Image-based required disclosures are unconstitutional

Like previous tobacco posts, this one will be divided into chunks (wads?). This case sat in my queue through an entire semester, but I think it’s still timely, especially as rehearing was just denied.

R.J. Reynolds Tobacco Co. v. Food & Drug Admin., 696 F.3d 1205 (D.C. Cir. 2012)

The majority struck down the FDA’s new image-based tobacco warnings on First Amendment grounds. If the government seeks cert, it will of course be granted. The case offers another opportunity for the Supreme Court to muddle around in commercial speech doctrine, with potential implications for the Lanham Act and the FTC. (Note, however, that simple denial is likely to protect trademark: trademark is just different from other commercial speech regulation, somehow, even if the Justices can’t say why.)

Congress gave the FDA a mandate to create new, large warning labels for cigarette packages and ads. Relying on part on a strong worldwide consensus, the FDA proposed a “dramatic expansion” of the existing warnings. (Over thirty countries require graphic warnings, and more are considering them, but the majority stated that they don’t necessarily protect “individual liberties”—for which read “commercial speech”—as strongly as we do.) The aim was to clearly and effectively convey the negative health consequences of smoking, which would discourage nonsmokers, especially kids, from starting and encourage current smokers to quit. The FDA promulgated a regulation specifying nine images, one for each warning statement, and required each one to include the phone number for the National Cancer Institute’s Network of Tobacco Cessation Quitlines, 1-800-QUIT-NOW.

The majority was extremely unimpressed with the FDA’s evidence. The FDA selected the final images based on an 18,000-person internet study, which looked at whether the graphics increased intention to quit/not smoke, increased knowledge of the health risks of smoking and second-hand smoke, and were “salient,” defined in part as causing viewers to feel “depressed,” “discouraged,” or “afraid”—all compared to control text. Criticisms of the study—which didn’t just come from the tobacco companies—included that it didn’t assess long-term effects, only reported intentions, and some recommended a long-term study. (Too soon to tell?) Another criticism was that there was selection bias in recruiting an internet panel for an FDA-sponsored study. The court of appeals snidely described the FDA’s argument that intention to quit is important on the path to quitting as “shocking.” The FDA argued that, though this particular study didn’t link intent to quit with actual quitting, the rest of the scientific literature provided evidence that increased attention to the health risks of smoking would work.

The FDA thought the study was good enough, especially given evidence from similar graphic warnings in other countries. The court of appeals reiterated that those countries generally don’t have an analogue to the commercial speech protections conferred by our First Amendment, though why that would change warning effectiveness was unclear. More directly, the tobacco companies argued that the Canadian data didn’t show any statistically significant decline in smoking rates after similar graphic warnings were introduced. The FDA argued that other studies showed that the Canadian warnings had been “effective at providing . . . smokers with health information, making consumers think about the health effects of smoking, and increasing smokers’ motivations to quit smoking.”

The district court granted summary judgment to the tobacco companies. The FDA appealed. The companies did not (at this time, and probably not ever because of how invisible they are) challenge the current textual warnings, only the graphic image and the 1-800-QUIT-NOW requirements.

In what is the most troubling and, I suspect, vulnerable part of the decision, the majority first held that forcing an individual or a corporation to express certain views or subsidize speech to which they object is always subject to strict scrutiny, and this is true whether the forced speech/subsidization involves an expression of value or a statement of fact. Just to be clear: this means that the SEC’s registration procedure is subject to strict scrutiny, and the tax returns on which Uncle Sam tells me to tell it how much I made last year and what I did with it, not to mention much of the rest of the regulatory state (nutrition labels, black-box warnings on drugs and the rest of the drug facts, endorsement disclosures, “typical results are X,” “equal opportunity housing,” et cetera). But don’t worry—I’m sure we’ll be fine without those.

Anyway, the majority said this was both compulsion and forced subsidization. Though factual disclosure is also subject to strict scrutiny according to the majority, it went on to endorse the companies’ argument that the graphic warnings were designed “to shame and repulse smokers and denigrate smoking as an antisocial act,” making the message “ideological and not informational.” People already know smoking is bad, but the companies argued that this was “‘shouting’” something they already knew, and that communicated “‘a point of view on how people should live their lives: that the risks from smoking outweigh the pleasure that smokers derive from it, and that smokers make bad personal decisions, and should stop smoking.’” These weren’t warnings, but admonitions not to buy the product.

The government can use “shock, shame, and moral opprobrium” to discourage smoking and make smoking “economically prohibitive and socially onerous.” And it can require consumers to be fully informed about the dangers of hazardous products. But this regulation raised “novel” questions” about the government’s authority to force a manufacturer to go beyond “purely factual and accurate commercial disclosures and undermine its own economic interest” by making every single pack a “mini billboard” for the government’s message. As it turns out, some disclosure requirements are reviewed under Zauderer’s relaxed standard for ads, which turns on whether they attempt “only to prescribe what shall be orthodox in commercial advertising” or to “prescribe what shall be orthodox in … matters of opinion.” The “element of compulsion” creates an argument for using strict scrutiny.

(1) Okay, so certain disclosure requirements aren’t subject to strict scrutiny? Good to know; would have been nice to say so in the holding. (2) This won’t be the last time I’ll say this: the question is only “novel” if you completely ignore abortion restrictions, which you have to do to avoid embarrassing contradictions—which, admittedly, are likely to exist on both sides of the political divide. (3) Wow, “element of compulsion” is a truly bad distinction. We are evaluating disclosure requirements, which is why both descriptions of the ok and the not-ok use the same word, “prescribe.” Plainly, Zauderer involved compulsion. Most likely, the majority means ideology v. fact, except that it can’t full-on say that because the line between the two is … rather malleable. The alternative reading—tobacco warnings are extra compulsory because anyone who sells cigarettes has to use them regardless of what other factual claims their ads make or don’t make—is also dumb; anyone who sells tobacco creates the same health risks and the same need for disclosure, the same way anyone who made the affirmative claim at issue in Zauderer (that clients wouldn’t need to pay “fees” unless they won) created the same need for disclosure.

Laying another mine, the majority “assum[ed]” that marketing—“packaging, branding, and other advertisements”—could properly be classified as commercial speech. There is nothing to assume here. As long as there’s a commercial speech doctrine, those things are commercial speech. Not for nothing, that’s the basis of the Lanham Act. The question remained: “how much leeway should this Court grant the government when it seeks to compel a product’s manufacturer to convey the state’s subjective—and perhaps even ideological—view that consumers should reject this otherwise legal, but disfavored, product?” Assuming, without deciding, that such compulsion is constitutionally permissible, it still had to withstand the appropriate level of scrutiny.

According to the majority, there are two primary exceptions to strict scrutiny “in the commercial speech context.” Most obviously (though the majority puts it second), commercial speech regulation isn’t subject to strict scrutiny under Central Hudson, though the majority described the Central Hudson standard as demanding nonetheless. How this is an “exception” to strict scrutiny “in the commercial speech context” is left as an exercise for the reader. (Some ad regulation could be subject to strict scrutiny, if we took Justice Stevens’s approach—regulations designed to preserve the fairness of the bargaining process are reviewed with great leniency, and everything else gets strict scrutiny.) The second exception is that, under Zauderer, “purely factual and uncontroversial” disclosures are permissible if they are “reasonably related to the State’s interest in preventing deception of consumers,” provided the requirements are not “unjustified or unduly burdensome.” This is close to rational basis review.

First, the government argued that Zauderer applied. In that case, the Court reasoned that an advertiser’s constitutional interest in not providing additional factual information was “minimal,” given that commercial speech is constitutionally protected because of its informational benefits to the audience.  Zauderer said that an advertiser’s rights were adequately protected as long as disclosure requirements were reasonably related to the state’s interest in preventing deception.  The FDA argued that Zauderer’s lenient standard applied to disclosures of health and safety risks, but the court of appeals disagreed: it’s only for preventing deception.  (What about the evidence that consumers don’t fully understand just how dangerous smoking is?  Why aren’t health and safety regulations anti-deception regulations?) 

 

Zauderer didn’t apply in United Foods, which was about an assessment on mushroom producers to support generic advertising.  Ibanez also suggests that Zauderer only applies when the government “affirmatively demonstrates” a threat of deception, since it found that the state hadn’t shown that use of an attorney’s Certified Financial Planner designation was “potentially misleading”; the state’s posited harm was “purely hypothetical.”  Zauderer only applies when the government shows that an ad will likely mislead consumers.  (This conveniently ignores the actual record in Zauderer, which was hardly that robust—it was common sense to the Court at the time.)  Milavetz, the most recent pronouncement, upheld a disclosure requirement for ads that were “inherently misleading” because they “promis[ed] . . . debt relief without any reference to the possibility of filing for bankruptcy, which has inherent costs.”  Justice Thomas’s concurrence cautioned against reading Milavetz broadly to endorse disclosure requirements just because consumer deception might “plausibly” be at stake.  The government must show that, absent a warning “there is a self-evident—or at least ‘potentially real’—danger that an advertisement will mislead consumers.”

In light of other restrictions on cigarette ads barring them from making health claims and banning “light,” “mild,” “low,” or similar descriptors, along with the absence of any congressional findings on the misleading nature of cigarette packaging itself, there was no Zauderer justification for the graphic warnings.  The companies didn’t argue that no disclosure requirements were warranted; they objected to these proposed disclosures. 

The dissent argued that consumers were still being misled about the nature and extent of the risks of smoking, secondhand smoke, and addiction.  “But none of the proposed warnings purport to address the information gaps identified by the government.”  And the broader context of years of deception preceding these warnings was only relevant as part of a corrective order necessary to “dissipate the effects of respondent’s deceptive representations,” whereas the FDA didn’t frame the graphic warnings as remedial measures designed to counteract specific deceptive claims that would keep going forever.

Plus, the graphic warnings weren’t “purely factual and uncontroversial” information, Zauderer, or “accurate statement[s],” Milavetz. Those disclosures “were both indisputably accurate and not subject to misinterpretation by consumers. The FDA’s images are a much different animal.”  The FDA argued that the images were not meant to be interpreted literally, but symbolized the textual warnings, which provided context for the images.  But consumers might misinterpret the images: “the image of a man smoking through a tracheotomy hole might be misinterpreted as suggesting that such a procedure is a common consequence of smoking—a more logical interpretation than FDA’s contention that it symbolizes ‘the addictive nature of cigarettes,’ which requires significant extrapolation on the part of the consumers.”  (Once again, courts’ confidence in words as bearers of singular meaning does damage—words can be misinterpreted too, and images can predictably convey important messages without conveying universality. Compare, for example, the FTC’s new Guides on Endorsement, which now disfavors “results not typical” when an image of a particularly successful product user is shown—that guideline is clearly at risk from this decision.)

Anyway, the graphic warnings were not “purely” factual “because—as FDA tacitly admits— they are primarily intended to evoke an emotional response, or, at most, shock the viewer into retaining the information in the text warning.”  See, there is reason, and there is emotion, and they can be easily distinguished (despite all the evidence we have that this is not so; people who cannot feel, it turns out, cannot think).  The court of appeals interpreted the FDA’s citation of research showing that pictures are easier to remember than words as being about “shocking”—why can’t it be about “remembering, which we know is aided by emotional cues”?  Likewise, the court didn’t like the FDA’s reliance on a “substantial body” of scientific literature showing that emotional responses “such as worry and disgust, ‘reliably predict the likelihood that consumers will understand and appreciate the substance of the warnings.’”  Apparently the government is not allowed to use a warning that works if the mechanism travels through the emotions—as in fact words/symbols do too (for example, research shows that price signals, similar to the required disclosure in Zauderer and Milavetz, trigger negative emotional reactions that mitigate consumers’ desires for the advertised products), but why worry about that difficulty?

The court didn’t like that many of the images didn’t convey typical “warning” information at all,

much less make an “accurate statement” about cigarettes. For example, the images of a woman crying, a small child, and the man wearing a T-shirt emblazoned with the words “I QUIT” do not offer any information about the health effects of smoking. And the “1-800-QUIT-NOW” number, when presented without any explanation about the services provided on the hotline, hardly sounds like an unbiased source of information. These inflammatory images and the provocatively-named hotline cannot rationally be viewed as pure attempts to convey information to consumers. They are unabashed attempts to evoke emotion (and perhaps embarrassment) and browbeat consumers into quitting.

These images weren’t “patently false,” but they didn’t “impart purely factual, accurate, or uncontroversial information to consumers.”

Without Zauderer, the question was whether strict or intermediate scrutiny was appropriate.  Central Hudson was the answer for mandatory disclosures applied to commercial speech, despite conflicting precedent from other circuits.  The test: a substantial government interest directly advanced by the regulation that isn’t more extensive than necessary, with the government bearing the burden of justification.

The government’s interest was in decreasing smoking rates both through preventing initiation and through encouraging quitting.  In a footnote, the court suggested that this wasn’t actually a substantial interest: “we are skeptical that the government can assert a substantial interest in discouraging consumers from purchasing a lawful product, even one that has been conclusively linked to adverse health consequences.” Comment: I bet Planned Parenthood would be super, super surprised to hear that.  Also, even assuming that the rules for abortion weren’t directly contrary, this is ridiculous.  We do not live in a world in which that which is not permitted is required, or that which is allowed is therefore okay.  If “smoking kills people” isn’t enough to create a substantial interest in decreasing smoking, then what would be?  (Note that this factor is supposedly about the government’s interest, not about the mechanism of regulation.)  We know that the interest in protecting children from molestation is substantial, but molestation is less serious than death.  Even the court, though, had to admit that “the Supreme Court has at least implied that the government could have a substantial interest in reducing smoking rates because smoking poses ‘perhaps the single most significant threat to public health in the United States.’” FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120 (2000). 

Okay, that assumption out of the way, the next question was whether the FDA had offered substantial evidence showing that the warnings directly advanced the asserted governmental interest.  Ineffective or remote support for the government interest wasn’t enough, nor was mere speculation or conjecture.  And the FDA hadn’t provided “a shred of evidence” showing that the graphic warnings would directly advance its interest in reducing smoking.  Despite the international consensus on the effectiveness of graphic warnings, there was no evidence that such warnings

directly caused a material decrease in smoking rates in any of the countries that now require them. While studies of Canadian and Australian youth smokers showed that the warnings on cigarette packs caused a substantial number of survey participants to think— or think more—about quitting smoking, and FDA might be correct that intentions are a “necessary precursor” to behavior change, it is mere speculation to suggest that respondents who report increased thoughts about quitting smoking will actually follow through on their intentions. And at no point did these studies attempt to evaluate whether the increased thoughts about smoking cessation led participants to actually quit.

One Australian study found increased quit attempts after the enactment of large graphic warnings but “no association with short-term quit success.” Some Canadian and Australian studies suggested that the warnings induced reduced consumption and helped former smokers stay away, but didn’t purport to show an actual reduction in smoking rates.  True, Canadian smoking rates dropped after graphic warnings were introduced, but the FDA couldn’t directly attribute any decrease to the warnings because Canada implemented other smoking control initiatives too during the same period.  Thus, the FDA’s evidence was mere speculation and conjecture.  The regulatory impact assessment, despite favorable assumptions, estimated that the new warnings would reduce smoking rates by “a mere 0.088%, a number the FDA concedes is ‘in general not statistically distinguishable from zero.’” And one of the principal researchers on whom FDA relies recently surveyed the relevant literature and conceded that “[t]here is no way to attribute . . . declines [in smoking] to the new health warnings.”

“In light of the number of foreign jurisdictions that have enacted large graphic warning labels, the dearth of data reflecting decreased smoking rates in these countries is somewhat surprising, and strongly implies that such warnings are not very effective at promoting cessation and discouraging initiation.” Even deferential review couldn’t defer to this.  The FDA argued that the studies only made the unremarkable point that it’s difficult to determine with precision the relative causal impact of multiple contributing factors, especially given small data sets.  “But FDA cannot get around the First Amendment by pleading incompetence or futility.”  It failed to meet its burden.

The FDA also argued that the court should defer to Congress’s judgment about the effectiveness of graphic warnings, per Turner, but deference is only warranted when Congress bases its conclusions on substantial evidence.  (Ah, Eldred, the lost cause.)

Nor could the FDA assert a separate interest in effectively communicating health information, which is just a redescription of the means by which it was trying to reduce smoking rates.  Anyway, that just begs the question of what “effectively” means.  If effectively isn’t cashed out in reductions in smoking rates, then it’s a meaningless constraint on government regulation.

In conclusion, the court noted the FDA’s position that “previous efforts to combat the tobacco companies’ advertising campaigns have been like bringing a butter knife to a gun fight. According to the FTC, tobacco companies spent approximately $12.49 billion on advertising and promotion in 2006 alone, employing marketing and advertising experts to incorporate current trends and target their messages toward certain demographics.”  The graphic warnings were the FDA’s attempt to level the playing field, but the fact that the government finds expression too persuasive doesn’t permit it to silence the speech or burden its messengers.

When ex parte situations conceal real legal issues

ViaView, Inc. v. Blue Mist Media, 2012 WL 6007204 (D. Nev.)

The court accepted ViaView’s contention that it owned both isanyoneup.com “and all associated trademark rights and goodwill.”  Defendants used isanyoneup in various domain names, including .net, isanyoneupnudes.com, and isanyoneupvideos.com, where they publish “involuntary pornography.”  ViaView “purchased the ISANYONEUP mark in April of 2012” (herein lies the problem, of which more below) and associates the mark with its campaign to stop “bullying behavior.”  ViaView sued for cybersquatting, unfair competition/trademark infringement, breach of contract, civil conspiracy, and intentional interference with contractual relations.  The court only considered the ACPA claims in granting the TRO.

ACPA makes a person liable who has a bad faith intent to profit from a “mark” (not a word) and registers/uses a domain name that is identical or confusingly similar to “that mark.”

As noted, the court accepted plaintiff’s ownership claims, and that the mark was distinctive at the time defendants registered their domain names because the mark was inherently distinctive (as to what?).  Also, “it can hardly be disputed that Defendants' domain names are ‘identical or confusingly similar’ to Plaintiff's mark.”

ACPA has a nonexhaustive list of nine factors for determining bad faith, including the defendant’s potentially good reasons for using the domain name, indicia of bad behavior like registering a bunch of similar domains and providing fake contact information, and “intent to divert consumers from the mark owner's online location to a site accessible under the domain name that could harm the goodwill represented by the mark, either for commercial gain or with the intent to tarnish or disparage the mark, by creating a likelihood of confusion as to the source, sponsorship, affiliation, or endorsement of the site.”  The court found that “most, if not all, of these factors” supported a finding of bad faith.  Defendants used the domain names to direct consumers to another site, yougotposted, and thus had the apparent intent to divert consumers with resulting confusion.  Plus, they used the entire mark.

Irreparable injury is generally presumed from likely success on the merits in a trademark case; the balance of equities tipped in plaintiff’s favor since defendants were just using the domain names as redirects anyway; and the public interest is against confusion.  And issuing the TRO would maintain the status quo by returning the allegedly infringing domain names to the domain name registrar.  (Hunh?  Returning the parties “to the respective positions that they held before Defendants began using the allegedly infringing domains,” as the court next says, is hardly maintaining the status quo.)

Now here is why I am confused by the decision: BullyVille bought “revenge porn” site IsAnyoneUp.com and associated it with its antibullying site, specifically stating:

**NOTICE** - BullyVille.com, its parent ViaView Inc. and other corporate parents (the "Affiliates") have purchased only the domain name , and did so in order to shut the site down and to put an end to its ignoble activities. We have not assumed any right, interest, ownership, control or responsibility for any content previously accessible or displayed on IsAnyoneUp.com, and expressly disclaims the same. Do not submit photographs to us, as we disagree with the prior site's business model, and flatly reject it.

That defines transfer in gross, which means that the mark has been abandoned and plaintiff has no rights in the mark for the terrible services formerly provided using the mark.  Sometimes strangers to a mark snap up an abandoned one, and at times the previous owner has been able to do something about that based on residual goodwill (which here means badwill, I guess), but that’s explicitly been disclaimed here, and the equally terrible defendants are much closer to delivering the terrible services formerly associated with the mark than the plaintiff (which is weird in its own way, as detailed in the article linked above).

Okay, you might respond, but BullyVille has a new mark for new services that began with the transfer in gross.  That seems plausible, though query whether causing a domain name to redirect to BullyVille counts as “use” of the mark for services.  If there is use, I’m sure it’s valid as inherently distinctive as to antibullying services.  But the ACPA factors wouldn’t counsel in plaintiff’s favor treating the mark as newborn: defendants have no bad faith intent to profit from the only thing plaintiffs own, the rights in the mark for antibullying services. The reason defendants used the domain names at issue is because plaintiff lacks secondary meaning in the new use.  In the simplest terms, on these facts I can’t see how defendants had a bad faith intent to profit from plaintiff’s mark, as required by the statute.  Their interest in registering these domain names would be exactly the same if plaintiff didn’t exist, because of the residual secondary meaning of the abandoned mark.  In some ways, this decision is like saying that Delta Airlines has an ACPA claim against a interloping, non-Delta Faucet registrant of deltafaucets—that’s not the Delta at issue!

Now, maybe this just doesn’t matter, because it’s unlikely to come up in anything but a somewhat bizarre set of circumstances, because it’s a TRO, and because crappy defendants get treated badly.  I hope so!

Reading list: the laws of image

Samantha Barbas, The Laws of Image, New Eng. L. Rev. (forthcoming)

From the introduction:

This article offers a broad overview of the development of the modern “image torts” and the phenomenon of personal image litigation. An intertwined history of the law, culture, and the self, it explores how the law became a stage for,  and participant in, the modern preoccupation with personal  image, and how tort law’s models of personhood and identity in turn transformed understandings of the self. Through legal claims for libel, invasions of privacy, and other assaults to the image, the law was brought, both practically and imaginatively, into popular fantasies and struggles over personal identity and self-presentation.  

Recommended!

No jury trial required on consumer protection claim

Fazio v. Guardian Life Ins. Co. of America, --- A.3d ----, 2012 WL 6177271 (Pa. Super.), 2012 PA Super 273

The Fazios appealed from a judgment against them after a nonjury trial. They argued that Guardian fraudulently sold them “vanishing” premium life insurance policies unsuited to their circumstances.  They had only claims for “deceptive or unfair” practices under the Pennsylvania Unfair Trade Practice and Consumer Protection Law, because their common law fraud, negligence and breach of fiduciary duty claims had been dismissed for being filed after the applicable statute of limitations had expired.

On appeal, the Fazios argued that they were entitled to a jury trial.  The court of appeals disagreed.  When a statute is silent on whether it affords a jury trial, the question is whether the cause of action existed when the Constitution was adoped, and, if so, whether there was a concomitant right to a jury trial.  The Fazios argued that the UTPCPL was the same as common-law fraud, for which a jury trial was available, because the legislature was supplementing existing common-law remedies and not creating new claims.  The UTPCPL has both broad and specific provisions, barring both “[c]ausing likelihood of confusion or of misunderstanding as to the source, sponsorship, approval or certification of goods or services” and failure to disclose that rustproofing is optional in new car sales.  The Fazios relied on the catchall clause prohibiting “any other fraudulent or deceptive conduct which creates a likelihood of confusion or of misunderstanding.”  “[O]r deceptive” was added by the legislature in 1996; the court concluded that it overturned earlier precedent requiring plaintiffs to prove the elements of common-law fraud.  The Pennsylvania Supreme Court had stated that the UTPCPL should be construed liberally, and recent cases to consider the issue had determined that the catchall provision no longer required fraud; otherwise the 1996 changes wouldn’t be meaningful.

Moreover, while the Fazios were required to prove fraud or deceptive conduct, they also needed to prove that this occurred in a consumer transaction to be covered by the UTPCPL.  “This additional burden takes the claim outside of the realm of common law fraud. The UTPCPL is to be construed broadly and was designed to protect consumers from unscrupulous business practices. Such a unique, statutory remedy was not available under the common law.”  The court was unwilling to graft a jury trial right onto this statutory cause of action.

Other challenges to the lower court’s ruling were also rejected.  The trial court accepted as credible the insurance rep’s testimony that he explained the truth about the insurance premiums to Mr. Fazio, including that dividend amounts weren’t guaranteed.  Further, the trial court found that the Fazios failed to prove that they couldn’t have gotten the advertised cash values if they’d continued to pay premiums.  Nor was it deceptive to use “vanishing premium,” a term not barred by Pennsylvania law at the time, or to refer to life insurance as functioning like a bank, given the other disclosures.  These findings were not an abuse of discretion.

"natural" cooking oil claims mostly but not entirely dismissed

In re ConAgra Foods Inc., 2012 WL 5995454 (C.D. Cal.)

Plaintiffs alleged that ConAgra deceptively marketed Wesson cooking oils as “100% Natural,” when they’re actually made from unnatural genetically modified organisms.  They were consumers from Nebraska, ConAgra’s HQ, and 14 other states and they sought to represent a nationwide class alleging claims under the Magnusson–Moss Warranty Act and the Nebraska Consumer Protection Act and Uniform Deceptive Trade Practices Act. They also sought various state subclasses for consumer protection, breach of warranty, and unjust enrichment claims.

ConAgra argued that the complaint failed to meet Rule 9(b)’s particularity requirements, since only 2 of 21 plaintiffs alleged a purchase location and only a handful provided dates of purchase.  Plaintiffs responded that they provided enough information to put ConAgra on notice of their claims, and that demanding these additional details would do nothing to enhance ConAgra’s ability to answer the allegations, which was the purpose of Rule 9(b).  The court agreed that the necessary “where” for Rule 9(b) purposes was where ConAgra made its misrepresentations—here, the label.  Plaintiffs were not required to identify specific stores; they showed where the claim at issue appeared on the bottles and alleged that this was true throughout the class period.  Likewise, they adequately pled the “when” by pleading when the allegedly misleading statement was made or when they saw it, not when it resulted in a purchase.  Alleging that the statement was made throughout the class period was sufficient, and they also pled at least some information about the frequency with which they saw the allegedly misleading statements.  Requiring specific dates was neither necessary nor realistic.

ConAgra next argued that the complaint wasn’t specific enough because plaintiffs didn’t allege how they were misled—it didn’t describe what meaning any plaintiff ascribed to “100% Natural” or state that they understood it to exclude bioengineered ingredients.  But the complaint did detail plaintiffs’ plausible position on why GM products couldn’t be considered “natural,” and that was enough at this stage.  Further allegations that, had they not been deceived by the labels, they wouldn’t have purchased the products, were sufficient under Rule 9(b).

The claims under the Magnuson-Moss Warranty Act were dismissed because the “100% Natural” statement wasn’t an assertion that the product was defect free, that it would meet a specific level of performance, or that the seller would take any remedial action, as required to fall within the scope of the law for a written warranty.  The scope of “implied warranty” was broader, however, and covered implied warranties arising under state law—thus creating a federal cause of action for state law implied warranty claims.  “While plaintiffs have not alleged that implied warranties that attached to Wesson Oils violated the act, the court cannot conclude that such a claim would be futile, particularly given plaintiffs' allegations concerning implied warranties elsewhere in the complaint.” Thus, the claim was dismissed with leave to amend, though the court noted that there was no claim if the amount in controversy of any individual claim was less than $25.

Nebraska Consumer Protection Act: ConAgra argued that the act didn’t apply to regulated industries, citing a provision that states that “the Consumer Protection Act shall not apply to actions or transactions otherwise permitted, prohibited, or regulated under laws administered by the Director of Insurance, the Public Service Commission, the Federal Energy Regulatory Commission, or any other regulatory body or officer acting under statutory authority of this state or the United States.”  The question isn’t whether the defendant is generally regulated (everyone is), but whether the challenged practice is regulated.  Here, the labeling and ads were already regulated by the FDA, which bars labeling that’s “false or misleading in any particular.”  In fact, the FDA has regulated the use of “natural” by sending a warning letter to a company that branded its bagel product as “All Natural.”  (As the recent ABA PAL teleconference I wrote briefly about explained, this is ridiculous: the FDA has done everything it can not to regulate "natural.")  The exception to the Nebraska statute was broader than federal preemption, so though the claim was not preempted it was still excepted from the Nebraska CPA.

Nebraska UDTPA: the law only protects individuals “likely to be damaged by a deceptive trade practice of another,” so it doesn’t cover past damage.  These plaintiffs won’t suffer future damage because they’re now aware of the alleged misrepresentation, so the claim was dismissed with prejudice.  (Jam tomorrow, and jam yesterday, but never jam today.)

As for the remaining state claims, ConAgra raised various individual deficiencies.  It argued that the New Jersey and Oregon consumer protection claims failed to allege the requisite “ascertainable loss.”  The allegation that plaintiffs wouldn’t have bought Wesson Oils at all, or wouldn’t have paid as much for them, was insufficient under New Jersey law because it didn’t set out the difference in value between what was promised and what was received.  Absent any specific information concerning the price of the products or the price of any comparable products, allegations of ascertainable loss were conclusory statements that were insufficient to withstand a motion to dismiss.  Lee v. Carter–Reed Co., L.L.C., 203 N.J. 496 (2010), was not to the contrary; it found ascertainable loss when the allegation was that defendant’s product was worthless, making the ascertainable loss the total value of the product.

Oregon has tended to require less rigorous pleading of ascertainable loss; the state Supreme Court sustained a claim based on the fact that a plaintiff paid a stated price for a tent advertised with specific features that it didn’t have; the ascertainable loss was the difference between the price paid and the value received, and the court was willing to infer it though the price of a tent with the actual features wasn’t in evidence.  So, under Oregon law, allegations that plaintiffs wouldn’t have bought the product or would have paid less had they known the truth were sufficient to survive a motion to dismiss.

ConAgra then argued that reliance was required in at least California, Oregon, South Dakota, Texas, and Wyoming, and that plaintiffs had insufficiently alleged how they were deceived, what they believed the challenged statement meant or why it mattered to them.  The court disagreed: the complaint alleged what plaintiffs believed “100% Natural” meant and detailed why GMOs aren’t natural. Coupled with the explicit allegation that they wouldn’t have bought the oils for the price paid or at all if they’d known the truth, plaintiffs adequately alleged reliance.

ConAgra argued that California, Massachusetts, Texas and Wyoming require that plaintiffs give a defendant notice of their intent to sue before they commence an action.  Plaintiffs alleged that they gave notice “to the extent required,” which would ordinarily count as an insufficient bare assertion, but Rule 9(c) provides that, “[i]n pleading conditions precedent, it suffices to allege generally that all conditions precedent have occurred or been performed.”  So the motion to dismiss was denied.  The court noted, however, that ConAgra attached the notices it claimed to have received, and they were just under California and Massachusetts law.  Plaintiffs argued that ConAgra had been on notice for nearly a year because of their “plain English request for nationwide relief,” but the court wasn’t convinced that these notices were sufficient to put ConAgra on notice of potential claims under other state statutes.  As for ConAgra’s argument that notice to the AGs of New Jersey, Oregon, and Washington was required, nothing in those laws required presuit notice, so plaintiffs were simply directed to provide such notice if they hadn’t already done so.

ConAgra then argued that plaintiffs’ claims over a four-year period contradicted with shorter limitations periods on some states, such as Ohio (2) and New York (3).  But the allegations from those states’ plaintiffs indicated that they bought Wesson oils within those periods, and if there were ultimately certified classes their definitions could be modified.

Similar conclusions followed on various other claims; claims for implied warranty were dismissed as to states that required privity.

Anticompetitive suit leads to fees even if that bankrupts plaintiff

American Optometric Soc., Inc. v. American Bd. of Optometry, Inc., 2012 WL 6012861 (C.D. Cal.)

Defendant ABO sought attorneys’ fees of over $460,000 from losing Lanham Act plaintiff AOS.  AOS didn’t object to the hours or rates billed except to assert that the amount would put it into bankruptcy.  The court found the amount reasonable.

The question was whether this was an exceptional case, which in the 9th Circuit means whether the case (or, presumably, defense) was groundless, unreasonable, vexatious, or pursued in bad faith.  These are narrowly construed, though the line between exceptional and non-exceptional is fuzzy, especially when the defendant wins because the plaintiff failed to prove its case.  If the plaintiff had no reasonable or legal basis to believe it would succeed on the merits, the case is exceptional.  The mere absence of bad faith isn’t dispositive.  But failure to produce any legitimate evidence supporting a claim can show exceptionality.  And anti-competitive motive can also be a factor weighing in favor of exceptionality.  The key reasons for finding non-exceptionality in the past have been that a plaintiff raised debatable issues and had a legitimate reason to sue.

AOS argued that, though it wasn’t the prevailing party on the §43(a) claims, the court should take into account that it had also issued an injunction prohibiting ABO from making six particular statements about board certification.  But the injunction was based on ABO’s agreement by consent decree, without admitting liability, and not based on a merits adjudication.

AOS then argued that since its claim survived summary judgment, the case was at least debatable, not unreasonable or groundless.  But the court found that was insufficient: a case isn’t exceptional just because a court grants summary judgment, and likewise it’s not unexceptional just because a court denied summary judgment.  In addition, certain evidence undermining AOS’s claim wasn’t presented until later in the litigation—by AOS itself.  This included “preposterous” testimony by AOS’s president about the purported difference between the terms “board certified” and “certified by the board,” as well as the AOS's endorsement of another organization's essentially identical “board certification” credential, “both of which pieces of evidence had a significant impact on the Court's ultimate decision in finding for ABO.” 

At the bench trial, the court found that AOS “failed completely” to present evidence in support of most elements of its claim, and often presented evidence that “actually negated” elements of its claim.  AOS failed to show falsity; it failed to show injury because it got “panicky even before ABO was formed” and was “so quick to burst from the gate that it forgot the benefit of waiting to see what the impact of ABO would be, and absent the impact, AOS has totally failed to prove the required element of injury.”  Plus, though the court didn’t rely on AOS’s consumer survey at summary judgment because of an admissibility dispute, the court’s later findings about the unreliability of the survey added support to ABO’s argument that the summary judgment denial didn’t indicate that the lawsuit raised debatable issues.  “Although in the abstract and based on the limited evidence presented at the summary judgment stage, the term ‘board certified’ might have been false or misleading and could potentially have presented a debatable issue, there was significant evidence at trial that AOS's primary complaint was not with the use of the term, but with the use of the term by ABO, and also not with the concept of being certified by a board.”

AOS argued that failing to present evidence on an element of a claim, without more, is not exceptional.  But here, AOS completely failed to present evidence on the four key elements of its claim, its own witnesses undermined its claims, and it had a potential anti-competitive motive.  Thus, the Lanham Act claim was groundless and unreasonable, and fees were warranted.

Generally, fees must be apportioned between Lanham Act and non-Lanham Act claims, unless it’s impossible to differentiate the work done on claims.  Some attempt at apportionment is required unless the claims are so inextricably intertwined that an attempted division would be meaningless.  ABO argued that it was entitled to all its fees because the state law claims against it arose from the same factual theory and the legal standard was “substantially congruent” with the Lanham Act.  Because the claims were governed by the same legal standard and factual theory, and because the parties only argued about the Lanham Act, treating the state claims as mere appendices, ABO was entitled to an award of all its fees.

ingredient whose alleged dangers aren't widely known isn't materially deceptive

Arroyo v. Chattem, Inc., 2012 WL 5412295 (N.D. Cal.)

Plaintiff alleged that Chattem’s Dexatrim, a weight loss supplement, contains hexavalent chromium, which is a dangerous chemical, contrary to Dexatrim’s marketing as safe, healthy, and fit for consumption.  The court dismissed the complaint.

Dexatrim’s website claims that the product is effective, in part, because of the mineral chromium, which purportedly promotes "weight loss," "kick [starts] metabolism," and "naturally [breaks] down carbs and fat while helping you maintain a desire to stay active while dieting."  Arroyo alleged that Chattem implied Dexatrim's safety through packaging that states that the product (1) should be consumed; (2) is the "# 1 Pharmacist Recommended Appetite Suppressant"; (3) is "Ephedra Free"; and (4) contains only the listed ingredients. However, Chattem allegedly failed to disclose that Dexatrim’s chromium comes in the form of dangerous hexavalent chromium, instead of the trivalent chromium naturally found in many fruits and vegetables.  Hexavalent chromium has been linked to lung cancer, emphysema, and dermatitis when ingested by humans by, among others, the CDC, OSHA, and California’s EPA.  It’s also on California’s list of "Chemicals Known to the State to Cause Cancer or Reproductive Toxicity."  Hexavalent chromium is, allegedly, not recommended for human consumption in any quantity.

Arroyo alleged that Chattem’s failure to disclose was material, and that she wouldn’t have bought the product had she known that Dexatrim contained dangerous hexavalent chromium.  She brought the usual California claims.

Chattem argued that Arroyo lacked constitutional standing, but the court disagreed. Under California law, the economic loss occasioned by buying something you wouldn’t have bought or paying more than you would have paid had you known the truth is sufficient economic injury and satisfies Article III.

Arroyo still lost.  First, Rule 9(b) applied because all her claims were grounded in accusations of fraudulent conduct, even though her California claims didn’t have all the elements of common-law fraud.  Arroyo alleged that Chattem’s concealment was deliberate and done with the intent to induce sales, causing reasonable reliance by consumers and resulting harm—that’s like common-law fraud.

And the pleadings failed Rule 9(b)’s particularity requirement.  Though the complaint specified the content of the affirmative misrepresentations, the content of the omission, and why the combination was false or misleading, that wasn’t enough.  It still failed to allege with particularity why this was material or how Arroyo relied on the affirmative misrepresentations and omissions.

On materiality, Arroyo alleged that the presence of hexavalent chromium was material because it made Dexatrim unsafe, and because she wouldn’t have bought it if she’d known that it contained any level of hexavalent chromium.  But most of the allegations were of generalized safety misrepresentations, not misrepresentations that the product didn’t contain hexavalent chromium.  These arguably created the inference that the product was safe.  Arroyo didn’t allege that hexavalent chromium at the level present in Dexatrim made safety statements false or misleading. “Many foods and drugs on the market are not one hundred percent safe, and general allegations that a product's safety is less than one hundred percent do not give rise to a lawsuit for fraud. If it did, then every consumer would be able to bring a suit for economic injury anytime the consumer became aware of an additional, unlabeled product risk after his or her purchase.” 

The studies she cited did not show that any amount of hexavalent chromium would impact safety enough to affect a purchasing decision; they evaluated outcomes at various exposure levels.  This was especially awkward because Arroyo disclaimed increased risk of harm as an injury, even though her economic loss stemmed from the alleged risk of injury she incurred. “The rationale underlying financial loss cases, that a purchaser should receive what he paid for, seems diminished where the purchaser claims no injury based on an increased risk of harm while at the same time claiming that an increased risk of harm is the reason why the purchaser did not receive the benefit of his bargain.”

The court didn’t consider Arroyo’s theory that the failure to disclose was material because she wouldn’t have bought the product if there’d been disclosure because she couldn’t show reliance.  She didn’t specify the exact claims on which she relied before purchase.  She also didn’t allege that she knew about the dangers of hexavalent chromium from any source before purchase.  Thus, she couldn’t show that, even if she’d read the label, she relied on the absence of hexavalent chromium.  Further, there’s no regulation requiring disclosure of the presence of hexavalent chromium.

I'm dreaming of (a) white chocolate

Miller v. Ghirardelli Chocolate Co., 2012 WL 6096593 (N.D. Cal.)

Miller bought a package of “Ghirardelli Chocolate Premium Baking Chips Classic White” and then brought a putative class action against Ghirardelli, complaining that this and four other Ghirardelli Chocolate products were marketed as “White” or “White Chocolate Flavored” when they did not contain any white chocolate, asserting the usual California claims, including fraud.  Ghirardelli argued that Miller didn’t have standing as to the other four products; the court agreed, but denied Ghirardelli’s motion to dismiss in other respects.

Miller alleged that he set out to buy white chocolate chips; reviewed the package before purchase; later tasted the chips and thought they didn’t taste right; and then checked the ingredients list and discovered that they contained no white chocolate, cocoa, or cocoa butter.  “White chocolate” and “white chocolate flavor” are regulated by the FDA. Products labeled as “white chocolate” must contain a minimum of 20 percent cocoa butter, and “a product may cannot be called ‘white chocolate flavored’ unless it has some natural derivative of cocoa butter or cacao fat.” Miller alleged that he wouldn’t have bought the chips or would have paid less for them but for Ghirardelli’s misrepresentations.  Miller also challenged Ghirardelli’s White Chocolate Flavored Confectionary Coating Wafers; Sweet Ground White Chocolate Flavor; Premium Hot Beverage—White Mocha; and Frappé Classico—Classic White.  (I suppose one lesson is: when someone offers you a “hot beverage,” it makes sense to ask “what is it?”)

As for the baking chips, Miller alleged that the package’s use of “Classic White,” and “Premium,” misleads consumers into believing the baking chips contain classic or premium white chocolate.  Further, the packaging says:

The luxuriously deep flavor and smooth texture of Ghirardelli Premium Baking Chocolate delivers the ultimate chocolate indulgence. We hand-select the world's finest cocoa beans and roast them to perfection and then blend the purest ingredients to achieve our awardwinning chocolate. For our Classic White Baking Chips, pure vanilla and whole milk powder combine to create rich, melt-in-your-mouth bliss. Experience the Ghirardelli difference:

• All Natural ingredients

• Luxuriously smooth and creamy

• Finest grind for smoothest texture and easiest melting.

This “romance” language misleads, he alleged, because it suggests that the packaging contents are white chocolate and because identical language appears on another product that does contain white chocolate—the Ghirardelli® Chocolate Premium Baking Bar.

The wafers allegedly misled with the name “White Chocolate Flavored Confectionary Coating Wafers,” used even though though the wafers are not flavored with white chocolate and contain no cocoa butter or cacao fat. Plus, a Ghirardelli chocolate product likely to be shelved near it at a similar price used a similar label.   As for Sweet Ground White Chocolate Flavor, the label indicated that the product can be used in white chocolate hot cocoas and white mochas and that it has a “luxuriously rich and complex white chocolate flavor.”  Miller alleged this was misleading because the product does not contain a cocoa derivative, and is misleadingly sold alongside similarly labeled products that do contain cocoa.  For Premium Hot Beverage—White Mocha, the packaging said: “The rich indulgent flavor of Ghirardelli Premium White Mocha creates the pleasurable moment cocoa lovers cherish,” though it contains no cocoa and though “white mocha” allegedly implies a combination of white chocolate and coffee.  The final product's packaging said: “The luxuriously rich and complex flavor of Ghirardelli's Classic White Frappé Classico creates the pleasurable moment cherished by white chocolate lovers,” allegedly implying derivation from white chocolate; Miller also alleged that the product was likely to be sold alongside a similarly labeled Ghirardelli frappe product which actually contains chocolate.

In addition, Miller alleged shared misrepresentations: the packaging prominently uses the term “chocolate” in the company name; the labels for the baking chips and frappe employ the terms “Classic White” and “Classico,” respectively, to deceptively suggest the products are unchanged from an original white chocolate product; Ghirardelli sells the products for the same price as analogous products containing real chocolate.

Ghirardelli argued that Miller lacked standing for the four proudcts he didn’t buy.  Some courts have accepted that argument on a blanket basis.  Other courts have waited for a motion for class certification to resolve the issue.  “The majority of the courts that have carefully analyzed the question hold that a plaintiff may have standing to assert claims for unnamed class members based on products he or she did not purchase so long as the products and alleged misrepresentations are substantially similar.”  Thus, there may be standing to assert claims based on all flavors of a product when the alleged misrepresentations are the same across flavors (just as there’d be standing to assert claims based on all sizes of a product).  In non-food cases, courts have also examined whether alleged misrepresentations are sufficiently similar across product lines, for example “environmentally friendly” claims on glass cleaner and stain remover.

Here, the court found, the products and alleged misrepresentations weren’t sufficiently similar to confer standing on Miller.  They did have some similarities in packaging, composition, and labeling: they were labeled Ghirardelli Chocolate, which suggested a connection to chocolate; they didn’t contain cacao butter; they were sold next to products that do contain chocoloate or white chocolate; and they used words creatng a connection to white chocolate.  But the products were different: baking chips, three drink powders, and wafers.  They looked different, had different labels, and only one other product was a baking product, and confectionary wafers are different from chips for cookies.  They also had different customers; two of the drink powders’ labels said they were marketed to retailers.

The baking chips’ use of “Classic White,” “Premium,” and the “romance language” on the package set up a connection among “Premium Baking Chocolate,” the roasting of cocoa beans, the creation of award-winning chocolate, and the challenged “Classic White Baking Chips.” In addition, the complaint alleged that the product was sold alongside of and equivalently priced to “Ghirardelli Chocolate White Chocolate Premium Baking Bar,” a similarly-labeled product that does contain white chocolate (the other products were allegedly sold alongside regular, or as my father would say, real, chocolate products). “This alleged connection to chocolate is arguably stronger and at least different than that for the other products.”  Only the frappe label used “Classic White,” and its “romance language” was very different: on the label, it said it was “[d]esigned exclusively for specialty coffee retailers,” and had a  “luxuriously rich and complex flavor ... that creates the pleasurable moment cherished by white chocolate lovers.” (If Miller’s correct about misleadingness, I wonder if Ghirardelli is inducing false advertising by retailers.) 

Miller also alleged that the labels for the wafers and white chocolate flavor employ the words “flavor” and “flavored” in a manner that violates FDA regulations and the Sherman Food, Drug and Cosmetic Law, but those words weren’t on the baking chips packaging, and the mocha mix also had “little discernable similarity” to the baking chips.  “Miller's best argument is that the labels imply white chocolate content, but the alleged misrepresentations vary widely.”  His final argument, that the combination of the “Ghirardelli Chocolate” branding on the front of the label on top of the characterization of the product “means that—under the FDA regulations and standards—the harm is identical across product lines,” as in cases finding standing.  But this argument was better considered in the context of a motion to dismiss an amended complaint with factual allegations targeted this theory.

Ghirardelli then argued that Miller’s allegations about the baking chips were legally insufficient to state a claim; the court disagreed.  A reasonable consumer could be deceived, at least on these allegations.  This wasn’t a case about clearly fake products like FROOT LOOPS, which contain no fruit.  Ghirardelli argued that the product was called “Classic White Baking Chips” and not “white chocolate chips” (which is, in my opinion, chopping the not-chocolate a little fine: white what?); that “Finest grind for smoothest texture” describes the product's consistency and does not imply chocolate content; that reasonable consumers couldn’t misinterpret references to the flavor and texture of Ghirardelli's Premium Baking Chocolate; and that, by referring to the baking chips as containing “pure vanilla and whole milk powder,” the label disclosed that it contained no white chocolate.  These arguments merely raised factual questions inappropriate on a motion to dismiss.

Can firms advertise using names of inactive lawyers?

Hullverson v. Hullverson, 2012 WL 6013209 (E.D. Mo.)

James Hullverson sued his family members John and Thomas Hullverson along with his former law partners Ringkamp, Becker, and Burke, and former law firm, The Hullverson Law Firm, P.C., alleging violation of the Lanham Act and the Missouri Rules of Professional Conduct.  James alleged that defendants, by continuing to use John and Thomas’s names in their ads when those two are voluntarily inactive members of the Missouri bar, were falsely advertising.

The alleged violations of the Missouri Rules of Professional Conduct provided no independent cause of action.  James argued that the violations of the rules were integral to his false advertising claim and provided an objective standard for what is misleading as well as what’s false, but the court also found references to the RPC immaterial to the Lanham Act claims and struck the relevant allegations.

James sought to enjoin defendants from continuing to advertise that John and Thomas were firm attorneys and from linking James’s website with defendants’ hullverson.com site.

James alleged that he owned a federal registration for Hullverson & Hullverson and that the similarity in names and services created a risk of confusion.  Defendants argued that their use of the Hullverson Law Firm mark predated James’s first use by at least 20 years, since he only started when he left defendants’ employ and started his own Hullverson & Hullverson law firm in 1998.  But registration creates a rebuttable presumption of validity, and the court accepted James’s allegations about the likely confusion factors.  (It seems to me that the special rules for personal names should be doing more work here, at least under Iqbal/Twombly.  And that if defendants establish prior use of the nature alleged, James should be at risk for fees.)

The court also accepts as an ACPA claim the allegation that defendants “have linked his Hullverson & Hullverson L.C. internet domain to their www.hullverson.com website, thereby misappropriating his name and the name of his firm and directing traffic away from Plaintiff and to Defendants.”  Linking doesn’t implicate ACPA, so the reference to "domain" must really mean "mark," but I think it indicates a certain casualness in the opinion.

The false advertising claim was based on the allegation that John and Thomas are inactive and unauthorized to practice law in Missouri, but are still featured prominently in signs/ads.  This allegedly created an illegal bait-and-switch for clients.  Defendants argued that these representations didn’t relate to the “nature, characteristics and qualities” of their services.  James argued that these constituted a misrepresentation of the “origin of services.”  At this stage of the pleadings, that was enough.

Copyright nonsense of the day

The Pioneer Girl website, which says "As always, any redistribution, reproduction  or translation of part or all of the current or past contents of this site in any form is strictly prohibited. You may not distribute or commercially exploit the content, nor may you transmit content to or store it in any other website or other form of electronic retrieval system." -- I particularly like the "as always."  The irony is sharper than usual here given the content of the website, primarily a factual account of Laura Ingalls Wilder's unpublished memoir and drafts of Little House books, with directions about how to get the microfilm copy thereof.  I wonder about the copyright status of the drafts, which the site says differ from the published versions.  These seem published (microfilmed and distributed); were they registered?  The registration of the final versions wouldn't necessarily cover the earlier drafts.

ETA: Post edited because Pamela Chestek points out that the rule in Streetwise is that the registration does cover earlier versions, at least when the same entity owns both (which seems likely to be true of the Ingalls books, assuming the estate terminated any earlier transfer).  But some courts have read Streetwise to cover only situations where the registration specifies the earlier works of which a registered work is a derivative, and I doubt that's the case here.

Natural versus organic: which claim is easier to make?

Yesterday I listened in on an excellent program on “natural” claims provided by the Private Advertising Litigation subcommittee of the ABA’s Antitrust Committee, where consumer protection and advertising law lives for historical reasons (ask me sometime about what the name of the committee should be!).  And aside from thinking that everyone who does advertising law, plaintiff-side, defense-side, and in-house, could have learned a lot from that presentation, I was struck by how useful regulation can be to producers.  The FDA and the FTC, and even USDA, have been almost hands-off on the meaning of “natural,” and what that has meant is a lot of uncertainty and litigation.  Some producers are removing the term from their products (which might be the right result, but for the wrong reasons) while others are digging in, arguing that even if it confuses consumers courts should stay out because the FDA hasn’t regulated and it’s the one with expertise.  By contrast, “organic” is heavily regulated, and while one can easily dispute the details, disputes over its meaning are less likely to lead to litigation.  (This is also why there needs to be coordinate regulation of “organic” for non-food-based items.)  Consumers and producers can all benefit from having a defined meaning around which to orient claims.

Importer/sales agent could be liable for false advertising of product

MB Imports, Inc. v. T & M Imports, LLC, 2012 WL 5986454 (D.N.J.)

MB alleged false advertising of a competitor’s lemon and lime juice products, and defendant TrePunti moved to dismiss. TrePunti is the US brokerage sales agent for Eurofood, the Italian manufacturer of the competing juices, Tantillo Sicilian Lime Juice, Tantillo Lime Juice, and Tantillo Sicilian Lemon Juice. TrePunti imports the juices and sells them to defendant Colavita for sale to defendant T&M Imports and defendant Tony Tantillo’s customers. Tony Tantillo uses his persona and name to advertise the products. After discovery, MB amended its complaint to allege that TrePunti collaborated with the other defendants to determine the composition and labeling of the juices sold in the US, and thus they were all responsible for false and/or misleading representations about the composition and quality of the juices, which allegedly caused Safeway to drop MB’s Sicilia juices in favor of Tantillo’s.

As for the substance, MB alleged that independent lab analyses showed that the Sicilian Lime Juice product was mostly lemon juice, with added water and citric acid not found in a pure squeezed lime, thus falsifying its name and ingredient list, which said “Lime Juice (99.97%; Natural Flavor.” After the lawsuit began, the lime juice was renamed Tantillo Lime Juice, and the ingredients now say “Mexican lime juice,” but the front label still says “Product of Italy, Not from Concentrate, and All Natural,” which MB alleged was still misleading because, among other things, the product still contained added water and because it wasn’t from Italy. Similarly, MB alleged that the Sicilian Lemon Juice product was not 99.97% lemon juice, but also had added water and citric acid not naturally found in pure juice from squeezed lemons, and that it had very little juice from Italian or Sicilian lemons.

 

MB also argued that defendants wrongfully interfered with its business relationship with Safeway, because TrePunti and other defendants met and corresponded with Safeway to wrongfully persuade Safeway to switch, providing Safeway with samples that included the challenged labeling and making false/misleading representations about the juices’ composition and nature, allegedly misleading Safeway to believe that Tantillo products were comparable in nature and quality to Sicilia products.

TrePunti’s role was allegedly significant: it sought Colavito’s approval of the new label, which was forthcoming, and Colavito sought advice from TrePunti about whether the label should indicate that the limes came from Sicily or Mexico.  An email indicated that TrePunti told Colavito to change the back label to say “Product of Mexico” and collaborated on the number of old labels in stock.  TrePunti was also in on an email about the country of origin label and whether to specify “Lime juice from concentration.” Eventually, a TrePunti person directed the others to use lime juice labels specifying the product was made from concentrate.

TrePunti argued that the complaint just lumped all the defendants together and didn’t explain why TrePunti was liable.  Rule 8 doesn’t require detailed factual allegations; the claims against TrePunti were clearly laid out in the complaint and supported by the emails noted above: TrePunti participated in the composition, labeling, importation, distribution and sale of the Tantillo products in question, in its integral role as the United States agent for the Italian manufacturer of Tantillo juices.

The court continued that Lanham Act liability “is assessed at various stages of the product supply chain, including for manufacturers, sellers, or distributers.”  The allegations here asserted that “TrePunti was part and parcel of a supply chain of the product in question, and moreover was integral in the direct decision-making of the labeling and marketing of the product's label.”

The other elements of a Lanham Act claim were sufficiently alleged as well.  The court also sustained the tortious interference, New Jersey Consumer Fraud Act and NJ Unfair Competition Law claims, the last even though the court said it was a trademark statute. 

The NJ Truth-In-Consumer Contract, Warranty And Notice Act provides that “[n]o seller ... shall ... in the course of his business offer to any consumer or prospective consumer ... or give or display any written consumer ... notice ... includes any provision that violates any clearly established legal right of a consumer or responsibility of a seller ... as established by State or Federal law at the time the offer is made or the consumer ... notice is given or displayed.”  The court held that MB alleged a plausible claim here as well; TrePunti could count as a seller because it “played a role in the composition, labeling, marketing importation, distribution, and sale of the juices at issue,” and it displayed the labels to a prospective consumer.

IPO PTO Day: Copyright infringement via patent application

Ethics: Copyright Charges Brought for Making Photocopies of Files

Rebecca Tushnet

Three cases filed by John Wiley & Sons as a publisher of scientific periodicals, alleging infringement of copyright in scientific articles in the course of patent prosecution; one of these cases was recently dismissed, from E.D. Texas.  There are discovery disputes ongoing in N.D. Ill. and Minnesota related to the scope of the copyright infringement claims. 

USPTO issued a policy statement and moved to intervene in the Minnesota case: because by law a person filing a patent application must disclose all known information that will assist a patent examiner in determining whether to grant a patent, copying in the course of doing so is fair use.  In addition, the PTO takes the position that it is fair use to provide unlicensed non-patent literature to applicants and full file histories to practitioners.  However, the PTO takes no position on whether making additional copies during the course of prosecution—for a client, other attorneys, inventor, or for future reference—qualifies as fair use.  In its opinion on the matter, the PTO also pointed out that applicants are responsible for ensuring that any license they sign isn’t inconsistent with fair use/gives them rights to copy.

The PTO sought a declaratory judgment as to the claim that submissions to the PTO are fair use and sought a fee award.  There are interesting procedural and standing issues about whether the PTO should get a fee award—but the practical effect was to induce John Wiley to substantially change and limit its claims.

Briefly, the argument is that uses in patent prosecution are transformative, and thus favored by fair use: they are for a socially productive purpose that can be distinguished from the ordinary purpose of scientific publications.  They are also noncommercial, a separate factor favoring fair use—though the ultimate output of a patent might be a commercial product, the intermediate use is not commercial and the PTO’s own uses certainly aren’t commercial.

The nature of the works copied are scientific articles, and copyright protection is thinner for factual works, especially when they are being copied because of the factual information them rather than because of their expressive content; likewise, the PTO accepts partial submissions but wants as much context as is necessary to evaluate the prior art, so copying entire articles can be justified when it helps fulfill a transformative purpose.

Finally, the PTO argued, there was no effect on the market, the final factor in a fair use determination. When a use is noncommercial, the Sony case from 1984 specifies that the plaintiff has the burden of showing market harm, and John Wiley couldn’t. 

One notable feature of the PTO’s fair use argument is its treatment of the well-known circularity problem: interfering with a licensing market weighs against fair use, but whether or not you need to license depends on whether a use is fair.  Here, the PTO argued, the only identifiable market for these works that might be affected is the market for use of the works in patent examination itself, which doesn’t count as a market to which the plaintiffs had rights.  As always, one needs a normative limit on the concept of a legitimate market for copyright owners.

In response to the PTO’s motion to intervene, the plaintiffs withdrew any infringement claims based on (i) making copies for transmission to the Patent Office; (ii) transmitting copies to the Patent Office; or (iii) making one archival copy of what was transmitted to the Patent Office.

They persist, however, in arguing that other copies are infringing, including apparently a copy that is made on an individual hard drive before being put into the firm’s document management system or a copy emailed from one attorney to another—that is, perfectly standard practices that are practically necessary in the digital age.  I think the precedent on this gives a very clear signal: if you need to make a bunch of intermediate digital copies to end up with an ultimate fair use, say by backing up your hard drive or by emailing a copy to someone working on the same matter, then those intermediate copies are fair use too; there’s no point in making two different attorneys use the same laptop to avoid making one extra digital copy in-house.

However, John Wiley has not given up: it now argues that law firms infringe by conducting “research on behalf of themselves and their clients” for example by using articles in the course of

(i) evaluating potential inventions that clients present, only to determine that they are not patentable, (ii) advising clients how to lawfully avoid infringement by designing around existing patents, (iii) assessing the validity of patents, (iv) giving opinions as to whether an existing product infringes a patent, and (v) determining whether the client's interests would be best served by maintaining otherwise patentable subject matter as a trade secret. 

As a procedural matter, they have no specific factual allegations that the defendants are doing these things.  Texas judge has called this a fishing expedition and suggested that plaintiffs are at some risk, whether that’s of sanctions or at least of a fee award, going forward. 

From my perspective, pleading issues aside, these are all fair uses too: like submitting the articles to the PTO (or deciding not to submit them after review because they are not sufficiently relevant) they do not implicate the expressive elements of the articles, but are uses of the unprotectable facts therein. The purpose is transformative—the articles weren’t created as factors in a legal analysis but in order to advance scientific knowledge. The use is internal and intermediate, rather than public and directly for profit.  And there is no traditional or reasonable market in taking a license every time you send an email with an attachment or any other activity incidental to an ultimately fair use.

Lessons: Growth of licensing—PTO emphasizes it does a lot of licensing, but that doesn’t mean that its unlicensed copies are infringing—the fair use analysis isn’t that circular when a use is actually transformative

Risk to a plaintiff of making aggressive claims: copyright makes a fee shift possible, and when you take on an entity whose challenged practices are central to its business model, that’s a risk that a plaintiff should consider.

Prof. David Hricik, Mercer Law

Mostly discussed patent ethics, focusing on the ethics of copying text from one application to an application from a different client.  He briefly suggested that this might create work for hire issues, but I doubt that: the firm is highly unlikely to count as an employee and even more unlikely to have agreed in a signed writing that the application would be a work for hire, even assuming it fit within the statutory categories.  Like patent, copyright law’s lines aren’t always intuitive—and copyright law these days can be argued to apply to ordinary activities like carrying out work for clients.

IPO PTO Day: design patents

Design Patent Content

Joseph Kirincich, Avaya

Overview of scope: Design patent recently issued to Apple for page turning on a mobile device. 

Use of surveys—Jury awarded Lucent $358 million; Fed. Cir. affirmed liability but remanded on damages—need to attribute customer demand to the patent related feature in order to get the entire market value of the product. Lucent’s survey expert attempted to quantify the value of a date-picker; court awarded 26.3 million because it wasn’t convinced of the apportionment.  Apple v. Motorola—Judge Posner sitting by designation excluded both parties’ expert testimony on multiple Apple patents relating to cellphones.  Testimony excluded because it failed to focus on the patented features; survey evidence tried to get at customers’ reasons for buying expensive phones.  A proper survey could have worked, but expert testimony was excluded for not having surveys and for not focusing on the patented features.  Without damages, there was no reason that liability mattered; case dismissed.  Surveys will continue to be important to prove damages, especially when there’s no other evidence that the patented feature creates the consumer demand.  Among other things, controls/comparisons will continue to be vital components.

Alternative remedy for design patents is §289—patent holder can recover infringer’s profits. But can’t recover damages and profits together.  Infringer’s burden to reduce damages/show costs after pretax profits are shown.  Apportionment isn’t available. The design itself is credited with driving sales; overcomes the apportionment problem.  Samsung is an example of the importance of design patents.

Ornamental design of iPad: edge to edge glass, highly reflective, thin, etc.  Ornamental design of iPhone: front-face speaker slot, edge to edge glass, etc.  Litigation involved survey evidence: Apple presented likely confusion surveys as well as surveys on secondary meaning and to measure the value of the patented product features such as scrolling and multitouch/consumer preferences for purchase.  Samsung challenged the surveys because post-purchase and pre-purchase are different and because consumers often change their minds about the features they want when confronted with options, but that didn’t help.  Jury instruction for infringement: does the resemblance deceive the ordinary observer, familiar with the prior art?  The placement of a logo has to be discounted here.

The jury and the judges disagreed about which patents were infringed; preliminary injunction on Galaxy Tab 10.1 lifted because Apple lost at trial.  Apple argued loss of market share—injury to its “ecosystem” and forever-lost Apple customers.  Samsung is seeking a new trial on multiple issues, including juror misconduct and lack of evidence of damages.  

Litigation in other countries, including the UK (found no design patent infringement—extreme simplicity of Apple design is cool, and Samsung’s less simple design is less cool and noninfringing).  Apple also ordered to publish a notice stating that Samsung didn’t copy.  In Germany, Apple sought an ex parte injunction on the same design patent; Samsung was found to infringe there; UK ruling overruled the German ruling (UK decision was final decision on trial which trumped the interim German decision) and the EU-wide interim injunction was lifted.  South Korea—split decision; both parties infringed each others’ utility patents but Samsung didn’t copy Apple’s design patent.  Much smaller damages in SK than in US.  Court found no possibility of confusion.  Japan: no infringement of utility patents.  Dutch court banned the sale of certain Samsung smartphones and tablets.  (My comment: Really makes you think we need a better international scheme.)

Design patents have taken center stage; shorter prosecution period and higher damages.  Can try to time design patent to product launch, 15-month period.  Applications are on the rise and allowance rates are increasing.  Apple obtained 123 registrations in 2011.  Design and utility patents can be used in tandem.

Damian Porcari, Ford Global Technologies

Building an enforceable portfolio: Enablement—need accurate drawings.  Anticipation—prior art search, going beyond traditional sources: market research, spy photos.  Obviousness: detailed drawings give greater ability to recover from obviousness attach but make infringement harder to establish.  You have to figure out your primary goal: if aiming at copyists, then put lots of details; if competitors, put different level of detail.  (The latter sounds like a bad idea policywise.)  PTO doesn’t allow multiple claims but does allow multiple applications, which allows you to vary scope. 

Very few anticipation cases are decided on a single reference.  Int’l Seaway Trading Corp. v. Walgreen’s (Fed. Cir. 2009) did invalidate a patent based on a single reference using the ordinary observer test.  The test is an infringement test: does the patent cover the accused article?  Repurposed to: did the patent cover the prior art?  Elements are considered as those features visible during normal use; hidden features aren’t considered.

Int’l Seaway involved “Crocs” type shoes.  Crocs cited as prior art in Wolf patent, which was P’s patent.  D’s shoes didn’t have the same number of holes as either P’s or Crocs (the number was in the middle).  This is relevant because Crocs may want to change its designs and will patent each year’s new crop of shoe designs, all looking like a Croc but all slightly different. If Crocs can’t patent a new design with a different number of holes, you’ve just destroyed this business model.  Thought D didn’t infringe, but wouldn’t have invalidated the patent (though Wolf is not a sympathetic character, since it wasn’t Crocs).  How could Wolf enhance validity?  Be Crocs; better search—only cited 7 references, none with large holes; focus on ornamental differences from prior art—add detail (claim 18 holes as part of the description) though that decreases ability to win infringement case.  Should Crocs be able to protect slight variations through iterative design patents?  Does the Gorham “deceive an observer” test allow different infringement/validity standards for a family of patents?

Obviousness and commercial success as a secondary consideration—commercial success presents special difficulty in a design patent case, says the Federal Circuit. The evidence has to be really strong associating the success with the design.

Functionality: hates Richardson v. Stanley Works.  Thinks the two hammers are clearly different even though they have the same features.  Court says that it wouldn’t consider the functional elements, and there was nothing but functional elements.  He thinks this is wrong because if you eliminated the functional components of the Coke bottle there would have been nothing left to patent.  (I think this is a mistake, though admittedly it can be hard to distinguish in the abstract between a combination of de facto functional features and a combination of de jure functional features; still, the latter was all that seems to have been at issue in Richardson, unlike the Coke bottle where the shape of the bottle itself isn’t de jure functional.)

His advice: file 10 different applications on 10 different designs, and then do market research and pick one. This creates built in evidence that your design was not selected primarily for functionality.  Use designers, not engineers.  Disclaim functional elements explicitly through dashed lines.

Enhancing infringement: use less detail through outline drawings rather than CAD.  Used dashed lines for unclaimed subject matter.

Global considerations: think of secondary filing requirements. Attaching a set of drawings specifically intended for secondary filings as an exhibit; they are part of the file wrapper but not public; they now can be used by Chinese counsel, etc.

Peeve: bill pending that encourages the copying of car parts. Part of a successful global trend to eliminate patent protection for replacement parts—seeing it in Europe, South America, and India.  Finds it bizarre.  China isn’t pursuing this type of bill; has no interest in eliminating protection.  Says that you can’t make/offer to sell/import a part until 30 months after a component is on sale.  30 months is not as good as 14 years.

Dana Colarulli, USPTO Director of Governmental Affairs

Implementation of Geneva Act of Hague Agreement on Industrial Designs: allow multinational design protection while maintaining examination-based system. Additional tool for owners of design rights—minimal substantive changes to US design patent law.  To accommodate 5-year renewal term of Hague, total term goes to 15 years.  Allows PTO to use published int’l design registration as basis for rejecting a subseqently filed US application.

Advantages for users: obtaining protection throughout the world with minimum of formalities/less expense. Wouldn’t replace a more robust right; some protection for a short time.  Helps small filers.

Legislation has been introduced in both houses, passed by Senate and passed on House Suspension Calendar.  Signing soon.  One-year implementation timeline.

Implementation: beginning to draft required rulemaking; learn from experience implementing the Madrid Protocol.  Will allow us to drive int’l discussions on whether there should be additional int’l norms on design protection.  (Yay?)

Dennis Crouch, U. Missouri Law

Has marked up and commented on the implementation of the patent law treaty/Hague agreement.  One extra year added to the design patent the term; int’l application will be published as soon as procedural requirements met, which will count as a publication allowing for provisional rights.  If an infringer has actual notice of the pending design right, then once the patent issues you can collect back damages. Almost never used with utility patents, most likely because in most cases applicants change their claims during prosecution, which is rarely true in design patent cases.  Whatever’s published is likely to be what’s issued. Also most folks are filing a design patent on an actual product, not a utility patent’s concept/idea, making copycats more likely.  In addition, companies are increasingly thinking of design patent as an element of TM strategy. TM lawyers are good at seeking out potential infringers and sending notices, creating system in place for notification/providing knowledge.

Int’l registration: design patents are cheap compared to utility patents, but at the int’l level it’s really cheap—another $500 for an int’l application, and a couple of hundred more to specify all the countries you want.  Most of the rest of the world is a registration system, so that’s basically the whole cost.  Local counsel—US att’ys—get to prosecute these foreign cases as part of the treaty, instead of hiring foreign counsel to do the work. That means you need the expertise before we start.

Upward trend of design applications.  Allowance rate is very high: hovering around 90% over the past decade.  He believes that most of that 10% are folks who are independent inventors who file design applications of no value, though we can’t know since they’re not published.  Timeline: time from filing to allowance is also going down—just over a year on average.

For 81%, there’s no rejection; 14% involve §112 rejection, Patent Office says the dashed lines are fuzzy or other small issues; 3.7% double patenting; 1.2% prior art; 0.6% nonstatutory subject matter.  We basically have a registration system. 

More owners are thinking of design patent as quasi-trade dress or additional to trade dress.  Useful because it’s hard to register trade dress early on or prove secondary meaning.  Convinces investors that you have something in which you have rights; most courts have said you don’t have to choose. You can use design patents to bootstrap: get design patent, then create secondary meaning through 14 (now 15) years of exclusivity.  Courts even use design patent coverage as evidence of nonfunctionality, despite slight doctrinal differences.  He suspects this trend will continue. 

There’s no hard deadline for trade dress protection, but there is for design patent; cautious attys will have a bias towards filing for design patent rights.

Maybe we should be rational and let TM attys prosecute/handle these.  Less of an artificial line in the PTO: registered trade dress and design patent should be connected in a family of applications so we can rely on search strategies usable by both sides.

Revision Military v. Balboa (Fed. Cir. 2012): glasses for use in shooting.  Vacated denial of preliminary injunction.  Ordinary observer test is the sole test for design patent infringement; the district court improperly focused on individual elements that “stand out as dissimilar” rather than focusing on what an ordinary observer would think when comparing the designs as a whole—squared edges at the temples rather than curves.  You can talk about those distinctions but when we judge infringement it’s as a whole so you have to link features up to how the ordinary observer would see the design as a whole.

K-Tec v. Vita-Mix (Fed. Cir. 2012): analogous arts test for obviousness.  Only obviousness-type prior art if it’s in the same field of endeavor or reasonably pertinent to the particular problem.  KSR is binding, but a subsequent decision (Klein) says that KSR didn’t say anything directly about analogous arts; Crouch thinks that there should be a common-sense element about what counts as prior art.  Here, the shape of a bucket in another field didn’t apply to this field.  Takeaway: the scope of analogous is narrow.  He thinks there’s a statutory construction argument that the AIA did away from the analogous test—refers to prior art, and defines it clearly.  With that definition, it may supplant the analogous arts test, but he suspects the Fed. Cir. will stick with the old ways.

Biggest strategy today is to focus on part of design, with a lot of dashed lines, and then maybe a continuation that focuses on another part.  PTO is now saying that we are going to be reluctant to let you move from dashed line to straight line as part of written description requirement; now on appeal to Fed. Cir. and he suspects that the PTO will lose.