Unusual copyright permission term leads to unsuccessful lawsuit

Great British Teddy Bear Co. v. McNeil-PPC, Inc., 2013 WL 1286148 (S.D.N.Y.)

Plaintiff sued McNeil-PPC and Vidal Partnership (an ad agency) for copyright infringement and false advertising, along with violations of NY consumer protection law.  The court dismissed the claims based on emails between the parties (which were necessary parts of the complaint).

Great British makes teddy bears dressed as notable British figures, including Robin Hood, and claims copyright in the bears. Vidal specializes in ads directed at Spanish-speaking markets.  McNeil hired Vidal to produce an online ad campaign for its antihistamine Zyrtec; Vidal’s idea was to show cherished objects revealed as the cause of allergies, with Zyrtec allowing the sufferer to enjoy the objects again. A Vidal business manager, Sullivan-Brady, contacted Great British’s managing director, Jessup, about licensing the Robin Hood bear for use in this campaign.

Matters began well, with Jessup asking for more details but stating “I am sure we will be able to work together.”  Sullivan-Brady explained the basic concept and asked about next steps.  Jessup had questions—why Robin Hood instead of a generic bear, where the ad would be shown, how many people would see it.  He was concerned that people wouldn’t understand that the bears were made from hypoallergenic plush and thus unlikely to trigger allergies.  Sullivan-Brady gave further details and explained that the ad would specify that dust mites on the bear caused the problem.  Jessup responded, “I like that. I am happy for you to include The Great British Robin Hood Bear©TM in your concept. If your client approves the concept we can agree terms and issue a release agreement.”

Sullivan-Brady responded by asking to clarify the costs: “we need to know this up front to factor this into the decision about which concept to use. Please let me know as soon as possible, even if it's only a ballpark figure.”  Jessup didn’t give a figure, but responded that he was looking into “associated costs” and that Great British was well-established in Great Britain but wanted a US distributor.  “[W]e could use some help from a friend like Vidal Partnership. Maybe we could help you with the loan of Robin Hood and you could reach out to some of your friends and introduce The Great British Teddy Bear Co. I guess launching our brand with a U.S. distributer would be easier after 194m people [Sullivan-Brady’s figure for impressions] have seen one of our bears?”

Sullivan-Brady responded, “Yes, I think that launching the brand with a U.S. distributor would be much easier after 194 million people have seen the bear. This could certainly be beneficial to both parties. Please get back to me ASAP with the ‘associated costs’ proposal from your finance department.”  Jessup responded: “I agree that launching the brand with a U.S. distributor would be much easier after 194 million people have seen the bear so my suggestion is that we waive any ‘associated costs’ and in return The Vidal Partnership reach out to some of their friends and introduce The Great British Teddy Bear Co.” He continued:

So to be really clear:

I will send you some free bears.

You can present your concept using our brand with my permission.

If the concept is approved and our bear is used in the advert-Vidal will introduce us to a U.S. Distributer.

Sullivan-Brady replied, “I'm glad we're ‘on the same page’ with this. We would be delighted to do whatever we could to talk you up and help introduce you to a distributor in the US.”  [Note that she’d have been much better off responding, “couldn’t we pay you a reasonable licensing fee instead?”]

Later, when the ad was approved, Sullivan-Brady sent the storyboard showing the ad “almost frame by frame.”  The first frame displays a question in Spanish.  English: “Itchy eyes?”

In the second frame, six arrows pierce the white area and the text. In the third frame, a section of the white area rips away to partially reveal plaintiff's bear. In the fourth, the entire bear, holding an arrow without a suction cup at the end, appears next to the following text, as translated from the Spanish: “It may be the dust mites on your favorite teddy bear.”In the final frame, a message encouraging the viewer to use Zyrtec appears next to the bear.

 

Jessup wrote to remind Sullivan-Brady about their licensing arrangement: “I will send you some free bears[.] You can present your concept using our brand with my permission[.] If the concept is approved and our bear is used in the advert-Vidal will introduce us to a U.S. Distributer[.] Let me know which friendly distributer you will be introducing us to.”  This was when things began to sour. Sullivan-Brady replied, “I'm still doing research on distributors because, as I said in previous emails, we're happy to talk you up and rave about the bear but we're an ad agency, so we don't really deal with the distribution end of business at all. However, I'm doing my best to find someone to put you in contact with.”  After several more rounds of this, Sullivan-Brady made increasingly clear that she didn’t have relevant contacts, and Jessup wrote “In light of you not fulfilling your side of the bargain I have no option but to withdraw my permission for our intellectual property to be used by your agency in any advertisement.”

Sullivan responded, “In our original email trail, I specified to you that we are an advertising agency and we do not have any clients in the toy business. That said, I have been making a good faith effort to find a distributor for you, in the spirit of our agreement, however there have been some hiccups and delays due to the fact that this is not my normal area of expertise and I am starting from scratch.”  Jessup accepted this for a few weeks, but then wrote, “We have been patient-I will require confirmation by return that you have not used our product in your advertisement or preferably that you have honoured our agreement and you now have a distributer ready to meet us.”  Sullivan-Brady wrote back, stating that she’d (unsuccessfully) made contact with the president of Gund, and was working on contacts with Hallmark and Toys R Us.  She stated that, given Jessup’s urgency, she didn’t think she could fulfill his hopes quickly.  “I regret that the timeframe that you had in mind was not clearer when we made our agreement, however I did say to you several times that this is not my field and that neither I nor the agency have any contacts in this field. That said, yes, we did use the bear in our advertising, as I told you. At this point we should come to a clear agreement as to how best to move forward. I am willing to continue working to get you an introduction you to a distributor.” Jessup wrote again for details about the ad, which Sullivan-Brady provided, along with statements about her good-faith but unsuccessful efforts to use her contacts to find distributors. 

The final ad differed in minor respects from the storyboard, most notably in that the bear in the ad held several arrows in a quiver instead of one unsheathed arrow. Jessup then asked whether the ad had audio commentary; Sullivan-Brady confirmed that it didn’t.  Jessup sent a C&D and the ad was pulled the next day.

Copyright: “It is clear from the undisputed emails that there is absolutely no merit to the claim of copyright infringement.”  The emails detailed Great British’s permission to develop the ad. While finding a US distributor clearly became, “in plaintiff’s mind, the most important part of the relationship between the two parties.” But Great British’s permission continued.  It responded “congratulations!” when Jessup saw the storyboards.  Even when Jessup emailed purporting to withdraw Great British’s permission, “the parties then continued to exchange emails dealing with the unsuccessful attempts by the defendant to obtain the distributor, and those emails make clear that, in both parties' minds, defendant still had permission to use plaintiff's bears.” When the C&D was sent, the ad was pulled the next day.  “What all this confirms is that defendant had permission to use plaintiff's bear in the advertisement until the problem about the distributor led plaintiff to withdraw that permission, at which time defendant immediately stopped the advertisement.” Without unauthorized use, there could be no infringement.

False advertising: Great British alleged that the ad caused the false impression that its bear might cause allergies, either in itself or by attracting dust mites, and that the arrow it carried might cause injury.  No matter the theory, Great British acquiesced to this portrayal.  Jessup explicitly approved the dust mite concept, and he never objected to the full storyboard, but rather congratulated Sullivan-Brady when McNeil approved the ad.  The storyboard didn’t differ from the final ad in any relevant way.  The storyboard showed arrows piercing the frame of the ad and contained a line about dust mites.

NY GBL §§ 349 and 350: These are consumer protection laws. Thus, a plaintiff must identify consumer oriented misconduct – mere confusion or deception among consumers isn’t enough; harm to them is required. Here, Great British didn’t allege specific and substantial injury to the public at large.  “Perhaps it is true that some people, after glancing at defendants' advertisement, wrongly inferred that plaintiff's bear carries lethal weapons and is made of hyper-allergenic materials. This wrongful belief would, at worst, deprive a child or teddy-bear aficionado of a lovely toy. It would have no further impact on the buying public. That is to say, the real injury here is not be borne by public; it is borne by plaintiff, in the form of reduced sales.”

[Note that the opinion didn’t address any potential breach of contract or unjust enrichment claim. However, without copyright damages, such a claim may be cost-unjustified.]

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Square pegs on round spots: transformative alteration?

Pam Chestek points to this interesting story about a photomanipulation by Romain Eloy that won a contest based on the theme of checkerboards. 

It's based on a nice photo of a bug by Kevin Collins, but also altered; the photo was CC-licensed, but the creator of the photomanipulation didn't give credit.  CC licenses don't purport to limit fair use. So, was the photo transformative of the meaning/message of the original?

The contest sponsor deemed the result transformative enough that it considered the winning photo to be Eloy's own work. 

Tom Friedman Op-ed Generator

With very realistic NYT website presentation.  (I didn't label this "copyright," because I'm pretty sure these elements of a Tom Friedman column are scenes a faire.)  And of course how could I resist a link to Matt Taibbi's delicious Friedman review, which reminds us that it is always useful to check that a metaphor is all the way dead before you mix it.

Lace pattern not infringing, but possibly bait & switch

Klauber Bros., Inc. v. Russell-Newman, Inc., 2013 WL 1245456 (S.D.N.Y.)

Klauber claimed that Russell-Newman (apparently now defunct) and Bon-Ton Stores infringed its copyrights in certain lace patterns by selling women’s underwear incorporating substantially similar patterns.  Klauber co-authored lace designs numbered 7087, 7088, and 7089; the last two are registered, and 7087, which was allegedly infringed, is allegedly a derivative work of them.  A related case was filed in 2009, which was dismissed by stipulation based on a settlement agreement. Klauber filed a new complaint alleging breach of the settlement agreement, new acts of copyright infringement, and false advertising under the Lanham Act.  Bon-Ton successfully moved to dismiss.

The court first rejected Klauber’s argument that Bon-Ton was jointly and severally liable for payments Russell-Newman agreed to make in the settlement agreement; the obligation was only on Russell-Newman.

Bon-Ton lost its general legal arguments on the copyright claims, but still won.  First, it argued that the copyright infringement claim based on the 7087 pattern should be dismissed because 7087 wasn’t registered.  However, the owner of a derivative work can bring a copyright claim against an alleged infringer based on any infringement of the preexisting, registered work from which the derivative work is derived.  The infringement claim must be based on a comparison of the accused work with the registered work.  Here, the 7087 pattern was a derivative work of 7088—actually, just a section of the larger 7088 design.  (Is that even a derivative work?  How does blowing up part of a design evince copyrightable additional creativity?)  “[A]ll of the elements of the unregistered 7087 design are contained in the registered 7088 design,” allowing an infringement claim to be maintained based on infringement of the underlying registered work through copying of the derivative work.  Plaintiff and defendant's patterns:

Further, Klauber adequately pled that Bon-Ton had access because it became aware of Klauber’s copyrights at least as early as the time the first, settled action was filed. The complaint adequately pled substantial similarity by pleading that Bon-Ton made “a copy” of Klauber’s designs.  However, as a matter of law, the allegedly infringing garments were not substantially similar.  This determination is usually reserved for the trier of fact, but can be resolved as a matter of law when no properly instructed jury could reasonably find substantial similarity.  The court refused to apply a “more discerning” observer standard because that only applies when the copyrighted work incorporates elements from the public domain (as they all do).  Bon-Ton argued that both patterns contained the unprotected idea of roses and leaves arranged in a curved or lace pattern.  But dissection is ordinarily not required; the “more discerning” test is limited to cases in which some elements of the work have been copied from the public domain (which is apparently different from being ideas).  The use of flowers here wasn’t simply an unprotectable depiction of a flower as it would appear in nature, but rather an artistic rendering with its own unique qualities.

Still, an ordinary observer couldn’t find substantial similarity here.  Quoting the Second Circuit, the court noted that only a visual comparison was required, and that “[g]ood eyes and common sense may be as useful as deep study of reported and unreported cases, which themselves are tied to highly particularized facts.”  The plant sprigs in Klauber’s designs were much longer, featured many more leaves, and were more stylized than those in the allegedly infringing design, curling into semi-circles. The flowers in Klauber’s designs were buds, while Bon-Ton’s were blossoms.  7088 had a border of small, interconnected dots of fabric, while Bon-Ton’s design didn’t. The leaves in Klauber’s designs were solid, while Bon-Ton’s had a small center gap, presumably showing the leaf spine.  There were enough differences in individual elements that the total concept and feel and aesthetic appeal of the works differed.  No reasonable jury could find that an average lay observer would recognize Bon-Ton’s design as having been appropriated from Klauber’s designs.  Other fabric cases finding infringement had relied in part on the presence of a similar or identical color scheme, not an issue here.

The court refused to apply Dastar to bar Klauber’s Lanham Act claim, but still rejected it.  Klauber pressed only a §43(a)(1)(B) claim, premised on the idea that Bon-Ton offered for sale underwear “prominently showing, as the waistband, a copy of Klauber's 7087 lace,” but consumers who ordered the underwear would receive underwear with a different lace in the waistband. 

 

Advertised & close-up:

 

 

 

Allegedly delivered:

 

Section 43(a)(1)(B) provides a cause of action for such “bait and switch.”  And this claim wasn’t based on false representations or attributions of authorship of ideas or expressions, so it wasn’t Dastar-barred. The reason given is weird, though, and doesn’t actually distinguish authorship from non-authorship claims: Klauber alleged that Bon-Ton’s false advertising caused “confusion, mistake and deception in the minds of the purchasing public as to the identity and source of the lace in Bon-Ton's product,” which has caused Plaintiff damage.  But put that way, it’s saying that Bon-Ton falsely advertised that it was the source of the lace in its products, which seems … not unlike the precise claim rejected by Dastar, which held that as long as Dastar was the physical origin of the product then there wasn’t any misrepresentation of origin.  It’s hard to see how “identity” or “source” could mean something different here.  See also Specialized Seating v. Greenwich Indus. (7^th Cir. 2010) (holding that the key, for Dastar purposes, is whether the defendant is the source of the overall product and not the components).

Bon-Ton then argued that Klauber lacked standing, in that it failed to allege a reasonable interest to be protected against the alleged false advertising and a reasonable basis for believing that the interest is likely to be damaged by the alleged false advertising. A more substantial showing is required when the parties’ products aren’t obviously in competition and there’s no comparative advertising.  The court agreed that the complaint lacked sufficient allegations of injury to Klauber. The complaint alleged that the consuming public would be deceived into buying Bon-Ton’s product.  (Materiality?)  But that wasn’t enough to make out a plausible claim for injury, given that Klauber makes lace and doesn’t compete directly with Bon-Ton. 

In its briefing, Klauber argued that it sells the lace pattern at issue exclusively to the well-known brand Hanky Panky “for use in its famous and iconic lace panty.” (So, not a false advertising claim but a trade dress claim?)  Hanky Panky, which does directly compete with Bon-Ton, would supposedly be damaged by Bon-Ton’s ads, which would in turn damage Klauber because Hanky Panky wouldn’t want to pay for exclusive rights to Klauber’s design if competitors are selling the same designs.  Also, consumers might mistakenly attribute Bon-Ton’s bait and switch ads to Hanky Panky, since the design at issue was well known, and consumers would get angry when they didn’t receive the advertised product and would blame Hanky Panky.  (Hunh?)  “Whatever the merits of this theory of injury, it is not pleaded … and may not be relied on now to defeat Bon-Ton's motion to dismiss.”

Court mostly rejects Dole's fruit salad of arguments, still hands Dole a partial win

Brazil v. Dole Food Co., Inc., 2013 WL 1209955 (N.D. Cal.)

Brazil sued Dole for various violations of the UCL, FAL, CLRA, Song-Beverly Consumer Warranty Act, and the Magnuson-Moss Warranty Act, and for restitution.  The court rejected many of Dole’s arguments but still found the complaint lacking in key respects.  Brazil alleged that he bought misbranded Dole products, including Dole Wildly Nutritious Signature Blends Mixed Berries, Dole Wildly Nutritious Signature Blends Tropical Fruit, Dole Mixed Fruit in 100% Fruit Juice, Dole Blueberries, Dole Fruit Smoothie Shakers, Dole Mixed Fruit in Cherry Gel (Sugar Free), and Dole Tropical Fruit in Light Syrup & Passion Fruit Juice.  He allegedly relied on “‘All Natural,’ fresh, antioxidant, sugar-free and other nutrient content claims,” and wouldn’t have bought them had he known the truth: that the “All Natural” products contained artificial or unnatural ingredients, flavorings, coloring, and/or chemical preservatives; that the “fresh” products were thermal processed, frozen, etc.; that the “sugar free” products contained sugar and/or had more than 40 calories per serving size; that the “low calorie” products had more than 40 calories per serving size; that the “nutrient content” or “antioxidant” claims were made for nutrients lacking a Daily Value or lacking the minimum Daily Value specified for the type of claim made; and that Dole made unauthorized health claims.

Dole first argued preemption because there’s no private right of action to enforce FDA regulations.  But that doesn’t matter, since Brazil only claimed a right to enforce requirements identical to those of the FDA, using California’s Sherman Law and then the UCL/CLRA/FAL to do so.  The Sherman Law expressly adopts federal labeling requirements as its own.  All the alleged misbranding violations here were covered by FDA regulations and policies.  Dole argued that, even though nonidentical requirements are expressly preempted by the FDCA, private rights of action under state statutes were impliedly preempted because the FDCA provides no private right of action.  Not so.  There’s a strong presumption against federal preemption in health and safety matters.  Pom Wonderful LLC v. Coca-Cola Company, 679 F.3d 1170 (9th Cir. 2012), is not to the contrary; it was based on allocating authority between the federal Lanham Act and the FDCA.  While the 9^th Circuit reasoned that allowing private lawsuits under the Lanham Act to enforce the FDCA would “undermine Congress's decision to limit enforcement of the FDCA to the federal government,” that didn’t help Dole here.  The Pom ruling was specifically limited to the Lanham Act, not to the California state claims remanded to the district court; it didn’t deal with the presumption against preemption.  The legislative history also indicates that the preemption provision, according to Representative Waxman (who introduced it), “recognizes the importance of the State role: by allowing States to adopt standards that are identical to the Federal standard, which may be enforced in State court; by allowing the States to enforce the Federal Standard in Federal court.” 

 

Congressional silence on preemption of identical requirements was even more important given Congress’s presumed awareness that virtually every state permits nongovernmental parties to enforce state laws of general applicability barring deceptive or unfair acts or practices. The case for federal preemption is especially weak where Congress was aware of state laws and nonetheless decided to tolerate any tension between state and federal law.  Plus, the express preemption provision states that its preemptive effect “sweep[s] no further than the plain language of the statute itself.” 

And the no-preemption conclusion was consistent with the Supreme Court’s ruling in Medtronic, addressing similar preemption provisions in the context of the Medical Device Amendments, which also bars non-identical requirements (and by implication allows states to enforce identical requirements).  This provision, according to the Supreme Court, “does not prevent states from providing a damages remedy for claims premised on a violation of FDA regulations; the state duties in such a case ‘parallel,’ rather than add to, federal requirements.”  The 9^th Circuit, post-Pom, has reaffirmed this conclusion with respect to medical devices (not that it needed to do so given the governing law).  The Supreme Court rejected a position similar to Dole’s here, deeming it not just unpersuasive but implausible, since it would bar state courts from affording state consumers any protection from injuries caused by defective medical devices.  The result would be complete immunity from private liability to an industry that, in Congress’s judgment, needed more rather than less stringent regulation.  The court here found it similarly doubtful that, “in attempting to strengthen and unify nutrition labeling on food, Congress would have intended to eliminate all judicial recourse for those harmed by false and misleading nutritional labels.”

Moreover, at least for purposes of this motion, Dole failed to identify any non-identical requirements Brazil was attempting to impose.  Dole itself claimed that there was no challenged label element not addressed by FDA regulation or policy.

The court likewise declined to apply the primary jurisdiction doctrine. Astiana v. Hain Celestial Grp., – F. Supp. 2d –, 2012 WL 5873585 (N.D. Cal. 2012), applied the doctrine with respect to “all natural,” “pure natural,” and “pure, natural, and organic” claims for cosmetics.  Unlike the situation in Astiana, here the FDA has established requirements for all the terms Brazil challenged.  So there was no risk of undercutting the FDA’s judgment and authority by making independent determinations on issues upon which there were no FDA rulings.  Nor did the case raise particularly complicated issues committed to the FDA.  “As with so many of the other food misbranding cases filed recently within this district, Brazil's case is ‘far less about science than it is about whether a label is misleading.’” Courts decide misleadingness every day.  The primary jurisdiction doctrine doesn’t disable courts as to every claim conceivably within an agency’s purview.

Of course, Dole also challenged standing, arguing that Brazil’s alleged injury came from his allegation that the products he bought were legally worthless, which was merely “a lawyer’s musings.”  He alleged no physical harm.  But he did allege economic injury from buying products he wouldn’t have bought had he known the truth, and paying an unwarranted premium from the misleading labels.  Allegations that he and class members spent money that, absent Dole’s actions, they wouldn’t have spent, were quintessential injury-in-fact.

Dole then argued that Brazil’s claims were implausible and not pled with particularity. The court didn’t find implausibility, but agreed that a number of the claims lacked sufficient particularity, so it granted without prejudice Dole’s motion to dismiss the claims grounded in fraud.

Dole argued that Brazil’s claims were facially implausible because no reasonable consumer was likely to be deceived, and submitted packaging labels as support.  While the court doubted the ultimate viability of some of the claims, plausibility isn’t probability, and deceptiveness is generally a question of fact.

But on particularity, Brazil sufficiently alleged the who and the when, he lacked sufficient detail as to the other elements.  The complaint “provides little more than a long summary of the FDCA and its food labeling regulations, a formulaic recitation of how these regulations apply to Defendants' products, and conclusory allegations regarding Defendants' ‘unlawfulness.’”  It didn’t identify which Dole products were at issue.  Though Brazil alleged purchase of seven fruit-related products, the complaint also apparently alleged violations based on misbranding of products that weren’t necessarily similar, such as vegetables, or unidentifiable “other food products.” The complaint claimed, without alleging specific facts, that the misrepresentations and violations were similar across product lines.  The court noted that the claims were “difficult to decipher and appear to include claims from similar lawsuits filed in this district.”

In addition, the complaint was “filled with vague assertions that, despite general references to multiple categories of state and federal regulations, leave unclear the precise nature of any alleged violation.”  It also didn’t clearly indicate the content of the labels upon which Brazil allegedly relied or the ads/website statements he saw.  Though a plaintiff isn’t required to plead with an unrealistic degree of specificity when a long-term ad campaign is at issue, this complaint lacked even a minimal degree of specificity.

The court also dismissed the Song-Beverly claim with prejudice because the products here were consumables, to which the Act doesn’t apply.  As for the Magnuson-Moss Warranty Act, the Act only confers federal jurisdiction as to products that cost more than $5, and Brazil failed to allege this (though the court noted that under CAFA there might be federal jurisdiction anyway).  More fatally, the allegedly misbranded labels weren’t “written warranties” under the Act since they didn’t promise that the products were defect free as required by the statute—the allegedly violative ingredients were presumably knowingly added (though I don’t see why that matters), and the challenged statements were mere product descriptions.

Unjust enrichment was also dismissed as a separate cause of action, but restitution was available as a remedy.

Design patent regime preempts state law claims for copying unpatented articles

Carson Optical, Inc. v. Prym Consumer USA, Inc., 2013 WL 1209041 (E.D.N.Y.)

Carson sued Prym, a manufacturer of competing optical products, and Jo-Ann Stores, a retailer, for patent infringement, trade dress infringement, unfair competition, and tortious interference with prospective business relations. Carson asserted infringement of four design patents for three different products.  The designs of Carson’s SureGrip and Clip & Flip weren’t protected by design patents, but allegedly had a distinctive overall design that had been a commercial success.  Carson also alleged that defendants copied its written materials, including packaging describing the features and benefits of the Clip & Flip, to which Carson owned the copyright.

Defendants successfully sought to dismiss the non-design-patent related claims.  Start with the unfair competition and tortious interference claims, which were based on defendants’ alleged copying of Carson’s products and marketing materials, displacing Carson as a Jo-Ann supplier; Jo-Ann allegedly pretended to fairly evaluate Carson as a supplier with no intention of continuing its business relationship with Carson.  The court found preemption by federal patent law.  Unfair competition is a broad tort in New York, but not all-encompassing.  For claims like these, there has to be additional tortious conduct separate from the patent law cause of action.  Claims of unfair competition from reproducing products covered by the patents and from “systematically” infringing Carson’s IP were preempted.  Bare allegations that Prym intended to interfere with Carson’s relationship with Jo-Ann by dishonest, unfair, and improper means were conclusory and insufficient.  The contention that patent infringement was a means to the end of unfair competition necessarily required resolution of substantial questions of federal patent law and didn’t plead conduct or bad faith independent of patent infringement.  Allegations that Jo-Ann unfairly competed by “refusing to continue its longtime supplier relationship with Carson” and “pretending to fairly evaluate Carson as a supplier with no intention of continuing its business relationship,” failed because there was no allegation that Jo-Ann had a contractual obligation to do business with Carson, and a retailer like Jo-Ann doesn’t unfairly compete by declining to do business with a wholesaler like Carson.

As for allegations of unfair competition by reproducing the Clip & Flip, that also failed to state a claim, since unpatented products are in the public domain and states are not allowed to interfere with the patent scheme by creating a cause of action for copying unpatented products.

As for common law claims based on alleged trade dress infringement of the Clip & Flip and SureGrip magnifiers, such claims are identical to Lanham Act claims with an additional requirement of bad faith.  As for the Clip & Flip, the complaint didn’t contain any allegations of trade dress infringement in the design.  To the extent that Carson alleged that defendants copied portions of Carson’s marketing materials, they failed to allege any harms separate from the alleged copying, and that claim would be preempted by the Copyright Act.

That left the alleged trade dress of the SureGrip, and the allegations there were conclusory: defendants allegedly sold “knock-offs,” but that was insufficient to allege the necessary bad faith; the court had  more to say when it got to the Lanham Act claims.

Likewise, tortious interference requires some wrongful means, and factual allegations of copying were insufficient to avoid preemption.  Also, plaintiffs didn’t allege that defendants’ conduct was motivated solely by malice or to inflict injury beyond the prospect of economic gain, as required.

The court also rejected Carson’s judicial estoppel argument based on Prym’s attempt to allege state-law false advertising counterclaims premised on false patent marking; judicial estoppel applies to inconsistent factual positions, not inconsistent legal ones.  Plus Prym alleged an additional element of bad faith in false marking (not so sure about this; bad faith is routinely found not to count as an additional element for preemption purposes; on the other hand it’s not clear to me that the false marking statute should be treated the same as the basic patent/copyright infringement provisions for preemption purposes).  Prym alleged that Carson was told twice by the PTO that if it wished to claim a design involving a transparent, translucent or highly polished or reflective surface, it had to use diagonal lines in the patent drawings to depict such surface, but Carson ignored these directives and marked the products with patent numbers that didn’t protect them.

Turning to the trade dress claim, it failed on multiple grounds.  First, a plaintiff must “offer a precise expression of the character and scope of the claimed trade dress,” and articulate the “elements of their product design with specificity to be afforded trade dress protection,” especially given courts’ reluctance to protect product design or product lines.  Competition policy is strongly implicated when product design is claimed as trade dress.  This also means that nonfunctionality must be rigorously enforced.

Here, Carson failed to plead that any of the elements for which it claimed trade dress were nonfunctional, instead conclusorily claiming that “[t]he ornamental design and overall appearance of Carson's SureGrip™ magnifier are not functional.”  This was insufficient under Iqbal.  Carson argued that there was no other way to allege overall nonfunctionality than to state it, and used a photo of the SureGrip to “illustrate[] the non-functional nature of its ornamental design and overall appearance.”  That was insufficient—a trade dress claim can’t be rescued by photos, since courts can’t be expected to distill nonfunctional elements from a set of images.

Separately, Carson failed to define the trade dress it wanted to protect. It failed to articulate “the specific elements which comprise its distinct dress”: “not just which features are distinctive, but also how they are distinctive.”  Merely pleading inherent distinctiveness and attaching a photo of the product in its package (which had numerous text elements making laudatory claims about the product) was insufficient. Images alone couldn’t explain what elements were protected.

In addition, Carson failed to plead facts supporting a plausible inference of secondary meaning. There were no facts relating to advertising expenditures, consumer surveys, sales success, marketing expenditures, or unsolicited media coverage.  It claimed that the overall design and appearance was “inherently distinctive [clearly barred by Wal-Mart] and/or has acquired secondary meaning in the relevant marketplace,” and argued that defendants’ copying, plus successful sales and marketing since 1998, could be used to infer secondary meaning.  But these “general and cursory allegations” were insufficient.

And furthermore, Carson failed to plead facts making likely confusion plausible, instead making naked assertions of likely confusion.

Timeline of bad facts

Timelines, Inc. v. Facebook, Inc., No. 11-cv-6867 (N.D. Ill. Apr. 1, 2013)

Timelines had a registration for “Timelines” for web-based services involving tracking events.  Facebook decided to use “Timeline” as the centerpiece of its new strategy:

In advance of Defendant’s development conference . . .  to be held in September 2011, Zuckerberg stated Defendant “decided to focus in two places: all the stuff we want to do (products), and also wanted to punch anyone who tried to compete with us in the face really hard. You have to teach people who compete with you ‘don’t even fucking bother.’”

Zuckerberg continued:

(1) Timeline. This is the most important brand. It describes the entirety of the new product we’re rolling out and not just the main tab itself. Timeline will also replace the word “profile” across the whole product as the brand/word describing this product. From now on, rather thanediting your profile, you edit or update your timeline.

Once this litigation started, Facebook ran a Teflon phone survey: 68 percent of respondents expressed a belief that the term “timeline” was generic (not a brand) when asked whether “timeline” was a common name or a brand name, while 24% thought it was a brand.  The court found that survey not enough to justify summary judgment for Facebook, nor were plaintiff’s own multiple generic uses of the term (which it removed once this litigation began), nor were dictionary definitions, nor were other companies’ uses of the term--not even in combination.

Also, Facebook didn’t show that the Timelines mark lacked secondary meaning: Timelines had “more than nominal sales and over one-thousand active users on its website, Timelines.com. At this stage in the proceedings, it is not unreasonable to conclude that as to this group of users, ‘timeline(s)’ had acquired a specific meaning associated with Plaintiff.”  (How many cases have found secondary meaning based on a thousand customers?)

Facebook’s descriptive fair use defense was also unresolvable on summary judgment.  There was evidence that it intended to use “Timeline” as a mark, and genuine issues also remained on its good faith, since it was aware of plaintiff’s registered marks; see “punch in the face” comment above.  (How many plaintiffs’ attorneys will be using that remark in years to come, I wonder?)

Comment: Given the rather serious evidence of genericity, which outstrips that in most of the genericity cases I’ve seen, it’s hard not to think the court is being nice to David because Goliath tried to capture a generic term, which is now coming back to haunt it.

Reading list: empirical study of college football videogames

Galen Clavio, Anastasios Kaburakis, David A. Pierce, Patrick Walsh, & Heather Lawrence, College Athlete Representations in Sports Video Games, Journal of Issues in Intercollegiate Athletics, 2013, 6, 57-80

Interesting study, not least because of the fact that the authors seem to think that their conclusion supports right of publicity claims by college athletes (First Amendment issues aside):

15% of respondents were uncertain and 10% were under the impression athletes were in fact endorsing the products, a combined quarter of the total number of participants. Overall, the more familiar a consumer was with the game, the less likely he/she was to believe the players are endorsing the products. The fact that 25% of respondents felt (agreed or strongly agreed) that athletes should be compensated for the use of their likenesses in college sports video games, may be important in ensuing court deliberations.

Proposition 64 didn't remove standing from competitors in California

Law Offices of Mathew Higbee v. Expungement Assistance Services, No. G046778 (Cal. Ct. App. Mar. 14, 2013)

California’s UCL was amended “to preclude the shakedown lawsuit—the ‘I get rich’ lawsuit brought by a person who has had no business dealings with the proprietor being sued, but who has happened to notice that the hapless proprietor is out of compliance with a particular law.”  The question was whether this amendment also removed standing from business competitors who’d allegedly been harmed by a competitor’s noncompliance with some law, but who hadn’t themselves engaged in consumer transactions with the competitor.  The court’s answer, which seems to me easy and obvious, was no: competitors can have standing, not just consumers, as long as the unlawful business practices caused injury and loss of money or property to the plaintiff-competitor.  The court pointed, among other things, to the UCL’s original purpose of protecting business competitors and to the goal of deterring unfair competition.

Higbee sued an online legal services provider, EAS, for unfair competition based on the unfair practice of law.  “EAS purportedly undercut the competition by using unlicensed persons to perform legal work, thereby saving on attorney fees, and by employing unbonded and unregistered legal document assistants, thereby saving on the costs of posting statutorily mandated bonds and paying registration fees.”  The trial court found that Higbee couldn’t establish injury in fact because there was no Higbee-EAS transaction in which Higbee was deprived of money and property, and there was no cause of action for lost market share, but the court of appeals reversed.

Proposition 64 amended the UCL to prohibit private attorneys from suing for unfair competition in the absence of a client injured in fact.  By proscribing “any unlawful business practice,” the UCL borrows violations of other laws and makes them actionable.  Virtually any law can serve as a predicate.  EAS nonetheless argues that the ban on unlicensed practice of law wasn’t supposed to protect lawyers from competition, but rather to protect the public.  True, but that doesn’t change the structure of the UCL, and so violation of the ban can be a predicate for a UCL claim.

As for standing, Proposition 64 means that a plaintiff must have suffered injury in fact and lost money or property as a result of the unfair competition. But nothing about that requires that the lost money or property must have been lost in a direct transaction between plaintiff and defendant. Higbee alleged that EAS’s unauthorized practice of law and advertising that it could perform the same legal services he did forced him to lower his prices and spend more money on ads; that he’d lost clients and revenue; and that the value of his firm had diminished.  Kwikset established, and the 9^th Circuit in Pom Wonderful recognized, that standing under the UCL doesn’t depend on eligibility for restitution.  EAS argued that Higbee’s alleged injury wasn’t sufficiently concrete and particularized or actual and imminent, not conjectural or hypothetical.  But Higbee did plead injury in fact.  He alleged lost customers, consistent with the original purpose of unfair competition laws.

“Although the UCL was ultimately expanded to provide equitable relief to consumers in addition to business competitors, this does not mean that the UCL no longer protects business competitors.”  Its purpose is to protect both consumers and competitors. It suffices to allege some specific “identifiable trifle” of injury.  The allegations of increased ad costs and forced reduced prices, along with lost business and lost value to the law practice, were enough.

EAS also argued that Higbee hadn’t shown causation because he had no business dealings with EAS.  But that’s not required for causation. Though business dealings with a defendant are one route to standing, they aren’t the only route. The court emphasized that its decision was limited to business competitors.

$42 million in damages available for violation of rental rate unbundling law without reliance

Sobel v. Hertz Corp., 2013 WL 1182209 (D. Nev.)

This putative class action was filed on behalf of consumers who rented cars at the Reno and Las Vegas airports from Hertz.  In return for the right to operate on-site, rental car companies (RACs) are required to pay a percentage of gross revenues to the airports as concession fees.  These fees are passed on to consumers as surcharges.  At the relevant times, Hertz “unbundled” the surcharges from the base rental rate, so that the base rate quoted to customers didn’t include the concession recovery fee, which was itemized separately.  (Sobel paid a fee of 10% for Las Vegas, while co-plaintiff Dugan paid 11.54% for Reno.) The court previously determined that this violated a Nevada statute governing car rentals, though not the general Nevada Deceptive Trade Practices Act.  The court subsequently denied a proposed coupon settlement, but in this opinion granted class certification for consumers who rented from Hertz at Nevada airports over a 6-year period, representing over $42 million in separately itemized concession recovery fees.

Hertz objected to various pieces of evidence, including legislative history memorializing Hertz’s lobbying activity, but that was admissible under the public records exception to the hearsay rule, and it wasn’t subject to Noerr-Pennington because its liability here wasn’t premised on any protected lobbying activity.  The evidence was probative as to material facts, including whether Hertz viewed price unbundling as a profitable activity.

The court reaffirmed its interpretation of the rate statute to require RACs to bundle the airport concession recovery fee with the base price in advertising, quoting, and charging rental rates.  The remedial statute provided that a customer could sue a RAC “for the recovery of damages and appropriate equitable relief” for any violation, as well as costs and attorneys’ fees.

Hertz’s main argument was that plaintiffs needed to show reliance—that they would have done something different if the fee had been bundled.  Hertz argued that, even if not separately required, reliance was inherent in the requirements of actual injury and causation. Plaintiffs rejoined that they were entitled to restitution without showing reliance.  The court determined that the text of the rate statute was ambiguous, and the remedial provision of the statute was silent as to reliance.  Looking to legislative history and public policy, neither the rate nor the remedial provisions imposed a reliance requirement.  Hertz argued that the plain meaning of “damages” was compensation for loss or injury, so that plaintiffs needed to show loss by showing that they would’ve switched from Hertz and obtained a lower price elsewhere had Hertz complied with the rate statute.

The court found that this argument ignored the availability of “appropriate equitable relief,” including restitution, which is measured by the defendant's gain and not the plaintiff's loss. Plus, a reliance requirement would make no sense, because some of the causes of action covered by the remedial statute were “antagonistic” to reliance-type requirements. For example, the statute provides a cause of action for consumers charged above a certain price for damage waivers.  Under Hertz’s view, to recover under that provision, consumers would have to show that a rental agency charged more than the statutory price, and that had it not done so the consumer would have engaged in a different or less expensive transaction: thus, the consumer would nonsensically have to show that she would have behaved differently if she’d been given a cheaper price.  (It seems to me that in that case, causation of damage could be shown by having paid the too-high price, even without a distinct reliance requirement, which is not necessarily the case here.)

Hertz also argued that the absence of statutory damages meant that plaintiffs had to show actual injury to recover, but again statutory damages would be a poor fit given the many types of violations covered.  The RAC statute provides a remedy for unlawful rate unbundling as well as unlawful damage waiver rates, and it wasn’t clear that a single statutory damages provision would compensate appropriately for both violations.  Anyway, statutory damages are generally available when injuries are hard to value, and a ready measure of damages was available here: the amount paid in unlawful unbundled charges.  Indeed, the failure of the statute here to use the term “actual damages” in contrast to “statutory damages” suggested that “actual damages” were not required.

Hertz then argued that there was a causation requirement akin to reliance, based on the legislative history that the statute was designed to protect consumers and make them aware of expected costs in advance. Given that it was designed to target deception, Hertz contended, the statute should be understood to incorporate a reliance requirement like other deceptive practices statutes.  Even assuming that this were true (which the court had already rejected), “the legislative history suggests the rate statute was as much about limiting competition as it was about limiting deception.”  The language referring to unfair/deceptive practices only appeared in sections regulating other practices, not in the section about rates and unbundling, and the legislative statements about deception only referred to damage waivers and the like. 

While mandatory bundling was consistent with an attempt to prevent deception, the exception for “fees paid to airports,” at least as interpreted by Hertz, was also “consistent with an attempt by large car rental companies to limit competition from small car rental companies.” The legislation’s sponsor indicated that it was sought by the major car rental companies—Avis, Hertz, and National—and was not based on any reported abuses.  “In the quest for legislative intent, such [statements] raise judicial eyebrows.” The court noted that the rental industry at the time was “embroiled in an intense price war, a war in which ‘[car rental] companies ha[d] been springing traps of additional charges on unsuspecting renters and have used the various advertising media to do so.’”  The California AG tried to shut down these bait-and-switch practices, and the result was a California law on which the Nevada law was modeled.  The California law only excepted taxes and mileage charges from mandatory bundling, while Nevada added “fees paid to airports.”  Under Hertz’s interpretation, the contrast suggested that the exception “was designed to allow a practice prohibited by California law: advertising non-[airport concession recovery fee] rates and charging ACRF rates.”  Mandatory bundling of non-ACRF fees benefited the major RACs over smaller competitors.  On-airport RAC locations are expensive, and larger RACs can better afford them. If smaller, off-airport RACs had to bundle all mandatory fees while larger, on-airport RACs could unbundle one significant fee they paid and off-airport RACs didn’t, the on-airport RACs could advertise (but not charge) lower base prices.  Indeed, one Nevada senator expressed concern about the disparate impact of the law. 

So, large RACs wrote and supported this exception because they thought it would give them an advantage.  Thus, the court declined to treat the rate statute as a pure deceptive practices ban, and there was no reason to impose an independent reliance requirement or treat causation as “reliance in disguise.”  (As it happened, the court found that the large RACs were mistaken in thinking that the statute authorized this behavior, but the legislative history still suggested that the “fees paid to airports” exception “may have been an interest-group driven exception to a generally public-regarding provision.”  It also turned out that airport authorities sometimes prevented unbundling through contractual provisions, presumably fearing that unbundling would make the fees look like an additional tax.)

The court agreed that reliance isn’t a general limit on civil recovery in tort, but rather a specialized requirement for common-law fraud. The gravamen of the rate statute wasn’t fraud or deception, so it was inappropriate to admit reliance “through the back door” using causation.  Plus, Hertz’s theory would prevent recovery under the rate statute as long as all the RACs were breaking the law. This would render the law toothless.  So, the plaintiffs were only required to show that Hertz violated the rate statute, and that this caused an unlawful payment to pass from them to Hertz.  They undisputedly satisfied those requirements.

Hertz argued that it shouldn’t be penalized under an ambiguous statute, because that will deter firms by causing them costs investigating legality, and those costs will be passed on to customers as increased prices.  “These are persuasive arguments, but they should be directed at a legislature, not a court. Legislatures write ambiguous laws all the time; Hertz cannot plausibly maintain that these laws must all be construed against plaintiffs ….” Plus, plaintiffs had policy arguments on their side: “courts should ensure that interest groups are not rewarded for antisocial legislation, like legislation that tries to reduce marketplace competition. Or, alternatively, courts should avoid filling in the legislature's gaps (with things like reliance requirements, for instance) so that voters can hold legislators accountable for poorly drafted laws.”

Plaintiffs asked for restitution of unlawful payments to Hertz, over $42 million.  Hertz wanted that unavailable absent a showing of actual injury or reliance, but again the court disagreed.  In Nevada, restitution has at least two bases, unjust enrichment and statutory purpose.  “Nevada courts have awarded restitution where the award was necessary to effectuate the purpose of some regulatory regime, even absent a showing of unjust enrichment. Nevada courts have approved restitutionary awards without showings of actual injury.” The remedial statute here expressly provided for restitution by way of “equitable relief,” and it also didn’t provide civil or criminal penalties, but rather consigned enforcement to private parties.  Hertz’s argument that restitution required reliance and that reliance would be impossible because all the RACs acted the same way undermined the statute. Restitution was the best way to effectuate the statute.

The court also found that Hertz had been unjustly enriched by charging an unlawful fee, and that allowing it to retain the fees would encourage noncompliance with the statute and give Hertz a windfall, but that a monetary remedy was inappropriate because of the duplicative remedy for Hertz’s violation of the rate statute.

Given these findings, it was no surprise that the court granted the class certification motion.  Hertz’s objections centered on reliance arguments, which had already failed.  So arguments that the named plaintiffs weren’t typical because they weren’t misled were unavailing.

Hertz also argued that the named plaintiffs weren’t adequate because they had business relationships with class counsel or former class counsel, including consulting fees paid by one class counsel in four other cases, one netting plaintiff Dugan $425,000.  Plaintiff Sobol received paid work from former class counsel since becoming a class representative, but these were long ago and modest.  The court found these not disqualifying; these were not close personal relationships, only business relationships, and they didn’t involve ex ante incentive agreements between class counsel and named plaintiffs.  “Professional plaintiffs” are okay because they may be better in class actions at monitoring counsel, and such professional plaintiffs have “at least as strong a business relationship with class counsel as do the named plaintiffs here.” Especially as to Sobel, there was no reason to disqualify them.

Without reliance, common questions predominated, including whether class members were charged the unbundled fees and whether this was unlawful (yes). Likewise as to unjust enrichment: any putative class members who were overcharged were in the same position.  Hertz argued that a class action wasn’t superior because it wasn’t manageable, given the supposed necessity of conducting mini-trials on damages and causation; not so.

Also, plaintiffs were entitled to prejudgment interest at the statutory rate, since restitution wasn’t aimed at deterrence but rather at vindicating plaintiffs’ legal rights.

System design alone not enough for copyright liability

Luvdarts, LLC v. AT&T Mobility, LLC, No. 11-55497 (9^th Cir. Mar. 25, 2013)

Luvdarts sued mobile multimedia messaging networks (MMS networks) based on copyright infringement over those networks. Luvdarts sells commercial MMS content, such as “greeting card style” messages, news, coupons, ad campaigns, and games.  Mostly it sells “greeting cards” for users to forward to friends.  Luvdarts includes a notice saying that its content may be shared only once, but there’s no technical impediment to recipients forwarding a message to many people, and Luvdarts alleged that users were ignoring the notices and resharing the content, infringing Luvdarts’ copyrights.  When Luvdarts demanded “accountability” from the carriers, they took no action, and Luvdarts sued for vicarious infringement and inducement.

Vicarious liability requires the right and ability to supervise infringing activity and a direct financial interest in the activity. But Luvdarts conceded that the carriers presently had no way of supervising the use of their networks for infringement, instead arguing that they could develop a system that would give them the right and ability to supervise.  But right and ability should be evaluated in the context of current architecture, and to do otherwise would blur the distinction between contributory and vicarious liability.  Under contributory liability, failure to implement a digital rights management system could be circumstantial evidence of an intent to induce infringement (ugh), but it couldn’t substitute for a capacity to supervise for purposes of vicarious liability.  In any event, Luvdarts failed to allege facts plausibly showing that the carriers could implement an effective system—it didn’t explain what that system would be, how it would function, or how much it would cost.

Turning to contributory liability, that requires knowledge plus inducement, causation, or material contribution.  Liability requires more than generalized knowledge of the possibility of infringement, since the services have substantial lawful uses.  Luvdarts failed to allege the requisite specific knowledge of infringement.  Its “notices” to the carriers “failed to notify the Carriers of any meaningful fact. The notices were 150-page-long lists of titles, apparently just a transcription of every title copyrighted by Luvdarts, which indicated that they wanted ‘accountability’ for the unauthorized distribution of those titles for the period from May 2008 to November 2009.”  The DMCA “clearly precludes notices as vague as the notices here,” which were “indistinguishable from a generalized notification that infringement is occurring.”

Luvdarts also argued willful blindness, but willful blindness must also go to specific facts.  Luvdarts didn’t allege that the carriers took active steps to avoid acquiring knowledge. At most, the carriers were allegedly indifferent to the risk of infringement.  That’s not the standard, which requires subjective belief that infringement is likely occurring plus deliberate actions to avoid learning about it.  Luvdarts failed to state a claim on which relief could be granted.

Del Monte trademark, false advertising battle ends with damages and injunction

Fresh Del Monte Produce Inc. v. Del Monte Foods Company, 08 Civ. 8718 (S.D.N.Y. Mar. 28, 2012)

Fresh Del Monte (Fresh) mostly won a jury verdict on its breach of contract and Lanham Act false advertising claims against Del Monte (DMC). The court granted a permanent injunction, but declined to award attorneys’ fees or prejudgment interest on the Lanham Act claims, though prejudgment interest was available on the breach of contract claim.

DMC is the successor to original Del Monte, which spun off its fresh fruit division in 1989 (Fresh); DMC focused on selling preserved produce.  Original Del Monte divided the rights to use the Del Monte mark; DMC sold Fresh the rights to use the mark on certain products primarily comprising fresh fruit and vegetables.  But the parties have lengthily and litigiously disagreed about the meaning of the license agreement. One trial established that DMC licensed the mark to Fresh for exclusive use in selling fresh fruit, even if the fruit had been processed in certain ways.  A decade later, Fresh claimed that DMC breached a license provision specifying that Fresh has the right to use the mark “on an exclusive basis, [for] refrigerated pineapple products … and refrigerated [melons, berries, papayas and bananas].”  Fresh argued that this provision gave it the exclusive right to use the mark on refrigerated products containing these five fruits, even if they were preserved, and a jury agreed and found breach, awarding $5.95 million in damages.

In addition, Fresh claimed that DMC falsely advertised its Fruit Bowl (packaged in a clear plastic bowl, as fresh fruit is often packaged), Fruit Naturals, Superfruit, SunFresh, and Orchard Select product lines as containing fresh, rather than preserved, fruit, most prominently by using labels communicating the false message that refrigeration was required and by failing to communicate that the products contained preservatives or were pasteurized, and also by putting the products next to similar fresh fruit products in the refrigerated fresh produce section of supermarkets. The jury found that DMC willfully violated the Lanham Act, except for the Orchard Select line (which comes in a glass jar, as SunFresh did).  Though it found that Fresh failed to prove lost sales, it awarded $7.2 million in DMC’s profits.  The jury also found that DMC’s “Fruit Undressed” ad campaign, which showed fresh fruit while it was being peeled or cut, violated the Lanham Act, though Fresh didn’t seek damages for that.

The court applied eBay and found permanent injunctive relief appropriate, as is usually the case after a full trial finding false advertising (per McCarthy).  Likewise with breach of a trademark license.  eBay applies to the Lanham Act, which gives no indication that it departs from general equitable principles.  (However, the court discussed most of the factors after detailing the scope of the injunction, which—like the statement that Lanham Act violations usually justify injunctive relief—suggests that eBay’s spirit hasn’t necessarily penetrated Lanham Act analysis.)

DMC argued that it voluntarily ceased its violative conduct, and that the injury wasn’t irreparable and was more than adequately remedied by the award of DMC’s profits.  However, until the jury delivered its verdict, DMC continued to sell Del Monte-branded refrigerated products with the five fruits and using the advertising the jury found to willfully violate the Lanham Act.  DMC’s post-verdict steps to discontinue the production of breaching products, remove “Must be Refrigerated” from heat-treated products, and note on ingredient list when a product is “pasteurized” or contains “preservatives” didn’t moot the question of injunctive relief.  Given DMC’s longstanding continuation of the practices even through trial, there was some cognizable danger of recurrent violation.  It was within its rights to contest Fresh’s claims, but “it cannot be heard to complain when Fresh seeks to reduce the jury’s verdict to an enforceable injunction.”  The court noted that DMC’s own senior staff discussed “what we can get away with vs. Del Monte Fresh Produce” in selling refrigerated products.

There was also evidence that DMC knew that consumers might be misled—market research indicated that “it is highly likely that there is consumer confusion between Del Monte Fruit Naturals” and plaintiff’s fresh cut fruit. DMC staff also discussed another study that indicated that 72% of consumers thought that its preserved grapefruit “looked like fresh fruit.” DMC executives admitted that pasteurized products were labeled “Must be Refrigerated” despite their conceded knowledge that such products were shelf stable without refrigeration. Overall, this case differed from other non-injunction-grantic cases where defendants acted in good faith and ceased infringing as soon as they were notified of possible issues.

As to irreparable injury/inadequate remedies at law, the court found that the jury award of $5.95 million for breach of contract was “clearly derived from the parties’ conflicting evidence about what constituted a reasonable royalty, and the parties agree that the jury used a rate of 1.75%.”  But that wasn’t enough to compensate Fresh for harm to this good will, because there is “no question” that such injuries are difficult to measure (ed. note: because good will is magic!), especially since the license agreement says that any breach will result in irreparable harm.  The Lanham Act authorizes an accounting of profits because of the difficulty of proving lost sales; the verdict itself showed that Fresh couldn’t easily prove lost sales, let alone lost good will or market share, since the jury found Fresh lost $0 in sales.  An accounting (awarded for the false advertising) is just a rough measure of the damages.  “There is simply no way to know what the precise effects of these Lanham Act violations were, nor precisely what harm future violations would cause.” And Fresh might not be able to prove lost sales for any future violation.

Once the injunction was narrowed, the balance of hardships favored Fresh, which would have to expensively monitor DMC without an injunction.  As for the public interest, enforcing the license agreement would help consumers. DMC could continue to sell refrigerated produce, competing with Fresh, as long as it used another brand name.  And enforcing the license agreement would “add clarity by ensuring that all Del Monte-branded refrigerated produce derives from one source.”  Unh-hunh.   I’m sure consumers completely understand the refrigerated versus unrefrigerated divide.  (Not that I think that this rationale actively disfavors an injunction; I just wish the court wasn’t pretending that consumers had any idea about the artificial way in which the license agreement divides the brand.)

DMC was enjoined from using the Del Monte mark on any product containing any of the five fruits that was intended to be refrigerated or chilled at the point of sale, and ordered to notify all known retailers of the breaching products that they shouldn’t be sold under refrigeration.  (Interesting situation—the breach is committed by retailers, who don’t have direct contractual relationships with Fresh in this regard; another issue with dividing the mark up in this weird way, which consumers are unlikely to understand.)  For a certain period, DMC would be required to notify any retailers discovered to be refrigerating the products that this was not allowed.  However, DMC’s shipping and storage procedures weren’t covered by the injunction.

As for the false advertising, the court “appropriately permitted Fresh to paint with a broad brush in depicting the claimed false advertising, thereby permitting the jury to find a violation of the Lanham Act based on the totality of DMC’s marketing practices,” but not “every stroke on the canvas must be enjoined.”  The jury’s verdict indicated that many of the practices Fresh challenged didn’t mislead consumers about the freshness of DMC’s products: “the marketing of the Orchard Select product line, which the jury found did not violate the Lanham Act, shares many of those allegedly misleading features.”  Given the small differences between the offending products, especially SunFresh, and the nonoffending Orchard Select line, a narrow injunction was appropriate.  DMC was enjoined from pasteurizing or adding chemical preservatives to its fruit products without stating that fact on the label; enjoined from stating that any preserved fruit product “Must be Refrigerated” without test results that establish that the product is not shelf stable; enjoined to set forth on the ingredient list that sodium benzoate or potassium sorbate are preservatives; enjoined from disseminating the “Fruit Undressed” ads; and, given the evidence that DMC had accelerated the “best by” dates on fruit bowl products, implying a shorter shelf life than was true, enjoined from setting “best by,” “sell by,” or other similar dates on its products without substantiating test results.  However, DMC didn’t have to put “Contains Preservatives” on the front or state in future ad campaigns that the products are preserved.

The court denied Fresh an award of attorneys’ fees, despite the jury’s finding of willful false advertising; an award is discretionary even in an exceptional case. The court viewed the case as close in several respects, and Fresh didn’t win a total victory with the jury.  Overall:

The evidence showed a deliberate effort to attach to DMC’s preserved refrigerated products an aura of freshness in consumers’ minds, and to minimize the reminders that the products were preserved. But the evidence did not suggest that DMC used the “Must be Refrigerated” labels and omitted the fact that certain products were pasteurized or contained preservatives in order to trick consumers into believing the products were made by Fresh. Indeed, there was no evidence at all that the average consumer even knows that there are two different companies using the same Del Monte name and trademark. (emphasis added)

Given the jury’s split verdict, DMC’s choice to litigate the case through trial wasn’t unreasonable. For largely the same reasons, the court declined to exercise its discretion and award prejudgment interest.  And while we’re noting the Alice-in-Wonderland quality of trademark analysis, chew on this as a reason to deny prejudgment interest: “notwithstanding the difficulty in measuring Fresh’s injuries, any financial harm to Fresh has been adequately compensated by the jury award. No more is needed.”  Damages are adequate, except when they’re not, because trademark.  Got it!

Green is good?

Green calorie labels on candy bars make the candy bars seem healthier.  Tell me again about how truthfulness is measured by rational, non-image-based, nonemotional standards? HT Mark McKenna.