Failure to allege agency relationship leads to fee award

Anastasia Int’l, Inc. v. EM Online Pty Ltd., No. 13 Civ. 2919, 2013 WL 5550211 (S.D.N.Y. Oct. 4, 2013)

Anastasia sued various defendants for trademark infringement and false advertising, along with related state torts.  Anastasia runs Anastasiadate.com, an “international dating service which, for a fee, matches men in the United States with women located in Russia and the Ukraine,” and alleged that EM Online offered a competing service through Elenasmodels.com.  Defendant Juha Natunen owned Anastasiadatefraud.com, and allegedly contained fictional accounts of and complaints about Anastasia’s members’ experiences. The “fraud” site stated that the women featured in Anastasia’s dating service are “paid employees of Anastasiadate.com or dating agencies,” and also allegedly contained a link to Elenasmodels.com that was removed a few days after EM Online received Anastasia’s complaint.  Anastasia alleged that EM Online or its agents hired Natunen to create the “fraud” site to disparage Anastasia’s services and divert customers.

Finding that Anastasia utterly failed to allege facts showing an agency relationship or any connection between the two defendants, the court found the complaint implausible and dismissed it, with a fee award for EM Online.

An agency relationship required a showing that Natunen acted subject to EM Online’s direction and control.  Anastasia failed to plead specific allegations allowing an inference of such a relationship. The strongest factual claim was the alleged link to Elenasmodels.com removed shortly after EM Online received the complaint, but that temporary proximity “is not enough to show any connection or communication whatsoever, let alone an agency relationship, between Natunen and EM Online.”  Anastasia’s claim of a paid relationship between the parties on “information and belief” was merely a legal conclusion couched as a factual allegation.  “Without further allegations of facts showing a connection between the Defendants, it is just as plausible that Natunen created this website himself as that he created the website pursuant to an agency relationship with EM Online.”

Lanham Act fees are only available in the Second Circuit on evidence of fraud or bad faith.  Anastasia filed three versions of its complaint, each time refusing to dismiss EM Online as a defendant despite its failure to allege any relationship between EM Online and Anastasiadatefraud.com.  This was done without any reasonable basis in fact or law, and the court inferred an anticompetitive motive, making the case exceptional and allowing EM Online to recover reasonable fees and costs.

Trademarks as celebrities?

Briefly noted, this advice from Fredrikson & Byron PA: "It can be a good thing to think of your trademarks as celebrities and of yourself as their agent, publicist, bodyguard and fan."  I couldn't disagree more (though I'm intrigued by the idea of a Tiger Woods style meltdown despite the mark's handlers' best efforts), but many trademark owners clearly do think that way, as Jessica Silbey's work confirms. 

The milk of human lawsuits

Gitson v.Trader Joe’s Company, No. 13–cv–01333, 2013 WL 5513711 (N.D. Cal. Oct. 4, 2013)

 

Plaintiffs sued over “evaporated cane juice” and got basically the result in Wallaby, previously summarized.  They also alleged that certain soy milk products were labeled “milk” but didn’t comply with the FDA definition thereof: “the lacteal secretion, practically free from colostrum, obtained by the complete milking of one or more healthy cows.”

 

Trader Joe’s responded that a reasonable consumer couldn’t have been misled because the label explicitly stated that it was LACTOSE & DAIRY FREE on its front and back.  Trader Joe’s contended that soy milk “has become a very popular alternative to dairy milk” and that “soy milk has a well-established meaning separate and apart from the word milk.”

 

The court was not willing to find that “soy milk,” standing alone, was so well-known that a reasonable consumer, as a matter of law, couldn’t be confused.  The FDA’s warning letters advise against using the term.  But here, the allegedly misleading term was coupled with an explicit disclaimer that the product was “LACTOSE & DAIRY FREE” and was an “alternative to dairy milk.”  In light of that disclaimer, it was not plausible that a reasonable consumer would believe that Trader Joe’s Organic Soy Milk was cow’s milk and had the same qualities as cow’s milk.

 

Plaintiffs argued that the FDA disagreed, given its warning letters. But these were “informal and advisory”; they supported a claim of unlawfulness under the UCL, but not misleadingness given the specific prominent disclaimer at issue.  In light of the warning letters, though, it was plausible that the product was misbranded.

sugar by any other name unlawful, but not misleading

Morgan v. Wallaby Yogurt Company, Inc., No. 13–cv–00296, 2013 WL 5514563 (N.D. Cal. Oct. 4, 2013)

Another “evaporated cane juice” claim, here for yogurt that used that term in its ingredients list instead of “sugar” or “dried cane syrup.”  The FDA’s standard of identity for yogurt bans addition of any “nutritive carbohydrate sweetener[ ]” other than those explicitly allowed, of which “evaporated cane juice” is not one, though “sugar” is.  Noncompliance with the standard of identity means the product can’t be called yogurt.

The court found that the plaintiffs had standing, that the primary jurisdiction doctrine didn’t apply, that the yogurt claims weren’t preempted, and that plaintiffs weren’t trying to enforce the FDCA directly. 

Turning to the specific requirements of the UCL: plaintiffs failed to state a claim of “fraudulent” conduct because they didn’t explain how or why the term “evaporated cane juice” was likely to mislead consumers, or how they themselves were misled.  They claimed they wouldn’t have bought the products if they’d known the truth, but they bought despite the fact that the sugar content is listed right next to the ingredients list. While the Ninth Circuit said that “reasonable consumers should [ not] be expected to look beyond misleading representations on the front of the box to discover the truth from the ingredient list in small print on the side of the box,” Williams, “here, the ‘truth’ is literally next to the allegedly misleading representation in the same print size. If a reasonable consumer was concerned about sugar content, he or she can see how much sugar is in a Wallaby product next to the ingredient list.”  The plaintiffs didn’t explain what would be misleading about the term “evaporated cane juice.” 

If their objection was to “added” sugar, that was belied by their own allegations that they didn’t want to buy products with “sugar or dried cane syrup” in them.  They did buy Wallaby’s products despite the clear presence of sugar.  “The plaintiffs’ claims contradict themselves and, thus, do not meet the heightened standard for pleading fraud. If their claim is that they would purchase products containing naturally occurring sugar, but not those with added sugar, they need to allege that with particularity in their complaint.”

However, the plaintiffs did state a claim of “unlawful” conduct.  At this stage, the court agreed that it seemed that the term “evaporated cane juice” couldn’t be used pursuant to the federal common and usual name requirements adopted as California law by the Sherman Law.  Wallaby pointed out that the FDA’s draft guidance disapproving of “evaporated cane juice” was not yet finalized, but the FDA had still expressed its view of federal law.  Even an informal agency interpretation is controlling unless plainly erroneous or inconsistent with the relevant regulation.  Plus, Wallaby’d just finished arguing that the FDA had enormous expertise in support of its primary jurisdiction argument; the FDA’s tentative view should guide judicial interpretations.

They didn’t state a claim of unlawfulness on the theory that the yogurt standard of identity barred the use of “evaporated cane juice,” though, since the standard of identity allowed a number of sweeteners, including sugar, and only explicitly banned “table sirup,” which evaporated cane juice is not—it’s sugar.  “The Standard of Identity for yogurt only regulates what ingredients may be present in yogurt; it does not regulate what those ingredients may be called.”

Plaintiffs also failed to state a claim of unfair conduct. These results deprived plaintiffs of a claim under the CLRA and the FAL, which also use the reasonable consumer standard, so there was no actionable misrepresentation.

Samsung made a vid (sort of) as an ad

The wrist-phone has been long promised, as this Samsung ad indicates.  Vidding is the act or process of creating a fan-oriented video or "fanvid" using live-action TV or movie footage set to music (or other audio).  The Samsung ad even has a music track, though it's not as tightly edited as a fanvid usually is.  Query what permissions were sought!  If not all the video: fair use?

"unlimited" service that was actually limited could deceive consumers

Chapman v. Skype Inc., --- Cal.Rptr.3d ----, No. B241398, 2013 WL 5502960 (Ct. App. Oct. 4, 2013)

Chapman alleged that Skype falsely advertised its voice over IP calling plans as “Unlimited” when they actually limited the number of minutes per day and month and the number of calls per day.  The trial court dismissed her claim, but the court of appeals reversed, holding she’d stated a claim for violation of the usual California statutes, and could potentially plead intentional and negligent misrepresentation with sufficient specificity as to actual reliance, as well as unjust enrichment.

Skype offers “Unlimited” monthly calling plans, including an “Unlimited World” calling plan that it describes as allowing “unlimited” calls to 40 countries and an “Unlimited U.S. & Canada” plan.  A footnote appears immediately after “Unlimited.”  The superscript references a link at the bottom of the page stating in a much smaller font, mostly in blue text, “A fair usage policy applies.” The link goes to the policy terms on another page.  The policy says that the calling plan is limited to 6 hours per day, 10,000 minutes per month and 50 numbers called per day, and that calls in excess of these limits will incur the “normal rates and connection fees.” Plus, calls to mobile telephones in 32 out of the 40 countries are not included.

I took screenshots of one Skype offer today, which still seems to have the allegedly problematic features—the “fair usage policy” doesn’t even have a link, which is not good.  Query also whether “things you should know” just above the bottom interferes with directing consumers’ attention to the important caveat about “unlimited”—to wit, that it’s actually limited.

 

Top:

 

One screen down:

3 screens down:

 

 

Chapman subscribed to the Unlimited U.S & Canada plan and believed that there was no limit on the minutes or calls she could make. She didn’t notice the “fair usage policy” language, used her calling plan freely, and was charged overage fees when her use exceeded the limits.  She filed a putative class action.  The trial court accepted Skype’s arguments that customers were required to click a box affirming that “I agree to the Skype Terms of Service” before buying, and that Skype provided a link to the terms of service, which itself provided a link to the fair usage policy.  Having agreed to be bound by the ToS, Chapman was bound by the fair usage policy.  The trial court found that the footnote reference was “clearly conspicuous.”

Practice note: The general rule about advertising disclosures is that you can’t disclose information that contradicts a false or misleading claim and thereby cure the deceptiveness.  The FTC doesn't like that at all.  The court of appeals agreed that Chapman had stated a claim for violations of the UCL and FAL (thus also CLRA).  Whether consumers are likely to be deceived is usually a question of fact. 

Here, a factfinder could reasonably conclude that consumers were likely to be deceived because they’d fail to notice the disclosure that the plan wasn’t actually unlimited.  As the court noted, “[a] reasonable interpretation of the words ‘fair usage policy’ is that they suggest a policy to protect against misuse of the service provided. They do not necessarily suggest to an ordinary consumer that the ‘Unlimited’ plan is actually limited as to the number of minutes and number of calls. Those words therefore do not necessarily, and as a matter of law, alert a reasonable consumer to the need to follow the link to learn the details of those limits.”

In addition, Chapman adequately alleged actual reliance—causation—which can be inferred from a material misrepresentation.  The materiality of “unlimited” was also a factual question.

As for negligent and intentional misrepresentation, Chapman adequately alleged misrepresentation.  The question was whether she alleged actual and justifiable reliance.  Skype argued that Chapman failed to properly allege that she wouldn’t have bought a subscription if she’d known of the limits, and that the fact that she twice renewed her subscription after learning of the limits showed that she did not actually rely on “Unlimited.”  The renewal wasn’t part of the complaint and wasn’t judicially noticeable, and the court expressed no opinion on whether renewals demonstrated that she would’ve bought a subscription even if she’d known of the limits.  Moreover, it was possible for Chapman to have justifiably relied on the misrepresentation even after being afforded a reasonable opportunity to read the terms.  “Although the failure to read a contract precludes a claim of fraud in the execution, so as to render the contract completely void, it does not necessarily preclude equitable relief from the contract terms based on a misrepresentation.”  Chapman wasn’t alleging fraud in the execution, and she didn’t entirely fail to read the contract, but instead read and allegedly relied on the “unlimited” representation.

mere lack of substantiation isn't actionable by consumers

Nilon v. Natural-Immunogenics Corp., No. 3:12cv00930, 2013 WL 5462288 (S.D. Cal. Sept. 30, 2013)

Defendant NI sells a colloidal silver dietary supplement, “basically positively charged silver particles suspended in purified water,” that claims to provide immune support.  Nilon bought it and said it didn’t work, and filed the usual California claims.  Though his complaint focused mostly on lack of substantiation, he also alleged that it didn’t provide the promised benefits to him.  The court summarized: “Nilon and Natural-Immunogenics make all of the arguments the Court would expect them to” about class certification. While the court was inclined to grant the motion for a restitution class of purchasers who were exposed to the claims at issue and bought a product allegedly worth less than what they paid.  The restitution would be the difference between the price paid for the product, Sovereign Silver, and the value actually received. If Sovereign Silver did absolutely nothing, its value would be zero and the restitution award would be a total refund.  “But there is a threshold problem with this case that the Court can’t look past.”

Lack of substantiation claims can’t be brought by private parties under California law, but that’s what Nilon’s complaint was.  Nilon might be able to go ahead if he could cite a study purporting to show that colloidal silver doesn’t benefit the immune system; he might also proceed “if the Sovereign Silver packaging actually said its benefits have been scientifically proven (which it does not) and there are no such studies.”  But the complaint only alleged lack of substantiation, which wasn’t enough.  Comment: I am still waiting for a court to address the argument that a health claim of this type necessarily implies scientific substantiation—known as an “establishment claim” in Lanham Act terms; Lanham Act cases recognize that establishment claims can be made by implication.  Although not all claims are establishment claims, in the modern world there’s a good case to be made that all health claims, especially supplement claims, are establishment claims.  That being the case, NI would have made a falsifiable statement, at least by necessary implication, about the quality of its evidence.  That statement could then be disproved by showing that studies didn’t support these claims, which were in fact nonscientific and at best hope-based contrary to the message that a reasonable consumer would receive.

Anyhow, the court denied the motion for class certification and allowed Nilon to file an amended complaint, but cautioned that, to the extent the complaint relied on the product’s failure to work for him or other specific plaintiffs, that would raise individual issues cutting against class certification.  Or Nilon could explain to the court why this wasn’t a lack of substantiation case.  If this barrier were to be overcome somehow, the court would be inclined to grant certification.

another evaporated cane juice plaintiff gets to proceed

Werdebaugh v. Blue Diamond Growers, No. 12–CV–02724, 2013 WL 5487236 (N.D. Cal. Oct. 2, 2013)

The usual California claims, this time directed at Blue Diamond’s almond milk products and snack foods, which allegedly falsely claimed to be “All Natural” despite containing chemical preservatives, synthetic chemicals, added artificial color and other artificial ingredients” and made unlawful and misleading “evaporated cane juice” (sugar) claims.

Werdebaugh argued that “evaporated cane juice” was unlawful and misleading because it violated the FDA’s definition of the term “juice” (since sugar cane isn’t a fruit or vegetable and juice has to come from those); the FDA’s requirements for identifying cane syrup on food labels; and the FDA’s blanket requirement that foods have to be referred to by their common or usual names and not by names “confusingly similar to the name of another food that is not reasonably encompassed within the same name.”  The complaint alleged that the FDA’s position on evaporated cane juice was stated in a 2009 Guidance for Industry letter as well as in warning letters.

The court reached the emerging standard result on Blue Diamond’s preemption and primary jurisdiction arguments: nope.  Werdebaugh didn’t just rely on the 2009 Guidance, but rather on the regulations themselves, and anyway the Guidance expressed the FDA’s view, as reiterated in at least three warning letters over the past nine years.  This made for a consistent position opposing the use of “evaporated cane juice,” which meant that Werdebaugh’s claims were identical to FDA requirements and non-preempted.

Though the FDA hasn’t generally defined “natural,” there was also no preemption there, given existing regulations that did address “natural” in a limited way and the FDA’s statement that natural means “that nothing artificial or synthetic (including all color additives regardless of source) has been included in, or has been added to, a food that would not normally be expected to be in the food.” Werdebaugh didn’t need to rely on a comprehensive general definition of “natural,” because he relied on a specific regulation prohibiting the use of the term “natural” on foods containing artificial or synthetic ingredients.

The primary jurisdiction doctrine didn’t apply because the court saw no reason to think the FDA’s position on these claims was unsettled, though some courts have found otherwise.

Next, standing: Werdebaugh could assert claims based on “substantially similar” products he didn’t buy.  And he had standing because he adequately alleged that he lost money or property as a result of Blue Diamond’s deceptive and unlawful conduct by buying products he wouldn’t otherwise have bought. 

He also satisfied Rule 9(b) by identifying the regulations that the challenged representations allegedly violated, stating why the representations allegedly violate these regulations, and stating why a reasonable consumer would be misled by these alleged regulatory violations.  The court rejected Blue Diamond’s argument that Werdebaugh should lose because he failed to specify whether he purchased the “refrigerated” or “stable shelf” version of Blue Diamond Almond Breeze Chocolate Almond Milk, as well as when and how many times during the class period Werdebaugh purchased the product.  As for the former, he included pictures of the product he allegedly purchased in the complaint, identifying that product.  And he pled that he bought during the class period, which was good enough as long as there was no suggestion that the label changed during that time.  Nor could the nationwide class claims be dismissed at this point.

This NYT story on mugshot removal has it all

Mugged by a Mugshot: Right of publicity claims, extortion claims, state-level attempts to deal with for-profit databases whose claims to promote the public interest are made somewhat less plausible by their willingness to pull down the pictures of those who pay, free speech arguments, and--perhaps most significant in the long run--the role of intermediaries.  Though this isn't the first story on these websites by far, when the NYT started asking questions for what's evidently a feature story, Google quickly responded that it was changing its algorithm, and MasterCard and PayPal dumped the sites.  (No word on Visa.)  I'm no fan of these websites, but I do wonder: what differentiates the intermediaries' actions here from what happened to Wikileaks?

You know a survey's been done badly

... when it produces a negative net confusion rate.

Water Pik, Inc. v. Med-Systems, Inc. No. 12-1065 (10^th Cir. Aug. 29, 2013)

Highlights: when SinuCleanse, SinuSense, and NeilMed neti pot packages were shown to survey respondents, 29 of the 198 total respondents, or 14.6%, expressed confusion between SinuCleanse and SinuSense. But 30 respondents (15.2%) expressed confusion between SinuCleanse and the supposed control, NeilMed—producing a net negative confusion number.  Plaintiff did better with the other product tested, with net 6.5% confusion, but that wasn’t enough to create a factual issue on likely confusion.  (There were also flaws with the survey construction, but frankly, who cares?)

The court accepted a theory of “unconscious” confusion, whatever that means (apparently it means association, though association alone isn’t actionable), despite the relevant consumer’s testimony that she made a typographical error rather than being actually confused.  Still, this was anecdotal evidence and not sufficient to show likely confusion.

Also, the court rejected the district court’s analysis of intent, which was that intent favored the firstcomer because the secondcomer knew about SinuCleanse before adopting SinuSense as a trademark, and only developed its own product after an offer to buy SinuCleanse was rejected.  Instead of focusing on intent to copy the product, the proper inquiry is whether the secondcomer intended to deceive consumers about source—and there was no evidence of that, even though intent to copy a mark may justify an inference of confusion in the 10^th Circuit.  Knowledge plus intent to compete is not intent to mislead.

The political economy of zombies

This essay on the new zombie genre has a great analysis of the IP of the zombie apocalypse in Colson Whitehead's Zone One

In Whitehead's imagination, the forces that be – the remnants of the U.S. government still holding on to power and working to beat back the zombies and restart the world – have founded their efforts on preserving pre-apocalypse property rights.

Spitz is part of a cleanup crew searching a largely zombie-free downtown Manhattan for undead stragglers. That should be a party right?

But instead of fucking on the silk sheets of dead hedge fund managers, burning money for fun and stocking up with all the coolest stuff they find as they explore the emptied city, they are left to walk through New York coveting the abundance they see around them – because in Whitehead's world of the undead, you can only plunder brands that have sponsored your crew. According to the rules set down by the provisional U.S. government holed up in Buffalo and enforced by the local military authorities based in Manhattan's Chinatown (dubbed "Fort Wonton"), the party at the end of the world has been canceled.

In Zone One, a jingoistic administration is "rebranding survival." So if a single stockholder or executive of Nike has survived, he now owns all Nike shoes. If you want to lift a pair of Air Jordans, to snack on a box of Powerbars you happen to find or take a sip of Vitamin Water, you need corporate "sponsorship." Whitehead turns our current regime of patent trolls and copyright extension into the worst kind of dystopia: One that is exactly as shitty as right now – but with zombies.

In the post-catastrophe world of Zone One, some nameless corporation will still own the rights to the song "Happy Birthday to You," even if preserving that copyright means allowing all of humankind to go extinct. Whitehead's great zombie innovation is to suck all the joy out of the apocalypse – but by doing so, he shows you that the apocalypse should be fun. This isn't just a vision of capitalism gone sour; it is a vision of the American brand of capitalism as triumphant even in catastrophe. This is true zombie capitalism.

New treatise on fashion law

Lois Herzeca and my former Debevoise colleague (now at Gibson Dunn) Howard Hogan have just released Fashion Law and Business: Brands & Retailers.  My blurb calls it an "accessible overview of key issues facing any fashion business, with case studies, examples, and sample forms that will help people working at any level of the industry."

Organization for Transformative Works: fundraising drive

The Organization for Transformative Works is having a fundraising drive!  Donations support our work protecting and preserving fannish cultures, including our work on the DMCA remix exemptions, our open access journal, one of Time’s top ten websites of the year, and many other projects!

Newton law: puree is real fruit

Manchouck v. Mondelēz International Inc., No. C 13–02148, 2013 WL 5400285 (N.D. Cal. Sept. 26, 2013)

This one’s short: Manchouck argued that Nabisco’s strawberry and raspberry Newton cookies were not “made with real fruit,” as labeled, but merely with “mechanically processed fruit purée.”  This didn’t pass Iqbal’s plausibility requirement; Manchouck didn’t explain why “made with real fruit” would not include mechanically separated fruit purée.  Even the most narrow definition of “real fruit” didn’t exclude strained/puréed fruit.  Also, the package prominently displayed a picture of the cookies and their puréed fruit filling, and the ingredient list confirmed the presence of purée. “It is ridiculous to say that consumers would expect snack food ‘made with real fruit’ to contain only ‘actual strawberries or raspberries,’ rather than these fruits in a form amenable to being squeezed inside a Newton.”  Williams v. Gerber Products Co., 552 F.3d 934 (9th Cir. 2008), was not to the contrary, because there the packaging depicted fruits not actually found in the product.

Organization for Transformative Works seeks volunteers

The Organization for Transformative Works seeks volunteers: the one nearest my heart, though far from my skill set, is for coders:

The main project currently occupying the committee is the developing and ongoing maintenance of the Archive of Our Own, a free, Open Source website currently supporting over 200,000 registered users and weathering 38 million page views a week.

We are looking for experienced coders to join our team of volunteers and help us fix bugs and improve existing features.

(Also, 38 million page views a week!  They grow up so fast ….)