Straightforward deference to FTC substantiation rules dooms gray hair treatment

Federal Trade Commission v. COORGA Nutraceuticals Corp., --- F.Supp.3d ---- , 2016 WL 4472994, No. 15-CV-0072 (D. Wyo. Aug. 15, 2016)

The FTC sued COORGA over its claims that its Grey Defence product reversed/prevented gray hair and that there was scientific proof of this.  Defendant Coore, COORGA’s principal, is a soi-disant “applied scientist” with degrees in economics and no post-secondary chemistry or biology courses.  He developed the Grey Defence formula over a 9-month period by conducting “comparative scientific research” of various journal articles, studies related to Vitiligo (a disease that causes the loss of skin color), and various “therapeutic compounds.”  He also spoke with scientists about their laboratory work unrelated to Grey Defence specifically and tested the product on himself (“seeing re-pigmentation of some of my own hair follicles after 3 months in the range of around 3%”).

From 2011 to June 10, 2016, COORGA had $433,848.93 in gross sales to U.S. consumers, of which it refunded $29,608.26.  Coore intends to sell a new product, Grey Defence Xtreme 3.0, as soon as this case concludes, and defendants have developed other products, including brain JOLT! (to “boost working memory”), TumorDefence (to cure cancer), FatBLOKKER! (now known as mealBUDDYZ!), Endura, and Sodhalose-C (to fight neurogenerative diseases). These products have likewise been developed through Coore’s own “research and review of journal articles and discussions with ingredient suppliers without consulting any medical professionals or scientists.”

Um, no.  Anyway, the case provides a straightforward review of the standards for substantiating efficacy and establishment claims; where the products are health-based, any efficacy claim may functionally be an establishment claim.  Substantiation requires a “reasonable basis,” and reasonability is assessed considering “the type of product,” “the type of claim,” “the benefit of a truthful claim,” “the ease of developing substantiation for the claim,” “the consequences of a false claim,” and “the amount of substantiation experts in the field would consider reasonable.” If an establishment claim “states a specific type of substantiation,” however, the “advertiser must possess the specific substantiation claimed.” And if an ad conveys a non-specific establishment claim—e.g., “medically proven”—the advertiser “must possess evidence sufficient to satisfy the relevant scientific community of the claim’s truth.”

“For both efficacy and non-specific establishment claims, then, like those at issue in this case, it is appropriate to consider the amount of substantiation required by the relevant scientific community in determining whether the advertiser’s claim is false, misleading, or unsubstantiated.”  The FTC submitted the testimony of Dr. George Cotsarelis, a Doctor of Medicine and Professor of Dermatology at the University of Pennsylvania School of Medicine and Director of the Hair and Scalp Clinic at the University of Pennsylvania Health System.  He opined that substantiation for claims about reversing or preventing the formation of gray hair would require at least one well-designed, randomized, placebo-controlled, and double-blinded human clinical trial. Coore’s testimony to the contrary was inadmissible because he wasn’t and couldn’t be qualified as an expert. “Simply reading articles over a nine-month period does not impart the knowledge, skills, experience, training, or education one needs to competently interpret and evaluate scientific journal articles, opine on what constitutes scientific proof, and weigh the evidence related to the cause or prevention of gray hair.”

So, the efficacy and establishment claims were unsubstantiated.  Coore’s research could be “potentially useful in generating hypotheses for future studies,” but they weren’t enough for these claims, nor was feedback from 20 Grey Defence users out of 100 contacted.  Defendants argued that they only claimed to rely on their own “observational study,” so they did possess the level of substantiation they claimed.  But defendants actually went beyond that: they claimed that their product was “based upon a foundation of scientific evidence,” using phrases such as “scientifically shown.”

The court found injunctive relief proper, both for consumer redress (in an amount to be determined) and to prevent future violations of the law.  Given Coore’s further marketing plans, there was a cognizable danger of recurring violations.  The court noted that injunctive relief under the FTCA can “fence in” offenders by enjoining more than the specific misconduct previously engaged in, as long as there is “a reasonable relation to the unlawful practices found to exist,” but sought further input from the parties on the scope of the injunction.

Coore was also personally liable for consumer redress.  He actually knew about the material misrepresentations, or was at a minimum recklessly indifferent to the truth or falsity of the misrepresentations:

Coore was intimately involved with Grey Defence’s development and advertising, yet chose not to consult any medical professional to evaluate his purported substantiation or conduct any well-designed clinical trial to investigate Grey Defence’s efficacy. Instead, he arrogantly relied on his own internet research, knowledge from high school biology and chemistry classes, a test on himself, and conversations with researchers who did not actually evaluate Grey Defence’s efficacy. This type of evidence constitutes reckless indifference. 

membership in swingers club not (yet) disclosed in Lanham Act case

Edmondson v. Velvet Lifestyles, LLC, No. 15-24442-CIV, 2016 WL 5682591 (S.D. Fla. Oct. 3, 2016)

I don't get to blog discovery disputes often; that this one is unresolved is frustrating, but the court asks useful questions.  “May Plaintiffs pursuing a false advertising Lanham Act claim obtain in discovery the member list and email distribution list from a ‘unique’ and ‘private’ clothing-optional swingers’ club for ‘men and women who enjoy nudity and sexual activity’ and who are directed to practice ‘safer sex’ at the club …?”  Maybe!

Plaintiffs are 32 professional models who alleged that defendants “pirated and altered their images to advertise their swinger’s club business interests on websites and social media accounts,” and put their images/altered images “next to, or in very close proximity to, photos of explicit, hardcore pornography which are too obscene and offensive to include as exhibits to a publicly-filed complaint.”  Plaintiffs sought information about defendants’ membership and email distribution lists.  Defendants sought a protective order, arguing that their members’ associational rights and their own trade secrets would be threatened by disclosure.  The court sought more information before ruling.

The parties disagreed about whether inquiries using the lists would provide useful or even vital information.  Ordinarily, you could survey likely swinger club customers, rather than existing customers, though a large enough sample might be hard to get even with an internet survey.  However, plaintiffs sought “relevant sociographic and demographic evidence” from the lists so that a representative sample could be constructed. They also argued that courts routinely permit discovery of customer lists for these purposes; they sought to reach out to customers via targeted email to see if they were confused; customers who didn’t want to testify could seek protective orders. They also offered to sign a confidentiality agreement to prevent misuse of the information.

The court considered their request less pressing because it furthered “a private agenda, not public-type goals” such as a criminal investigation.

The judge was also uncertain about the strength of defendants’ asserted interests.  The club at issue did have a strict confidentiality agreement, but half of the club’s members were “not shy” about their association with the club; some club members “voluntarily chose to self-disclose their affiliation and membership by being prominently featured on the Club’s website.”  Nor did the club promise its members confidentiality—it just made them promise confidentiality to each other.

Was this information even within the permissible scope of discovery? The rules allow discovery of “any nonprivileged matter that is relevant to any party’s claim or defense and proportional to the needs of the case, considering the importance of the issues at stake in the action, the amount in controversy, the parties’ relative access to relevant information, the parties’ resources, the importance of the discovery in resolving the issues, and whether the burden or expense of the proposed discovery outweighs its likely benefit. Information within this scope of discovery need not be admissible in evidence to be discoverable.”  Proportionality requires an assessment of the marginal utility of the discovery sought, and thus is highly related to relevance.  Since actual confusion is powerful evidence of likely confusion, I would have thought that the baseline marginal utility was pretty high.

So, would the requested lists be important in determining damages (etc.) for the Lanham Act claim?  Mere speculation as to the information’s utility won’t suffice.  The judge hearing the case initially dismissed the Lanham Act claim sua sponte, though she offered them the opportunity to refile.  They did, but they were thus on notice that their claim was dubious, so the court also considered “whether the requested discovery would be relevant if the sole claim is subject to significant challenge.”

In theory, using targeted email surveys based on the list would be a good idea, but the judge was dubious about the practical utility thereof.  Respondents would be providing “relevant demographic and sociographic characteristics” “in response to unsolicited emails from a large law firm representing Plaintiffs who filed a lawsuit against the club they attend to pursue their unusual, arguably-provocative, lifestyle.”  But, the court asked, why would anyone respond?

If the poll recipients understand that they are not obligated to respond and further realize that responding might cause them to be served with a deposition subpoena, then would they likely complete and return the survey? What percentage response rate would an expert need to receive to reach any meaningful conclusion about customer confusion? Would members be likely to even remember whether they saw a photograph of a model on a website before attending the Club? Would receiving a simple online poll request generate anxiety or concern among the club members or email recipients?

To proceed, plaintiffs would have to provide more information, but defendants would have to disclose the number of members, the number of people on its email marketing list, and other details about the list.  Plaintiffs, if they wished to proceed, would have to provide more details from a survey expert showing that a survey would be likely to work in this context.

misbranding is still a thing despite First Amendment, court rules

United States v. Vascular Solutions, Inc., No. SA-14-CR-926, --- F.Supp.3d ----, 2016 WL 5475999 (W.D. Tex. Jan. 27, 2016)

Defendants sell a medical device which permanently closes varicose veins using a laser, allowing healthier veins to move blood.  The device is approved for treatment of superficial veins only, not perferator veins.  The government indicted defendants for misbranding: they failed to provide the FDA with required notification of a new intended use, and the devices’ labeling lacked adequate directions for that new intended use.

Defendants argued that the government’s case threatened the First Amendment.  The court (Royce Lamberth, which means that the government was treading lightly indeed!) disagreed, in part because the government limited its claims.  Under Wisconsin v. Mitchell, “[t]he First Amendment ... does not prohibit the evidentiary use of speech to establish the elements of a crime or to prove motive or intent.”

Misbranding requires that the device have an “intended use” other than that approved by the FDA.  The regulations say that “intended use” means

the objective intent of the persons legally responsible for the labeling of devices. The intent is determined by such persons’ expressions or may be shown by the circumstances surrounding the distribution of the article. … [I[f a manufacturer knows, or has knowledge of facts that would give him notice that a device introduced into interstate commerce by him is to be used for conditions, purposes, or uses other than the ones for which he offers it, he is required to provide adequate labeling for such a device which accords with such other uses to which the article is to be put.

The government represented that it didn’t plan “to use promotional speech to doctors to prove the intended use of the devices for perforator vein ablation,” and will instead rely on conduct alone. “Should the government change its plan and decide to use promotional speech to prove intended use, or should the Court become concerned that the government is indeed pursuing a theory that the FDCA prohibits even truthful non-misleading off-label promotion, the Court will address this issue at that time.” 

The government did plan to rely on statements to doctors to prove the conspiracy charge because a lawful act may serve as the “overt act” in furtherance of a conspiracy. The speech might be truthful, but it could still serve as an act taken to effect the object of the conspiracy without violating the First Amendment.  Moreover, a jury instruction could make clear that speech about off-label use is not misleading merely because the FDA has not approved that off-label use or reviewed or approved the speech.

Defendants also wanted the court to hold that “to prove that a communication was actually misleading, the government must prove that the communication misled a substantial subset of its intended audience.” This is the Lanham Act standard, not the FDCA standard, and there’s no indication in the case law that this is the First Amendment floor for misleadingness.

Defendants also moved to exclude any evidence of their subjective intent.  However, the governing law requires manufacturers to provide appropriate labeling “if the manufacturer has reason to believe that its medical device might be used for purposes different from the purposes for which the device is approved.”  That makes their knowledge and subjective intent relevant.  Moreover, statements need not be published to the marketplace to show objective intent, as long as they manifest “oral or written statements.” A hypothetical manufacturer “who learns over the phone from a customer-physician that the physician is ordering a device approved for use A but intends to use it for use B, and must now consider whether he can legally fill the order … would face no peril from such a rule because he made no oral or written statement from which objective intent could be proven.”

Insert scatological pun here: cities' lawsuit over flushable wipes mostly continues

City of Wyoming v. Procter & Gamble Co., 2016 WL 5496321, No. 15-2101 (D. Minn. Sept. 28, 2016)

“Hygienic wipes labeled and sold as ‘flushable’ have caused and are continuing to cause increased costs and property damage to the governmental entities that operate sewer systems and water treatment facilities.” Municipalities in Minnesota and Wisconsin sued over the costs and property damage they say they have suffered due to false advertising of “flushable” wipes. The court allowed some of their claims to proceed.

Plaintiffs alleged that each defendant represents that its respective wipes are “flushable.” Some, like Cottonelle, made additional claims such as “Sewer and Septic Safe” and “break up like toilet paper after flushing.” Defendant Tufco allegedly made “flushable” wipes for private label customers.  Plaintiffs alleged that approximately 25% of their sewer clogs could be attributed to flushable wipes clogging pipes.  Further, they alleged that defendants were members of the Association of Nonwoven Fabrics Industry (INDA), a trade association that created “Guidelines for Assessing the Flushability of Disposable Nonwoven Products.” Defendants, through their membership in INDA, allegedly “manipulated [INDA’s] test standards and guidelines making them weaker to guarantee [Defendants’] products could be marketed as ‘flushable’ under the INDA guidelines.”

Standing: defendants argued that plaintiffs didn’t detail exactly how defendants caused their injuries.   It was enough for the municipalities to explicitly make allegations that they are injured by wipes marketed as flushable, that defendants each produce and sell these “flushable” wipes, and that it is “Defendants’ continued sale and promotion of wipes as ‘flushable’ and ‘sewer and septic safe’ ” that has caused and is causing Plaintiffs’ injury.” The court here distinguished Wallace v. ConAgra Foods, Inc., 747 F.3d 1025 (8th Cir. 2014), in which plaintiffs alleged that not all Hebrew National hot dogs were 100% kosher, as ConAgra had advertised. The Eighth Circuit found that because plaintiffs had not alleged that they themselves had actually purchased or consumed any defective non-kosher hot dogs, plaintiffs had not pleaded an injury for standing purposes.  But, unlike Wallace, this wasn’t a manufacturing defect case.  The municipalities weren’t arguing that some poorly-made subset of flushable wipes was responsible for their injuries, but that falsely advertising an entire class of wipes as flushable harmed them.  The Wallace plaintiffs “never claimed to have actually come into contact with the offending non-kosher hot dogs, while Plaintiffs here have repeatedly alleged that not-actually-flushable ‘flushable’ wipes are clogging their water treatment facilities.”  Defendants’ manipulation of INDA also plausibly caused the municipalities an injury.

Nor was it fatal that clogs can be traced to numerous different causes.  “A plaintiff is not deprived of standing merely because he or she alleges a defendant’s actions were a contributing cause instead of the lone cause of the plaintiff’s injury.” Article III standing is not proximate causation.  Flushable wipes allegedly caused one in four clogs, which was enough for standing.  Plus, the municipalities plausibly alleged a risk of future harm, which couldn’t be accompanied with a perfectly detailed causal chain. The court did find that plaintiffs couldn’t proceed with a Declaratory Judgment Act claim because it wasn’t a real claim.

But more importantly, breach of warranty and consumer protection claims survived. Breach of warranty: In Minnesota, “where a third-party suffers property damage from a product, that person may constitute a third-party beneficiary even if the party never used, purchased, or otherwise acquired the product,” and that was properly alleged here.  Defendants argued that plaintiffs’ claims were time-barred by the four-year statute of limitations, since the wipes have been on the market since at least 2008.  But the warranty at issue here, that the wipes are actually flushable, “extends to future performance of the goods” – the flushing of the wipe. The cause of action does not accrue until the date “the breach is or should have been discovered,” which is no earlier than the date the consumer flushes the wipe down the toilet. Thus there was no time bar “for at least a great portion of the wipes that are allegedly clogging and will clog Plaintiffs’ sewer systems.”  Nor was there a failure to provide pre-suit notice, as required by Minnesota law.

Express warranty: Minnesota, adopting the UCC, takes the position that: “In actual practice, affirmations of fact made by the seller about the goods during a bargain are regarded as part of the description of those goods; hence no particular reliance on such statements need be shown in order to weave them into the fabric of the agreement.” The wipes say “flushable”; this affirmation of fact was woven into the fabric of the agreement.

Implied warranty of merchantability: Defendants argued that a reasonable person might think a wipe was “flushable” as long as it passed through their toilet’s piping.  But the municipalities properly alleged that the defendants described their wipes as safe not just for toilets, but also for wastewater treatment facilities. “A reasonable person would undoubtedly expect that a product represented to be safe for sewer systems actually be safe for sewer systems – not just for the consumer’s own piping.”  However, the court dismissed claims based on the implied warranty of fitness for a particular purpose.

Minnesota consumer protection statutes: the municipalities weren’t purchasers, but the state law doesn’t require them to be.  Grp. Health Plan, Inc. v. Phillip Morris Inc., 621 N.W.2d 2 (Minn. 2001) (“[T]o state a claim that any of the substantive [consumer protection] statutes has been violated, the plaintiff need only plead that the defendant engaged in conduct prohibited by the statutes and that the plaintiff was damaged thereby.”)  Nor did Minnesota’s deceptive trade practices statute require competition between the parties.  Lexmark was persuasive, but not state law, “and cannot overcome the text of Minnesota’s statute: Plaintiffs ‘need not prove competition’ in Minnesota. Minn. Stat. § 325D.44, subd. 2.”

The Wisconsin Tort Reform Act didn’t defeat these claims either.  The legislature was trying to bar plaintiffs from recovering “even when a plaintiff could identify only a class of products, made and sold by a class of companies, as the source of the plaintiff’s injury.” The plaintiff in a product liability case must therefore “prove that the defendant is associated with ‘the specific product alleged to have caused the claimant’s injury or harm.’”  There were no cases interpreting the statute.

Nonetheless, the court declined to dismiss most of the claims. First, the Tort Reform Act was a burden of proof rule, not a pleading rule.  Under Twiqbal, plaintiffs’ complaint satisfied the Act’s requirements; they alleged injury by the specific wipes produced by these defendants. The municipalities also alleged that they could determine which wipes were in which particular plaintiff’s wastewater treatment facilities. “[I]t is a close question whether it is plausible that each and every specific product is causing each and every plaintiff harm – but when examined on a product by product basis, it is plausible that each product has been sold to customers in the vicinity of Plaintiffs’ sewer systems and has entered their piping and caused them the harm that they allege to have taken place.”

Plaintiffs also pled a public nuisance claim.  In Wisconsin, a public nuisance is “a condition or activity which substantially or unduly interferes with the use of a public place or with the activities of an entire community.” The allegations that defendants’ products were drastically increasing the cost of water treatment facilities, and that these facilities were used to clean the water for the public health, were sufficient. Defendants’ main argument was that they weren’t responsible for the literal clogs, but rather the allegedly inadequate or false warnings that indirectly led to the clogs.  But Wisconsin didn’t require direct causation, only that the defendant (1) had “either actual or constructive” notice of the alleged public nuisance, and (2) failed to “abate” the public nuisance causing the plaintiff’s injury.  Representing that wipes were flushable could be a covered nuisance “activity.”

Tufco brought a separate motion to dismiss. Because it makes wipes for private label customers and is “apparently not a consumer-facing company,” tracking Tufco’s responsibility was more difficult. Still, plaintiffs did allege that Tufco “clearly advertises ‘flushable’ wipes for its consumers” on its website, and it was more than plausible to suggest that this claim mattered to private label customers.  However, for Wisconsin claims, the Tort Reform Act required more.  Plaintiffs needed to allege that Tufco made wipes for a specific company, and that those wipes caused them harm.

Lumps in materiality survey fail to justify its exclusion

Select Comfort Corp. v. Tempur Sealy Int’l, Inc., No. 13-2451, 2016 WL 5496340 (D. Minn. Sept. 28, 2016)

The court resolves various motions surrounding expert testimony in this false advertising case about the effects of certain comparative claims on Select Comfort Sleep Number mattress sales.  The claims were made mostly through the flyer below, though also allegedly through statements from salespeople, the latter including that Sleep Number beds develop mold and that defendant Mattress Firm chose to stop selling Sleep Number due to quality issues.

flyer

In 2013, the Court granted a TRO enjoining Mattress Firm from making various representations to consumers regarding Select Comfort and its products, but lots of issues remain.

For one thing, the court allowed testimony about calculation of profits to stay in, because disgorgement may be an available remedy even though the court previously granted summary judgment against Select Comfort on the issue of willfulness.  Whether disgorgement is available without willfulness is an issue of law reserved for later.  However, the court excluded testimony about Tempur-Pedic’s total profits from sales of products other than Tempur-Choice, the subject of the comparative ads at issue:

Tempur-Choice is the only Tempur-Pedic product with the same feature as the Sleep Number bed—the ability to separately adjust mattress firmness on either side of the bed. Tempur-Pedic’s other mattress lines (not air-adjustable) vary greatly to the extent that they offer different features and sell at different prices. An accounting of profits under the Lanham Act is intended to award profits on sales that are attributable to infringing conduct. While under a disgorgement model Plaintiff must only prove Tempur-Pedic’s sales, those sales must be of the allegedly falsely advertised products.

The court also excluded a lost profits calculation based on comparing Select Comfort’s sales at stores near defendant Mattress Firm stores versus sales at stores not near Mattress Firm stores.  Because the expert didn’t distinguish between Mattress Firm stores where the salespeople made the statements at issue as part of an organized campaign of disparagement from Mattress Firm stores where there was no evidence of such statements, the damages model was inappropriate bootstrapping: it assumed liability to prove liability.  Nor did the model appropriately account for other differences between stores, such as the amount of local advertising Select Comfort invested in.

Hal Poret conducted a survey for Select Comfort.  One group was used to test the materiality of three statements Mattress Firm sales representatives made with regard to Sleep Number beds; another group was questioned about the flyer or a control version of the flyer that didn’t use “hammocking” imagery or claim that Select Comfort used “commodity foam.”  The flyer groups were asked what they understood the flyer to communicate, such as a comparison between Tempur-Choice and Sleep Number beds. The survey used open-ended questions about what the flyer communicated, then questions about specific sections of the flyers such as as “commodity memory foam” and the “hammocking” imagery. Respondents were then shown the flyer and asked about specific parts, with the specific parts marked with a red box, e.g., “What, if anything, does this phrase (with a red box around it) communicate to you about SLEEP NUMBER beds?” and followups about why the statement was negative or positive (depending on the respondent’s answer) and whether it would affect their purchase intentions.

 

survey flyer with check marks

Poret concluded, based on the closed-ended question, 44% of the test group respondents understood the phrase “commodity foam” to communicate something negative, and 31% of the test group respondents answered that the phrase “commodity” memory foam would make them less likely to purchase a Sleep Number bed. In the closed-ended question, 27.5% of the Test Group respondents answered that that Sleep Number beds allow hammocking, and 55% answered that this section of the ad would negatively impact their likelihood of purchasing a Sleep Number bed.  

Poret also tested statements allegedly made by Mattress Firm sales associates that: (1) the store stopped selling Sleep Number beds because too many customers returned them; (2) the store stopped selling Sleep Number beds because too many customers had problems with them; and (3) Sleep Number beds develop mold.  Poret also asked about additional statements aimed at being “control statements.”  Poret concluded that the test statements were “highly material” because high percentages said that the test statements would influence their decisions.  Respondents also said that the control statements would influence their decisions to various degrees, averaging 14%, which he counted as the relevant noise.  Even after subtracting 14% from the test question results, he concluded that the results still “strongly indicate[d]” that the statements or substantially similar statements were material.

Defendants challenged the survey for having an overinclusive sample population: any individual who purchased any memory foam or adjustable air/memory foam mattress in the past two years, or who planned to purchase any memory foam or adjustable air/memory foam mattress in the next two years. Poret did not limit his sample population to those who purchased or planned to purchase mattresses within the relevant price range, and didn’t control for current owners of the parties’ products.  Further, defendants argued the survey didn’t approximate actual market conditions because of the other information consumers would have encountered in the marketplace and because it forced them to pay attention to and understand the challenged claims, which might not have otherwise happened, especially since Poret circled the challenged claims with red boxes (which has a negative connotation).  The court found that none of these criticisms merited excluding the survey, especially given the presence of a control group.

Mattress Firm also challenged Poret’s use of specific statements to test materiality, arguing that its salespeople didn’t say those exact things.  “Mattress Firm can question Poret about his choice of test statements and a jury can decide how much, if any, weight to afford the survey based on that, and other factors.”  Defendants’ own experts could also criticize Poret for not including other factors that might influence mattress purchases.

A defendant expert witness on polyurethanes, however, didn’t have relevant expertise to testify on the meaning of “commodity foam” to consumers:

Here, there is no evidence that Defendants consulted any expert to determine the meaning of “commodity” before creating their advertisement, and it appears that Fogg’s testimony on this point is being offered as an after-the-fact explanation for a marketing decision. Fogg is a polyurethane expert, not a marketing expert, and he has no particular qualification that would allow him to opine on how a consumer would perceive the meaning of the advertisement. 

Migration of false/misleading divide into consumer protection claims continues in infant formula class action

Hasemann v. Gerber Prods. Co., 2016 WL 5477595, No. 15-CV-2995 (E.D.N.Y. Sept. 28, 2016)

In this putative class action, the plaintiffs alleged that Gerber’s advertising and marketing misrepresented that its Good Start infant formula reduces the risk that infants will develop allergies, and also misrepresented that the Infant Formula was the first and only infant formula that the FDA endorsed to reduce the risk of infants developing allergies.

In 2009, Gerber asked the FDA to approve a qualified health claim that “emerging clinical research shows that, in healthy infants with family history of allergy, feeding a 100% Whey-Protein Partially Hydrolyzed infant formula instead of a formula containing intact cow’s milk proteins may reduce the risk of developing the most common allergic disease of infancy — atopic dermatitis — throughout the 1st year of life and up to 3 years of age.”  The FDA found that this claim was misleading, but proposed four alternative qualified health claims, including a qualifying statement: “Partially hydrolyzed formulas should not be fed to infants who are allergic to milk or to infants with existing milk allergy symptoms. If you suspect your baby is already allergic to milk, or if your baby is on a special formula for the treatment of allergy, your baby’s care and feeding choices should be under a doctor’s supervision.”

The statements plaintiffs challenged were: “1st & only routine formula to reduce the risk of developing allergies,” “the first and only formula brand made from 100% whey protein hydrolyzed, and that meets the criteria for a FDA Qualified Health Claim for atopic dermatitis,” and similar claims.  Plaintiffs alleged two misrepresentations: (1) that the formula reduced allergy risk, and (2) that the formula met the criteria for an FDA qualified health claim for atopic dermatitis. Plaintiffs alleged that several scientific studies have concluded that partially hydrolyzed whey protein does not lower the risk that infants will develop allergies.  Further, they alleged that Gerber’s actual statements weren’t one of the four qualified health claims that the FDA approved and, in addition, didn’t include the required qualifying statement.

The FDA sent a warning letter to Gerber about the formula’s advertising, noting that it found the labeling misleading and that it had “previously considered and denied” the statement on the label that it was the “1st & only routine formula to reduce risk of developing allergies.” Consistent with the FDA’s four proposed qualified health claims, Defendant’s labeling and website both stated that there was “limited evidence” that partially hydrolyzed whey protein can reduce the risk of infants developing atopic dermatitis, but the warning letter concluded that by failing to include the qualifying statement required by the FDA, Gerber failed to provide “essential information necessary to ensure the safety of consumers,” and so the labeling was misleading.  The FTC sued Gerber, alleging that the two claims at issue here were false, misleading, and, for (1), unsubstantiated.

The court first declined to wait for the FTC under the primary jurisdiction doctrine.  Plaintiffs’ false advertising claims didn’t involve technical considerations within the particular expertise of either the FDA or the FTC.   There was no need to wait for an investigation to conclude, because the FTC had already sued.

However, plaintiffs lacked Article III standing to seek injunctive relief because they didn’t allege any intent to buy the formula in the future.  (Hey, with respect to formula in particular, why isn’t this “capable of repetition, yet evading review,” given its close connection to infant development and the fact that all consumers will age out of the product fairly quickly?  If there was standing in Roe v. Wade, it would seem also justified here.)

The court then ruled that, given state precedent, Wisconsin Deceptive Trade Practices Act § 100.18, which “generally prohibits false, deceptive, or misleading representations or statements of fact in public advertisements or sales announcements,” didn’t cover food, but only “real estate, merchandise, securities, service or employment”; an intermediate state court previously held that “merchandise” doesn’t mean “food” here because a different section of the law specifically mentions food and doesn’t provide for a private right of action.

However, § 100.20(2)(a) authorizes the Wisconsin Department of Agriculture, Trade and Consumer Protection “to ‘issue general orders forbidding methods of competition in business or trade practices in business which are determined by the department to be unfair.’ ” “Section 100.20 also authorizes a private right of action,” permitting “[a]ny person suffering pecuniary loss because of a violation by any other person of any order issued under this section [to] sue for damages ....” And, pursuant to this authority, the department has issued a general order requiring food sold in Wisconsin to be labeled in compliance with FDA rules.  Here, the FDA has found that the labeling at issue was misleading.

Gerber argued that the FDA had closed its investigation, making the warning letter irrelevant.  Gerber relied on a 2015 letter stating that the FDA has completed “an evaluation” of Defendant’s “corrective actions in response to [the FDA Warning Letter]” and that it “appears that [Defendant] addressed the violations contained in [the FDA Warning Letter].”  The court wouldn’t consider this letter on a motion to dismiss.

Gerber also argued that plaintiffs were bringing a mere lack of substantiation claim, not a misleadingness/falsity claim, which they couldn’t do as private plaintiffs. Gerber contended that its qualified health claim wasn’t literally false because the FDA determined that its representations regarding atopic dermatitis were “generally consistent” with the qualified health claims proposed by the FDA, and that the FDA found that there was some scientific support for its qualified health claim.  But plaintiffs were claiming misleadingness, not literal falsity, because of the absence of the qualifying statement required by the FDA.

Plaintiffs also alleged that the allergy risk reduction claim was false because the FDA determined in 2006 that there was no scientific evidence to support the claim and because a 2011 scientific study contradicted Gerber’s claim. That was sufficient to allege falsity.

Likewise, the misleadingness of the FDA endorsement claim was sufficiently alleged, which was enough under Florida law—but it wasn’t enough for Wisconsin law, which the court found to require literal falsity. (This seems like an extreme overreading of Wisconsin law’s reference to “falsity” to me—a falsehood can be express or implied, and Wisconsin doesn’t explicitly limit its coverage to “explicitly false” claims, nor is there a good policy reason for it to have chosen to do so.) 

Gerber also invoked the awful In re GNC Corp. case, where the Fourth Circuit held that “in order to state a false advertising claim on a theory that representations have been proven to be false, plaintiffs must allege that all reasonable experts in the field agree that the representations are false.” The court here distinguished GNC because, in GNC, “there was some credible scientific evidence supporting the allegedly deceptive representations,” but plaintiffs alleged that there was no credible scientific evidence supporting Gerber’s allergy risk reduction claim. “[F]actual disputes about whether the scientific evidence actually disproves the qualifying health claim, or whether there is mere scientific debate regarding the qualifying health claim, cannot be resolved by the Court on a motion to dismiss.” Anyway, whether there was some scientific support was relevant to explicit falsity, but not to misleadingness.

Finally, this was not a lack of substantiation claim.  “Under Florida law, a claim that a representation is false or misleading because it has been disproven or contradicted by scientific evidence is not a lack-of-substantiation claim.”  Plaintiffs alleged that Gerber’s qualified health claim was misleading without the qualifying statement, and that the allergy risk reduction claim was literally false because it was contradicted by all of the credible scientific evidence: that was more than lack of substantiation.

Plaintiffs also properly alleged causation under Florida’s Deceptive & Unfair Trade Practices Act, which didn’t require actual reliance but only that an objective reasonable person would have been deceived.  For other Florida and Wisconsin claims, plaintiffs needed to allege justifiable reliance, which they did—reliance is unreasonable if they had notice of facts which would have told them the truth, but that didn’t appear from the pleadings.

Plaintiffs’ price premium theory also sufficiently alleged damages.  Plaintiffs don’t have to plead the price of comparable products to allege that they paid more than the product was worth. 

Failure to disclose expiration date when existence of expiration is disclosed isn't misleading

Cline v. TouchTunes Music Corp., 2016 WL 5478432, No. 14 Civ. 4744 (S.D.N.Y. Sept. 29, 2016)

A couple of general points from this state law class action over a music service: GBL Section 349 makes unlawful “[d]eceptive acts or practices in the conduct of any business, trade or commerce or in the furnishing of any service in this state,” and GBL Section 350 has similar wording for false advertising.  Neither named plaintiff resided in New York or alleged that she accessed TouchTunes’ services or used a TouchTunes jukebox in New York. 

The New York Court of Appeals has held that the transaction in which consumer is deceived must occur in New York for these provisions to apply. But the court’s analysis didn’t turn on residency “because the statute neither was intended to police out-of-state transactions by New York companies nor to bar out-of-state plaintiffs with claims based on New York transactions.”  The Second Circuit has subsequently focused on where the relevant transaction took place, since there’s no per se bar on out-of-state plaintiffs.

For app and credit card users, TouchTunes processes customer payments in New York, where it’s based. Plaintiffs also alleged that TouchTunes’ music servers were in New York. The TouchTunes Terms of Use Agreement provides that “any dispute between [the user] and TouchTunes will be governed by the law of the State of New York” and that those disputes must be brought in New York state or federal courts.  It was a fair inference that the users’ music selections were transmitted electronically to TouchTunes’ New York servers. Thus, the court would consider New York claims based on use of the TouchTunes App and the purchase of credits at jukeboxes by use of credit cards, but not to cash users of TouchTunes jukeboxes.  For cash users, “the ultimate recipient of their out-of-state payments, a governing law-choice of forum provision in a “click-wrap” agreement on out-of-state electronic jukeboxes, and the location of TouchTunes’ servers” weren’t enough to justify the application of New York law.

Under §349, plaintiffs brought claims of three separate misleading acts: that (1) App users were not refunded for unplayed songs even though TouchTunes has the technical capability to do so, (2) TouchTunes failed to disclose that venue owners were able to skip paid-for songs and that the Terms of Use were misleading as to this fact, and (3) TouchTunes misled App users by failing to disclose the expiration dates of credits purchased through the App.

(1) failed because a refusal to refund credits wasn’t in and of itself misleading; plaintiffs didn’t allege facts to suggest that they reasonably expected such a refund, and TouchTunes Terms of Use stated that refunds wouldn’t be issued for unplayed songs “under any circumstances.” That might be distasteful, but it wasn’t deceptive or misleading.

(2), however, was a legitimate claim.  Although the complaint alleged that plaintiffs witnessed bartenders or managers at TouchTunes-equipped venues skip songs in the TouchTunes queue, that fact doesn’t mean that a reasonable consumer would be well aware that their songs might be skipped. The Terms of Use disclosed generally that songs may not play and that consumers will not receive a refund “under any circumstances.”  But that disclosure didn’t indicate that venue owners could deliberately skip songs, instead stating that songs might not play due to “factors, including the inherent unreliability of the Internet” or the “inaccessibility or technical failure of my TouchTunes.” This language could plausibly have led reasonable consumers to believe that the only reason songs wouldn’t play was because of technical failures beyond any party’s volitional control.

(3) also failed because the Terms of Use didn’t say or suggest anything about the expiration time period was, just that expired credits wouldn’t be usable.  “Where customers were made aware of the fact that credits will expire but were given no indication of the length of the expiration period, they cannot claim to have been misled.”

Failure to reevaluate at summary judgment leads to fee award in false advertising case

Design Resources, Inc. v. Leather Indus., 2016 WL 5477611, No. 10CV157 (M.D.N.C. Sept. 29, 2016)

After defendants Leather Industries (LIA) and Ashley Furniture prevailed in this false advertising case, they sought a fee award.  The Fourth Circuit applies the Octane Fitness standard in Lanham Act cases: exceptional cases deserving fee awards are those “ ‘that stand[ ] out from others with respect to the substantive strength of a party’s litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated.’ ” More specifically, courts consider whether

(1) there is an unusual discrepancy in the merits of the positions taken by the parties, based on the non-prevailing party’s position as either frivolous or objectively unreasonable, (2) the non-prevailing party has litigated the case in an unreasonable manner; or (3) there is otherwise the need in particular circumstances to advance considerations of compensation and deterrence.

Something less than bad faith is required; “[r]elevant considerations include[ing] economic coercion, groundless arguments, and failure to cite controlling law.”

Here, DRI argued that its claims survived early motions and were only dismissed at summary judgment, and thus weren’t frivolous or objectively unreasonable.  LIA argued that DRI should have known that it couldn’t prevail with the evidence gathered during discovery.  Ashley pointed out that, on appeal, the Fourth Circuit described DRI’s literal falsity by necessary implication claim as “confounding,” requiring the court to accept that the ad meant the opposite of what it said.  DRI responded that it failed to prevail because it didn’t show misleadingness, but that didn’t make its claim groundless.  However, “the Lanham Act provides for an award of attorneys’ fees when the conduct of the litigation becomes unreasonable over time.” A plaintiff is thus “obligated to continually assess the strength of its claim throughout the litigation.”

The court found that the case began as an objectively reasonsble claim; DRI could have thought it was a target of Ashley’s ad against suppliers “using leather scraps that are misrepresented as leather.”  However, discovery failed to show literal falsity or misleadingness.  DRI’s own evidence didn’t show any consumer confusion, and that changed the context of the case.  Thus, fees should be awarded “as a result of Plaintiff’s failure to continually assess the substantive strength of its litigation position, particularly by the conclusion of discovery.”

Defendants also argued that DRI litigated the case in a needlessly aggressive way.  However, “conduct triggering relief must go beyond an aggressive litigation strategy.”  But deterrence goals supported a fee award: litigants should know not to pursue their claims “when the claim has fallen apart following discovery due to a lack of supporting evidence.”

Thus, the court awarded fees of $274,036 to Ashley and $250,676 to LIA on the Lanham Act claims, and commented that it would have reached the same result under North Carolina law (for the coordinate state law claims).

Right of publicity/passing off blast from the past

From The Spirit of the Times, May 21, 1845

"Gen. Tom Thumb's father brought suit in Paris, against the manager of a theatre, who announced a play called Tom Pouce, (Thumb,) while the General was exhibiting himself at another place. The tribunal decided in favor of the General, the name of Tom Pouce had to be removed from the bills, and the manager paid the costs of suit. The piece was produced as 'Tom Pouff' afterwards."

H/T Zach Schrag

when are state law unfair competition claims preempted?

Duer v. Bensussen Deutsch & Associates, Inc., 2015 WL 11256568, No. 14-CV-01589 (N.D. Ga. Jul. 8, 2015)

Very broad preemption finding makes me blog this older case that popped out of Westlaw.  Duer makes medicine dosage adherence tools suitable for affixing to pill bottles. The product has seven slides, each representing a day of the week, and a user moves a slide each day she takes a pill.  Duer claimed rights in the trademark “Take-n-Slide”; a utility patent; and copyright in the insert sheet packaged with her product.  Defendants allegedly copied Duer’s product and package insert sheet, which she discovered when one of their customers contacted her, believing that they’d received her product.

Duer properly alleged non-functionality by identifying  several non-functional elements, including the particular shape of the product, the vertical arrangement of the days of the week, and the chosen color scheme. “The existence of a utility patent which contains claims that may include the above elements does not change the analysis.” The utility patent was strong but not conclusive evidence of functionality; she was entitled to try to meet her “heavy” burden of showing nonfunctionality. Duer also properly pled secondary meaning, with details about her ad expenditures, how long she’d advertised, and at least one instance of actual confusion as well as intentional copying.

However, the court dismissed Duer’s claims for false advertising and unfair competition.  False advertising: the product insert allegedly actually displayed Duer’s product.  However, this wasn’t “commercial advertising or promotion,” because it wasn’t disseminated to influence consumers to buy defendants’ goods.  “A product insert cannot influence a consumer’s purchasing decision because the public would only see a product insert after purchasing the product.”

Duer’s unfair competition/passing off claim failed because she failed to allege that defendants weren’t the actual, physical origin of the products it sold.  This seems quite wrong: her argument was that defendants sold products that were falsely attributed to her; the fact that they are the origin is kind of the point.

More plausibly, but still interestingly, the court held that Duer’s Georgia Uniform Deceptive Trade Practice Act and her tortious interference with contract claim were preempted by the patent/copyright laws because they relied on the same conduct alleged in her patent, copyright, and trade dress infringement claims.  [Sloppiness here: there’s no preemption based on the trade dress-related claims, on these facts.]  Duer was essentially arguing reverse passing off—that defendants were claiming her design as their own—which courts routinely find to be preempted.

Duer argued that her GUDTPA claim had an “extra element” of a deceptive act, but reverse passing off implicitly contains a deceitful act or misrepresentation.  “The fact that the defendants were selling the allegedly infringing works under their own names—and, hence, implicitly misrepresenting the origin of the works or causing confusion in the consuming public cannot alter the finding of preemption.” 

Parody product fails to squeak through the cracks in dilution/infringement claim

VIP Products, LLC v. Jack Daniel’s Properties, Inc., No. 14-cv-02057 (D. Az. Sept. 27, 2016)

The court denied VIP’s motion for summary judgment on its declaratory judgment action against JDPI, and also kicked out a number of VIP’s defenses, leaving confusion and dilution claims for trial based on VIP’s “Bad Spaniels” durable rubber squeaky novelty dog toy, which is in the shape of a liquor bottle and features a wide-eyed spaniel over the words “Bad Spaniels, the Old No. 2, on your Tennessee Carpet.” On the back of the Silly Squeakers packaging for the Bad Spaniels toy, it states: “This product is not affiliated with Jack Daniel’s.”

 VIP's product, on left

VIP's label

The court found that VIP couldn’t be engaged in nominative fair use because this defense only applies where a defendant uses the plaintiff’s identical mark or trade dress, which VIP didn’t.  “[I]t is the defendant’s very use of the plaintiff’s identical trademark that makes the nominative fair use analysis necessary rather than application of AMF Inc. v. Sleekcraft Boats, 599 F.2d 341 (9th Cir. 1979) which utilizes eight factors to focus on the similarity of the trademarks used by the plaintiff and the defendant in order to determine liability for likelihood of confusion in the marketplace.”  This is an extremely tone-deaf reading of New Kids, because it’s the reference to the plaintiff, not the identicality of the marks, that drives the First Amendment interests justifying a different liability test.  The fact that a trademark owner can claim confusion based on a parodic reference to it makes the need for New Kids at least as great when the reference also involves distortion.

Then, and arguably worse, the court found that VIP couldn’t raise a First Amendment defense because its dog toy wasn’t an artistic or expressive work.  Aaaaaaaaaaargh.  OK: (1) Both parties claim that the markings, shape and coloration of the dog toy communicate a message, though they disagree about what that message is.  That means that the dog toy is expressive, even if it’s not a painting.  (2)  Expressive is not the opposite of commercial speech, nor is it the opposite of “has trademark significance”; the dog toy is not, in any event, commercial speech. (3) The trademark owner’s claim seeks to suppress an allegedly infringing message, not any nonexpressive characteristics of the dog toy: trademark regulates communication, which doesn’t make it unconstitutional but does mean that extending it beyond commercial speech is dicey business indeed. 

Nonetheless, the court found that regular Sleekcraft applied. “[T]he First Amendment affords no protection to VIP because it is trademark law that regulates misleading commercial speech where another’s trademark is used for source identification in a way likely to cause consumer confusion.”  Why is the design of the product commercial speech?  Because “VIP makes trademark use of its adaptations of JDPI’s trademarks and the Jack Daniel’s trade dress to sell a commercial product, its novelty dog toy,” and thus it has “the dual purpose of making an alleged expressive comment as well as the commercial selling of a non-competing product.”

A reasonable trier of fact could find likely confusion and dilution of a famous mark. VIP also failed to exclude the report and the testimony of JDPI’s dilution expert, Dr. Itamar Simonson, who opined on “the implication(s) of the association between the Bad Spaniels toy and Jack Daniel’s whiskey on JDPI’s trade dress and trademarks and the meaning of the mark/brand to consumers.”

JDPI proposed that Simonson would discuss: 1) The basics of consumer behavior and “how marks such as famous trade dress are represented in memory”; 2) the basics of the “associative network memory model” which are accepted by experts in the consumer behavior field; 3) the application of the “associative network memory model” to the instant case; and 4) the conclusion that VIP’s Bad Spaniels toy causes negative implication for JDPI’s trade dress and marks and thus is likely to tarnish them.  The court allowed his testimony as admissible based his knowledge, training and experience rather than on his use of scientific evidence with a testable, proven methodology.  Surveys, focus groups, studies, or other real world tests weren’t required for him to apply his expertise to the facts of the case.

Texas and 3 other states sue to block ICANN transition

Read the complaint.  Let me know if you can make sense of the theory.

Ad featuring old, mild citations against health facility was false by necessary implication

Heartland of Urbana OH, L.L.C. v. McHugh Fuller Law Group, P.L.L.C., 2016 WL 5375676, 2016 -Ohio- 6959, No. 2016–CA–3 (Ct. App. Sept. 23, 2016)

Heartland appealed from summary judgment granted to McHugh in Heartland’s deceptive trade practices case against McHugh, and the court of appeals reversed, finding that the relevant ad was false by necessary implication and that injury was presumed because the ad targeted Heartland.

In 2014, McHugh published a full-page ad and online ad in the Urbana Daily Citizen newspaper that discussed Heartland, a skilled nursing care facility located in Urbana, Ohio. The ad contained a picture of Heartland’s facility in Urbana, and stated:

ATTENTION!

The government has cited HEARTLAND OF URBANA NURSING AND REHABILITATION CENTER for failing to provide necessary care and services to maintain the highest well-being of each resident. If you suspect that a loved one was NEGLECTED or ABUSED at Heartland of Urbana, call McHugh Fuller today! Has your loved one suffered?

Bedsores

Broken Bones

Unexplained Injuries

Death

“Attention,” “Neglected or Abused,” and “Death,” were in red, bold type. “Cited” was also underlined in red.

In fact, Heartland had not had a citation of any kind for over two years, and had not had a citation remotely similar to the one alleged in the advertisement since June 24, 2010, more than four years previously. Even the June 2010 citation did not cause harm to any nursing home patient, and the deficiencies had been corrected in June 2010.  Under Federal standards, violations are assessed by letters ranging from “A” to “L,” with “L” being the most severe. “J,” “K,” or “L” violations mean that a nursing facility is in immediate jeopardy, and is in risk of being cut-off from Medicare reimbursement. The particular violations on June 24, 2010 were only “E” and Level 2 violations, “which, at worst, contemplate only minimal physical discomfort and the potential to undermine a given resident’s ability to maintain or reach his or her highest practicable well-being, in light of definitions of that resident’s plan of care.”

According to Heartland, “negligence, abuse, bedsores, broken bones, unexplained injuries, and death” would have Level 4 severity. By contrast, three matters that were involved in the June 24, 2010 citation, were: a failure to document and administer laxatives prescribed for constipation; a failure to timely reassess abdominal pain for 18 hours; and a failure to apply prescribed antibiotic for two weeks after a physician had ordered a culture.

Subsequently, the legislature amended state law to prohibit the use of the results of an inspection or investigation of a home in an ad unless the ad included:

(i) The date the inspection or investigation was conducted;

(ii) A statement that the director of health inspects all homes at least once every fifteen months;

(iii) If a finding or deficiency cited in the statement of deficiencies has been substantially corrected, a statement that the finding or deficiency has been substantially corrected and the date that the finding or deficiency was substantially corrected;

(iv) The number of findings and deficiencies cited in the statement of deficiencies on the basis of the inspection or investigation;

(v) The average number of findings and deficiencies cited in a statement of deficiencies on the basis of an inspection or investigation conducted under this section during the same calendar year as the inspection or investigation used in the advertisement;

(vi) A statement that the advertisement is neither authorized nor endorsed by the department of health or any other government agency.

Query: what are the First Amendment implications of this rule?

The trial court found that this legal change had mooted Heartland’s claim.  The court of appeals reversed, because if McHugh willfully violated the state Deceptive Trade Practices Act, Heartland would be entitled to attorneys’ fees.

Ohio courts follow the Lanham Act in interpreting the DTPA.  The court of appeals found the ad false by necessary implication.  “When the advertisement was published, McHugh, a law firm, would have known that any claims based on the June 24, 2010 citations were barred due to the statute of limitations.”  McHugh also had access to information that Heartland wasn’t cited in 2012 or 2014, and that none of the 2010 citations related to harm to residents. “[T]he only reasonable conclusion is that the advertisement falsely implied Heartland was a facility where patients were being exposed to very dangerous conditions, including death,” which justified a finding of intent to deceive consumers.

In noncomparative advertising, plaintiffs must show causation and harm, but a material, misleading comparison to a specific product necessarily causes harm to the target, relieving the target of its burden of separately showing causation and harm.  The court of appeals applied this rule here, to the broader category of “misleading advertisements identifying a specific party,” although the ad wasn’t comparative. The court of appeals did say that the presumption of causation and injury was rebuttable.

Conversation on fan films and copyright, part 2

My exchange with Henry Jenkins can be found here.  Part 1 here.

Transformative work of the day

Shot by shot recreation of photos with male and female roles reversed, in response to a sexist GQ pictorial. Transformative, but in a good way—the reverse of the mocking transformations I cataloged in My Fair Ladies.