"2x Omega" that wasn't 2x the regular product was plausibly misleading

Caldwell v. Nordic Naturals, Inc., 2024 WL 24325, No. 23-cv-02818-EMC (N.D. Cal. Jan. 2, 2024)

Caldwell alleged that the dietary supplement product “Ultimate® Omega 2X” misled consumers into thinking that there is double the amount of omega-3  per serving than the amount of omega in the Nordic Naturals product named “Ultimate® Omega.” The court kicked out quasi-contract, unjust enrichment, and restitution claims with leave to amend and claims for injunctive relief without leave to amend, but otherwise sustained the basic consumer protection theory.

Ultimate Omega contains 1280 mg of omega per serving, while Ultimate Omega 2X contains 2150 mg, not 2560 mg of omega. Nordic argued that Caldwell’s claims failed because the product label states on the front, in bold letters, that the contains 2150 mg of omega.

The packages

The court summarized the relevant principles:

Where the label of a product is ambiguous, meaning a reasonable consumer would realize the label could have more than one meaning, the court should consider other information available to the consumer aside from the label to determine if a reasonable consumer would be misled. To this end, a consumer might be expected to consider information on the back label of the product; common consumer knowledge and price of the product is also relevant to the analysis. On the other hand, where the front of the product creates more than mere ambiguity, but instead misleads a consumer into thinking one thing (i.e., that the product contained snacks made of fruit juice) that in fact is not true, the consumer is not required to dig through the other information (including the back label) to dispel that falsity. Otherwise, companies would be allowed to mislead a consumer into thinking one thing is true about the product, while shielding the company from liability through fine print.

Here, the front label was plausibly misleading, not just ambiguous, based on the commonly understood meaning of “2X.” The mg disclosure on the front label didn’t change the issue: Caldwell argued not that she believed the product contained more than 2150 mg of omega, but that she was under the impression that the amount of omega in the 2X product equated to two times the amount included in the original product. The 2150 mg label “does nothing to clarify whether the product is two times stronger than the original product on its face. Rather, the truth can only be learned by viewing the 2150 mg amount in relation to the contents of the original product – an entirely separate product with its own label.”

The addition of the phrases “Next Generation Fish Oil,” and “More Powerful. Naturally.” on the front label was “consistent with the interpretation that the product is two times the potency of the original product.” Indeed, Nordic didn’t offer its own intention about what 2X was supposed to mean, if not twice the potency, only suggesting that it could mean “next generation.” The court found this “hardly convincing” and certainly not enough to render misleadingness implausible.

“The label at issue does not include the sort of inherent ambiguity which might put a consumer on notice to investigate the meaning of the label further.” “2X” “commonly and clearly” denotes “two times.” Moreover, the additional information that could be investigated (that two times the omega of the original amounts to 2560 mg and not 2150 mg) “is contradictory to and not a mere clarification of an ambiguity in the front label.” Nor would reviewing the back label have helped. A reasonable consumer is not required to cross-check a different product label “under these circumstances if at all,” especially when that would require doing math. “Unlike cross-referencing the back label of a product, it is not clear if another product will be available for inspection at time of purchase—rendering it less appropriate for a consumer to be expected to reference that label.”

Finally, the court declined to dismiss a nationwide class at this stage. Nordic is a corporation with its principal place of business in California, shifting the burden to it to show, under California’s choice of law rules, why California law should not apply to her nationwide claims. This it had not (yet) done.

sending emails under former employees' names may be reverse passing off

LoanDepot.com, LLC v. CrossCountry Mortgage, LLC, 2023 WL 9022893, No. 22-cv-5971 (AS) (S.D.N.Y. Dec. 29, 2023)

loanDepot alleged that CCM, its chief competitor, “improperly poached” 32 employees, and CCM and various former employees. CCM counterclaimed for abuse of process and for violations of the Lanham Act and related state laws; one ex-employee also brought counterclaims against loanDepot for breach of contract and breach of the implied covenant of good faith and fair dealing. I’m only going to discuss the false association/false advertising bits; as to the latter, state law provides more protection than federal because of the “commercial advertising or promotion” requirement for Lanham Act false advertising.

Counterclaims for false association and false advertisement under the Lanham Act, unfair competition under New York common law, and unfair business practices under the New York Deceptive Practices Act were all based on allegations that loanDepot sent blast marketing emails advertising loanDepot’s services from the loanDepot email addresses of former employees after those employees had begun working for CCM.

The false association/coordinate state law claims survived. loanDepot allegedly violated the Lanham Act by using “the name and likeness of CrossCountry employees, including Scott Bonora, Faheem Hossain, and others, in false advertisements sent to potential customers in May and July 2022,” which “wrongly passed off the products and services of CrossCountry as products and services of loanDepot.” There was no requirement that CCM’s name or reputation be invoked for a false association claim, because the Lanham Act also covers “reverse passing off,” in which “A promotes B’s products under A’s name.” Thus, it sufficed to allege that loanDepot “was falsely passing off the services of Mr. Bonora and Mr. Hossain as the services of loanDepot rather than services of CrossCountry.” (I’m not sure this works—at least not without secondary meaning in Bonora and Hossain’s names.)

loanDepot argues that the names weren’t material, but CCM alleged that “loanDepot knew that the identity of Mr. Bonora’s and Mr. Hossain’s employer was material to those contacts, as it was important to the decision by customers to apply for a loan or by referral sources to refer a borrower” and that loanDepot was attempting to “influence a consumer to apply for a loan at loanDepot, or for a referral source to refer a borrower to apply for a loan at loanDepot.” Claims brought by former employees themselves (citing Rubris, Inc. v. Ankura Consulting Grp., LLC, 2021 WL 7210782 (D.D.C. Mar. 26, 2021)) were distinguishable because the employee would have to allege “a commercial interest in his name that could be damaged” and because “nothing about the advertisement itself gives rise to a plausible inference that [the employee’s] name holds commercial value.” And CCM pled that it lost customers based on the use of its employees’ identities in these emails. But the court noted that loanDepot could reprise its arguments at summary judgment (citing Reed Const. Data Inc. v. McGraw-Hill Companies, Inc., 638 F. App’x 43, 45–46 (2d Cir. 2016) (affirming summary judgment on Lanham Act claim when “[d]iscovery revealed only one customer who arguably relied upon [defendant’s] advertising in deciding between” the defendant and plaintiff)). This also allowed the state-law unfair competition claim to move forward; the extra requirement of bad faith was pled by alleging, inter alia, that loanDepot continued to send the emails months after the loan officers left CCM and after CCM sent cease-and-desist letters, and that loanDepot sent similar emails from the accounts of other loanDepot employees who also left to join CCM.

But false advertising failed because “[m]aking allegedly false statements to a finite number of identifiable individuals does not constitute ‘advertisement or promotion’ for Lanham Act purposes.” It was possible that the emails could constitute “an organized campaign to penetrate the market,” as the Second Circuit requires, allegations that emails were sent to “all” of a former employee’s contacts were insufficient. “These allegations provide no information about the size of the market or the number of customers to receive the allegedly false advertising.” Dismissed without prejudice.

The result under NY GBL §349 differed, because it requires alleging only that “(1) the defendant’s deceptive acts were directed at consumers, (2) the acts are misleading in a material way, and (3) the plaintiff has been injured as a result.”

comparison charts could infringe, but properly labeled internal search didn't

Penn Engineering & Manufacturing Corp. v. Peninsula Components, Inc., 2023 WL 9051998, No. 19-513 (E.D. Pa. Dec. 28, 2023)

Penn Engineering designs and manufactures various types of fasteners sold under various trademarks, and alleged that Peninsula sold identical fasteners while infringing on Penn Engineering’s marks.

The court grants partial summary judgment on trademark claims but reserves some, and a false advertising claim, for trial. There’s a factual dispute over whether Peninsula’s use of Penn Engineering’s trademarks in its “PEM Family of Marks” (based on the name of its holding company) in Google search advertisements stemming from three ad vendors constituted an intent to confuse. But claims based on Peninsula’s website search tool were dismissed. “Like a person searching for Domino’s Pizza on Pizza Hut’s website could not be confused that they are purchasing Domino’s Pizza when being presented with Pizza Hut options, a customer searching for Penn Engineering products on Peninsula’s website that presents Peninsula products could not be confused into thinking he or she is buying Penn Engineering products.” However, there was a factual dispute over the extent to which Peninsula’s use of sales drawings constituted advertising.

In a previous round of summary judgment, the Court rejected claims based on “Keyword Conquesting” (which seems to be just keyword advertising) and “Unlawful Gray Market sale of authentic Penn Engineering fasteners.”

Search engine ads: Penn Engineering argued that Peninsula has “continue[d] to intentionally use PEM’s famous mark PEM in [Peninsula’s] online display ads and that such use was not a ‘vendor mistake’ as [Peninsula] has alleged.” An August 2023 for “pem standoff” produced a sponsored search result for “Pem Standoff – Clinch Standoffs” underneath a URL directing the user to Peninsula’s website.

 

screenshot showing sponsored "Pem Standoff - Clinch Standoffs" ad

But there was still a genuine factual dispute about whether this was intentionally confusing.

Things were easier for Peninsula’s internal website search. A user couldn’t place an order from Peninsula’s website without directly interacting with Peninsula sales staff. The court first reasoned that a customer’s use of Penn Engineering’s marks to search constituted “use” of those marks because of Peninsula’s internal metatags, which provided Peninsula with an opportunity to reach consumers apparently the court means that the site redirects searches for Penn Engineering marks to coordinate Peninsula products. (Abitron could seem to put this in question). Nonetheless, the court still granted summary judgment to Peninsula on this activity. Although “initial interest confusion is probative of a Lanham Act violation” as a type of bait and switch, keyword-generated ads that don’t use Penn Engineering’s marks in text were not actionable because the results were “clearly labeled as belonging to Peninsula and there is no likelihood of confusion where the use of trademarks as trigger words is hidden from the consumer.” The same reasoning applied here. (For some reason, the court doesn’t cite the Amazon/MTM case.) Initial interest confusion depends on wrongful diversion, but there could be no wrongful diversion when consumers were already on Peninsula’s website. Penn Engineering argued that the consumers might have come from infringing search ads, but “there cannot be two points of initial interest for a customer.” Penn Engineering, much like MTM, argued that the search results provided “no indication or disclaimer that these products are not PEM products,” such that Peninsula’s website might believe that the site is “under the guise of some affiliation or sponsorship” with Penn Engineering or believe that Peninsula is a “dealer, authorized distributor, or otherwise affiliated with PEM” and thus confuse the customer. But there was no evidence supporting this theory, and summary judgment was thus appropriate. 

screenshot: search results for CLS-0420-2, showing results with different names

As a matter of law, no reasonable jury could find the display confusing (apparently Penn Engineering claims the product number as a trademark), since the results were clearly labeled, as in a Google search. (I always note when courts are blessing Google’s business model as a reference point!)

 

super blurry Google screenshot with targeted ads that don't use plaintiff's marks

The same would be true if one got results on Samsung’s website by searching “Apple iPhone,” or on Toyota’s website by searching “Honda Civic.” “A customer could not be confused that a part name, wholly different from the part name entered in the website search tool, is in fact that same part name, and Penn Engineering has presented no evidence that any consumer has even searched for Penn Engineering products on Peninsula’s website, let alone a customer who believes that he or she is purchasing Penn Engineering products when presented with Peninsula products.” As a matter of policy, businesses shouldn’t be forced to use disclaimers in this situation; the court noted the prospect that, under Penn Engineering’s argument, businesses would have to disclaim affiliation with every possible competitor in every search result.

Website search was distinguishable from Peninsula’s cross-reference charts that listed Penn Engineering marks alongside Peninsula substitutes on Peninsula’s website, “because whether the charts led to consumer confusion depended on the factual question of whether consumers might infer a business relationship between Peninsula and Penn Engineering by seeing Penn Engineering’s marks on Peninsula’s website.” There was a factual dispute over whether the charts that listed the Penn Engineering product side-by-side with the Peninsula product demonstrated “a manufacturer-distributor relationship, or that Peninsula is a division of Penn[ ]Engineering or a division of a common parent.” (That … isn’t really how manufacturer-distributor/divisional relationships are presented to consumers, as far as I know; it seems like this theory should have required actual evidence too.) But for the website search, none of Penn Engineering’s information or marks were side-by-side with the corresponding Peninsula product.

Indeed, the court was open to the general theory: “had Penn Engineering presented evidence of customers consistently searching for its products on Peninsula’s websites and then believing that the search results yielded Penn Engineering products, that would likely be enough for such claims to survive summary judgment.” (Note here that this is describing pure source confusion, not the weird, unprovable, immaterial affiliation confusion theories that plaintiffs like to assert.) Likewise, false claims to offer a competitor’s products/labeling the seller’s product as the competitor’s would obviously be actionable.

Penn Engineering also made false advertising claims based on Peninsula’s use of sales drawings. Here the issue was “commercial advertising or promotion”; Peninsula argued that it would provide a single drawing of a single product to a single customer only when the customer requested that sales drawing. In response,

Penn Engineering argues that Peninsula has created over 2,000 sales drawings that Peninsula has distributed to hundreds of customers over a period of time spanning more than 25 years. For example, Penn Engineering relies on a letter from Peninsula in which Peninsula admitted that it created 199 new sales from the sales drawings and provided one of those drawings approximately 60 times to 30 different customers over approximately two years. Peninsula’s Chief Operating Officer also testified at his deposition that the sales drawings are “generally available” to Peninsula’s customers. At oral argument, Peninsula did not dispute these facts.

Even if the sales drawings were not published but sent only on request, person to person, they could still constitute commercial advertising or promotion if they were sufficiently disseminated to the relevant purchasing public, which was a question of fact. Approximately 2.5% of Peninsula’s customers over that two-year span received such sales drawings, which could show that they were “part of an organized campaign to penetrate the relevant market.”

"plant butter with almond oil" plausibly implies significant amount of almond oil

Reyes v. Upfield US Inc., --- F.Supp.3d ----, 2023 WL 6276685, No. 22-CV-6722 (KMK) (S.D.N.Y. Sept. 26, 2023)

Reyes alleged that the labeling on some of Country Crock’s plant butter was deceptive in violation of §§ 349 and 350 of the New York General Business Law; common law breach of express warranty; common law fraud; and common law unjust enrichment. The first claim survived, with some sharp words from the judge on the common-law claims.

Country Crock sells a vegetable oil spread described as a plant butter “made with almond oil” or “with almond oil.” The label highlights the terms “Plant Butter,” “Dairy Free,” “79% Plant-Based Oil Spread,” and a description that the product is made “With Almond Oil.” The label also has pictures of almonds, an almond flower, and almond leaves.

image of product with almonds on label

Reyes alleged that consumers would, from this, expect a significant, non-de minimis amount of almond oil, in relative and absolute amounts to all oils used, but in fact the ingredient list showed a “negligible” amount of almond oil, both in relative and absolute amounts. Instead, the oil came from, in order, palm fruit, palm kernel, canola and almond oil.

Reyes alleged both consumer-oriented conduct and injury (paying a premium price). Moreover, the label was plausibly misleading. Upfield argued that “the Product’s front label makes no representation regarding the relative or absolute amount of almond oil in the Product,” and thus that “including the ingredient list[ ] clearly precludes the possibility of deception,” along with contesting the description of the almond oil as de minimis.

At this stage, it was plausible that consumers would expect the predominant oil to be almond oil, under Mantikas v. Kellogg Co., 910 F.3d 633 (2d Cir. 2018), which found that it was plausible that crackers labeled as “WHOLE GRAIN” and “MADE WITH WHOLE GRAIN” would mislead consumers into thinking that the grain content was predominantly whole grain.  As another court said:

While reasonable consumers may not have a well-defined understanding of what “plant butter” is, they are likely to understand that a “plant butter” spread is made from plant-based ingredients. As in Mantikas, they will likely look to emphasized assertions on the packaging to discern what these ingredients are. It is therefore plausible that the representation that the plant butter is “Made With Olive Oil” could lead a reasonable consumer to conclude that the major plant-based ingredient was olive oil. In this context, the disclosure on the front of the packaging that the Product is a “79% vegetable oil spread” would not necessarily contradict the initial impression ….

This wasn’t a case where the touted ingredient was obviously not the predominant ingredient, as with Kennedy v. Mondelez Global LLC, No. 19-CV-302, 2020 WL 4006197 (E.D.N.Y. July 10, 2020) (no reasonable consumer would assume that “made with real honey” on a graham cracker label meant it was predominantly honey and thus couldn’t assume it was the predominant sweetener). Nor would the back-of-package ingredient disclosures necessarily dispel the misleading front. And as for whether it was plausible to think that a spread could be mostly olive oil, “a reasonable consumer is not expected to have an intimate understanding of the chemical properties of [almond oil] vis-à-vis the other vegetable oils or a sense of what ratio of oils is feasible.”

Nor was there FDCA preemption; Reyes wasn’t challenging nutrient claims.

Breach of express warranty failed for want of the required pre-suit notice. On this and the following, the court noted that plaintiff’s counsel had made and lost similar claims multiple times in this court, and mentioned Rule 11. Fraud also failed because of failure to allege scienter; it wasn’t enough to point to the profit motive. And unjust enrichment was duplicative.

"One a Day" plausibly misleads when consumers need to take more than one to get full benefit

Newman v. Bayer Corp., --- F.Supp.3d ----, 2023 WL 6318523, No. 22-CV-7087 (KMK) (S.D.N.Y. Sept. 28, 2023)

Another day, another “One A Day” claim where the bottle instructs users that, you guessed it, a daily serving is more than one gummy. NY GBL § 349 and § 350 claims survived. (Does this cause any problems for the One A Day trademark?)

One a Day gummies that aren't one a day

The court found consumer-oriented conduct and price premium injury sufficiently alleged. The labels were also plausibly materially misleading. Defendants relied on two cases rejecting similar theories, including one that was vacated by the Ninth Circuit in light of California cases more favorable to plaintiffs (Goldman v. Bayer AG, No. 17-CV-647, 2017 WL 3168525 (N.D. Cal. July 26, 2017), vacated and remanded, 742 F. App’x 325 (9th Cir. 2018); and Howard v. Bayer Corp., No. 10-CV-1662, 2011 WL 13224118 (E.D. Ark. July 22, 2011)). But, under Mantikas v. Kellogg Co., 910 F.3d 633 (2d Cir. 2018), it was plausible that “there is little chance that clarification or context on the reverse of the package will suffice to overcome a deception claim (especially at the motion-to-dismiss stage).”

The product “communicat[es] by the large, bold-faced claims” to a reasonable consumer that “One A Day,” or specifically, to a reasonable consumer purchasing a bottle of supplements, one supplement a day, is needed to receive its benefits. It was also relevant, though not dispositive, that other supplements sold under the same brand were, in fact, one per day. “Common sense would dictate that a reasonable consumer, choosing between supplement brands or products, may choose a product within a line that provides the ‘full nutritional value’ in a single gummy, as Defendants indeed market with their other, non-chewable versions within the same line.” The interpretation “one serving a day,” by contrast, was “a stretch.” “An apple a day keeps the doctor away” means one apple, not one serving.

Even though one would need to look at the ingredient label to know exactly what the nutrients were, the issue was whether a consumer would believe she’d get the full nutritional benefit—whatever that was—with one gummy a day.

Breach of warranty claims survived. But scienter was a problem for fraud. The plaintiff quoted a California state court (linked above) “discussing One A Day’s 75-year work ‘convincing the public they could be trusted to divine its vitamin needs.’” “[T]he Court is skeptical of Plaintiff’s use of another court’s musings upon Defendants’ business model as substantial allegations of Defendants’ scienter,” and there weren’t supporting allegations about the market share of the defendants and industry practices.  

identical product labeled "For children" and sold at higher price could be deceptive

Mendoza v. Procter & Gamble Co., No. CV 23-1382-DMG (JPRx), 2023 WL 8860900 (C.D. Cal. Dec. 20, 2023)

Mendoza brought the usual California claims, alleging that Vicks Vapo cough and cold treatment products marketed as being for children were identical to the adult versions, only pricier; the court mostly rejected P&G’s motion to dismiss. The Children’s VapoRub front label states that it is for children two and older; the Standard Product’s front label includes no age instruction. Id. ¶ Children’s VapoRub costs approximately $1.03 more per ounce than Standard VapoRub. The Children’s VapoPatch includes a picture of a cartoon child wearing the patch; the Standard Product contains a more defined image of an adult wearing the patch, and costs at least $0.70 less. The Children’s VapoCream includes the language “easy to apply” and illustrations of various objects, such as an airplane, butterfly, flowers, stars, paper airplanes, and clouds; the Standard Product does not have such language or illustrations and costs less.

There was no FDCA preemption of a standard misleadingness claim. Further, the complaint sufficiently alleged an affirmative misrepresentation that led reasonable consumers to believe, falsely, that the products were specially formulated for children—not just a price differential. Negligent misrepresentation claims failed, however, for want of non-economic damages.

Mendoza had standing to challenge the VapoCream products because the products and alleged misrepresentations were sufficiently similar to those of the products she did buy. And she sufficiently alleged that she “would like to, and would consider, purchasing the Products again ... [but] will be unable to rely on the Products’ advertising or labeling in the future, and so will not purchase the Products again although she would like to” to have standing for injunctive relief.

Cy pres recipient in false advertising case has to be false-advertising-focused group, court rules

 You might think that class action rules can be a bit like Calvinball, and I'd be hard pressed to disagree. Here's another hurdle to jump, although it's certainly jumpable.

Hawes v. Macy’s Inc., 2023 WL 8811499, No. 1:17-cv-754 (S.D. Ohio Dec. 20, 2023)

The court denies settlement approval in this case alleging that Macy’s misrepresented the thread count in some of the sheets it sold, because it doesn’t like the cy pres part of the remedy. The global class action settlement created a $10.5 million common fund, and the parties jointly moved the court to approve. As part of the settlement, Macy’s agreed to change the packaging on its sheets to include the language: “Thread count determined from a sample of a representative sheet by counting cotton yarns and by separating and counting adjacent parallel polyester yarns.” The $10.5 million fund would first satisfy any notice and administrative costs. The remaining balance was to go towards the class counsel’s attorneys’ fees, incentive payments for the named plaintiffs, and payouts to the class members who submit eligible claims. Class members whose purchases Macy’s can verify through its own records would receive $7.50 per unit of CVC Sheets purchased (and could potentially receive a secondary distribution), as would class members who had proof of purchase through receipts. Class members who attest under penalty of perjury that they purchased CVC sheets would receive $2.50 per household (no matter how many sheets persons in the household claim to have purchased) and no secondary distribution.

If, after all that, it was “economically feasible” to make a second distribution, the first two groups of claimants would receive their pro-rata share of the remaining funds, weighted according to the purchase price that each claimant paid for his or her sheets, but capped at 50% of that purchase price. If it wasn’t economically feasible to make a second distribution, or if funds remain even after a second distribution, the agreement provides that the remaining funds would go to the Public Interest Research Group (PIRG), a nonprofit advocacy organization that the parties chose.

The notice plan already went into effect and was “remarkably successful at generating claim submissions,” with an estimate of over one million claims before the close of the claims period; roughly 10% could be verified either by internal record or proof of purchase.Only 59 class members opted out and none objected.

First, the court found that the state consumer protection law claims couldn’t cover the US because it wasn’t enough to allege that “substantially similar statutes” exist in all other states is insufficient, and they only cited California and Missouri consumer protection law in the complaint. But fraud and unjust enrichment, along with UCC breach of warranty, did not create any conflicts. Thus, the court certified a class.

“The relief provided in the settlement (at least for those whose purchases are verifiable by Macy’s business records or who can provide proof of purchase) likely meets or exceeds what any class member could have procured by an individual lawsuit.” The submitted claims would likely account for around 40% of the class. “For low-value-claim class actions like this one, a 40% distribution rate weighs towards a finding of adequate relief.” Nor were appropriate incentive awards to class representatives a problem.

Although “every circuit to squarely consider the issue” has found that Rule 23 does not preclude cy pres awards. But when are they ok? The Eighth Circuit says only when “existing class-member claimants have been fully compensated and further distribution to remaining class members is not feasible” and when the recipient is “for the next best use for indirect class benefit.” Accordingly, the use to which the funds are put must be “consistent with the nature of the underlying action and with the judicial function.” The recipient must be one that “relates directly to the injury alleged in [the] lawsuit and settled by the parties.”

Here, it was proper to use cy pres as a last resort. “While Category 3 claimants will only receive $2.50, which would fall short of a full recovery for a fully-proven claim, the claimants in that category would likely not succeed at trial because they would struggle to prove they actually bought sheets,” and further distributions to absent class members were also feasible.

So what was the problem?

As far as the Court can tell, … PIRG does no work addressing false or misleading labeling for bed sheets, textiles more generally, or even false advertising as a category. … PIRG’s work appears to primarily focus on company or government policy related to toxins, waste, or climate change. … [M]ost of PIRG’s consumer-related campaigns relate to product safety, food safety, and unfair loan practices. True, the bed sheets here may have had a rougher texture than the customers had been led to believe, but uncomfortable and unsafe are two different categories, and no one contends the sheets raised safety issues.

Perhaps even more troubling to the Court in its assessment of PIRG as a potential cy pres recipient, … PIRG uses portions of its funds to donate to other organizations—organizations whose missions are even a further cry from any issues this suit presents. In 2016, PIRG granted $40,000 to the People’s Action Institute, an organization that advocates for socialized medicine, pursues “climate justice,” and fights against “the growing threat of authoritarianism in rural communities.” PIRG also donated over a million dollars to Environment America, an organization that seeks to ban plastic. Last, but not least, PIRG donated $60,000 to “Onward Together,” a PAC that supports progressive candidates in their runs for offices across the country.  

Whatever one may think of the merits of such endeavors, it is hard to see how they have much to do with bed sheets, thread count mislabeling, or even consumer fraud more generally. In sum, the Court can discern no way in which a potential multi-million-dollar award to PIRG is the “next best use” for a class fund created to settle consumer fraud claims stemming from inaccurate bed sheet thread counts. PIRG does not relate “directly to the injury” suffered by the class members and it would be an inappropriate exercise of the “judicial function” to divert class money to an unrelated organization that has nothing to do with the class or the injury its members suffered.

Worse, the parties didn’t provide argument beyond a “vague, unsupported statement” that PIRG “has as its purpose the advancement of consumer protections and rights.” Nor was it enough to provide a declaration from PIRG’s Director of its Consumer Watchdog Team stating that they will use any award “to promote accurate and truthful labeling and advertising of consumer bedding products … [to] educate consumers with a focus on truth in labeling … [to] serve as a marketplace watchdog … [and to] research and monitor the marketplace.” This was too vague a promise, and anyway there was no mechanism to enforce it. Further, money is fungible, so even enforceable restrictions wouldn’t help. (Does that mean every cy pres recipient has to be newly created? That seems … unhelpful, and also fungibility could presumably be overcome with evidence that there’d be no bedding marketing program at all in the absence of the money.)

“[T]he Court has an obligation to ensure that settlement proceeds benefit the class. The cy pres doctrine simply allows for a distribution that achieves those benefits indirectly.” The court singled out the National Advertising Division of the Better Business Bureau, which “exists entirely to address false advertising,” though TINA seems like a much better bet to me. Apparently NAD would satisfy the court’s desire for “narrow[] tailor[ing]” to the class’s interests, but the parties needed to identify some “organization that verifiably engages in meaningful work related to deceptive advertising,” requiring new notice to the class. The court expressed its concern that “the settlement notice postcard distributed to potential class members included no mention of the cy pres award, [which should] be included in any future notice so that class members can raise objections to that distribution if they wish.”

reseller's unsuccessful challenge to takedown notices leads to more successful infringement counterclaim

CDC Newburgh Inc. v. STM Bags, LLC, --- F.Supp.3d ----, 2023 WL 6066136, 22-cv-1597 (NSR) (S.D.N.Y. Sept. 18, 2023)

CDC sued STM, alleging violations of New York state and federal law arising from STM’s involvement in the removal of ten of its product listings from Amazon.com. The court dismissed CDC’s defamation, tortious interference, and common law unfair competition claims, while allowing most of STM’s counterclaims to survive (except for dilution and common law unfair competition).

CDC is a “non-authorized reseller” of consumer products that it purchases from resellers and distributors, among other sources, in order to resell these products at a discount. Although it didn’t usually purchase its inventory directly from the relevant manufacturers, it alleged that its products are authentic.

CDC alleged that STM knew that, when a trademark owner submits a report that a seller is listing a counterfeit product on Amazon, Amazon automatically removes the listing without warning to the seller, and Amazon’s algorithm considers this history of removal when determining how frequently the accused seller’s other products appear in consumer’s searches, reducing the accused seller’s sales of all products that it lists on Amazon.

STM sells cases, bags, sleeves, and other accessories for electronic devices under the “STM” and “DUX” trademarks. Codefendant Lienau allegedly assists clients with removing fraudulent products from Amazon’s website, and reported CDC to Amazon for selling counterfeits.

CDC allegedly knew that the items it sold through these ten listings were authentic because it obtained them from a reputable, publicly traded company that purchases these items from STM. It alleged that Lienau filed the reports for anticompetitive reasons after defendants suspected or confirmed the products were genuine.

STM’s counterclaims alleged that online marketplaces threaten a manufacturer’s ability to maintain its brand integrity because customers cannot easily distinguish between the authorized and unauthorized sellers of a manufacturer’s products. Thus, it alleged, it conducts all sales directly or through authorized dealers who are prohibited from selling on third-party websites. Its warranty is allegedly a “material component” of “genuine” STM products because consumers factor the existence of this warranty into their decision to purchase an STM product, and CDC isn’t an authorized dealer. CDC allegedly sold products as “new” when they were previously sold, and potentially opened or repackaged. CDC allegedly didn’t comply with STM’s customer service requirements because it cannot provide the type of instruction and support (for iPhone cases?) that STM requires authorized dealers to offer to consumers. Thus, the products sold by CDC allegedly don’t include the STM warranty (is this actually legal in NY?). This allegedly infringes STM’s marks and diminishes their value because consumers associate negative experiences that may result from purchasing them with STM’s brands. (As usual, a compelling and intuitive theory of harm.)

Defamation: The “counterfeit” statements to Amazon were opinion. A statement of opinion is one which is either “accompanied by a recitation of the facts upon which it is based” or “does not imply that it is based upon undisclosed facts.” Here, the challenged reports said things like

“Please note only CaseMotions and Sportique are authorized by STM to sell on Amazon. These sellers are not authorized nor are they buying direct from STM therefore we conclude this product is counterfeit”; and (2) “Please know STM has authorized only Sportique and CaseMotions to sell on Amazon.com outside of STM selling direct. STM has double checked their records and have no data to support this seller acquired STM product through a legitimate channel therefore we can safely assume they are selling counterfeit products.” Thus, the allegedly defamatory statements were opinion, not based on undisclosed facts.

STM, however, could not use NY’s anti-SLAPP law in federal court.

Tortious interference: Removal of listings on an e-commerce platform does not constitute harm to the underlying business relationship with the platform, so it wasn’t sufficiently alleged that STM interfered with CDC’s business relations with Amazon.

Nor did the alleged acts constitute unfair competition under NY state common law: there was no palming off or misappropriation.

The court also found it was inappropriate to exercise jurisdiction over a request for declaratory judgment of noninfringement.

Trademark infringement/unfair competition under §1125(a)(1)(A) was sufficiently pled and first sale couldn’t be decided on a motion to dismiss. But the state common law claim for trademark infringement was dismissed for failure to allege more than conclusorily that CDC acted in bad faith.

False advertising under § 1125(a)(1)(B) was also sufficiently pled because STM alleged that CDC made a literally false statement that the products came with their warranties, which was presumed to be material.

Dilution: “spare, conclusory allegations” that the STM trademarks “are widely recognized by the general consuming public of the United States” and “STM has expended substantial time, effort, money, and resources advertising and promoted STM Products with the STM trademark” were insufficient.

Using dominant competitor's part names/numbers for comparison isn't false advertising, TM infringement, or (c) infringement

There really should be a fee shift when a competitor harasses another competitor for daring to make comparisons of part numbers, but we don't seem to live in that world. 

Simpson Strong-Tie Co. v. Mitek Inc., 2023 WL 8697700, No. 20-cv-06957-VKD (N.D. Cal. Dec. 15, 2023)

Simpson sued its competitor MiTek for using Simpson part numbers for structural connectors/fasteners for use in the construction industry in its catalogs/other promotional material; the court here, after a nonjury trial before the magistrate judge, rather comprehensively rejects its false advertising, trademark, and copyright claims. (It sure would be nice if we could get a consensus that copyright in parts numbers and names should not be allowed.)

Structural connectors are used to join, and transfer the load between, different structural members, including vertical members like studs and posts, horizontal members like floor joists and roof trusses, and foundations. The engineer of record must indicate on construction drawings the specific structural connectors that will be used on a given project, whether a custom connector designed by the engineer to join and transfer the load between members or a pre-engineered connector. Typically, the engineer will specify a connector noting both part name and manufacturer (e.g., Simpson or MiTek), which the contractor/subcontractor is responsible for purchasing. The configuration and load capacity are the two most important considerations for selecting a connector, though aesthetics, treatment, and cost also play roles.

Simpson’s structural connectors are specified on most construction drawings in the US; its market share is over 75%. A contractor may request that a different connector be used, but may not use a different connector or otherwise deviate from the construction documents without the engineer’s approval. 

For decades, companies selling structural connectors have used descriptive product names, and names that consist of an acronym formed from the initial letters of the words of the product name followed by a model number or stock number. The product names are formed from words that are common in the construction industry, including: hanger, anchor, clip, concrete, masonry, brick, post, column, cap, tie, strap, beam, base, girder, rafter, roof, truss, hold down, plate, and retrofit. Simpson and MiTek part names generally consist of an acronym formed from the initial letters of the words that describe the connector in the product name, followed by a model number or stock number that corresponds to information about the particular connector, such as load capacity or size. Although Simpson’s naming process uses descriptive words, it’s “not dictated by a rule or system,” though it is limited by the number of characters that can be used—a maximum of 16. 

MiTek’s product and part names are also descriptive, but MiTek often begins by assigning a MiTek connector in development the same name as the Simpson connector with which MiTek intends to compete. Sometimes it keeps that name for sale. For 51 of MiTek’s structural connectors, MiTek’s part name is identical to the part name for the Simpson connector for the same application, and for 32, its part name differs from the part name for the Simpson connector for the same application by one letter.

Engineers rely on the information in the parties’ catalogs in evaluating whether a connector can be used in a particular application, and contractors may also do so. Simpson’s catalog includes a two-page “alphabetical product index” or “API,” an alphabetical list of the part names for the connectors included in the catalog with the page number where information about the connector can be found. New parts in recent catalogs are marked as new; Simpson registered copyrights in two of its recent catalogs. All Simpson’s connectors, catalogs, marketing literature, and retail display materials, are clearly labeled with the “Simpson Strong-Tie” name.

MiTek’s 60th product catalog also contains a reference number index, which includes most of the part names listed in the API in Simpson’s 2019-2020 Wood Construction Connectors catalog; the same was true of the most recent product catalog. All MiTek’s connectors, catalogs, marketing literature, and retail display materials, are clearly labeled with the “MiTek” name.

For decades, companies selling structural connectors have used “reference numbers” to cross-reference their competitors’ products, including charts listing [X] part names next to competitors’ part names, including Simpson’s. When MiTek uses reference numbers in its marketing materials, it does not affirmatively identify the reference numbers as Simpson part names. The MiTek catalogs’ reference number index lists Simpson part names in alphabetical order, without attribution to Simpson, and the page number where a MiTek connector product may be found, and are introduced with the text:

Reference numbers shown through the charts in this catalog are part numbers which may be more familiar to customers in various regions of the United States. These are included for the convenience of our new customers who have recently switched from a competitor’s product line to [MiTek/USP].

The reference numbers in this catalog are for general application comparison only and should not be used as a substitution tool. The user is responsible to compare specific load values, fastener schedules, material specifications, and other factors to determine suitability of use for any particular product.

MiTek’s catalogs also use Simpson part names as reference numbers, without attribution to Simpson, in the tables that summarize the technical information for the MiTek connector offered (see second column, Ref. No.):

MiTek’s Reference Number Conversion Guide likewise lists Simpson part names in alphabetical order, without attribution to Simpson, next to MiTek part names, and this use of reference numbers is repeated in its website/software/mobile app and point of sale materials.

example of point of sale display with "ref. #" in upper right under MiTek part number

Most MiTek connectors have at least one attribute that differs from the referenced Simpson connector. Nonetheless, MiTek’s use of reference numbers “is consistent with how reference numbers have been used in the construction industry for decades, and in particular with how reference numbers have been used by providers of structural connectors.”

Simpson offered no admissible evidence of actual confusion, and no evidence that anyone chose to specify or purchase a MiTek connector based on MiTek’s use of a Simpson part number as a reference number because the engineer believed the reference number meant that the MiTek connector was equivalent to or substitutable for a Simpson connector. MiTek received inquiries about whether its connectors could be used in particular applications, including in place of Simpson’s, but there was no evidence that any inquiry arose from confusion or misunderstanding associated with MiTek’s use of Simpson part names as reference numbers or MiTek’s use of part names similar or identical to Simpson part names. Although a customer (reportedly) expressed concern that a MiTek product wasn’t a good substitute for the referenced Simpson product, there was no admissible evidence that the consumer was confused or misled.

Simpson offered a survey purporting to show confusion as to (1) source/affiliation/authorization and (2) equivalence.

False advertising: The use of a Simpson part as a reference number was not a necessary implication that the MiTek parts were equivalent and substitutable in all respects; one reasonable interpretation was that the products were generally suited to the same application or function and should be compared. Nor, for similar reasons, was the use intentionally misleading.

Because Simpson’s structural connectors are specified in the first instance on most construction drawings in the United States, the reference number serves as a starting point for identifying the relevant MiTek connector for further investigation for a possible substitution of the MiTek connector for the Simpson connector. Even where Simpson structural connectors are not already specified on the construction drawings, because Simpson is by far the dominant provider of structural connectors throughout the United States and therefore familiar to designers and engineers, the reference number serves a similar purpose as a starting point for identifying the relevant MiTek connector for evaluation to be specified instead of or in addition to (as in the case of dual specification) the referenced Simpson connector.

Simpson’s survey was unpersuasive because it was suggestive. For example, instead of using an open-ended question asking respondents what “Ref #: DTT1Z” means on the MiTek product label, the survey used a close-ended question (i.e. “do you believe that ...”), suggesting to respondents (a) that DTT1Z refers to a product that belongs to a company other than MiTek and (b) that using “DTT1Z” as a reference means that MiTek is communicating its product is equivalent to the product of another company. This meant the survey offered “no meaningful evidence” of confusion. Also, the control group respondents were exposed to the same MiTek stimuli, but the reference numbers were removed; the questions didn’t make sense in that context. For example, the control respondents were asked whether “based on this label, do you believe that MiTek sells [a product number not included in the label.]” MiTek’s expert testified that “there’s no way that [the respondents] could intelligently say yes. How could they say yes when don’t know what’s being compared?” Even so, the results of the primary and control surveys were very similar, “suggesting that the primary survey results are not reliable indicators of how the relevant audience understands MiTek’s use of reference numbers.”

Nor was the expert’s conclusion that the responses showed recognition of the numbers as Simpson part numbers reliable. The survey tested only six part names for “distinctiveness” or “secondary meaning,” and the results didn’t indicate that respondents identify these particular part names with Simpson.

Materiality was also a problem. With few exceptions, the engineer of record is in charge of choosing the structural connectors, and Simpson didn’t show that they were influenced “to any degree” by MiTek’s use of Simpson part numbers as reference numbers. They consider geometry, load capacity or strength, and, to a lesser extent, aesthetics, treatment, and cost.

Nor did Simpson show injury.

Passing off/§43(a)(1)(A): The part names were descriptive or, in some cases, generic. The court did not find secondary meaning. “[T]he relevant audience typically does not encounter Simpson’s part names alone,” but rather with Simpson and/or Strong-Tie. The evidence showed that engineers specify connectors by manufacturer (i.e. Simpson or MiTek or both) in addition to including specific part names on construction drawing.

And even if Simpson had shown secondary meaning, it couldn’t show likely confusion. Although similarity of “marks” and direct competition/overlapping marketing channels favored Simpson, strength, actual confusion, and consumer sophistication didn’t. As for intent, while MiTek did use some names identical to those first used by Simpson, “the Court is not persuaded that MiTek did so with the intent to confuse the relevant audience, but rather because the names described well the connector at issue.”

California UCL: same.

Copyright infringement of the API: I’m not sure there was any copying in fact of the index, unless MiTek replicated names of parts it didn’t stock! But it doesn’t matter. Merger/thin copyright, including the lack of protectability of product names/abbreviations that are standard or prevalent in an industry, prevented any finding of infringement. Alphabetical order, of course, is not protected, but Simpson argued that its product names for the connectors and their corresponding part names reflected at least a minimal degree of creativity and were protectable elements of the API. “Some of Simpson’s part names appear to lack even minimal creativity, see, e.g., (‘H’ for ‘Hurricane Ties’), but most of the others have the minimal level of creativity required for copyright protection, see, e.g., (‘HSLQ’ for ‘Heavy Shear Transfer Angle’).” Ugh. “[W]ith some exceptions, MiTek has not shown that there are so few ways of naming the connectors at issue that the part name merges with the idea of the connector itself or is otherwise unprotectable, particularly where the part name has four or five letters.” Ugh again.

Nonetheless, even assuming that all the product names in the APIs qualified for copyright protection, the copying was de minimis. The catalogs were concededly not substantially similar—the alleged copying was limited to the new material, no more than 20 new part names, in each API, of which MiTek copied at most 12 out of about 400 names (in a 300+ page catalog). Both in quantity and quality, this was de minimis. This would be true even if the court considered the API as a whole as a protected work.

Plus, even if there had been substantial similarity, the use was fair. (Applause to the court for separately considering protectability and substantial similarity instead of just considering them in factors two and three of the fair use analysis, which courts often unfortunately do.) Though MiTek’s use was commercial, so was Simpson’s, and there was more scope for fair use of its highly factual work. The amount used was tiny, and there was no effect on the actual or potential market for the works, “as there is no such market for Simpson’s catalogs, but only for the connectors the catalogs describe.” But asserting a copyright claim didn’t constitute misuse because there were itty-bitty copyrightable bits.

MiTek also didn’t show laches, even though Simpson knew of this type of use since at least 2013, and Simpson knew of similar uses of Simpson part names by other competitors, including MiTek’s predecessor companies, since at least 1988. At least by 2015, Simpson knew that MiTek planned to continue ignoring its legal threats; this was unreasonable delay. But, because Simpson was seeking only prospective injunctive relief, that wasn’t enough.

Was there evidentiary prejudice? MiTek argued that relevant documents and witnesses with information regarding early uses of product names and part names by companies other Simpson were no longer available by the time Simpson filed this action. But none of the non-copyright claims depended on the idea that Simpson created the part names or was the first user.  “Nor does the question of whether Simpson’s part names serve a source-identifying function now depend on another company’s use of the same part name at some point in the past.” (Genericity can, or at least could; maybe not post-Booking.com.) And MiTek already made a persuasive showing on industry practice, so it didn’t need better or different evidence.

Nor was there expectations-based prejudice because MiTek didn’t show that it would have avoided investments or changed its advertising had Simpson sued earlier.

Reasonable consumers may not be required to peel back labels in store to read drug facts

Zimmerman v. L’Oreal USA, Inc., 2023 WL 8587620, No. 22-cv-07609-HSG (N.D. Cal. Dec. 8, 2023)

This putative class action bringing the usual California statutory claims alleges that L’Oréal misleadingly advertises the sunscreen benefits of some of its cosmetic products, such as L’Oréal Infallible Fresh Wear 24HR Foundation. The front label statements claiming it provides “Up to 24HR Breathable Texture,” “Up to 24H Fresh Wear,” and “Sunscreen Broad Spectrum SPF 25” allegedly led Zimmerman to believe that the foundation provided 24 hours of sunscreen protection. But this protection lasts only two hours. The drug facts panel, located underneath a peel-back sticker on the back label, directs users to “reapply at least every 2 hours” for sunscreen use.

Similarly, plaintiff Heuchan alleged that she purchased L’Oréal Infallible Pro-Glow Foundation, whose front label claims that it provides “Up to 24HR Foundation,” “OCTINOXATE Sunscreen,” and “Broad Spectrum SPF 15.” It also has a drug facts panel located underneath a peel-back sticker on the back label, directing users to “reapply at least every 2 hours” for sunscreen use. Plaintiff Giordano made similar allegations about “Lancome Teint Idole Ultra 24H Long Wear Matte Foundation,” with a front label claiming “Octinoxate Sunscreen” “Broad Spectrum SPF 15,” and “Up To 24H Color Wear & Comfort.” However, the complaint didn’t allege that the Teint foundation’s drug panel facts are located underneath a peel-back sticker on the back.

L’Oréal argued that it wasn’t plausible that a reasonable consumer would be deceived because the 24-hour statements clearly referred only to cosmetic benefits, and that a reasonable consumer would refer to the back panel. The court agreed with L’Oréal as to Giordano only.

The “Up to 24H Foundation” statement was ambiguous, but it was not clear that this ambiguity “can be resolved by reference to the back label.” “The Court cannot conclude as a matter of law that a reasonable consumer would peel back the label in the store, before purchasing the product, to find and read these instructions.” So too with the Teint foundation, but the back label resolved any ambiguity. (As a consumer, I'd worry about being forced to buy anything I'd done that to!)

alleged misrepresentation of partnership/approval suffices for false advertising claim

Faire Wholesale, Inc. v. Tundra, Inc., 2023 WL 8586681, No. 23-cv-02538-JSC (N.D. Cal. Dec. 8, 2023)

When does TM logic creep into false advertising cases? Faire operates an online marketplace connecting wholesalers with retailers. Faire sued Tundra, which makes a comparison tool. Faire sued, challenging Tundra’s unauthorized use of Faire’s users’ login credentials to gain access to Faire’s non-public information. The court denied Tundra’s motion to compel arbitration; the remaining statutory claims weren’t intricately intertwined with, nor dependent on, Faire’s service terms. Tundra—a nonsignatory to the service terms, and thus the arbitration agreement—couuldn’t force Faire to arbitrate those claims.

Tundra’s motion to dismiss was granted with leave to amend on the CFAA and California Comprehensive Computer Data Access and Fraud Act claims, and the California UCL claim to the extent it relies on the two former claims. The rest of the UCL claim and the Lanham Act claim survived because Faire plausibly pled that Tundra made misrepresentations likely to deceive the public into believing Tundra had partnered with Faire and was permitted to access Faire’s computers.

To list a product or search the catalog of products for sale on Faire’s platform, users must create an account with a username and password. Only users who have logged into password-protected accounts may access inventory, pricing, and contact information related to the goods available for sale on Faire’s platform. Faire’s service terms prohibit users from disclosing their passwords to third parties. Faire makes a commission on successful transactions on its platform, but Faire also provides wholesalers with a personalized link they can use to invite retailers to order directly from their shop on Faire’s platform; using that link results in 0% commission to Faire. Tundra’s comparison tool encourages its users to disclose their Faire login credentials and offers to pay the retailers up to 10% “cash back” on every purchase they make from a Faire wholesaler. Tundra solicits sellers on Faire’s platform to provide their Faire Direct links to retailers registered with Tundra by “promising to promote their brands to new retailers and give them greater exposure” to Tundra retailers. Tundra charges sellers who participate in the Faire Direct program a fee of 15% “that replaces the marketplace commission for new retailers to a marketplace and their reorders.” It then pays a percentage of this fee as “cash back” to the retailers and pockets the rest. This allegedly diverts commissions properly owed to Faire to Tundra. Tundra allegedly uses the information it scrapes from Faire’s platform, including contact information, to market its product.

UCL fraudulent claims: These were predicated on 1) Tundra’s misrepresentations it was an authorized user when logging into Faire’s platform and 2) Tundra’s misrepresentations Faire was aware of and approved Tundra’s practices. Reliance was required; Faire adequately alleged its own reliance on 1), and that its customers relied on 2), which was enough given that the parties competed.

The screen seeking a consumer’s login credentials plausibly supported an inference the public would falsely believe Tundra was partnering with Faire and had Faire’s permission to obtain the consumer’s Faire login credentials. (Would a clear disclaimer have solved the problem? Does it matter that there seem to be 10 other marketplaces involved?)

The Lanham Act claim also survived, for similar reasons. The screenshot was “commercial advertising or promotion.” And Faire alleged that Tundra repeatedly falsely advertised via phone and email solicitations that Faire was aware of and approved Tundra’s scheme: on December 15, 2022, Tundra’s employee allegedly told Brand A Faire approved of Tundra’s scheme and “it was above board.” The allegation that hundreds of brands have been targeted by Tundra’s false advertising “supports an inference Tundra’s misrepresentations have the tendency to deceive a substantial segment of Faire’s audience.”

On materiality, it sufficed to allege that brands pay for its services and Tundra’s false advertising influences brands to purchase Tundra’s services instead of Faire’s services. “Again, the screenshot of Tundra’s website is alone sufficient.” This seems wrong; in other cases, including one I just blogged, courts require a link between the falsity and the purchase decision. It wasn’t false that Tundra offered this service related to Faire; what was the allegation that Faire’s approval of the scheme mattered?

false advertising is harder to prove than TM infringement because of the injury requirement (not to mention materiality)

ImprimisRx, LLC v. OSRX, INC., 2023 WL 8604148, No. 21-cv-01305-BAS-DDL (S.D. Cal. Dec. 12, 2023)

The parties are compounding pharmacies that focus on medications used in optometry and ophthalmology. Section 503A compounding pharmacies fill prescriptions for individual patients. Section 503B compounding pharmacies produce compounded products in large quantities that are not necessarily tied to a specific patient, sold to practitioners and hospitals as “office stock” to be available for use on an as-needed basis. Plaintiff ImprimisRx operates both a Section 503A pharmacy and a Section 503B pharmacy, while defendants operate only a Section 503A pharmacy.

Section 503A allows for drugs compounded “for an identified individual patient ... [that are] necessary for the identified patient” to be exempted from the typical FDCA drug-approval requirements if certain conditions are met, including: (1) the drug compounding occurs after the receipt of a valid, individual prescription; or (2) the drug compounding occurs before the receipt of a valid, individual prescription “based on a history of ... receiving valid prescription orders for the compounding of the drug product” within an “established relationship” between the compounding pharmacy and the prescriber. There are other requirements, including for sterile manufacturing.

The court addressed motions for partial summary judgment on whether the statement that “OSRX operates in full compliance with Section 503A regarding compounded drugs as defined in the [FDCA]” violated the Lanham Act. Imprimis had two theories of falsity: (1) Defendants instruct prescribers to place bulk product orders, rather than for particular patients, and provide “office stock” for use by unspecified future patients; and (2) defendants fail to compound drugs in a sterile manner. The truth/falsity of these theories was subject to material dispute.

On materiality, literal falsity wasn’t enough to presume materiality. Defendants argued that their claims were in tiny print on the website and thus could not be observed by consumers. “While the statements may be presented in a small font, possible purchasers could still see them on Defendants’ website and order forms.” Imprimis also provided declarations by four ImprimisRx customers that claim Section 503A compliance was an important factor in their purchasing decisions and survey evidence that 54.1% of surveyed prescribers indicate that whether a compounding pharmacy “operates in full compliance with Section 503A” is an important factor in selecting a compounding pharmacy. But defendants’ own expert and survey evidence created a material issue of fact. (Even on sterile manufacturing?!?)

Injury: Injury too could not be presumed despite the fact that the parties were direct competitors; this wasn’t false comparative advertising. “Instead, Plaintiff must provide some proof of past injury or risk of future injury caused by Defendants’ false statements” to get money.  

Email correspondence where defendants attempted to poach Imprimis’s customers and other evidence of direct competition wasn’t sufficient to presume injury. This wasn’t mostly a two-player market, and the allegedly false statements did not harm the entire market. Although the parties were two of the largest compounding pharmacies within the post-operative ophthalmological market, Allergan, Novartis, and Bio Tissue manufacture competing products. “Because prescribers have many options in selecting post-operation ophthalmological drugs, the Court cannot assume Plaintiff’s sales were necessarily reduced by any increases to Defendants’ sales due to the false statements.”

And Imprimis provided evidence of materiality, but not of injury.  The evidence of poaching didn’t show that these customers were poached as a result of the alleged false statements. Although a precise calculation of damages is not required under the Lanham Act, a showing of some injury is required. Thus, defendants received summary judgment on Imprimis’s monetary damages and unjust enrichment claims.

In addition, Imprimis didn’t show irreparable injury, which would be required for a permanent injunction.

Counterclaims: Defendants alleged that Imprimis falsely advertises that it “compl[ies] with all cGMP requirements which are the most stringent standards in the nation.” All four challenged claims were publicly available three years before defendants lodged their counterclaims (three years being the California fraud statute of limitations, which the parties agreed was the most analogous). Defendants had the burden of showing why they lacked the means to discover the statements to invoke the discovery rule. They didn’t. “Indeed, because Plaintiff is a main competitor for Defendants, one assumes Defendants would be aware of the content hosted on Plaintiff’s website or the claims Plaintiff makes regarding its products.” So there was a presumption of laches. But there was no evidence of prejudice, so summary judgment on the laches defense was denied.

Once again, there were disputed fact issues on falsity and materiality. Once again, the counterclaimant couldn’t show any lost customers or any other actual harm, thus no irreparable harm, so there was summary judgment on monetary damages and injunctive relief.

(I guess what’s left is disgorgement?)

Dastar bars false advertising claim against "first of its kind" ads

 Vericool World LLC v. Igloo Prods. Corp., 2023 WL 8634803, No. 22-cv-02440-HSG (N.D. Cal. Dec. 13, 2023)

Vericool alleged that Igloo falsely claimed that its “Recool” biodegradable cooler was the first of its kind. The court found this Dastar-barred, since the alleged misstatements do not go to the “nature, characteristics, or qualities” of the cooler as required under the Lanham Act. The court rejected arguments that the materiality of the claim distinguished it from Dastar-barred claims, and that “first of its kind” doesn’t necessarily imply anything about patent/IP status.

Dastar explicitly stated that the Lanham Act “does not exist to reward manufacturers for their innovation in creating a particular device” and that the Act’s “common law foundations ... were not designed to protect originality or creativity.” “Yet that is precisely what Plaintiff seeks to protect in this case: the originality and novelty of its own cooler design.” There was no meaningful distinction between claims of being the “first” and claims of inventorship. “Plaintiff may not directly challenge the Recool as infringing its patents, but just as in Dastar and Sybersound, it is trying to protect its intellectual property rights through the Lanham Act.”

Vericool didn’t help its claim by stating in its papers that “[t]o vigorously defend its patent, Vericool World had to bring this claim.” But “[t]he rights of a patentee or copyright holder are part of a ‘carefully crafted bargain,’ ” and for whatever reason, it didn’t bring a patent infringement claim.

Zobmondo Ent. LLC v. Imagination Int’l Corp., No. CV 09-02235 ABC PLAX, 2009 WL 8714439, at *1 (C.D. Cal. June 23, 2009), found that the use of “original” to describe a board game was actionable because it was about first physical manufacture, not creation of the idea. The court here disagreed. The ad at issue wasn’t about physical manufacture, just used the word “original.” “Yet the Supreme Court has stated that patent law, and not the Lanham Act, offers protections for a manufacturer’s ‘originality’ and ‘creativity.’” Plus, Zobmondo didn’t explain why date of manufacture was a quality or characteristic of the game itself. “Although when a product was manufactured may have implications for patentability, such as whether it is considered novel or non-obvious, in the Court’s view it does not alter the nature of the product or a user’s experience with it.” In Sybersound, the Ninth Circuit explained that the “nature, characteristics, and qualities” of the karaoke recording referred to things like the “quality of its audio and visual effects.” “Such attributes would affect the consumer’s experience rather than the rights of third parties.” (Comment: “First printing” might therefore be different.)

Blue Spike, LLC v. Texas Instruments, Inc., No. 6:12-CV-499, 2014 WL 11848751, (E.D. Tex. July 25, 2014), report and recommendation adopted, No. 6:12-CV-499, 2014 WL 11829325 (E.D. Tex. Aug. 15, 2014), involved allegations that the defendants falsely claimed on their websites that they were the “first to create content fingerprinting technology,” and that competitors are using “borrowed” technology. Here too, the decision didn’t explain how being the first to use a specific kind of technology goes to the “nature, characteristics, and qualities” of the good itself as opposed to the innovation of the technology at issue.

This reasoning also disposed of the UCL claim.

Of Bass Notes and Base Rates: Avoiding Mistaken Inferences about Copying

 New article with Chris Buccafusco:

Houston Law Review, Vol. 61, 2023

Abstract

To prove copyright infringement, a plaintiff must convince a jury that the defendant copied from the plaintiff’s work rather than independently creating it. To prove copying, especially cases involving music, it’s common for plaintiffs and their experts to argue that the similarities between the parties’ creative works are so great that it is simply implausible that the defendant’s work was created without copying from the plaintiff’s work. Unfortunately, in its present form, the argument is mathematically illiterate: It assumes, without any underlying evidence, that the experts know or could reasonably estimate how likely it is that a song with similarity level x to another, earlier song was created without copying from the earlier song. Until the state of the underlying art changes, it is reasonable for experts to testify about the existence of similarities between works, but it is unsupported and unreasonable for them to testify about the likelihood that those similarities came about from copying. We don’t know that likelihood in the absence of evidence about base rates: how common is it for a song to have similarity level x with some other song in the corpus of existing songs, and how common it is for that similarity to come from copying or from independent creation (or from both copying a shared antecedent). Until that knowledge is available, testimony about the probability of copying should be deemed inadmissible under Federal Rule of Evidence 702.

Netchoice amicus on behalf of Discord

 Chris Sprigman and I just submitted this brief. The focus of the argument is the associational interests of Discord's users, who want and need assistance from centralized content moderation in order to support their communities.