “their beer contains corn syrup.”  Coors identifies corn syrup as an “ingredient” in its beer. Coors pointed out that “ingredients” isn’t the same thing as “contains”: there’s no alcohol on that ingredient list. “Yet common usage equates a product’s ingredients with its constituents—indeed, some of Molson Coors’s own managers testified that a beer ‘contains’ what’s on the ingredients list.” Anyway, AB didn’t use the word “contain,” even if some consumers “doubtless” inferred that corn syrup was in the beer. Coors’s own statements would yield the same inference. [The Seventh Circuit is, as always, very confident about what consumers would think, no matter what evidence of consumer reaction is present or absent.  Given error costs in litigation, this approach is not without its merits, but in cases like this it lacks the epistemological humility that might better protect the consumers we have.]

“By choosing a word such as ‘ingredients’ with multiple potential meanings, Molson Coors brought this problem on itself. It is enough for us to hold that it is not ‘false or misleading’ (§1125(a)(1)) for a seller to say or imply, of a business rival, something that the rival says about itself.”

Judgment affirmed to the extent that an injunction was denied, reversed to the extent that it was granted. Remanded (perhaps to see whether the terrible dilution claim, now the only issue in the case, can proceed).

Reasonable restaurant consumers wouldn't think "krab mix" had real crab in it

Kang v. P.F. Chang’s China Bistro, Inc., No. CV 19-02252 PA (SPx), 2020 WL 2027596 (C.D. Cal. Jan. 9, 2020)

Kang alleged that P.F. Chang’s “employed a classic bait and switch tactic whereby it falsely labeled and advertised food products containing crab on their menu, when in fact, no crab meat was present in the product” by selling “food items containing ‘krab mix’ on their menu, including but not limited to [Defendant’s] Kung Pao Dragon Roll, Shrimp Tempura Roll, and/or California Roll.” He brought the usual California claims and a couple of others. The court dismissed all the claims.

Without representative plaintiffs from other states, Kang had no Article III standing to bring claims based on alleged violations of consumer fraud and deceptive trade practices laws of states other than California.

As for the California claims, this one could be resolved on a motion to dismiss. Reasonable consumers would not interpret “krab mix” to contain actual crab meat; it didn’t need to be labeled “imitation crab” or otherwise explained. (Citing McKinnis v. Kellog USA, 07-cv-02611, 2007 WL 4766060, at *4 (C.D. Cal. Sept. 19, 2007) (granting motion to dismiss without leave to amend on plaintiff’s UCL, FAL, and CLRA claims, finding no reasonable consumer would be misled by the word “Froot” in “Froot Loops” into believing the product contained “Fruit”); Pelayo v. Nestle USA, Inc., 989 F. Supp. 2d 973, 979 (C.D. Cal. 2013) (granting motion to dismiss on plaintiffs’ CLRA and UCL claims finding no reasonable consumer would be misled by the use of the words “All Natural” on a pasta product’s package into believing the product contained only natural ingredients, where pasta contained two artificial ingredients).)  In addition, “a reasonable consumer understands that cheaper sushi rolls, such as a California Roll, contain imitation as opposed to real crab.”  (Citing Werbel v. Pepsico, Inc., 2010 WL 2673860, at * (N.D. Cal. July 2, 2010) (holding, as a matter of law, that no reasonable consumer would be led to believe that “Cap’n Crunch’s Crunch Berries” cereal contained real fruit berries despite the use of the word berries in the product).)

Additionally, other dishes on P.F. Chang’s menu are labeled “crab,” where they contain actual crab. A reasonable consumer would recognize the contrast.

Common sense can't show materiality for damages purposes in Fifth Circuit

Illinois Tool Works, Inc. v. Rust-Oleum Corporation, --- F.3d ----, No. 19-20210, 2020 WL 1808871 (5th Cir. Apr. 9, 2020)

The Fifth Circuit continues on its crusade to prevent false advertising disgorgement from being awarded. [I guess it has worse crusades.]

The parties compete in the market for windshield water-repellant. ITW alleged that RO’s ad made three false claims: (1) that RO’s RainBrella lasts over 100 car washes, (2) that RainBrella lasts twice as long as the leading competitor (who everyone admits is ITW’s Rain-X), and (3) the so-called And Remember claim: “And remember, RainBrella lasts twice as long as Rain-X. We ran it through 100 car washes to prove it.” A jury agreed, finding that the 100-car-washes claim was misleading and that the other two claims were false. It awarded ITW over $1.3 million—$392,406 of Rust-Oleum’s profits and $925,617 for corrective advertising—but the district court reduced the corrective-advertising award.

“Disgorgement of profits is appropriate only if it is equitable and the defendant’s profits are attributable to the Lanham Act violation.” This requires “evidence that the defendant benefitted from the alleged false advertising.” The court of appeals concluded that ITW failed to present sufficient evidence of attribution. There was no evidence that even a single consumer purchased RainBrella because of the false advertising.  It was not enough to have (1) testimony about how important the advertising claims were to Rust-Oleum, (2) evidence that tens of thousands of people saw the commercial, and (3) evidence of head to head competition in stores.

RO’s own opinion that the ads were important or would prove profitable was a mere “truism.”  [Why isn’t it a truism because we can expect their self-interest to induce them to be right? At least their expectations for the ad could be circumstantial evidence of its effectiveness.] But that opinion couldn’t substitute for evidence that the advertising actually worked.  The disgorgement award was vacated.

So was the corrective advertising award. “Lanham Act awards are compensatory, not punitive.” Though the court didn’t categorically reject prospective corrective advertising awards, ITW offered no evidence that it needed or deserved one. It didn’t argue that it had a plan for such advertising, what it would be, “offer a ballpark figure of what it might cost, or provide even a rough methodology for the jury to estimate the cost. Damages need not be proven with exacting precision, but they cannot be based on pure speculation.” The jury couldn’t reasonably have based such an award only on how much RO spent on its own advertising, but that was all it had to go on. Indeed, there wasn’t even evidence that Rain-X’s injured reputation needed help, given that it was the undisputed market leader, “and there was no evidence that Rust-Oleum was even remotely successful in its attempt to dethrone the king.” Here, a corrective advertising award would be a windfall. [I guess sometimes, if you go after the king, best to miss.]

With the damages award vacated, the only remaining issue was RO’s argument that the evidence was insufficient to find it liable for the 100-car-washes claim, and again RO prevailed. ITW didn’t present evidence that the deception was material.

Again, the court of appeals was unwilling to rely on common sense: (1) the claim misrepresented how long RainBrella lasts, which is an inherent quality or characteristic of RainBrella; and (2) the claim was important to Rust-Oleum’s marketing strategy. The Fifth Circuit doesn’t think there are inherent qualities or characteristics, as it already established in its Pizza Hut case. “If misleading claims about something as vital to pizza as its ingredients were not necessarily material, a misleading claim about how long a windshield water-repellant treatment lasts was not, either. Moreover, though Illinois Tool Works asserts that consumers want to know how long these products last, it does not substantiate this assertion with evidence.”

Nor did the prominence of the claim in RO’s marketing show materiality. Not in the Fifth Circuit! The court doesn’t explain why prominence isn’t at least circumstantial evidence of importance to consumers, just says that the cases about prominence aren’t Fifth Circuit cases. I guess in the Fifth Circuit you could get an executive up on the stand to testify that the central characteristic of your product matters to consumers … but maybe even that wouldn’t be relevant evidence in the Fifth Circuit, since it’s already said that executives’ beliefs in materiality aren’t evidence of materiality.

And the fact that a consumer was surprised that RainBrella was so ineffective didn’t show materiality, either—that was just one consumer, and there was no evidence that he bought the product because he expected it to last 100 washes.

11th Circuit protects (at least some) truthful references to product creation

Webster v. Dean Guitars, --- F.3d ----, 2020 WL 1887783, No. 19-10013 (11th Cir. Apr. 16, 2020)

Buddy Webster (pka Buddy Blaze), a successful guitar maker and technician, in the mid-1980s modified a Dean guitar and commissioned someone to paint a lightning storm graphic on it; he gave the guitar to Darrell Abbott, late guitarist of the heavy-metal band Pantera. Abbott called the guitar “The Dean from Hell” (DFH). In 2004, Abbott entered an endorsement-type contract with Dean, but he died shortly thereafter. Since 2004, Dean has produced and sold guitar models based on Abbott’s guitar and featuring the lightning storm graphic, without Webster’s consent and without paying him royalties for the use of the design. In 2017, Webster sued Dean and others for copyright infringement, unfair competition, and false endorsement. The court of appeals affirmed the district court’s grant of summary judgment to Dean et al.

 

Dean from Hell

Dean's DFH

Copyright infringement: this was fundamentally a claim over ownership, not general infringement, and thus it didn’t have general infringement’s rolling accrual. Webster first learned about the sales of the reissued guitar in December 2004, and learned of a cheaper, imported version called the Cowboy from Hell in 2006. In 2006, he emailed then CEO of Dean, Elliot Rubinson, and told him that Dean could not sell the reissues without his permission, but Dean did not stop selling the guitars. In 2007, Webster complained again, and Rubinson responded:

I have taken some time and spoken to several “people in the know” and the consensus concerning [the lightning storm graphic] is that [Abbott’s] estate is the legal owner of it. With that said, I still would like to work with you on [an Abbott] project because I am not about making enemies but keeping friends…. Rita and I have plans to do a relic [DFH] and would like you involved for a royalty. Is that of interest?

Webster testified that, in a subsequent phone call, Rubinson suggested that he sue Abbott’s estate if he was still upset.  Despite the lack of royalties for the DFH, Webster worked with Dean in 2009 to create and sell his own signature guitar model—the “Buddy Blaze ML.” He also willingly appeared in multiple interviews in 2008 and 2009 discussing his role in the history of the original DFH; Dean posted some of them to its YouTube channel. In one, he stands in front of the original DFH recounting its history. In another, he appears in an interview alongside Rubinson “promoting the Buddy Blaze ML, speaking about the history of the original DFH, and comparing his Buddy Blaze ML model with the DFH.” The third is similar; there’s no mention of the reissues.

From 2009 to 2015, Dean released several other versions of the DFH, the “Rust from Hell,” the “Black Bolt,” and the “Limited USA Dean from Hell.” In 2016, Webster retained counsel and obtained a copyright registration in the lightning storm graphic.

The court of appeals agreed with the district court that ownership was the gravamen of the claim here, and Webster had reason to know that his alleged ownership rights were being violated as early as 2004, when he first learned that Dean was producing DFH reissues. Even if that weren’t enough, Rubinson’s email in 2007 stating that “the consensus concerning [the lightning storm graphic] is that [Abbott’s] estate is the legal owner of it” “was certainly sufficient.” His claim therefore accrued in April 2007 at the latest, and the three-year limitation period expired long before he brought his copyright claim in 2017.

Lanham Act/unfair competition claims: the district court reasoned that there was no evidence that Dean used a false or misleading statement to sell the DFH reissues. Dean just posted Webster’s own statements in the video interviews (which he said he wasn’t harmed by), and there were no statements that Webster endorsed, sponsored, or derived income from the DFH reissues. One person stated in a declaration that he attended a NAMM show and “heard Dean representatives using Buddy’s name when selling guitars like the one that Buddy Blaze re-built for [Abbott],” but there was nothing untrue or misleading about that.  [Note: Dastar would be an easy way to get here.]

Webster argued that, in context, the interviews were likely to cause confusion “because, after viewing the videos on Dean’s website and reading Dean’s advertising copy for the DFH reissues, a reasonable person would assume that Webster was working with Dean on the reissues.” Webster relied on statements by Dean advertising the DFH reissues as similar to “the one that Buddy Blaze painted” and featuring the “iconic, [DFH] lightning bolt paint job.”  The court of determined that these statements were not false or misleading. The videos were Webster discussing his undisputed involvement in the creation of the DFH, and none stated that Webster was promoting or selling the DFH reissues. “The statements in these videos do not become misleading, nor do they imply that he endorses or benefits from the sale of the DFH reissues, simply because they appear near Dean’s advertisements of DFH reissues.”

False endorsement: Webster argued that his presence in Dean’s promotional materials and videos “was ‘inescapably interpreted’ by the audience of guitar-enthusiasts [as] an endorsement.” The court of appeals applied the multifactor LOC test, but found that since the claims were based on videos in which Webster “appeared to willingly promote his legacy as creator of the DFH,” only “(6) the intent of the alleged infringer to misappropriate the proprietor’s good will; and (7) the existence and extent of actual confusion in the consuming public” were relevant.  The court doesn’t explain why it discounts the other factors, but presumably it means that things like similarity of marks and similarity of goods point in the wrong direction from common sense where there is truthful, useful information that the seller should be able to convey—similar to the justification for nominative fair use. Still not clear to me why it’s these two factors that should bear the weight, but I guess that’s what you get if you don’t have nominative fair use.

The court of appeals rejected Webster’s implicit argument that, “given his notoriety in the guitar-enthusiast world, the mention of his name near or in relation to the DFH reissues must have caused consumers to mistakenly believe that he endorsed the sale of the reissues.”  Instead, confusion is not simply to be assumed “when a mark is used in the proximity of advertising for a product, especially when a legitimate use of that mark is clear from the context.”  There was “little or no evidence” of intent to misappropriate his goodwill: these were just his own interviews, “several years after he became aware of the DFH reissues, willingly discussing the history of the DFH to promote his legacy and sell his own guitars. He does not mention the DFH reissues in the interviews.” [Would it be intent to misappropriate if someone else truthfully discussed his history? This is a variant of the question of distinguishing use from misappropriation.] And there was no evidence of consumer confusion. Affirmed.

reasonable consumers wouldn't think Dunkin Donuts Angus Steak was intact piece of meat

Chen v. Dunkin’ Brands, Inc., No. 18-3087-cv, --- F.3d ----, 2020 WL 1522826 (2d Cir. Mar. 31, 2020)

Plaintiffs sued Dunkin for deceptively marketing the Angus Steak & Egg Breakfast Sandwich and the Angus Steak & Egg Wake-Up Wrap, alleging that Dunkin deceived consumers into believing that the Products contained an “intact” piece of meat when the products actually contained a ground beef patty with multiple additives. There wasn’t jurisdiction over the out of state plaintiffs’ claims, and no reasonable consumer would have been fooled under GBL §§ 349 and 350.

All three challenged ads “conclude with multiple zoomed-in images that clearly depict the ‘steak’ in the Products as a beef patty.” And “steak” doesn’t always mean a slice of meat;  it is also defined as “ground beef prepared for cooking or for serving in the manner of a steak” by the Merriam-Webster Online Dictionary, as in chopped steak, hamburger steak, and Salisbury steak.  In the context—the sandwiches cost less than $4 and less than $2 respectively, and they’re marketed as grab-and-go products that can be consumed in hand, without the need for a fork and knife—a reasonable consumer would not be misled into thinking she was purchasing an “unadulterated piece of meat.”

1201 claim to control device features survives

Philips North America, LLC v. v. Summit Imaging Inc., 2020 WL 1515624, No. C19-1745JLR (W.D. Wash. Mar. 30, 2020)

But I was told that after Lexmark and Chamberlain, manufacturers weren’t using §1201 claims to control devices!

The parties compete to sell ultrasound imaging devices for hospitals and medical centers; Philips sells related ultrasound hardwre devices. Philips’ Ultrasound Systems are driven by one of two software platforms that Philips developed and owns: (1) Philips Voyager Platform and (2) Philips Common Platform. Each PUS has features/tools that are only enabled by license, and Philips aleges it uses “multiple layers of technological controls to protect” their copyrighted works from unauthorized access, and that the software and access control systems are trade secrets and that those systems contain other trade secret information.

Summit allegedly hacks into Philips’ software and alters the Ultrasound Systems in order to enable features or options for which Philips’ customers have not paid Philips, and trains Summits customers on how to circumvent Philips’ access controls. Summit allegedly advertises that its Adepto tool is a “legal solution” or a “legal alternative” to working with Philips in order to enable additional features and options.

Defendants moved to dismiss DMCA §§1201 and 1202 claims, Defend Trade Secrets Act claims, Uniform Trade Secrets Act claims, false advertising claims, Consumer Protection Act claims, and contributory copyright infringement claims.

Philips adequately pled that its Ultrasound Systems are protected by “a technological measure that effectively controls access to a work” under §§ 1201(a)(1) and (a)(2): (1) user-specific codes; (2) user-specific hardware keys; (3) machine-specific codes and hardware keys; (4) software files with licensed features and optional add-on controls; (5) machine-specific configuration files that control compatibility between the systems and software and/or the systems and replacement parts; and (6) software disabling if a user attempts to make use of an unlicensed feature. And Philips sufficiently alleged circumvention of those access controls: defendants allegedly remove the hard drive from the Ultrasound Systems and run their Adepto program on the hard drive, which changes configuration files and software files in order to enable unlicensed options on the hard drive, and force compatibility with otherwise incompatible transducer parts.

§1202, modifying CMI: Not plausibly alleged. The only CMI identified with any specificity in the complaint is “the terms and conditions of the use of the software,” which allegedly resides on “machine readable configuration files.” But Philips didn’t plead facts explaining how defendants falsify, remove, or alter Philips’ terms and conditions. Motion to dismiss granted with leave to amend.

DTSA and UTSA causes of action also survived.

False advertising (including state Consumer Protection Act): To the extent that the claim was based on statements about the legality of defendants’ services, these were inactionable statements of opinion because the statements “purport to interpret the meaning of a statute or regulation.” And, though there is a “well-established exception” to the bar against false advertising claims based on opinion statements for an opinion statement “by a speaker who lacks a good faith belief in the truth of the statement,” Philips failed to adequately plead that defendants lacked a good faith belief in the truth of their statements.  Again: leave to amend.

Contributory copyright infringement: adequately alleged because the Adepto tool allegedly created copies of Philips’ software and log files [are the log files copyrightable? Are they copyrightable by Philips? Seems unlikely].

Humvees in Call of Duty are constitutionally protected realism, not confusing/diluting

AM General LLC v. Activision Blizzard, Inc., No. 17 Civ. 8644 (GBD) (S.D.N.Y. Mar. 31, 2020)

The district court allows Humvees to appear in realistic videogames by performing a full confusion analysis, despite purporting to follow Rogers v. Grimaldi.

The Humvee has become “an iconic and a ubiquitous symbol of the modern American military.” AMC has granted licenses to use the Humvee trademark “on or in connection with a wide variety of products,” including toys and at least four video games. Humvees have also appeared in “a wide variety of other media, including Hollywood blockbusters, … television series, … and Academy Award-winning dramas,” as well as in video games. 

Call of Duty is a popular, realistic military video game. Humvees are depicted in nine Call of Duty games, sometimes in the background or mentioned; players sometimes ride in a Humvee for several minutes during a scene or level and they can occasionally “assum[e] control of the (Humvee],” including by firing a turret-mounted machine gun. Humvees are also shown in several trailers for the games and in Call of Duty-brand d strategy guides. Activision also licensed a toy company to manufacture Call of Duty-branded construction sets, two of which include toy vehicles that allegedly bear the distinctive elements of the Humvee’s trade dress.          

An instruction manual for Call of Duty 4: Modern Warfare included the following language:

All title, ownership rights and intellectual property rights in and to this Program (including but not limited to any patches and updates) and any and all copies thereof (including but not limited to any titles, computer code, themes, objects, characters, character names, stories, dialog, catch phrases, locations, concepts, artwork, animation, sounds, musical compositions, audio-visual effects, methods of operation, moral rights, any related documentation, and “applets” incorporation into this Program) are owned by Activision, affiliates of Activision or Activision’s licensors.

Similar language occurs in other manuals for other iterations. Activision also received a letter in 1998 complaining about the use of Humvees in the video game Sin, which is unaffiliated with the Call of Duty franchise; Activision supposedly “agreed to remove [Humvee] vehicles from the video game Sin.”

Infringement: Rogers is the test for uses in artistic works generally, not just for titles. But then the court cites a title-v-title case for the proposition that a First Amendment-sensitive analysis must be done using the Polaroid factors, which is not the rule in the Second Circuit when the plaintiff doesn’t own rights in the title of an expressive work.  Rogers prong two is meaningless if it’s just likely confusion all over again, but the court cited Twin Peaks Prods., Inc. v. Publ’ns lnt’l, Ltd., 996 F.2d 1366, 1379 (2d Cir. 1993) (title v. title) and DeClemente v. Columbia Pictures Indus., Inc., 860 F. Supp. 30, 51 (E.D.N.Y. 1994) (which indeed also completely misread Rogers as just something to think about when you’re doing the multifactor confusion analysis, which is kind of amazing if you’ve read Rogers, which among other things rejects a consumer survey and evidence of confusion by sophisticated marketers).

By contrasting a non-title trademark case (the Hangover case with Louis Vuitton) with a title-v-title case (The Book of Virtues v. The Children’s Audiobook of Virtues), the court concludes that “an artistically relevant use will outweigh a moderate risk of confusion where the contested user offers a ‘persuasive explanation’ that the use was an ‘integral element’ of an artistic expression rather than a willful attempt to garnish the trademark owner’s goodwill for profit.”  At least the court is clear that the Humvees don’t need to be “metaphysically” required for the game; an integral element is one that “communicate[s] ideas—and even social messages,” either “through many familiar literary devices (such as characters, dialogue, plot, and music)” or “through features distinctive to the medium (such as the player’s interaction with the virtual world).”

Of course there was artistic relevance. “Featuring actual vehicles used by military operations around the world in video games about simulated modern warfare surely evokes a sense of realism and lifelikeness to the player who ‘assumes control of a military soldier and fights against a computer­ controlled or human-controlled opponent across a variety of computer-generated battlefields.’”

Proceeding to the Polaroid factors, the court found that the use wasn’t explicitly misleading because it wasn’t confusing. [sigh] It even quoted Rogers: “no amount of evidence showing only consumer confusion can satisfy the ‘explicitly misleading’ prong of the Rogers test because such evidence goes only to the ‘impact of the use’ on a consumer.” And then it did the multifactor confusion test anyway.

Unsurprisingly, some distortions appeared in the multifactor test: the court said that the marks weren’t very similar because the purpose of the uses were different. “Plaintiff s purpose in using its mark is to sell vehicles to militaries, while Defendants’ purpose is to create realistically simulating modern warfare video games for purchase by consumers.” AMC’s licensing practices were “sporadic and marginal” and thus didn’t show market overlap. And anyway, First Amendment considerations required the court to give minimal weight to bridging the gap.

AMC’s survey allegedly “found that 16% of consumers shown actual video game play from Activision’s games were confused as to AM General’s association with Call of Duty.” That wasn’t enough, given Rogers.

Bad faith: the 1998 letter couldn’t show bad faith, because Activision didn’t respond to it; silence wasn’t probative of Activision’s agreement about rights in the Humvee.  Nor were a handful of statements by Activision employees, the use of Humvees decorated with Call of Duty logos at several in-person promotional events, or the statements in user guides evidence of an intent to confuse:

For instance, the user guide statements do not affirmatively tell consumers that Activision either owns or licenses the Humvee IP. All that reasonably may be said is that a paragraph in miniscule type buried in a user guide—a paragraph which does not allude to, let alone mention, Humvees at all—does not “tell consumers” much of anything. Indeed, such back-end boilerplate provides no basis for “confusion between the two companies’ products.”

Sophistication: The Hangover court noted that “moviegoers are sophisticated enough to know that the mere presence of a brand name in a film, especially one that is briefly and intermittently shown, does not indicate that the brand sponsored the movie.” Here, “[t]here is no reason to believe that video game players are any less astute.”

Trade dress claims: Same thing, “[g]iven the improbability of confusion between a vehicle and a video game—or, in the case of the contested toys, between a plastic figurine and a full-blown military machine.”

Unfair competition/false designation of origin. Same thing. “The only thing remotely close to a ‘false designation’ is the legalese buried inside several games’ user guides,” which wasn’t enough.

Lanham Act false advertising: There were no literally or impliedly false statements.  NY false advertising: same. Also, AMC didn’t show injury.

Federal and NY dilution: NY dilution is “essentially the same” as federal dilution, and without evidence of the quality of Activision’s games, AMC failed to show tarnishing or blurring. If any dilution did occur, it would be “tolerated in the interest of maintaining broad opportunities for expression.” [Also in the interest of obeying the federal statute’s requirements and exemptions, but here I won’t quibble.]

Rogers continues to collapse into transformativeness in the Ninth Circuit: dog toy edition

VIP Products LLC v. Jack Daniel’s Properties, Inc., No. 18-16012 (9th Cir. Mar. 21, 2020)

VIP Products sells the “Bad Spaniels Silly Squeaker” dog toy, which resembles a bottle of Jack Daniel’s Old No. 7 Black Label Tennessee Whiskey, but has light-hearted, dog-related alterations. For example, the name “Jack Daniel’s” is replaced with “Bad Spaniels,” “Old No. 7” with “Old No. 2,” and alcohol content descriptions with “43% POO BY VOL.” and “100% SMELLY.”

Jack Daniel’s sued for trademark infringement and dilution, and the district court enjoined the toy. The court of appeals found that the trade dress was nonfunctional and distinctive, but the dog toy was an expressive work entitled to First Amendment protection, so the district court decision was reversed and remanded for Rogers treatment.

VIP’s purported goal in creating Silly Squeakers was to “reflect” “on the humanization of the dog in our lives,” and to comment on “corporations [that] take themselves very seriously.” While the Jack Daniel’s label says, “Old No. 7 Brand Tennessee Sour Mash Whiskey;” the label on the Bad Spaniels toy instead has the phrase “the Old No. 2, on your Tennessee Carpet.” A tag states that the “product is not affiliated with Jack Daniel Distillery.”

The nominative fair use defense failed because VIP didn’t use the mark itself, but rather a changed version with “significant differences.” E.S.S. Entm’t 2000, Inc. v. Rock Star Videos, Inc., 547 F.3d 1095, 1099 (9th Cir. 2008).

However, Rogers v. Grimaldi applied. Like greeting cards, “the Bad Spaniels dog toy, although surely not the equivalent of the Mona Lisa, is an expressive work.” It used “word play to alter the serious phrase that appears on a Jack Daniel’s bottle— ‘Old No. 7 Brand’— with a silly message— ‘The Old No. 2.’” In an attempt to distinguish the old Dr. Seuss case, the court says that book made “no effort to create a transformative work with ‘new expression, meaning, or message,’” while Bad Spaniels “comments humorously on precisely those elements that Jack Daniels seeks to enforce here.” [Note how Rogers is slowly collapsing into transformativeness in the Ninth Circuit—continuing Gordon v. Drape Creative.]

Vacated and remanded for Rogers analysis; although the district court is supposed to consider both prongs, it’s hard to see how it could find a lack of artistic relevance, and even after Gordon, the finding of transformativeness (and the fact that Jack Daniel’s doesn’t make parody dog toys) seems to dictate the result on explicit misleadingness.

Dilution: this is “noncommercial” speech—it does more than propose a commercial transaction—so there can be no dilution by tarnishment. The court phrases it in a weird way: “Although VIP used JDPI’s trade dress and bottle design to sell Bad Spaniels, they were also used to convey a humorous message.” Of course plenty of ads convey a humorous message; the issue here is that the dog toy is the product being sold, as opposed to being an ad for a separate product. That’s what makes it noncommercial speech, not the fact that it was humorous.

I guess it’s a better opinion than that in the Hummer/Activision case, which also reaches the right result with grimace-worthy reasoning?

lawsuit against supplement for implying arthritis claims not preempted

Yamagata v. Reckitt Benckiser LLC, 2020 WL 1505724, No. 17-cv-03529-VC (N.D. Cal. Mar. 30, 2020)

A very clear opinion. Yamagata challenged RB’s advertising for joint supplements under California and NY law. As the court explained: “If the boxes are best understood as making assertions about the ability of the supplements to alleviate the symptoms of arthritis, those assertions violate federal law, and the state law claims attacking them are not preempted. If the boxes are best understood as not making assertions relating to arthritis, those assertions are authorized by federal law, and the state law claims are preempted.” The court found that the former was the case.

The court had certified two classes—one of California buyers and one of New York buyers. RB moved for summary judgment, arguing (1) preemption, (2) its products work as advertised, and (3) the plaintiffs’ full refund theory had to fail because the supplements were not worthless.

Preemption: “The key constraint, for the purposes of this litigation, is a [federal] ban on statements implying that the supplement mitigates, treats, prevents, or cures a specific disease or class of diseases. Some of the assertions on the Move Free Advanced labels do just that, and so they are not protected by the preemption provision.” Generally, federal law allows supplements to make structure/function statements [the court helpfully notes that these are called “claims” by the regs but that’s confusing in this context], but not statements implying that the supplement can “diagnose, mitigate, treat, cure, or prevent a specific disease or class of diseases.”

First, is this a jury issue? It’s partly a factual question insofar as it depends on what the label statements mean, but the court determined that preemption is nonetheless a question of law and so it would be decided by the court, even if that required resolving factual disputes.  See Merck Sharp & Dohme Corp. v. Albrecht, 139 S. Ct. 1668 (2019) (“a judge, not the jury, must decide the preemption question,” and  “courts may have to resolve subsidiary factual disputes that are part and parcel of the broader [preemption] question”).

The FDA says that the key factor distinguishing a structure/function statement from an implied disease statement is “whether the labeling suggests that the product will produce a change in the characteristic signs or symptoms of a specific disease or class of diseases.” The regs then list a series of ten criteria (one with five subparts) relevant to that determination, and then provides examples of statements that would fall on either side of the line: A statement that a supplement “reduces joint pain,” for example, is off limits; a statement that it “helps support cartilage and joint function” is not. The reason is that joint pain is a characteristic symptom of arthritis, so statements about relieving joint pain impliedly claim to mitigate the disease of arthritis. As the court noted, “That may seem like a stretch, and it may even seem that the specific reference to cartilage and joint function draws a closer link to arthritis than does the broader ‘joint pain.’ But the idea that the FDA’s dictates may conflict with intuitions only confirms that this preemption determination, while fact-based, depends ultimately on application of the law.”

front and back

sides

Applying this framework, the accused labels implied that the supplement can mitigate, treat, or prevent arthritis. First, “supports joint comfort” was dangerously close to a statement that a supplement “reduces joint pain;” it’s hard to articulate a meaningful difference between the two. And a statement that is a structure/function statement in isolation “can improperly imply an effect on a disease if other parts of the label associate the supplement with a disease.” Relevant context includes the product name, any pictures or symbols, citations to journal articles, and statements about the formulation of the product, if printed on the label.  Here, the ads contained “elements closely associated with arthritis,” most prominently the Arthritis Foundation logo, accompanied by the following statement: “Move Free™ is a Proud Sponsor of the Arthritis Foundation®: Move Free™ is proud to support the Arthritis Foundation’s efforts to help people take control of arthritis.” Even though the “support” was clearly financial, “the logo and statement nonetheless draw an explicit link between the supplement and arthritis,” which was relevant to the meaning of the other statements on the label.

The court also pointed to the citation to a journal article in the “Journal of Aging and Research,” along with the choice to highlight glucosamine and chondroitin on the front of the box. Osteoarthritis is “nearly universal...by age 80,” so a citation to an aging journal on a joint supplement label was suggestive of arthritis, and industry marketing research finds that about half of arthritis sufferers view “glucosamine &/or chondroitin” as “the most effective arthritis treatment.” For the same reason as “supports joint comfort” was an implied disease statement, the statement that the product “supports 5 signs of joint health: mobility, flexibility, strength, lubrication, and comfort” was also an implied disease statement.

The court highlighted that it was not determining falsity; it was determining whether the claims were technically structure/function statements or implied disease statements solely for purposes of preemption.  RB was not constrained in its ability to argue about whether the labels implied, under state law, that the supplement would mitigate arthritis.

Falsity/misleadingness: RB relied on the purported benefits of calcium fructoborate alone, and not on the effects of glucosamine or chondroitin, but there was a triable issue of fact: RB had some evidence based on randomized control trials that calcium fructoborate can benefit joints, while the plaintiff’s expert called the methodology and reliability of those studies into question and another cultured pig cartilage in various concentrations of calcium fructoborate and found no positive effect. A jury could go either way.

Full refund theory: RB argued that even if the supplements do not help joints, they are not worthless because some of the ingredients can provide benefits unrelated to joint health. “But people purchase joint supplements for the advertised joint health benefits. … If the plaintiffs received none of the advertised joint health benefits, they are entitled to a full refund.”

T-Mobile is plausibly liable for acts of explicitly authorized dealers

City of New York v. T-Mobile USA, Inc., 2020 WL 1498522, No. 451540/2019 (Sup. Ct. N.Y. Mar. 23, 2020)

The City of New York and the New York City Department of Consumer Affairs (DCA) sued T-Mobile, its subsidiary MetroPCS New York, and 42 dealers, alleging violations of the Consumer Protection Law and regulations. The court refused to dismiss the action against T-Mobile and MetroPCS.

T-Mobile allegedly deceptively targeted lower income consumers under its “lower-priced prepaid (no contract) wireless brand” Metro by T-Mobile, formerly known as MetroPCS. The allegedly deceptive practices included “selling used phones as though they were new”; “deceiving consumers about financing”; “overcharging consumers”; “providing defective receipts”; “failing to provide a receipt”; and “making deceptive representations about the Metro by T-Mobile refund policy.” (NYC rules provide that receipts must be offered for any consumer purchase over $20, and must be provided on request for $5-20 purchases.)

T-Mobile argued that it couldn’t be held liable for the alleged unlawful conduct by independent dealers because T-Mobile has no contract with those dealers giving them actual authority to act on behalf of T-Mobile, and the facts didn’t support a theory of apparent authority. DCA sought to hold T-Mobile liable for two types of deception: (1) its “30-Day Guarantee” was, in fact, only a limited 7-day return policy with several conditions; and (2) the “Virtual Chat Assistant” on the T-Mobile website (which was obviously T-Mobile’s responsibility) failed to fully and correctly disclose the return policy. First, DCA sufficiently alleged that T-Mobile was liable for deceptive acts by the Corporate Stores run directly by T-Mobile’s subsidiary MetroPCS because those stores create the impression of agency based on the relationship between the parties. And at a minimum, the pleadings created a factual question whether T-Mobile is liable under the apparent authority doctrine for the conduct of the dealers who were labeled “authorized” not only in their signs but on the website and via conduct in the stores.

DCA also alleged deception by MetroPCS in its stores: selling used phones as if new; financing terms that double the cost of the phone; overcharges via improper taxes and activation payments; failure to provide receipts; and defective receipts. MetroPCS apparently accepted responsibility for Corporate Stores, and it acknowledged that it executed Indirect Dealer Agreements giving dealers actual authority to act on behalf of MetroPCS, but it argued that their limited actual authority didn’t extend to wrongful conduct. But that couldn’t be resolved at the pleading stage: MetroPCD didn’t show as a matter of law that the dealers were at all times “acting antagonistically” to the interests of MetroPCS.