Fordham: Spurious Take Down Notices Under the Digital Millennium Copyright Act

The Fordham Intellectual Property, Media & Entertainment Law Journal's 2010 Symposium: Is Silence Golden? Ethics and Intellectual Property Law

Spurious Take Down Notices Under the Digital Millennium Copyright Act
Moderator: Joel Reidenberg, Fordham Law

Ann Bartow, University of South Carolina School of Law

Began with the “Bed Intruder” meme (Antoine Dodson). The original clip was posted and subsequently subject to a takedown notice, but the takedown didn’t work when it went viral. The initial interview was somewhat problematic in the way it treated him, but she’s somewhat sympathetic to the TV station—failing to cover the story would have been wrong too. People see issues of race, class, and sexuality in the interview and to the response to it: are people laughing with him or at him? She found him sympathetic: This is an angry man who’d just fought off an attack on his sister, but he seems to have a sense of humor too. Feminist reaction: the story became all about Antoine, even though his sister was the one who was attacked. She has a tiny role in the interview and an even smaller role in the Bed Intruder song.

Copyright is not a content neutral restriction on speech. Cyberlawyers were too quick to identify copyright law as content neutral. When the government acts or when there’s a takedown, it’s based on the content of the speech.

Is it possible for calculated takedowns to have a real impact on the conversations about race, gender, and sexuality? She believes that it would be. You could deploy notice and takedown to effectively address issues of hate speech—but everybody would call it censorship if it were formally based on hate speech. Deploying copyright can have the same effect, though. If people are engaging in notice and takedown in a way fixated on race, gender, or sexual orientation, copyright doesn’t grapple with that. Maybe notice & takedown should be more visible: a registry that is publicly available and transparent so that people could quantify what’s going on.

One guy in San Francisco loves pornography. [Edit: name removed by request; he disputes this characterization.] He works 12-16 hours/day as a Wikipedia editor to make sure nothing good is ever said on Wikipedia about feminism, editing everything positive or even neutral. One person has a big effect. (I’m not sure I understand why this is about copyright; I take it the point is that the ability to edit Wikipedia entries allows a lot of vandalism/mutilation of what would otherwise be copyright-controlled content?)

Another example: Lara Jade Coton posted a picture of herself on DeviantArt and someone put it on a porn DVD. She can’t use notice and takedown in the offline world; she hadn’t registered her copyright, so her best remedy was defamation/invasion of privacy—harder to address without the copyright hook.

Reidenberg: copyright seems like it was pretty ineffective in the main story here. Raises the question: are you advocating more systematic use of copyright?

Dotan Oliar, Virginia Law

Notice and takedown is generally sensible. But there is a structural imbalance between copyright owners and users, who generally lack legal departments or the money/information necessary to employ a lawyer. All the copyright owner needs is a good-faith belief that the content is infringing: what does that mean? Lenz: duty to consider defenses that the user might have. Copyright owners don’t have to state a good-faith belief in infringement under penalty of perjury; the only thing required to be stated under penalty of perjury is that the sender is an agent of the copyright owner. But the user is subject to this requirement with respect to her claim that she thinks this is not infringement. Since this is someone who is unlikely to know the law, this is problematic.

Disputes over what information the copyright owner has to provide: how much information does it have to give the ISP? Perfect 10 provides some guidance.

Diebold also raises an ethical issue: should they have issued takedowns in the first place? An abuse of the process. Yahoo! served a DMCA notice on a site about whistleblowing for posting the schedule of fees it charged the government to disclose certain information; this was embarrassing, not infringing, and yet Yahoo! used the DMCA. (Seems like Bartow was advocating precisely this strategic use of copyright to achieve other objectives.)

Stanley Pierre-Louis, VP and Associate General Counsel for IP and Content Protection, Viacom

Media companies care about markets as well as First Amendment rights. There is internal debate over sending takedowns, whether there’s prior restraint, and so on. Wants to distinguish between legal ethics and moral ethics—your role as advocate defending your client’s interest is different than your role in society. Part of what you’re defending is the right of your company to make its claim. Needs to preserve ability to profit from investment.

DMCA: Congress saw a need to expand the internet by getting people to put things on there. (Oh look, the need to get “cars” on the “information superhighway.”) Compromise: encourage content owners to put work online but preserve their rights. Takedowns aren’t the only way to get things off the internet—DMCA was a compromise. His experience with content owners is that they are careful about sending notices—teams review the material and make calls about infringement. He doesn’t agree that assessing fair use is a requirement; Lenz doesn’t follow 9th Circuit precedent. However, most media companies will take a look, because they rely on fair use too. We don’t care about people putting a mustache on Jon Stewart; we care about copying the clip and taking the market we’re trying to create.

Counternotices: our experience is that most of them our bogus, but we take them all seriously. Users have different views of fair use. In most cases people have just taken clips they thought were funny; they don’t want strikes on their YouTube accounts. Most content owners try to address that more privately instead of by a lawsuit. View conversation as an opportunity to engage in education and explanation of where the legitimate sources are.

Reidenberg: two kinds of situations: (1) political cases—campaign ads, Diebold, etc. (2) commercial—maximizing market share, protecting Snooki. Different considerations apply. (2) often involves a consumer who’s not represented by counsel; they won’t really know whether they have a valid fair use claim.

Pierre-Louis: our intent is to be internally consistent, since we rely on fair use—we were sued in the Naked Gun 33 1/3 case. Still, the situations we see are generally large segments of episodes with nothing else near it. When it’s a clip with commentary surrounding it on the poster’s page, we try to figure out what’s going on—what creativity is being added? Want them to embed the official clip from the official page instead.

Bartow: this is an example of copyright pushing the First Amendment to the side. The focus is entirely on a copyright claim—the First Amendment doesn’t require creativity. One of the most effective things you can do as a critic of porn is to show clips of porn: performers in pain. She doesn’t think she needs creativity to alter the clips; she needs to show the clips themselves.

Pierre-Louis: but is that infringing? There’s an interplay between the First Amendment and copyright—both are constitutional (well, not exactly—the government is not required to act any copyright law, much less the copyright law we have). But the porn example is “this is awful” not “this is cool,” which is our usual scenario.

Reidenberg: won’t the porn clips be automatically caught by copyright filters?

Pierre-Louis: not if she’s interspersed with the clips speaking, or if she’s showing it in class, but if she just puts the clips up she’s competing with the market for that work in the world at large.

Reidenberg: Wendy Seltzer’s clip of the start of a football broadcast with the NFL statement that using anything/commenting about the broadcast is a violation of their copyright. That was almost certainly not seen by anyone except for students until the controversy broke.

Pierre-Louis: You’re essentially offering it to the world (though he disclaims any decision on whether that was a good takedown notice). (He seems to be advocating for password protection, at which point the content owner will never know, which is exactly what publishers suing Georgia State are complaining about—in fact Viacom wants to be able to scrutinize password-protected YouTube uploads too.) Distribution tech is wonderful, but users have to be careful.

Reidenberg: Suppose there’s commentary along with the clip: this is really stupid. What about Oliar’s perjury point?

Oliar: he agrees this disparity is strange. The law is constructed to create a takedown incentive for the OSP. Did Viacom really commit an hour to each of the 100,000 takedown notices it sent to YouTube?

Pierre-Louis: yes, these were each subject to human review. (Um, didn’t some of them turn out to have been uploaded by Viacom itself?  Look, even Homer nods.  But we're in Simpsons territory now.)

Oliar: still, you get what happened in Lenz. Are we raising a generation of consumers who are passive and who are afraid to do anything that might be against the rules?

Reidenberg: yet we see takedowns in cases where news broadcasts are clipped in an ad and the statement made in the clip is the subject of the critique. One has to wonder about the attorneys’ evaluation in that case.

Pierre-Louis: if you did a pure fair use analysis, most people would come out on the side that these are likely infringing. A lot of times the commentary in the ad has nothing to do with the copyrighted work. Usually it’s “look what they said about my opponent.” (That’s “nothing to do with the copyrighted work”? I guess he means there’s no commentary on the angle of the camera, but that’s really not the standard, as even the early Zapruder case shows. The content of the work is the subject of our example ad—and seeing it is more persuasive than reading a report that it happened.)

Bartow: can you blame people for filing takedowns in order to shut that ad up? Maybe they feel they’re unfairly characterized. (Yes, I can blame them!)

Q: how would you prevent use of a single sentence from a TV interview?

Bartow: well, you could use more speech, but copyright is a bigger weapon.

Pierre-Louis: A lawsuit, if it’s defamatory. But that’s different from copyright.

Reidenberg: where’s the good faith belief that there’s a copyright violation? If we disagree about the fair use analysis, does the lawyer have a good faith belief in going forward?

Pierre-Louis: is it right for people just to take the clip? It’s not about close calls, which we try to avoid. How to get the message out is up for debate—lawsuits, ad campaigns—the morality is not just what’s good for society but what’s good for the client.

Q: are we stretching copyright too far to say it protects one sentence? If you’re using copyright to protect reputation, is that wrong?

Oliar: Change in means by which we communicate—ten years ago you shared something over the water cooler, but now you send a link or post a clip, not expecting to share it beyond that water cooler constituency. Fair use should react to the new communicative conditions.

Q: The examples (from a media company) are not 3 seconds; they’re entire segments of a show—valuable video that the company itself posts and runs ads against. If a user posts the segment and says “60 Minutes got it wrong again” is that enough to make a fair use? Viewers, not just their personal friends, flock to that because it doesn’t have the ads.

Bartow: if you could keep the ads in, would you be satisfied?

Q: maybe—we do have an embeddable player.

Pierre-Louis: the watercooler doesn’t allow infinite copies, as online.

Oliar: He thinks link of the clip matters. Consider Sony v. Universal—VCR was supposed to destroy ad-supported TV through fast forwarding. The SCt found fair use and the market survived, thrived, and adjusted.

Q: what is the proposed solution? Amend the DMCA?

Bartow: we need more of a registry/transparency to figure out what is actually happening.

Pierre-Louis: unlikely that Congress will do much to intervene. When applied correctly, the DMCA works fine—the jury is still out on that. Google: judge ruled that all you need is a takedown program; if so, that’s a dangerous precedent because there are (should be) other obligations.

Oliar: people want clear rules that help them. Clear rules, but which ones?

eBay contract and UCL/FAL class action certified

Ewert v. eBay, Inc., 2010 WL 4269259 (N.D. Cal.)

The plaintiffs filed a putative class action on behalf of sellers who didn’t receive the full amount of listing time they requested. They asserted claims under the CLRA, FAL, and UCL, as well as breach of contract. The breach of contract, FAL, and UCL claims were certified, but not the CLRA claims.

eBay contested typicality because the class included many sophisticated businesses as well as individual sellers, but since they were all subject to the same standard form contract that was no barrier. Likewise, there wasn’t an insurmountable conflict in the class destroying adequacy even though many sellers want their listings to end at a specific time and thus would be harmed by the requested injunction requiring eBay to extend the duration of a listing whenever there is a delay to compensate for lost listing time. Some of the injunctive relief options create no conflict, such as providing optional extension for delay or simply providing full disclosure of the potential for delay.

Because the interpretation of the standard eBay form contract was at issue, plaintiffs also showed predominance on the contract claims. Also, the UCL and FAL don’t require reliance for non-named class members; they may receive restitution without an often impossible showing of what they individually knew about the alleged fraudulent practice. The CLRA requires that consumers suffer damages; class members who knew that listings could be delayed didn’t rely on eBay’s alleged misrepresentations and weren’t damaged. However, a presumption, or at least an inference, of reliance arises whenever a plaintiff shows that a misrepresentation was material to a reasonable consumer. The alleged misrepresentations were the duration and start time offered on the Sell Your Item form used by anyone selling an item. Every member of the class was necessarily exposed to them. Materiality could thus be addressed on a class-wide basis.

eBay next contended that the court would have to inquire as to each class member is entitled to protection under the UCL and CLRA as a consumer, since corporations and other business entities aren’t generally protected by those laws. The court thought eBay was overreading the cases, which were about sophisticated businesses that negotiated individualized contracts that didn’t affect the general public. Where an action deals with form contracts, even for corporate class members, the situation is different; if a big company has sufficient interests to pursue them on its own, it will be able to opt out.

As for the CLRA, however, sellers who bought listings for business purposes aren’t “consumers” protected by the CLRA. The CLRA defines a "consumer" as "an individual who seeks or acquires, by purchase or lease, any goods or services for personal, family, or household purposes." There was little doubt that many non-consumers were included in the proposed class definitions. Plaintiffs failed to suggest any potentially viable means for avoding the necessary individualized inquiry into consumer status, and thus they failed to show predominance with respect to the CLRA claim.

As for damages, the court found that plaintiffs had offered a plausible damages calculation method (basically, a percentage of the listing price charged related to the amount of delay), with one exception. If the seller successfully sold using “Buy It Now,” which has no set duration other than a maximum, then the listing would terminate early unrelated to any eBay-side delay. A damages methodology assuming that bargained-for listing time was lost due to delay wouldn’t work. As long as Buy It Now listings were excluded, however, both damages and restitution could be calculated properly.

Since the alternative to a class action was individual claims that were unlikely to be worthwhile, individual resolution would burden the judiciary, and common treatment would not be unduly complex, the (remaining) class action was superior. Thus, the court certified a class of eBay customers who used the Sell Your Item form and chose “start listing when submitted,” excluding Buy It Now sellers who actually sold at the Buy It Now price (and also the usual people excluded from a class like this, e.g., eBay employees, lawyers for the parties, etc.).

Enfamil class action certified

Nelson v. Mead Johnson Nutrition Co., --- F.R.D. ----, 2010 WL 4282106 (S.D. Fla.)

More follow-on PBM litigation. Nelson alleged that Mead Johnson misrepresented the qualities of Enfamil Lipil by falsely representing that it was the only formula that contains DHA and ARA. Thus, she and other putative Florida class members paid more for Mead Johnson’s products than for less expensive but equivalent products, mistakenly believing they were buying the only source of essential nutrients. The court granted certification of her state unfair competition/deceptive advertising claims.

The Florida Deceptive and Unfair Trade Practices Act provides a cause of action "against a party who has engaged in 'unfair or deceptive acts or practices in the conduct of any trade or commerce,' but it does not define the elements of such an action." Instead, it tells Florida courts to give “due consideration and great weight” to FTC and federal court interpretations of the FTC Act. The court here was persuaded that actual reliance is not required under the FDUTPA if a reasonable person would have relied on the representations. Though some cases identify a causation element, this is not the same as reliance. A deceptive practice may allow a seller to charge a premium, so even if an individual seller doesn’t rely on the deception, she may pay more than she otherwise would have. To impose a reliance requirement would “eviscerate” the law’s protections, especially since it would make class actions impossible, and class actions are necessary in many instances given the small amounts individually in controversy and the enormous expense of litigating “the complex questions that invariably arise when a consumer challenges a defendant manufacturer's representations about the qualities or contents of a particular product.”

On to certification. The court easily found commonality. Mead Johnson argued that Nelson wasn’t typical. There was some quibbling about the products covered by the proposed class, since there are a lot of Enfamil sub-brands. The court read the complaint to cover the basic Enfamil Lipil product, which Nelson bought, and therefore she had standing. She also testified that she was deceived by Mead Johnson’s misrepresentations.

Mead Johnson argued that she continued to purchase Enfamil not because she thought it was superior but because she knew it was working, even after she learned that it wasn’t the only formula with DHA and ARA. Nelson responded that, although she learned about DHA and ARA, Mead Johnson’s claims led her to believe that Enfamil Lipil contained something other formulas didn’t—the thing that would improve brain and eye development. E.g., Enfamil LIPIL is the "Only Brand CLINICALLY PROVEN to Improve VISUAL AND MENTAL DEVELOPMENT”; "Only Enfamil has LIPIL, our blend of DHA and ARA, important nutrients found in breast milk"; “En-Fact: Enfamil LIPIL's unique formulation is not available in any store brand"; "It may be tempting to try a less expensive store brand, but only Enfamil LIPIL is clinically proven to improve brain and eye development.” Especially given the lack of a reliance requirement, her claims were typical.

Mead Johnson argued that different claims were made at different times, and that the message “Clinically proven to improve the brain and eye development" did not appear on cans of Enfamil Lipil until December 2005, more than one year after she began buying the product. The court thought this conflated typicality with reliance. First, the proposed class covers all Florida consumers who bought Enfamil Lipil within the limitations period, and so Nelson was part of that class. Second, she need not prove reliance on any particular representation, so the fact that different class members viewed different representations doesn’t defeat typicality. Third, Nelson testified that she bought Enfamil after receiving a flyer and coupons that contained the “clinically proven” message, and that at the time she bought, she was exposed to the following messages: "Enfamil LIPIL has a unique blend of DHA and ARA" and "Enfamil LIPIL gives you more than store brands, which may cost less." This was enough for typicality.

Nelson was also an adequate class representation because some of her purchases fell within the limitations period, though she couldn’t claim for time-barred purchases.

Then the inquiry turned to Rule 23(b)(3), which requires predominance. Mead Johnson argued that every class member would be required to prove causation and damages individually. The court agreed that damages would likely require individualized evidence, but that’s not generally fatal to certification if liability could be determined class-wide. The court concluded that class members need not submit individualized proof to show causation, as long as they showed that Mead Johnson’s alleged misrepresentations would deceive an average reasonable consumer—an issue that could be treated identically for every class member.

Predominance then affects the superiority analysis, because predominance makes a class action more attractive as a vehicle for adjudicating the plaintiffs’ claims. Because of the common questions of law and fact, a class action would be superior to the alternatives. Certification granted.

What a headache: Kaiser wins Neurontin marketing case

In re Neurontin Marketing and Sales Practices Litigation, -- F. Supp. 2d --, 2010 WL 4325225 (D. Mass.) (Kaiser Foundation Health Plan, Inc. v. Pfizer, Inc.)

Pfizer falsely and unlawfully promoted numerous off-label uses of the drug Neurontin, which became a best-seller. Kaiser obtained a multimillion-dollar verdict against Pfizer. Pro tip: if your drug is called “snake oil” by your own sales team, take it off the market for anything but making snakes shiny.

As the district court summarized, the drug companies suppressed negative clinical results and extensively publicized positive ones. Warner-Lambert ultimately pled guilty to criminal violations of the FDCA for its off-label marketing and paid civil fines and criminal penalties totaling $430 million.

In previous litigation, the court granted defendants summary judgment against two other third party payors suing for false advertising because they hadn’t provided admissible evidence to create disputed fact issues with respect to reliance or causation. Kaiser, which spent about $200 million on Neurontin from 1996-2004, sued for violations of RICO and the California UCL. A jury found that Pfizer engaged in a RICO enterprise that committed mail and wire fraud by fraudulently marketing Neurontin for off-label conditions such as bipolar disorder, neuropathic pain (pain caused by nerve damage), and migraine, and at doses greater than 1800 mg/day, though it did find for defendants with respect to plaintiffs' claims of fraudulent promotion of Neurontin for nociceptive pain (pain caused by injury). The jury awarded $47,363,092, which was trebled pursuant to the RICO statute.

The court then considered whether the same conduct violated the UCL, which, because it provides for only equitable relief, was a question for the court, though it nonetheless empaneled an advisory jury, which also found Pfizer liable. The court commented favorably on the caliber of most of both sides’ expert witnesses, but noted pointedly that, “[r]emarkably, Pfizer did not offer live testimony from any officer or employee, nor was any Pfizer representative present during the trial.”

Kaiser proved that Pfizer “fraudulently marketed Neurontin by making material misrepresentations in advertising supplements, articles it sponsored, and direct communications to Kaiser,” and “by showcasing positive information about Neurontin's efficacy in the published literature, while suppressing negative evidence from Pfizer-sponsored clinical trials about Neurontin's efficacy for bipolar disorder, neuropathic pain, migraine, and at doses greater than 1800 mg/day.” Kaiser proved that there was little or no scientific evidence that Neurontin is effective for the treatment of those conditions at those doses. Kaiser further proved that Pfizer’s conduct caused it injury “in the form of reimbursements for Neurontin prescriptions in excess of payments for alternative prescriptions that would have been made for more or equally effective, but less expensive medicines, in the absence of Pfizer's fraudulent marketing campaign.” Kaiser was entitled to over $95 million in restitution. (By way of comparison, in 2003 alone, Neurontin sales were over $2 billion.)

As early as 1994, Parke-Davis identified Kaiser as a potentially lucrative customer: Kaiser was second on marketers’ list of top 10 HMOs targeted for Neurontin, and it remained a target throughout the relevant period, including a Kaiser-specific marketing plan in 2004. Pfizer detailed to doctors who were Kaiser decisionmakers and paid them to serve as speakers and publish articles.

Equally early on, Parke-Davis (acquired by Pfizer in 2000) strategized about marketing Neurontin for off-label uses in order to enhance profits, even as efforts to expand approved uses “hit a brick wall” at the FDA. At the time of acquisition, Pfizer estimated that 87.5% of Neurontin prescriptions were for unapproved indications, including 14.7% for bipolar disorder, 33% for neuropathic pain, and 3.8% for migraine.

To promote off-label uses, Pfizer sponsored publications, funded continuing medical education, and directly promoted to doctors. It also worked with an advertising partner to “spin, delay and/or suppress negative evidence about Neurontin.” One of Kaiser’s witnesses, who donated her fee to Johns Hopkins and published her findings in the NEJM  to get the truth out, found that “what was in the published record didn't agree with what was actually planned or what had been done” and that there was a "failure to publish results that were known." Of 21 trials sponsored by the defendants, each and every trial exhibited "some form of bias or deviation from the truth," such as changing the primary outcome being studied when the data didn’t support a positive effect on the original primary outcome sought to be measured. (Example taken from the court’s opinion: one study that initially concluded that Neurontin provided no benefit over placebo was changed to eliminate any reference to the control group, so that patients who felt less pain after treatment counted as success. The court found that this was an intentional misrepresentation in that it specifically changed the lead investigator's primary conclusion.) The court found this testimony credible and compelling. This publication bias distorted the information available to doctors, influencing their prescribing decisions.

The court found that Pfizer’s promotions were intentionally misleading, because Pfizer promoted only good results while knowing that numerous well-controlled studies showed that Neurontin didn’t work for the off-label indications (including some that showed Neurontin to be worse than placebo for bipolar disorder, which was especially troubling given Neurontin’s association with suicide risk). One published study even said it was the “first” to evaluate Neurontin for neuropathic pain, which Pfizer knew to be false because it had in hand a negative unpublished study. Pfizer consistently failed to disclose known negative results, even in so-called “review” articles supposedly canvassing the available data, and even when the negative studies were more reliable than the positive ones (for example, when the positive ones were subject to unblinding).

Continuing medical education was another venue for Pfizer’s intentionally misleading promotions, which propounded deliberate half-truths. The opinion goes into great detail about the strategies employed.

Medical liaisons who marketed to doctors were also trained to promote off-label uses. At one Parke-Davis training session, for example, two lawyers gave a videotaped presentation on FDA regulations on off-label promotion. “While the camera was recording, the two attorneys explained the FDA's rules regarding off-label promotion of drugs, although they stated their belief that these were ‘odd’ rules.” Not only did this not correspond to actual practice among liaisons, the lawyers then turned off the camera “and explained that the medical liaisons should not worry about these FDA regulations. They told the audience of medical liaisons ‘that it was ... our job to sell’ and ‘that we needed to dismiss what [was] just said and just be very careful ... about how we went about doing [off-label marketing].’” At another training, a Parke-Davis employee “handed out two notepads with the text ‘Ladies and Gentlemen of the Jury’ and ‘Your Honor, I plead.’ She explained that these notepads were meant to emphasize the ‘importance of not creating a paper trail.’” Practice tip: Don’t do this. (This and other evidence came from qui tam litigation initiated by a former Parke-Davis liaison, who ultimately received over $24.6 million.)

Parke-Davis continued these activities even after FDA investigated its off-label promotions and rejected its supplemental NDAs for expanded indications/higher doses, because there was insufficient evidence to support them, though the FDA did approve Neurontin for treating a type of neuropathic pain associated with shingles. The FDA required that the label include the phrase "[a]dditional benefit of using doses greater than 1800 was not demonstrated."

In 2004, Warner-Lambert (owned by Pfizer) pled guilty to two felony counts of marketing Neurontin for various unapproved uses and paid a $240 million criminal fine and a $190 million civil fine. The plea included an admission of the illegal off-label promotions through the use of sales representatives, medical liaisons, advisory board meetings, consultants meetings, and teleconferences.

Pfizer’s victory: Though there was some evidence that Pfizer wanted to promote Neurontin for nociceptive, rather than just neuropathic, pain, that evidence wasn’t enough to show fraudulent marketing. There were some sloppy references to pain generally, and some internal discussions showing hope that it could be marketed for nociceptive pain, but that wans’t enough to meet Kaiser’s burden on this point.

In making its decisions about approving Neurontin on its formulary for various conditions, Kaiser relied on Pfizer’s misrepresentations, both generally and in specific communications to Kaiser. The court accepted as credible testimony that Kaiser would not have approved the significantly more expensive Neurontin for these off-label uses had it not been for the misrepresentations and failure to disclose negative information. Kaiser has 95% compliance with its formulary, so formulary restrictions “necessarily affect the number of prescriptions written for any given drug.” Kaiser also analyzed how prescribing decisions changed when physicians attended continuing medical education that promoted Neurontin; new starts of Neurontin increased by 62%, and the CME had a continuing effect. The court found that direct communications to Kaiser physicians also caused Kaiser injury because it ended up reimbursing for Neurontin rather than for less costly alternatives.

Pfizer argued that Kaiser didn’t do enough to prevent prescriptions for Neurontin once it became aware of the fraud. Kaiser didn’t remove Neurontin from its formulary or impose restrictions, and favorable information about Neurontin for the treatment of neuropathic pain even remained on the Kaiser website until the week before trial. But Kaiser did start a vigorous information campaign to reduce off-label prescribing once it became aware of Pfizer’s off-label marketing, including banning detailing of Neurontin to its physicians and beginning a campaign to promote appropriate use of the drug. When it learned about the qui tam suit, Kaiser increased its efforts, which were resource-intensive and successful in decreasing new starts of Neurontin.

Damages were difficult to quantify because prescription decisions are influenced by a number of factors, including doctors’ clinical experience and those of their colleagues. No individual doctor testified that he or she prescribed Neurontin as a result of fraudulent off-label promotion. (Would any doctor’s insurer be happy with such testimony?) And during the relevant period Kaiser didn’t track Neurontin data by medical indication. Instead, Kaiser offered an expert opinion from a health economist linking use to Pfizer’s promotional spending.

Pfizer criticized the calculations because the expert equated promotional spending on off-label marketing with promotional spending on fraudulent off-label marketing. Though off-label marketing can be truthful, the court found the assumption reasonable in this case “given the pervasive nature of the publication fraud that infected the nationwide sources of information available to all physicians.” The expert concluded that 99.4% of prescriptions for bipolar disorders were caused by fraudulent marketing, 70% of those for neuropathic pain, 27.9% of those for migraine, and 37.5% for doses over 1800 mg/day. Another expert then converted this into dollar amounts paid for Neurontin: roughly $69.4 million, excluding interest. Subtracting the cost of alternative, much cheaper, treatments that Kaiser almost certainly would have paid for instead, the expert calculated nearly $62.5 million in damages.

Defendants argued that any misrepresentations were not material because Neurontin is actually effective off-label for the disputed conditions. The court found that there was no reliable scientific evidence for this, except that there was some evidence of efficacy for some kinds of neuropathic pain. But there was no reliable evidence to support a broad indication of neuropathic pain. The double-blind, randomized, controlled trial was the gold standard, entitled to the most weight, and the court adopted the FDA’s requirement of two such trials as a reliable standard followed by the scientific community, rather than Pfizer’s proposed standard that Kaiser needed to prove that the drug was not effective for any patient.

The court agreed with the advisory jury that defendants engaged in fraudulent business acts or practices with respect to all off-label indications except nociceptive pain and that those fraudulent acts or practices caused Kaiser damages.

Defendants argued that they had no duty to disclose negative information about Neurontin, but under California law, nondisclosure or concealment can be actionable fraud when a defendant makes partial representations but also suppresses material facts. Such half-truths can be accurate in some sense but still likely to mislead or deceive. The court concluded that “Pfizer had a duty to disclose scientific data demonstrating the lack of efficacy of Neurontin for off-label uses. This duty arose because Pfizer was marketing the drug for unapproved uses by disclosing positive information about the drug while suppressing negative information in its possession.” Pfizer’s failure was “particularly outrageous in the area of bipolar disorder where there was not a scrap of evidence supporting efficacy and where there were actual negative side effects of depression for certain segments of the population.” Moreover, because off-label prescriptions are legal, it is imperative that doctors have accurate scientific information. The suppressed information would likely have been material to any Kaiser doctor in determining the best treatment, and it was material to health plans like Kaiser managing a drug formulary.

The UCL has a four year statute of limitations, and the complaint was filed February 1, 2005. Plaintiffs argued that a related class action filed May 14, 2004 tolled the UCL statute of limitations per American Pipe & Construction Co. v. Utah, 414 U.S. 538 (1974), but that class action didn’t make UCL claims, thus not putting Pfizer on notice of Kaiser’s claims.

Plaintiffs also argued that defendants fraudulently concealed the facts, thus tolling the statute. California law is unsettled on whether the discovery rule applies to UCL claims, but California courts have applied a discovery rule in fraud-based UCL cases. Thus, the statute of limitations starts to run when a reasonable person would have discovered the factual basis for a claim. A suspicion of wrongdoing, or actual notice, trumps fraudulent concealment, no matter the lengths to which a defendant has gone to conceal the wrongdoing.

The court found that Kaiser proved Pfizer’s fraudulent concealment of the facts underlying the UCL claims because Pfizer kept suppressing negative results, even when people acting for Kaiser requested all available information. Pfizer argued that Kaiser was put on notice by an article in The Pink Sheet on April 3, 2000, stating that Warner-Lambert was under investigation by the US for off-label promotions of Neurontin. “While this article may have suggested to Kaiser that defendants were violating FDA rules about off-label promotion, there is nothing in the article that supports an inference that Neurontin might not be effective for certain off-label indications for which it was widely used.”

Pfizer also argued that Kaiser should have been on notice when the qui tam lawsuit was unsealed in 2000. But “[t]he unsealing of a case in Massachusetts, unaccompanied by extensive press coverage, cannot be viewed as sufficient notice, particularly to a California corporation.” Instead, Kaiser was put on notice in 2002, when defendants’ fraud was nationally publicized, at which point it investigated its injuries.

Pfizer then contended that Kaiser couldn’t recover under the UCL for Neurontin prescriptions written outside California. The parties agreed that Massachusetts choice-of-law rules applied, and for fraud that means application of the law of the state in which a plaintiff took action in reliance on a defendant's representations. Kaiser argued that the Kaiser entity that primarily gathered information on Neurontin and corresponded with Pfizer was in California, while Pfizer argued that only prescriptions written in California were subject to California law. Courts have held that the UCL doesn’t apply to conduct occurring outside California. However, California courts have also permitted certification of nationwide class actions under the UCL. Thus, applying California law was legitimate as long as Kaiser showed that it relied, in California, on defendants’ misrepresentations. It did so.

Kaiser’s headquarters are in California, where it’s incorporated; the majority of its members and operations are in California; its drug information service, which gathered the information on Neurontin, is in California. The service creates monographs summarizing its findings and shares them across regions. As a result, Kaiser formularies are very similar across regions, and the Medicare formulary is identical. In addition, Pfizer specifically targeted Kaiser for off-label Neurontin prescriptions. Kaiser is “an evidence-based organization” and its drug information service relied on Pfizer’s misrepresentations, as a result of which its physicians relied on those misrepresentations. Thus, the court found, Pfizer’s misrepresentations “were made, received and relied on primarily in California,” resulting in a legitimate claim under the UCL for all prescriptions.

Causation: the UCL allows restitution of any money or property “which may have been acquired by means of” a violation. This was the most difficult issue. In Rule v. Fort Dodge Animal Health, Inc., 607 F.3d 250 (1st Cir. 2010), plaintiffs in a proposed class action sought to recover for an undisclosed safety risk associated with a veterinary medicine. The plaintiff conceded that the drug was ineffective, and the court held that where a product had been consumed and provided the intended benefit the plaintiff couldn’t show a concrete injury or adverse economic impact. But Rule was inapplicable. First, plaintiffs proved that Neurontin was totally ineffective in treating certain off-label conditions, so it didn’t provide the intended benefit. In addition, even if the drug may have had effectiveness for some pain, Kaiser demonstrated a “significant adverse economic impact” because it could have paid for less expensive alternatives.

Still, there were three layers of causation. (1) What misrepresentations and omissions did Kaiser rely on, and did that cause injury? (2) Would doctors nonetheless have prescribed Neurontin if Kaiser hadn’t recommended it to them or if there had been restrictions on Neurontin’s formulary status? (3) How can the number of prescriptions caused by fraudulent marketing be quantified?

Under Tobacco II, reliance can be proved by showing that a misrepresentation or nondisclosure was an immediate cause of the plaintiff’s injury-producing conduct, which can be done by showing that without the misrepresentation the plaintiff in all reasonable probability wouldn’t have engaged in the conduct. A plaintiff need not show that the misrepresentation was the only cause, or even the predominant or decisive factor, as long as it played a substantial part in the plaintiff’s decision. And a presumption, or at least an inference, of reliance arises when a misrepresentation was material. Nor, in the context of an extended marketing campaign, need a plaintiff prove reliance on particular ads or statements.

Pfizer’s off-label campaign was extensive and long-term. Kaiser relied on direct misrepresentations from Pfizer as well as the misrepresentations introduced into the literature by Pfizer. Pfizer argued that Kaiser couldn’t have relied on the misrepresentations, because one published study expressly mentioned the potential issue of unblinding, putting Kaiser on notice of potential problems. But the study’s author claimed that proper analysis had been done to ensure reliability, and this was not true. Kaiser didn’t and couldn’t have known the truth without access to the raw data. Plus, Parke-Davis didn’t mention this key flaw in its ad campaign, which generated more than 85 million impressions. Kaiser’s witnesses credibly testified that they lacked a full understanding of the study’s flaws because of the way in which it was presented.

Pfizer also argued that Kaiser’s true motive in its anti-Neurontin campaign was expense rather than lack of efficacy; some regions put the drug back on the formulary after it went generic. Thus, misrepresentations weren’t a substantial factor in Kaiser’s decisionmaking. But cost can be a factor along with lack of efficacy in determining a formulary’s contents. “If it had known the truth, Kaiser would likely not have removed restrictions on, or sanctioned widespread use of, an extremely expensive drug whose efficacy was not established, or even disproven (i.e., with respect to bipolar disorder).”

As to prescribing behavior: would the doctors have prescribed Neurontin even if Kaiser had published truthful monographs and/or restricted it on the formulary? No Kaiser physician testified that she wouldn’t have prescribed Neurontin had she known the truth. To the contrary, Pfizer’s experts, with impressive credentials, all stated they’d reviewed the data and still believed that Neurontin might be effective. Courts have refused to accept proof of fraud on the market in the aggregate to show causation in individual drug cases.

However, the fact that Kaiser physicians have a 95% compliance rate with the Kaiser formulary was proof that they would likely have changed their Neurontin prescribing behavior had Kaiser issued negative monographs and made different formulary decisions. Based on the successful anti-Neurontin campaigns starting in 2002, the court found that it was more likely than not that Kaiser would have taken action to reduce inappropriate Neurontin prescriptions if it had known the truth earlier, and that doctors would have responded by using cheaper alternatives, even for neuropathic pain where there is some evidence of efficacy for certain narrow indications.

Pfizer argued that Kaiser’s experts were only using impermissible generalized proof by creating percentage estimates of reductions in prescriptions. But Pfizer relied on class action cases; this is not a class action, and probabalistic harm to a population translates into predictable and quantifiable harm to Kaiser since Kaiser made relevant overarching decisions and paid for it all.

The UCL provides a court with broad discretion in awarding restitution, and the standard of proof for a damages determination is "patently less stringent" than the requirements for standing under the UCL, though an award can’t be arbitrary and capricious or unsupported by the record. Here, the appropriate measure of Kaiser’s damages was the difference between the cost of Neurontin and the cost of the cheaper and more optimal drug that would have been prescribed without the misrepresentations.

Pfizer argued that efficacy is patient-specific. For example, tri-cyclic antidepressants are among the alternative treatments, and while they’re generally effective for treating pain, they fail for some patients and can have unpleasant side effects. Pfizer claimed that Neurontin would be better tolerated by some patients. Even if that was true, Kaiser proved that “other drugs are equally or more effective and much cheaper, and would likely have been the first line of treatment if the truth about Neurontin's efficacy had been known. Moreover, Neurontin has its own drawbacks; that is, depression with or without suicidal ideation in some patients.”

Result: $65.4 million in restitution, plus prejudgment interest as a matter of right, bringing the total to nearly $95.3 million. However, because this amount reflects the same damage claims encompassed by the jury claim, it would not be added to the jury verdict. (This confuses me, but then I don’t do RICO. Wouldn’t the trebling of damages under RICO be an independent penalty, so that the court should subtract the initial award, but still pay the extra restitution under the UCL claim?)

ETA: I recommend White Coat, Black Hat for more depressing tales of pharmaceutical marketing.  Neurontin is unusual only in that Pfizer got caught.

Positive tension

Dayco Products, LLC v. Dorman Products, Inc., 2010 WL 3855221 (E.D. Mich.)

Dayco sued Dorman for trade dress infringement and false advertising under the Lanham Act and Michigan law. Dayco sells automatic belt tensioners in the original equipment manufacturer (OEM) and automotive parts aftermarket. It alleged that its tensioners have distinctive, nonfunctional features, including their overall configuration as well as an arbitrary and nonfunctional six-petal rosette design and a design consisting of three rays on many of its tensioners, and that the tensioners have secondary meaning.

Dorman allegedly copied Dayco’s tensioners, including the rosette and triple ray designs on some products. “The overall configuration of each Dorman tensioner is identical to the corresponding Dayco tensioner down to minute, arbitrary and nonfunctional details giving the clear impression that it is manufactured by the same company, thus creating confusion respecting the origin of the tensioners.” Dayco’s complaint included photos of the Dayco and Dorman tensioners, as well as of other third-party tensioners, demonstrating the similarity in appearance and (allegedly) nonfunctionality, though of course the presence of other designs on the market is not necessarily evidence of nonfunctionality.

Dorman argued that Dayco failed to plead the protected trade dress with sufficient specificity. First, it argued that the rosette and triple ray designs don’t appear on every belt tensioner, resulting in the lack of a consistent overall look across the product line. However, Dayco wasn’t alleging a trade dress in its line, but rather 20 individual trade dresses specific to each belt tensioner in the line. A single producer can seek protection of dissimilar forms as long as each form is protectable.

Dorman then argued that Dayco failed to specifically identify the discrete elements of the individual trade dresses embodied in its automatic belt tensioners, alleging merely "distinctive, aesthetic, non-functional design elements, including, inter alia, the overall configuration and appearance of the products.” The court was not worried. First, the photos of the parties’ products and a corresponding noninfringing third party tensioner “provide the requisite factual allegations in pictorial form.” Including photos of the relevant trade dress in the complaint satisfies the general pleading requirements that the elements of trade dress be specifically identified and articulated—at least during the early stages of litigation, before discovery has commenced. If the case proceeds further, Dayco will have to list the elements of the design and the unique combinations it claims, but it did enough to state a claim and put the defendant on notice of that claim.

Dayco also alleged false advertising. First, Dorman used the phrase "OE Solutions" in marketing materials, allegedly falsely representing Dorman to be an original equipment (OE) manufacturer. Dorman argued that the phrase was comparative: Dorman provides a less expensive alternative, or “solution,” to using OE products. The court found this argument more suitable for summary judgment. Dayco sufficiently alleged that the statement was misleading by alleging that the term OE is used in the automotive industry generally to refer to original equipment; that Dorman does not sell original equipment; and that a trademark examiner found “OE Solutions” descriptive, stating "the wording immediately informs the potential purchaser of applicant's goods that the goods are 'original equipment' products. No imagination, thought, or perception is required to determine the nature of applicant's goods." “OE Solutions” was plausibly misleading, though not literally false because it did not assert a fact, by contrast to the phrase “OE Products.” Though Dayco didn’t expressly allege materiality, the court was willing to infer that it was: “Believing Dorman's products to be original equipment--a desirable product--would clearly influence one's purchasing decisions, especially because they cost less than OE products.”

Dayco also alleged false advertising of equivalence to OE tensioners through promises of “OE Quality,” “OE Performance,” "as good as OE," and "Dorman offers a premium product." Dorman also uses the term "OE# " in its advertisements. The court found that Dayco failed to state a plausible claim that OE# was false or misleading, since it had the “unambiguous purpose of providing customers with the proper information regarding which Dorman tensioner may replace an original equipment tensioner” and the parts listing clearly distinguished Dorman tensioners from OE tensioners. “It is implausible to believe that customers would be led to believe that Dorman provides original equipment simply by Dorman's use of the phrase "OE# " in a comparative manner in its advertisement.”

However, Dayco stated a claim with respect to three of the other phrases. Dorman argued that they were nonfalsifiable statements of opinion, which the “premium” statement was, but the others could be judged true or false in a way that admits of empirical verification. The statements suggested that the Dorman tensioners meet the specifications for OE tensioners. Dayco sufficiently alleged that Dorman tensioners don’t in fact meet those specifications. Allegedly, OE specifications are significantly more demanding than SAE specifications, and Dorman tensioners both failed to meet the former and occasionally even failed to meet the latter. In addition, Dorman’s ads answered "Yes" to the question "Are these as good as OE?" In combination with Dorman’s claim to meet SAE specifications, this could lead the consumer to equate SAE and OE specifications, and thus to believe that Dorman tensioners met the OE specifications. This was all falsifiable.

Dayco then alleged that Dorman falsely advertised that Dorman is a manufacturer of belt tensioners while Dayco isn’t, through this Q&A:

Q: [Can I] wait for my current supplier to lower their price?
A: The current suppliers all buy from the same OE sources. None of them are dominant because none of them can be significantly more price competitive.

“The Court cannot conceive of any way in which this colloquy could imply that Dorman is a manufacturer while Dayco is not.” It doesn’t mention Dayco by name; Dayco is a manufacturer, and the colloquy is about suppliers.

Dayco also alleged that Dorman overstates its market position by claiming 80% of traditional aftermarket sales for its 28 tensioners, while that line only covers 70% of the relevant market. The complaint failed to plead actual or likely deception and materiality, and it’s not reasonable to infer that a 10% difference in market coverage would influence purchasing decisions. The complaint also alleged that Dorman falsely claimed that Dayco makes only 120 different tensioner models, when the number is really 165. But since Dorman makes only 28, so Dayco makes at least four times as many models than Dorman no matter what the number is. The statement might be false, but there was insufficient pleading of materiality: “it is not plausible that a purchaser would make the decision to purchase a Dorman tensioner over a Dayco tensioner simply because Dayco only makes 120 models rather than 165.”

Dayco next alleged that, because the tensioners appear externally identical, the mere presence of Dorman tensioners causes purchasers to believe that they have identical internal mechanisms.

This sounds like a case for Dastar: this is the pure evasion of a secondary meaning requirement that the Dastar Court cautioned against in discussing why, if Fox’s reverse passing off theory were correct, the decisions in Wal-Mart and other cases would have to have been different. But: Dorman first argued that Dayco failed to allege “commercial advertising or promotion.” The court found no legal basis for concluding that the sale of products themselves can’t be commercial advertising or promotion.

Dorman then argued that it had made no false statements about use of Dayco technology or association with Dayco. The court found it plausible that, “because of the outward appearance of Dorman tensioners, purchasers could believe that Dorman tensioners utilize Dayco technology, even where Dorman tensioners bear a Dorman trademark.”

Without discussing Dastar, however, the court did address the heart of the matter. Dorman argued that Dayco would have to show a valid trade dress to win this argument; because the trade dress claims survived, that was okay. Dayco sufficiently alleged that people reading the Gates Bulletin (which apparently analyzed the Dorman tensioners and found them lacking) would believe that Dayco tensioners “suffer from the same technology shortfalls as do Dorman tensioners,” sufficiently implying deception among a substantial portion of the intended audience. If the trade dress claims ultimately fail, then this claim should as well, though the court didn’t say this outright. But especially if the trade dress lacks secondary meaning, or even if the target consumers do use the house marks to distinguish manufacturers, then I think Dastar has to control and bar a false advertising claim.

Clever arguments fail to defeat preemption, standing requirements

Red v. Kroger Co., 2010 WL 4262037 (C.D. Cal.)

Plaintiffs filed a putative class action, alleging violations of the CLRA, FAL, and UCL, as well as false advertising under the Lanham Act, based on certain Kroger products sold as containing “0g Trans Fat per serving,” which is allegedly false because such products contain various hydrogenated oils and the process of hydrogenating oils creates artificial trans fats. Plaintiffs further alleged that Kroger misleadingly labels certain margarine products as "a Cholesterol Free Food," even though they contain substantial and dangerous levels of artificial trans fat that increase LDL cholesterol and decreases HDL cholesterol levels.

Kroger argued that the phrases at issue are identical to those defined by FDA regulations, and thus state law claims are preempted under the NLEA, 21 U.S.C. § 343-1(a)(5), which only allows state law requirements that are identical to federal requirements. Red responded that all nutrient content claims are nevertheless subject to 21 C.F.R. § 101.13(i)(3), which permits such claims only to the extent they are "not false or misleading in any respect." Defendant's statements are allegedly misleading because they falsely suggest Defendant's products are healthy; thus there's no preemption. 

The court began with the fact that FDA regulations have expressly defined the terms "cholesterol free" and "0g Trans Fat" per serving and articulated the circumstances in which they may be used on a product label outside of the Nutrition Facts box. Plaintiffs didn’t allege that the products at issue failed to meet the federal definitions. Thus, Kroger’s compliance with the specific definitions couldn’t be deemed false or misleading. “Plaintiffs cannot escape the fact that they seek to enjoin exactly what federal law expressly permits.”

As for the (non-preempted) Lanham Act claim, plaintiffs lacked standing, which in the 9th Circuit requires (1) a commercial injury based upon a misrepresentation about a product and (2) that the injury is "competitive" or harmful to the plaintiff's ability to compete with the defendant. Individual consumers lack standing, even if they're only seeking injunctive relief.

Tabs protect Target from class action

Sevidal v. Target Corp., --- Cal.Rptr.3d ----, 2010 WL 4260891 (Cal.App. 4 Dist.)

Sevidal bought three pieces of clothing from Target’s website that were misidentified as made in the US and filed a putative California false advertising class action, alleging that he’d relied on the misstatement. He argued that, after Tobacco II, he didn’t need to show reliance by absent class members, and that his own patriotic commitments had induced his supposedly “Made in the USA” purchases. The court of appeals affirmed the trial court’s refusal to certify because the proposed class was not reasonably ascertainable through records or self-identification. The proposed class was also overbroad because the vast majority of absent class members never saw the web page containing the alleged misrepresentation.

Sevidal’s proposed class was any California consumer who purchased any product from Target.com on or after November 21, 2003 which was identified on Target.com as “Made in USA,” when such product was actually not manufactured or assembled in the United States. Target acknowledged that a “computer bug” inadvertently caused imported clothing to be displayed as “Made in US” at times, though allegedly not at others. Target discovered the problem in 2007, and by June 2008 it had implemented a code change that solved the problem.

Target argued that consumers could use its website to buy clothing without seeing country of origin information, if they clicked “add to cart” from a screen of search results that contained a list of products with thumbnails and brief descriptions. (How many people do this with clothing? Among other things, what size do they end up buying?) Or, they can choose to see the item details. But that screen still doesn’t state country of origin. Only if they choose to click on the “Additional Info” tab, one of four offered tabs, will they see the country of origin information. (Our country of origin disclosure rules were set up before the rise of the web browser. I wonder if we’d do it differently now—if this were a disclosure required because of affirmative statements about the product, that is, a disclosure required to avoid misleadingness, then hiding it behind a tab would be insufficient under standard FTC principles.) Target produced evidence from 2009 showing that the vast majority of browsers—80%--don’t click on “Additional Info” before buying and are thus never exposed to the country of origin information. And even those 20% may not have bought anything; the number of total clicks on the “Additional Info” tab was equal to only 17% of the total number of items purchased during that period.

The district court found that Sevidal failed to show an ascertainable class. Target lacked the records to show when items may have been mislabeled, and it couldn’t reasonably obtain the information from its host Amazon. Nor did Sevidal show predominance, because it was likely that less than 17% of the proposed class viewed the erroneous designations at issue and there’s no way to tell which ones they were. Tobacco II, by contrast, featured an extensive and long-term advertising campaign involving public health. Thus, the proposed class was also overbroad, because consumers might never have seen the false designation of origin.

The court of appeals agreed. The class representative has the burden to define an ascertainable class, describing the proposed class by specific and objective criteria. Ascertainability is important to giving adequate notice to class members and determining preclusion. Potential class members must be identifiable without unreasonable expense or time. This was impossible here because Target did not maintain, or have access to, records identifying the individuals who purchased a product with an erroneous country-of-origin designation. The evidence showed that the programming error did not consistently misidentify origin and sometimes affected the same item more than once, so items may have alternated between being correctly designated as imported and erroneously designated multiple times. Without knowing the exact dates and times of the false country of origin designation, Target couldn’t identify the affected consumers.

Sevidal argued that Target had, through discovery, identified specific products that had been mislabeled. However, Target was only able to determine what items were described as Made in the USA, not whether this was false, and it couldn’t determine who bought them when they were misidentified.

A class may be specific enough if its members can identify themselves as having a right to recover based on the description; Sevidal argued that was true here. But the proposed class included consumers who’d never looked at the Additional Info. By definition, they’d have no way of knowing they purchased when an item was misidentified, and 80% of the proposed class falls within this category. Just because Target can identify some consumers who purchased when the goods were misidentified doesn’t mean the class as a whole is ascertainable.

Sevidal contended that Target’s failure to keep records eliminated his burden to establish an ascertainable class. Prior cases applying this rule involved contractual or statutory duties to maintain records, and at worst created problems involving subclasses or later elimination of a small percentage of class members; the situation was different here.

In addition, the proposed class was overbroad because a substantial portion of the class would have no right to recover on the asserted legal claims. Though reliance isn’t required for absent class members, restitution is only available for money or property “which may have been acquired” by means of an unfair or unlawful practice. “Although this standard focuses on the defendant's conduct and is substantially less stringent than a reliance or ‘but for’ causation test, it is not meaningless.” As a result, the UCL and FAL require “some connection” between the defendant's improper conduct and the unnamed class members seeking restitution. People who could not possibly have been affected by the representations because they were not exposed to them are not covered. When there is “absolutely no likelihood” that proposed class members were deceived, they can’t be proper class members, and the class here was overbroad because this was true of so many people falling into the proposed class definition.

The court distinguished a case involving a nutritional supplement containing a controlled substance in which none of the class members had been informed the product contained this substance; the court of appeals reversed a refusal to certify. Here, however, there was no allegation that Target was legally required to inform consumers of the product origin information. Although Sevidal alleged that a false “Made in USA” representation violates a California statute, he didn’t show that retailers are legally required to inform consumers of the country of origin before purchase. (Under federal law, sellers must put country of origin information on clothing labels, and the FTC states that catalogs and other promotional materials, including internet ads, must disclose whether the clothing is made in the US or imported. But the relevant laws were written in the age of mail order, and I’m not entirely clear on the FTC’s basis for saying that disclosure is required on the internet unless the theory is that nondisclosure in ads is inherently misleading given the on-clothing disclosure requirements.)

Like the UCL/FAL class, the CLRA class was overbroad, because CLRA remedies require unnamed class members to have suffered some damage from an unlawful practice. Because the majority didn’t view the alleged misrepresentation, they couldn’t satisfy the causation element. Worse problems attended the fraudulent concealment claim, for which reliance is required.

Is it just me, or do the parties sound like Dilbert characters?

Cboss, Inc. v. Zerbonia, 2010 WL 3835092 (N.D. Ohio)

Cboss, which creates software for businesses and government agencies, sued Ralph Zerbonia and Universe Central Corp. for false advertising. In 1996, Cboss contracted with UCC to hire Zerbonia as general manager of Cboss. Ten years later, Cboss terminated the contract. During Zerbonia's tenure, Ohio hired Cboss to create a software program for online administration of licensing and regulation of charitable gaming and professional fund-raisers, "COIN" (Charitable Organization Information Network).

Tennessee wanted a similar program in 2007 and issued a Request for Proposals. Cboss, The James Group, and another firm ultimately responded (Cboss was at first the only bidder, but its price was too high and Tennessee tried again). Zerbonia worked with The James Group on its proposal, and it won the contract.

Cboss alleged that the defendants made false statements in The James Group’s proposal to Tennessee and on UCC’s website, touting Zerbonia as the technical leader who made COIN what it is (calling him the world’s leading expert on charity regulatory software systems, stating that he’d “built” two of them, stating that he was the system architect and project manager for COIN, and so on). Cboss alleged that in fact Zerbonia was not the technical leader and did not supply the technical know-how to design, program, and produce COIN, and thus that these statements were literally false.

The court interpreted this as a question of what it meant to “design,” “author,” “create,” “build,” and “architect” a system. (Which would seem to make it a Dastar case under many, wrong, interpretations of Dastar.) Because Cboss argued only literal falsity, the question was whether the statements were ambiguous. The court concluded that they were. In context, Tennessee was looking for an entirely new software system, whose size and nature precluded is creation by one person. Thus, The James Group’s proposal included the names of many individuals who’d be involved, and identified a “technical lead” who was distinct from Zerbonia, who’d provide “[o]verall project coordination.” And so on. “At worst, the statement [that Zerbonia was the “author” of COIN] is ambiguous or at best it is true but misleading.” These claims could refer to Zerbonia’s technical skills, or his managerial skills. Without evidence of actual consumer deception, there was no Lanham Act violation.

There were a couple of exceptions: the website claimed that Ohio contracted with Zerbonia to develop COIN. This was literally false, and the court granted declaratory relief with respect to that statement. Likewise, the statement that Zerbonia was the System Architect and Project Manager for COIN was unambiguous and verifiable. Though Zerbonia was the general manager of Cboss, he did not hold those titles during his tenure. This was literally false.

However, a comparison of the COIN and Tennessee projects was not literally false. Cboss argued that defendants falsely compared the cost and time to produce each system as if they were functional equivalents. But the website stated why defendants believed that the Tennessee project’s cost was lower and time to completion was shorter: COIN was built from scratch into multiple stand-alone modules, while the Tennessee was customized and modified for an integrated system, using an existing system. The comparison did not clearly portray the projects as functionally equivalent; a reasonable interpretation would be that the systems perform similar functions but were built using different methods. This was ambiguous or at most misleading.

The court also noted that the intended audience was a sophisticated group of professionals who presumably understood the issues involved, which reinforced its conclusion that the statements were ambiguous or true but misleading. With no evidence of consumer confusion, there was no disputed issue of material fact.

Finally, the statement that Zerbonia "may well be the world's leading expert ...," was opinion, not fact, and thus not actionable.

Multivitamins raise multiple claims

McKinney v. Bayer Corp., 2010 WL 3834327 (N.D. Ohio)

Bayer sells One-A-Day vitamins, including One-A-Day Men's Health Formula and One-A-Day Men's 50k Advantage. McKinney alleged that Bayer falsely advertised that these vitamins "promote prostate health" and "may reduce the risk of prostate cancer," putting these claims on the label as well as in ads. In fact, McKinney alleged, the key ingredient which Bayer claims provides these health benefits--selenium--"actually poses serious health risks when taken in the amounts recommended by Bayer." (Bayer has settled claims with three states arising from the same underlying facts.)


The front of Men’s Health Formula, for example, says “Supports Prostate Health,” while the back says that "emerging research suggests Selenium may reduce the risk of prostate cancer,” while including the disclaimers that “FDA has determined that this evidence is limited and not conclusive” and “This statement has not been evaluated by the Food and Drug Administration. This product is not intended to diagnose, treat, cure, or prevent any disease.” Since 2008, Bayer has run at least 11 TV ads and at least 9 radio ads making prostate cancer/health claims.

McKinney alleged that he bought the vitamins in reliance on the prostate claims in the TV and radio ads, though he didn’t specify which ads he saw, when he bought the products, what the price was, or whether he actually consumed the vitamins. He didn’t allege physical harm. He sued on behalf of a putative class for violation of Ohio consumer protection law and breach of express and implied warranties.

The Ohio Consumer Sales Practice Act bars unfair or deceptive consumer sales practices that mislead consumers about the nature of the product they are receiving, as well as unconscionable acts or practices that manipulate a consumer's understanding of the nature of the transaction at issue. A consumer may bring a class action only when a defendant acted in the face of prior notice that its conduct was deceptive or unconscionable, and notice requires either a rule adopted by the Ohio AG or a judicial decision involving substantially similar conduct.

Along with arguing that he could maintain a class action under a different section of the law, McKinney argued that the prohibition against class actions conflicted with Rule 23 of the FRCP and was preempted. The court disagreed, finding itself bound by Justice Stevens’ concurrence in Shady Grove, the relevant case, because his concurrence rested on the narrowest legal ground: it allowed Rule 23 to preempt only some state rules barring class actions, when the rules weren’t substantive. Ohio has created a statutory scheme allowing individual actions even without prior notice to the supplier of the product or service at issue, but class actions only where the supplier has such notice. Thus, the Ohio rule is substantive and not preempted. The OCSPA class claim was dismissed, though an individual claim survived.

Ohio Deceptive Trade Practices Act: Similar to the Lanham Act, the ODTPA regulates trademarks, unfair competition, and false advertising. There’s a split in the federal district courts on who can file suit under the ODTPA. Some judges hold that consumers can’t sue because the law only governs conduct between commercial entities. Others look at the broad language of the statute, which allows a “person who is injured by a person who commits a deceptive trade practice” to sue. In general, Ohio courts look to the Lanham Act when interpreting the ODTPA, and the Lanham Act doesn’t allow consumer standing despite having similar language about who can sue. The purpose of the Lanham Act, to protect those engaged in commerce against unfair competition, shows an intent to limit standing. Bayer argued that the same was true of the ODTPA, and that if it applied to consumers it would render the OCSPA superfluous. McKinney responded that Lanham Act standing requires a plaintiff who’s a competitor and who alleges competitive injury, whereas Ohio law provides that a complainant need not prove competition between the parties. (This is only true for the Lanham Act’s false advertising provisions; trademark plaintiffs need not prove competition either.) Bayer responded that the ODTPA just allows commercial entities who are noncompetitors to sue.

Because of particular difficulty discerning what the Ohio Supreme Court would do, the court decided to certify the question to that court.

Breach of express warranty: Bayer argued that (1) its statements didn’t provide an express warranty because they were not affirmations of fact; and (2) the damages McKinney sought were legally unavailable. McKinney responded that Bayer promised that the vitamins were safe and that they promoted prostate health, but they aren’t and they don’t, and that he adequately alleged at least benefit-of-the-bargain damages. In Ohio, an ad can create an express warranty, but merely affirming the value of the goods or expressing a favorable opinion doesn’t create a warranty; nor does puffing. Whether a seller made a promise amounting to a warranty is generally reserved for the trier of fact, though courts have also looked at whether the seller conveys a fact the buyer couldn’t know on his own and could reasonably believe. The warranty must be the basis of the bargain—the purchaser must rely on it at least in part.

McKinney alleged that he relied on the prostate claims, and that the vitamins didn’t conform to the promises made because studies show that selenium does not promote prostate health. Bayer argued that, read as a whole, the prostate claims are just conditional statements that the products might or might not have certain health benefits. Bayer might be right, but that’s not for the court to decide on a motion to dismiss.

As for damages, the measure is generally the difference between the value of the goods and the value the goods would have had if they’d been as warranted, and special circumstances can lead to recovery of the full purchase price. McKinney sufficiently alleged economic injury (at least the price difference between ordinary multivitamins and these).

McKinney’s breach of implied warranty of merchantability claim, however, failed for want of privity.

Complete fraud justifies class action certification

Lee v. Carter-Reed Company, L.L.C., --- A.3d ----, 2010 WL 3781595 (N.J.)

Plaintiff Melissa Lee spent about $120 on three bottles of a dietary supplement pill called Relacore, marketed primarily as a weight-reduction product that also lessens anxiety and elevates mood. She sued on behalf of a putative New Jersey class for false advertising under the New Jersey Consumer Fraud Act, breach of express and implied warranties, and unjust enrichment. She alleged that there is no scientific support that Relacore provides any of the benefits claimed by Carter Reed.

The trial court denied class certification as unmanageable, and the appellate division affirmed, finding that individual issues of fact and law predominated. The New Jersey Supreme Court reversed. Accepting the pleaded facts as true, “Carter Reed's advertising of Relacore was no more than a passel of lies,” and common issues of fact and law predominated. A class action was superior to thousands of individual small claims (that wouldn’t get brought).

Carter Reed advertised that Relacore would "shrink belly fat, improve users' mood, and combat the medical condition known as 'metabolic syndrome.'” It was also allegedly a "breakthrough anti-anxiety, mood elevating pill that helps cut stress-related cortisol production,” where cortisol was supposedly a "'nasty little stress hormone'" that causes "pound after pound to accumulate around your waist and tummy." Relacore was touted as a "'feel good pill' that will 'naturally shrink your belly fat,' leav[ing] its users 'feeling happier, [and] full of energy'"-- "short-circuiting the 'stress-to-belly-fat cycle.'" Relacore promised, e.g., that "Shedding Excess Belly Fat Can Be As Easy As 1.2.3.” The complaint alleges that every benefit described is false, with no reliable scientific evidence supporting any of the claims.

Carter Reed had a 30-day money-back guarantee, and its witness testified that company offiicals had authorized refunds beyond the 30-day period, giving hundreds of refunds. Carter Reed made approximately 15,000 sales to New Jersey consumers as of 2007, and had records for eighty to eighty-five percent of those sales.

The trial court, in finding unmanageability, identified at least 14 inquiries that would have to be made of each class member: why they bought the product (reduce belly fat, reduce stress or fight metabolic syndrome); whether they saw/read/etc. ads and which ones; whether they relied on the ads or on a recommendation from someone else; whether they experienced any benefit; whether their health affected the product’s efficacy; whether they followed directions; whether they were taking medication; whether there was a causal nexus between Carter Reed’s wrongful acts and an ascertainable loss; how much money they paid; whether their purchase was based on price or some other factor; whether they suffered ascertainable loss; and whether they requested and received a refund.

The appellate division, noting that the denial of class certification on the basis of manageability is "disfavored," analyzed whether common issues of fact and law predominated over individual ones. Though the plaintiff alleged that "she was induced by the false representations to purchase and use" Relacore, no one knew "whether putative class members even saw the print or Internet advertisements or whether they purchased the product due to a recommendation from a friend or family member." The court also emphasized that "the Relacore market campaign is multi-faceted," with some ads touting Relacore as "a belly fat retardant," others as "a mood elevator," and yet others as a "stress reducer," making it impossible to know why any putative class member bought Relacore. "[T]he multiple qualities attributed to [Relacore] and the variety of advertising campaigns and media outlets utilized by [Carter Reed]" defeated predominance.

Amici argued that this reasoning was mistaken because Relacore is a credence good, known to consumers only by the claims made for it by its producer. “Consumers cannot possibly know what Relacore does, let alone have any predilections for it, unless and until they are exposed to messages about its properties or benefits." So consumers would only buy Relacore if they were exposed to the ad campaign, and if every purported benefit is false, every class member must have been exposed in some way to the false advertising, especially since the misrepresentations appear on the packaging and labeling.

Carter Reed argued that Relacore’s marketing emphasized different benefits, and that the complaint claimed only that it doesn’t reduce belly fat; consumers may have received some of Relacore’s other benefits. It identified a 2005 Relacore ad making no mention of weight reduction, and argued that, given the complexity of its distribution scheme, third-party retailers such as pharmacies might have made misrepresentations at the time of sale.

A class action allows an otherwise vulnerable class of diverse plaintiffs with small claims access to the courts. It also furthers the goals of judicial economy, consistent treatment of class members, and protection of defendants from inconsistent results. The class action rule in New Jersey should be liberally construed.

Carter Reed didn’t contest that plaintiff satisfied the four initial requirements of the New Jersey rule, which follows the federal rule: numerosity, commonality, typicality, and adequacy of representation. Instead, the issue was New Jersey RCP 4:32-1(b)(3), which requires a finding that “the questions of law or fact common to the members of the class predominate over any questions affecting only individual members, and that a class action is superior to other available methods for the fair and efficient adjudication of the controversy.” The core issues in this case were (1) whether common issues of law and fact predominate over individual ones, (2) whether the class action is superior to a myriad of individually litigated cases, and (3) whether a class action would be manageable, given the number of claims involved.

Predominance requires a pragmatic assessment, which includes inquiry into the qualitative significance of the common questions, comparison of the class action to individual actions, and identification of whether the class action presents a "common nucleus of operative facts." A plaintiff need not show an absence of individual issues; individual questions of law or fact may remain after common questions are resolved. One factor in assessing superiority is whether any one individual will have the financial wherewithal or incentive to sue on a claim that might cost more than it’s worth. Manageability is another issue, and will almost always be a difficult challenge in a statewide class action, but courts shouldn’t close their doors to plaintiffs just because the cases are novel and difficult.

The “centerpiece” of this case was the Consumer Fraud Act claim. Under the CFA, a consumer who proves (1) "any unconscionable commercial practice, deception, fraud, false pretense, false promise, [or] misrepresentation ... in connection with the sale or advertisement of any merchandise,” (2) an "ascertainable loss" such as an out-of-pocket loss, and (3) "a causal relationship between the unlawful conduct and the ascertainable loss," is entitled to legal and/or equitable relief, treble damages, and reasonable attorneys' fees. Consumers don’t have to demand refunds to show ascertainable loss. Moreover, causation is not the equivalent of reliance. It means that the unlawful practice resulted in ascertainable loss.

Initially, the court reviewed the complaint, which pled in detail that numerous Carter Reed statements were unsubstantiated, deceptive, and misleading, identifying far more than weight loss/belly fat claims. Although Carter Reed primarily markets Relacore as a weight-loss product, but plaintiff alleged that all of Relacore's purported benefits are illusory. Thus, the 2005 ad that doesn’t talk about weight loss didn’t change matters. The core dispute, whether Relacore delivers the promised benefits, will depend for its resolution on expert testimony.

Because the lower courts failed to accept plaintiff’s detailed allegations as true, they misapplied the relevant legal principles. The trial court’s 14 individual questions assumed that Carter Reed could show that Relacore provides at least some of the claimed benefits, which would make causation a “perplexing problem” of determining whether class members bought the product based on a fictional benefit or a real one. But proving a causal relation to an ascertainable loss would not be so troublesome if the allegations of the complaint are true. Pills are, in fact, credence goods, known only through the benefits promised by the seller. “A rational consumer does not randomly take a bottle of pills off a shelf and then purchase it without reading the packaging and labeling or without knowing something about the product.” Offering a multiplicity of deceptions shouldn’t make it easier for a marketer to get off the hook.

If all the claims were false, then it wouldn’t matter which benefit the class member was seeking, which ads she saw, or even whether Carter Reed communicated its deceptions “through third persons who themselves were deceived by the overall marketing scheme.” Likewise, the class member’s individual health and medication situation “would hardly matter.” Furthermore, a trier of fact could fairly infer that a class member was influenced in some way or other by the false marketing scheme. “When all the representations about the product are baseless, a trier of fact may infer the causal relationship between the unlawful practice--the multiple deceptions--and the ascertainable losses, the purchases of the worthless product.” That is, the ascertainable loss was the purchase price “of a bottle of broken promises.” Each bottle represented out-of-pocket loss if not refunded.

Viewing the record in a light favorable to the plaintiff, common issues of law and fact predominated. Individual issues such as the number of bottles purchased by each class member, the price paid, and whether a refund was issued would remain, but Carter Reed possessed many of the relevant records. In any event, the individual questions were not onerous.

The court also emphasized that a class action was superior, and perhaps the only practical vehicle, for deceived consumers. It was unlikely that the thousands of class members would file in small claims court, given the discovery and litigation costs that “make a lawsuit against a determined corporate adversary a costly undertaking. The whole point of a class action is … to balance the scales of power between the putative class members and a corporate entity.”

Carter Reed’s refund policy was not a superior alternative. First, not every ad contained a money-back guarantee, and it wasn’t on the package or the label, so not all purchasers would have known about it. Second, users waiting for the beneficial effects to appear after the second or third bottle would fall outside the 30-day window; even if Carter Reed did provide some refunds outside that period, consumers could have believed that the 30-day window was absolute. But most importantly, binding precedent holds that a refund policy confers no immunity against a CFA claim. The CFA doesn’t provide for such a windfall to false advertisers; the legislature intended to protect all consumers, not just those alert enough to ask for a refund.

Finally, a class action would not be unmanageable. Given the equalizing purpose of class actions, the fact that they’re complicated by their very nature has little weight. Good case management could “shepherd this class action toward a just result without compromising the rights of any party.”

If some of Carter Reed’s claims for Relacore are scientifically sound, that will add complexity to the case. Interrogatories or questionnaires to class members should help determine the reasons why any one individual purchased Relacore, and subclassing or decertification remain available in the worst case scenario. At a minimum, the plaintiff would have to provide the necessary evidence to support the allegations that justified the grant of class certification. Likewise, damages would present an issue of the trier of fact found that Relacore provides some advertised benefits but not others; the burden would be on the plaintiff to establish a causal relationship between the unlawful practice and the ascertainable loss.

Ultimately, the trial court abused its discretion in refusing to certify the class under the CFA. The case was remanded for consideration of class certification on the warranty and unjust enrichment claims, which had not yet been fully analyzed.

Broken contract leads to trademark and false advertising verdict as well

Irwin Industrial Tool Co. v. Worthington Cylinders Wisconsin, LLC, 2010 WL 3895698 (W.D.N.C.)

Previous discussion.

Irwin, doing business as BernzOmatic, sued Worthington Cylinders over an agreement for the supply of fuel cylinders. Along with breach of contract, BernzOmatic sued for violations of the Lanham Act, unfair and deceptive trade practices under state law, and tortious interference with prospective business relations. Worthington counterclaimed for fraudulentinducement and breach of contract. Summary judgment got rid of many of the claims/counterclaims and the case went to trial. The jury found that Worthington breached the Supply Agreement and awarded BernzOmatic nearly $1.3 million for the breach of contract arising from Worthington's unauthorized use of BernzOmatic's trade name, trademarks, and logos in violation of the agreement and nearly $11.7 million for other breaches of contract. The jury further found that Worthington engaged in willful trade dress infringement and false advertising, awarding one dollar. Basically, Worthington started competing with BernzOmatic, using a label highly similar to BernzOmatic’s label and telling customers that its cylinder was a replacement for BernzOmatic’s (given that Worthington had been making the same cylinders for BernzOmatic). For example, Worthington told some potential customers that "Worthington cylinders are replacing BernzOmatic labels as a rolling change" and directed them to "notice our cylinders next to the BernzOmatic label." The court upheld the verdict.

Things I noticed: the court held that the reference in the contract to “trade names, logos, and trademarks” covered unregistered as well as registered marks. BernzOmatic met its burden to show nonfunctionality of its overall trade dress, in part by submitting rules from the Compressed Gas Association stating that color should not be used to identify container content—an industry rule designed to prevent the color functionality found in other cases.

Worthington argued that BernzOmatic abandoned its trade dress packaging claim and proceeded only on a product configuration claim and was thus required to show secondary meaning. The court noted that BernzOmatic had maintained throughout trial that the cylinder itself, along with the label, was packaging trade dress, but did not resolve the issue as it found that BernzOmatic had shown secondary meaning, because evidence of intentional, direct copying establishes a prima facie case of secondary meaning. The court cited a 1986 case for this proposition, M. Kramer Mfg. Co. v. Andrews, 783 F.2d 421, 448 (4th Cir. 1986). But this is a shaky precedent for product design trade dress, because—after Wal-Mart and Traffix especially—one may have perfectly legitimate non-trademark reasons for copying a product design one thinks is functional; even if one is wrong about functionality, that doesn’t translate into an intent to capitalize on the plaintiff’s reputation. However, given that Worthington copied the label colors, font, and design in creating a “virtually indistinguishable” label, as well as the shape, size, and color of the cylinder, that point probably wouldn’t have changed the result here. Thus, the jury’s finding of willful infringement was upheld, along with a finding of false advertising through literal falsity.

The court also found that eBay did not change the presumption of irreparable harm stemming from a finding of likely confusion; the court stated that it was applying the traditional four-factor test (along with a presumption of irreparable harm). In addition, a presumption of irreparable harm may arise in false advertising cases, though some courts have limited this to comparative advertising cases and some have not. Here, BernzOmatic established literal (and willful) falsity, creating a presumption of irreparable harm.

However, the court denied a mandatory recall of all infringing cylinders remaining on retailers’ shelves; this would place a substantial burden on Worthington and its customers and there was evidence that it was unlikely to result in any recovery of infringing cylinders. Worthington sold comparatively few infringing cylinders, and, since 2008, when Worthington replaced the infringing cylinders with a new brand, its customers have turned over their inventories 7-15 times. The burden of a likely futile search of every store and distribution center was too much compared to BernzOmatic’s harm in the absence of a mandatory recall. Two BernzOmatic employees testified that they’d seen or purchased infringing cylinders “in stores” shortly before the February 2010 trial, but that didn’t suggest a present widespread availability of infringing cylinders some two years after Worthington ceased selling the infringing product to its retail customers.

In addition, the court did not require Worthington to issue a joint letter with BernzOmatic correcting its false advertising. Corrective advertising is typically reserved for cases involving a danger to the general public, which was not at issue here. In addition, corrective advertising is designed to correct public confusion, but BernzOmatic didn’t present actual confusion, relying instead on literal falsity, so the remedy was inappropriate. Moreover, the court found that corrective advertising would be of little benefit to BernzOmatic. “The false advertisements at issue ran a total of four times in one professional publication over two years ago. … BernzOmatic has issued its own corrective advertising in the form of multiple press releases and letters to retail customers describing the outcome of the lawsuit.” BernzOmatic failed to show harm remaining to remedy.

BernzOmatic did, however, get an injunction prohibiting Worthington from illegally infringing BernzOmatic's trade dress or engaging in false advertising about the source of BernzOmatic cylinders in the future.

Worthington also got prejudgment interest of over $1.8 million and an award of attorneys’ fees. Fees weren’t available on the contract claims, only under the federal and state law trademark/advertising claims, but there’d only been a $1 award on those claims. So was Worthington the prevailing party? Courts have so held when Lanham Act plaintiffs obtained injunctions and nominal damages, as here, so the court awarded fees: this was an “exceptional case” because of the jury’s finding of willfulness, thus allowing the court to award fees in its discretion.

The evidence supported a finding of bad faith. When Worthington wrongfully terminated the Supply Agreement and decided to sell hand torch cylinders directly to retailers, Worthington abandoned its existing packaging. The new cylinder looked virtually identical to BernzOmatic's existing cylinder, and the decision to do this was carried out over the objections of Worthington’s marketing manager and of an outside consultant on branding strategy. Worthington then marketed its product by showing retailers photos of the parties’ cylinders side-by-side on retail shelves, describing how the Worthington labels were "replacing" the nearly-identical BernzOmatic labels. Worthington’s national retail account manager described the difference as “subtle to the consumer.”

Worthington also created an ad campaign designed to trade on the BernzOmatic name. “The ads pictured a BernzOmatic cylinder with its label being torn away to reveal a Worthington-labeled cylinder underneath, with the black circles on the labels lining up in the same position…. With the BernzOmatic label displayed on the first panel of the ad, the ads falsely stated that Worthington--not BernzOmatic--had been the ‘name’ that retail stores and consumers had ‘trusted all along.’" But Worthington's marketing manager knew at the time that this wasn’t accurate, because BernzOmatic had manufactured its own cylinders until the 1980's.

The court also found that fees were available under the coordinate state law, which allowed a fee recovery where (1) the defendant willfully engaged in the unfair or deceptive trade practice and (2) the defendant made an unwarranted refusal to settle the matter. As to the second element, Worthington didn’t ever come close to meeting BernzOmatic’s settlement demand of $12.25 million, which it stuck to through several rounds of mediation, even when dismissal of its key counterclaims decreased its litigation leverage substantially. Yet the amounts of many categories of BernzOmatic’s damages, including $9.3 million in contractual overcharges as well as prejudgment interest, were largely undisputed, and Worthington’s best offer didn’t approach even half of those undisputed amounts. Thus, its refusal to resolve those claims was unwarranted. BernzOmatic received over $900,000 in fees.

Formula lost: consumer claim against Enfamil fails

Martin v. Mead Johnson Nutrition Co., 2010 WL 3928710 (D. Mass.)

Hello, follow-on class action litigation against Enfamil LIPIL! Martin’s putative class action on behalf of Massachusetts consumers alleged that Mead Johnson falsely advertised that Enfamil LIPIL was the only infant formula containing two nutrients, DHA and ARA, which promote brain and vision development in infants. This allegedly caused the class to pay more for Enfamil LIPIL than for competing products providing the same benefits. The label said "Only Brand CLINICALLY PROVEN To Improve VISUAL & MENTAL DEVELOPMENT" with a small print "vs. prior version without LIPIL,” printed perpendicular to the label, which Martin alleged made it less likely to be noticed and was vague and unclear anyway. Allegedly misleading ad statements included "En-Fact: Enfamil LIPIL's unique formulation is not available in any store brand" and "It may be tempting to try a less expensive store brand, but only Enfamil LIPIL is clinically proven to improve brain and eye development.” Martin pointed out that PBM had won $13.5 million in damages and injunctive relief relating to the same ads, and that the NAD had also concluded that Mead Johnson had repeatedly disseminated ads violating NAD standards.

Martin sued for unjust enrichment, untrue and misleading advertising in violation of Mass. Gen. Laws ch. 266, § 91, and unfair and deceptive acts and practices in violation of Mass. Gen. Laws ch. 93A, § 2.

The magistrate judge recommended that Mead Johnson’s motion to dismiss for failure to state a claim should be allowed. First, the claims had to be pled with particularity under Rule 9(b), but they’d fail under the regular standard too.

On the ch. 93A claim, the judge found that Martin couldn’t show an actionable injury. Economic harm alone—paying too much for Enfamil--was insufficient. She didn’t allege that the product didn’t perform as represented or contain the ingredients advertised. The judge relied on a case finding that a plaintiff didn’t suffer injury from buying a medicine for her dog that allegedly posed safety concerns. Though her dog was fine, she alleged that she was entitled to the difference between the price she paid and the price she would have paid had the risk been fully disclosed. The First Circuit concluded that ch. 93A injury means “economic injury in the traditional sense,” so when the plaintiff had used up the product, and not been harmed thereby, the fact that the plaintiff may have overpaid for the product was insufficient to state a recognizable injury. The judge expressed no opinion on whether someone who still had the product, but had only alleged overpayment, would be able to assert injury. (The economic harm here seems a lot more concrete—there were house brands on the market that offered the same benefits. The underlying problem with the “risk” case is that it’s hard to figure out what the loss was. This seems different.)

Mass. Gen. Laws ch. 266, § 91 prohibits untrue and misleading advertising, but doesn’t provide a private right of action for damages. Since Mead Johnson is already enjoined because of the PBM litigation, it didn’t appear that Martin could establish irreparable harm. In addition, the complaint was too general. It didn’t identify the dates of the challenged ads or which ads contained untrue, as opposed to misleading, statements. Most importantly, she didn’t provide any facts in support of the conclusory allegation that defendants knew or should have known that their ads were misleading. She thus failed to plead facts in support of the critical element of scienter. The complaint supports an interpretation that defendants “may have known” in 2008 that the accuracy of the ads was being challenged, but that excludes a large portion of the class period (since 2005).

Unjust enrichment: in Massachusetts, it’s a theory of equitable recovery, not a separate tort. Because Martin failed to allege a cognizable injury, this claim should also be dismissed. She also failed to plead that Mead Johnson was improperly enriched or that the amount she paid was unjustified, as required: she alleged no facts to suggest that the product she received was worth less than what she paid or that Mead Johnson artificially inflated the price. She bought Enfamil with full knowledge of its price and contents. That there were cheaper products on the market isn’t sufficient to establish that the product she bought wasn’t worth what she paid. (What would be, if pleading that identical but cheaper house brands were available?)