can a retailer be directly liable for false advertising on packages?

two cases (out of several involving this plaintiff)

Outlaw Laboratory, LP v. Shenoor Enterprise, Inc., 2019 WL 1040644, No. 18-CV-2299-B (N.D. Tex. Mar. 4, 2019)

Outlaw, which makes male dietary supplements, sued convenience stores because they “advertise and offer for sale” competing male dietary supplements, the Rhino products, that were allegedly falsely labeled “all natural” and state they contain “no harmful synthetic chemicals.” (The FDA has announced that certain products, including the Rhino products, contained potentially dangerous hidden drug ingredients.) The court found that displaying and selling the products weren’t enough for [direct] Lanham Act liability. [Secondary liability seems like a potential theory, though.]

Standing: the court expressed concerns about Article III standing—whether plaintiff’s injury was traceable to the defendants’ alleged conduct—as well as Lanham Act standing—whether the injury was proximately caused by that conduct. I’m pretty surprised by the former, without more discussion; if plaintiff allegedly lost sales when a consumer bought the products defendants stocked, then defendants’ conduct was at least a but-for cause of those losses. But the court disagrees: “it is difficult to see how merely placing products on display and selling them qualifies as conduct that caused Plaintiff’s injuries under Article III or the Lanham Act.”

Can a defendant “who merely sells a product at a retail outlet” be held liable for false advertising under the Lanham Act? Start with the text:

Any person who, on or in connection with any goods or services, or any container for goods, uses in commerce any...false or misleading description of fact, or false or misleading representation of fact, which...in commercial advertising or promotion, misrepresents the nature, characteristics, qualities, or geographic origin of his or her or another person’s goods, services, or commercial activities, shall be liable in a civil action by any person who believes that he or she is or is likely to be damaged by such act.

The test has been reframed as requiring “that the defendant made a false statement of fact about its product in a commercial advertisement.” The court didn’t believe that it had been alleged that defendants “made” a false statement of fact by offering the falsely labeled products for sale; only the nonparty manufacturer “made” statements in commercial advertising or promotion, even with allegations that defendants knew of the falsity.

Outlaw argued that selling the products necessarily involved the “use[ ] in commerce” of a “false or misleading description of fact, or...representation of fact” “in connection with any goods or services, or any container for goods[.]” [A trademark case would have zero hesitation concluding that defendants made a “use in commerce” of the Rhino mark, which was on the very same packages as are at issue here.] But false advertising also requires a misrepresentation “in commercial advertising or promotion.”

Outlaw didn’t cite binding caselaw supporting its claim.  [Basically, the court rejects trademark cases as inapplicable because in trademark cases it’s retailers’ “use” (which is to say placing on sale) of an infringing mark that causes confusion.  The court doesn’t discuss any policy basis for the divergent treatment, and if the retailers are “causing” confusion in those cases even though they don’t create the infringing goods or copy the infringing mark, then why aren’t they “causing” deception here?  But the court understandably returns to its conclusion that the defendants must have “made” false statements.]

Another case, JST Distrib. v. CNV, et al., 2:17-cv-06264 (C.D. Cal. Mar. 7, 2018), was factually similar to this one, where the defendant argued that it hadn’t made the allegedly falsely advertised products or the ads, but just posted them on its website and sold the products. The district court held that the website owner could still be held liable because the plaintiff alleged that the website owner “disseminated the false advertising through its website.” The court agreed that placing products on sale in a brick-and-mortar store isn’t “disseminating” false advertising.

The court found other nonbinding cases more persuasive. Cohn v. Kind, LLC, 2015 WL 9703527 (S.D.N.Y. Jan. 14, 2015) (under NY law, retailers’ sale of allegedly falsely labeled power bars wasn’t advertising); Optimum Technologies, Inc. v. Home Depot USA, Inc., 2005 WL 3307508 (N.D. Ga. Dec. 5, 2005) (displaying a competitor’s product under signs labeled with the plaintiff’s product name wasn’t commercial speech for Lanham Act purposes); and a number of state false advertising law cases that hold “that a defendant should not be liable, whatever the cause of action, for merely selling a product affixed with a false label, so long as the defendant had no role in creating the label.”  These were only minimally persuasive because of the different legal regimes, but still better than plaintiff’s cases.  Burger v. Lowe’s Home Centers, LLC, 2016 WL 1182266 (Cal. App. 4th Dist., 2016), reh’g denied (Apr. 26, 2016) (“The trial court agreed with [the retailer’s] argument a retailer cannot be held liable for the statements of others by merely placing the product on its shelves for resale. The court determined the false advertising claim was based solely on the product’s packaging, which was produced by the manufacturer or distributor and not [the retailer].”); In re Hydroxycut Mktg. & Sales Practices Litig., 801 F. Supp. 2d 993 (S.D. Cal. 2011) (“Plaintiffs suggest that the Defendant Retailers can be held liable under the consumer protection laws for placing the falsely advertised Products on the shelf and failing to disclaim the Manufacturer Defendants’ representations. However, none of the cases cited by Plaintiffs...supports this legal proposition.”); Fagan v. AmerisourceBergen Corp., 356 F. Supp. 2d 198 (E.D.N.Y. 2004) (drugstore was not liable for negligent misrepresentation for selling mislabeled drugs without evidence that it “itself, made any false statement or material misrepresentation” or that it “affixed the label, which contained the alleged misrepresentation”).

The court also analogized to Baldino’s Lock & Key Serv., Inc. v. Google, Inc., 88 F. Supp. 3d 543 (E.D. Va. 2015) (Google not liable for misrepresentations made by third parties in ads), aff’d, 624 F. App’x 81 (4th Cir. Dec. 4, 2015), and Lasoff v. Amazon.com, Inc., 2017 WL 372948, at *8 (W.D. Wash. Jan. 26, 2017) (Amazon could not be held liable for “truthfully depict[ing]” products of third-party sellers that were labeled with false representations). Lasoff involved a party, Amazon, who was actually selling the third-party products, like the defendants here, though it was also a summary judgment case and might not have reached the same result if Amazon had actual knowledge of the falsity, as alleged here. [Which is why secondary liability is a better theory.] But Lasoff involved little or no record evidence, and the allegations of knowledge here were conclusory.

The court was more convinced by the policy implications: “Defendants undoubtedly sell many products—should they be responsible for scrutinizing and determining the veracity of every claim on every product label in their stores simply because they sell the product?”  [Who should be?  In a globalized economy, are we so sure that we can always grab the manufacturer?]  The court answered “no” for false advertising.  It’s not that retailers or sellers can never be held liable for false advertising, but they can’t be held liable based solely on display and sale of the Rhino products in their stores.

“[I]f these claims are permitted, the scope of the Lanham Act would be dramatically expanded. False-advertising cases like this one would turn retailers into the guarantors of manufacturers that falsely label their products. The Court declines to construe the Lanham Act so broadly.” [Note that it’s all right for some: contrast the trademark rule.]

The court allowed leave to replead, but cautioned that “re-litigating the issues raised in the instant motions through future frivolous, repetitive filings will result in the imposition of sanctions, including dismissal, monetary sanctions, and restrictions on the ability to file pleadings in this court.”

Outlaw Laboratory, LP v. Trepco Imports & Distribution, Ltd., 2019 WL 1173347, No. 18-cv-00369-JAD-CWH (D. Nev. Mar. 11, 2019)

Outlaw sued two wholesalers and eight retailers of competing male-enhancement products for falsely advertising “all natural” composition while containing synthetic ingredients like sildenafil nitrate, aka Viagra.  The remaining defendants moved to dismiss on standing grounds. The court found standing, but also that Rule 9(b) hadn’t been satisfied, and dismissed the complaint without prejudice.

In the abstract, defendant-wholesaler Trepco could be sued under the Lanham Act even though it didn’t  manufacture or make packaging. Disseminating the false advertising on the products’ packaging could fall within the language of the Lanham Act (relying on Grant Airmass Corp. v. Gaymar Indus., Inc., 645 F. Supp. 1507, 1512 (S.D.N.Y. 1986) (finding that defendant who independently distributed and presented false report that it used against plaintiff competitor could still be liable for false advertising)), a contributory infringement case not cited by the other Outlaw opinion above.  Nonetheless, the specific allegations here weren’t enough; the complaint lumped the defendants together too much and didn’t specify which claims are made by which product or what products Trepco allegedly sold.

Claims against the retailer defendants failed for similar reasons, though the court also rejected their Article III standing argument. “In a false advertising suit, a plaintiff establishes Article III injury if some consumers who bought the defendant’s product under a mistaken belief fostered by the defendant would have otherwise bought the plaintiff’s product.” To do so, a plaintiff may “provide direct proof such as lost sales figures, or may rely on ‘probable market behavior’ by establishing a ‘chain of inferences showing how defendant’s false advertising could harm plaintiff’s business.’”  Outlaw’s allegations that the sales of the accused products hurt sales of its competing products sufficed, even without “solid data,” at the pleading stage.  It properly alleged that the retailer-defendants’ acts of putting the accused products out for sale harmed its own sales.  Likewise, Outlaw pled statutory standing, even though the parties aren’t direct competitors.  (Actually, it sounds like they are—Outlaw alleged that it both made and sold its products directly to consumers, which sounds like it’s in competition with anyone in the chain.)  The court accepted that, as manufacturer of these sexual performance supplements, Outlaw was in direct competition with “those who manufacture, sell, distribute[,] and market sexual performance enhancement products” and targeted the same customers, which allegations were enough for Lanham Act standing.

Outlaw, however, made insufficiently specific allegations about how it knew the retailer-defendants sold the products, when the retailers stocked them, or how they disseminated the allegedly false messages: “were the products merely on a shelf available for purchase, or did the retailers display them in some prominent way?” Rule 9(b) required more.

unauthorized use of model's photo for strip club wasn't false advertising or endorsement

Edmondson v. 2001 Live, Inc., 2019 WL 670201, No. 16-cv-03243-T-17AEP (M.D. Fla. Jan. 15, 2019)

Edmondson, a model and public figure, sued for the alleged commercial misappropriation of her image used on 2001 Live’s social media account promoting its “gentleman’s” club’s live feed of the stage and dressing room. Edmondson has appeared in various magazines and reality TV episodes, served as “Playmate of the Month,” and signed as an official model for swimwear and sports companies. She had 1.6 million Instagram followers, over 41,000 Facebook likes, and over 201,000 Twitter followers.  Defendants used a photo of her with the text:

Cyber-Monday was here, and we got a little sick of all the “check out this 1//2 price gadget” posts! We want to give someone something, specifically a FREE 30-day subscription to http://www.2001live.com! All we need is at least 20 likes for this post by tomorrow morning!

Defendants had outside vendors for social media monitoring, and their corporate representative testified that he believed those vendors had the authority and consent to use Edmondson’s image.

The Lanham Act claims failed.  False advertising: The image of her was literally true/not false; it didn’t identify Edmondson and attribute statements to her, and it wasn’t altered. Edmondson argued that it necessarily implied her association with and endorsement and support of the defendants’ “business, the strip club lifestyle, and activities known to occur on Defendants’ premises.” The court disagreed; the image was ambiguous because “it provides no explanation or context for the relationship between the model, Defendants’ establishments, Defendants’ websites or any subscription service offered by Defendants.”  The image could be misleading, but not literally false. 

However, there was insufficient evidence of consumer deception. Edmondson submitted an expert report purporting to show confusion about her endorsement of defendants. Although the survey was admissible, it wasn’t good enough to show deception because it didn’t use a control group or have respondents who were actual patrons of defendants’ services. The group had attended a strip club in the last two months, but it wasn’t taken from defendants’ client list, e-mail list, or actual patrons in compiling his survey respondents.  Nor were there any individual statements from patrons or others who saw the ads and believed that Edmondson endorsed the club or would be present at any events. 

Separately, there was insufficient evidence of materiality. Ninety percent of survey respondents said they were more likely to consider the possibility of attending the club after viewing images with models than they were to consider it after viewing the same ads but without the models. But that wasn’t evidence of the materiality of this image because there was no control group or inclusion of patrons or potential patrons of this strip club.  Further, the court thought that an expression of likely interest wasn’t the same thing as actually being likely to visit.  [It’s not clear to me what would show materiality in a survey, then, unless the court didn’t like the wishy-washiness of the question and even then it’s hard to frame something that makes sense; “I definitely would go” is not a realistic response from a survey-taker.  The real problem is that the survey did nothing to show that Edmondson’s image mattered as compared to a properly licensed stock image of a beautiful woman.]

False endorsement also failed as a theory. Edmondson had standing for this theory because she had “an existing intent to commercialize an interest in identity.” [The court is quoting other cases but if it’s a trademark theory she shouldn’t be able to use it without more than intent; intent to use a mark is not enough to have a protectable mark in any other context. That said, her activities go beyond intent to active commercialization, so I don’t think it makes a difference here.]

In a celebrity false endorsement case the most relevant confusion factors include the strength of mark, the existence or extent of actual confusion, and defendants’ intent to misappropriate plaintiff’s goodwill.  Edmondson argued that she had a strong mark, but presented nothing specific about her degree of recognition among defendants’ consumers. The survey didn’t ask whether any respondents recognized her. Strength favored defendants.

The survey also didn’t show actual confusion; this favored defendants.

Intent: there was an issue of fact about who created and uploaded the social media posting and whether or not defendants knew that the use of the image was unauthorized, “which would belie any intent on their part. Thus, the Court finds that this factor is neutral.”

Comment: Intent to do what? This gets at a key problem with some kinds of false endorsement claims.  Probably defendants didn’t intend to use unauthorized images—but using stock images to which they had purchased rights would have sent the exact same message, or not, to consumers about whether the models therein had endorsed the advertised venues.  The FTC thinks that unidentified models in ads aren’t generally serving as endorsers, just as models, unless there is some extra reason to think that they’re doing endorsement work—that extra reason could include having enough of a reputation that would make them seem to be experts about the factual claims being made, like a racecar driver making claims about tires. But according to the FTC, even a well-known entertainer won’t be treated as an endorser under circumstances that indicate she’s not presenting her own views. 

Taken together, Edmondson’s claim couldn’t survive summary judgment.

occasional door-to-door false claims covered by state, but not federal, false advertising law

Vivint, Inc. v. Northstar Alarm Services, LLC, a Utah limited liability company, 2019 WL 1098986, No. 16-cv-00106-JNP-EJF (D. Utah Mar. 8, 2019)

The parties compete in the market for electronic home automation and security systems. They market themselves in various ways, but a majority of sales come from door-to-door or direct-to-home sales.. Vivint presented evidence of 216 individual Vivint customers who experienced deceptive sales practices by NorthStar representatives between 2012 and 2015.  It sued for deceptive trade practices in violation of the Utah Truth in Advertising Act; violation of the Lanham Act; unfair competition; and intentional interference with customer contracts.

Interpreting the Utah Truth in Advertising Act, which lists a number of banned deceptive practices, the court found that “advertising” was not a threshold requirement of each banned practice. Rather, if the listed item didn’t include “advertising,” then it was banned even if it occurred in door-to-door solicitation and not “advertising.” A previous federal district court had disagreed because the UTAA’s purpose statement “effectively imposes an overarching requirement that otherwise actionable conduct constitute advertising.” In the absence of a state court ruling, the court here reexamined the issue and determined that “the plain language of the statute does not limit the covered conduct to advertising.” The purpose statement says:

The purpose of this chapter is to prevent deceptive, misleading, and false advertising practices and forms in Utah. This chapter is to be construed to accomplish that purpose and not to prohibit any particular form of advertising so long as it is truthful and not otherwise misleading or deceptive.

There’s also a definition of “advertisement” that excludes “any oral, in person, representation made by a sales representative to a prospective purchaser.” But in Utah, “a statement of purpose is generally ‘not a substantive part of the statute’ ” and “cannot override the clear terms of the law.” The substantive part of the law listed twenty-odd “deceptive trade practices,” some of which included the words “advertisement” or “advertising” and others didn’t. The definition of “advertising” applied only where the term was used to define the deceptive trade practice at issue. “If the Utah Legislature had intended that limitation to apply to the entire statute, it would have been listed not in the definitions section, but in the section … titled ‘Exemptions.’”  Here, the alleged violations didn’t require “advertising,” e.g., causing confusion “as to the source, sponsorship, approval, or certification of goods or services”; representing “that goods or services have sponsorship, approval, characteristics, ingredients, uses, benefits, or qualities that they do not have”; and “disparag[ing] the goods, services, or business of another by false or misleading representation of fact.”

However, the Lanham Act claim failed for want of sufficient “commercial advertising or promotion.”  False statements made by NorthStar’s door-to-door sales representatives to 216 Vivint customers were not “disseminated sufficiently to the relevant purchasing public” to constitute commercial advertising or promotion.  “[T]here must be some statistical analysis of the number of alleged incidents in comparison to the relevant market, “and given the millions of pitches, NorthStar argued that this was only 43 customers per year, “less than 0.5%” of NorthStar’s total door-to-door sales in any given year and a small percentage of Vivint’s customers (as the relevant market). Vivint argued that this was just the falsity it had identified and that there was other falsity that it hadn’t caught, but the court found that speculative.  If there was a script or other direction to sales reps encouraging them to make the allegedly false statements, it seems to me that Vivint’s argument ought to work, but this was a motion for summary judgment and Vivint apparently hadn’t developed evidence about that.

Compounder's claims of FDA approval/legality were literally false and material

Allergan USA, Inc. v. Prescribers Choice, Inc., No. 17-cv-01550-DOC-JDE, 2019 WL 650424 (C.D. Cal. Jan. 11, 2019)

Allergan “markets a portfolio of leading medical brands and products.” Prescriber’s Choice and Sincerus have common ownership and work together: “Sincerus produces drugs; Prescriber’s Choice markets Sincerus’s drugs and makes them available to physicians.” Sincerus registered with the FDA as an “outsourcing facility” under Section 503B of the FDCA in March 2016. “Through the FDCA and its exemptions, Congress allows outsourcing facilities to produce certain bulk drugs when the FDA determines there is a drug shortage or a clinical need.” The presence of either obviates the need for an individual prescription before the drug is produced. Sincerus formulated, compounded, distributed, and sold drugs from 700 different drug formulations, and Prescriber’s Choice marketed Sincerus’s to 3,000 customers in 30 states.

Compounding involves combining ingredients to create a bespoke drug, which can occur when, for example, a patient who has an allergy to a certain dye and needs a medication to be made without it.  It’s not illegal, but there are supposed to be restrictions on it. The varied drugs Sincerus and Prescriber’s Choice sold were intended to treat many conditions; only one drug appears on FDA’s drug shortage list. At the relevant time, the FDA hadn’t found a “clinical need” for outsourcing facilities to use any bulk drug substances, which would have let them be used under the Section 503B statutory exemption. Basically, and without trying to get the details right, Allergan argued that Sincerus was going beyond what the law allowed for a Section 503B facility, and falsely advertising legality.

Defendants promoted their business and drugs by representing to their customers that they comply with the law, that it is legal for Sincerus to compound in large quantities, and that the business meets federal regulatory guidelines. Customers—“including those who asked for reassurance or had questions about FDA compliance”—were told that “[t]o demonstrate compliance, Prescriber’s Choice and Sincerus FL tasked one of the top international law firms, Ropes & Gray, to analyze whether the business model comports with FDA regulations,” and “[t]he resulting written memorandum concludes that if your practice follows the model outlined, you are compliant.” Other claims were that that the Sincerus drugs are “prepared in the FDA facility, Sincerus, so you have the supreme reassurance that the quality of the medication is made under CGMP manufacturing standards with federal oversight.” Another rep told a customer that defendants “have had over 400 independent healthcare attorneys from many states review our whole platform and they all recommend our platform.” An internal e-mail said “I of course did explain to [the customer] that everything comes from our 503B facility and is FDA approved.”

Defendants also claimed that “[t]he unique combination of active and inactive ingredients has been selected to produce an outcome that is clinically superior and materially different to that which is commercially available.” The truth or falsity of this was a disputed fact.

“The FDA does not ‘accredit’ or ‘approve’ Section 503B outsourcing facilities or pharmaceutical ingredients, although the FDA does register and inspect such facilities,” including those of Sincerus, which hasn’t had an FDA objection.

Sales reps made statements about compliance with the law “because they knew that compliance with the law was an important issue to customers when they make a decision.” FDA-approved ingredients are also important because “dermatologists are seeking safe medication.” Prescriber’s Choice’s National Director told the sales team that Sincerus’s status as a “503B FDA Facility” would provide “even more assurance to patients due to the fact that they are generally familiar with the FDA.”

Allergan commissioned a survey of 202 dermatologists which revealed that 25 percent of physicians “worry about the legality and tediousness of in-office physician dispensing”; 27 percent of the respondents agreed with the statement “I worry about the legality of in-office dispensing”; 18% of the respondents said that “state regulation/restriction concerns” was a challenge with recommending or prescribing Prescriber’s Choice’s products; and 24 percent of dermatologists who had been visited by a Prescriber’s Choice sales representative indicated that they had received “Guidance with governmental regulations” from Prescriber’s Choice.

Allergan argued that “mass manufacturing and marketing unapproved new drugs” violated California’s Sherman Law, which incorporates the FDCA’s requirements (thus rendering defendants’ conduct a violation of California’s UCL under the “unlawful” prong and providing Allergan with a private cause of action). Defendants use bulk drug substances to produce their drugs, but only one of these drugs is on the FDA’s drug shortage list, and they also made drugs nominated for inclusion—but not yet included—on the clinical need list. (They also allegedly made drugs that weren’t even in this category.) FDA’s exercise of its enforcement discretion was not enough, Allergan argued, to convert this into legal conduct.

Sincerus argued that the FDA is encouraging 503B compounders to use substances on the FDA’s nomination list until the FDA finishes its clinical need list. The FDA issued an Interim Policy in January 2017, asking industry participants to nominate bulk substances for consideration under Section 503B and then creating three categories to determine which bulk drugs the FDA would allow for compounding while it worked on the multi-year process of preparing the clinical need list. Category 1 is nominations for the clinical need list; Category 3 comprises nominated substances that require more information, and defendants allegedly made substances from both categories. Defendants argued that because Sincerus holds a California Outsourcing Facility license and the FDA eventually placed all the relevant bulk drugs in Category 1, there could be no violation of California law.

The court wouldn’t rely on FDA’s exercise of its discretion to deem Sincerus’s actions legal, but nor would it ignore the Interim Policy, which seemed to encourage use of Category 1.  However, to the extent that Sincerus failed to comply with the Interim Policy, it would violate federal and thus state law. The undisputed facts showed that Sincerus began compounding and distributing drugs before they appeared on the FDA’s Category 1 list, which violated the law. It wasn’t clear that they were still making drugs in violation of Section 503B and the Interim Policy, creating a dispute of fact for the jury to resolve.

Lanham Act/California FAL/fraudulent prong of the UCL: Allergan argued that defendants made literally false statements about the lawfulness of their business:

• Statements about legal compliance because Defendants do not comply with Section 503B’s requirements.

• Statements about FDA “approval” because the FDA does not approve any of Sincerus’s drugs nor approve or accredit businesses or drug ingredients.

• Statements that Sincerus is an FDA lab merely because Sincerus is a registered 503B outsourcing facility, accomplished by “sending certain information to the FDA through an electronic registration system”; and

• Statements that “hundreds of lawyers” including the law firm Ropes & Gray LLP have opined that defendants’ business is lawful because defendants were not able to name any lawyers who made this conclusion and the Ropes & Gray memorandum assumed compliance.

Allergan also argued that it was false to claim clinical/patient outcome superiority for their drugs without any basis for so claiming.

Defendants argued that no one could have been fooled because their customers were “a sophisticated group of licensed and board-certified dermatologists, not one of whom would believe that Defendants are operated by the FDA.”  They argued that “FDA approval” wasn’t false because every active ingredient was for a FDA-approved drug acquired from a FDA-registered source and each formula is submitted to the FDA for biannual review. They argued that their practices were reviewed by “countless medical practices (and their lawyers)” but that they did not “take a roll call” of their customers’ lawyers. For superiority, they argued that compounding clearly can improve patient outcome and that these weren’t falsifiable statements [classic legal strategy: both puffery and true!]. Finally, they argued that Allergan’s survey showed that most dermatologists didn’t care about these issues.

The court found that some of the challenged statements weren’t literally false. E.g., Sincerus was a 503B facility and 503B drugs don’t need an ANDA and can be compounded in large quantities. However, there’s a difference between describing the 503B exception and “representing to customers compliance with that exception or general FDA approval,” and Sincerus had been out of compliance. Moreover, even compliance wasn’t “FDA approval.” “It is literally false for a company to represent that a compounder is ‘FDA approved’ during this period of regulatory evaluation, especially when the compounder is not even complying with FDA’s interim guidance.”  FDA inspection isn’t approval either.

Despite Sincerus’s violation of the law, sales consultants represented that the medications “are FDA approved” and touted compliance, which just wasn’t true at least before July 2018 and maybe after. Further, FDA approval of ingredients didn’t change the analysis.  If FDA approval of ingredients were enough, there’d be no need for the FDA interim process determining whether such drugs should fall under the 503B exemption as a clinical necessity.

However, there was a factual dispute on the literal falsity of statements about drug superiority, “where the drugs may allow a patient relief where she cannot tolerate a more traditional prescription.”

Because of the literal falsity, the court used a rebuttable presumption of actual deception. Even without that, there was no factual issue on materiality: it was clear that compliance with the law was important to customers, who linked it to quality in numerous ways (as did sales reps).  Allergan’s survey didn’t show lack of materiality—to the contrary, it showed that dermatologists were very attentive to the perceived legality of Sincerus’s operations.

Sincerus counterclaimed about Allergan’s reps’ disparagement of Sincerus: an allegedly official policy to “spread doubt” about Prescriber’s Choice and Sincerus.  “[S]preading doubt about the legality of a company that is not complying with the FDA Interim Policy cannot give rise to a valid claim under the Lanham Act.” However, there was enough evidence that Allergan sales representatives went beyond that, working alongside competitors to “shut Prescriber’s Choice out of St. Louis.” Though it was close, a reasonable jury could determine that Allergan violated the UCL and Lanham Act.

supplement guide isn't "advertising or promotion" under the Lanham Act, even w/undisclosed affiliation

Ariix, LLC v. NutriSearch Corp., 2019 WL 1040135, No. 17CV320-LAB (BGS) (S.D. Cal. Mar. 5, 2019)

Previous iteration discussed here. Arrix competes fiercely with Usana in the nutritional supplement market.  NutriSearch publishes the NutriSearch Comparative Guide to Nutritional Supplements, a guide used by consumers and professionals that reviews various companies’ products, including both Ariix’s and Usana’s. It’s now in its sixth edition. In 2005, individual defendant/author MacWilliam was working directly as a sales representative for Usana and writing the Guide, which he had conceived as a way to promote Usana’s products. “At the time, the Guide could have been considered commercial advertising.” But after several editions, it no longer qualifies as such.

The fifth edition awarded the Gold Medal of Achievement designation to companies that meet particular standards; Ariix made a vigorous effort to qualify, but was denied while four other companies were given the award. NutriSearch allegedly admitted Ariix had met the standard, but refused to award the company the Gold Medal because it was reworking its criteria. The new sixth edition has bronze, silver, gold, diamond, and platinum award tiers. Usana was the only platinum medalist. Ariix didn’t allege that Usana didn’t meet the criteria for this award, or that Ariix or any other manufacturer did.

As in its previous order, the court held that  “the Lanham Act does not apply to reviews of consumer products. This is true even if they are alleged to be biased, inaccurate, or tainted by conflicts of interest.” However, self-labeling as a consumer product review isn’t all it takes to be protected. The ultimate question is whether a publication is a consumer product review or commercial advertising. This one is the former. Although “reviewers who have undisclosed conflicts of interest may be liable under other laws, such as the FTC Act or various states’ advertising or unfair competition laws,” Ariix could not bring a Lanham Act claim against them.

The Guide as a whole wasn’t advertising. It includes two major sections: a set of ratings of 1,500 different nutritional supplements sold by different companies, and general information about supplementation. “The only feature alleged to be commercial advertising are the Guide’s awards. But even if the awards were commercial advertising, this would not suffice to bring the entire book within the statute.”  Moreover, the sheer number of companies whose supplements were reviewed made it implausible that the purpose of the reviews was “merely” to urge consumers to buy Usana’s products. And the book was sold commercially as a guide to supplements, and “is regarded” as a standard guide on the subject, though the court doesn’t say by whom.

“The [fifth edition] Guide itself included a preliminary note, disclaiming any association between either MacWilliam or NutriSearch and any manufacturer or product the Guide reviewed.” This wasn’t a commercial ad because it was part of the Guide, even if it could be viewed by potential Guide buyers online.  And the removal of the statement from the sixth edition wasn’t an admission of falsity; it could be a nod to the fact of this litigation. Moreover, its omission made the sixth edition even less likely to be the basis of a valid claim.

After several companies won the Gold Medal award in 2008, Usana allegedly demanded that it be positioned ahead of its competitors; NutriSearch allegedly then created a new “Editor’s Choice” award and gave it to Usana. But Ariix didn’t allege what the criteria for that award were, or that defendants ever claimed objectivity; the name itself suggests subjectivity.  Then, for the sixth edition, NutriSearch allegedly failed to notify Ariix when its new criteria were finalized, preventing it from being listed as a medalist. But there were no factual allegations indicating Ariix had a right to be told about new criteria or prompted to submit an application, or that others were treated differently—and even if there were such allegations, that wouldn’t make a misrepresentation; Ariix was still just criticizing a product review. “[E]ven if Ariix thinks NutriSearch’s criteria were illegitimate, as a reviewer NutriSearch is entitled to decide what its criteria should be.”

Going further, the court’s broad latitude for product reviews made it hesitant to find that awards of this type are ever fully objective, even if they involve objective criteria.

Previously, the court held that the “cozy relationship” between NutriSearch and Usana wasn’t enough to make the Guide commercial advertising. There weren’t allegations plausibly suggesting that speaking fees or Usana’s purchases and recommendation of the Guide were “some kind of under-the-table payment for promoting Usana and its products.” The amended complaint’s new allegations were still conclusory. The only “payments” NutriSearch allegedly received were “Usana’s promotion of the Guide, its purchase of many copies of the Guide, and its use of the Guide to promote its products.” But this behavior was fully consistent with non-liability.  “A company whose products are favorably reviewed has every incentive to capitalize on those reviews by doing what Usana did, and the fact that it does so does not suggest it has entered into some kind of secret agreement with the reviewer.”

The amended complaint alleged that in 2009, after NutriSearch gave Usana the Editor’s Choice award, MacWilliam decided to cash in on it, asking Usana to send him on a speaking tour. Usana agreed, and paid him $90,000 that summer. But this occurred far too long before the fifth or sixth editions to count as payment in connection with them, and wasn’t alleged to reflect a previous understanding, only an “afterthought.”  “Furthermore, a recognized and knowledgeable author who has just favorably reviewed a company is a natural choice as that company’s promoter or spokesman.” The complaint alleged that Usana continued to pay MacWilliam to promote its products and to speak to its reps, but didn’t support the conclusion that these were payments for advertising in the Guide as opposed to payments for speaking as agreed.  “MacWilliam could be liable under the Lanham Act if, while speaking, he made misrepresentations of fact about Usana or Ariix. But the only allegations show expressions of opinion or value judgments, rather than facts.”

Assuming the truth of the allegations, MacWilliam could be criticized for an undisclosed bias or conflict of interest, but that wasn’t enough for a Lanham Act claim [where the result wasn’t a commercial advertisement].  It wasn’t enough to allege that defendants had a direct economic motive for their speech to make it commercial speech.

The complaint was dismissed, this time without leave to amend.

plaintiff suing for noncomparative false advertising fails to establish irreparable harm

True Organic Products, Inc. v. California Organic Fertilizers, Inc., 2019 WL 1023888, No. 18-CV-1278 AWI EG (E.D. Cal. Mar. 4, 2019)

If trademark owners have cause to bemoan eBay’s application to Lanham Act claims, false advertising plaintiffs have even more, as this case demonstrates. Plaintiff True sells organic fertilizers, and is one of the largest and most sought-after manufacturers of organic fertilizers on the West Coast. Defendant COFI directly competes with True for sales of organic liquid fertilizer containing at least 4% nitrogen.

COFI sells Phytamin Clear, whose label states that it contains 4% nitrogen, which is composed of 3% nitrate nitrogen and 1% ammoniacal nitrogen. Phytamin Clear’s label also reads: “Derived from mined seabird guano.” The Material Safety Data Sheet repeats the guano claim. “Phytamin Clear is appealing to growers because of its high nitrate nitrogen levels and because the clear liquid can be easily applied through irrigation systems.”

True’s most directly competing products don’t have nitrate nitrogen, to which plants more quickly than they do to the organic nitrogen in most organic fertilizers. True “controls over 50% of the market” for organic liquid fertilizers containing at least 4% nitrogen and there are only four other companies competing with it.

Based on True’s experience with seabird guano products, it thought the nitrate nitrogen content of Phytamin Clear wasn’t consistent with seabird guano. It raised concerns with the California Department of Food and Agriculture, but nothing happened.  True thinks COFI’s source uses sodium nitrate to nitrogenate the guano; sodium nitrate is approved for use in organic farming in the United States, but not in Canada.  Many organic users in the U.S. allegedly export to Canada and thus must comply with Canadian rules. True allegedly obtained five samples of what it alleged was Phytamin Clear that came from at least four different batches and compared them to other products and materials, including the accepted reference sample for Chilean sodium nitrate and fossilized seabird guano.  (COFI argued that there were substantial questions about the authenticity and/or purity about the samples because of chain of custody issues—for example, the lot numbers on the containers allegedly didn’t indicate a direct sale to the farms from which the samples were obtained and the containers weren’t labeled the way COFI labels its containers.) The test results were reviewed by a professor of soil biogeochemistry, who concluded that Phytamin Clear is not solely derived from mined seabird guano or a fossilized seabird guano extract, but the ingredients were consistent with a product made from Chilean sodium nitrate.

True alleged literal falsity.  The only issue the court resolved was irreparable harm. True argued (1) sales diversion and (2) lessened goodwill for True through the implication that the nutrient content of Phytamin Clear can be achieved through the use of seabird guano, when True can’t offer similar products because it’s impossible. “Further, the general goodwill associated with organic fertilizer products is lessened by misleading advertising that cause farmers to distrust organic fertilizers.”

“[B]ecause of the difficulty of valuing goodwill, a loss of or damage to goodwill can constitute an irreparable harm for purposes of a preliminary injunction.” Nonetheless, “concrete evidence” of harm to goodwill is still required, and it wasn’t present here. There was no likely confusion between the companies and no comparative references on COFI’s label.  The idea that COFI could damage True’s goodwill, or the credibility of organic fertilizers generally, was “counterintuitive and contrary to the concept of ‘goodwill,’” which refers to the reputation of an individual business entity. “[A]ny negative ramifications to goodwill due to a false label would fall on COFI alone.” [I’m not sure about this—although it might not happen here, the idea that a bad actor can taint the reputation of an entire industry is not ridiculous; that’s part of what gets us the famous market for lemons.]  There was no evidence of damage to True’s goodwill, and its market share suggested to the contrary even though Phytamin Clear has been on the market since 2010.

As for threatened lost sales/prospective customers, they could also support finding irreparable harm. But there wasn’t evidence that this had actually happened.  The fact that the parties competed directly was insufficient with four other companies on the market. Anyway, “lost profits due to lost sales generally constitutes the type of harm that is fully compensable through money damages and therefore does not support injunctive relief.” Trademark cases were of no assistance to the claim here.

sales show format and timing are functional, court finds

VBS Distribution, Inc. v. Nutrivita Laboratories, Inc., No. SACV 16-01553-CJC(DFM), 2018 WL 5274172 (C.D. Cal. Sept. 10, 2018)

The parties compete in the market for nutritional supplements and television programs. VBS sued for Lanham Act and California state unfair competition law violations, as well as other claims including trade secret misappropriation.  None worked.

VBS alleged two unlawful schemes, the first involving false advertising of a dietary supplement. The supplement defendants made and sold “Arthro-7,” a dietary supplement for joint relief, with 60% of the market (perhaps among elderly people/people of Vietnamese descent). VBS sold a competing dietary supplement called JN-7 Best, with 10% of the market.  Defendants allegedly falsely advertised that Arthro-7 is “100% natural herbal,” that over 8 million bottles have been sold, and that Arthro-7 has been “clinically tested” and is “Doctor Recommended.”

“100% natural herbal” was allegedly false because the product contains animal products. The challenged ad contains the following phrase in Vietnamese: “100% tu duoc thao thien nhien.” VBS argued that this phrase translates to “100% natural herbal,” whereas defendants argued that the correct translation of “duoc thao” was “dietary supplement,” not “herbal.” There was a disputed issue of fact on the translation, but defendants still got summary judgment for lack of evidence of harm from this one ad. Instead, the only relevant evidence was that VBS suffered no lost profits between 2013 and 2014, when the advertisement ran in the newspaper, because its sales of JN-7 Best actually increased in that time period.

“Over 8 Million Bottles Sold!”  Defendants provided evidence that they had sold this many bottles from 1998-2017, so it wasn’t false.

The Arthro-7 package states that Arthro-7 is “clinically tested” and “Doctor Recommended,” and that “Positive results utilizing Arthro-7 have been supported by a UCLA researcher.” [See xkcd on “clinically tested.”] The packaging also has a picture of a man in a doctor’s coat, identified as “Dr. John E. Hahn, Board certified foot surgeon.” Plaintiffs argued that this was misleading because Dr. Hahn is a Doctor of Podiatric Medicine, and not a medical doctor.  But defendants submitted an article on the results of a 12-week clinical study in China; four of ten authors were from the Department of Pathology and Laboratory Medicine at UCLA’s medical school. This wasn’t misleading just because the studies took place in China; nothing on the package indicated otherwise. Nor was the use of a podiatrist whose license had expired as a “doctor” false—“Plaintiffs provide no admissible evidence showing that ‘doctor’ necessarily means one who is currently licensed or one who has a medical degree.”

The second general scheme involved the parties’ respective television shows. VBS Television is “primarily aimed at the Vietnamese community and is broadcast primarily in the Vietnamese language.” It produces a show named “DAU GIA TREN TRUYEN HINH” (“Fight Price on Television”), a live auction program which primarily auctions diamonds. In 2012, Defendant Tram Ho became a host of the show.  In 2016, VBS discovered that Ho was appearing on a rival television show called “Diamond at a Surprise Low Price.” The two shows allegedly have the same hostess, some of the same vendors, the same technician, the same time slot of 5:00 p.m. to 7:00 p.m., “the least to most expensive format,” “the same auctioning of approximately 30 items each show,” and the same product price range from $300 to $3,000.

Plaintiffs alleged trade dress infringement based on a trade dress comprised of:

a) the unique style and format of the show, b) its time slot and date selection, each week on alternate weekdays, from 5 to 7 p.m., on Tuesdays and Thursdays, c) the price range for its auctioned items, ranging from about $300 to $3000, d) its “least to most expensive” format in which the least expensive items are sold first, ascending to the most expensive items at the end of the show, e) the length of the show, 2 hours, f) its focus on live TV auctions of jewelry, particularly diamonds, g) its carefully selected vendors, who appear on the show with the show’s host, h) unique and proprietary camera angle and special lighting techniques developed by Plaintiffs using an Apple ipad tablet, i) the number and selection of items sold, usually about 30 items.

VBS failed to show that the claimed trade dress had nonfunctional features or a nonfunctional arrangement of those features. VBS’s own CEO and Chairman explained in his deposition that the lighting techniques and camera angles function to make the diamonds on the television show “sparkle” and appear brighter and that the lighting techniques are common in jewelry stores, “which demonstrates that the techniques are intrinsic to the sale of jewelry.” He testified that the show times and dates were chosen as times that would maximize viewership and auction purchases; that the show sells thirty products per episode because it is the optimal amount to sell during a two-hour long show; and that the products are priced between $300 to $3000 because the range is what the average target consumer can afford. Finally, he testified that the products are shown in the order of lowest to highest price to maximize sales, because more viewers tune in towards the end of the show. That’s all functional.

(Some other claims failed because Ho didn’t quit or breach her contract because of any outside interference—she left because the CEO/Chairman “grabbed [her] boobs, put his hands on [her] butt and then put his hands into [her] groin area.”)

False advertising & TM fail as workarounds to 230 for software blocking

PC Drivers Headquarters, LP v. Malwarebytes Inc., 2019 WL 1061739, No. 18-cv-05409-EJD (N.D. Cal. Mar. 6, 2019)

PC Drivers alleged that Malwarebytes’ malware detection software wrongfully categorized PC Drivers’ “technical support” software as malware or a “Potentially Unwanted Program” (PUP), generating claims under the Lanham Act and for business disparagement, tortious interference with contractual relations, negligence and gross negligence, unfair competition, promissory estoppel, and declaratory relief. The court (after transfer from Texas where Malwarebytes already did well) granted Malwarebyte’s motion to dismiss based on § 230(c)(2)(B) of the CDA, but granted leave to amend.

Malwarebytes offers a free version of its software and then upsells premium versions, promoting them by allegedly identifying and quarantining alleged PUP and malware and their official websites. In 2016, Malwarebytes categorized PC Drivers’ DRIVER SUPPORT and ACTIVE OPTIMIZATION software products with a negative PUP rating and as a security risk to Malwarebytes’ customers. PC Drivers customers who received Malwarebytes’ warnings were allegedly deceived into removing PC Drivers’ software. Despite PC Drivers’ allegedly providing Malwarebytes with evidence of its compliance with industry standards and other anti-malware vendor certifications, Malwarebytes refused to change the rating.  A Malwarebytes staff member also posted “Removal instructions for Driver Support” on Malwarebytes’ message board forum, including allegedly false and misleading comments about PC Drivers’ products. Similar comments came from a post on another site by a person who allegedly (on information and belief) receives monetary or in-kind benefits from Malwarebytes for each sales lead or software download generated from his post.

All this allegedly resulted in trademark “misappropriation,” infringement, and dilution, and “diminution in the value of PC Drivers as a going concern.”

Malwarebytes sought and received CDA immunity from some of the non-trademark claims. The CDA states that “No provider or user of an interactive computer service shall be held liable on account of ... (B) any action taken to enable or make available to information content providers or others the technical means to restrict access to [material that the provider or user considers to be obscene, lewd, lascivious, filthy, excessively violent, harassing, or otherwise objectionable, whether or not such material is constitutionally protected].” This could be evaluated on a motion to dismiss, taking all PC Drivers’ factual assertions as true.

PC Drivers argued that section 230(c)(2) immunity didn’t cover “stealing” click advertising services paid for by PC Drivers and making false and disparaging statements about PC Drivers’ Products. The “theft” was described as:

When a Malwarebytes free version software user opens a search engine in his own web browser and searches for DRIVER SUPPORT or ACTIVE OPTIMIZATION, PC Drivers’ ads or website links bearing the Marks will prominently appear in the search engine results. However, instead of going directly to PC Drivers’ official website when clicking these links, it redirects consumers to the Malwarebytes website for the purpose of executing a Malwarebytes sale. The result is that Malwarebytes obtains the benefits of a potential paying customer based on the acquisition costs paid by PC Drivers.

But the CDA immunizes “any action” as long as it was “taken to enable or make available to information content providers or others the technical means to restrict access to material.” The alleged redirection was “clearly” such an action. When a Malwarebytes user navigates to driversupport.com or a PC Drivers advertisement, Malwarebytes identifies the domain as associated with a PUP and then directs the user to a Malwarebytes page notifying them that the site was blocked “due to PUP.” Id. It also informers the user: “Learn about PUP. If you don’t want to block this website, you can exclude it from website protection by accessing Exclusions.” “The statute does not contain qualifiers, conditions, or exceptions for ‘actions’ that have the secondary effect of depriving PC Drivers of the benefits of the page-click advertising it purchased from a third party.”

As for the allegedly false and disparaging statements, they were found in Malwarebytes’ online explanation for the basis of its classification of Driver Support as a PUP: “Malwarebytes has determined that Driver Support is a ‘system optimizer.’ These so-called ‘system optimizers’ use intentional false positives to convince users that their systems have problems. Then they try to sell you their software, claiming it would remove these problems.”  This stated basis wasn’t necessarily an “action taken to enable or make available” the technical means to restrict access to objectionable material. It was premature to rule on §230 immunity for that statement.  By contrast, screenshots and instructions for removing Driver Support were “actions” taken to “make available ... the technical means to restrict access to” objectionable material.

PC Drivers argued that Malwarebytes did more than necessary to make available technical means to restric access to material by blocking access to PC Drivers’ website even to its paying customers and by making it hard to allow users to readily un-PUP individual sites, constituting tortious interference with contractual relations. The court disagreed.  These were all functions that flowed from Malwarebytes’ making available the technical means to restrict access, regardless of details of operation. Even if PC Drivers subscribers are forced to choose between quarantining all or none of the listed PUPs and are unable to override Malwarebytes’ block, that was ok; if that was unwanted behavior, the subscriber could get rid of Malwarebytes.

PC Drivers then argued that the statutory immunity didn’t apply because Driver Support is not “objectionable” and Malwarebytes “has not actually determined that PC Drivers is objectionable.” Unsurprisingly, the court declined to reject Malwarebytes’ characterization, since §230 grants providers and users discretion to determine objectionability.  Although a concurrence in Zango expressed concern about secret, anticompetitive blocking such as browsers that filtered out criticism of the browser company, secrecy (and competition) wasn’t alleged here.

False advertising/disparagement: The claim that Driver Support was a “system optimizer” that “uses intentional false positives to convince users that their systems have problems” was nonactionable opinion.  There was no explanation of why “system optimizer” was a verifiable characteristic or was false. And classification of the products as PUPs was protected by CDA §230 as well as by being nonactionable opinion.

Trademark dilution: not famous, not actionable.

Infringement: It is not trademark infringement to confuse the public “into believing PC Drivers’ website and [P]roducts are malicious, and that Malwarebytes’ premium product is the solution to resolve any future ‘malicious’ programs.” And the complaint pled nominative fair use: the associated screenshots showed that Malwarebytes uses “download.driversupport.com.” and “www.driversupport.com” to inform the user of the program that is being blocked. “PC Drivers does not explain how its products or services may be readily identifiable without use of the domain names.” There was no excessive use of the mark pled. Nor did the use suggest sponsorship or endorsement by the trademark holder: very much to the contrary.

Other non-TM workarounds also failed, such as negligence (no duty), common law unfair competition (no independent tort), promissory estoppel (insufficiently specific promise).

"local" is falsifiable but relative, meaning damages for false advertising must be limited

Bimbo Bakeries USA, Inc. v. Sycamore, 2019 WL 1058234, No. 13-cv-00749 (D. Utah Mar. 5, 2019)

Previously, Bimbo won a false advertising claim in front of a jury against U.S. Bakery for trade secret misappropriation and for falsely advertising its bread as “local.” Bimbo Bakeries’ false advertising damages were limited to Utah and southern Idaho.  At trial, Bimbo’s expert testified about consumer surveys performed on U.S. Bakery’s fresh/local tagline, and another expert offered damages testimony; U.S. Bakery offered conflicting expert testimony.  After the verdict judgment was entered against U.S. Bakery for $8,027,720 in false advertising damages and $1,578,942 in trade secret damages, plus exemplary damages of $789,471 for the trade secret claim.

U.S. Bakery argued that the verdict should be set aside because (1) the word “local” in U.S. Bakery’s tagline is not a specific geographic place, and therefore not false or misleading; (2) Bimbo Bakeries’ expert testimony couldn’t support the verdict; and (3) Bimbo Bakeries failed to present evidence that “localness” was material. These arguments had been made before and didn’t work now either.  “Local” has a relative meaning, but it’s still a factual meaning in its context, and Bimbo showed misleadingness through extrinsic evidence.  U.S. Bakery cited Forschner Group, Inc. v. Arrow Trading Co., a Second Circuit case, to argue that “local” is not a specific geographic location that can be verified objectively as either true or false. Even if it had been binding, it wasn’t relevant: the court there held that “Swiss Army knife” doesn’t falsely suggest Swiss origin, but “a term does not need to designate a specific geographic origin to be actionable.”  “Local” is geographically descriptive, and Bimbo presented evidence that U.S Bakery used the term deceptively, “to suggest that its bread products were particularly fresh and of high quality because they were baked within the geographic vicinity of where they were sold.”

At trial, Bimbo’s expert presented admissible results of consumer surveys performed demonstrating 28% consumer confusion. The jury properly found materiality through direct testimony as well as survey evidence.

However, remittitur was appropriate on the false advertising claim. Remittitur is appropriate if the jury award is “so excessive as to shock the judicial conscience and to raise an irresistible inference that passion, prejudice, corruption or other improper cause invaded the trial.” The expert’s damage calculation was based on U.S. Bakery’s profits from all eight states in which the misleading tagline was used, but only Utah consumers were surveyed.  (What makes Utah consumers different in their likely response to the use of “local”?  In the abstract, I don’t see why this isn’t legitimately extrapolable to the other areas using only common sense. The expert admitted that consumers in different states might have different perceptions of what constitutes being “local”; “for example, a consumer in Vancouver, Washington, may consider Portland, Oregon, to be ‘local.’” This would be meaningful to the case here if the products were baked in places that may have been “local” to some consumers within the slogan’s footprint.)  Bimbo’s evidence was sufficient, but only with respect to consumer confusion in Utah and damages from false advertising in Utah. Since the jury chose to adopt Bimbo’s expert’s method of calculation, and since he calculated $83,398 in profits from U.S. Bakery’s use of the disputed tagline in Utah, no new trial was necessary and the damages were remitted to that amount.

It wasn't malpractice to argue unauthorized use of name was false association, not false advertising

Majorsky v. Lieber, No. 798 WDA 2017, 2019 WL 1092543 (Pa. Super. Ct. Mar. 8, 2019)

Majorsky and two business partners, Douglas and Natale, purchased the D.J. Hess Advertising Company. “D.J. Hess is a partnership that sells promotional products, items such as keyrings and pens inscribed with a company’s name. Two years after acquiring the business, Douglas and Natale voted to change the compensation scheme for partners.” As a result, Majorsky left and formed other competing businesses, including, Peg’s Custom Products and sued Douglas and Natale for violations of the Pennsylvania Uniform Partnership Act, as well as damage to his business interests and reputation in the promotional products industry. Douglas and Natale counterclaimed, alleging that Majorsky’s new business competed with D.J. Hess in violation of his fiduciary duty to the partnership.

A consent verdict dictated that Douglas and Natale pay Majorsky $10,000 in damages. That action was discontinued, after which Majorsky retained Lieber’s legal services and filed a second suit premised on the dissolution of the partnership. A key cause of action was that Douglas and Natale allegedly continued to use Majorsky’s name on the company’s website during the previous litigation, in violation of the Lanham Act. 

The Lanham Act case was dismissed on summary judgment, and appeals were unsuccessful. The Majorskys then sued their attorneys for malpractice for failing to adequately argue a false advertising theory under the Lanham Act. The trial court dismissed the complaint.

On appeal, Majorsky argued that his attorneys should have argued “false advertising involving literal falsity” instead of a trademark infringement claim, and that failure to do so was malpractice. To win a malpractice case, a plaintiff must show by a preponderance of the evidence that they would have recovered a judgment in the underlying action—that is, that they had a viable claim. Thus, the court turned to the literal falsity theory.

Whereas a false association claim requires secondary meaning, false advertising does not.  However, the underlying claim here was “essentially a false association claim in disguise.” Majorsky didn’t allege untrue claims about the products D.J. Hess sold, only that he remained erroneously associated with the company due to the retention of his name on the company’s website. Thus, the false advertising claim was “groundless” and Lieber “wisely” limited the action.  [I don’t disagree with this result, not least because I think materiality is a barrier to a false advertising claim because of the lack of secondary meaning, but I must note that the Lanham Act covers material false statements about goods, services, and “commercial activities,” not just statements about products.]  The malpractice claim failed and the trial court’s decision was affirmed.

copying without infringement, falsity without materiality in adhesive case

J-B Weld Co., LLC v. Gorilla Glue Co., 2018 WL 6356768, No. 17-CV-03946-LMM (N.D. Ga. Oct. 17, 2018)

Among other things, this case is a reminder that when you sue a competitor for false advertising you can often expect counterclaims--here the only thing that (partially and provisionally) survives summary judgment.

J-B Weld sells a two-part epoxy adhesive: when epoxy resin and paste hardener are mixed together, a reaction produces a permanent adhesive bond. Both J-B Weld Original and its newer KwikWeld are sold in major retail stores and online sites.  The current Original trade dress dates from 2012, and J-B Weld defines it as: (1) two squeezable tubes in a clear blister package with the two tubes arranged in a “V-shape”; (2) red coloring on one tube and black coloring on the other tube; (3) a clear plastic blister package holding the tubes curved downward; (4) a drop-down technical information box, located between the two tubes, that has four lines of information separated by white lines; (5) a colored banner across the bottom end of the card; (6) a colored banner bar that includes “Weld” within the banner; (7) the phrase “Steel Reinforced Epoxy” and “World’s Strongest Bond” on the card; (8) a list of uses near the bottom right corner of the card; and (9) a card that is five inches.

J-B Weld’s packaging has described J-B Weld Original as a “Steel Reinforced Epoxy” and the resin tube was labeled with the word “STEEL” since 2009.  That was also when Gorilla Glue allegedly became aware that J-B Weld intended the word “steel” on its packaging to indicate the presence of an iron-containing additive. Gorilla Glue neither contacted J-B Weld about nor challenged its use of the word “steel” on its packaging until this case. J-B Weld has also featured “World’s Strongest Bond” on the packaging for all its adhesive products since 2011, including its two-part epoxy adhesive sold in a plunger syringe launched in 2012; Gorilla Glue learned of the use of the phrase when the packaging debuted. Gorilla Glue likewise didn’t object until this case.

In 2012, Gorilla Glue introduced a new Gorilla Epoxy formula, which improved performance and provided a clear, rather than yellowish, formula. It then began working on a two-part clear syringe product with methacrylate chemistry (MMA) that it referred to as “Plastic Plus” or “Heavy Duty Epoxy” during development and consumer testing. It ultimately became the two-tube adhesive product known as “GorillaWeld.” During the design process, Gorilla Glue’s Brand Manager instructed its graphic designer to develop three blister card designs, including one that was “Close to JB Weld brand” and that “should follow closely to going head to head with JB Weld and play with such elements as black and red color palate and bringing in some visual reference to steel reinforcement.” The graphic designer stated: “The objective of this project was to go straight up against the top competitor (JB Weld) and create packaging that mimics the competitor’s architecture. I was able to pull subtle elements into our package, but still keep our package looking tough and geared towards the Gorilla brand.”

The ultimate trade dress had: (1) a 5-inch-wide orange blister package card; (2) an image of a gorilla at the top next to the phrase “Gorilla Incredibly Strong”; (3) two squeezable tubes in a clear blister package in a V-shape; (4) a gray tube with red coloring on the bottom and a gorilla image next to the phrase “Gorilla Incredibly Strong” towards the top; (5) an orange tube with black coloring on the bottom and a gorilla image next to the phrase “Gorilla Incredibly Strong” towards the top; (6) a clear plastic blister package holding the tubes curved downward; (7) a drop-down technical information box located between the V-shaped tubes, that has four lines of information separated by white lines; (8) a gray banner across the bottom end of the card; (9) a gray banner across the top of the card that includes the name “GorillaWeld”; (10) the phrase “Steel Bond Epoxy” on the card; and (11) a list of materials to which GorillaWeld bonds on the card’s bottom right side.

[Note: the descriptions here are really not that helpful, though clearly carefully crafted to make J-B Weld’s case—the overwhelming fact is that the dominant colors create a completely different visual impression. Yes, they look like the same product, the way that different manufacturers’ light bulbs look like the same product, but they do not in any way look like they have the same source.]

Although whether GorillaWeld is an “epoxy” was disputed, the back of GorillaWeld’s packaging, the Safety Data Sheet (SDS), and Gorilla Glue’s website all state that GorillaWeld uses MMA chemistry.

J-B Weld sued for trademark infringement and false advertising of GorillaWeld as an epoxy adhesive containing steel. Gorilla Glue counterclaimed against (1) “World’s Strongest Bond”; and (2) “Steel Reinforced Epoxy.”

Trade dress first: the overall impression wasn’t similar.  Much explanation of why omitted, focusing on colors and their arrangement.  J-B Weld urged the court to find similarity “despite the brand names, logos, and color schemes.” But “it is precisely the prominent display of distinctive brand names and logos coupled with the use of radically different color schemes that negates any possibility of consumer confusion in this case—thus precluding a finding of similarity.” This wasn’t a swap of one name and logo for another, but a “radically different color scheme” and a prominent use of a distinctive logo “to cure the effect of any visual similarity.”

J-B Weld offered as actual confusion evidence three employees’ testimony.  One indicated that a Loctite sales rep asked if J-B Weld made Gorilla Glue’s “twin tube product for [Gorilla Glue]”; another had an encounter with a Loctite rep who asked if J-B Weld was “private labeling for GorillaWeld” after seeing the packaging; and another indicated a buyer from O’Reilly’s Auto Parts asked if J-B Weld had “anything to do with” Gorilla Glue’s product. These were admissible hearsay, going to state of mind and not the truth of the matter asserted.  But “[i]nquiries indicating that ‘consumers perceive a difference between the designations and are skeptical of the existence of a connection between users’ may not establish the existence of actual confusion.” Those inquiries indicate that the speakers actually know there’s a difference. They were inquiring into whether there was a possible collaboration, but they weren’t confused about source nor did they believe that there was a collaboration (if they did, they wouldn’t have needed to ask).  And there was no other evidence of confusion.

Intent: the Eleventh Circuit has held that: “If it can be shown that a defendant adopted a plaintiff’s mark with the intention of deriving benefit from the plaintiff’s business reputation, this fact alone may be enough to justify the inference that there is confusing similarity.” But the court here noted that “there is a difference between ‘intentional copying’ and adopting a design ‘with the intent of deriving benefit from’ another person’s design.”  Intent to copy aspects of a trade dress doesn’t show intent to derive benefit from J-B Weld’s reputation through confusion.  [Not unrelatedly, Gorilla Glue didn’t adopt J-B Weld’s mark, even if it copied aspects of that alleged mark.]  And bad intent is neither necessary nor sufficient for infringement. The instructions to Gorilla Glue’s graphic designer didn’t reveal an infringing/confusing intent. As she herself stated, “I was able to pull subtle elements [of J-B Weld’s Dress] into our package, but still keep our package looking tough and geared towards the Gorilla brand.” “The Eleventh Circuit has noted that public policy favors permitting companies to imitate the products of competitors—so long as there is no intent to deceive consumers as to the maker or origin of the product.”  Gorilla Glue intended to compete, for sure, but its use of its own well-known color scheme and distinct logo “clearly indicates that Gorilla Glue did not intend to confuse consumers as to GorillaWeld’s origin.”  In addition, certain design features may have had non-trademark functions, such as the V-shape showing consumers that the components need to be mixed together and preventing leakage. “Where, as here, ‘there may have been many other motivations for Defendant’s actions,’ intentional copying does not necessarily indicate a desire to capitalize on another’s goodwill.”

The remaining factors changed nothing. Gorilla Glue was entitled to summary judgment on the infringement claim.

False advertising based on Gorilla Glue’s use of the phrase “steel bond epoxy”: The court started with “epoxy.” Literal falsity requires an unambiguous message and is a “demanding” standard.  J-B Weld argued that Gorilla Glue’s use of “epoxy” is literally false because “epoxy refers to a polymer containing one or more epoxy groups.” Even if the court accepted that definition, the claim failed for lack of materiality. “[T]he presence of a false statement alone is not sufficient to prove materiality.”  J-B Weld’s consumer survey didn’t show materiality; it failed to show that consumers even understood “epoxy” as chemically defined. J-B Weld’s expert didn’t question survey respondents about whether an “epoxy resin has a specific type of chemistry to it”: as he said, “Do you really think [consumers] care at the end of the day if it takes two things, you put it together, and it stays there? They’re happy.” J-B Weld’s speculation that Gorilla Glue’s prior attempts to launch an MMA product under the name “Plastic Plus” and alleged repositioning of the product as an epoxy indicated that “epoxy” was material were insufficient.

“Steel bond”: J-B Weld argued misleadingness: a false suggestion that GorillaWeld contains steel. Again, assuming that its survey showed misleadingness, it still didn’t show materiality. The survey simply showed respondents both J-B Weld Original and GorillaWeld, and then asked which of the two products contained steel. (Amazon also originally categorized GorillaWeld as a “metal-filled epoxy” on its website, but a retailer’s misclassification wasn’t evidence of consumer deception.)  Nor would the court presume deception from Gorilla Glue’s deliberate conduct because the Eleventh Circuit hasn’t adopted that rule and in any case Gorilla Glue’s acts weren’t of an “egregious nature.” 

J-B Weld pointed to some 2009 evidence from Gorilla Glue employees noting that steel or a similar filler would provide “some advantage from a marketing standpoint.” But that old evidence wasn’t a direct indication of what actual consumers would do today.  [Quite notable how differently courts treat evidence of advertisers’ beliefs about consumers in advertising cases versus trademark cases. There’s no question that a substantial number of courts would treat similar evidence about the appeal of, e.g., a particular trade dress as indicating both an intent to deceive and likely success in doing so. I think those courts are wrong, but it’s also a bit bizarre to presume that active competitors in a market have no idea what might appeal to consumers.] Summary judgment for Gorilla Glue.

Counterclaims: J-B Weld argued that claims based on “steel reinforced” should be dismissed based on laches. In Georgia, the borrowed period for assessing laches is four years. Gorilla Glue argued that its awareness of the phrase did not ripen into a provable claim until the present litigation. The court agreed. In 2009, its reverse engineering attempts led to a report from an adhesive manufacturer in 2009 stating that the “one puzzle in this adhesive is presence of iron powder in the formula. It does not appear to add anything to the properties ... one clue to iron powder ... can be found in the name ‘steel’ that labels the resin.” But that didn’t mean that Gorilla Glue knew or should have known that it had a provable claim for false advertising simply based on a comment from a third-party that the presence of iron in JB Weld Original was “puzzling.” Even if it did delay, Gorilla Glue raised a material issue on excusability, because the parties weren’t directly competing on two-tube epoxy products until GorillaWeld was launched.  The Eleventh Circuit has held that delay is reasonable where a plaintiff waits to sue until coming into direct competition.

And there was a genuine dispute of material fact on literal falsity.  Gorilla Glue had evidence that the “presence of ‘steel’ in JB Weld glues has no significant overall reinforcing effect,” while J-B Weld’s expert said that the addition of steel “strengthens the adhesive, supports the adhesive, allows those steel-containing products to provide enhanced performance and improved mechanical behavior.”  [Is that the question?  I thought it was whether there was “steel” in there in the first place.] Anyway, could be literally false or misleading, although the court had “reservations” about ultimate materiality and would allow additional briefing on the matter. J-B Weld’s motion for summary judgment denied.

Claims based on “World’s Strongest Bond” were not only barred by laches, but also failed as a matter of law. Gorilla Glue learned of J-B Weld’s use of the phrase in 2011, discussed challenging it in 2013, and did nothing. Unlike with “steel reinforced,” J-B Weld was using the phrase on all its products, including those in direct competition with Gorilla Glue.  Gorilla Glue argued that it didn’t sue because a comparison between its Gorilla Epoxy product and J-B Weld’s competing ClearWeld showed comparable bond strengths. “Yet if the two products had comparable bond strengths, … it stands to reason that J-B Weld’s product could not literally create the ‘World’s Strongest Bond,’ because another product could create that very same bond.”

J-B Weld also showed prejudice because it “extensively used the J-B Weld Packaging Statements and built its brand around them,” spending millions on advertising and marketing its products between 2012-2017—all of which prominently feature the phrase “World’s Strongest Bond.” Gorilla Glue argued that there was no prejudice because J-B Weld knew from the beginning that it was a wrongdoer and had no testing supporting its claims. But J-B Weld argued that the phrase was puffery; it could hardly be said that J-B Weld would have spent the same amount of money and effort “notwithstanding any threat of litigation from Gorilla Glue.” [Really?  They might have changed that one phrase; the advertising/marketing is for the products as a whole, not a single phrase.]

Gorilla Glue argued that laches didn’t apply because it sought only injunctive relief, but that’s only the rule where the public interest in preventing consumer deception outweighs the effect of a plaintiff’s delay in bringing suit. Without strong evidence of likely or actual confusion, laches applied.

Anyway, “World’s Strongest Bond” was nonactionable puffery—exaggerated and general. Gorilla Glue argued that the strength of an adhesive bond is measurable and thus falsifiable. But it was too general, not a “detailed factual claim.”

Omission of side effects in lash "cosmetic" ads was plausibly false & misleading

Lewis v. Rodan & Fields, LLC, 2019 WL 978768, No. 18-cv-02248-PJH (N.D. Cal. Feb. 28, 2019)

Nine plaintiffs brought a putative class action alleging that defendant Rodan failed to disclose that its Enhancement Lash Boost eye serum, advertised as a cosmetic designed to make eye lashes longer and more beautiful, “had harmful side effects linked to an ingredient in” the product, a synthetic prostaglandin analog. One plaintiff’s eyes changed color, another “developed a grey spot in her vision and had central serious retinopathy,” another’s eye lashes fell out and not all of them have grown back, and another “developed a rash on her eyelid[,] [ ] her eyelid became discolored and darkened, ... and lashes no longer grow where [a] bump” developed. “Many of these side effects match those associated with all prostaglandin analogs.”

Indeed, for these reasons, the FDA previously warned another manufacturer of “cosmetic” lash-enhancement products that used the ingredient that the products violated the FDCA because they were unapproved new and misbranded drugs and failed to reveal important side effects. Rodan, too, didn’t disclose the serious side effects associated with the ingredient.  The warning states, as relevant here, “For external use only. Avoid getting in the eye; in the event of direct contact rinse with cold water. If you develop irritation or swelling discontinue product usage.” Rodan’s website and marketing materials did no better and, in some instances, affirmatively distinguished “drugs” that cause those side effects from Lash Boost’s side effects, e.g.: “The only serious side effects we have heard about are those associated with drug products, not cosmetics.” Rodan claimed the product was “a cosmetic.”

Plaintiffs alleged that, had Rodan included an adequate and “full[ ] disclos[ure about the] adverse side effects of Lash Boost, plaintiffs would have decided not to purchase Lash Boost.” And plaintiffs alleged that “they did not receive what they paid for when purchasing Lash Boost,” because they paid for a product with, at most, side effects limited to irritation but instead received a product that had serious and sometimes permanent side effects.  They asserted claims under various states’ common laws and false advertising laws, as well as a RICO claim that was dismissed because it was a RICO claim.

The false advertising claims were all based on an omission theory. For omission, Rule 9(b) “requires that the complaint adequately allege why the omitted fact is true, as well as being material to consumer decision-making.”  The complaint did so.  Plaintiffs plausibly alleged that the product could cause serious side effects, and that this is material in that reasonable consumers would have been likely to act differently because of this fact.  Given the materiality of the omission and the other allegations, it was plausible that, had Rodan reasonably and adequately disclosed the serious side effects, the plaintiffs would have been aware of the disclosure and acted differently. And plaintiffs adequately alleged injury: they didn’t receive the benefit of the bargain, a minimal-side-effect product.  Finally, as to the states that require some kind of intent, plaintiffs adequately alleged “that defendants were aware of or had [ ] reason to know of” the allegedly omitted information.