mere direct competition doesn't plausibly plead false advertising standing

Allbirds, Inc. v. Giesswein Walkwaren AG, 2020 WL 6826487, No. 19-cv-05638-BLF (N.D. Cal. Jun. 4, 2020)

Allbirds sued Giesswein for trademark and related claims, and Giesswein counterclaimed for false advertising under state and federal law; the counterclaims are at issue here.

Giesswein sells footwear made from the wool of Merino sheep, including footwear referred to as “‘runners’ or sneakers,” “wool runners,” and “merino runners.” Allbirds also offers footwear products made of wool and referred to as “wool runners.” Giesswein alleged that “[o]ne of Allbirds’ central advertising messages for its footwear products is that the products are ‘natural’ or made of ‘natural materials,’ ” but Allbirds products allegedly contain synthetic polyamides and therefore the “natural” advertising is materially false or misleading.

Allbirds argued that Giesswein lacked Article III standing because it only plead generalized harm, e.g., “Giesswein has suffered and is likely to continue to suffer significant monetary damages and discernible competitive injury by the direct diversion of sales from Giesswein”; “Giesswein has suffered, and continues to suffer, injury in fact and has lost money, property, and/or goodwill”; and “Giesswein has and will continue to suffer damages, including lost sales, revenue, market share, and asset value.” Giesswein alleged that that parties were “direct competitors,” but that wasn’t conclusive of harm, and there were no allegations that customers chose Allbirds products over Giesswein products because of the alleged false or misleading advertising. The court agreed.

A party may prove its injury (1) by using lost sales data, that is “actual market experience and probable market behavior,” or (2) “by creating a chain of inferences showing how defendant’s false advertising could harm plaintiff’s business.” “Evidence of direct competition is strong proof that plaintiffs have a stake in the outcome of the suit, so their injury isn’t conjectural or hypothetical.” But here there were no lost sales data, and Giesswein provided only one link in the chain of inferences: direct competition. Standing alone, that wasn’t enough.

Giesswein didn’t allege facts indicating that “the material of shoes is an important factor for consumers in deciding which shoes to buy such that Allbirds captures a larger share of the ‘all-natural’ shoe market because of its alleged false or misleading advertising.” Motion to dismiss granted with leave to amend (though the court suggested that the California UCL and FAL claims would require Giesswein to show that it relied on the alleged misrepresentation to its detriment, which would be hard to do even if it can plead Lanham Act standing).

Power pack plausibly promises more than it delivers

Geske v. PNY Technol., Inc., No. 19-cv-05170, 2020 WL 7042887 (N.D. Ill. Nov. 30, 2020)

A delightful example of Seventh Circuit style, clear but respectful of the parties’ arguments.

Geske alleged that PNY’s portable power bank, whose package prominently declared that it offered “5200 mAh” of available power for “3x CHARGES*,” didn’t offer “5200 mAh” of power to her cell phone. She alleged that she had to recharge the power bank more often than she thought and that the power bank was never capable of delivering 5200 mAh of power at all because the power bank itself consumes a significant portion of the power. As the court explained: “[I]t takes power to send power. The power bank must use some of the power to convert and distribute power from the internal battery to the connected device. This process can use as much as 30 to 40 percent of the battery power of the power bank.” Geske alleged that the amount of power is “the material factor in making a purchasing decision, because the function of the power bank is to provide power, and more is better.”

When she became disillusioned, “Geske didn’t return the device to the store. Instead, she hired a laboratory to figure out if her $12.99 power bank underperformed.” The lab tested two other PowerPack 5200s and two PNY PowerPack 1800s, which delivered about a third less and 45% less mAh than labeled, respectively.

Geske alleged claims under the Illinois Consumer Fraud and Deceptive Business Practices Act and comparable statutes in other states, breach of warranty, and unjust enrichment.

Geske had standing for damages: she alleged that she didn’t get what she paid for, which is a concrete injury. PNY argued that she didn’t allege that her power bank was defective, only that two others, tested by the lab, were. But this was to ignore the allegations of the complaint, which included allegations that she didn’t receive the charging power she expected. So she relied on her own personal experience, “not merely an extrapolation from testing data.” [From a scientific/predictive perspective, it’s weird to value anecdotes over data, but here we are.]

Geske also had standing to sue on behalf of purchasers who sustained a substantially similar injury, even if they didn’t buy the exact same power bank, given that PNY’s different power banks allegedly operate in the same manner and are allegedly marketed in the same way: by placing “prominent representations” about the power banks’ mAh on the packaging and using the mAh in the products’ names. The power banks allegedly “consume about the same percentage of the total battery capacity (about a third of the power), regardless of the starting point.”

However, Geske lacked standing to seek injunctive relief on the usual “won’t get fooled again” rationale. Even if public policy concerns point in the other direction, Article III doesn’t care about public policy, and the FTC can fill any gap. Also, injunctive relief remains possible if plaintiffs plead a cognizable, imminent future harm. Geske didn’t allege there was any likelihood she’d be deceived in the future.

The ICFA claim was plausibly pled. While PNY argued that the labeling of the PowerPack 5200 never made a representation about the amount of power that the product could deliver to another device, but only about the capacity of the battery (the picture of the bottom of the power bank said “Capacity: 5200mAh”), the court was unwilling to declare, as a matter of law, that Geske’s interpretation was unreasonable.

PNY referred to Department of Energy regulations that explain a battery’s capacity is usually given in mAh, but that was outside the pleadings—and “it seems like a safe bet that not a lot of consumers have read Department of Energy regulations about battery capacity.” PNY argued that reasonable consumers understand that “it takes energy to transfer energy,” but that wasn’t convincing on a motion to dismiss even if it was plausible. It wasn’t the case that information on the package would prevent a reasonable consumer from coming to another conclusion. “The existence of a competing narrative, without more, is not enough to defeat a claim when plaintiff’s theory of the case is plausible.”

PNY argued that the packaging clarifies that it offered “3x CHARGES*.” The asterisk refers to the back of the packaging, which reveals that the potential “3x CHARGES*” actually “varies by device.” Although any consumer could understand this claim, a consumer “presumably would not understand the relationship between the number of charges and the number of mAh,” and the phrase didn’t fully explain the mAh reference. Indeed, the court pointed out, there’s a disconnect between PNY’s argument here and its argument with respect to the mAh number. “3x CHARGES*” plainly refers to what a consumer’s electronic device will receive, while PNY argued that 5200 mAh refers to the power bank’s capacity, not what the electronic device will receive.

While a previous (now reversed, but not when this opinion was written) district court had allowed “100% Parmesan Cheese” to not be 100% cheese, because the ingredient panel revealed otherwise and the product was unrefrigerated,

[c]ommon sense probably comes into play with unrefrigerated cheese more than the electrical capacity of charging devices. Consumers have intuitions about room temperature dairy products. They’re less likely to have a gut feeling about what it means for a charging device to offer mAh. Unlike a package of cheese sitting out on a room-temperature shelf in a grocery store, a power bank lacks “commonsense, observable” facts that would allow a reasonable consumer to contextualize representations that a power bank offers 5200 mAh.

In a footnote, the court pointed out that it was unclear whether the power bank actually provided “3x CHARGES*.” “If the device actually delivered three charges, but yet provided less than 5200 mAh, then it is possible that Geske might not have a claim.” But at this stage, we don’t know.

The common law claims survived as well.

 

failure to disclose influencer payment/review connections is misleading

EIS, Inc. v. Wow Tech Int’l GMBH, 2020 WL 7027528, No. 19-1227-LPS (D. Del. Nov. 30, 2020)

The parties make vibrators. EIS sued defendants for violations of the Lanham Act, Delaware common law on unfair competition, the Delaware Deceptive Trade Practices Act, Delaware tortious interference laws, the Colorado Consumer Protection Act, and patent-related claims.  

Defendants argued that the state and federal false advertising claims were preempted by patent law. One of the defendants allegedly told one of EIC’s customers that the customer was infringing its patent rights by distributing and/or re-selling EIC’s product. “[T]o avoid preemption, bad faith must be alleged and ultimately proven, even if bad faith is not otherwise an element of the tort claim.” “In general, a threshold showing of incorrectness or falsity, or disregard for either, is required in order to find bad faith in the communication of information about the existence or pendency of patent rights.” However, EIC sufficiently alleged bad faith: Taking the allegations of the complaint as true, the defendant’s first US patent didn’t issue until after it contacted the customer. “That Defendants made a representation about patent rights when it knew no such patent rights existed in the United States is sufficient (if proven) to establish bad faith under Federal Circuit law.” Even if it had (as it argued) a German patent when it contacted the customer, and even if that product infringed the German patent, a German patent is unenforceable in the US.

Lanham Act commercial advertising or promotion: The statements forming the basis for the claim were (1) Instagram posts by the owner of a sex toy boutique about EIS’s products and (2) negative Amazon reviews of EIS’s products from an account displaying defendants’ We-Vibe logo. Defendants argued that, even if (as the complaint alleged) they paid the owner to post “false and misleading reviews,” that didn’t constitute commercial speech, and likewise the reviews didn’t propose commercial transactions. Although some courts have gotten this wrong, the court correctly held that the complaint sufficiently pled commerciality. The shop owner was allegedly “an industry insider and Instagram influencer” with nearly 70,000 subscribers, and her Instagram story referred to the parties’ competing products with an economic motivation. Likewise, as to the reviews specifically targeting EIS’s products, defendants, as competitors, had an economic motivation for deterring customers from purchasing competing products. It didn’t matter that there was no explicit reference in the reviews to defendants or their products. Anyway, the complaint alleged that “any potential purchaser of Plaintiff’s products who read the reviews could have clicked on the username of the reviewer and found the link to Defendants’ website on the associated account page. Hence, even without an explicit reference to Defendants, the review could lead the potential purchaser to Defendants’ website, where the purchaser could purchase competing products.”

EIC also sufficiently alleged falsity. It alleged that the Instagram influencer was being paid to share her story, but didn’t disclose her financial relationships with defendants. “That she did not disclose her financial relationship makes her story at least misleading, and establishes falsity for purposes of a Lanham Act claim, even if [she] actually held the beliefs she expressed.” Likewise, the complaint sufficiently alleged that the reviews were posted by defendants, and not by (as they purported to be) bona fide purchasers.

Similar reasoning also sustained the Delaware Deceptive Trade Practices Act and common law unfair competition claim.

Tortious interference with business relations also survived because plaintiffs didn’t need to identify a specific lost customer. The complaint alleged that defendants knew of EIC’s ongoing business relationships with its distributors and retailers; demanded that retailers stop selling its products; and threatened to raise prices or cease sales if retailers did not give in to that demand; EIC also alleged damages.

However, the Colorado CPA claim based on alleged misrepresentations about patent rights was dismissed with leave to amend for failure to satisfy Rule 9(b); the who/what/when of the misrepresentations weren’t sufficiently identified.

false designation of origin that fools Customs, not consumers, is not actionable

Diamond Sawblades Manufacturers’ Coalition v. Diamond Tools Tech., LLC, 2020 WL 7028029, No. 1:19-cv-04674-TWP-TAB (S.D. Ind. Nov. 30, 2020)

Plaintiffs sued defendants for RICO and Lanham Act violations and for prohibited predatory pricing, tortious interference, and civil conspiracy under state law.  

In May 2005, DSMC petitioned the Commerce Department and the ITC “asserting that certain foreign manufacturers of diamond sawblades were selling their products in the United States at dumped prices.” In 2009, Commerce published an “Antidumping Order” on diamond sawblades and parts thereof from China, having determined that imports from China were being “dumped” at prices below fair value and that this actually threatened the U.S. industry for diamond sawblades with material injury. Commerce thus halted imports. The order was reissued five years later after a review.

Defendants allegedly circumvented the Antidumping Order, opening “shell facilities in Thailand and Canada—countries that are not subject to the Antidumping Order—through which to fraudulently ship Chinese goods to the United States as ‘Thai’ or ‘Canadian’ goods” after relabeling, and at times, minor labor on the sawblades. Commerce and DHS therefore “issued anticircumvention decisions and findings of wrongful evasion of the Antidumping Order.” Despite the Antidumping Order, domestic consumption of subject imports was even higher than during the original period of investigation; many domestic producers were simply forced to leave the industry. “Indeed, of the original nine members of the domestic Diamond Sawblades Manufacturers’ Coalition, only two remain.”

The RICO claims failed because they were RICO claims.

False designation of origin: the court indicated that this had to be a false advertising claim because §43(a) requires confusion over affiliation with/approval by another party. The claim failed because the allegedly fraudulent relabeling of origin deceived Customs, not consumers. (I don’t see why the precedents saying that deception doesn’t have to be of end consumers to count shouldn’t extend here, given a strong but-for causation argument that the end consumers could never have bought the products without the deception.)  The court reasoned that the complaint failed to allege “that any mislabeling regarding national origin would likely dupe the consuming public into buying the products of Defendants instead of those of its members.” This wasn’t a case of false US origin labeling—false designation as products of Thailand or Canada wasn’t relevant to consumers. The arguments that the materiality of literal falsity could be presumed, and that Chinese products might be especially unattractive to US consumers, failed, as did the argument that the “false labels enabled them to sell the products at issue well below fair value—i.e., at much cheaper prices—which plainly influences consumers’ purchasing decisions.” The complaint simply didn’t allege how these labels would materially affect a consumer’s purchase, even if the briefs argued for something special about Chinese origin labeling.

allegedly false warranty letter not material, but could still be TM infringement

Window World Int’l, LLC v. O’Toole, 2020 WL 7041814, No. 4:19-cv-2363-SEP (E.D. Mo. Nov. 30, 2020)

Plaintiff WW sells exterior home remodeling products, and licenses independently owned/operated franchises to distribute them. Defendants are franchisees/related people. They sued WW in North Carolina state court for, inter alia, breach of contract and fraud, seeking reformation to enforce an unlimited right to use WW’s marks. The North Carolina case was still pending, but discovery had closed.

In April 2019, one defendant prepared and sent a letter using WW trademarks in order to collect information from past customers of the franchises and specifically those who purchased their products from “previous ownership teams.” It requested that customers call to confirm “proper contact and product information.” The letter also included a warning: “If you want to retain the warranty on your products, you need to call us by April 12, 2019.”  

In fact, warranties for WW products would not expire if customers failed to contact the defendants.

False advertising: WW came within the Lanham Act’s zone of interests because defendants allegedly presented WW’s warranties as inferior to their actual coverage. Customers allegedly believed the letter and called defendants. Proximate cause: Causing customers to believe that they had been misled about their product warranties “constitutes damage to the reputation of Window World products.”

However, WW failed to plead materiality: that the deception, even if it worked, was “likely to influence [a] purchasing decision.” The letter itself didn’t provide any information about WW products or warranties, and it was directed to past customers. Even if defendants “received telephone calls from recipients of the Warranty Letter shortly after it was sent,” the complaint didn’t plead— even upon information and belief—that any of those calls suggested that the letter did, or would likely, affect future purchases. “The bare allegation that the statement satisfies the legal standard for materiality is insufficient.”

Trademark infringement claims, which don’t require materiality, survived. The court rejected defendants’ argument that “whenever a party is authorized to use a mark to sell that mark holder’s products, confusion is impossible,” because “confusion can be created by a licensee.”  But confusion about what? The court basically resurrected the false advertising claim, without materiality: “Sending a letter using another entity’s protected marks urging customers to return communication citing a false prospect of losing warranty coverage” was enough to plausibly cause confusion about … something.

Dilution: Not plausible because WW alleged confusion, not lack of confusion, and there can be no tarnishment because the parties’ windows are the same products.

Ultimately, however, the court stayed the case so that the North Carolina court could take a first whack at defendants’ rights to use the WW marks.

negligence claim v Amazon survives when 230 bars false advertising claim

Brodie v. Green Spot Foods, LLC, 2020 WL 7027594, No. 20 Civ. 1178 (ER) (S.D.N.Y. Nov. 30, 2020)

Brodie sued Green Spot and Amazon for “injuries she sustained after consuming a product known as Better than Pasta, which she purchased on Amazon’s website.” Better than Pasta products are pasta substitutes whose primary ingredient is a root plant called konjac. “When consumed, konjac swells from its original size in the human digestive tract and may become indigestible. It may also cause choking and stomach or intestinal blockage.” Brodie pled that these dangers are “generally well-known” and have led the FDA and similar regulatory bodies to ban certain foods containing konjac or issue warnings about its risks. The packaging states that the food is “made from organic Konnyaku flour, from the root of an ancient Japanese organic plant called Konjac,” but doesn’t provide warnings about konjac’s alleged risks.

Green Spot allegedly initially created all advertising for the product, but Amazon also marketed and advertised the product on Amazon.com. Green Spot participates in Fulfillment by Amazon, meaning that Amazon ships the product to customers directly from its warehouses. Amazon designated Better than Pasta as an “Amazon’s Choice” product on the website.

Green Spot and Amazon were allegedly made aware of the dangers of Better than Pasta because they received numerous customer complaints about the health issues caused by consuming the product. E.g., “I tried this pasta for the first time last night, and today I’m having SEVERE intestinal cramps. Buyer beware! I did a web search and discovered some Konjac root products have been banned because they can actually cause an intestinal blockage.” Brodie alleged that Green Spot “may have directed Amazon to remove other negative complaints about the product,” and that it pays or incentivizes individuals to leave “false positive reviews” with Amazon’s knowledge, which Amazon allowed.

Negligence/breach of implied warranty by Amazon was sufficiently alleged because the ingredient was listed and Brodie sufficiently alleged that the ingredient’s dangers were generally known, and that the negative reviews posted on the website made Amazon aware of konjac’s potential to cause digestion issues and other injuries, and retailers have a duty to know that which can be known by ordinary inspection.

“Amazon’s Choice,” however, wasn’t an express warranty because it didn’t make a specific factual representation.

NY GBL §§349 & 350: The CDA protected Amazon from liability for republishing content created by Green Spot. “There is insufficient factual pleading supporting the plausible inference that Amazon itself created or edited any of the Better than Pasta advertising content.” As for the consumer review-based allegations, they were insufficient. “Although Brodie alleges that it is common for third-party sellers to pay for false positive reviews, this fact does not lead to a plausible inference that Amazon itself knows about this practice or permits false reviews to be posted.”

 

Comments on DMCA reform

Senator Tillis has been soliciting suggestions for DMCA reform (including 512, 1201, and 1202). With Jessica Litman, Pam Samuelson, and Jennifer Urban, I submitted responses. The Organization for Transformative Works, on whose legal committee I serve, also submitted responses. 

advertiser can amend complaint against Facebook for click fraud claims

DotStrategy Co. v. Facebook Inc., No. C 20-00170 WHA, 2020 WL 6591366 (N.D. Cal. Nov. 11, 2020)

The court grants plaintiff’s motion for leave to amend its complaint in this putative class action alleging that FB’s statements about advertising on FB violated the UCL. “The main issue presented here is whether or not a reasonable advertiser would understand Facebook’s representation that it would not charge advertisers for ‘clicks that are determined to be invalid’ to mean that Facebook would not charge — or refund — advertisers for clicks made by fake accounts, if at all, which Facebook identifies and removes from its platform for violating its authenticity policies.” Plaintiff pled sufficient facts to support this theory.

FB’s agreement said:

When serving your ad, we use best efforts to deliver the ads to the audience you specify or to achieve the outcome you select, though we cannot guarantee in every instance that your ad will reach its intended target or achieve the outcome you select[.]

We do not guarantee the reach or performance that your ads will receive, such as the number of people who will see your ads or the number of clicks your ads will get.

* * *

We cannot control how clicks are generated on your ads. We have systems that attempt to detect and filter certain click activity, but we are not responsible for click fraud, technological issues, or other potentially invalid click activity that may affect the cost of running ads.

However, from 2013 through the present, FB’s Business Help Center page represented that advertisers would “not be charged for clicks that are determined to be invalid”: “If we detect or are alerted to suspicious or potentially invalid click activity, a manual review is performed to determine the nature of the activity. You will not be charged for clicks that are determined to be invalid.” Facebook defines “invalid clicks” as “[c]licks from people that do not indicate a genuine interest in the ad or show signs of ad testing. This includes repetitive or accidental clicks or visits from the Facebook corporate network” and “[c]licks generated through prohibited means, such as fake accounts, bots, scrapers, browser add-ons or other methods that don’t follow Facebook’s Terms.” FB’s terms of service and authenticity policy requires users to use their “real identities,” so fake accounts violate Facebook’s policies.

The proposed complaint had a bunch of other FB statements that were allegedly false and misleading, such as:

• “On Facebook, you’ll only pay to reach the right people who’ll love your business.”

• “Facebook is a community where everyone uses the name they go by in everyday life. This makes it so that you always know who you’re connecting with.”

Nonetheless, FB allegedly charged for invalid clicks, which includes “[c]licks generated through prohibited means, such as fake accounts, bots, scrapers, browser add-ons or other methods that don’t follow Facebook Terms.” When Facebook determined those clicks were generated through prohibited means, it failed to provide a refund to plaintiff and the class members. Plaintiff alleged that it reasonably believed that, because Facebook requires “everyone to provide their real names,” it would not be charged for advertising that interacted with fake accounts.

Plaintiff alleged that between 2013 and 2018, Facebook charged it for clicks that were made by thirteen different fake accounts. Facebook allegedly has since deleted eight of these thirteen accounts from its platform “likely for violations of its ‘authenticity policy.’ ”

FB argued that no reasonable consumer could have been misled by its allegedly false and/or misleading statements, particularly, in light of the contractual disclaimers in the self-serve ad terms. The key issue was whether, given FB’s statements, a reasonable advertiser would have believed that once Facebook determines and removes an account for violating its authenticity policies (e.g., a fake account), FB would then perform an audit to refund advertisers for any invalid clicks that that account may have made, and for which FB had charged advertisers for.

That is a question of fact not suitable for resolution on a motion to dismiss. Plaintiff plausibly alleged deceptiveness to a reasonable consumer.

The allegedly contradictory TOS stating that Facebook is not “responsible for click fraud” was ambiguous; a reasonable advertiser could construe that to mean that FB itself is not perpetuating any click fraud [and, I’d add, couldn’t itself be held liable for damages—but that doesn’t mean it’s clearly promising to hang on to the money it collected from the advertiser for fraudulent clicks]. And the Ninth Circuit “has recognized that a UCL fraud claim can be based on misleading representations in a solicitation even when the plaintiff later signed a contract with provisions contradicting the earlier falsehoods.” “The question, then, is not whether [Facebook’s] contractual terms corrected the false statements in its advertising, but whether dotStrategy’s reliance on the false advertising was reasonable even in light of the contractual disclaimers.” That was properly alleged.

FB argued that none of its statements mentioned refunds, so they couldn’t be deceptive. “But a refund is implied” for interactions FB knew involved invalid clicks. FB tried to distinguish fake accounts from invalid clicks, arguing that it only promised to provide manual review for “suspicious or potentially invalid click activity,” and no charges for “clicks that are determined to be invalid,” not audits every time a fake account was removed.

But the proposed complaint specifically alleged that Facebook charged it and other advertisers for invalid clicks, such as clicks by fake accounts and/or bots. “Second, a reasonable advertiser might also reasonably believe that once Facebook determines an account is fake, Facebook would be ‘alerted to suspicious or potentially invalid click activity’ and thus would conduct a ‘manual review’ to determine the nature of the activity.” After all, falsity/misleadingness “is analyzed from the perspective of a reasonable consumer, not from the perspective of an attorney splitting hairs.”

This interpretation would not, as FB claimed, make it liable if its platform was 100% secure against fake accounts. Rather, the advertiser’s argument was that, once FB does stumble on fake accounts, it should then perform an audit to refund advertisers for any invalid clicks committed by such accounts, given what it said to advertisers.

FB then argued that, just because an account was fake in 2018 when plaintiff performed its survey, it doesn’t also follow that that account was also fake in 2017, for example, when it clicked or engaged with plaintiff’s ads. That was a factual issue, and the plausibility of the claims was bolstered by various news reports suggesting that fake accounts on FB “are rather ubiquitous.”

However, a number of the challenged statements hadn’t been sufficiently pled to be false or even non-puffery:

• “Connect with people. Ads help you reach the right people.”

• “Facebook can help you reach all the people who matter most to your business.”

• “Facebook ads are optimized to help you get more people to visit your website or increase conversion.”

• “Your business is for your customers. Built relationships with them, reach new people and drive sales using Facebook.”

• “Drive people to your website with one click from the most engaging place on Facebook.”

• “Find new customers. Boost sales. Facebook can help you meet your business goals.”

• “Meet the people who will love your business.”

A reasonable consumer “would understand that not all users on Facebook would adhere to Facebook’s authenticity policy or would be interested in its ads.” And even people who didn’t use “true and full names” might have provided accurate information concerning their age, gender, and location, among other things; “it cannot be said that such an account is categorically unable to be interested in plaintiff’s ads.”

But these statements were plausibly false/misleading:

• “On Facebook, you’ll only pay to reach the right people who’ll love your business.”

• “Facebook is a community where everyone uses the name they go by in everyday life. This makes it so that you always know who you’re connecting with.”

And the plaintiff plausibly pled economic injury: the cost of invalid clicks.

 

timeshare exit lawyer wins a round: no harm causation shown

Club Exploria, LLC v. Aaronson, Austin, P.A., No. 18-cv-576-Orl-28DCI, 2020 WL 6585802 (M.D. Fla. Nov. 10, 2020)

Another timeshare v. timeshare exit lawyer case that goes much better for the defendant than some others. Briefly, the plaintiff seems to have relied heavily on favorable precedents without developing enough evidence that this specific firm did the same bad things.

Defendant law firm specializes in timeshare owner grievances against developers; its websites contain colorful statements and media aimed at optimizing internet visibility, and clients are emailed a link to one of the sites when their retainer agreement is sent to them. Exploria alleged that Aaronson uses false and misleading website advertisements to convince timeshare owners that they can easily cancel their timeshare contracts if they hire Aaronson. Aaronson allegedly then advises owners to stop paying their loan and fee obligations.

An example of the website statements:

Timeshare ownership often feels like entrapment. At the Aaronson Law Firm, we know this because we hear our Clients’ stories.

....

But chances are good that your timeshare developer is exposed legally in ways that are relatively straightforward and provable. You owe it to yourself to hire experienced, competent counsel. At the Aaronson Firm, we have over 80 years of combined legal experience. And we are willing to sue, if necessary, in the interest of getting your timeshare cancelled….

YOUR LEGAL PROBLEMS ARE NOT INSURMOUNTABLE!

If you need to cancel your timeshare, the timeshare Attorneys of the Aaronson Law Firm stand ready and able to help you!

The sites also explained that they would use formal demand letters to “initiate” recission, with an attached proposed civil complaint in a carrot/stick arrangement.

Its blog stated that “[q]uite often, one’s signature on a timeshare contract is obtained by fraud.… But to address it properly, it is imperative that you retain a licensed attorney.” Experienced counsel, it stated, “will know how to exploit other points of vulnerability. For example, the developer may well be perpetrating an ongoing conflict of interest. Improper handling of trust funds are [sic] also a major issue.”

Its websites contained videos purporting to be testimonials of Aaronson’s clients, but actors and Aaronson employees played the roles of lawyers and owners. “In both instances, the role players read statements of actual unhappy timeshare owners.” [Generally ok, if disclosed.] However, “[o]ne of the websites also included two printed testimonials that were written by the web designer and an Aaronson employee but attributed to timeshare owners.” [Not ok.] The websites did mention some timeshare developers by name, but not Exploria, and the court indicated that the focus of the criticism was the timeshare industry in general.

Aaronson represented at least 22 Club Exploria owners attempting to cancel their timeshare contracts, but Exploria sought damages for six in particular. The court found, based on deposition testimony, that the owners who stopped making payments did so of their own accord, without instruction from the firm or before hiring the firm.

Tortious interference: Aaronson knew of the contract between the parties, but Exploria didn’t show that defendants intentionally caused the contract to be breached. Whether Aaronson’s legal theories were good ones didn’t matter without causation. Exploria’s primary evidence was testimony given by a different person in an unrelated litigation who testified that Aaronson advised him to cease making payments as part of a legal strategy to terminate a timeshare with Diamond Resorts. The fact that two of the six owners stopped paying after hiring Aaronson wasn’t enough for a reasonable jury, especially given the testimony of the only owners deposed that no one from the law firm told them to stop paying, that they chose to stop paying for other reasons, and that letters Aaronson sent to Exploria on their behalf did not lead them to believe that they had been relieved of their payment obligations. Many Aaronson retainer agreements stated: “To avoid the possibility of a counterclaim, it is important that you remain current on your payments with the developer.”  Prior cases involved very different evidence, and indeed Aaronson fixed one mess made in the unrelated Westgate litigation.

FDUTPA prohibits “unfair or deceptive acts or practices in the conduct of any trade or commerce.” The court concluded that, though nonconsumers do have standing under FDUTPA, the practice of law was not “trade or commerce.” While lawyers are not per se exempt from FDUTPA, lawyers acting to exercise a legal remedy are typically not considered to be engaged in trade or commerce. That was the case here with Aaronson’s website ads and representation of clients. Aaronson actually went to litigation on a regular basis, unlike the lawyer in Westgate who, the court there found, “actively avoid[ed] judicial involvement through all of his work.”

Lanham Act: No showing of proximate causation: there wasn’t evidence that the website ads caused owners to withhold business from Exploria.

The court nonetheless addressed other elements of the Lanham Act claim. There were genuine issues of material fact on falsity/misleadingness. Rather than deeming the accusations against the timeshare industry as a whole to be puffery (“fraud,” “pack of lies,” “improper handling of trust funds,” sociopathic sales associates, “ongoing conflicts of interest,” and the owners “being taken for a ride”) the court found it couldn’t determine the truth of those statements at this stage. And there was record evidence that the sites’ claims that the timeshare developers are likely “exposed legally in ways that are relatively straightforward and provable” and that Aaronson’s strategies give timeshare owners “the best chance to have [their] timeshare successfully rescinded” were false. The evidence was that, of the 100–150 timeshare cases the lawyer has taken to litigation, the contracts were found unenforceable roughly six times. And there was no record evidence that any of the Affected Owners’ contracts were successfully rescinded. That didn’t show there were no legal grounds to dispute the agreements or that Aaronson was never successful, but a jury could find that Aaronson’s website “falsely or misleadingly stated timeshare developers’ legal vulnerability as well as the availability of remedies like rescission.” [There is a line of cases about when legal claims are falsifiable v. puffery, but the court does not cite them and might not have been directed by the parties to them.]

Likewise, a jury might find the claims literally false; if they found them misleading, the case would fail because Exploria had no evidence of consumer reaction.

However, Exploria’s failure to show materiality was fatal regardless. There was no expert testimony or other evidence that the website advertisements were likely to be material to consumer purchasing decisions. The record didn’t even show that every owner found Aaronson through its websites; only one of the 6 named did so, and she wasn’t deposed. The rest were referred by another lawyer. One had no recollection of visiting the site, and another’s spouse told her nothing about the site. “Clearly the website statements were not material to these owners even if they did indeed view them.”

Trade libel: also failed for want of materiality.

Peloton's music troubles give it consumer protection troubles over "ever-growing library" claim

Fishon v. Peloton Interactive, Inc., 2020 WL 6564755, No. 19-cv-11711 (LJL) (S.D.N.Y. Nov. 9, 2020)

Peloton streams live and on-demand fitness classes requiring a monthly subscription fee. Certain Peloton ads described the library of fitness classes as “ever-growing.” But in March of 2019, however, in response to a lawsuit from music publishers, Peloton removed approximately 5,739 classes, or nearly 57% of the total available classes, from its library. Plaintiffs alleged that the “ever-growing” claim was deceptive and misleading.

The court dismissed the NYGBL claim of the Michigan plaintiff, but not of the NY plaintiff.  

First, the terms of service, which authorized Peloton to remove content from its library at any time, did not protect Peloton. Statements buried in contracts can’t, in general, avoid false advertising claims. “A reasonable consumer, having viewed Peloton’s advertisements on its website and having decided to purchase a Peloton product based on the understanding that the library would grow ‘should not be expected to discover the truth’ and that such understanding was false from the Terms of Service.” Moreover, being able to remove content at any given time was not inconsistent with a promise of an “ever-growing” library, and so the TOS didn’t dispel the alleged falsity. “The Terms of Service do not disclose that Peloton might remove over half of its library without simultaneously replacing that half with even more classes.”

Puffery: “Ever-growing” was objective and testable. “The library either increased in size or it shrunk.”

Deceptive/misleading: This was a factual question not appropriately resolved on a motion to dismiss, despite Peloton’s argument that it was constantly adding new content, nearly 24 hours of live content per day. “Ever-growing” is not the same thing as “ever-changing.” “A consumer attracted to a grocery store by its advertisement of a growing selection of foodstuffs would be surprised to learn on each visit that the number of products on sale was decreasing, although the store was replacing the items it removed with a smaller number of new products…. A reasonable consumer thus would not understand as a matter of law when he or she purchased the Peloton product based on the representation that the library was ever-growing that the library was shrinking in size at the same time Peloton was adding new classes.”

Plaintiffs also properly pled causation even without alleging that they saw the misleading ads, since reliance isn’t required and Section 349/350 claims are not fraud claims that must be pled with particularity. “[A]n allegation that the defendant was injured because she relied on the misleading statement to her detriment is not a ‘[t]hreadbare recital[ ] of the elements of a cause of action,’ but rather “an allegation of fact as to how she came to be injured that—if proven—supports the establishment of that element…. The manner in which the plaintiff came to rely upon the deceptive act—and whether it can be proved—is a further issue of proof and not something that needs to be pleaded in detail for a complaint to proceed.”

So too with injury: The complaint alleged that “Plaintiffs attributed value to Peloton’s promises regarding the nature and characteristics of its on-demand digital library and would not have purchased the hardware and corresponding Peloton Membership, or would not have purchased it on the same terms, if they knew the truth.” That was enough for now.

 

misbehavior in Amazon reviews + false ingredient claims = $9.5 million award

Vitamins Online, Inc. v. HeartWise, Inc. 2020 WL 6581050, No. 13-cv-00982-DAK (D. Utah Nov. 10, 2020)

This is a long-running supplement false advertising case involving both ingredient and “review” claims; here the district court resolves a number of issues, finding a fair amount of falsity. The plaintiff sells NutriGold supplements and the defendant sells NatureWise supplements.

I’m skipping a lot of detail on the ingredient specifics but will say a bit more about the review claims.

I should also note that, due to HeartWise’s failure to preserve evidence, the court drew a number of adverse inferences about failure to meet label claims.

The court found that, on Amazon, the number of positive reviews and even slight differences in star ratings are important to consumers, and good reviews improve search results and sales; it relied in part on VO’s survey expert and on “very extensive and consistent literature that online reviews are an important part of almost all online purchasing decisions.”

NatureWise’s First Green Coffee product page began receiving product reviews before the product even launched, including reviews stating that customers had been taking it for weeks/months, and losing pounds per week. Several of the reviews had red flags—they were from unverified purchasers, appeared within 14 minutes of one another, and gave the product 5 stars. Fourteen five-star unverified reviews appeared within 25 minutes of one another and had “a similar pattern of including an exclamation point in the title of the review.” Other NatureWise products followed the same general pattern.

VO’s statistics and computer science expert authored a joint report with its statistics and review manipulation expert; they were both credible. Based on this testimony, the court found that NatureWise’s unverified reviews had higher ratings than its verified reviews; the products had higher ratings than a random sample of similar products; the unverified reviews were significantly higher; there were an unusually high number of new reviewers; NatureWise reviewers had written more prior reviews than the typical reviewers; new NatureWise reviewers gave significantly higher ratings than customers who had previously written reviews on Amazon; NatureWise reviewers had significantly higher similarities compared to other reviewers; and there were periods in which the NatureWise products had an unusually large ratio of unverified reviewers and an unusually large ratio of reviewers that were highly positive.

NatureWise also manipulated reviews by (1) block voting on the helpfulness of reviews and (2) offering free products in exchange for reviews. Employees, at its direction, upvoted good reviews and downvoted bad reviews. NatureWise’s principal testified that this was only defense to attacks by unknown third parties, but he directed employes to downvote bad reviews without mentioning purported attacks or distinguishing between “attacking” reviews and legitimate reviews. “NatureWise management knew that their block voting was interfering with Amazon reviews, and they were worried about customers finding out,” and also worried about Amazon finding out, since they knew that this violated Amazon’s policy.

As for products in exchange for reviews: “On several occasions, NatureWise denied having offered free product in exchange for a review, even though that was not true.” It also asked customers “to review other products so that their reviews of NatureWise products would have more credibility and so Amazon would not think NatureWise reviews were fake.” The products-for-review scheme was also a violation of Amazon policies, and the court found that it deceived consumers because review independence is material to them. The court further found that review manipulation benefited NatureWise financially.

Since the parties’ products competed directly, and since for at least some part of 2012-end of 2013 they were the two major players in the Amazon marketplace for garcinia cambogia and green coffee products, with only “minimal” alternatives, this all hurt VO. NutriGold took the “#1 Amazon top seller” slots for both. By 2014, however, “the markets for green coffee and garcinia cambogia on Amazon were inundated with competitors such that Vitamins Online and NatureWise were no longer the two major players in the relevant marketplace.”

Falsity/ingredients: Based on the adverse inference mentioned above, the court found that certain claims were literally false and VO was entitled to a presumption of deception, wich was unrebutted. As for the products in general, NatureWise “failed to keep the necessary documentation to keep track of the Green Coffees and the Garcinias that it was selling.” At least as to certain lots, a number of claims about ingredients, ingredient amounts, vegetarian status, lack of fillers/binders/artificial ingredients, and clinical proof were literally false. “For much of 2012 and 2013, NatureWise’s claims … that (1) each ingredient it used was verified for purity through in-house testing; (2) it had implemented a strict set of FDA compliant manufacturing procedures; and (3) its facilities were regularly inspected by FDA officials were literally false because NatureWise did not know who was making those products.”

Even if these claims had been only implicitly and not explicitly false, VO would be entitled to a presumption of deception because the court found that defendants acted with the intent to deceive consumers.

Review claims: the court found that the practice of block voting was “the use of a device in connection with the commercial advertising or promotion of its products.” And as a result, the number of “helpful” votes on certain reviews were “artificially inflated and literally false.” NatureWise’s representations that it did not offer free products in exchange for reviews were also literally false. Even if this was only implicit falsity, again, there’d still be a presumption of deception because of the intent to deceive.

NatureWise failed to rebut these presumptions of deception.

Materiality: The court quoted the Second Circuit’s statement that, “in many cases the evidence and the findings by [a] court that a plaintiff has been injured or is likely to suffer injury will satisfy the materiality standard—especially where the defendant and plaintiff are competitors in the same market and the falsity of the defendant’s advertising is likely to lead consumers to prefer the defendant’s product over the plaintiff’s.” The court concluded that both ingredient and review claims were material, and also the court presumed materiality from literal falsity. Plus, because Vitamins Online and NatureWise were direct competitors in a sparsely populated market, the court presumed injury to VO. (Previously the court had declined to rely on this rationale, but the evidence at trial showed that the market was in fact sparsely populated during a key period.)

Injury: A “heightened level of ... proof of causation and specific injury” is required when the plaintiff is seeking money damages. And the standard of proof required when a plaintiff is seeking disgorgement, as VO was, is “somewhere between the standards for money damages and injunctive relief.”

For the years 2012 and 2013, VO was entitled to a presumption of injury because of the sparsely populated market, but only of economic injury and not of reputational injury. As to the remaining years, VO failed to show economic or reputational injury proximately caused by NatureWise’s misrepresentations once the market was flooded with competitors. At that point, “a sale for NatureWise could have meant a lost sale for any of the other Amazon competitors.”

The Utah common law unfair competition claim went the same way.

Applying Romag Fasteners, Inc. v. Fossil, Inc., 140 S. Ct. 1492 (2020), the court noted that willfulness is still “a highly important consideration in determining whether an award of profits is appropriate.” Other equitable considerations may include, among other things, “(1) the degree of certainty that the defendant benefited from the unlawful conduct; (2) availability and adequacy of other remedies; (3) the role of a particular defendant in effectuating the infringement; (4) plaintiff’s laches; and (5) plaintiff’s unclean hands.”

Here, disgorgement of NatureWise’s profits from 2012 and 2013 was an appropriate remedy, given the clear benefit NatureWise received: it “quickly rose to the top of Amazon sales rankings and made millions of dollars in a matter of months despite having no previous experience in the industry.” And, even though VO wasn’t seeking actual damages, those are difficult to calculate accurately in a false advertising case. VO didn’t delay, and NatureWise’s actions were willful. Indeed, “as a result of testing, NatureWise had knowledge that certain lots of the Products did not match their label claims. Yet, even with that knowledge, NatureWise continued selling those products and never issued any recalls.” NatureWise’s discovery improprieties additionally favored disgorgement.

NatureWise’s sales from the period were over $9.5 million, and it didn’t provide reliable evidence of cost or other deductions, so the court awarded the entire amount plus prejudgment interest. The award was the same (not doubled) for the Utah common law claim.

The court declined to enhance the damages/profits awarded. The disgorgement was adequate compensation, and enhanced profits would constitute a penalty.

The court also declined to grant VO a permanent injunction, since the disgorgement was adequate compensation. And VO’s requested relief that NatureWise be compelled to remove all its product reviews on Amazon would be against the public interest because “legitimate reviews of actual consumers would also be removed.” [What about compelling NatureWise to remove/request removal of all paid-for reviews and employee helpfulness votes? Would Amazon do that?]

The court also awarded attorneys’ fees and costs “in light of NatureWise’s actions in willfully deceiving consumers, failing to produce pertinent evidence, and abusing the discovery process” and in order to deter NatureWise from further willful conduct.

Amicus brief in Stouffer v. Nat'l Geographic (a title v title infringement case)

With Mark Lemley, Mark McKenna, and a number of other IP professors, I submitted this amicus brief arguing that the 10th Circuit should adopt Rogers v. Grimaldi (without any exclusion for title v title claims) for assessing trademark claims against noncommercial speech such as TV shows.

230 defense fails where speaker's ownership/control of D is sufficiently alleged

Tang v. Guo, 2020 WL 6414371, No. 17 Civ. 9031 (JFK) (S.D.N.Y. Nov. 2, 2020)

Further on this case about a dispute between a political activist and a rival. Plaintiffs sued defendants including Guo a/k/a Kwok and four entities that Kwok allegedly founded and controls, collectively the media defendants and the ROL defendants (“Rule of Law” Society and Foundation). A media defendant and the ROL defendants moved to dismiss the claims against them under §230 and the court denied the motion because it was properly pled that they were owned/controlled by the speaker who posted the challenged content on their websites, and thus not third parties for §230 purposes.

Plaintiffs allege that Kwok owns, directs, and/or controls the media Defendants and ROL defendants, which he allegedly created to promote certain for-profit endeavors of his under the guise of advocating for greater human rights and democracy in China. Each entity operates out of Kwok’s residence; and Kwok is the sole agent and promoter of the corporations’ services, which are allegedly designed to compete with plaintiffs’ nonprofit organizations and media outlet, which also advocate for greater human rights and democracy in China.

Kwok, via the media defendants and other outlets such as YouTube and Twitter, allegedly made and continues to make available, false and defamatory statements about plaintiffs, as well as false or misleading statements about the purported use of funds donated to the ROL defendants, in order to garner attention for Kwok’s nonprofit and media organizations and ultimately drive donors away from plaintiffs’ competing organizations.

After an initial dismissal, the court allowed plaintiffs leave to file an amended complaint alleging Lanham Act, unfair competition, defamation, and harassment claims to move forward, and adding media defendant SMG and the ROL defendants to be added to this action. Relevant allegations: (1) that the ROL defendants, which are owned and controlled by Kwok, use the media defendants to publish Kwok’s false and misleading statements; (2) that the ROL defendants engaged in false advertising regarding the foundations’ non-tax exemption for certain charitable donations, and the foundations’ lobbying efforts and non-charitable expenditures; and (3) that the media defendants promote Kwok’s and the ROL defendants’ false statements and advertising by receiving funding from the ROL defendants and publishing Kwok’s misleading infomercials on their platforms.

Media defendant SMG argued that §230 shielded it from any liability, and the ROL defendants argued that the complaint didn’t plausibly allege a principal-agent relationship between Kwok and the ROL defendants, and even if it did, the complaint didn’t allege how the ROL defendants’ purportedly false advertising caused any harm to Plaintiffs.

Previously, the court found Lanham Act/unfair competition claims permissible because the complaint plausibly alleged (1) a sufficient economic motivation for Kwok’s speech based on the “DONATE” buttons he included in certain video infomercials as well as the plausible allegation that Kwok sought to increase viewership on the media defendants’ platforms in order to encourage donations to the ROL defendants; (2) that Kwok and the entities he controls have misled the public regarding the use of donated money; and (3) that Kwok’s false statements were made for the purpose of influencing donors to make contributions to his charitable organizations instead of to Plaintiffs’ competing organizations. [I suspect there’s a greater noncommercial speech problem here than litigated out here, given Riley & progeny.]

CDA:  “[I]mmunity pursuant to the CDA is generally only available where the complained of content is provided by a third-party.” The complaint plausibly alleged that defendant SMG itself published the false statements, because plaintiffs plausibly alleged that Kwok owns and controls SMG and used it to violate the Lanham Act and unfairly compete with plaintiffs’ fundraising efforts.

The ROL defendants: The complaint alleged that the two organizations are essentially the same except that one is a 501(c)(4) entity which is allowed to engage in lobbying, and the other is a 501(c)(3) entity which is not, and that the two organizations compete with plaintiffs for donations, gifts, and other contributions intended for promoting human rights and democracy in China. They allegedly engaged in false advertising by soliciting charitable contributions without distinguishing between the two or disclosing to potential donors that the ultimate use of the funds was for non-charitable purposes, such as lobbying efforts, funding Kwok’s personal asylum application, and funding his for-profit media organizations, the media defendants.

The ROL defendants could be held directly liable based on the plausible allegation that they failed to disclose that the use of certain donations was for purposes other than the organizations’ stated objectives. And proximate cause was plausibly pled because plaintiffs alleged that they derived income from the same types of donations and gifts that were redirected to the ROL defendants based, at least in part, on their false advertising.

Comment: Not every court would be so generous with this proximate cause allegation—why would money be diverted from plaintiffs in particular? Are there literally no other organizations doing similar work?

press release in supplement battle could be false advertising

ThermoLife Int’l LLC v. NeoGenis Labs Inc., 2020 WL 6395442, No. CV-18-02980-PHX-DWL (D. Ariz. Nov. 2, 2020)

Plaintiff/counterdefendant ThermoLife and defendant/counterplaintiff HumanN both hold patents related to the use of nitrate technology for supplements. ThermoLife alleged that HumanN engaged in false advertising and false marking by, among other things, marking three of its nitrate-related products with inapplicable patent numbers. HumanN’s counterclaims were based in part on a previous, unsuccessful lawsuit that ThermoLife filed against HumanN, in part on a press release that ThermoLife’s principal Kramer issued after this lawsuit was filed, and in part on ThermoLife’s alleged interference with HumanN’s business relationship with Amazon.com.

This decision deals with ThermoLife’s motion to dismiss the counterclaims.

The prior litigation was stayed when the PTO instituted proceedings to reexamine the ThermoLife patent asserted in the suit. During reexamination, Kramer allegedly sent a letter to HumanN to “open a dialogue for possible resolution” of the litigation. He “threatened to bring a false advertising suit” and another infringement suit based on two additional patents if “HumanN did not...negotiate a deal.” Kramer and ThermoLife allegedly “promise[d] to stifle competition for HumanN if HumanN agree[d] to a sub-license, and alternatively threatened to drive HumanN out of business entirely if it [did] not.” ThermoLife voluntarily dismissed the infringement suit, but allegedly continued to demand that HumanN pay licensing fees despite HumanN’s contention that it didn’t practice the patent.

ThermoLife also told Amazon that HumanN’s products infringed another of ThermoLife’s patents, as a result of which Amazon took down some of HumanN’s product listings. This allegedly caused HumanN to expend “significant efforts to restore its product pages,” rendered HumanN “unable to sell three of its top selling products on Amazon” for one month, and diminished HumanN’s seller ranking.

ThermoLife ultimately sued again, and issued a press release entitled “ThermoLife Serves HumanN A Beet Down For Selling Falsely Advertised And Misbranded Products Including SuperBeets, BeetElite, And Neo40.”  

The Sherman Act attempted monopolization counterclaim was dismissed because of failure to sufficiently define the relevant market, albeit with leave to amend.

Lanham Act false advertising: This was based on the “Beet Down” press release, which disclosed that ThermoLife had filed this action and described ThermoLife’s basis for doing so.

ThermoLife argued that because the press release simply repeated the allegations contained in its complaint in this action, while prefacing each set of allegations with the phrase “has alleged,” the press release was truthful. Not so. The headline was not qualified and affirmatively stated that HumanN “sell[s] falsely advertised and misbranded products.” “Resolving all reasonable inferences in favor of the non-movant, this is a statement of fact.” Also, a quotation from Kramer included an assertion that “HumanN relies on false representation after false representation to deceive consumers into purchasing HumanN’s products.” This was also plausibly a statement of fact rather than a statement of opinion.

Arizona’s state-law litigation privilege also didn’t bar HumanN’s Lanham Act claim. And the press release wasn’t protected by Noerr-Pennington immunity. It accused HumanN of falsely marking HumanN’s products with patents the products do not practice; it didn’t mention ThermoLife’s patents except for in Kramer’s quote, “ThermoLife holds the patents for the technology in HumanN’s products, not HumanN.” But that seemed to be about ThermoLife’s earlier contention that “contrary to HumanN’s false advertising, none of [the] patents that HumanN licenses and falsely marks on its products protect ‘patented Nitric Oxide technology.’ ” ThermoLife couldn’t claim Noerr-Pennington immunity for asserting its patent rights “in a press release about a lawsuit that has nothing to do with enforcement of its patents.”

The substantive analysis was the same for Arizona unfair competition and trade libel claims, but the court had to analyze Arizona’s litigation privilege. At this stage, ThermoLife hadn’t shown that it was entitled to a qualified privilege. Although the general rule is that “[a]nyone may describe what transpired at a public proceeding so long as the publisher provides a fair and accurate rendition...[o]ne exception to this wide application is the speaker who by design uses the privilege to republish defamation he previously made during the public proceeding.” This was because “[t]he privilege does not sanction self-serving re-publication.” That was exactly the scenario alleged here. Arizona also holds that a speaker can forfeit its entitlement to the qualified privilege via “abuse of that privilege,” such as by “excessive publication...to an unprivileged recipient not reasonably necessary to protect the interest upon which the privilege is grounded.” Given the posture, it was vital that “whether the occasion for the privilege was abused is a question of fact for the jury.”

Tortious interference with relations with Amazon: Federal patent law preempts state tort law where the state tort is based on “conduct that is protected or governed by federal patent law.” Thus, “patentees do not violate the rules of fair competition by making accurate representations, and are allowed to make representations that turn out to be inaccurate provided they make them in good faith.” HumanN didn’t sufficiently allege that plaintiffs acted in bad faith when they told Amazon that HumanN’s products infringed. “HumanN has not identified any authority suggesting that a judicial determination of infringement is a prerequisite to notifying a potential infringer (or a third party) of infringement.” And, while HumanN alleged specific facts suggesting that ThermoLife was aware that HumanN’s product didn’t infringe the initially asserted patent yet chose to file suit anyway, it didn’t provide any comparable allegations concerning the report to Amazon, which involved different patents.

Arizona also has a Patent Troll Prevention Act (PTPA), which prohibits “an assertion of patent infringement in bad faith.” The statute expressly exempts civil actions “that include[ ] a demand or assertion of patent infringement.” But HumanN sufficiently alleged that ThermoLife “threaten[ed] HumanN with sham litigation, even after [ThermoLife] dismissed its sham infringement suit.” As for bad faith, ThermoLife argued that the challenged communications contained “a detailed infringement analysis” and that there is “no dispute” that it provided information set out in the PTPA as relevant to the bad faith analysis: the patent number, contact information of the patent owner or assignee, infringement facts, and an explanation of standing. But on a motion to dismiss HumanN plausibly alleged bad faith. HumanN alleged that ThermoLife’s infringement analysis was unsupported, contradictory, and without merit and that, after ThermoLife dismissed its infringement suit, ThermoLife still “insisted” that HumanN grant a $1 per unit licensing fee and pay $1 million in “back damages” within 10 days. Those could plausibly show bad faith, and providing the information listed in the statute isn’t automatically sufficient to defeat a PTPA claim. The statute made clear that the factors are “nonexclusive”—a court may consider “[a]ny other factor that the court determines to be relevant.”

The court found it unnecessary to resolve whether federal law preempted the PTPA because ThermoLife raised the issue only in passing in a footnote.

solar flareup: Panasonic and Tesla successor in interest in false advertising battle

I know you want to read about a false advertising dispute that, for once, tries to work around the restrictions of trademark law and not the other way around!

Kinect Solar, LLC v. Panasonic Corp., No. 1:20-CV-378-LY, 2020 WL 6385292 (W.D. Tex. Oct. 30, 2020) (magistrate R&R)

Panasonic entered into a partnership with Tesla to manufacture a line of solar panels known as “SolarCity” solar panels. Tesla began liquidating its SolarCity panels in 2019, and Kinect bought them. It began selling the SolarCity panels “through its normal channels” at a price that was “substantially discounted” compared to the solar panels that Panasonic sells directly through its own distribution network. Panasonic calls these “grey market” sales, even though they … aren’t? And one reason we know this is that there is no trademark counterclaim, despite trademark claims being much easier to win than false advertising claims.

Kinect allegedly contained Panasonic’s authorized installers “claiming that they were selling discounted SolarCity modules that were backed by and warranted by Panasonic.” Panasonic allegedly received messages from its authorized installers “inquiring whether the SolarCity solar panels were subject to the same warranties as Panasonic solar panels and whether these panels were part of Panasonic’s authorized installer program.”

A Panasonic rep told Kinect: “I just want to make sure that you guys understand that these panels do not have Panasonic Warranty and only Tesla is responsible for their warranty on those panels so the fact that we make them has not value to them [sic]. We’ll soon communicate to all our authorized installers about this to make sure they are aware of it.”

Kinect argued that this and related statements to installers were false, because Panasonic issued an “OEM Warranty” on the SolarCity panels. Panasonic acknowledged that Panasonic owed a 10-year workmanship warranty to Tesla for the SolarCity panels.

Panasonic then sent a letter to “certain of its business partners,” stating that the SolarCity panels “were not covered under any warranty by Panasonic Life Solutions of America,” and allegedly disseminated the letter to PV Tech, “an online news and trade company,” which published an article titled “US solar installers of Tesla designated panels [are] on the market with no warranties.” This allegedly harmed Kinect’s sales, and Kinect sued for business disparagement, defamation, tortious interference with prospective business relations, and unfair competition.

Panasonic counterclaimed for Lanham Act false advertising and tortious interference with business relations. Panasonic alleged that “there are significant differences in warranties and benefits associated with the two brands of solar panels including the entity issuing and administering the consumer warranty.” The Panasonic warranty only applies where the SolarCity panels are included in a photovoltaic systems sold by SolarCity/Tesla. And the SolarCity panels provide purchasers a 10-year limited warranty for workmanship by Tesla, while Panasonic-brand panels are provided a 25-year workmanship warranty. Kinect allegedly “knew that the limited warranty associated with the SolarCity panels was provided to end consumers by Tesla,” but nonetheless marketed the SolarCity panels under the Panasonic brand name and failed to disclose the differences between the brands of panels, including the warranties. Panasonic “is now inundated with installer and consumer questions and complaints directly associated with the misinformation being spread by Kinect.”

The magistrate largely recommended refusing to dismiss the claims/counterclaims, with the exception of an undeveloped common-law unfair competition claim.

Kinect’s business disparagement claim: Requires “(1) publication of disparaging and false words, (2) with malice, (3) which cause special damages, and (4) lack of privilege.”

Panasonic argued that it was literally true that the SolarCity panels were not covered by warranties issued by Panasonic Life Solutions Company of America, as it said, but Kinect sufficiently alleged implied falsity because the panels were backed by another Panasonic entity/division, and omitting that fact from the Panasonic letter created a false impression that Kinect was falsely advertising the presence of a Panasonic warranty. Kinect also sufficiently alleged the other elements, including special damages by alleging that sales representatives “have had prospective purchasers decline to purchase the [SolarCity panels], citing the reason that they were informed that the panels were not covered by a Panasonic warranty.”

Defamation: Requires that “(1) the defendant published a false statement; (2) that defamed the plaintiff; (3) with the requisite degree of fault regarding the truth of the statement (negligence if the plaintiff is a private individual); and (4) damages, unless the statement constitutes defamation per se.” Similarly, the challenged statements were capable of a defamatory meaning. A plaintiff can bring a claim for defamation “when discrete facts, literally or substantially true, are published in such a way that they create a substantially false and defamatory impression by omitting material facts or juxtaposing facts in a misleading way.”

Tortious interference with prospective business relations: Here, Kinect didn’t identify specific prospective or existing clients with which it would have done business but for Panasonic’s conduct, so the magistrate recommended dismissal.

Panasonic’s false advertising counterclaim: Also facially plausible. The court couldn’t resolve whether Panasonic was right on a motion to dismiss. Panasonic alleged that Kinect marketed the solar panels with “a doctored spec sheet … which completely removes the Tesla name and refers to the SC-Series as “Panasonic SC Modules.” In fact, the only company identified on the spec sheet is Panasonic with the words ‘manufactured by Panasonic’ at the top of the sheet.” Although this was literally true, Panasonic plausibly alleged misleadingness because “the panels were manufactured by Panasonic for Tesla in accordance with Tesla’s specifications” and the original spec sheet “clearly identified Tesla as the seller issuing the end consumer warranties.” The revised specification sheet could plausibly lead a reasonable consumer to believe Panasonic would be their contact for the warranties covering the SolarCity panels. [Given what I said above, I should say that this does strike me as a perfectly coherent false advertising claim, and grey goods cases would benefit from being framed as false advertising cases so that courts would take materiality seriously, as they do in false advertising cases.]

The court’s own examination of the marketing spec sheet—integral to the complaint and thus properly considered on a motion to dismiss—showed that the words “Manufactured by Panasonic” had been added, while this was deleted:

Modules are manufactured by Panasonic to the specification of SolarCity. Modules are only warranted by Panasonic if the modules are included in a PV system sold by SolarCity or Tesla. SolarCity and Tesla make no warranties related to the modules, which are sold as-is. SolarCity will handle any warranty claims on behalf of any purchaser.

Also, a reference to the module technology replaced “Manufactured by Panasonic for SolarCity” with “Panasonic SC Series Modules.” This was enough for a motion to dismiss.

Panasonic’s tortious interference claim was also sufficient, which seems a little contradictory since Panasonic didn’t identify specific customers, but it did allege that, “[w]hen the end-consumers and installers discovered that Kinect misrepresented the product affiliation, warranties, and benefits associated with the SolarCity panels, the end-consumers looked to Panasonic to remedy the mistake. In order to protect the goodwill of the Panasonic brand and maintain the loyalty of its customers, [Panasonic] assisted with the replacement of the SolarCity panels with Panasonic branded panels for these end-consumers,” which sufficed.