FTC wins against "make money fast" claims

F.T.C. v. John Beck Amazing Profits, LLC, 865 F. Supp. 2d 1052 (C.D. Cal. 2012)

The court granted the FTC summary judgment on liability for violation of §5 and the Telemarketing Sales Rule with respect to three “wealth-creation” products sold via infomercials, the John Beck system (promising real estate riches), the John Alexander system (ditto), and Jeff Paul’s Shortcuts to Internet Millions (guess what).  The FTC successfully held the named originators, their companies, and related companies liable.

The John Beck system claimed to help consumers make money by buying real estate at tax foreclosure sales by paying the delinquent back taxes.  The relevant defendants falsely represented that consumers could quickly and easily earn lots of money by buying homes in their area “free and clear” for “pennies on the dollar,” then reselling them for full market value or renting them for a profit.  The informercials also claimed that buyers would get a free 30-day membership to “John Beck’s Property Vault,” but failed to disclose that it was a continuity plan that subsequently charged them $39.95/month, in violation of the Telemarketing Sales Rule.

The “John Alexander's Real Estate Riches in 14 days” infomercial touted Alexander's “inverse ownership system” of acquiring real estate, supposedly allowing consumers to put together real estate transactions and get “the cash out at closing” without using any of their own money or credit, within 14 days.  “John's Club” was the same type of continuity plan.

“Jeff Paul's Shortcuts to Internet Millions” infomercials marketed materials on “proven, turnkey internet businesses,” allegedly “so simple that consumers do not need any prior experience with internet business to make it work.” The “Big League” or “Internet Millionaires Club” was the same type of continuity plan.

Defendants challenged the FTC’s survey, which was conducted by Dr. Conrey.  The survey “measured the earnings and profit experienced by consumers who had purchased one of the three products.  [It] also investigated whether investment in coaching services or investment of time was related to consumers' earnings or profit.”  Using the list of people from customer databases of the three products, the surveyor took a sample.  Each person in the sample was mailed a Prenotification Letter, which read in part:

The Federal Trade Commission needs your help.   Since 1914, the Federal Trade Commission (the FTC) has protected American consumers by monitoring and regulating businesses.   In order to fulfill this responsibility, it periodically conducts research into the experiences of customers who have purchased certain types of products and services.   As part of a current research study, the FTC has enlisted the help of ICF Macro, an independent research firm, to learn about customers' experiences with [PRODUCT NAME]. A few days from now, you will receive a phone call from an ICF Macro interviewer who will ask for your assistance in this important research effort....

Dr. Conrey confirmed that the final survey was consistent with best practices in survey design.  Defendants argued that the prenotification letter tainted the pool by positioning the FTC as the “good guy.”  Dr. Conrey explained that there was no feasible alternative to a letter with this kind of disclosure, given respondents’ privacy and legitimacy concerns; the notification gave the survey credibility and legitimacy and avoided confusion or suspicion about the sponsor.  The court held that this satisfied the requirements for admissibility.

The court readily found Section 5 violations.  The claims were material and were false and unsubstantiated at the time they were made.  Just looking at the John Beck system, the claims that consumers could “purchase” homes for “pennies on the dollar”; buy homes in their own area, regardless of where they lived; make money “easily” and with little financial investment; and make money “free and clear of all mortgages” were disproved by the kit materials themselves.  Buying tax liens doesn’t mean you get a deed, only a right to collect delinquent taxes, which only ends up with title and right to possess or sell in exceptional circumstances.  Tax sales are held only once a year and bidding typically starts at a very high percentage of fair market value.

Beck’s deposition testimony also showed the falsity of the infomercials; while he expressly claimed to have bought “thousands” of properties with his system, at deposition he admitted that he did so “very infrequently”—only 10 times.  Beck claimed that his daughter had bought over 90 properties using his system, but admitted that he knew of only 4 “students” who’d been able to get title to homes like those shown in the infomercial, and those instances required several years of waiting, including a court trip to foreclose on the right of redemption.  Purchasing property at tax sales is elaborate and time-consuming.

Dozens of consumer witnesses further confirmed this falsity.  They testified that it was difficult or impossible to find tax sales in their area, and difficult or impossible to earn substantial money using the Beck system. Success, if any, would require significant monetary investment.  The Conrey survey showed that less than 2% of consumers made any revenues at all, and less than 0.2% made any profits.  Only 1.9% of those who bought coaching materials made any revenues.  Even among consumers who spent ten or more hours per week using the product, only 3.5% of them made any revenues.

Defendants argued that their representations weren’t false, in that the houses featured in the infomercial did in fact sell for the displayed prices.  Plus, the Beck system also encouraged purchases of raw land and house sites.  And, even if a consumer does not live in a non-tax lien state, she can use the Internet to buy properties elsewhere.  None of this matters: the overall net impression of the ads communicated that a typical consumer could easily purchase high-value properties for pennies on the dollar and quickly earn tens if not hundreds of thousands of dollars.  What the kit “encouraged” was immaterial, because the visuals of the infomercials themselves focused heavily on large homes and vacation properties.  And even if the featured houses did sell for the displayed prices, the net impression was still false: that nice homes such as those shown were easily available in all 50 states, and that one could easily obtain deeds to them for pennies on the dollar.  The same defect applied to defendants’ argument that the exact phrase “quick and easy” never appeared: “quick,” “easy,” and similar concepts were used repeatedly.  Defendants’ own copy test showed that the number of respondents who received the challenged claims exceeded 10.5%, which was sufficient to count as deceptive.  No reasonable trier of fact could concluded that these representations weren’t likely to deceive consumers acting reasonably under the circumstances.

The same story, with variations only as to the misrepresentations, held for the other infomercials.  The court dismissed small print disclaimers that endorsers’ experiences were unique.  “The prints are so tiny that, under the circumstances, consumers are unlikely to read them while watching and listening to the testimonials of the endorsers.”  Nor did defendants possess any substantiation for their exaggerated claims of easy financial success. Infomercials that gave the overall impression that a typical buyer could “easily, quickly, and ‘magically’ earn thousands of dollars per week simply by purchasing and using the Jeff Paul System” were deceptive.

Likewise, failure to disclose that buyers would be automatically enrolled in continuity programs when they bought the front-end kits was material and deceptive under Section 5 (and violated the TSR). 

Further, defendants misrepresented that consumers who bought their coaching programs would quickly and easily earn back the coaching costs or more, falsely claiming that personal coaches would hold consumers’ hands and walk them “step by step” through the system; some telemarketers even suggested that consumers would certainly fail without coaching.  Conrey’s survey showed that almost all who bought coaching programs lost money, and more than 17% lost at least $10,000.  Only 1.7% of those who bought coaching services made any profit at all.  And the coaches failed to answer questions or walk consumers step by step through the system.  Defendants argued that they had a quality assurance program and took steps to rein in rogue staff.  Nonetheless, their telemarketers made false and unsubstantiated representations; there was no evidence showing that defendants’ recording of calls reduced or eliminated the false claims. And in any event, the basic express claim that the coaching program would help consumers was completely unsubstantiated.

The continuity charges violated the TSR because defendants didn’t disclose their existence before customers handed over their credit card information.  Defendants argued that they explained the negative option program at the time of the purchase, and also did so in the invoice and package shipped with the product, as well as in post card disclosures, phoned expiration notice disclosures, and coaching disclosures.  Those were all too late: disclosure was required before a consumer divulges credit card or bank account information. 

In addition, defendants violated the do not call rule.  They failed to set up a meaningful compliance program, lacked written procedures, and didn’t train staff. They allowed paper leads to pile up on “boiler room” floors before marking them as do not call in their database.  They also used “lead recycling,” ensuring that consumers, including people who asked not to be called, would be called multiple times.  Defendants argued that these were isolated incidents and that the violations didn’t fall outside the 30-day grace period for putting customers on the company’s internal do not call list.  But without written policies and procedures for do not call complaints, these defenses were unavailing.

The FTC asked for injunctive relief and monetary relief of over $300 million. The defendants were all liable, including the individual “gurus” who knew that their claims were false and unsubstantiated.  The court requested further briefing on whether certain defendants should be subjected to a lifetime ban on telemarketing, given prior lawsuits.  Likewise, the court sought further briefing on monetary relief in the form of disgorgement under Section 13(b); defendants were liable, but there was more to learn about the amount because the FTC’s numbers didn’t exclude consumers who benefited; it might be equitable to subtract from the disgorgement the amount actually earned by consumers who used the products.

Court dismisses "natural" claim on primary jurisdiction grounds

Astiana v. Hain Celestial Group, Inc., --- F. Supp. 2d ----, 2012 WL 5873585 (N.D. Cal.)

A decision with potentially broad implications, if followed: Plaintiffs challenged defendants’ use of “all natural,” “pure natural,” and “pure, natural & organic” on the labels of their cosmetic products because the products allegedly contained artificial and/or synthetic materials. They alleged fraud, along with violations of the UCL, CLRA, and FAL.  But the FDA has no policy on the use of “natural.”  Plaintiffs argued that the court shouldn’t wait for the FDA, and that courts routinely decide on their own whether conduct was misleading.

The court held that determining whether or not “natural” was false or misleading would “undermin[e], through private litigation, the FDA's considered judgments.” Pom Wonderful LLC v. Coca-Cola Co., 679 F.3d 1170 (9th Cir. 2012). Pom involved a challenge to a juice name where the FDA already had detailed, specific rules about how juices could be named based on juice content, and Coca-Cola complied with those rules (though the FDA hadn’t specified that all words in a juice blend’s name must appear on the label in the same size).  The Pom court said that it wasn’t holding that the Coca-Cola label was nondeceptive, but Congress had given the task of guarding deception to the FDA.  This wasn’t about preemption, but rather about deference to the FDA.  (I entirely disagree—and many cases allow claims about food labels to proceed, where the FDA hasn’t regulated very specifically.  See, e.g., Gerber.)

Pom, the court here reasoned, was about how the FDA has expertise in guarding against deception in the food labeling context, and thus was implicitly a primary jurisdiction case.  The primary jurisdiction doctrine counsels a stay/dismissal when an issue has been placed by Congress within an administrative body’s jurisdiction pursuant to a comprehensive regulatory statute that requires expertise or uniformity in adminstration.  Such was the case here.  Issues of cosmetics labeling have been entrusted to the FDA, and they can be “remarkably specific,” including specifying the ordering of ingredients, the naming scheme to be used, and the size of the type.  The regulations even “shed light” on what’s false or misleading “in certain contexts,” such as fragrance or flavor.  (But the claim here wasn’t tightly bound to any of the areas in which the requirements are so specific.)

The only FDA statement about “natural” was an informal policy statement limited to food that couldn’t be imported into the cosmetics context.  In the absence of FDA rules or regulations, the court wasn’t going to stick its nose into the issue.

Contract language isn't commercial speech?

Syngenta Seeds, Inc. v. Bunge North America, Inc., 2012 WL 5879271 (N.D. Iowa)

Previously, the court denied a preliminary injunction on Syngenta’s claims that Bunge, which operates grain milling facilities and warehouses, wrongfully refused to accept Syngenta’s Viptera corn from growers and wrongfully posted signs stating this policy, allegedy because Viptera (which has been genetically modified) hadn’t received approval from “major” export destinations.

The court found that Syngenta wasn’t likely to succeed on the merits of its Lanham Act claim because it wasn’t in commercial competition with Bunge and because the sign stating the policy of refusing Viptera corn wasn’t commercial speech.  Though American Association of Orthodontists v. Yellow Book USA, Inc., 434 F.3d 1100 (8th Cir. 2006), didn’t require direct commercial competition between the parties, Aviation Charter, Inc. v. Aviation Research Group/US, 416 F.3d 864 (8th Cir. 2005), held that “commercial advertising or promotion” requires a statement by a defendant in commercial competition with the plaintiff, and the earlier case controlled.

Syngenta argued that it was in commercial competition with Bunge: “Bunge provides economic incentives to growers to grow and deliver certain specialty crops, with seeds produced by companies other than Syngenta, and thereafter sells those crops to certain customers at a premium.”  Thus, every acre planted because of such an incentive program was a non-Viptera acre.  Bunge responded that this program was only for soybeans, at facilities that didn’t accept corn, and that Syngenta wasn’t in the soybean market.  In addition, Bunge argued, recognizing this as competition would mean that “every grain handling company competes with every seed developer simply by paying more money for delivery of one crop over another.”

The court agreed that “commercial competition” required a less attenuated competitive relationship.  The Eighth Circuit’s categorical approach looks for the same or similar goods or services in the same market—competition for the same dollars from the same consumers.  Soybeans weren’t corn, and Bunge didn’t compete in seed production anyway.  Even defining the relevant area as “promoting seed products,” Syngenta and Bunge didn’t compete—Syngenta promoted Viptera corn seed, and Bunge promoted certain soybean seeds.  And they’re at the opposite ends of the supply process—Syngenta promoting to growers at the supply end, while Bunge seeks to get growers to grow products it will buy at the demand end.  A household consumer doesn’t compete with Sony by being willing to pay more for a Mitsubishi TV.

In addition, Bunge’s sign wasn’t commercial speech.  The relevant factors: (i) whether the communication is an advertisement, (ii) whether it refers to a specific product or service, and (iii) whether the speaker has an economic motivation for the speech.  Though Syngenta argued that not all three were necessary, and that the second and third factors were present, Bunge claimed that it wasn’t proposing a commercial transaction, because a sign declining to enter into a Viptera transaction didn’t implicitly propose another transaction.  (I’m dubious about this—surely at a facility dedicated to buying corn, the implication has to be “please bring us non-Viptera corn.”)

The court agreed: the absence of a proposed commercial transaction weighed dispositively against deeming the speech commercial.  Syngenta argued that Bunge was trying to dictate the terms of its proposed transaction for the purchase of corn.  The court reaffirmed its conclusion that the sign related to commercial transactions, but didn’t propose any, and was therefore not commercial speech. 

(The mystery deepens.  Regulation of contract terms is ordinarily thought not to involve any speech at all; it’s not even subject to Central Hudson scrutiny, as Fred Schauer among others has pointed out.  For these purposes, I don’t see why speech “relating to” a contract wouldn’t be commercial speech.  That is, it’s “not commercial speech” only in the sense that it’s not protected “speech” at all in the current constitutional scheme; the only purpose of the “commercial speech” requirement is to prevent the Lanham Act from regulating “noncommercial speech”—political, artistic, etc. speech—and so contract terms should easily qualify as “words that can constitutionally be governed by the Lanham Act.”  Now, there may be other parts of the Lanham Act that are actually part of its text that disqualify this claim—the aforementioned “commercial advertising or promotion” is a good candidate—but “commercial speech” does no sensible independent work here.)

But anyway: Bunge’s contracts barred growers from delivering, and Bunge had the right to refuse, corn containing transgenic traits that were not approved for all United States export markets. So the sign was just reiterating the terms of the contracts, which were all in effect at the time the sign went up. Thus, the sign didn’t propose any contract terms, only reiterated existing terms.  “[A]s a matter of law, a statement of refusal to enter into a certain transaction, standing alone, is not a proposal of any transaction, and, hence, is not ‘commercial speech.’”  It might be different if the statement “promoted or urged selection of another product” instead.

Unusual 230 defense against virtual ownership claims

Evans v. Linden Research, Inc., 2012 WL 5877579 (N.D. Cal.)

The court partially granted a motion for class certification in this case about “property” in Second Life.  People buy and sell virtual items, including virtual land, in-game, using money (lindens) that can be bought for and exchanged into dollars.  Virtual land incurs monthly tier fees, similar to property taxes, paying for maintenance of the servers.  (Linden also takes a commission on participants’ sales of virtual items in-game.)  Linden does not run out of virtual land; “once Linden sells land to a participant, it continues to exist in Second Life and is not deleted or removed from the game.”  Plaintiffs were people who’d participated in Second Life, bought virtual items/land, had their accounts terminated or suspended by Linden, and weren’t compensated for the value of what they had. 

The question was what “ownership” meant.  Plaintiffs argued that Linden and defendant Rosedale (founder, former CEO, current board member) represented that Second Life participants would have an actual ownership interest in virtual land and other items.  Defendants argued that they meant that participants would have copyright in items they created.  Plaintiffs alleged that, to attract participants, Linden “made a calculated business decision to depart from the industry standard of denying that participants had any rights to virtual items, land and/or goods” and “globally represented to participants ... that their ownership rights and intellectual property rights to the virtual items, land and goods held in the participants' accounts would be preserved and recognized.”  Thus, for several years, the following statement appeared prominently on the Second Life homepage: “SECOND LIFE IS AN ONLINE, 3D VIRTUAL WORLD, IMAGINED, CREATED AND OWNED BY ITS RESIDENTS.”

However, sometime after 2007, following a dispute with an individual user regarding Linden's alleged confiscation of virtual property, Linden changed that statement to “SECOND LIFE IS AN ONLINE, 3D VIRTUAL WORLD, IMAGINED AND CREATED BY ITS RESIDENTS” and began to strip ownership rights from users.  In 2010, Linden modified its terms of service, for the first time stating that “[v]irtual land is in-world space that we license.”  Participants were not allowed to opt out of the new terms; if they didn’t accept, they couldn’t access their virtual land or items.

The court contrasted “actual ownership rights” in “a piece of the Second Life world” (what plaintiffs claimed to have) with “copyrights” (what defendants said they had).  Plaintiffs didn’t claim to own the physical servers, but did claim to own the “things” and “land” created by the code that ran on the servers, in the same way that one can own a domain name.  Thus, beyond IP rights, users owned their accounts and could treat them like property, including selling them and licensing them, whether in the game or through independent third parties such as eBay.  Defendants argued that the only real thing or property capable of being owned was the copyright, and users had a license to use Second Life computing resources.  If an account was closed, users still owned copyrights in whatever they created, and that provided the value proposition distinguishing Second Life from other games.  However, the bits making up a given copy on Linden’s servers were not themselves a user’s property.

Plaintiffs argued for certification of a main class of purchasers and sellers of virtual land/items and a subclass of people whose assets had been taken, frozen, or otherwise rendered unusable by Linden’s affirmative action (not just by having to agree to the amended ToS).  So the main class claims were predicated on the idea that defendants lured people into participating in Second Life by making ownership promises, and then later reneged, while the subclass claimed that defendants unlawfully converted members’ valuable property by closing their accounts without reimbursement.  For the main class, plaintiffs alleged violations of the CLRA, FAL, UCL, and California Auction Law, along with fraud in the inducement.  For the subclass, plaintiffs alleged conversion, intentional interference with contract/prospective economic advantage, and unjust enrichment.

Defendants argued that plaintiffs failed to show injury in fact sufficient to create constitutional standing for the main class.  For these claims, that meant they needed to show lost money or property due to the alleged misrepresentations that participants would own their virtual items/land.  But they didn’t describe any economic harm they suffered as the result of these misrepresentations.  At the end, they argued that they wouldn’t have bought the items at all or would have paid less for them if they’d known the truth.  Although the difference between the price a consumer would have paid had she known the truth and the price she actually did pay may constitute “injury in fact,” here plaintiffs failed to offer “a shred of evidence” that this was true in their case.  The only record testimony was from Donald Spencer, who testified:

[W]hen I started the game that—everything [Defendants] promoted was it was owned by the residents. If you created it it was yours. You owned it. It wasn't there for [anybody] else to take away from you ... [t]hat was one of the big draws for me and my friends to go there ... we could go in there and create as a group, you know, or even individually belonged to each one of us.

This wasn’t enough to show that he wouldn’t have bought or spent as much money for virtual land/items but for the misrepresentation.  Other possible evidence that plaintiffs didn’t present might have been about Second Life’s market share relative to its competitors before and after the “ownership” marketing campaign.  In addition, plaintiffs’ “inability to articulate a coherent remedial theory highlighted the absence of a concrete and non-conjectural injury.”  They asked for return of the entire price paid for land and tier fees paid to Linden, along with return of the transaction fees for item transfers.  But that’s not the proper measure if the harm was the extra price they paid because of the promise.

The court also found that plaintiffs failed to do more than recite the elements of a violation of the California Auction Law, and they didn’t show injury sufficient to confer standing under that law, which requires auctioneers to maintain various safeguards.

The court additionally found the main class definition overbroad and ascertainable—anyone who ever purchased or sold virtual land/items in Second Life.  Not everyone might have been subject to and injured by the alleged ownership misrepresentations.

The court then turned to the subclass, as to which defendants didn’t challenge standing.  On numerosity, the court looked at a random sample of 500 terminated accounts, in which 2 held virtual land at the time of termination (adding cases in which the terminated accounts had virtual items, lindens, or dollars would presumably increase the numbers).  From this sample, plaintiffs estimated that, of the 57,000 accounts Linden terminated, at least 228 held confiscated virtual land.  Defendants argued that plaintiffs only identified one person who bought virtual land under the pre-March 2010 ToS and then had it “confiscated” after, and that she was properly terminated for violating Second Life’s anti-fraud provisions.  But the problem wasn’t mandatory acceptance of the ToS, but rather account closures or suspensions, and the class could also include users whose items other than land (including lindens and dollars) were taken without compensation.  No matter what the reasons for termination were, plaintiffs alleged, Linden wrongfully confiscated the land, items, and currency in the accounts.  The sampling evidence therefore satisfied the numerosity requirement, “based on a common sense extrapolation of the numbers and considering the geographical dispersion of class members.”

As for commonality, the court identified several common questions: (1) whether the new TOS was unconscionable or otherwise unenforceable against Second Life users whose accounts Linden suspended or terminated; (2) whether subclass members have an “ownership” right in virtual land and virtual items; (3) and whether Linden has an obligation to reimburse them for virtual land, virtual items, or currency (either lindens or dollars) in a Linden-closed account.  The court rejected defendants’ alternate characterization that the primary issue was whether Linden wrongfully terminated any individual account.  The claims didn’t depend on whether an account was terminated for good cause.

Defendants made the intriguing argument that §230 provided them, essentially, a sword as well as a shield: that is, that if they confiscated valuable items in a user’s account because they terminated that user for violating Second Life conduct rules, then they were acting as an ISP to filter offensive conduct and were absolutely immune to non-IP claims.  Tentatively, I’d say that this doesn’t work, since the grant of ownership (if that’s what it was, on which I express no opinion) would operate as a separate source of rights—the claim isn’t based on the account closure (for which defendants should be immune under §230 for claims of consequential damages, harm to reputation, etc.) but rather on the stuff left in the account that Linden should have “returned.”  This seems to me not much different from an ISP contract for $10/month payable as $120 at the beginning of the contract; if the contract provides for early termination for bad behavior, but does not provide that the ISP gets to keep the whole $120 in case of such early termination, it doesn’t seem to me that §230 would bar a claim by the user to get the balance of her payment back.  It is the background law and the parties’ agreement, not the termination, that provides the basis of the claim/source of the wrong.  But perhaps Eric Goldman will disagree.

Anyway, the court didn’t get into the §230 weeds, but simply rejected defendants’ argument that the subclass claims would inherently devolve into individual adjudications. Whether §230 applied would itself likely present common questions of law, and such determinations could be made as to categories of reasons for account closure.  Thus, commonality was still present.

The putative class representatives who had their accounts suspended with valuables still in them also could satisfy the typicality requirement, though the putative class representatives who refused to log in and accept the new ToS couldn’t do so; the latter hadn’t lost valuables through Linden’s acts of account closure/termination/freezing.  Relatedly, defendants argued that named plaintiff Evans was inadequate as a representative because he had a demonstrated history of “abusive and obscene communications with other Second Life users and Linden personnel…. [H]is lewd, profane, violent, and threatening language toward other users has drawn over 100 abuse reports.”  Given this record of abusive and hostile conduct toward potential class members, the court was persuaded that there was a conflict of interest.  However, the adequacy of named plaintiff Hemingway was established, even though she loaned her computer to a friend, who then committed credit card fraud on Second Life.

The court then turned to the remaining certification requirements.  The court declined to allow certification under Rule 23(b)(1)(A) or (b)(2), despite plaintiffs’ claims for injunctive relief against enforcement of the ToS, since their primary goal was damages.  Nor was certification appropriate under Rule 23(b)(1)(B), since adjudication of their claims wouldn’t as a practical matter be dispositive of the interests of nonmembers—victory wouldn’t exhaust Linden’s resources.

But Rule 23(b)(3) was satisfied.  The court again rejected defendants’ claims that individualized inquiries into the reasons for account closure would be required.  “[A] predominant legal and factual inquiry is whether the TOS, which allows Linden to confiscate class members' virtual land and property, is unconscionable or otherwise unenforceable against Second Life users whose accounts Linden suspended or terminated,” and this was subject to classwide proof.  Also, classwide liability determinations should be possible using the dollar value of lindens and dollars, along with the price paid for virtual items and land; this would involve only ministerial review of transaction records.  The court didn’t accept this damage calculation method as a final ruling; it retained the possibility of modifying or decertifying the class as appropriate.

Defendants didn’t contest superiority, but they did contest ascertainability.  Given the clarification of the definition of the subclass, it should be easily ascertainable using Linden’s records.  If plaintiffs are correct that, even if subclass members’ accounts were validly terminated, Linden still owed them the value therein, then it should be possible to determine what was in those accounts.

Okay, very obvious joke

... but Nicholas Taleb appears to be a bit fragile.  I'm sad that the blogger didn't just add a big disclaimer at the top of the parody post (or even tell Taleb and his publisher to pound sand, but that's a personal decision).  I'm sure that now that the parody is gone, no one will accuse Taleb of egomania.

Routine California class certification highlights power of presuming reliance

Here, the California class is certified but the Pennsylvania class isn't, a stark reminder of how differently California courts treat material omissions in advertising:

Beck-Ellman v. Kaz USA, Inc., 283 F.R.D. 558 (S.D. Cal. 2012)

Plaintiffs moved for class certification of their claims of false advertising of Kaz heating pads, and the court granted the motion in part and denied it in part. Plaintiffs alleged that the pads contained known defects limiting their utility and creating dangers, but that Kaz failed to disclose these defects. About 5 million units were sold over eight years, over half of them in Pennsylvania and California. California plaintiff Beck-Ellman alleged that she bought a pad in late 2007 that injured her in early 2008. The Pennsylvania plaintiffs (Mahoy) alleged that they bought one in 2010, which injured one of them and broke in the process.

Beck-Ellman alleged violation of the UCL, FAL, CLRA, breach of warranty, and unjust enrichment. Mahoy alleged violation of the Pennsylvania Unfair Trade Practices and Consumer Protection Law, breach of warranty, and unjust enrichment. They proposed certifying a California class and a Pennsylvania class, excluding anyone seeking damages for personal injury or property damage caused by the pads.

Numerosity was no problem. Kaz argued that differences in heating pads prevented commonality. But plaintiffs alleged that the ads for substantially uniform products were deceptive for a common reason. Differences in size, shape, number of heat settings, and washability of the pads didn’t matter if the ads/packages all contained the same material omissions, which was sufficient to create common issues among the class.

As for typicality, plaintiffs benefited by excluding personal injury claims; Beck-Ellman was typical of the class for purposes of the advertising related claims. Kaz argued, again, that the pads came in different versions and were bought in different places, online and in brick-and-mortar stores (how many stores are actually brick-and-mortar, I wonder?). But the omissions, and the pads, were sufficiently similar at this stage. Alleged differences in the applicability of the statute of limitations also didn’t defeat typicality. Kaz argued that Beck-Ellman was inadequate because she wasn’t bringing claims for personal injury or property damage, but it couldn’t claim she was inadequate for declining to assert a theory that could unravel the putative class. Any class member seeking recovery for such injury could opt out and sue.

The court therefore turned to the requirements of Rule 23(b)(3), which looks at predominance and superiority. Beck-Ellman’s consumer protection claims satisfied the predominance requirement, since they focused on Kaz’s alleged deceptive conduct across all the products. Individual reliance didn’t defeat predominance, because California looks at the reasonable consumer’s reaction, not the particular consumer’s; relief is available without individualized proof of deception, reliance, and injury. She’d also shown materiality for purposes of class certification, and because the omission was on the package, it was part of a common advertising scheme to which the entire class was exposed. The court likewise found common issues to predominate on her claims for unjust enrichment and breach of the implied warranty of merchantability, for similar reasons.

Damages, while invariably individualized, didn’t defeat class action treatment. Kaz had sales data that could be used to determine damages or restitution, and Beck-Ellman sought no unique remedy. Likewise, potential differences in the statute of limitations didn’t defeat predominance, given an otherwise sufficient nucleus of common questions. Statute of limitations issues could best be resolved at the merits stage, at which Kaz would be free to move for summary judgment. The court also found superiority, given the small individual sums at stake.

The outcome was different for the Pennsylvania class, since the court found that Pennsylvania consumer protection law requires proof of justifiable reliance, and that would apply to each plaintiff without a presumption of reliance from materiality. Though some cases suggested that Pennsylvania sometimes presumes reliance, the Third Circuit has stuck to an individualized proof standard and the court here agreed.

ABA Journal Blawg 100

I’m on the ABA Journal’s Blawg 100, which is very nice.  Thanks to all you readers & correspondents!  Eric Goldman is, of course, returning to the list.

Google raters' manual

Interesting document, of possible use for defendants in search engine cases: Google explicitly considers certain searches, like "iPad," ambiguous.

How to make a supercut: it's about power

There are a variety of things one might say about this Slate story, ranging from the fact that after 14 years it's still the case that, to a first approximation, no one who makes stuff understands 17 USC 1201, to the question of why supercuts fascinate some people (mainly, it seems, guys) while others go for political remix or vidding.  The creative heart wants what it wants, and what it wants is to use what it knows to make something new.  I certainly recognized the author/supercutter's description of what some might call "flow":

These aren't the most compelling three minutes you'll ever experience. But they were shockingly fun for me to build. Time whizzed by as I pieced the whole thing together. When I mentioned this to [technical consultant/friend] Chris, he told me he sometimes stays up all night working on an edit. "It's just the right balance of puzzle-solving, technical detail, and creative choices to keep your brain endlessly engaged," he explained.

I began to understand why all these folks are scrambling to teach themselves how to use editing software. Unexpectedly, I also got a taste of the supercutting urge. I think I now see what drives people to cut even in the absence of monetary reward: In the midst of scanning through all those New Girl scenes, plucking out bits and repurposing them, I noticed a new and unfamiliar little jolt of power was coursing through me. I had asserted my dominance over this slickly produced piece of media. The show was subject to my whims—defenseless against my editorial scissors. I could have done anything to it. Talked over it. Played farting sound effects. Slapped a photo of my face in the middle of the screen.

This sense of autonomy is something that would have been extremely difficult to achieve until the relatively recent past. Before digital formats and easy computer editing programs, an amateur like me would have had little hope of reshaping an entire TV series to fit his own vision. Now anybody with an idea and a laptop can play visual media god. "I sometimes feel like a magician," Chris told me when I confessed that my editing experiment was swelling my ego. "Editing is a powerful way to interact with the modern world."

Reading list: SEO manipulation

Victor Nilsson, You’re Not From Around Here, Are You? Fighting Deceptive Marketing in the Twenty-First Century, 54 Arizona Law Review 801 (2012).  Abstract:

Deceptive marketing has hurt consumers and business owners since the birth of promotional advertising. As the Internet increasingly inspires and dictates our consumption choices, even sophisticated business acumen and technological savvy are not enough to withstand the harmful consequences. While lawmakers and courts have fashioned remedies applicable to some misleading practices, sly marketers with deep pockets frequently find new ways to trick unsuspecting shoppers and seize market share. This Note therefore provides a novel interpretation of prior scholarship to recommend a solution to a particularly misleading marketing practice—deceptive search engine optimization—in order to bolster currently available, yet independently inadequate, alternatives. Although some of the problems associated with deceptive search engine optimization have caught the media’s eye as of late, a much-needed solution is heretofore unexplored in law review literature.

Spoiler: I doubt Eric Goldman will like the proposal.

Today's trademark question

How close is this denim bag to the Levi's red tab mark for jeans?

(Yes, that's a bone behind it.  Photo taken at the National Zoo.)

Brave new world that has such software in it

Right of publicity violation?  New porn services encourage people to uploadpictures; the services’ facial recognition technology will allegedly find pornperformers who are lookalikes for the subjects. 

RTFS

Not that I'd ever put it in those terms to a student, but, really, in copyright: you have to read the statute.  For reasons not worth exploring at this juncture, I'm reading the briefs in Garcia v. Google, the case brought by the actress in the Innocence of Muslims case where she claims to own the copyright in ... something.  Her performance as fixed in the film, is the best way to say it.  One of Google's arguments is that, under the CCNV test, she was an employee working within the scope of her employment, and her lawyers' outraged response is that there was no written agreement making her contribution a work for hire.

17 U.S.C. 101: A “work made for hire” is—

(1) a work prepared by an employee within the scope of his or her employment; or  

(2) a work specially ordered or commissioned ... if the parties expressly agree in a written instrument signed by them that the work shall be considered a work made for hire.

While I express no opinion on the merits of Google's analysis of whether Garcia was an employee using the multifactor CCNV test, Garcia's claim would be more credible if Garcia's lawyers spent less time being wrong.

Kids as less careful consumers?

This is in the doctrine, but it's a terrible lie.  More credulous consumers, yes, but when it comes to brand awareness, kids are exquisitely sensitive.  My son received a party favor from this company:

What did you get? I asked him.  "A Pezzy thing.  But not Pez," he immediately responded.  Who knew there was more than one brand of this thing?

Math and advertising

Over at the informative All About Advertising Law blog from Venable, the authors ask "what does a lifetime supply really mean?"  They describe one calculation method that, as described, seems obviously wrong to me: "For the Gumball.com promotion, the company took the average life expectancy of a U.S. citizen, subtracted it by 18 (the minimum age of entry) and multiplied the difference by 365, representing one gumball per day."  Though the US is a low infant-mortality nation and the final number doesn't differ much, the proper calculation is life expectancy at age 18, which isn't the same as life expectancy at age 0 - 18.  Science is the lawyers' friend!