no disgorgement/fees in false advertising case even after Romag remand

Harbor Breeze Corp. v. Newport Landing Sportfishing, Inc., 2023 WL 2504988, No. SACV 17-01613-CJC (DFMx) (C.D. Cal. Mar. 13, 2023)

Previous district court ruling on irreparable harm; previous 9^th Cir. opinion remanding for reconsideration of disgorgement and attorneys’ fees after Romag. Despite Romag, the court declines to award disgorgement or fees in this false advertising case.

A jury found that Harbor Breeze proved all elements of liability for false advertising but awarded $0 in damages and profits. Romag rendered incorrect the jury instruction that willfulness was a prerequisite to disgorge profits. On remand, the court held a bench trial.

The parties compete to offer whale-watching and other boat cruises off the coast of the Los Angeles metropolitan area. In 2011, Harbor Breeze sued for unfair competition and false advertising in California state court, alleging a variety of unlawful actions, such as submitting a fake business address in Long Beach, creating misleading website URLs, and posting fake reviews about services. “The jury found that the defendants had engaged in false advertising, and the court enjoined them from specified conduct.”

The state court declined to hold defendants in contempt for ads referencing “Long Beach Departures” and the sufficiency of “a graphic stating ‘All Vessels Depart from Beautiful Newport Beach’ [on] each of [Newport Landing’s] websites” that purportedly could not “be ‘read’ by third-party search engines.” The court found that the two ads were “inadvertent” and “subsequently removed” and that the graphic was adequate to comply with the injunction because it was “conspicuous to consumers viewing Newport Landing’s website.”

Later, Harbor Breeze sued in federal court, alleging Lanham Act, UCL, and FAL violations. Harbor Breeze’s evidence focused on two things: First, location. E.g., a consumer who searched on the internet for “Long Beach whale watching” would be directed to a page on Defendants’ website repeatedly stating the phrase “Long Beach residents and visitors,” suggesting that their cruises departed from Long Beach rather than Newport Beach. Second, prices. Defendants advertised, for example, a “$10 whale watching special” even though a consumer could never get on a whale watching cruise operated by defendants for only $10 because of a $2.50 fuel surcharge and a 2% wharfage fee on top of the $10. There was also evidence that calling these extra charges a “fuel surcharge” or “wharfage fee” was misleading because these fees were a way to get extra revenue, not tied to actual expenses, and defendants didn’t disclose these fees until late in the purchase process.

The court subsequently denied a contempt motion for several purported violations of the injunction. E.g., the mobile site temporarily failed to include disclosures required by the injunction because of “a technical error”—“one errant line of code”—but “the webpage in question was updated ... [to] contain[ ] the required disclosures.” Plaintiffs challenged “advertising that prices start at or are ‘from’ a listed price,” but “[t]he Court [wa]s unwilling to interpret its own Injunction to proscribe” as much.

The bench trial focused on previous trial evidence plus additional evidence mostly about defendants’ conduct since 2022. Plaintiffs’ evidence suggested that defendants continued to include locations like “Long Beach” in the title tags of some webpages, which appeared in organic search results on Google. Defendants also included “supplemental charges,” such as those purportedly for the decrease in passengers and higher fuel costs due to the COVID-19 pandemic for their regular whale-watching cruises. And defendants sold $10 Groupon vouchers that customers could redeem for cruises departing “Before 10am/After 5pm,” although Defendants did not offer departures after 5 p.m., and for approximately one week offered vouchers that customers could redeem only when paying an additional $2 fee. And they used the phrase “Feel the Harbor Breezes” in a pay-per-click advertisement on Google.

Disgorgement is available under the Lanham Act “subject to the principles of equity.” “Two reasons foreclose disgorging profits here—first, Defendants’ profits are not attributable to their misconduct, and second, the equitable considerations, in the Court’s discretion, do not weigh in favor of disgorgement.”

The Lanham Act allows disgorgement of profits attributable to false advertising, not other things. “[A] court may deny recovery of a defendant’s profits if,” for example “they are only remotely or speculatively attributable to the infringement.” A plaintiff must “prove [a] defendant’s sales only,” while a “defendant must prove all elements of cost or deduction claimed.”

But here, evidence connecting false advertising to defendants’ profits was lacking. (Is that the right placement of the burden?) Plaintiffs argued that defendants profited because their false fees came with a set dollar value.

But the Court is not convinced that Defendants would have earned less absent their misconduct. Defendants charged significantly lower prices for their cruises even including their fees. And they ultimately disclosed all fees to consumers before any purchase was completed. It seems more likely than not that consumers would—and did—care more about getting a good deal than where the cruise departs or whether a few dollars get added to the ticket cost.

To be sure, Defendants may have “thought [that their] advertising was important or would generate profits,” but that “is a truism. Companies obviously hope that advertising will be a boon to business. What [the evidence] failed to do,” however, was persuade the Court “that the advertising actually had this effect.” Thus, “there is no basis for inferring that any of the profits received by [Defendants] ... are attributable to” their misconduct.

As for the general equitable principles at play, they include (1) “a defendant’s mental state,” (2) whether sales have been diverted, (3) the adequacy of other remedies, (4) any unreasonable delay by the plaintiff in asserting [the plaintiff’s] rights, (5) the public interest in making the misconduct unprofitable, and (6) whether it is a case of palming off.”

Mental state: defendants were at worst negligent, not willful. One of the individual owners testified that they made changes to their websites and advertisements following the state court litigation and thought they were in compliance. Also, the defendants didn’t intend to mislead on prices, “even if their advertising was, in fact, misleading,” since they ultimately disclosed all fees prior to purchase. [This seems to deny the reality that bait and switch ads work because of consumers’ sunk costs in search; it’s a really bad idea unless tied tightly to what the court sees as the unusually sharp price differential.] “And the evidence on Defendants’ advertising on location showed that Defendants intended to optimize their search engine results, not confuse consumers.”

Although they still advertise “nominal” prices, they also conspicuously state that a supplemental charge applies immediately below the ticket prices and that cruises departed from Newport Beach. And multiple options were available at any given moment at their advertised “from” or “starting at” prices.

Plaintiffs accused defendants of trademark infringement for using the phrase “Feel the Harbor Breezes” in an ad in August 2022. The court was dubious that this was even distinctive or likely to cause confusion if distinctive.  But it was also irrelevant to disgorgement for false advertisng, and was at most negligent. “At some point, the volume and nature of mistakes may justify a finding of willfulness. But that moment has not yet arrived…. To date, Defendants’ sloppiness has been just that—sloppiness.”

Although willfulness is no longer required, Romag agreed that mental state remains “a highly important consideration in determining whether an award of profits is appropriate,” as “[a]n innocent ... violator often stands in very different shoes than an intentional one.” Further, as the Tenth Circuit has said, “an award of profits under the Lanham Act is truly an extraordinary remedy and should be tightly cabined by principles of equity.”

Evidence of sales diversion was also lacking. The jury’s award indicted that it must have found that plaintiffs failed to prove that they suffered any harm, or failed to prove to a reasonable degree of certainty an amount of harm, which would include diverted sales.

Other remedies:  A finding of liability coupled with an award of $0 in damages may “support[ ] a finding that there is no [ ]adequate remedy at law.” Nonetheless, injunctive relief sometimes “provides a complete and adequate remedy,” as when a defendant’s misconduct was not willful. That was the case here.

Plaintiffs didn’t delay bringing their claims, favoring disgorgement.

The public interest in making misconduct unprofitable wasn’t important because the misconduct hadn’t been profitable and an injunction was enough. “Any generalized public interest in minimizing false advertising, moreover, is mitigated by the competing interest of the public in robust competition from a competitor that, candidly, offers lower prices than Plaintiffs.”

This was also not a case of palming off.

Basically the same analysis also doomed a fee shift. Octane Fitness directs courts to consider “frivolousness, motivation, objective unreasonableness (both in the factual and legal components of the case) and the need in particular circumstances to advance considerations of compensation and deterrence.” It was even doubtful whether plaintiffs were “prevailing part[ies]” entitled to fees under the Lanham Act. Regardless, this case wasn’t exceptional in substantive strength or public importance— “stopping misleading advertising about whale watching does not ameliorate a serious public harm.” Eight years of litigation didn’t make the case exceptional. “If anything, it undermines Plaintiffs’ claim of exceptionality, as the litigation has achieved mixed results.” Nor had it been litigated unreasonably. “To be sure, the conduct of all parties in this action has been at times vexing to everyone involved. But there has been no significant ‘failure to comply with court rules, persistent desire to re-litigate issues already decided, advocacy that veered into “gamesmanship,” [or] unreasonable responses to the litigation.’”

Transformative work of the day, SVB edition

HLS teaching series: Developing Professionalism in Students, March 21, at 12 noon EST

Developing Professionalism in Students

Register here: https://harvard.zoom.us/webinar/register/WN_W60Re3yDQRSfSPWgw0EP8Q

Noon EST, March 21

What is professionalism for a lawyer? How can we as teachers help students develop professional identities in ways that honor their diversity and commitments? Norms of professionalism can be exclusionary, even when our students adapt consciously and strategically to them. But the ideal of serving clients with specialized legal knowledge has value and meaning. Our panelists will discuss their strategies for working with developing lawyers to find professional identities that honor both themselves and the legal profession.

Kendra Albert is a technology lawyer and scholar of computing, gender, and society. They are a clinical instructor at the Cyberlaw Clinic at Harvard Law School, where they teach students to practice technology law. Kendra also serves as a lecturer in the Program on Studies of Women, Gender, and Sexuality at Harvard University. Kendra holds a JD cum laude from Harvard Law School and a BHA from Carnegie Mellon University. They serve as the Chair of the Board of Directors for the Tor Project, and as a member of the Board of Directors of the ACLU of Massachusetts.

Jack Lerner is Clinical Professor of Law at the University of California, Irvine School of Law and Director of the UCI Intellectual Property, Arts, & Technology Clinic. Professor Lerner works to find solutions to problems at the intersection of law and technology, particularly how technology law and policy affect creative expression and innovation.  He has written and spoken widely on copyright, privacy and other areas of technology law. In 2021, Professor Lerner authored the landmark Rap on Trial Legal Guide, the first-ever treatise on the use of rap lyrics in criminal trials (with Kubrin et al.). He is also Executive Editor of the award-winning treatise Internet Law and Practice in California (CEB). In 2015, he authored The Duty of Confidentiality in the Surveillance Age, 17 J. Internet L. 1 (2014) (with Lee et al.). See more of Professor Lerner's publications at his UC Irvine profile.

Kim Thomas, HLS '99, is a Clinical Professor of Law at the University of Michigan Law School, where she has taught since 2003.  She teaches in the area of criminal law, primarily in the Civil-Criminal Litigation Clinic and the Juvenile Justice Clinic, a clinic which she directs and co-founded. In 2021, Thomas was appointed as a member of the Governor's task force on juvenile justice reform, which issued its recommendations for structural reform of Michigan's youth justice system in 2022.  Thomas' research focuses on youth who commit serious offenses and those who are serving long and life sentences, as well as adult sentencing and post-conviction proceedings. Her scholarly work has been published in the California Law Review, the Ohio State Journal of Criminal Law, the U.C. Davis Law Review, among others.  In 2017, Thomas received a Fulbright award to teach juvenile justice at the University College Cork, in Cork, Ireland. 

New paper: Bad Spaniels, Counterfeit Methodists, and Lying Birds: How Trademark Law Reinvented Strict Scrutiny

On SSRN, in advance of the JDI v. VIP case:

Bad Spaniels, Counterfeit Methodists, and Lying Birds: How Trademark Law Reinvented Strict Scrutiny

Abstract:

Does trademark law cover noncommercial speech, defined as it is in First Amendment doctrine as speech that does more than merely propose a commercial transaction? This basic question has three different answers, all regularly used in any given jurisdiction. The answers are yes, no, and sometimes, a list both comprehensive and dismaying. The Supreme Court is presently considering a case that may require it to choose—or may leave the field more confused than ever.

In response to the massive expansion of trademark’s scope over the last century, lower courts have implicitly devised a compromise by which trademark is pulled back to a more traditional anti-fraud-like scope when it is applied to noncommercial speech sold in the marketplace, such as movies, newspapers, songs, and visual art, or used as the name of an organization with dues-paying members, such as a political party or congregation. This compromise explains an otherwise surprising feature of the cases: Political speakers and religious speakers can expect worse outcomes than “commercial” publishers engaged in noncommercial speech, given the kinds of cases brought against them.  Of particular note, churches can be prohibited from using names that their worshipers sincerely believe are accurate descriptions of their faith. Although the doctrines articulated by courts are confused and sometimes directly contradictory, the results approximate what would happen if First Amendment strict scrutiny were applied to trademark claims brought against noncommercial speech—as long as material deception, not consciousness of wrongdoing, is the standard for liability.

We would be better positioned to understand the law and to decide future cases if courts were honest about their uses of the commercial/noncommercial line to police whether trademark law can be used for more than anti-fraud purposes. Understanding the relationship of noncommercial speech to trademark law also offers broader insights into the relevance of scienter and actual deception for speech regulation.

detailed examination of harm story dooms FedEx's false advertising claim

Ah, how I wish courts would apply the same scrutiny to trademark harm stories.

FedEx Ground Package System, Inc. v. Route Consultant, Inc., 2023 WL 2466624, No. 3:22-cv-00656 (M.D. Tenn. Mar. 10, 2023)

FedEx uses around 4500 independent contractors (ISPs) to pick up and deliver packages. As alleged,

Each ISP’s contract grants it a certain service area, or “route,” and the ISP is permitted to sell its route to another entity if they can agree on terms. The result is that FedEx routes are, as a practical matter, intangible commodities traded on a competitive market and subject to price fluctuation based on the actual or perceived value of each individual route.

Route Consultant is a consultancy business that serves ISPs, as well as another type of FedEx contractor—transportation service providers or TSPs, who provide long-distance transportation services as opposed to actual package delivery, which is done by ISPs. Together they are known as CSPs, contracted service providers.

Route Consultant allegedly holds itself out as offering CSPs (and aspiring CSPs) advice and information regarding “acquisition strategy, business valuations, operations, efficiency, post-close support, [and] compliance review.” It also “maintains an exclusive portfolio of routes and runs for sale across the United States.” It does not perform any ISP work on its own behalf, but the company’s founder and president founded and operates four other companies that were FedEx ISPs.

Its products/services include a 12-week course on acquisition strategy that costs about $15,000, a program called “FedEx Routes for Sale 101,” and other consultancy and support services. It allegedly promotes FedEx routes as under-the-radar, but promising, investment assets, “like buying Apple at $1 a share.” Its principal, Patton, allegedly promoted the business “by creating a fictionalized crisis between [FedEx] and its ISPs and TSPs as an advertisement for the purported need for Route Consultant’s consultancy and other services.” He allegedly “exaggerated and misrepresented the purported financial hardships of the ISPs and TSPs in the current economic conditions” as well as FedEx’s purportedly bullying response. FedEx posited that Route Consultant’s aim was to encourage CSPs to renegotiate their deals (profiting Route Consultant), or at least to raise Route Consultant’s profile and foster the sense that its services were necessary. FedEx also alleged that the videos could have “drive[n] attendance” for an annual conference put on by Route Consultant.

The challenged materials were: (1) a publicly posted “Letter of Assurance” from Route Consultant to FedEx, highlighting the hardships faced by FedEx contractors and “demanding certain across-the-board modifications to [FedEx’s] agreements with ISPs and TSPs”; (2) “various videos” posted to Route Consultant’s YouTube channel making similar points; and (3) a press release reiterating those points.

In the letter, Patton claimed that FedEx, “knowingly or unknowingly, has placed the financial viability of CSPs in their Ground network at enormous risk.” He stated that “[n]ot a single day passes without my phone ringing with the story of yet another contractor who is financially collapsing under the weight of these dramatic cost changes that have gone unaddressed by FedEx Ground in 2022.” Although FedEx took steps to support its CSPs during the height of the COVID-19 pandemic, it purportedly made “no financial adjustment in any capacity” to the even greater challenges associated with 2022 cost conditions. The letter also mentioned Route Consultant’s upcoming “Contractor Expo + Party.” The videos and press release were of similar tenor.

FedEx sent a C&D telling Patton to shut up (demands included “cease all advocacy on behalf of any service providers other than [his own] ISPs”) and sent a letter to CSPs addressing Route Consultant’s allegations. Obviously, the dispute didn’t end there.

The allegedly false statements made various claims about the precarity of CSPs/FedEx’s responsibility therefor, such as, after referencing the economic changes over the past 12 months, “there has been no financial adjustment in any capacity”; the “average FedEx Ground business run by a CSP currently operates on profit margins below 0%”; since the Q4 of 2020, the industry has seen “a 15% pullback on the value of routes”; “the current CSP financial model is collapsing”; claiming “soaring levels of CSP default rates as evidence of the current financial stress within the network”; and “Almost all of the other contractors that had renegotiation requests were also denied.” Patton also allegedly overstated the size of his businesses by stating, “I have about 225 routes, 275 trucks on the road across 10 different states.”

For falsity, FedEx pled that (1) its CSPs “earn average annual revenue of approximately $2.3 million dollars, a figure that has doubled over the last four years,” (2) “ISPs have requested mid-contract renegotiations for only about 10% of their agreements in 2022,” (3) FedEx “has consented to approximately 40% of renegotiation requests since July 1, 2022, and (5) “over 90% of those renegotiations led to agreement on new terms that resulted in higher contractual payments to the ISPs.” FedEx also points to a report by a business analyst based on data “for 100 ISP businesses ... for sale on Route Consultant’s own website,” which concluded that those businesses “generated an operating margin of 16.0%.”

The press picked up on Route Consultant’s agitations and began reporting on “tension” and a “burgeoning feud” between FedEx and its CSPs. “Some of the coverage suggested that, if the situation continued to deteriorate, it could lead to a slowing of deliveries—a possibility with obvious, serious reputational stakes for FedEx. At least one financial analyst cited Route Consultant’s statements as evidence of ‘structural problems’ with FedEx’s ‘broken and inefficient’ model.”

FedEx brought Lanham Act and Tennessee Consumer Protection Act claims.

Was this “commercial advertising or promotion”? Plausibly. It didn’t have to directly/literally propose a transaction to be commercial speech, as long as it was sufficiently relevant to a real or proposed transaction. The court didn’t resolve what it saw as the difficulty of evaluating Route Consultant’s argument that its speech was not commercial “because it consisted almost entirely of broad, public-facing commentary about business conditions and practices involving FedEx and its CSPs—not any transaction or proposed transaction involving Route Consultant,” versus FedEx’s point that “Route Consultant—like any consultancy business—feeds off the perception of rectifiable (or avoidable) corporate dysfunction. Hyping up that dysfunction—while simultaneously reminding individuals that your services as a consultant are available—is a plausible promotional strategy.” While further factfinding could change the outcome, the accused communications were plausibly commercial speech. “The fact that some aspects of Route Direct’s critique could have been delivered noncommercially … provides no ground for dismissing claims based on the more ambiguous communications that actually did occur.”

However, falsity proved a harder barrier. Some of Patton’s statements, such as those making quantitative claims, were falsifiable. But others were much more subjective—too much so to be falsifiable: “the current CSP financial model is collapsing due to substantial increases in the cost of fuel, labor, and vehicles over the past 12 months.” Since the latter half of the sentence was not pled to be false, there was “no clear division between a company or business model that is ‘collapsing’ under cost increases and one that is merely struggling with them, particularly given that that assessment is at least as much a prediction about the future as a claim about the present.” A “melodramatic” claim is not actionable when a speaker uses a “loose, hyperbolic term” to “convey[ ] an inherently subjective concept.” So too with claims based on “soaring levels of CSP default rates as evidence of the current financial stress within the network” and claims that CSPs are in “financial distress.”

Another set of statements claimed that FedEx made no “adjustments” to “address[ ]” the financial challenges facing CSPs. FedEx argued falsity because CSPs, as a group, were not struggling, and FedEx did, in fact, grant some renegotiation requests, “meaning that it is technically untrue that the company did absolutely nothing.” But in context, it was “clear that the statements at issue were not intended to suggest that FedEx never granted a renegotiation request or never improved the terms pursuant to which an individual, struggling CSP did business. Rather, the statements made were about FedEx’s failure to adjust its overall model and approach and its failure to adequately remedy the headwinds facing CSPs as a class in the manner that it had during the height of the pandemic.” The complaint did not plausibly plead falsity there, given that “FedEx’s consistent position has been that there was no need for any such large-scale adjustment in the first place.”

Thus, it was unlikely that any substantial portion of the intended audience, which was sophisticated, would have been deceived; the court noted that Patton’s own statements acknowledged that FedEx did not have a 100% denial rate for requested renegotiations. And even if one read the statements to be “technically, albeit trivially, false,” it was not plausible that such technical errors were capable of harming FedEx. FedEx’s allegations of harm were “not based on some technical distinction between FedEx’s having done no adjustment versus its having done a little bit of adjustment in a few select instances. Rather, any harm to FedEx appears to have been from the general impression that its contractors were struggling so severely that it posed a risk to FedEx’s operations. That premise did not depend on FedEx’s having done literally nothing—merely that it did not do enough.”

The quantitative assertions could be falsified, but the complaint didn’t plead facts to do so. One challenged statement, for example, was about average profit margins, but FedEx pled evidence regarding average revenues. The only information that FedEx has pleaded about margins was based on a sample of 100 ISPs, not on the “average” CSP. While people might believe either side, FedEx “conspicuously failed to allege that Route Consultant’s numbers were actually false or, in any sufficiently explained way, even misleading.”

For “[a]lmost all of the ... contractors that [made] renegotiation requests were ... denied,” FedEx pled that it “has consented to approximately 40% of renegotiation requests since July 1, 2022.” But the relevant dates didn’t match; the letter at issue was released in July 2022. At most, FedEx pled that a statement that was made at one chronological point would have been false or misleading if it had been made later and with a different time limitation.

FedEx did allege that the statement about the size of Patton’s own routes was literally false.

“[I]t is at least conceivable that a falsehood about Patton’s businesses could harm FedEx by lending Patton’s, and by extension Route Consultant’s, critique more credence than it deserved.” But it was explicitly an estimate, and FedEx didn’t plead just how overstated those numbers were. “Given the comparatively attenuated importance of this fact to FedEx’s theory of harm, the overstatement would have to have been quite substantial to have made any plausible difference in the course of events.”

Claims dismissed.

Jack Daniels reply brief: the horror!

Is in. Obviously there are many things to say about it, but I suppose the easiest is that the parade of horribles sounds kind of just like a parade (albeit perhaps a Halloween one):

VIP’s logic would extend to vases mimicking Coca-Cola bottles (pretend sodas), replica toy Mercedes (pretend cars), pillows resembling Goldfish crackers or Hershey Kisses (pretend snacks), or key chains consisting of miniature Lucchese cowboy boots (pretend shoes).

(1) Wonder what Ai Weiwei has to say about that first example? (2) Did they ... know that all these things exist (except that a miniature Lucchese cowboy boot is just a cowboy boot at that scale, and doesn't seem famous enough to parody) and haven't caused society to collapse or toddlers to run around stuffing pillows in their mouths? NB: I actually bought one of those Goldfish pillows before I read the brief. It's cute! 

"fit" on snack bars isn't implied nutrient or "healthy" claim

Seljak v. Pervine Foods, LLC, 2023 WL 2354976, No. 21 Civ. 9561 (NRB) (S.D.N.Y. Mar. 3, 2023)

Plaintiffs sought to represent a class of purchasers of FITCRUNCH Whey Protein Baked Bar products or FITBAR energy bar products. They contain high levels of protein and come in flavors that sound like desserts, including Milk & Cookies, Chocolate Chip Cookie Dough, Apple Pie, and Chocolate Peanut Butter. Plaintiffs, who purchased the products “for the protein” and “to help with muscle gain,” allegedly falsely believed that the products were “healthy,” despite the fact that the term “healthy” or related terms aren’t appear anywhere on the products’ packaging or ads. They based their beliefs on the use of “FIT” in the products’ names. The court found this implausible in context.

The products contain between 8 and 18 grams of fat, which exceeds the permissible level of fat in products labeled as “healthy” under FDA regulations. But each product’s fat content is available on the ingredient panel, which appears on the back of each package.

Genericity watch: As an example, “the package of the Milk & Cookies FITCRUNCH product includes a picture of Oreo cookies”:

A bar whose package shows creme-filled chocolate cookies next to a cut-open bar

The court took judicial notice “of the numerous videos publicly available on defendant’s website of consumers reading the ingredient panel available on the back of the products’ label.” The court also took judicial notice of other publicly available videos on the website “in which fitness trainers reviewing the products caution consumers that while the products contain a high level of protein, they also contain a high number of calories and a high level of fat and therefore may not be suitable for consumers who are trying to lose weight.” Not sure this is judicially noticeable for what reasonable consumers would do, but ok.

Plaintiffs alleged that defendant’s ads state that the products are “different from other nutritional products;” “[d]elicious nutrition for all FIT lifestyles;” and “the most delicious eating experiences that you’ll find in high protein, low sugar products.” The ads also include images of people exercising, and state that the products should be consumed “post workout to refuel, as a snack between meals, and any other time when you need protein on the go.” On defendant’s website, defendant’s co-founder, Chef Robert Irvine, stated that he set out to “create a brand-new bar that not only delivered great nutritional value” and believes that “[n]o matter your age, gender, fitness goals, or dietary restrictions, I’m confident I’ve made something that’s going to meet your needs.” But the complaint didn’t allege that plaintiffs relied on these ads in forming their belief that the products they purchased were “healthy.”

The plaintiffs sought to represent a national class (common law warranty/unjust enrichment claims), a New York subclass, a California subclass, and an Illinois subclass.

There was no standing to seek injunctive relief.

There would be no NLEA preemption if they successfully pled that “FIT” constituted a disallowed implied nutrient content claim as a synonym of “healthy.” But “the FDA already determined decades ago that it would not define synonyms for healthy as it had done for other implied nutrient claims.” Although the FDA has said that, when synonyms “appear in association with an explicit or implicit nutrient content claim or statement about a nutrient, they will be implied nutrient content claims,” “[p]laintiffs do not [then] plead that the word [“FIT”] alone makes any “explicit or implicit claim or statement about a nutrient.” “FIT” didn’t appear in association with a nutrient content claim about the products’ fat content. (By contrast, “[n]utritious, contains 3 grams of fiber,” “[b]est choice, contains 200 mg sodium,” and “[g]ood for you, contains 5 grams of fat,” would do so.) Thus, the claims for violating FDA regulations (as incorporated into state laws) were preempted.

But the baseline claim that use of the term “FIT” on defendants’ was false or misleading was not preempted. It just wasn’t plausible. The high number of calories was listed on the product labels; the FITCRUNCH products’ labels also include “images of desserts, such as Oreo cookies. Accordingly, before even turning to the ingredient label, a reasonable consumer viewing this label simply would not believe that FITCRUNCH products are ‘healthy.’” Even if the term were ambiguous, the ingredients label would cure any ambiguity, especially since “healthy” wasn’t the “ordinary meaning” of “fit.” “In viewing the term ‘FIT’ in the context of the entire label, a reasonable consumer would interpret ‘FIT’ to mean getting into a suitable state to build muscle.”

The court also found that plaintiffs lacked standing to challenge FITBAR products, which they hadn’t bought. The packaging of the two lines was distinct. Each FITCRUNCH product states that it is a “Whey Protein Baked Bar” and has a “baked soft cookie center,” and states it is gluten free. Each FITBAR product states that it is an “energy bar;” is non-GMO, vegan, dairy free, soy free, and gluten-free; and directs “see nutrition facts for total fat content.” The products come in different flavors and have different ingredients (whey protein blend and soy protein as primary ingredients versus organic brown rice syrup and hemp protein).

 

Failure to include adjusted protein percentage on protein-touting products can be misleading

Rausch v. Flatout, Inc., --- F.Supp.3d ----, 2023 WL 2401452, No. 22-cv-04157-VC (N.D. Cal. Mar. 8, 2023)

I love a good summary:

When a manufacturer advertises the amount of protein in a product on its package, the Food and Drug Administration requires the manufacturer to include additional information on that product’s nutrition facts panel: the manufacturer must provide the “percent daily value” for protein based not on the raw amount of protein in the product, but on the amount of protein that the human body will actually absorb. The question presented in this case is whether a manufacturer’s failure to include that percent daily value renders its other statements about protein quantity misleading—both within the meaning of the FDA’s regulations and state law. The answer is yes.

While “consumers often pick products based on their protein content, “not all protein is created equal.” Protein’s constituent parts are amino acids; a high-quality protein contains “all nine amino acids in the right proportions for protein synthesis.” Also, “most plant proteins are only 85% digestible, so 15% of the protein from a plant source will just pass through your body.” The FDA requires all products to include the grams of protein in a serving, without needing adjustment for amino acid content or digestibility (together “quality”). However, if there’s a “protein claim” anywhere else on the label, including both “Excellent source of protein!” or just “20g of protein,” the FDA requires the manufacturer to include the “corrected amount of protein per serving,” expressed as a percent of daily value. This is corrected amount is calculated by using a discount factor that accounts for the protein’s amino acid content and digestibility.

Flatout sells a variety of products, including flatbreads and pizza crusts. Several of these products allegedly advertise their protein content on the front of their labels, but they fail to include the quality-adjusted percent on their nutrition facts panels. Thus, a consumer would only absorb about half of the protein in Flatout’s Flatbread, but that isn’t disclosed.

Rausch sued for UCL unlawfulness and the usual California claims including UCL fraudulent claims. California’s Sherman Act incorporates the FDCA and regulations; Rausch alleged that the protein statements violated the FDA’s requirement that Flatout include the quality-adjusted figure and a more general FDA regulation that prohibits misleading “nutrient content claims.”

The second theory required a bit more unpacking because of Nacarino v. Kashi, 584 F. Supp. 3d 806 (N.D. Cal. 2022). There, like here, the label on Kashi’s cereal stated that the cereal had “11g” of protein, but that figure was not adjusted for the protein’s quality. But there were no allegations that Kashi failed to include the quality-adjusted percent on the cereal’s nutrition facts panel (and the Kashi requested judicial notice that it had done so). In that context, the court held that “making a statement about protein quantity on the front of the package—without including a disclaimer about protein quality also on the front of the package” didn’t violate the prohibition on misleading statements.

That wasn’t this situation, but Nacarino also said that requiring the use of the quality-adjusted percentage in the nutrition facts panel didn’t mean that statements of protein content would be misleading in the absence of that disclosure:

To hold otherwise would be to find that an FDA-approved protein measurement technique is inherently misleading. This is not a plausible interpretation of the regulations. A better reading is that the FDA recognizes that in situations where consumers are drawn to a product for its protein content—those situations in which a manufacturer is touting its product’s protein on its packaging—consumers deserve additional information in the Nutrition Facts label. This is not to remedy an otherwise misleading figure, but to supply protein-conscious consumers with information that gives them further assistance in deciding what to buy.

The court here disagreed:

The better reading of the FDA’s regulations is that prominently advertising a product’s protein quantity outside of the nutrition facts panel is misleading (within the meaning of the Food, Drug, and Cosmetic Act and the FDA’s regulations), if the manufacturer doesn’t include the quality-adjusted percent in the nutrition facts panel. As a matter of common sense, it’s reasonable to think that small text in the nutrition facts panel is less likely to mislead a consumer than text advertising the protein content on the front of a label. When a manufacturer chooses to emphasize a product’s protein content elsewhere on a label, the manufacturer is implicitly suggesting that the product is a good source of protein. In effect, it’s encouraging consumers to buy the product based off that feature. That’s not the case when the manufacturer includes the amount of protein in the nutrition facts panel (something manufacturers must do on all products). Thus, the FDA’s regulations are best understood as reflecting a determination that when a manufacturer emphasizes a product’s protein content, that statement is misleading without including information about the product’s protein quality on the nutrition facts panel.

Why didn’t the FDA require all manufacturers to disclose the quality-adjusted percent on all products Apparently it was, at least at the time, expensive to calculate a product’s precise amino acid score; the FDA decided not to impose those additional costs generally because Americans generally consume enough high-quality protein in their diets. But, it reasoned, "where a manufacturer decides to make a protein claim, the ‘the burden and expense’ of calculating the percent are ‘voluntarily assumed by the manufacturer.’” The court here concluded that FDA's decision to “spare most manufacturers from the expense of calculating the quality-adjusted percent does not mean that protein statements (made outside of the nutrition facts panel) can never be misleading.”

Flatout responded that the quality-adjusted percent was essentially meaningless, so it did nothing to remedy the potentially misleading statement of protein quantity, because “reasonable consumers” do not possess “the regulatory or mathematical skill” required to use the percent daily value to convert the “grams of protein stated on the label into digestible protein.”

True enough! But not helpful to Flatout:

The FDA is generally skeptical that consumers know exactly how much of any nutrient they should be consuming every day. That’s why the FDA thinks the percent daily value is helpful: it gives consumers a sense of how the food might fit into their broader nutritional needs….  That doesn’t require any complicated math, and that information puts the potentially misleading protein statement in context. The expectations created by statements like “excellent source of protein!” or “20g protein!” can be tempered by looking at the percent daily value.

Indeed, parsing the text, the court determined that the quality-adjusted percentage disclosure requirement was not promulgated under the general nutrition rules—then it would have to be on all nutrition labels—but under FDA’s authority to regulate misleading labels. Thus, “it’s not much of a leap to say that failure to follow the requirement renders a label misleading within the meaning of the FDA’s regulations.”

This all allowed Rausch’s theory of misleadingness to move forward. Rausch also plausibly alleged that she has no adequate remedy at law, so she may seek equitable relief at this stage in the litigation, and she had standing to challenge the products she did not purchase because they are “substantially similar” to the products she did purchase. But the conclusory allegation that Flatout’s conduct was “willful and malicious” didn’t support a claim for punitive damages; if discovery revealed information relevant to punitive damages, Rausch could seek leave to amend.

Vanilla class action certified based on sufficient survey evidence

Vizcarra v. Unilever U.S., Inc., 2023 WL 2364736, No. 4:20-cv-02777 YGR (N.D. Cal. Feb. 24, 2023)

Hey, it’s a certified class in a vanilla case: Vizcarra alleged that Breyers Natural Vanilla Ice Cream misleadingly communicated that it contained vanilla flavor derived exclusively from the vanilla plant. The cartons “said ‘Natural Vanilla’ in large, light green letters against a black background, contained pictures of two vanilla beans and vanilla flowers and a scoop of the ice cream with noticeable specks purporting to be actual vanilla beans.” She brought the usual California claims.

Previously, the court found that Vizcarra didn’t show commonality or predominance, because her expert’s opinions were based on consumer-perception and materiality surveys that did not specifically test the effect of the vanilla representations on consumers’ beliefs and purchasing decisions, and the proposed damages model didn’t measure the resulting price premium, if any. Her expert did more surveys and returned.

Based on the results of the revised surveys, her expert concluded that (1) a reasonable consumer in California perceives the Vanilla Representations to convey that all of the vanilla flavor comes from vanilla extract made from the vanilla plant, which answers the common question of likelihood of deception that is integral to her claims under the UCL and FAL; and (2) that the Vanilla Representations were material to the purchasing decisions of a reasonable consumer in California, which answers the common question of materiality that is integral to her claim under the CLRA.

Unilever argued that the survey still didn’t do the job because it didn’t test “a stimulus that removed the Vanilla Representations but was otherwise identical to the package of the ice cream at issue.” The revised perception survey involved presenting to respondents an un-branded ice cream product that displayed only the Vanilla Representations on the front label of the product. 78.7% of respondents reported that they believed that “all of the vanilla flavor” comes from the vanilla plant; 16.6% perceived that “not all of the vanilla flavor” comes from the vanilla plant; and 4.7% were not sure. Unilever argued that this survey couldn’t distinguish the effect of the Vanilla Representations on survey respondents’ perceptions from the effect of the survey respondents’ pre-existing beliefs or biases, including about the Breyers brand and vanilla ice cream in general, and that the questions were leading. Vizcarra rejoined that the survey (including the stimuli) were designed so that the survey would measure the effect of the Vanilla Representations directly while avoiding the risk that the results of the study would be “contaminated by pre-existing beliefs” of respondents or other biases, including pre-existing beliefs associated with the Breyers brand. Vizcarra met her burden to show by a preponderance of the evidence that her expert’s opinions were capable of answering the question of whether a reasonable consumer is likely to be deceived by the Vanilla Representations. “Unilever’s criticisms boil down to a disagreement as to Dr. Dennis’ survey design choices, which go to the weight to be accorded to Dr. Dennis’ survey results and opinions when determining the merits of Vizcarra’s claims at trial.”

CLRA: “The requirements for stating a claim under the CLRA differ from those for a claim under the UCL and FAL because a CLRA plaintiff can obtain damages, as well as equitable relief and other remedies.” Thus, a CLRA plaintiff must “show not only that a defendant’s conduct was deceptive but that the deception caused them harm.” However, “[c]ausation, on a classwide basis, may be established by materiality. If the trial court finds that material misrepresentations have been made to the entire class, an inference of reliance arises as to the class.” Vizcarra’s expert’s materiality survey was also capable of answering that question on a classwide basis. The revised survey measured the extent to which a product having the Vanilla Representations is preferred over the product not having the Vanilla Representations in the context of purchasing behavior. 88.8% of respondents indicated that they would prefer to purchase the product that had the Vanilla Representations; and 11.2% indicated that they would prefer to purchase the product that did not have the Vanilla Representations. Unilever objected that they weren’t shown a real product, but the survey “does test and does speak to the effect of the Vanilla Representations on consumers’ purchasing decisions, consistent with Vizcarra’s theory of liability, … with a sufficient degree of reliability such that a reasonable factfinder at trial could find, based on Dr. Dennis’ opinions, that the Vanilla Representations were material to a reasonable consumer’s purchasing decisions.” The expert explained that he designed the survey and stimuli to measure the effect of the Vanilla Representations while minimizing the effect of potential confounding factors, such as respondents’ pre-existing beliefs and biases.

Predominance: Damages must be capable of measurement on a class-wide basis. While the model “must measure only those damages attributable to” the plaintiff’s theory of liability, the calculations “need not be exact” at the certification stage. A revised price premium model using contingent valuation, which had been proposed, but not yet studied, by Vizcarra’s expert, would suffice. Contingent valuation methodology has been widely accepted as a reliable method for calculating damages on a class-wide basis in false advertising and mislabeling cases. The expert proposed to use actual, historical pricing data for the ice cream product at issue in calculating the price premium, which serves to incorporate supply-side factors into the price premium analysis, answering one of Unilever’s key criticisms; the jury could consider the weight of these opinions.

FTC wins summary judgment for violations of shipping Rule and Covid Consumer Protection Act

F.T.C. v. Romero, 2023 WL 2445339, No. 5:21-cv-343-BJD-PRL (M.D. Fla. Feb. 27, 2023)

The FTC still has some tools in its arsenal. Here, violations of the Trade Regulation Rule Concerning the Sale of Mail, Internet, or Telephone Order Merchandise (MITOR) and the COVID-19 Consumer Protection Act (along with other §5 violations) allow for summary judgment making defendant responsible for substantial penalties for falsely advertising personal protective equipment during the pandemic.

Romero operated a drop-shipping business. In March 2020 (I was going to say mid-March, but I recognize there’s a question about how long March 2020 actually was), he began marketing facemasks, including masks he described as “N95” and “Class N95.” Customers were provided “two shipping options: 1) ‘Fast Shipping (5-15 days)’; and 2) ‘Standard Shipping (3-5 weeks).’ ” However, when the pandemic began, Romero updated the policy: “As [a] consequence of the unprecedented novel coronavirus (COVID-19), we’re experiencing an unforeseen and unanticipated spike in the volume of orders which may affect our standard shipping/delivery times.” This was linked at the “My Cart” stage of the four-part checkout process, but it was not available once customers clicked the “CHECK OUT” button.

Over about a year, 104 orders were fulfilled late, 95 of which received no refunds or charge backs, while 219 facemask and facemask filter orders were unfulfilled and not refunded in full or charged back. Beginning in April 2020, customers began complaining about not receiving orders.

From March 19, 2020 through August 20, 2020, Romero sent a standard email to customers who ordered facemasks using the same language as in the updated store policy. However, this didn’t provide customers an option or avenue to either consent to a delay in shipping or to cancel their order for a prompt refund. This email was sent 9,619 times. If customers complained or inquired, Romero emailed, “Once orders have been placed, they’re immediately processed and therefore cannot be canceled. If customers contact us regarding cancellations after making a purchase, and the item/s purchased have not yet shipped, we can issue a refund in the form of store credit only.” This email was sent 868 times.

You will not be shocked to hear that Romero also lacked a reasonable basis to claim that the masks he was selling were N95s, even though he posted a “Certification of Registration” with the FDA’s logo on it connected to some of the facemasks he sold that were purportedly of “N95” quality. He also sent purported NIOSH certifications to customers.

MITOR prohibits a seller from soliciting any “order for the sale of merchandise to be ordered by [a] buyer ... via the Internet ... unless, at the time of the solicitation, the seller has a reasonable basis to expect that it will be able to ship any ordered merchandise to the buyer” either “[w]ithin that time clearly and conspicuously stated in any such solicitation; or [i]f no time is clearly and conspicuously stated, within thirty (30) days after receipt of a properly completed order from the buyer.” If “a seller is unable to ship merchandise within the” aforementioned time, then the seller must “clearly and conspicuously and without prior demand” allow the buyer to either “consent to a delay in shipping or to cancel the buyer’s order and receive a prompt refund.” If a “seller fails to offer th[is] option” to the buyer, then the seller must “deem [the] order cancelled and ... make a prompt refund to the buyer[.]” In addition, “the failure of a respondent-seller to have records or other documentary proof establishing its use of systems and procedures which assure compliance, in the ordinary course of business,” with these requirements “will create a rebuttable presumption that the seller failed to comply with said requirement.”

Findings: Romero didn’t have a reasonable basis for his shipping claims. He received many customer complaints and was aware that the manufacturers he used were struggling with product demand volume, but still continued to solicit and accept customer orders. Representations and purported guarantees from vendors on Aliexpress “do not coincide with or negate what Defendant actually knew.”

Romero also didn’t offer the refund-or-consent option to all necessary customers, nor deem orders cancelled and provide prompt refunds after failing to give the refund-or-consent option.

Thus, the FTC was entitled to Romero’s net revenues for violating the MITOR: $989,483.69.

The court also found violations of Sections 5 and 12 of the FTC Act with the shipping claims and N95-related claims (NIOSH/FDA certification, that the masks were proper N95 masks, and that they “had filtration efficiencies comparable to N95 respirators,” “had filtration efficiencies of greater than or equal to 95 percent,” and would “prevent viruses, including the CoV-2-virus, from passing through”). For shipping times, Romero lacked a reasonable basis for the representations, and they were presumptively material because they were express claims. Even without the presumptions, consumer complaints showed that shipping times were material.

N95-related claims were also made without a reasonable basis.  Romero argued that NIOSH itself did not know what an “N95” mask was in the beginning of the COVID-19 pandemic, but “this argument bolsters that Defendant himself could not have properly represented that the masks he sold on Trend Deploy were approved by NIOSH if, according to Defendant, such a certification did not exist.” This was deceptive and material, given the relationship to the pandemic, and customers repeatedly inquired about the quality.

Nor was the “Buyer Protection Guarantee” offered by Aliexpress enough for Romero to have reasonably believed his products were of proper quality. Although he didn’t seek approval from either NIOSH or the FDA, in response to customer questions, he sent customers copies of a purported NIOSH certification. Plus, Romero’s e-commerce domain host, Shopify, alerted him that his claims about the quality of his facemasks were unsubstantiated. Shopify ultimately prohibited him from using its serivces to process payments because of his unsubstantiated claims about the facemasks.

After the enactment of the COVID-19 Consumer Protection Act (CCPA) on Dec. 27, 2020, the FTC can go directly to court for penalties for Section 4 violations “associated with the treatment, cure, prevention, mitigation, or diagnosis of COVID-19.” Romero’s conduct violated the CCPA

Civil penalties: Civil penalties are available for any rule violation “with actual knowledge or knowledge fairly implied on the basis of objective circumstances that such act is unfair or deceptive and is prohibited by such rule.” Romero testified that he became aware of the MITOR in November 2020, when the FTC informed him he was under investigation, but kept making representations about, and selling, his facemasks in violation of MITOR and Sections 5/12.

Although the maximum civil penalty was $43,280.00 per violation, the court only imposed $2,565.21, a trebling of the $854.07 he apparently earned from violative sales after that point; although the court doesn’t say so, the fact that it awarded substantial consumer redress probably bears on this.

The court also found that Romero should be enjoined. Romero also sells clothing through a separate company; during the pandemic, he explained that his advertising “pages ke[pt] getting banned because they have the same name,” and he noted that he had the ability “to change [his] domain and start from zero again ... so that [F]acebook [would] not block [Defendant] anymore[.]” And he was still violating the MITOR by misrepresenting shipping times and not allowing customers the opportunity the refund-or-consent option required under the MITOR. The “FTC has proven a ‘cognizable danger’ of a recurrent violation.” The FTC was directed to file a proposed order; the defendant “must expect some fencing in” “as long as the relief is reasonably related to the violations of the FTC Act which occurred, and is not too indefinite.”

"TM-compliant" ads not shown to be nominative fair use

World Axe Throwing League, Inc. v. Cold Steel Inc., 2023 WL 2372059, No. 2:20−cv−11407 JAK (Ex) (C.D. Cal. Feb. 14, 2023)

Plaintiffs sued defendants for state and federal trademark infringement and related claims. Plaintiff WATL is allegedly the preeminent governing body and league for the sport of axe throwing and uses the trademark “WATL” to market and publicize the axe throwing league. Cold Steel allegedly “marketed, advertised and sold substantial sums of axes which were clearly labeled ‘WATL Compliant’ or ‘Meets WATL regulations.’ ”

The court found that this was close enough to saying “WATL approved” that it wouldn’t grant summary judgment on nominative fair use, which is yet another way that trademark is just much more expansive than false advertising (compare treatment of “FDA registered,” for example).

First, nominative fair use permits only the “truthful use of a mark.” Toyota, 610 F.3d at 1177. Defendants contended that one axe “meet[s] WATL Regulations” and that another “meets WATL Regulations with a slight modification that is commonly made.” But WATL argued that wasn’t true, creating a disputed issue of fact. As to one axe whose compliance was undisputed, the defense was still disputed.

NFU factors: (1) WATL wasn’t readily identifiable without use of the mark (the current ad claim “Meets most axe throwing association requirements for tournament play,” was an insufficient substitute). (2) Defendants didn’t use any distinctive features of the mark, such as logo or stylized lettering; although the WATL mark was displayed more prominently than the Cold Steel mark in some instances, that wasn’t important given the lack of distinctive font or logo; defendants only used what was reasonably necessary.

The problem was (3): whether defendants did anything that would, in conjunction with the mark, suggest sponsorship or endorsement. Use of the mark with the words “compliant,” “legal,” and “meets ... regulations” could have done so because there was evidence of consumer confusion. An axe-throwing business owner testified that, in 2019, he and two other league members believed that WATL worked with Cold Steel to manufacture axes, based on advertisements on Cold Steel’s website. “Although it is not clear whether the phrase ‘WATL approved” appeared on Cold Steel’s website, [his] testimony demonstrates that axe purchasers could reasonably and mistakenly believe that the Competition Thrower was either approved by or made with WATL, and that this belief arose due to the use of the WATL mark on Cold Steel’s website.” Another business owner testified similarly; though his belief “stemmed from assumptions and inferences,” his testimony supported “the view that Defendants’ use of the WATL mark on social media and through a sales representative, contributed to confusion about the relationship between WATL and Cold Steel within the community of competitive axe throwers.” Thus, a reasonably prudent consumer could be confused, and another putative defense dies as it is reduced merely to confusion.

“Further, internal Cold Steel communications support the inference that Cold Steel intended to use the WATL trademark to increase sales.” In another case, statements by a manager of a band that recommended the use of a trademark to “create or enhance marquee value,” was evidence that the band used the trademark to suggest sponsorship. Cold Steel’s use could have contributed to the impression that Cold Steel’s Competition Thrower would be “the next big thing in WATL,” causing throwers to buy it. [None of that depends on confusion. NFU was born because USA Today polled on New Kids on the Block, not some unknown band, which it did because that would be more profitable than polling about an unknown, but that’s not the same thing as intending or desiring confusion. Sigh.]

Contributory infringement: There was a genuine issue as to whether defendants intentionally caused any other person to infringe on the WATL mark or continued to supply axes to any person while knowing that the person was using the axe to engage in trademark infringement, based on the “common practice for retailers, including Amazon, to copy and paste product descriptions from the website of the manufacturer.”

Drop-shipper's "in stock" and "trust us over others" claims not shown to be deceptive

Krikor v. Sports Mall, LLC, 2023 WL 2372068, No. CV 22-5600-DMG (MRWx) (C.D. Cal. Jan. 24, 2023)

Previous decision here—really interesting attack on internet arbitrage; defendant copied Krikor’s eBay memorabilia photos and listed the memorabilia on its own site with a markup; anyone who bought from defendant would actually have defendant buy from Krikor and drop-shipped to the purchaser. Both copyright and false advertising claims (based on Sports Mall’s disparagement of eBay sellers as unreliable) survived a motion to dismiss, but the false advertising claim can’t make it past summary judgment, while Krikor received partial summary judgment on the copyright claim.

Sports Mall advertises items as “in stock” when either (1) it has an item available in its own inventory or (2) the item is in the inventory of a third-party source from which Sports Mall can purchase and either ship or have the item “drop-shipped” to fill an order. “Sports Mall claims that whenever it purchases items from other, third-party vendors of sports memorabilia, it requires certificates of authenticity or has items authenticated by third party service providers.”

Its website FAQ includes: “Why can I, when searching, find the same item for a lower price on eBay?” and the answer states:

You might find the same item or one very similar for various reasons. Most of our leading competitors buy their collectibles in bulk and resell them on their site. SportsCollectibles.com deals directly with the athletes at signings along with their agents and our highly reputable vendors, therefore our products are 100% authentic. We would never sacrifice the quality or authenticity of your collectible for a lower price. Anyone can sell their items on eBay, so unless you personally know the vendor you should be cautious when purchasing.

So too “How do I know that what I am purchasing is authentic?”:

SC does not purchase autographed sports memorabilia from private collectors. We do this for your protection. We do not take a chance in purchasing from individuals that we do not know as we want to be able to guarantee our products 110%. All our products come direct from a private session with the athlete in which a reputable company (such as Steiner, Upper Deck, APE, Real Deal, etc.) was present.... We will not purchase any of these items as we only deal direct [sic] with the authenticator.

The court grouped the UCL/Lanham Act claims together.

“In Stock”: This wasn’t literally false, but it could be misleading. The dictionary definitions didn’t show that “in stock” always means that the goods are in the possession of a retailer, rather than merely available “for immediate sale” or “available for sale or use.” There was a genuine dispute of material fact about misleadingness. Even if drop-shipping is a common industry practice used by retail giants such as Amazon, “that does not mean that SportsCollectible.com’s use of ‘in stock’ does not tend to mislead consumers to believe it literally possesses the item, especially given its assurances regarding its process for ensuring authenticity.”

“Why can I, when searching, find the same item for a lower price on eBay?”: This too was misleading in context, because it “implies that the eBay sellers of ‘the same’ merchandise are inauthentic, when in fact, those are the very sellers from which Sports Mall sources at least some of its ‘100% authentic’ products.”

“All our products come direct from a private session with the athlete in which a reputable company... was present. We will not purchase any of these items as we only deal direct [sic] with the authenticator”: Not literally false. The statement didn’t mean that Sports Mall itself is present at these signings, but rather that it verifies the certificates of authenticity of its products. And the record was “replete” with evidence that Sports Mall makes all reasonable efforts to ensure that its products are authenticated in the manner described in this statement. There was no evidence that the statements led any consumers to believe that Sports Mall or its agents personally knows all their vendors and/or has a company representative present at all sessions with the athletes.

However, in the context of the website, the claim that “we only deal direct [sic] with the authenticator” could plausibly mislead a consumer to believe that Sports Mall never sells items obtained by third-party sellers, which is untrue. Nor was it clear whether Sports Mall was distinguishing between products it directly purchases and holds in its own inventory versus products it advertises and sells through other vendors.

Deception: Here’s where the claim failed, because there was only evidence of a single person—a family friend—who may have been deceived by Sports Mall’s advertising, and even that one person’s testimony fell short of supporting that claim. He merely stated that he “couldn’t understand how the exact same item could be in two different places” and “I did not feel right about the decision” to buy from SportsCollectibles.com, and that he “just wasn’t sure of [the item’s] authenticity.” This wasn’t enough to show that a substantial number of reasonable consumers were deceived.

Unsurprisingly, the copyright claims fared better. The photos of the items were original: Krikor submitted a declaration describing his intentional choices behind the lighting, composition, and framing of the photographs. Nor was the use of the photos fair use. Sports Mall’s use of the photographs was not “transformative,” but merely “exact copying from Plaintiff’s store to Defendant’s store.” The photos were created to advertise, not as artistic expression, and Krikor didn’t lose his right of first publication, so factor two favored neither party (probably truer to say it favored defendant but was of essentially no weight). They were used in their entirety. And the photos “serve little use outside of the marketing” of the memorabilia. Krikor licensed the photos to co-plaintiff Kevorkian for $100. “The market for the photos may be small, but Sports Mall is Plaintiffs’ direct competitor, and its use of the photos helps it make a profit. The photos help Plaintiffs sell the depicted merchandise and it follows that any potential buyer might be less likely to buy the jerseys directly from Kevorkian’s eBay store if the photos were copied everywhere.”

Unclean hands: Sports Mall alleged that the plaintiffs “created and registered the copyrights in the two photos at issue and put them on [Kevorkian’s] second eBay store (which was never mentioned to Sports Mall), intending only to trick Sports Mall into copying the photos in order sue Sports Mall.” “Though slim, triable questions of fact remain as to whether this defense bars Krikor’s infringement claim.”

There were also triable issues on willfulness. It was uncontroverted that Sports Mall uses an algorithmic “crawler” to locate listings for its site, but it was unclear from the record how that “crawler” works, and how much Sports Mall monitors its listings and manages its “block list.”  

The parties even disputed whether Sports Mall took down the allegedly unlawful photographs referenced in a September 2020 demand letter, and about whether Sports Mall was aware or should have been aware of Kevorkian’s additional eBay stores and blocked its “crawler” from those sites as well.

UCL claim could be based on lost opportunity to register trademark

Zamfir v. CasperLabs, LLC, 2023 WL 2415262, No. 21-CV-474 TWR (AHG) (S.D. Cal. Mar. 8, 2023)

Previous ruling. Zamfir, a blockchain researcher, alleged that he was known for his proof-of-stake (PoS) protocol; he adopted the name “Casper” for the research and development of this protocol, and is often credited as being the “face of Casper.” CasperLabs had a failed partnership with him. Zamfir alleged that CasperLab’s officers and agents told him that they would register the Casper trademark on his behalf, so he didn’t register the Casper trademark himself. Instead, CasperLab filed two trademark applications to register the Casper mark in its own name.

Over Zamfir’s objections, CasperLabs released a series of new blockchain products using the Casper name, including a Casper public network, Casper token, and Casper highway protocol. The highway protocol allegedly suffered from performance issues and never met the design requirements that Zamfir had previously advertised when working with CasperLabs on the product, thus allegedly harming his reputation. The continued use of the Casper name allegedly made it more difficult for Zamfir to secure independent research funding and product promotion.

CasperLabs moved to dismiss two of Zamfir’s remaining claims: fraud by intentional misrepresentation and unfair business practices.

Fraud: This requires “actual monetary loss” or “pecuniary damage or injury by reason of having been put in a position worse than he would have occupied had there been no fraud.” The court previously dismissed the claim for failure to sufficiently plead commercial injury. He now alleged that he was deprived “of his exclusive property and presumed nationwide rights in the CASPER Mark,” the benefits and advantages of federal registration, and the value of his unregistered mark.

A trademark is a “limited property right,” and, by alleging a depreciation in the value of his unprotected Casper mark and a deprivation of the Casper trademark, Zamfir sufficiently stated a claim for monetary loss. Although the PTO hasn’t finally resolved the ownership issues, Zamfir allegedly “forfeited a viable opportunity to establish a valuable property right when he gave up the ability to apply for a trademark registration. The viability of such an opportunity is underscored by Defendant’s own successful registration of the trademark, which demonstrates that Plaintiff likely would have secured at least one trademark had he retained the ability to apply.”

UCL:  “With respect to the UCL specifically, section 17200 does not support claims by non-California residents where none of the alleged misconduct or injuries occurred in California.” The complaint alleged that, “[o]n information and belief, CasperLabs’ conduct and false statements ... occurred in California, and CasperLabs’ officers and agents residing within California ratified and participated in CasperLabs’ conduct ....” It was thus plausible that the alleged fraudulent misrepresentation occurred, at least in part, in California. But the UCL claim didn’t allege fraudulent misrepresentation; it alleged Lanham Act unfair competition. Zamfir needed to allege that the acts constituting federal trademark infringement occurred at least in part in California, and he didn’t.

In addition, a UCL claim requires that a plaintiff must have “suffered injury in fact and ha[ve] lost money or property as a result of the unfair competition.” “This injury requirement is more restrictive than the federal injury in fact requirement because it encompasses fewer types of injuries, but it is not intended to be quantitatively more difficult to satisfy.” In prior versions of the complaint, the general allegation that his name, reputation, and goodwill were harmed did not, without more, support the assumption that Zamfir lost money or property. But what about the new allegations that he was deprived of the benefit of a registered trademark/his unregistered trademark’s value was harmed? Those injuries didn’t come from the alleged infringement. However, if the claim had been premised on fraudulent misrepresentation, that would have been enough to plead economic injury. As Kwikset held,

There are innumerable ways in which economic injury from unfair competition may be shown. A plaintiff may (1) surrender in a transaction more, or acquire in a transaction less, than he or she otherwise would have; (2) have a present or future property interest diminished; (3) be deprived of money or property to which he or she has a cognizable claim; or (4) be required to enter into a transaction, costing money or property, that would otherwise have been unnecessary.

Reminder: teaching first-generation students, free HLS webinar at 12 noon EST

Teaching First-Generation Law Students

https://harvard.zoom.us/webinar/register/WN_V_Qm9UprRsqlcQNFzah2HQ

First-generation students face unique challenges. Anthony Abraham Jack’s The Privileged Poor recently highlighted many of the invisible-to-professors barriers such students, especially first-generation students of color, face in college. What about when those students go to law school? Dean John Manning will introduce the panel. Three professors—Angela Littwin, Etienne Toussaint, and Rory Van Loo—will share invaluable insights and recommendations to make “the invisible curriculum” both explicit and navigable to all students.

Panelist bios:

Angela Littwin, Ronald D. Krist Professor in Law at the University of Texas at Austin School of Law, is a leading scholar of economic justice issues facing individual consumers. She studies bankruptcy, consumer, and commercial law from an empirical perspective. Her current research includes studying the attitudes towards bankruptcy among consumers being sued by debt collectors, bankruptcy local legal culture, as well as the relationship between consumer credit and domestic violence (DV). She has published in journals such as the Texas Law Review, University of Pennsylvania Law Review, California Law Review, and American Bankruptcy Law Journal. She has recently published articles about racial disparities in bankruptcy chapter use, the Consumer Financial Protection Bureau's complaints process and supervision program as well as on how consumer bankruptcy attorneys adapted to the Bankruptcy Abuse Prevention and Consumer Protection Act. Professor Littwin has been a principal investigator for a number of empirical projects.

Etienne Toussaint is an Assistant Professor of Law at the University of South Carolina School of Law where he teaches Contracts, Business Associations, Secured Transactions, and related seminar courses. His scholarship sits at the intersection of law, history, political economy, and critical theory, with a focus on the socioeconomic challenges facing historically marginalized urban communities across the United States. He has been nationally recognized for his teaching, scholarship, and service. For example, in 2022, he was awarded the Junior Great Teacher Award by the Society of American Law Teachers. Professor Toussaint began his legal career as a project finance associate with Norton Rose Fulbright US LLP. Then, he served as a Law & Policy Fellow with the Poverty & Race Research Action Council in Washington, D.C. before transitioning into law teaching. As a student at Harvard Law School, Toussaint served as Vice-President of the Board of Student Advisers. Born and raised in the South Bronx, New York, Professor Toussaint is the son of immigrants from the island of Dominica in the West Indies, the proud husband of Ebony A. Toussaint, Ph.D., and the father of their three amazing sons.

Rory Van Loo teaches Contracts, Business Organization, Consumer Law, and Financial Regulation at Boston University, where he is involved with the First-Generation Professionals student group. He is a graduate of Harvard Law School, and as a student he served as a Teaching Assistant in the Negotiation Workshop. He later returned to Harvard Law School as a Lecturer to teach Dispute Systems Design and Advanced Negotiation: Multiparty Negotiation, Group Decision Making, and Special Dispute Management Processes. After law school, he worked as a management consultant at McKinsey & Co. and was on the team that helped set up the Consumer Financial Protection Bureau.

"maximum strength" OTC claim plausibly misleading where prescription strength was stronger

Acosta-Aguayo v. Walgreen Co., No. 22-cv-00177, 2023 WL 2333300 (N.D. Ill. Mar. 2, 2023)

Plaintiffs alleged that three of Walgreens’ pain-relieving products mislead consumers because the products’ front labels state that they are “Maximum Strength” lidocaine products, but stronger prescription products are available. This was plausible on a motion to dismiss.

Plaintiffs alleged that consumers consider dose strength an important factor when purchasing pain-relieving products. But competitors allegedly offer similar prescription patches that contain 5% lidocaine and an over-the-counter cream product that contains 5% lidocaine.

The court also found that the plaintiffs could represent purchasers of a different patch product, which was substantially similar “in the colors of the packages and text, the images displayed, the text style and text descriptions in the bullet points, and the shape and size of the packaging.” But the challenged cream wasn’t substantially similar.

Walgreens argued that “[n]o reasonable consumer purchasing one of the Products would read ‘Maximum Strength’ on the labels to literally mean that the Products contain the maximum amount of lidocaine that a person could ever obtain anywhere.” But, “[w]hile a reasonable consumer likely understands the difference between over the counter and prescription drugs, a reasonable consumer would not necessarily understand the ‘Maximum Strength’ on the Product’s label to exclude comparable prescription medication…. Reading the phrase ‘Maximum Strength’ to mean the maximum strength of lidocaine available generally is not an “unreasonable or fanciful interpretation[ ]’ of the Product’s label.”

Walgreens argued that the claim was implausible because 4% is the maximum concentration permitted by the FDA in non-prescription external analgesics. But it didn’t argue that a reasonable consumer would know this, and the label could still be misleading. A similar case,  Scilex Pharms. Inc. v. Sanofi-Aventis U.S. LLC, 552 F. Supp. 3d 901 (N.D. Cal. 2021), concluded that the plaintiff stated a claim under the UCL or FAL by alleging that defendants’ advertising and marketing is likely to deceive a reasonable consumer to believe, among other things, that Defendants’ patches offer ‘the maximum amount of lidocaine available in patch form.’ ” Factual development was required.

Claims for beach of express and implied warranties ere dismissed for failure to give pre-suit notice, as was common-law fraud for conclusory allegations about knowledge and intent; defendants didn’t have a fiduciary duty to disclose. Unjust enrichment did survive at this stage, as did claims on behalf of a multi-state class.

Injunctive relief claims were dismissed for want of standing, which also got rid of the state UDTPA claims, and because plaintiffs failed to allege that they lacked an adequate remedy at law, the court dismissed their claims for restitution and disgorgement.