review by competitor posing as consumer actionable under Lanham Act

Beyond Blond Prods., LLC v. Heldman, 2022 WL 2036306, No. CV 20-5581 DSF (GJSx) (C.D. Cal. Mar. 3, 2022)

This is a lawsuit about an allegedly fake review of Beyond Blond’s video on Amazon allegedly written by Heldman on September 10, 2017. It wasn’t laches-barred for purposes of a motion to dismiss because it wasn’t clear when Beyond Blond learned of Heldman’s review, or “whether Beyond Blond should have known of it – and particularly whether it was authored by Heldman – before the expiration of the applicable statute of limitations.” Defendants also didn’t show they were prejudiced by any delay.

Heldman’s Amazon review, as commenter “tvideo”:

BB Productions dishes out a bunch of low quality PD, nothing you can’t get from YouTube or cheap DVDs. It must be some guy who has to [sic] much time on his hands as Prime viewing for PD isn’t going to make anyone rich and no real company called “BB Productions”. Anyone who uses the word “productions” is some small nobody. Again just common low quality quick buck PD.

This allegedly misled Beyond Blond’s existing and prospective customers into “believing that the review was coming from a genuine reviewer and not Beyond Blond’s direct competitor with an illicit motive.”

The use of “tvideo” as a commenter name was not itself literally false “because it is not in itself a statement that can be true or false.” But it was plausibly misleading. Reviewing a competitor, without disclosing one’s status as competitor rather than consumer, can be misleading.

Also, the statement that there is “no real company called ‘BB Production[s]’ ” was plausibly literally false. Although there is no state-registered entity under that exact name, BB is “clearly” a shorthand for “Beyond Blond,” and that is a real registered LLC.

However, statements that the videos were “low quality [public domain]” were mere opinions.

Commercial advertising or promotion: Yes, because the review was commercial speech made by Beyond Blond’s direct competitor. “[S]peech that does not propose a commercial transaction on its face can still be commercial speech” for purposes of determining whether a statement is made as part of commercial advertising or promotion.

Materiality: Defendants argued that a free Amazon review was not material, especially given that the Beyond Blond video Heldman reviewed includes “at least three overtly racist and offensive cartoons,” and other reviewers commented that the video quality was poor. But BB pled that at least five Amazon consumers indicated that they found the review to be “helpful,” which was sufficient to plead materiality.

 

10th circuit won't presume false advertising harm just from direct competition

American Society of Home Inspectors, Inc. v. International Ass’n of Certified Home Inspectors, --- F.4th ----, 2022 WL 2125492, No. 21-1087 (10th Cir. Jun. 14, 2022)

Discussion of opinion below, which had more clownish behavior; the issue on appeal is narrower.

The parties are two competing national associations of home inspectors: the International Association of Certified Home Inspectors (InterNACHI) and the American Society of Home Inspectors (ASHI). They offer memberships to home inspectors, who typically inspect homes prior to home sales; they are currently the only two national bodies of this type.  

From 2015 to 2020, ASHI featured the following slogan on its website below its organizational logo: “American Society of Home Inspectors. Educated. Tested. Verified. Certified.” 

InterNACHI argued that ASHI’s tagline constituted Lanham Act false advertising because it portrays ASHI’s entire membership as being educated, tested, verified, and certified, even though its membership includes so-called “novice” inspectors who have yet to complete training or become certified. The court of appeals affirmed the grant of summary judgment against the claim on grounds of lack of harm.

ASHI offers a “Find-an-Inspector” tool on its website, which allows prospective home buyers to search for an inspector. “Users can view the criteria for ASHI’s membership levels by clicking on the membership status next to the name of an inspector in the search results. Even though some ASHI associate home inspectors are novices and have never received training or conducted a home inspection, ASHI advertises all its members as home inspectors through its Find-an-Inspector search engine.”

InterNACHI’s arguments for harm were: (1) a survey showing that 15.2%, net, of respondents thought all home inspectors advertised on ASHI’s website possessed the qualities described in the tagline; (2) a substantial increase in ASHI’s associate membership after ASHI posted the slogan on its website; and (3) a declaration by InterNACHI’s founder stating that ASHI’s slogan is harmful to InterNACHI. This was not enough to show “an injury to a commercial interest in reputation or sales.”

The survey: “While the survey results might be helpful in determining whether consumers have been deceived by ASHI’s tagline, the results do not shed any light on whether home inspectors are more likely to join ASHI instead of InterNACHI due to ASHI’s tagline.” But InterNACHI didn’t show that its revenue, membership, or website traffic declined after ASHI began using the tagline, nor did it identify “a single home inspector who chose to join ASHI rather than InterNACHI due to ASHI’s tagline or willingness to hold uncertified inspectors out to the public as fully qualified.”

What about ASHI’s substantial increase in associate membership following implementation of the tagline? Home inspectors are free to join both ASHI and InterNACHI; the court of appeals declined to infer harm to InterNACHI from benefit to ASHI. Also, there were alternate causes: around the same time, ASHI also started offering reduced and free memberships to students, and issued memberships to former members of another association that shut down in 2016. There was no evidence that InterNACHI’s own membership levels were affected by ASHI’s tagline, and some evidence that it didn’t matter to aspiring inspectors.

Nor did the declaration of InterNACHI’s founder help, because he didn’t “explain why the slogan is harmful to InterNACHI, nor does he offer any factual support for his claim that the slogan injured InterNACHI.”

The court wanted to be clear that the problem was not quantum of damages, which wasn’t required at the summary judgment stage. “The problem is that instead of putting forth any evidence demonstrating that it was injured by ASHI’s tagline, InterNACHI relies solely on speculation and conjecture to establish harm.” This doomed claims for damages and for injunctive relief, since that also requires “a likelihood of harm.”

The court of appeals declined to presume harm just because the parties were each other’s sole competitor in the national home inspector market. [The district court also thought that the untrained associates who joined ASHI might not have been welcome at InterNACHI, but the record didn’t support that conclusion.] Any presumption of harm can’t just be from direct competition; it would have to come from something like disparagement or other circumstances that were “likely” cause injury. “While we may presume harm in certain cases—such as those where a business compares its product to that of its direct competitor or disparages its direct competitor’s product in an advertisement—we will not apply the presumption of harm based solely on the fact that the plaintiff and defendant are in competition with each other.”

But wasn’t InterNACHI alleging sole competition? Not successfully, since “home inspectors are free to join both associations. Inspectors may also join one of the many state-specific home inspector associations,” and historically dual membership in some association or other was common.

Court trims claims against for-profit "charity" sweepstakes site that keeps 85% of "donations"

Knuttel v. Omaze, Inc., No. 2:21-cv-09034-SB-PVC, 2022 WL 1843138 (C.D. Cal. Feb. 22, 2022)

Plaintiffs used Omaze’s website to “donate” money to various charities and be entered for chances to win prizes. “After learning that Omaze retained up to 85% of the donated funds, Plaintiffs filed this suit alleging that Omaze’s marketing is deceptive and violates California law.” The court granted the motion to dismiss in part.

Omaze now buys its own swag for contests. It contracts with Charities Aid Foundation of America, which in turn delivers donated funds to designated charities. For certain “celebrity experiences,” 60% of the money donated goes to CAFA to be paid to the designated charity, but for Omaze-owned campaigns, Omaze keeps 85%. This is disclosed in the fine print at the bottom of Omaze campaign pages.  

Shifting to this business model “dramatically increased its profits while reducing the share of the money raised that is passed on to charities.” In 2017, the last year before the switch, Omaze reported approximately $750,000 in revenue, with the substantial majority—approximately $450,000—passed through to CAFA. “In 2020, Omaze reported $104 million in revenue, with only $20 million—less than one fifth—passed through to charity.” The newly profitable site attracted $115 million in investor funding.

Plaintiffs understandably also alleged that this was just an illegal lottery, and it sure has a lottery stench. “Although members of the public are able to enter for chances to win prizes without paying money, Omaze advertises increased opportunities to win in exchange for larger donations.” Plaintiffs also alleged that, “even though Omaze allows free entries, if it does not receive enough paid entries to cover the costs of the prize, Omaze extends the campaign and postpones the drawing date until it has generated enough money to cover its costs.” In addition, though Omaze ultimately allowed online free entries, “it made it difficult for people to find and use that option.”

Multiple state AGs have, again understandably, investigated and settled with Omaze. A January 2020 settlement agreement with the California Attorney General required Omaze to modify its website to more prominently advertise the opportunity to enter sweepstakes for free, though plaintiffs alleged that Omaze has violated the agreement. “Omaze’s founder and CEO, Matt Pohlson, acknowledged in an April 2020 interview that numerous legal experts had advised Omaze that its model was improper.”

Plaintiffs brought the usual California statutory claims, as well as claims for common-law fraud and unjust enrichment.

Omaze argued that consumer-plaintiffs weren’t harmed by its conduct, only the charities, so plaintiffs lacked standing.

Omaze suggests that Plaintiffs’ theory indicates they would have given the same sum of money to the charities if they had not donated through Omaze, but even if that were true, it would not defeat standing. Omaze cites no legal authority to suggest that the standing of a fraud victim depends on how the victim would have used the money in the absence of the fraud. Plaintiffs plainly have standing.

The alleged misrepresentations constituted, in essence: (1) suggesting that most or all of the donated money would go to charity and (2) suggesting that Plaintiffs would be more likely to win prizes if they made donations than if they entered for free.

For example, one plaintiff viewed a video soliciting donations to Omaze for a chance to win a Tesla 3 automobile. The video stated that the organization had raised over $100 million in donations to charity since 2012 and that the money donated in connection with the Tesla 3 would be given to a specific charity. But this didn’t disclose the substantial portion of the money received that Omaze had deducted and would deduct for the cost of prizes and for its fees.

Omaze argued that (1) a reasonable consumer would have understood that a portion of the donations would be used for expenses and fees, especially in light of Omaze’s disclosure that it was retaining a portion of the proceeds, and (2) the First Amendment precludes the imposition of liability or the injunctive relief Plaintiffs seek.

Starting with the First Amendment, Riley v. National Federation of the Blind of N.C., Inc., 487 U.S. 781 (1988), is the foundational case. Riley struck down portions of a North Carolina statute that prohibited professional fundraisers from retaining excessive fees (with a presumption of unreasonableness for fees above 35% of gross receipts) and required them to disclose to potential donors their average percentage of gross receipts actually turned over to charities based on past solicitations. Soliciting charitable contributions was protected speech, and a percentage threshold wasn’t narrowly tailored to an antifraud interest. The Court also struck down the compelled disclosure requirement as an imprecise and burdensome prophylactic rule, but emphasized the availability of antifraud laws as a “more benign and narrowly tailored option[ ].”

Then, in Illinois, ex rel. Madigan v. Telemarketing Assocs., Inc., 538 U.S. 600 (2003), the Illinois Attorney General sued for-profit fundraising corporations that solicited charitable contributions for veterans but retained 85% of the proceeds while representing that “a significant amount of each dollar donated” would be paid to the veterans organizations. The Supreme Court allowed a fraud claim:

Our prior decisions do not rule out, as supportive of a fraud claim against fundraisers, any and all reliance on the percentage of charitable donations fundraisers retain for themselves. While bare failure to disclose that information directly to potential donors does not suffice to establish fraud, when nondisclosure is accompanied by intentionally misleading statements designed to deceive the listener, the First Amendment leaves room for a fraud claim.

By itself, then, a mere reference to “donation” could not be an affirmative misrepresentation [this is again a normative judgment, not an empirical one: it simply does not matter what reasonable audiences think]. Thus, plaintiffs who relied solely on the word “donate” or “donation” lacked plausible misrepresentation-based claims relating to Omaze’s use of the donated funds. However, one plaintiff did allege relying on a video ad stating that the money donated to the campaign “will be given to [a specific charity].” This was plausibly an affirmative misrepresentation that could mislead reasonable consumers into believing that all or substantially all of the donated money in fact would go the designated charity, “notwithstanding the disclosure of the truth in the fine print of Omaze’s website.”

Misrepresentations about chances to win: “Omaze has consistently given donors different numbers of entries to win prizes based on the size of their donation.” Currently a $10 donation allegedly results in 20 entries ($0.50 per entry); a $20 donation results in 125 entries ($0.16 per entry); and donations of $50, $100, and $200 result in 500, 1,000, or 2,000 entries, respectively ($0.10 per entry). Omaze used to assign 200 entries (at the time equal to a $20 donation) to someone who used the free entry method, but now gives 2,000.

Plaintiffs alleged that, based on Omaze’s representations that making larger donations would result in a greater number of entries, they each believed that free entries would result in a lower chance of winning than paid entries, and they therefore paid for entries they would not have purchased if they had known they could submit multiple free entries at one time. “But Plaintiffs do not identify any misrepresentations by Omaze regarding its treatment of free and paid entries, and indeed allege that Omaze identifies on its donation pages how many entries will be awarded for paid entries.” Thus there was no misrepresentation-based claim.

UCL “unlawful”/violation of CLRA for advertising an illegal product: California defines a lottery as

any scheme for the disposal or distribution of property by chance, among persons who have paid or promised to pay any valuable consideration for the chance of obtaining such property or a portion of it, or for any share or any interest in such property, upon any agreement, understanding, or expectation that it is to be distributed or disposed of by lot or chance, whether called a lottery, raffle, or gift enterprise, or by whatever name the same may be known.

There are three elements: (1) prize; (2) chance; and (3) consideration. The first two elements were undisputed. There is no required consideration “if anyone can participate without paying for a chance to win.”

Plaintiffs argued that, given Omaze’s business model, if Omaze does not initially receive enough paid entries, it postpones the drawing to avoid losing money. “Thus, Plaintiffs contend, even though no individual person must pay to enter, some people are required to pay in order for the prize to be awarded, making the campaign an illegal lottery rather than a sweepstakes or raffle.” Plaintiffs relied on an earlier case, in which the court held that a game called “RINGO,” which combined elements of chance and skill, was a lottery because the vast majority of players were unable to successfully toss small rings over pegs and therefore had to pay to continue playing the game.

But a deficiency in skill is not the same thing as a statistical inability to “play” without paying; free entries were available to everyone no matter their skill. [I would think it would be much worse! RINGO ringers were always a possibility, but the allegations here suggest that Omaze deliberately controls—and in the process falsely advertises—the ending dates in order to make sure it covers its costs. No amount of skill could save entrants from that, or make their free entries as valuable as paid entries in bringing the contest closer to its conclusion.]

But California cases have focused on whether those receiving prize tickets “could have received them for free” by asking, which was the case here. [I think this goes to the manipulation part: the entries that one receives for free are different than the ones one pays for, because the latter bring the contest closer to ending and thus don’t dilute the chance of winning as much as the free entries. So the “entries” aren’t actually for the same thing—payment also gets you at least some exclusion of others, raising your own chances to win.]

This manipulation did go to other California regulations of sweepstakes. Most of the sweepstakes-specific provisions of California law that plaintiffs invoked were inapposite, such as prohibitions on misrepresenting odds, which isn’t the same thing as falsely advertising drawing dates and then changing them.

Likewise, the prohibition on “[m]isrepresenting in any manner, the rules, terms, or conditions of participation in a contest” applied only to “contests,” which by statutory definition require at least some skill, and Omaze’s sweepstakes didn’t. So too with the provision stating that “[s]weepstakes entries not accompanied by an order for products or services shall not be subjected to any disability or disadvantage in the winner selection process to which an entry accompanied by an order for products or services would not be subject,” because Omaze didn’t take orders for products or services.

Also, California law provides that “[t]he official rules for a sweepstakes shall disclose information about the date or dates the final winner or winners will be determined.” Here plaintiffs did better: “Plaintiffs plausibly allege that ‘participants would be less likely to spend money on “entries” if they knew that Omaze retained the right to postpone the drawing’ until it receives enough donations to ensure a profit,” as to the two plaintiffs who alleged they were subject to postponed drawings.

UCL unfairness: “A business practice is unfair within the meaning of the UCL if it violates established public policy or if it is immoral, unethical, oppressive or unscrupulous and causes injury to consumers which outweighs its benefits.” But, “where the practice alleged to be unfair overlaps entirely with the practices addressed under the fraudulent and unlawful prongs of the UCL, the former may be dismissed when the latter prongs do not survive.” So a bit of unfairness survived, but not anything based on the stuff dismissed above.

Unjust enrichment: dismissed because not a separate California claim.

timeshare exit ads could proximately cause harm even w/o telling people to stop paying

Diamond Resorts U.S. Collection Development, LLC v. Newton Group Transfers, LLC, 2022 WL 1652587, No. 9:18-CV-80311-REINHART (S.D. Fla. Apr. 4, 2022) (magistrate)

I will confess that the main message I take from the cases in which timeshare companies are aggressively suing timeshare exit firms is that one should never buy a timeshare. The companies selling them really want to take your money forever, and, in the US, they are often allowed to do so if you go past any cooling-off period. As a result, timeshare exit firms may be preying on people who are already victims—a standard way of finding victims!

Defendants NGT and NGE advertised an ability to help customers terminate their timeshare contract or ownership; other defendants were part of the exit process. One defendant was a law firm.

As detailed below, none of the advertising specifically mentioned Diamond, nor did it direct, instruct nor encourage consumers to stop paying on their timeshare obligations. The advertising also didn’t say that nonpayment or foreclosure on the timeshare is an option for an exit solution, or that nonpayment on the timeshare may be the best and only option for an exit. The advertising attempted to target timeshare owners (the target lists for mailers weren’t always accurate). One mailer, for example, said:

We are attempting to contact you because our records suggest that you are an owner who may be affected by new Timeshare Laws allowing developers to raise maintenance fees with no restriction…. We are sending experts to your area in an effort to meet with you in person ... These experts will be able to sit down with you, talk about your individual situation, and explain exactly how we can get you out of your timeshare contract while, in some cases, recouping a portion of your investment.

439 people with timeshare contracts with Diamond hired one of the defendant companies. The mailer went to 315 of them, in 42 states. The “new law” referred to a Florida law.

Another mailer advertised that a

program is being extended to select owners to fully cancel all Timeshare Ownership obligation, and will go into process immediately in accordance with the permission of current recipient.

In order to be considered for cancellation of all future obligation, you must call on or before [date].

Certain recipients may have the opportunity to recoup a portion of their investment into ownership. Restrictions will apply. Please call immediately for further detail.

The information contained in this document is confidential to the person to whom it is addressed. No part of this document may be disclosed in any manner to any third party.

Although this was sent to at least 17 Diamond owners, defendants didn’t have a special program for Diamond owners.

New clients received a welcome letter stating:

Since 2005, The Newton Group ESA and Newton Group Transfers have assisted in successfully helping thousands of timeshare owners end their timeshare contractual obligations.

With our service comes a 100% guarantee to terminate the entire ownership of your timeshare, and a 100% guarantee to terminate all your future financial responsibilities associated with your timeshare.

With our A+ rating with the Better Business Bureau, Newton Group Transfers not only offers a guaranteed service, but our unparalleled track record proves it.

Defendant NGT also published a Consumer’s Guide to Timeshare Exit, which was sent by email to prospective customers. The Guide didn’t encourage nonpayment; it stated that stopping payment could result in collection efforts by the resort, could damage credit, and could result in penalties and interest, collection calls, and foreclosure. It did make “disparaging remarks” about timeshare operators, e.g., warning about “companies that charge hundreds or even thousands of dollars to help you list your timeshare for sale” to no avail and sell customer information to others. It also said that resorts

are experts at getting people into timeshares (not out of them). For that reason, it is dangerous to contact them for assistance in exiting your timeshare. They have no financial incentive in getting you out of your contract, and many representatives will use existing owners’ vulnerability against them to attempt to sell them more properties.

These resorts have a vested interest in keeping you as a client, and they are very good at what they do. They employ people trained and experienced in delivering powerful presentations that seek to manipulate your emotions. It doesn’t matter who you are or how long you’ve owned your property, meeting with these resort representatives can be dangerous, and no one is immune to their tactics – they are that good.

NGE’s website claims to be the “The #1 Trusted Timeshare Exit” and “The #1 Trusted Name In Timeshare Exit.” It offers a “100% Money Back Guarantee” and advertises a “Timeshare Transfer Exit” solution and a “Timeshare Attorney Exit” solution. Video on the site describes principal Gordon Newton as a “timeshare exit industry expert.” He describes the timeshare industry as consisting of “con artists” and “scams” with contracts that “go on into perpetuity,” with “never-ending fees.” The website also identifies “Our Law Firm,” DC Capital, and says, “even though there is one flat fee, each client has their own separate independent legal engagement with DC Capital Law. This means the attorneys at DC Capital Law work directly for our clients and have a fiduciary and ethical duty to act in the best interest of our clients.”

Defendant NGT also offered a “skin in the game guarantee,” which stated, “A well-intentioned timeshare exit/transfer company should be willing to shoulder the burden of all aspects of your timeshare until it is no longer in your name. For instance, if any maintenance fees or special assessments become due during the process, they should be covered on your behalf.”

Falsity: A reasonable jury could conclude that the Mailer’s statement about “new laws” was a false assertion of objective fact in that no such law existed, and so too with video statements disparaging the timeshare industry and its practices (“con artists” and “scams,” with a “virtually nonexistent” resale market and contracts that “go on into perpetuity,” with “never-ending fees”) and claims disparaging the timeshare industry in the Consumer Guide. The 100% guarantee was also factual and could be found to be false. One customer testified that she requested, but did not receive, a refund after she failed to exit her timeshare, creating a genuine issue of material fact.

Not so with the “Skin in the game” guarantee, which appeared only in an unidentified document and used conditional language – “your timeshare should be financially invested”; “A well intentioned timeshare exit/transfer company should be willing to” take on financial obligations; any maintenance fees or special assessments should be covered on your behalf.”

Also puffery: statements that Newton is “The #1 Trusted Name in Timeshare Exit” and “#1 Trusted Timeshare Exit” are not actionable, and that Mr. Newton is “a timeshare industry expert.” Nor did Diamond identify specific false/misleading statements in the welcome letter.

As to remaining claims, Diamond’s survey raised a factual issue on deceptiveness, as did disputed testimony from defendants’ former customers about what they were told about their ability to exit their timeshares. [In advertising?] “Viewed in the light most favorable to Diamond, a reasonable jury could conclude that Defendants’ advertisements deceived customers, had the capacity to deceive them, and were material to their decision making.”

Likewise with claims in advertising that the Newton Group has a “proven exit process” that “offers a safe, legal and worry-fee end to timeshare ownership.” And statements in the mailer that the recipient had been “personally selected for a special program,” when it was targeted to timeshare owners. 

What about standing/causation? Diamond argued that it was harmed by false advertising that (1) caused timeshare owners to stop making contractually-required payments, (2) discouraged future timeshare and points purchases, and (3) harmed its reputation. But “the Lanham Act does not create a cause of action based on Defendants causing an injury to Diamond; it creates a cause of action if Defendants’ false and deceptive advertisements caused an injury to Diamond.”

Still, Diamond could get to a jury. True, none of the ads told consumers to stop paying or specifically mentioned Diamond, and there was no direct evidence that the ads caused customers to stop paying or buying timeshares. There was disputed evidence that defendants instructed clients to stop making contract payments outside of the advertising.

While some courts have granted summary judgment in similar cases on proximate cause grounds, the magistrate judge here agreed with the minority view that there was sufficient circumstantial evidence to create a genuine issue of material fact on proximate causation: The ads were viewed by a lot of people; owners who viewed the ads ceased payments shortly after seeing the advertisement and/or shortly after retaining defendants; Diamond’s expert opined that the advertisements were likely to cause viewers to hire defendants and stop making payments; and deceptive advertising isn’t required to be the sole cause or the predominant cause of the plaintiff’s injury.

“[A] reasonable jury could find that Defendants’ advertisements directly and proximately caused economic harm to Diamond.” Diamond’s theory of harm was that defendants caused Diamond owners to not make new purchases and/or to default on existing financial obligations; more than 70% of Diamond’s sales are to current timeshare owners, and a large percentage of owners who retained defendants stopped making payments. “Diamond’s survey expert, Dr. Isaacson, will testify that Defendants’ advertisement made it substantially more likely that a timeshare owner would want to get out of its contract with Diamond.” [But did the false parts do that? In non-timeshare cases, courts generally require that the falsity be shown to cause the harm, not the non-false parts. This is sometimes part of materiality.] The jury isn’t required to believe that, but it could.

There was also a genuine issue of material fact about proximate cause of reputational harm, which could be inferred “from circumstantial evidence and from disparagement of the plaintiff’s entire industry.” [Citing Lexmark, which is arguably a bit of a stretch when the whole industry is being disparaged.]

And Diamond might be entitled to disgorgement of profits.

Contributory false advertising: This requires both direct false advertising and that the relevant defendant “intended to participate in” or “actually knew about” the false advertising and that it actively and materially furthered the unlawful conduct—either by inducing it, causing it, or in some other way working to bring it about. There were genuine issues of material fact on law firm DC Capital’s potential contributory liability. The judge pointed to “the commonality of ownership between Newton and DC Capital, the close working relationship between them, the sharing of CRM information, the general retainer that requires DC Capital to prioritize Newton clients, the description of DC Capital as ‘Our Law Firm’ on the Newton Website, and DC Capital receiving 95% of its work by referrals from Newton.”

Tortious interference claims also survived. “[A]n agent can be held liable for tortious interference if the agent was acting solely for its own purposes and not in the best interests of the principal,” and there was record evidence “that timeshare owners received results that were no better than (and potentially worse) than what they could have achieved without Defendants’ involvement, as well as evidence that defendants “accrued substantial revenue without providing promised services.” Whether the owners were already predisposed to breach the timeshare agreements was a jury issue.

Florida Unfair and Deceptive Trade Practices Act (FDUTPA): FDUTPA prohibits “[u]nfair methods of competition, unconscionable acts or practices, and unfair or deceptive acts or practices in the conduct of any trade or commerce.” This extends to any deceptive practice, not just false advertising, so those claims survived too. And, while law firms might not be engaged in “trade or commerce,” DC Capital could be held responsible for Newton’s statements under coconspirator or other vicarious liability theories.

claim against allegedly deceptive charity marketing mainly survives motion to dismiss

Puterbaugh v. Oorah, Inc., No. SACV 21-01593-CJC (DFMx), 2022 WL 2046102 (C.D. Cal. Jan. 27, 2022)

Plaintiff alleged that defendants Oorah, Kars4Kids, and JOY violated the FAL and UCL “because, contrary to what their advertisements say and suggest, (1) their charity efforts benefit not all children, but primarily Orthodox Jewish children in New York and New Jersey, (2) some of the charitable donations received go toward risky real estate investments, and (3) much of the charitable donations received go toward paying Defendants’ operating costs.” Although the court kicked out claims against some defendants, the motion to dismiss/anti-SLAPP motion was otherwise denied.

Plaintiff alleged that TV ad led him to believe that Kars4Kids “provide[d] moneys for disadvantaged children in California (and throughout America).” A Kars4Kids representative he spoke with on the phone allegedly told him that if he made a donation, the money raised would “only be used to help needy kids,” and that the organization “take[s] only a small amount for [its] costs.” So he donated his 2001 Volvo to Kars4Kids.

But, in fact, he alleged, Kars4Kids helps only a small subset of kids, some of whom were wealthy; also, it failed to disclose that it gives its donations not to kids but to Oorah, “which invests in real estate, but which has lost millions of dollars in donations on failed real estate investments,” and that its operating costs “leav[e] only nominal amounts for charitable purposes.”

Plaintiff adequately alleged deceptiveness for purposes of a motion to dismiss: The ads were plausibly misleading because a reasonable consumer would not understand from them that “(1) the category of benefitting children from any donation is narrow, (2) some of a donation could go to risky real estate investments, and (3) much of a donation could go to Defendants’ operating costs.” The allegations also satisfied Rule 9(b). Compensatory and punitive damages, however, were unavailable.

Oorah was kicked out because, under the FAL/UCL, a plaintiff “must show the defendant personally participated in the allegedly unlawful practice; vicarious liability is not available.” “A defendant’s liability must be based on his personal ‘participation in the unlawful practices’ and ‘unbridled control’ over the practices that are found to violate section 17200 or 17500.” This, plaintiff didn’t allege as to Oorah, though it did as to JOY, which was allegedly a “division or part” of Kars4Kids that “does nothing other than run Kars-4-Kids” or is “otherwise intimately connected” to Kars4Kids whose website contains similar misleading statements, including that Kars4Kids donations will help “[c]hang[e] a child’s life for the better” and “help[ ] children get a good start in life.”

For similar reasons, the anti-SLAPP motion failed: Even assuming this was noncommercial speech, and even assuming defendants were engaged in protected activity, plaintiff met his “relatively low” burden of showing that the complaint was both legally sufficient and supported by a sufficient prima facie showing of facts to sustain a favorable judgment if his evidence was credited.

comparator product need not be on the shelf at p's store to show harm via price premium theory

Eidelman v. Sun Prods. Corp., 2022 WL 1929250, 21-1046-cv (2d Cir. Jun. 6, 2022)

The district court granted summary judgment to Sun Products on Eidelman’s claims for violations of sections 349 and 350 of New York’s GBL and for unjust enrichment arising out of his purchase of defendants’ all Free Clear Plus detergent, reasoning that he hadn’t shown injury. The court of appeals reversed.

Actual injury is required under the GBL, though not necessarily pecuniary harm.” One, though not the only, way to show actual injury is to show a price premium. The district court acknowledged that Arm & Hammer Plus Oxi Free & Clear detergent—one of Eidelman’s proposed comparators—sells at a lower price per bottle and per load of laundry, and that internal Sun communications reflect that it is a primary competitor for the White Bottle product. But the district court nonetheless rejected the comparison because A&H Free Clear was not sold at the Costco store Eidelman visited on the day he purchased the detergent at issue in this litigation.

However, the purpose of using a comparator product is to show a price premium. “The presence or absence of a price premium attributable to a defendant’s alleged deception is objective and does not depend on whether a plaintiff could have or would have, in fact, purchased a lower-priced, truthfully marketed alternative.” As the court of appeals pointed out, NY’s highest court has held that “reliance is not an element of a section 349 claim.” This reasoning was therefore error:

A&H Free Clear was a competitor “free and clear” detergent that retailed at a lower price than the White Bottle, but did not contain the allegedly misleading advertising statement at issue in this case. The central question therefore is whether the higher price can be attributed, in whole or in part, to that advertising statement. On the cross motions for summary judgment, Plaintiff presented evidence of Defendant’s internal communications implying that the Defendants could charge a higher price because of the allegedly misleading claim, among other factors, and reflecting that Defendants assigned considerable value to the claim that they allegedly used in a deceptive manner. Especially in light of this evidence, a reasonable jury could conclude that some of the price premium which Eidelman paid was attributable to Defendants’ alleged deception and Eidelman was therefore injured within the meaning of §§ 349 and 350.

There was also evidence going the other way; it was a jury issue.

dueling SJ motions lose in energy drink case; jury will decide whether "Super Creatine" is "creatine"

Monster Energy Co. v. Vital Pharmaceuticals, Inc., 2022 WL 1599712, No. EDCV 18-1882 JGB (SHKx) (C.D. Cal. Apr. 19, 2022)

The parties compete in the market for energy drinks. VPX (Vital) makes BANG, which now contains creatyl-l-leucine (CLL), “a novel ingredient marketed under the trademark ‘Super Creatine.’ … Defendants claim that CLL is more stable and more bioavailable than other forms of creatine.” Monster alleged that VPX falsely advertised Super Creatine as a source of creatine providing numerous physical and mental benefits, advertising that BANG can improve brain function, has anti-depressive effects, and helps build muscle. VPX allegedly highlights Super Creatine as BANG’s “most important distinguishing feature for purposes of sales.”

But Monster alleged that CLL was neither creatine nor a source of creatine. “Creatine” is generally understood to mean creatine monohydrate. It was undisputed that BANG does not contain creatine monohydrate. Further, no peer-reviewed study has examined CLL’s benefits, its metabolic fate, or whether it is an effective source of creatine.

Monster also alleged interference with its shelf space agreements. Shelf space is vital to energy drinks, and so they contract for it, overriding retailers’ allocation discretion. Monster alleged that VPX directed BANG representatives to displace competing energy drinks, including Monster, from their contractually guaranteed shelf space and replace it with BANG at retail locations in numerous states. Vital disputed this. There were also trade secret claims based on allegations that VPX offered former Monster employees jobs with a significant salary increase, under the precondition that they bring Monster’s confidential pricing data with them; VPX admitted that at least one former Monster employee retained and accessed information and documents belonging to Monster after joining VPX.

Here, the court denied Monster’s motion for partial summary judgment on the false advertising claim.

This was not a literal falsity case, even though it’s about what “Super Creatine” etc. means, because none of the allegedly false statements actually said “source of creatine.” Monster pointed to the use of “Super Creatine,” “creatine bonded to L-leucine” or “Stable Aqueous Amide-Protected Bioactive Creatine Species,” statements that BANG contains “Creatine, Caffeine, CoQ10 & BCAAs,” the slogan “Ice Cold Creatine,” equation of the health

benefits of creatine monohydrate with those of CLL; and referencing “creatine” without specifying Super Creatine or creatine monohydrate. [I think Monster is a trademark bully but in this it seems correct.]

Nonetheless, the court found that there was no unambiguous statement of fact here. “[S]ource of creatine” is vague. [But even if consumers don’t understand the chemical formula—any more than they understand how 55 mpg is calculated—it looks like an ingredient. If this were about how much creatine was in the product, the objection would be better taken.]

Monster also conceded that “creatine” had several different meanings. One expert report identified three different usages: (1) naturally occurring creatine, or “endogenous creatine,” (2) “creatine monohydrate,” which is what “the sports nutrition and exercise science community” understand as “creatine,” and (3) alternate and “novel forms” of creatine that are not creatine monohydrate.

The court seems to have given a cramped reading to Monster’s argument, suggesting that Monster itself defined “source of creatine” two ways: (1) a product or substance that “contains” creatine, and (2) a product or substance that is a “creatine supplement,” or “dietary source of creatine.” The first definition was used to address statements claiming that Super Creatine is “creatine,” and the second to statements that Super Creatine provides the benefits of “creatine,” where Monster argued that “[b]ecause it is not creatine, for CLL to be considered a source of creatine, it must convert into creatine and increase the body’s creatine levels.” But these seem like very much two sides of the same coin for a dietary supplement. If the drink contains something that VPX calls “creatine,” but is not the same thing that everyone else calls creatine, and it doesn’t have the benefits of the thing that everyone else calls creatine, that sure seems like a reason to reject an attempt to expand the definition of “creatine” to CLL.

This was not a case involving “a specifically defined claim expressly stated by the defendant.” [Again, “Stable Aqueous Amide-Protected Bioactive Creatine Species” and claims to include “creatine” sure sound that way—it’s just that the claim has been packed into words representing a chemical.] So there was nothing here definitively “capable of being proved false or reasonably interpreted as a statement of fact.”

Even if “source of creatine” had been a statement of fact, Monster failed to show that any ads unambiguously conveyed that BANG or Super Creatine was a “source of creatine.” The court also found that none of the challenged statement expressly claimed that Super Creatine was creatine or that Super Creatine provides the benefits of “creatine.” The labels might be misleading, but they weren’t expressly false. [I admit, I would be tempted to use falsity by necessary implication here.]

Consider the labels: Every label has “SUPER CREATINE” printed at the top alongside “ULTRA COQ10.” Older labels say: “Power up with BANG’s potent brain & body-rocking fuel: Creatine, Caffeine, CoQ10 & BCAAs (Branched Chain Amino Acids).” Newer labels replace “Creatine” with “Super Creatine®” and BCAAs with “EAAs (Essential Amino Acids).” Each label lists “SUPER CREATINE (Creatyl L-Leucine [creatine bonded to L-Leucine])” as an ingredient. The phrase “Stable Aqueous Amide-Protected Bioactive Creatine Species” runs next to the nutrition panel with CLL’s patent number for CLL. Thus, the ingredients section specifically defined Super Creatine as CLL, and the old labels never stated “creatine” without also stating “Super Creatine” elsewhere.

At least the court agreed that this necessarily implied that Super Creatine is a form of “creatine.” “Using ‘creatine’ more than once to describe Super Creatine unambiguously expresses that Super Creatine is creatine.” But Monster tripped itself up by arguing that VPX necessarily implied that BANG and Super Creatine were a “source of creatine.” “Unless a consumer integrates an outside understanding of ‘source’ and ‘creatine,’ a consumer is unlikely to reach this conclusion.” [I do not understand. If my supplement’s ingredients say “calcium,” it would seem bizarre for me to think “oh, it might not be a source of calcium, it might only contain calcium but not be a source of it.”] Monster offered no evidence that consumers would understand that the labels would be understood as promising a “source of creatine.”

Also: “Because other key ingredients, such as ‘Ultra CoQ10,’ ‘BCAA Aminos,’ and ‘EAA Aminos,’ are highlighted with Super Creatine, a consumer is unlikely to conclude that BANG specifically supplements creatine.” My peanut butter ingredient list says peanuts and salt. I expect both ingredients to be in there! I assume there’s some spillover here from the implausible stuff lots of supplements say about supporting bodily mechanisms, but I don’t think that should let courts create markets for lemons.

Anyway, Monster failed to show literal falsity definitively. One of its experts stated that CLL “is not bioavailable” and that even a “high-dose CLL has no effect on blood, muscle, or brain creatine content.” Another expert stated that Super Creatine contains a creatyl amide, which is structurally different from “the creatine complex.” But he opined that it was “inaccurate”—not “outright false,” a term the court apparently wanted him to use, to describe CLL or Super Creatine as “creatine,” “a form of creatine,” or “containing creatine.” Defendants’ expert opined that CLL is a form of creatine. And both parties submitted evidence that the word “creatine” has many different usages, including most commonly for naturally occurring creatine and creatine monohydrate.

“Drawing all inferences in Defendants’ favor, the Court finds that the evidence does not definitely show that Super Creatine is not creatine or not a source of creatine.”

VPX also allegedly advertised Super Creatine as providing the health benefits of “creatine.” It Monster identified statements in social media posts, online marketing, press releases, and other advertisements at trade shows, expos, and in retail stores, as well as emails to retail and distribution partners. The court excluded consideration of the emails to retail and distribution partners because they weren’t “commercial advertising or promotion.” However, oral statements to customers and statements made in the context of contract negotiations were commercial advertising.

The identified statements necessarily implied that Super Creatine has creatine’s health benefits. E.g., “Here’s what Super Creatine has been proven to do for you: Be neuroprotective in the brain, Increases cognition, Increases attention span, Delays mental fatigue, Has anti-depressive effects, Has antioxidant effects in the brain.” Another post claimed, among other things, that Super Creatine’s solubility meant “increased bio-availability.”  

By emphasizing bioavailability, solubility, and sports nutrition, the posts unambiguously express that Super Creatine will be absorbed in the body and provide the same, if not more, health benefits than creatine. The posts also convey that BANG is healthier than other energy drinks because it contains less sugar and more fueling ingredients like creatine. References to science and the picture of the beaker support this message.

Moreover, “Monster sets forth significant evidence to suggest that this claim is literally false,” but that wasn’t enough to avoid a jury, because the posts didn’t necessarily imply that Super Creatine and BANG were a “source of creatine.” I’m basically just confused at this point. The court seems to have seized on the phrase “source of creatine”—perhaps encouraged by Monster—as somehow inherently different from “provides the benefits of creatine,” which in context I don’t think it can be.

Without literal falsity, deception would not be presumed either. So too with materiality. If “equating Super Creatine with creatine and stating that Super Creatine offers the benefits of creatine misrepresent an ingredient, which is an inherent quality of Super Creatine” was at the core of Monster’s claim, then Monster had evidence of materiality, such as consumer inquiries about creatine in BANG, the prominence of “SUPER CREATINE” in Defendants’ advertising, and a key principal’s statements that Super Creatine is “the primary ingredient found in BANG, which drives the BANG formula.” But because Monster was challenging “source of creatine,” it didn’t show materiality. It also didn’t show that statements about BANG/Super Creatine as a “source of creatine” entered interstate commerce. [Uh, what? That’s not a failure on the interstate commerce element!]

On the other hand, the court declined to award defendants summary judgment on the Lanham Act/UCL/FAL claims (I’m mostly ignoring the other claims).

Here, the court declined to consider press releases as commercial advertising or promotion because there was no evidence they were actually distributed to the relevant public. “By contrast, one of the presentations includes language that it is a presentation typically shared with potential distributors and retailers. The Court finds that this presentation constitutes commercial advertising or promotion.”

The labels and presentations necessarily implied that “Super Creatine” was creatine. VPX didn’t submit any evidence that consumers distinguished the two, while Monster submitted evidence that creatine in dietary products is generally understood as creatine monohydrate. There was also a genuine dispute over falsity. Likewise, a jury could conclude that, by using the term Super Creatine, the label necessarily conveys that BANG contains creatine.

And a jury could conclude that VPX was falsely claiming that Super Creatine provides the benefits of creatine. VPX argued that “power up with BANG’s potent brain & body-rocking fuel” was puffery, but that statement couldn’t be considered in isolation. “Together, the emphasis on ‘Super Creatine’ as a nutritional ingredient combined with the statement ‘potent brain & body-rocking fuel’ necessarily implies that Super Creatine provides benefits.” So too with the social media posts that made a bunch of claims about BANG’s special effectiveness because it has Supre Creatine.

VPX definitely didn’t prove truth. Its evidence was “the opinions of experts that, due to the lack of studies around Super Creatine, they could not absolutely rule out a possibility that Super Creatine breaks down into creatine when consumed.” Monster, on the other hand, subitted expert reports and studies that show Super Creatine is not bioavailable, meaning that it does not break down into creatine or increase endogenous creatine levels when ingested. “Under these circumstances, a reasonable jury is likely to conclude that a claim that Super Creatine provides the health benefits of creatine is literally false.”

Patent-based claims: Monster alleged that references to U.S. Patent Number 8,445,466 in Vital promotions and directly on BANG can labels were literally false, as the PTO rejected the ‘466 Patent. But the cancellation is still pending, so the statement wasn’t literally false, and Monster forfeited a misleadingness argument, so VPX won summary judgment on the patent-related statements.

“Sugar crashes”: BANG labels say “BANG is not your stereotypical high sugar, life-sucking soda masquerading as an energy drink! High sugar drinks spike blood sugar producing metabolic mayhem causing you to crash harder than a test dummy into a brick wall.” VPX said this was puffery, or true because sugar-sweetened beverages can cause crashes.

Monster argues that the statement is literally false because a “crash” describes reactive hypoglycemia, which its expert opined was different from the common feeling of fatigue that follows consumption of carbohydrates. The expert also opined that hypoglycemia was unlikely to occur from consuming Monster’s energy drink.

The court found that the statement wasn’t puffery, because it “unambiguously implies that energy drinks from competitors are high in sugar and cause sugar crashes.” But Monster failed to create a fact issue on literal falsity. “[A] reasonable jury is unlikely to conclude that a ‘sugar crash’ can only refer to hypoglycemia.” Still, there was evidence of misleadingness, so that theory could continue.

Deception/materiality: also enough to continue given the genuine dispute on literal falsity and evidence of materiality from multiple consumer surveys. It was undisputed that at least some surveyed consumers indicated that they believed and liked that BANG’s label and that “Super Creatine” communicate that BANG contains creatine or more creatine. Some consumers in the surveys also chose “health benefits” as important to their decision to purchase BANG. With respect to “sugar crash,” Monster submitted some evidence of misled or confused consumers, such as survey participants who indicated that they liked BANG for its claims that it was a “healthier alternative to energy drinks” and labeled as containing “0 sugar, 0 calories, 0 carbs.”

Damages: Another genuine dispute. One survey found that 61.5% of surveyed BANG consumers “stated they would purchase Monster instead of Bang and 14.2% stated they would purchase Reign instead of Bang,” if “Super Creatine” were removed from Bang.” Also, the same survey indicated that most of the BANG consumer participants expected BANG to contain more Super Creatine or creatine than it actually did, and would purchase less if they knew the actual level.

An individual defendant, CEO Owoc, argued that he couldn’t be held vicariously liable for torts in which he didn’t participate. “[T]he individual officer or director will be immune unless he authorizes, directs, or in some meaningful sense actively participates in the wrongful conduct.” But a reasonable jury could credit the evidence that he did—he testified at deposition that he “personally oversee[s] VPX’s advertising and marketing,” and that he is VPX’s “chief scientific officer,” who invented Super Creatine and worked to develop the BANG formula. The sales VP testified that Owoc decides what features VPX should highlight to retailers when promoting or selling BANG. And he made social media posts containing the claims at issue! “Under these facts, a reasonable jury could find that Mr. Owoc is liable for false advertising.”

Shelf space interference: Monster submitted evidence of valid contracts, and of VPX’s knowledge thereof. [IIRC, VPX posted on social media about this!] Deposition testimony of VPX executives and employees attested that they generally knew Monster held contracts with some retailers for shelf space and that VPX employees placed BANG in Monster’s contracted-for space. “One employee testified that when he moved Monster products from a shelf for BANG, he was told by the retailer that Monster contracted for the space.” This also was evidence of intentional interference. There was contrary evidence. But overall, there was evidence that “BANG employees intended to move Monster drinks from Monster’s contracted-for space, were sometimes instructed to do so, and understood that shelf space interference was a strategy to gain a competitive advantage.” Owoc even testified in his deposition that “he instructed employees to take the shelf space of all competitors, though he could not specifically recall whether he had instructed employees to take Monster’s shelf space.”

Though Monster didn’t show any resulting contract termination, breach or disruption was enough. “A reasonable jury would likely conclude that the placement of non-Monster products on shelf space Monster contracts is a disruption of Monster’s contracts.” And Monster’s damages expert estimated the resulting damages, along with a Monster executive’s testimony about a disrupted launch.

Likewise, a reasonable jury could conclude that Owoc was personally liable because he directed VPX employees to run shelf space interference, including with Monster’s contracted-for space. He also “ratified VPX’s employees’ efforts to steal Monster’s space when they sent him pictures documenting the interference.”

On intentional interference with prospective economic advantage, however, an independently wrongful act is required since there’s no interference with a contract. Competition is not independently wrongful unless carried out by improper means. Though VPX may have falsely advertised BANG to retailers, Monster’s evidence failed to link VPX’s false advertising with shelf space interference. “A reasonable jury may infer from this evidence that retailers stocked BANG as a result of VPX’s allegedly false statements. Critically, however, Monster proffers no evidence that shows VPX made these claims to interfere specifically with Monster’s shelf space contracts.”

The trade secret claims headed to a jury, though not against Owoc individually because of lack of evidence that he understood that the relevant information had been obtained by improper means or specifically authorized or directed VPX’s misappropriation of Monster’s trade secrets. It wasn’t enough that he encouraged hiring former employees of certain competitors, including Monster, and some of these employees allegedly misappropriated Monster’s trade secrets. CFAA claims against VPX also survived.

alleged "misinformation campaign" about micro-irrigation firm is enough to survive motion to dismiss

Netafim Irrigation, Inc. v. Jain Irrigation, Inc., 562 F.Supp.3d 1073 (E.D. Cal. 2021)

The parties compete in the micro-irrigation industry, which targets agricultural growers. Netaifm alleged that defendants engaged in anticompetitive market behavior when the Jain entities acquired majority shares of two local design firms, which connect manufacturers to growers, and alleged false advertising. Jain is Netafim’s largest competitor.

In 2016, Netafim had approximately $65 million in sales in Central California, which included around $9 million in sales through the design firms acquired by a Jain entity; those design firms had combined revenues of $113 million in 2016 and were the two largest micro-irrigation design firms in the area. Jain had approximately $25 million in Central Valley sales in 2016. After the acquisition, Netafim terminated its relationships with the firms, and Netafim’s equipment sales declined in 2017 and were still depressed through 2020.

The antitrust claims were insufficiently pled because they were antitrust claims.

False advertising: “Netafim alleges that, following the acquisition, Defendants made numerous false or misleading statements about (1) the usefulness and safety of micro-irrigation equipment manufactured with additives, foaming agents, or recycled materials, and (2) Netafim’s ability and willingness to fulfill warranty obligations.”

Jain allegedly trained its new salespeople how to pitch against Netafim equipment “with a sales handbook that included magnified photos purporting to be damaged Netafim equipment,” using the images “to falsely represent to customers that Netafim’s equipment is of inferior quality because it contains recycled materials.” Salespeople also allegedly stated: (1) “Netafim is primarily owned by venture capitalists and the investors have been concerned with their returns”; (2) “[o]ther than changing the names of some products, there have not been recent new product advancements, or improvements in efficiency made by Netafim to stay competitive”; and (3) “[a]s a result, Netafim have been utilizing foam fillers and recycled materials to manufacture its new drip tape and hose in order to reduce its resin cost and maintain margins.”

Netafim also identified blog posts on Jain’s website and republished on a design firm’s website making similar claims that “some manufacturers” were using bad materials to “save money” and “no longer follow engineering standards,” along with other specific performance claims, including “There simply is not enough of a safety factor in operating pressure and long term operating and burst pressure performance.” Other allegedly false statements about Jain’s own products were in a video embedded in one of the blog posts, e.g., allegedly false claims to use  “100% virgin plastic.”

The court was unimpressed by Jain’s quibbles with particular statements. Although Netafim’s allegations about one grower “describe only statements made by a single salesperson to a single grower during a single sales conversation,” and although that wouldn’t be enough on its own, the pleadings supported its “overarching claim that Defendants engaged in a ‘misinformation campaign’ regarding Netafim’s products and the usefulness and safety of micro-irrigation equipment manufactured with additives, foaming agents, or recycled materials.” As an overarching claim, this was sufficient.

“Netafim has identified specific false or misleading statements that Defendants made regarding their own micro-irrigation equipment and that of competing manufacturers. Although some of these statements did not refer directly to Netafim or include a side-by-side comparison between Defendants and their competitors, some direct comparisons were made and the collection as a whole reasonably indicates that such associations were implied when not expressed.”

And commercial advertising/promotion was also satisfied, given the statements’ “dissemination to the relevant purchasing public through direct interactions or targeted blog posts” and allegations that salespeople were trained to make false comparisons. “While generic, this point is adequately bolstered by Netafim’s description of the conversation with the San Joaquin Valley grower that involved the same kind of statements, as well as its allegation that growers informed of being pressured with similar sales pitches after the acquisition.” Likewise, “even though Netafim’s injury allegation is conclusory, commercial injury is generally presumed when the plaintiff competes directly with the defendant and the defendant’s statement has a tendency to mislead consumers.”

Warranty statements: One blog post said, allegedly in relation to a then-pending change in Netafim’s ownership: “I would recommend asking, who is warrantying the product? Will this company be in its current form and have the ability and willingness to honor the warranty or will you be dealing with a new owner in a business that has significantly changed.” Defendants argued that this was puffery and not alleged to be deceptive or harmful. Netafim lumped this statement in with others. Though the court declined to dismiss the claim as applied to the statement simply because there was no direct comparison, it did think Netafim hadn’t adequately alleged deceptiveness/materiality.

should consumer experts get to use the word "material" in testimony?

This court says no, but I wonder what evidence experts think. I guess I wouldn't be surprised if courts didn't allow experts on the standard of care in a field to use the word "negligent" even while allowing them to say "in my opinion X didn't meet the standard of care," but it seems a little weird.

Mier v. CVS Pharmacy, Inc., 2022 WL 1599633, No. 8:20-cv-01979-DOC-ADS (C.D. Cal. May 9, 2022)

Mier alleged that CVS’s Advanced Formula Hand Sanitizer misleads consumers by representing that it kills 99.99% of all germs in violation of the FAL, UCL and related common law claims. Next to the 99% claim is an asterisk leading to the back label where additional language on the product states: “*Effective at eliminating 99.99% of many common harmful germs and bacteria in as little as 15 seconds.” The court denied certification.

Whether plaintiff’s surveys would be admitted was relevant to certification.

Expert Krosnick’s first survey asked telephone respondents about the primary purpose of hand sanitizer, the importance of a hand sanitizer’s germ-killing ability, and if they would purchase a hand sanitizer that kills 99.99% of germs rather than one that kills fewer germs. 88% of respondents said that they would purchase a hand sanitizer that kills 99.99% of germs rather than one that kills fewer germs. This was inadmissible under Daubert because it didn’t “show consumers the product front label, the back label, or any other information that a consumer purchasing CVS hand sanitizer would have access to.” It was too “abstract” and “attenuated” from the issue of whether the label statement was material. [This seems wrong to me—it may not be dispositive, but it is certainly relevant; general principles are often sensibly invoked in materiality determinations.]

Survey #2 showed respondents front labels of one CVS product and one comparable non-CVS product; some displayed the 99% claim. “The competitor product was always offered at the same price, and the CVS product was offered at one of five different prices.” Respondents picked and the expert used the answers to estimate the impact of removing the 99% claim on consumers.

CVS had a number of objections. The court rejected some, such as that the survey didn’t show consumers the back labels, which went to weight and not admissibility. But since he didn’t calculate a supply curve, which the court accepted was necessary to calculate a price premium, the survey could be admitted only “to calculate the impact the 99% claim had on consumer demand, consumer willingness-to-pay, and the value consumers attached to the 99% claim,” and not to calculate a price premium.

Survey #3 showed respondents an image of CVS hand sanitizer and instructed to read the text on the label of the CVS hand sanitizer, including the claim “kills 99% of germs.” Half of the respondents then read additional corrective statements about the product that cast doubt on the 99% claim. Respondents were then asked if they would purchase the hand sanitizer at various prices. Respondents who read the additional statements were less likely to do so, and the results were statistically significant.

CVS objected that it wasn’t relevant to test clarifying statements. But that was relevant to potential injunctive relief.

Plaintiff’s expert Silverman’s testimony on materiality based on his over 50 years of advertising experience, though he would not be able to use the word “material”—that was a legal conclusion. [If materiality means “likely to make a difference in buying decisions” and he is allowed to use those words, what good has this done? I’m prepared to accept the answer that juries should be able to connect the dots themselves, but I wonder about the psychological realities here.]

Plaintiff’s expert Calder was offered to testify “that a reasonable consumer will have no basis to question the 99% claim, and based on consumer psychology, will not read the back label or fine print of the CVS product.” His report was based entirely on experience, consumer research, and literature review. This too was admissible. He was “doing precisely what experts in the advertising field do: making a prediction based on experience as to how a claim will impact the consumer’s choice in purchasing a product.” Likewise, he wouldn’t be allowed to use the word “material.”

CVS argued that Calder and Silverman’s testimony should be excluded as contradicting the Krosnick study, which CVS interpreted as finding that over 80% of consumers did not consider the 99% claim to be material. But this was neither duplicative nor contradictory. The study quantitatively valued the claim, while Calder “qualitatively examines the impact of the 99% claim on a consumer’s purchasing decision, and “Silverman’s testimony is based on his practical experience advertising products to consumers and is not psychological or statistical.”

Nonetheless, the plaintiff still failed to provide a sufficient damages model, since the survey was only capable of calculating restitution, not fraud or misrepresentation damages. And he failed to show classwide damages for the FAL and UCL claims. “Survey #2 showed that when the 99% claim was removed, purchases of CVS hand sanitizer decreased by roughly 20%.” This showed 80% remaining willingness to purchase. This suggests “that the vast majority of Plaintiff’s proposed class members did not suffer any damages,” meaning that damages would require individualized inquiries. Predominance failed.

dog joint health supplement class action certified

Lytle v. Nutramax Laboratories, Inc., No. ED CV 19-0835 FMO (SPx), 2022 WL 1600047 (C.D. Cal. May 6, 2022)

Plaintiffs brought a putative class action asserting CLRA and other state consumer protection claims. Defendants sell allegedly falsely advertised Cosequin canine joint health supplements, which contain glucosamine and chondroitin as the main active ingredient. Defendants’ joint health claims allegedly “are refuted by peer-reviewed, randomized, controlled clinical trials[.]”

Plaintiffs offered, at the class certification stage, an expert on materiality. His experience in the advertising industry was sufficient to allow him to testify, even though he “did not conduct any surveys, focus groups, or formal research to form the basis of his materiality opinions.” California courts have “expressly rejected the ‘view that a plaintiff must produce a consumer survey or similar extrinsic evidence to prevail on a claim that the public is likely to be misled by a representation.’ ”

Likewise, plaintiffs offered a marketing professor’s testimony proposing a model to establish that “damages are capable of measurement on a classwide basis.” “[A] plaintiff is not required to actually execute a proposed conjoint analysis to show that damages are capable of determination on a class-wide basis with common proof” at the class certification stage. And this was relevant because all proposed class members saw at least one of the challenged label claims.

Common questions included whether members of the public were likely to be deceived by the challenged joint health claims, falsity, and materiality. Defendants argued that the challenged statements were exclusively on the back, not the front, but courts have certified such cases, and anyway, at least one of the contested claims, such as “Joint Health Supplement,” was on the front of each product, and the back label claims were “nonetheless prominent.”

Plaintiffs’ claims were typical even though some had older dogs/dogs with arthritis. They weren’t trying to recover for individualized physical injury to their dogs, but for overpaying for advertised benefits that allegedly weren’t available. Nor did it matter that some named plaintiffs didn’t adhere strictly to the label directions to give three tablets per day for the first 4-6 weeks. “[D]efendants cite no evidence that plaintiffs’ dogs or, for that matter, any dogs, would have received the benefits set forth in the contested label representations had plaintiffs used the product as directed. Nor did defendants provide any evidence that all or most members of the proposed class strictly adhered to defendants’ instructions for administering Cosequin.” Anyway, the deception-based nature of the injury meant these variations wouldn’t defeat typicality.

Nor did different delivery mechanisms for the product matter, since they all made similar claims. “While some class members may have purchased a slightly different type of Cosequin than plaintiffs, that ‘does not defeat typicality because the alleged misrepresentation was the same as to each type of’ Cosequin product purchased by the class. In other words, ‘Plaintiff[s’] claims ... have nothing to do with the unique characteristics of the various [Cosequin] products; they have to do only with what is allegedly shared by all those products.’”  

Finally, the fact that one named plaintiff kept buying the product even after he started to have “doubts” did not defeat typicality. The allegations here were that the product didn’t work at all.

Predominance: California courts often find predominance satisfied in CLRA cases because “causation, on a classwide basis, may be established by materiality[,]” meaning that “[i]f the trial court finds that material misrepresentations have been made to the entire class, an inference of reliance arises as to the class.” That was the case here. Expert testimony could establish falsity and deception, as well as materiality. And classwide exposure could be inferred from the visibility of the statements before purchase on the package. Given that “a plaintiff is not required to allege that the challenged misrepresentations were the sole or even the decisive cause of the injury-producing conduct,” the fact that the labels varied in other ways didn’t matter given that the contested label claim, “Joint Health Supplement,” “appeared prominently on each of the products purchased by the proposed class, and a review of the labels indicates that the statement was featured consistently across different label designs.”

Nor did plaintiffs have to establish that consumers’ understanding of the label claims was uniform. “[T]he standard requires only that the Court find there is a probability that reasonable consumers could be misled, not that they all believed [the claim] means the same thing.” Since not even survey data—which would never give a uniform result—is required to establish predominance, uniformity is even less so.

Defendants’ expert reports did not show that individual issues predominated on materiality. Not only was this a question that went to the merits, which could be answered on a classwide basis, the reports were flawed. For example, one expert showed survey respondents different images of Cosequin product packaging, with half of the respondents shown images that were “modified to only remove the challenged claims,” but the modified images still included the “Joint Health Supplement” statement prominently displayed on the front of the label, and that was a contested claim. It was not enough to remove the smaller-font “Joint Health Support.”

Damages: “[C]lass wide damages calculations under the CLRA are particularly forgiving[,]” because “California law requires only that some reasonable basis of computation of damages be used, and the damages may be computed even if the result reached is an approximation.” Conjoint analysis could satisfy the standard. It didn’t matter whether many consumers were satisfied with the product, given that the complaint here was deception. “[Defendant’s] advertising messages are the focus of the claims, not customer satisfaction, and therefore consumer satisfaction is irrelevant.... There is [ ] no need to examine whether consumers were satisfied with the product to find an injury.” The damages model was consistent with the theory of liability, and that was all that was required.

Class certified.

Alcon's alleged anticompetitive shenanigans to prevent resale were not defenses to TM claims

Alcon Vision, LLC v. Lens.com, Inc., 2022 WL 1665453, No. 1:18-cv-00407-NG-RLM (E.D.N.Y. May 25, 2022)

Alcon sued Lens.com for federal and state false advertising and trademark claims. Lens.com’s answer asserted affirmative defenses and counterclaims, including seven antitrust counterclaims not relevant to this opinion.

Lens.com “sells, at a discount, Alcon lenses, in the United States, that were originally sourced from outside the United States.” Alcon alleged that Lens.com infringed its trademark rights (including rights inherited from Novartis AG) by doing so.

Lens.com responded that Alcon was engaging in various anticompetitive strategies to exclude discounting retailers like Lens.com from the market, including a group boycott, exclusive-dealing agreements, tying arrangements, and a price-fixing conspiracy.

In addition, Alcon developed U.S.-only packaging for certain lenses, allegedly solely to provide legal recourse against discounting retailers. The lenses contained within the new packaging are allegedly of identical quality to those sold in the old packaging, but provided the hook for Alcon to sue discounters for selling genuine Alcon lenses, in old packaging, that they had sourced from abroad.

The changes were:  

Alcon added, in fine print, references to a helpline and a brand-specific website, placed product instructions on the outside of the packaging, added an American flag icon in the corner of the packaging, and—for one lens type—added an additional logo and product lot number. Directly underneath the American flag icon is the statement, “For sale in USA only.”

Alcon also allegedly sells a significant number of lenses overseas that are not FDA-compliant, rendering its product packaging for such lenses false and misleading to consumers, including Lens.com. In this litigation, Alcon has taken the position that a “significant number” of lenses that Alcon sells outside of the United States have not been tested for FDA-compliance and are “non-FDA-compliant.” Despite this, its product packaging for lenses it sells overseas allegedly contain symbols and statements that convey to purchasers, including Lens.com, that the product complies “with all FDA regulations and all European Union regulations and may be lawfully sold in the United States.” For example, the “Rx Only” symbol, according to Alcon’s own product inserts, means “CAUTION: Federal (United States) law restricts this device to sale by or on the order of a licensed eye care professional.” Alcon’s “promotional and safety literature … also contain statements which inform consumers that all Alcon products are safe and meet all criteria for sale in the United States.”

The use of the U.S. flag also allegedly conveyed to consumers that all “products displaying the American flag are ‘made in America,’ which is not the case.” And it allegedly conveyed superior quality.

At the pleading stage, an implied falsity claim can be supported by consumer survey data, but also by pleading “non-conclusory facts raising a plausible inference that a statistically significant number of consumers were misled.”

As to the U.S. and EU symbols, including RX Only, Lens.com failed to plausibly allege literal falsity. One plausible meaning of RX Only was “that the products must be sold by or on the order of a licensed eye care professional.” Likewise, ® and TM symbols let “consumers and competitors know you’re claiming [a] trademark as yours.” And another reasonable interpretation of the “For USA: Request Package Insert for Clinical Details” was that United States users of the product can request a package insert if they want clinical details.  Thus, “none of these symbols and statements unambiguously convey compliance with all FDA and European Union regulations and that the products may be lawfully sold in the United States.”

The other allegations were “simply too vague and conclusory to plausibly state a claim” that Alcon misrepresented that its overseas products were legal for US sale.

The implied falsity theory also failed for want of “any non-conclusory facts that would allow [the court] to draw a plausible inference that a significant number of consumers were misled.”

Use of the US flag in US-only product packaging was also not actionable.Under Forschner Grp., Inc. v. Arrow Trading Co., 30 F.3d 348 (2d Cir. 1994), “before considering consumer survey evidence, a district court must, first, determine whether the designation of geographic origin is ‘geographically descriptive.’ If it is not, as a matter of law, it ‘cannot be deceptive as to geographic origin under § 43(a) of the Lanham Act.’”

Here, the US flag on the packaging “cannot fairly be read to say ‘made in the U.S.’ so as to be geographically descriptive. While the U.S. flag may ‘evoke’ clear geographic associations, it does not designate geographic origin.” Though the court would reach that conclusion regardless, it was further persuaded by the language directly beneath the flag: “For sale in USA only.” “Viewed in the context of that language, the U.S. flag describes where these products may be sold, not the location of origin.”

So, consumer survey evidence may be disregarded when courts disagree enough with the reasonability of consumer perceptions—another example of normative concepts of deception.

The Lanham Act false advertising counterclaim was dismissed. The GBL §§ 349 and 350 claims were also dismissed, for this reason and the additional reason that the relevant conduct wasn’t NY conduct.

The court also kicked out Lens.com’s unclean hands defense that Alcon’s “trademarks...[have] been used by Alcon as an effective tool to violate the antitrust laws of the United States.” Because unclean hands must be based on the right in suit, “when a defendant brings an unclean hands defense to a trademark infringement lawsuit based on the plaintiff’s anticompetitive conduct, the defendant must allege that the ‘mark itself has been the basic and fundamental vehicle required and used to accomplish the violation.’” This is hard to show. Indeed, McCarthy says that, in “no final reported decision involving trademark infringement has a court actually refused to enforce a trademark because it was used in violation of antitrust law.” The allegations of Alcon’s antitrust misconduct, including the alleged strategy to bring trademark infringement lawsuits after changing its product packaging, didn’t plead facts showing that Alcon’s trademark “was the basic and fundamental vehicle required and used to accomplish the alleged antitrust violations.” It was not enough to allege antitrust violations relating to the goods bearing the marks. [Then what could this defense possibly mean? Is it simply a nullity despite also appearing in the Lanham Act as a specific defense?] Defense stricken.

There was also no FDCA preemption of the claims on the arguments presented.

However, Lens.com plausibly alleged US abandonment of a mark that Alcon was allegedly only using overseas. The “use” and “nonuse” of the mark relevant to the abandonment affirmative defense is use and nonuse in the United States, not abroad, so this defense survived.

corn syrup case ends with whimper/plea to remember that literally true statements can be misleading

Molson Coors Beverage Co. USA, LLC v. Anheuser-Busch Cos., No. 19-cv-218-wmc, 2022 WL 1718901 (W.D. Wisc. May 27, 2022)

Previously, the district court found that AB’s anti-Miller/Coors campaign was false advertising “to the extent it was designed to mislead consumers into believing corn syrup remained in Miller Lite and Coors Light products after the brewing process was completed.” But the court of appeals reversed because MC had characterized corn syrup as an “ingredient” itself, creating its own problem. “[I]t is not ‘false or misleading’ (§ 1125(a)(1)) for a seller to say or imply, of a business rival, something that the rival says about itself.”

What remained? MC argued that it was still entitled to a permanent injunction because its “webpage has now been changed to clarify that while corn syrup is used as an adjunct to aid fermentation, it is consumed by yeast during that process, and is not present in the final products.” But that wasn’t enough to get an injunction “based on ads that ran before February 2019.” There wasn’t an imminent risk of new, now-false ads. Anyway, it was far from clear that AB couldn’t continue to rely on “ plaintiff’s own, albeit now past, ingredients disclosure for at least some period of time given that only the ingredients list, and not the brewing process itself, has changed.”

However, MC could sue again “should defendant begin to run new advertisements about the presence of corn syrup in its finished products that plaintiff maintain are demonstrably false, especially in light of its corrected statements explaining what the actual ‘ingredients’ of their light beer products are.”

Even the Seventh Circuit appears to recognize that literally true statements can be “truly misleading.” Hot Wax, Inc. v. Turtle Wax, Inc., 191 F.3d 813 (7th Cir. 1999) (explaining that “claims that may be literally true or ambiguous, but which implicitly convey a false impression, are misleading in context, or likely to deceive consumers” are actionable under the Lanham Act). In an understandable jab at the court of appeals, the court pointed out that

50 years of behavioral economics and 100 years of marketing would strongly support the traditional interpretation of the language of the Lanham Act to preclude truth from being an absolute defense, even setting aside the incredible waste of economic resources on cross-advertising intended falsely to sway consumers during the five to ten seconds most spend before choosing a product, as well as the need for sufficient statutory or ethical constraints to limit … notorious or dark images.

Although the court was bound by the law of the case, and although the court of appeals used “such sweeping language as to preclude looking … at defendant’s motive,” the court pointed to “overwhelming documentation of defendant’s intent to mislead consumers as to the presence of corn syrup in the finished products despite it knowing that none or virtually none were present.” The court of appeals left it for consumers to decide whether this was good or bad for them in this case, but

hopefully that ruling will be limited to the narrow facts of this case and not act as an anchor to historical assumptions about the “rational consumer” that decades of economic and psychological research, and hundreds of billions (if not trillions) of dollars of advertising, has demonstrated is largely a myth (or at minimum, far more complicated) when it comes to the snap judgments of a typical consumer of food or drink in this and other free market economies.

Sing it!

Nonprofit political enterprise not commercial speech, not covered by Lanham Act

Think Rubix, LLC v. Be Woke. Vote, No. 2:21-cv-00559-KJM-AC (E.D. Cal. May 31, 2022) 

Think Rubix “is a social innovation consultancy firm” that uses its WOKE VOTE initiative to “promote[ ] public awareness of the need for educating citizens about politics . . . and encourage[ ] greater participation in the political process.” It has a registration for a word plus design mark (application in 2018) for “[p]romoting public awareness of the need for educating citizens about policies and issues in the political process and encouragement for greater participation in the political process through voter registration, voting, and advocacy.” The registration claims the colors yellow, black and white as features of the mark.

registered WOKE VOTE + design mark

Defendants’ Be Woke. Vote initiative, also launched in 2018, “aim[s] to encourage participation and inspiration of younger generations that are oftentimes disenfranchised . . . and to create discussions about politics through social media initiatives and in-person events.” It uses a circular logo that primarily uses yellow, black, and white, and, like Think Rubix, uses the mark online and on merchandise.

Be Woke. Vote

Think Rubix sued for trademark infringement and federal dilution (!). The court granted judgment on the pleadings: There was no attempt to profit here and thus no basis for Lanham Act jurisdiction under Bosley Med. Inst., Inc. v. Kremer, 403 F.3d 672 (9th Cir. 2005). True, courts also extend the Lanham Act to sales-free situations where a defendant “offers competing services to the public.” United We Stand America, Inc. v. United We Stand, America New York, Inc., 128 F.3d 86 (2d Cir. 1997).

The complaint alleged that “defendants use their mark not only on apparel but also to promote their political engagement efforts, which are similar to those of Think Rubix.” But that didn’t mean their speech was “purely commercial,” which the Ninth Circuit requires. “If speech is not ‘purely commercial’—that is, if it does more than propose a commercial transaction—then it is entitled to full First Amendment protection.” [This is drawing from a different line of noncommercial cases—there is a tripartite division in the case law that doesn’t reflect a circuit split, but rather within-circuit divisions in treatment of (1) noncommercial but for-profit or money-soliciting speech, (2) noncommercial individual speech/griping, and (3) competing noncommercial organization names, usually of religious entities. My current project attempts to explain how these cases should be resolved, namely by applying strict scrutiny to extensions of the Lanham Act beyond commercial speech. This would usually mean no liability in (1) and (2) and liability in (3) only for uses that don't allow audiences to distinguish two entities, basically a fraud model.]

It is undeniable that the Supreme Court has long held that charitable solicitation is not commercial speech. Moreover, when speech is “characteristically intertwined with informative and perhaps persuasive speech seeking support for particular causes or for particular views on economic, political or social issues,” “it must be treated as a fully protected activity under the First Amendment,” Gaudiya Vaishnava Soc. v. City & Cty. of San Francisco, 952 F.2d 1059 (9th Cir. 1990). That was obviously the case here: “defendants’ use of Be Woke. Vote is inherently intertwined with their efforts to inform and persuade the public on social and political issues.”

Thus, the trademark claims failed on their face. This was true even as to sale of merchandise with the Be Woke. Vote mark displayed on it. The Ninth Circuit has already rejected the argument that “sale of [expressive] merchandise [by nonprofits] is nothing more than a commercial transaction and therefore is afforded no constitutional protection.” Gaudiya Vaishnava Society. Thus, “while plaintiff has a valid trademark covering the services in which the parties are engaged, the fundamentally noncommercial nature of the services places the defendants’ actions within the exception to the Lanham Act. Even if there is a risk of public confusion regarding the two marks, the defendants’ speech is nonetheless protected.” No leave to amend; that would be futile.

The dilution claim also failed because the speech was noncommercial. [In line with my comments above, the court declined to apply Rogers because Rogers was about “artistic expression,” a statement that is truly puzzling when one considers that art is often considered protected in order to protect political speech (writ large).]