affiliation claim true when sent out to consumers can't be false endorsement

Klayman v. Judicial Watch, Inc., --- F.4th ----, 2021 WL 3233953, No. 19-7105 (D.C. Cir. 2021)

Larry Klayman founded and ran the conservative activist group Judicial Watch, but the relationship ended badly in 2003. “During the fifteen years of ensuing litigation, Klayman lost several claims at summary judgment and then lost the remaining claims after a jury trial. The jury ultimately awarded Judicial Watch $2.3 million.” The court of appeals affirmed.

Based on the trial evidence: “Klayman’s time at Judicial Watch came to a close after a meeting in May 2003 with two Judicial Watch officers,” at which he showed them his then-wife’s divorce complaint and admitted he was pursuing a romantic relationship with a Judicial Watch employee. “Negotiations over Klayman’s departure ensued over the next several months. Meanwhile, in September 2003, Judicial Watch began preparing its October newsletter, which was mailed to donors along with a cover letter signed by Klayman as Judicial Watch’s ‘Chairman and General Counsel.’ After Klayman reviewed the newsletter, Judicial Watch sent it to the printer.”

They executed a severance agreement while the newsletter was at the printer; Klayman agreed to resign effective Sept. 19, 2003.

Klayman alleged, among other things, that the newsletter was a false endorsement or advertisement under the Lanham Act because it identified him as “Chairman and General Counsel” after he had left Judicial Watch. The court of appeals affirmed the rejection of this claim. “There was no genuine dispute of material fact that Klayman authorized the use of his name in the newsletter, so it was neither a false endorsement nor a false advertisement…. As proven by his handwritten edits on a draft, Klayman edited the newsletter at issue, which Judicial Watch approved for printing while Klayman still worked there.”

Klayman argued that he didn’t authorize the use of his name after he left, but the Lanham Act focuses on “false or misleading statements of fact at the time they were made.” When Judicial Watch wrote the newsletter identifying Klayman as “Chairman and General Counsel,” that’s what he was. “His subsequent resignation does not render the newsletter a false endorsement or advertisement.”

[Note that if they’d continued to call him that in material they distributed after he was gone, the cases could counsel a different result on this particular issue—you generally can’t continue an active ad campaign after it becomes false. And some cases even require products on shelves to be altered if their labels become false, which makes sense as a consumer-protective measure;  but even those cases probably wouldn’t require reaching out to consumers who’d already taken the products home, as these newsletters were. First Amendment considerations, too, could play a role in the court’s conclusion, though that might be in some tension with the Lanham Act counterclaims the jury heard about Klayman’s subsequent fights with Judicial Watch.]

Lanham Act counterclaims: evidence of Klayman’s forced resignation and name-calling of his ex-wife was relevant to Judicial Watch’s Lanham Act unfair competition counterclaim, which alleged that Klayman falsely represented in his Saving Judicial Watch campaign that he left Judicial Watch to run for U.S. Senate. Evidence about his forced resignation was introduced to prove falsity, and the court of appeals agreed that the risk of prejudice didn’t outweigh its probative value. [I have questions about whether the First Amendment really allows a Lanham Act false advertising claim about an advocacy organization slapfight, but unfortunately neither side had an incentive to press this point.]

Klayman also argued that the district court failed to properly instruct the jury on Judicial Watch’s trademark infringement claims alleging infringement of “Judicial Watch” and “Because No One is Above the Law.” Klayman argued that the court erred by failing to instruct the jury that likelihood of confusion requires confusion by an “appreciable number” of consumers. But the instructions, viewed as a whole, fairly presented the applicable standard, based on a model instruction. (The court noted that it had never actually adopted a particular multifactor test, though it had cited other circuits’ with approval.) “Neither our sister circuits nor the model instruction mention the number of consumers likely to be confused. No instruction on the number of consumers was required for the district court to fairly present the applicable legal principles on the confusion element.” [I have my doubts about this too—not needing to mention a “number” is not the same thing as not needing to meet some requirement of substantiality, or even nontriviality. Suppose the jury is absolutely convinced that confusion is likely among .5% of relevant consumers. What should it do?]

Cal. statutory false advertising isn't fraud and individual reliance isn't necessary

Peviani v. Arbors at California Oaks Property Owner, LLC, 2021 WL 1264423, E073950, --- Cal.Rptr.3d ---- (Ct. App. 2021)

Plaintiffs sought to represent a putative class, bringing claims against a landlord for (1) false advertising; (2) breach of the implied warranty of habitability; (3) nuisance; (4) breach of the implied covenant of good faith and fair dealing; (5) bad faith retention of security deposits; and (6) unfair competition. The court of appeals held that the trial court erred by denying certification.

Plaintiffs alleged, inter alia, that defendants’ ads falsely depicted renovated interiors, “quality plush carpeting,” “sparkling swimming pools,” heated spas, cabanas and lounges, a tennis/basketball court, a fitness center, a rock climbing wall, a community game room, a Wi-Fi café, barbeque grills, a picnic area, a dog park, a playground, a garden, a carwash area, central heating and air conditioning, assigned covered parking, a 48-hour maintenance commitment, granite countertops, hardwood floors, full size washers and dryers in the apartments, controlled access to the property, and a smoke-free property.

However, the apartments were not newly renovated and carpeting was not plush. For example, one set of renters “had mushrooms growing out of their carpet.” Plaintiffs alleged “the fitness equipment was dirty and broken; the swimming pools were dirty and diseased; the hot tubs were green with algae; the assigned parking rules were not enforced; the 48-hour maintenance promise was not kept; there was violence, crime, and drug use in the area of the barbecues, playground, and dog park; the property was not smoke-free; and the water connection in the carwash area was non-functioning.”

Defendants argued that common questions didn’t predominate for false advertising. “For example, Peviani claimed her apartment had rust stains on the countertop, Judy claimed there was a mushroom growing out of her carpet, Lubbock asserted his toilet was broken, and Caicedo-Valdez claimed there was a stain on the bathroom vanity.” The trial court reasoned that putative class members learned of the property in different ways: “some read defendants’ website, some toured the property, some read a brochure, and some drove by the property.” It reasoned: “One class member’s a claim [sic] might be based upon an oral representation while another’s might be based upon something stated in a brochure. And the representations could be about different amenities or services.” There were too many alleged misrepresentations—each one would have to be assessed for factuality, materiality, and reasonable reliance.

The court of appeals reversed. Statutory false advertising is not common law fraud. It does not require literal falsity, knowing falsity, reasonable reliance, or even damages (since restitution and injunctive relief are the only available remedies). The standard is objective: that “members of the public are likely to be deceived.” Likewise, materiality is assessed objectively: if a reasonable person would attach importance to the falsity or omission. The trial court conflated false advertising with fraud; there was no need for individualized reliance inquiries, and the trial court failed to discuss the reasonable person standard, which is relevant to deception and materiality.

This error also infected the habitability/nuisance claims, which were based on the common areas (allegedly full of dog feces, trash, and pests) and could thus be assessed as a common question. Because the unfair competition claims didn’t get separate analysis, the court of appeals also sent those back.

false designation claim doesn't require distinctiveness, court wrongly holds

Simpson Strong-Tie Company Inc. v. MiTek Inc., 2021 WL 1253803, No. 20-cv-06957-VKD (N.D. Cal. Apr. 5, 2021)

The plaintiff benefits from very generous treatment of its false designation and copyright claims, in the process stripping false designation of anything other than a prohibition on copying/vitiating both Wal-Mart and Dastar.

Simpson sells structural connectors for use in building construction. Each product has an individual alphanumeric product name including a “part name” consisting of a letter or combination of letters designating the product line, and a “model number” consisting of additional numbers and letters appended to the part name to distinguish between various models of a particular part with different attributes. Its Wood Construction Connectors Catalog contains an alphabetical product index and various charts specifying various attributes of Simpson’s products, listed by product names. It registered copyirghts in its catalog and supplements.

Simpson alleged that MiTek’s products were “knock-offs or close copies” of Simpson’s products that are not equivalent to or substitutes for Simpson’s products due to the patented nature of some of Simpson’s technology. MiTek’s 2020 Catalog allegedly uses Simpson product names as a basis for MiTek’s own product names and includes an alphabetical reference index using Simpson product names as reference numbers, deceiving consumers into believing that the companies’ products are equivalent and interchangeable when they are not, or that MiTek’s products are actually Simpson’s products.

MiTek argued that a product name cannot be proven true or false, but the court agreed that Simpson had sufficiently pled that placing the parties’ products next to each other in this way created a false impression that the parties’ products are “equivalent or otherwise interchangeable.”

Passing off: MiTek argued that Simpson didn’t plead inherent or acquired distinctiveness, and Simpson responded that the Lanham Act protects even generic marks from “false designation of origin.” [You know it’s going to be bad when a court says “generic marks,” a noncategory.] The court agreed! It was enough to allege that (1) MiTek’s use of Simpson product names as MiTek’s own product names falsely identifies MiTek products as Simpson products, and (2) MiTek’s use of Simpson’s product names as reference numbers for MiTek’s own products in MiTek sales and marketing literature creates a false impression that MiTek’s products are in some way connected to or associated with Simpson. Comment: this is entirely junk reasoning, since there can be no false identification without distinctiveness (that is, identification)--the genericity cases require "de facto secondary meaning" in the absence of legally protectable secondary meaning, and they also limit the available remedies to clear disclosure. 

Copyright infringement: MiTek argued that the portions of the catalog it allegedly copied—Simpson product names and the alphabetical index of Simpson products—were not protectable. Although originality is a question of fact, sometimes you can just look at the accused and accusing work. Though there were “serious questions” about the originality of the product names and alphabetical index, it wanted a fuller record before saying that the names and alphabetical index weren’t sufficiently original as a matter of law.

The state law claims also survived; as a competitor, Simpson didn’t have to plead its own reliance under the UCL.

pharma database isn't commercial speech about listed products

Alfasigma USA, Inc. v. First Databank, Inc., 2021 WL 930453, No. 18-cv-06924-HSG (N.D. Cal. Mar. 11, 2021)

Previous opinion. Alfasigma makes medical foods, which are allegedly not properly described as OTC. It sued First Databank for coding implemented in the latter’s pharmaceutical database:

Historically, the “class value” field in the MedKnowledge database indicated whether manufacturers identified their products as prescription-only. Code “F” identified product labels that indicated a prescription was required, and “O” identified when the product label did not contain any dispensing limitations. Plaintiff alleges that subscribers “universally understand[ ] that a product designated ‘O’ is an [over-the-counter (“OTC”) ] drug, available over-the-counter and without physician supervision.”

Although Alfasigma’s products were historically designated as F, First Databank reclassified them as O.

This allegedly falsely represented that they were available OTC, “when in fact they are available by prescription, and should not be taken by a patient without physician supervision.” Then First Databank created a new class value, Q. Q was to be for “Products that are neither drugs nor devices, such as dietary supplements (including prenatal and other vitamins), medical foods, herbal preparations, and bulk flavorings or colorants.” This was allegedly still false and misleading, and First Databank allegedly falsely advertised that it “compile[s]” the relevant information in its database and for its coding determinations from the FDA and from manufacturers, such as Alfasigma.

Alfasigma sued for false advertising and contributory false advertising under the Lanham Act and related state law claims. Previously, the court denied First Databank’s anti-SLAPP motion because Alfasigma had shown a reasonable probability of success on the merits of its state law claims, but had not plausibly alleged that the coding changes were made for the purpose of influencing subscribers to purchase First Databank’s own products or services, as required under the Lanham Act. Alfasigma amended its complaint.

The 9^th Circuit applies the motion to strike and attorneys’ fees provisions of the anti-SLAPP statute to state law claims in federal cases because there is no “direct collision with the Federal Rules,” but the court still expressed the concern that this interpretation of the statute “vastly understates the disruption when federal courts apply the California anti-SLAPP statute,” particularly as it interacts with Rule 12 and its plausibility standard.

Alfasigma continued to allege that the recoding decisions were false and misleading, and that First Databank misrepresented that the FDA and manufacturers were the source of the information in the database.

Previously, the court found that Alfasigma sufficiently alleged that the database constituted commercial speech for purposes of surviving the motion to strike, but (1) now there are additional allegations, and (2) Ariix, LLC v. NutriSearch Corp., 985 F.3d 1107 (9th Cir. 2021), provided further guidance, so the law of the case did not control.

The database provides information about third-party pharmaceutical products, not First Databank’s own products. Other third parties then use this information to determine which products to prescribe and dispense, and to decide whether to reimburse for these pharmaceutical products. This isn’t a traditional ad; representations about the database may be ads, but that doesn’t make the database itself an ad. There were product references in the database, but that didn’t establish that it was commercial speech, so the court turned to defendant’s motivation for the speech.  Alfasigma alleged that it was commercial because (1) “pharmaceutical product manufacturers and distributers have...come to rely on [the] database as a crucial promotional channel for their products”; (2) the database is directed toward third parties “to influence their decisions whether to prescribe, purchase, dispense and/or pay for” Plaintiff’s products; and (3) Defendant collaborates with its subscribers in making changes to the database.

Alfasigma persuasively alleged that the database is critical to the billion-dollar pharmaceutical industry. “These allegations, however, only underscore that third parties—not Defendant—use the information contained in the database as part of their own commercial transactions.” First Databank didn’t make any of these economic decisions itself. Alfasigma maintained that First Databank’s editorial decisions in maintaining and updating the database were driven by subscribers’ feedback, and that Defendant “generates revenue by selling subscriptions to MedKnowledge.” First Databank allegedly decided to change the class value of Alfasigma’s products at least “[i]n part to satisfy the preferences of certain customers....” But a profit motive didn’t distinguish First Databank from a newspaper.

Ariix, which found that a guide to supplements was commercial speech, emphasized that its decision was “a narrow one that is tied specifically to the troubling allegations in this case,” involving payments to the CEO for better reviews and similar pay-to-play allegations making the guide a disguised ad rather than true editorial content. Here, by contrast, there was no allegedly hidden financial arrangement; First Databank just made more money from more sales. Alfasigma argued that many pharmacy benefit manager customers preferred to have products O-rated so they didn’t have to reimburse patients for their costs, so at least some subscribers wanted medical foods recoded. But which products were covered by which insurance wasn’t within First Databank’s control, nor did Alfasigma allege that it was compensated more based on whether specific claims were paid or denied. Under Alfasigma’s logic, “any speech could be commercial if eventually relied on by third-party actors who conduct business.” That was too extensive, so the claims all failed.

Even if the database were commercial speech, the coding-based Lanham Act claims independently failed for want of “commercial advertising and promotion.” After Lexmark, the test seems to be: “(1) commercial speech, (2) for the purpose of influencing consumers to buy defendant’s goods or services, and (3) that is sufficiently disseminated to the relevant purchasing public.” The failure here was on (2): Alfasigma didn’t plausibly allege that the database was created for the purpose of influencing consumers to buy First Databank’s goods or services. The court saw an inconsistency in Alfasigma’s theory that sounds more like heterogeneity to me: while some subscribers would benefit financially if the coding changed, Alfasigma alleged that other subscribers were confused, and “did not know that [Plaintiff’s] recoding was a commercial decision intended to enhance the profits of PBM and insurance company customers, rather than based on information from the FDA or [Plaintiff].” The FDA’s medical director even “expressed concern” that “patients...are losing or have lost insurance coverage for their products marketed as medical foods” because “their insurance providers belie[ve] that the products are over-the-counter (OTC) drugs....”

The allegation that First Databank inaccurately changed its coding to promote its own services wasn’t plausible given that, as Alfasigma acknowledged, “[i]t is important for [Defendant’s] customers that the compendia services and products they purchase be accurate.” Confusing subscribers and providing them with false information that was later challenged by the FDA itself wouldn’t plausibly promote First Databank’s own products or services. Anyway, “[a]ny publication would be deemed an advertisement if the defendant had an interest in encouraging others to purchase it,” so that definition is too broad. Ariix suggested that something like an agency relationship would be vital, and there was no indication here that there was such a relationship with the PBMs or other financial stake in specific sales of a product. “The database does not list any of Defendant’s own products or additional services. Rather, the database itself is Defendant’s product.”

Contributory false advertising: First Databank’s representations allegedly induced its subscribers to falsely advertise that Alfasigma’s products were “OTC drugs.” “It is unclear in this Circuit if contributory false advertising can apply to non-commercial speech in any context because the Lanham Act, as a whole, applies only to commercial speech.” Anyway, because the database wasn’t commercial speech, this claim also failed; it also failed because Alfasigma didn’t allege that First Databank knowingly or intentionally induced, or materially participated in, its subscribers’ alleged false advertising. To the contrary, Alfasigma alleged how PBMs and insurers have their own incentives to code its products as “O” and to refuse coverage.

Information source allegations: Rule 9(b) applied because Alfasigma alleged that the false statements were knowing or intentional. And the complaint failed to meet the heightened pleading standard because it was “devoid of specifics about when and where the alleged ‘source’ misstatements were made.” It wasn’t enough to identify some specific statements like brochures that told manufacturers, “You tell us. We tell the world,” and undated statements that it made the changes to be “in alignment with [ ] FDA standards.”

"implied gov't approval" claims don't work

ImPACT Applications, Inc. v. Concussion Management, LLC, 2021 WL 978823, No. GJH-19-3108 (D. Md. Mar. 16, 2021)

ImPACT provides training and software, including a proprietary evaluation system. Immediate Post-concussion Assessment and Cognitive Testing “provides a neurocognitive test battery that offers healthcare professionals objective measures of neurocognitive functioning.” Healthcare professionals, including in schools, teams, and the military, use it to aid assessment and management of concussions in individuals between the ages of 12 and 59. ImPACT Pediatric is for patients ages 5-11. They are “the only software-based neurocognitive tests that have been cleared and designated … as Class II medical devices for use as an aid in the assessment and management of concussions.”

XLNTbrain seeks to “assess[] neurological activity in athletes in order to enhance their performance,”  and sells its products to schools, medical professionals, and sports teams in direct competition with ImPACT.

There are 1.6 to 3.8 million concussions in sports and recreational activities annually. Traumatic brain injuries account for more than 2 million emergency room visits per year in the US and contribute to the deaths of more than 50,000 Americans. In 2019, the FDA issued a safety communication, recommending that “people who may be tested for a head injury, parents and caregivers of people who may be tested, coaches and athletic administrators, sports medicine specialists and athletic trainers, and health care providers who assess or diagnose head injuries” should “use only cleared or approved medical devices to help assess or diagnose a head injury, including a concussion.” It warned that uncleared products marketed for “assessment, diagnosis, or management of a head injury, including concussion” violate the law.

While ImPACT’s products are on the FDA’s list of approved medical devises for assessing head injury, XLNTbrain’s products are not.

Nonetheless, it allegedly falsely advertised with claims such as:

• XLNTbrain offers “The First Complete Online Concussion Test and Management Program for All Sports and Levels.”

• “[C]linical-caliber post-concussion evaluations to monitor severity and the recovery progress.”

• “XLNTbrain Sport provides clinical-caliber concussion care giving subscribers a complete solution that’s easy to use, affordable and adds a ‘virtual neurologist’ for the team.”

• “XLNTbrain offers a complete feature set when compared to other solutions.”

• XLNTbrain “helps answer the most common question, ‘when can I play again?’ Dr. Kerasidis created a tool that guides the decision-making process, giving all-involved individuals a recovery care plan that includes daily monitoring of symptoms, progressive physical and cognitive exertion exercises and a timeline to safely return to gameplay.”

Perhaps surprisingly given the seriousness of the claims, the court found that ImPACT didn’t allege any actionable statements. It grouped the statements into three categories: (1) false implications of FDA approval; (2) misleading suggestions that XLNTbrain products possess the qualities of FDA-approved devices; and (3) statements of superiority. But these were “exactly the type of claims that are non-actionable under the Lanham Act.”

Courts do not recognize implied government approval claims in the absence of explicit claims. ImPACT didn’t identify anything explicit about FDA review or approval in the statements. The Lanham Act can’t be used to enforce the FDCA.

What about suggestions that XLNTbrain’s products have qualities that only exist in medical devices cleared by the FDA in providing screening, return-to-play assessments, diagnosis, and care? Unfortunately, ImPACT failed to specify what qualities unapproved products can’t have. “Is it impossible for XLNTbrain’s post-concussion evaluations to be clinical-caliber? Can only FDA-approved devices provide a Daily Symptom Checklist?” The court didn’t see why an unapproved product could have the qualities of an FDA-approved device, especially since ImPACT admitted that FDA approval wasn’t necessary to compete in the parties’ field. The court could not interpret and apply the FDCA as part of a Lanham Act case.

Finally, the statements of superiority, e.g. “Beyond Baseline Concussion Tests” and “The First Complete Online Concussion Test and Management Program for All Sports and Levels,” weren’t sufficiently alleged to be false. ImPACT didn’t allege that XLNTbrain wasn’t “beyond” baseline testing, or that it wasn’t complete. Instead, the argument was that these statements necessarily implied superiority to ImPACT, which couldn’t be true because the latter was FDA-cleared. The court didn’t think that followed. “Moreover, XLNTbrain has not been denied approval by the FDA—rather it never sought approval—so the FDA has not declared XLNTbrain inferior in some measurable way.” Also, it was likely that these statements were puffery.

State-law claims therefore failed too.

"non-toxic" plausibly means "not harmful to people, animals, or environment"

In re S.C. Johnson & Son, Inc. Windex Non-Toxic Litig., 2021 WL 3191733, No. 20-cv-03184-HSG (N.D. Cal. Jul. 28, 2021)

Plaintiffs alleged that SCJ used false and misleading labels that certain of its Windex products have a “non-toxic formula.” The products allegedly contain ingredients that are toxic to humans, animals, and/or the environment: they can allegedly cause “severe ocular irritation,” “skin and eye irritation,” “damage to certain plants and seedlings,” “conjunctivitis and corneal damage,” “headaches,” “breathing difficulties,” “erythema, desquamation, and drying of the skin,” and “fissuring.” They brought the usual California claims.

The court determined that the products were similar enough to be grouped together despite having some varying ingredients, and that plaintiffs had standing for injunctive relief. Factual issues about what counts as toxic—and whether, as the FTC says, a product could be labeled non-toxic if it had small amounts of an ingredient at a level that is not harmful to humans or the environment—were not for the motion to dismiss stage.

The key question is whether a reasonable consumer would be misled by the term “non-toxic” into thinking that the Products “[do] not pose any risks to humans or the environment, including household pets.” SCJ relied on a definition of “toxic” from the Merriam-Webster Dictionary, and contends that it “means that a substance is ‘poisonous’ or ‘capable of causing death or serious debilitation.’ ” And the FTC’s Green Guides explain that:

[T]here is no allowance for “de minimis” or “trace” toxicity. However, a non-toxic product could contain a toxic substance at a level that is not harmful to humans or the environment. For example, apple seeds contain cyanide. Although a marketer could not claim that cyanide itself is non-toxic, the amount in an apple is so low that it is not harmful to humans or the environment, and so the marketer could claim the apple is non-toxic.

Plaintiffs responded that even the Merriam-Webster Dictionary offers an alternative definition of toxic, defined as “harmful.” They argued that a reasonable consumer could believe that “non-toxic” means “not posing a risk of harm.” And the Green Guides say:

A non-toxic claim likely conveys that a product, package, or service is non-toxic both for humans and for the environment generally. Therefore, marketers making non-toxic claims should have competent and reliable scientific evidence that the product, package, or service is non-toxic for humans and for the environment or should clearly and prominently qualify their claims to avoid deception.

As it happens, the NAD evaluated one of the products at issue in this case—Windex Vinegar Non-Toxic Formula Product—and recommended that SCJ “discontinue the claim ‘non-toxic’ on the package.” It found that non-toxic, as used on the product, “reasonably conveys a message that the product will not harm people (including small children), common pets, or the environment.” “Importantly, NAD noted that a reasonable consumer’s understanding of the concept of ‘will not harm’ is not limited to death, but also various types of temporary physical illness, such as vomiting, rash, and gastrointestinal upset.” SCJ appealed to the National Advertising Review Board, which upheld the decision and “express[ed] concern that an unqualified non-toxic claim will lead reasonable consumers to conclude not only that a misused cleaning product does not pose a risk of death or serious consequences, but also that product misuse poses no health risks, even those that are not severe or are more transient in nature.”

Likewise, the Environmental Working Group  considered two of the products at issue in this case—Windex Ammonia-Free Non-Toxic Formula and Windex Original Non-Toxic Formula—and determined that the former was “[c]orrosive” and “[m]ay contain ingredients with potential for respiratory effects; chronic aquatic toxicity; [and] developmental/endocrine/reproductive effects” while the latter “[m]ay contain ingredients with potential for acute aquatic toxicity; respiratory effects; skin irritation/allergies/damage.” Thus, this wasn’t plaintiffs’ idiosyncratic “personal understanding of non-toxic.”

slack fill can be misleading despite numbers on box

Maisel v. Tootsie Roll Indus., LLC, 2021 WL 3185443, No. 20-cv-05204-SK (N.D. Cal. Jul. 27, 2021)

Courts have divided on the reasonability of being deceived by alleged slack-fill violations when box contents/weight are clearly marked. This court sided with the consumer for purposes of a motion to dismiss:

[A] reasonable consumer might not necessarily comprehend the differential between the size of the box and the amount of the candy contained inside, even with that amount listed numerically. The size of the box suggests something to the average person that a recitation of numbers might not be sufficient to overcome; the common experience of opening up an expensive box of movie theater candy to reveal a paltry few pieces inside speaks to that fact.

 Tell us how you really feel!

TM choice of law: P's primary place of business determines which state's law applies

Lontex Corp. v. Nike, Inc., 2021 WL 3170600, No. 18-5623 (E.D. Pa. Jul. 27, 2021)

A rare choice of law opinion involving competitors. This is a trademark infringement claim but Lontex asserted claims under various state unfair trade practices law. The court declined to allow it to do that and confined it to the law of Pennsylvania, whose UTPCPL does not grant competitors standing. Thus, Lontex was left with only common-law and federal trademark claims.

Following the Restatement of Conflicts, courts consider: “the place where the injury occurred; the place where the conduct causing the injury occurred; the domicile, residence, nationality, place of incorporation and place of business of the parties; and the place where the relationship, if any, between the parties is centered.” Place of the injury is most important where “the injury occurred in a single, clearly ascertainable, state” and less important where “there may be little reason in logic or persuasiveness to say that one state rather than another is the place of injury, or when...injury has occurred in two or more states.” With respect to unfair competition specifically, it notes:

The effect of the loss, which is pecuniary in its nature, will normally be felt most severely at the plaintiff’s headquarters or principal place of business. But this place may have only a slight relationship to the defendant’s activities and to the plaintiff’s loss of customers or trade. The situation is essentially the same when misappropriation of the plaintiff’s trade values is involved, except that the plaintiff may have suffered no pecuniary loss but the defendant rather may have obtained an unfair profit. For all these reasons, the place of injury does not play so important a role for choice-of-law purposes in the case of false advertising and the misappropriation of trade values as in the case of other kinds of torts. Instead, the principal location of the defendant’s conduct is the contact that will usually be given the greatest weight in determining the state whose local law determines the rights and liabilities that arise from false advertising and the misappropriation of trade values.

As for the third factor, the plaintiff’s “principal place of business[] is the single most important contact for determining the state of the applicable law as to most issues in situations involving the multistate publication of matter that...causes him financial injury.”

There was a true conflict between the states’ unfair competition statutes because other states did grant competitors standing.

Here, the plaintiff’s principal place of business was the key, and that was Pennsylvania.  Lontext argued that “Illinois was the single state in which Lontex had the most pre-infringement unit sales...but fell back to fourth place in the infringement period when Nike flooded the Illinois market.” But that was no matter. “In a trademark infringement case such as this, every state in which both parties do business may have some relationship to the issues. There is evidence in this case that the allegedly infringing products were sold in all 50 states.”

"Natural" trade name can mislead consumers, court holds

Early v. Henry Thayer Co., 2021 WL 3089025, No. 4:20-CV-1678 RLW (E.D. Mo. Jul. 22, 2021)

Thayer markets THAYERS Natural Remedies, which are sold in drug stores, grocery stores, and other retail stores nationwide. Early sued Thayer for violations of the Missouri Merchandising Practices Act, breach of express warranty, and for unjust enrichment for misleading consumers into believing its products are natural and do not contain synthetic ingredients.

After other holdings, such as finding no FDCA preemption, the court turned to Thayer’s argument that its trade name couldn’t be an express warranty. Trade names, Thayer argued, “only ‘communicate[ ] that any product bearing said trademark is authentic.’ ”

But there were factual issues about the trade name: the ® only appeared after THAYERS, not after “Natural Remedies.” Still, Thayer argued, it was part of a registration it had, albeit a disclaimed part. [Which really should answer the question: it’s not a protectable part of the trade name as such.] But anyway, the court declined to find any rule that a trade name can’t create an express warranty.  “The Court does not agree that authenticity is the only message a trade name can convey. As other courts have found, it is not unreasonable for consumers to attach meaning to the names of products, particularly when descriptive words are part of the name.” Seems right, especially after Tam and Matal!

However, the court dismissed any claims based on Thayer’s online statements because the plaintiff didn’t allege that she was personally exposed to or relied on those statements.

The court also found that listing ingredients on the side panel wasn’t enough to avoid misleadingness for purposes of a motion to dismiss, and that the plaintiff alleged a sufficient risk of future harm to allow her claim for injunctive relief.  

selling infant & child pain reliever in different boxes (& prices) wasn't plausibly misleading

Eldmann v. Walgreen Co. 2021 WL 764121, No. 5:20-cv-04805-EJD (N.D. Cal. Feb. 26, 2021)

Eldmann argued that Walgreens falsely marketed its Infants’ Pain & Fever product in contrast to its Children’s Pain & Fever Acetaminophen product. Infant products used to contain 80 mg of acetamiophen per mL, whereas children’s product contained 160 mg per 5 mL. An industry-wide effort to prevent accidental infant overdoses changed the concentration to be 160 mg per 5 mL uniformly. Thus, both products now have the same concentration, display age ranges of 2-3 years and 2-11 years respectively, and are otherwise distinguished by dosing mechanism: syringe for infants, cup for children’s. Consumers were allegedly injured because “the Infants’ Product can cost almost four times as much per ounce than the Children’s Product, despite being identical medicines.” Eidmann brought the usual California claims.

The court found no plausible deception. The front label (and the highlighted “drug facts” information on the back) showed that they had the same composition. They had different dosage devices, but that didn’t plausibly suggest different formulations, given the front-label representation. The infant product instructs consumers to “use only with enclosed syringe,” and the side said that the “enclosed syringe [is] specifically designed for use with this product.” “Thus, the infant-specific branding is less suggestive of a formulation specially designed for infants, as Eidmann alleges, rather it more reasonably pertains to the infant-specific dosing mechanism included to administer the product.”

Also, the overlapping age ranges would allow a consumer to “readily compare the products and find not only that they contain the same acetaminophen concentration, but also that they can be used by children of identical ages.” Plus, the images were cartoon-like illustrations, not photos. “It is hard to imagine that a reasonable consumer would believe the medicine is specially formulated for infants based on an illustration, especially one so simplistically one-dimensional as the one on the Infants’ Product.”

While some cases have come out this way, other courts have found deception plausible in similar circumstances, but the court relied on the fronts of these particular products.

There was, likewise, no fraudulent omission claim on these facts.

DMCA gives Walmart only a gleam of light in sculpture infringement case

Russell v. Walmart Inc., No. CV 19-5495-MWF (JCx), 2020 WL 9073046 (C.D. Cal. Oct. 16, 2020)

Russell owns registered copyrights in certain photos of sculptures that appeared on Walmart’s marketplace. Previously, the court found that all of Walmart’s affirmative defenses failed as a matter of law, except its DMCA defense, which remains for trial. There were genuine disputes of material fact as to whether Walmart was responsible for posting the photographs on the Walmart Marketplace. [What is being infringed here: the photos or the sculptures? Since the court concluded she owned both, that doesn’t matter for liability; it could matter a lot for damages and whether the DMCA applies, but the court seems uninterested.] [Looking back on previous orders in the case, it does not seem that Walmart got the right witness for its DMCA defense; she didn’t seem to have detailed personal knowledge of any DMCA policy, and more generally Walmart may be running behind Amazon in dealing with third-party seller misbehavior on its platform, despite the fact that Amazon is taking all the heat for this kind of thing.]

Russell created four sculptural works: “Medusa,” “Polyp,” “Hydra,” and “Ophelia”; there was a dispute about whether the sculptures resemble or embody natural aspects of real-life jellyfish and whether Russell intentionally designed them to look like freshwater jellyfish. Medusa seems to be the key one; Walmart argued that the sculpture’s “sole intrinsic function is providing light,” while Russell responded that the sculptures are works of art, “not simply light fixtures.”

the pictures and lights in suit

The key facts around Walmart’s responsibility for marketplace sellers have been redacted from the opinion, so it’s impossible to tell what’s going on there. Discussions about whether the accused product was a “poor quality replica” also include redactions, as do the discussion of damages. “In sum, the parties do not agree on much,” but the public can have no idea of where they diverge.

The court here concluded that there were disputed issues of material fact on substantial similarity (and excluded a proposed expert report from Mark McKenna). The Medusa lamp was separable from its lightbulb, so the useful articles doctrine didn’t diminish the protection granted by copyright. Nor was it “so lifelike in its resemblance of a jellyfish that it lacks copyright protection.”

Though the Medusa sculpture may borrow certain elements from jellyfish in nature, it does not appear, and was not intended to appear, like a lifelike jellyfish. The sculpture is not held in a glass container intended to mimic a jellyfish’s natural habitat like the sculpture in Satava; it is oversized and hangs from the ceiling on a string connected to the center of the sculpture. [Not sure why this fact in particular matters to whether it’s taken from life, though the rest seems relevant.] The top piece of the sculpture is constructed of overlapping sections of fabric, differing significantly from the large bulbous head of an actual jellyfish. Tendrils of varying length and patterned textures flow from the center of the sculpture, unlike the largely uniform tentacles of an actual jellyfish.

In other words, Plaintiff’s sculpture is “stylized and not lifelike.” Because of the “gazillions of ways to combine” jellyfish-like elements to create a stylized, jellyfish-inspired work of art, Plaintiff’s stylized sculpture is entitled to broad copyright protection.

Substantial similarity: Russell argued that substantial similarity wasn’t the appropriate test in cases involving direct copying [very wrong], but even if that test did apply, there were genuine issues of material fact. “[T]he lamps are the same color, have three distinct sections, have a circular top piece constructed out of overlapping panels with curved sides and scalloped edges, have a center part that is thicker than the bottom part, and have two sets of long, thin tendrils with two different patterns.” A reasonable jury could find substantial similarity.

Willful infringement: This requires actual awareness of the infringing activity or reckless disregard/willful blindness. The photographs posted on Walmart’s marketplace were strikingly similar to Russell’s copyrighted pictorial works, but there was a genuine dispute of material fact on whether Walmart was responsible for posting them, which precluded summary judgment in Walmart’s favor on willfulness. Walmart argued something else redacted, but those allegations were “hotly disputed,” and anyway “Plaintiff produced evidence showing that although Walmart had [redacted]. And in November 2018, [redacted] Walmart claims that [redacted].Walmart also knew that [redacted],” creating an inference of willful blindness/reckless disregard. Comment: This is not law. How is anyone to use this decision to guide their conduct with an understanding of what constitutes willful blindness or reckless disregard?

Russell could also cover profits attributable to the infringement, and some sort of dispute about that is redacted.

Lanham Act/unfair competition claims.  Again, there was a genuine issue of fact about Walmart’s responsibility for the posting. Apparently on the premise that the posting was literally false about something, if Russell proved Walmart’s responsibility, “actual deception and materiality will be presumed.” Her damage expert calculated that the false listings cost her thousands of dollars in lost profits and harm to her goodwill and reputation. Not clear how she worked around Dastar.

ThermoLife wins appeal of Lexmark-based dismissal of claims

Thermolife Int’l, LLC v. Compound Solutions, Inc., No. 20-16138, --- Fed.Appx. ----, 2021 WL 963782 (9^th Cir. Mar. 15, 2021)

ThermoLife got a significant success in this appeal of the dismissal of its false patent marking, false advertising, and unfair competition claims.

One part was affirmed: TL alleged that Compound falsely marked one of its products, “VASO6,” as patented even though VASO6 does not practice a patented invention and is merely common green tea extract. Although TL sufficiently pled false marking by alleging that lab results confirmed that there were no patented materials in it, it didn’t plausibly allege an intent to deceive the public. It wasn’t enough to allege that Compound was a “sophisticated” seller.

TL also alleged that Compound falsely advertised that VASO6 has vasodilative properties, “and therefore potential customers were deceived into purchasing VASO6 and that such false advertising diverted sales away from ThermoLife’s nitrates.” Was TL allowed to sue under Lexmark? Yes. Its injury was in the Lanham Act’s zone of interests because ThermoLife alleged that customers chose VASO6 over ThermoLife’s nitrates, which is a commercial injury to sales. And it alleged proximate cause by alleging that its nitrates directly compete with Compound’s falsely advertised VASO6. It alleged that both its nitrates and VASO6 [purportedly] increase vasodilation “and are sold at the same level in the dietary supplement supply chain to pump and pre-workout manufacturers for licensing and use in their own products.” Further, some of TL’s customers considered replacing or replaced TL’s nitrates with VAS06.  Products containing the ingredients are allegedly displayed side-by-side in the “pump and pre-workout” sections of online shops and brick-and-mortar stores. This sufficed, and so the Lanham Act and congruent state law claims were revived.

"tested and certified" can be false if in fact products were merely "certified" by non-tester

Wedi Corp. v. Wright, 2021 WL 1054463, No. 20-35242 (9^th Cir. Mar. 3, 2021)

Wedi alleged that three statements were literally false in violation of the Lanham Act and the Washington Consumer Protection Act:

All Hydro-Blok Products Are IAPMO Tested and Certified. (IAPMO is a relevant certifier).

Hydro-Blok Products Are ICC-ES Tested and Certified. (ditto).

What is HYDRO-BLOK? Put simply it is the easiest, quickest and most user-friendly way to build a water-proof shower or tub surround at a price you can afford.

The last (easiest, quickest, most user-friendly, affordable) was non-actionable puffery.

As to the first, Wedi didn’t provide enough evidence to show that the products weren’t IAPMO tested.

However, the district court erred in granting summary judgment on the ICC-ES statement. Wedi presented evidence that ICC-ES did not request product samples from Hydro-Blok to test, but rather relied upon IAPMO’s tests. “A legitimate claim could be made that no testing of Hydro-Blok products was conducted by ICC-ES.” This is interesting because some courts won’t inquire further into a certifier’s practices—query whether there is a material difference between “ICC-ES Certified” and “ICC-ES Tested and Certified.”

Vanilla claim comes closer than most b/c of label image, still falls short

Budhani v. Monster Energy Co., 2021 WL 1104988, No. 20-cv-1409 (LJL) (S.D.N.Y. Mar. 22, 2021)

Monster “sells espresso energy drinks blended with European milk and purporting to be flavored with vanilla under their Monster brand.” E.g., the Espresso Monster Vanilla Cream Triple Shot says “Vanilla Cream,” “Triple Shot,” and has an image of the vanilla flower on the front label. But it allegedly had only trace/de minimis amounts of vanilla from the vanilla bean, not predominantly/exclusively vanilla. Plaintiff’s survey allegedly showed that over 56% of respondents believed that the flavor in Defendant’s Product “came from vanilla beans from the vanilla plant.”

Even that wasn’t enough, despite the court’s conclusion that the presence of a vanilla bean image could plausibly mislead consumers, because plaintiff failed to sufficiently plead falsity.

Previous cases held that the word “vanilla,” by itself, indicates a flavor, and dismissed complaints when the labels in question made no further representation as to any ingredient(s) or the source of that flavor. “In each of these cases the court noted that a different result might follow if the defendant had used additional language that made representations about an ingredient and not a flavor or contained additional modifiers or where consumers have a demonstrated reasonable belief about the inclusion of a particular ingredient.” By contrast, courts in the Second Circuit “have sustained claims where the language of a product label, in context, referred not only to a flavor but also indicated the presence of an ingredient.”

The product in suit didn’t have “made with” language, which has been significant in the past, or other verbal indicia of using recognizable ingredients such as touting a commitment to “clean food” and “menu transparency,” or promoting the nutritional values of vanilla from vanilla beans. But defendant did use the image of a vanilla flower, “prominently, next to the image of a coffee bean, and alongside the use of the word ‘vanilla.’” That image and context plainly suggested the presence of extract from a vanilla bean. And Monster admitted that the coffee bean images were intended to convey ingredients, not just flavors or “facsimiles.” So too with the word “cream.” The text on the side of the can confirmed both of those things, with some marketing blather ending in “Three shots of espresso[] blended with milk and enhanced with Monster’s Espresso Energy Blend.”

So: a reasonable consumer “could understand it to convey that the Product contains some non-negligible amount of extract derived from a vanilla bean, but would not understand the Product’s vanilla flavor to be derived predominantly or exclusively from vanilla bean extract.” Thus, it was plausibly deceptive if, as alleged, the product contained only trace amounts of vanilla from vanilla beans. As the Second Circuit has already held, a defendant can’t “lead consumers to believe” that its products were made with an ingredient “so long as [the product] contained an iota of [that ingredient].”

Monster argued that most vanilla-flavored products aren’t made exclusively or primarily from vanilla beans, so no reasonable consumer would believe that of its product.  “At this stage, however, the Court cannot assume that a reasonable consumer will necessarily be knowledgeable about the compounds that create the vanilla taste, the artificial and natural sources from which they derive, and where the compounds are obtained for commercial use.”

Although the survey and other allegations about what consumers want and believe wouldn’t alone be enough to sustain the complaint in the absence of the court’s conclusions about the label itself, they did reinforce the court’s reasoning.

However, reasonable consumers wouldn’t conclude that vanilla bean extract was the predominant or exclusive source of the vanilla flavor, because the label didn’t say anything about that, and the ingredient list included “natural flavors.”

Now: “A plaintiff cannot simply obtain discovery into a product’s ingredients by making the conclusory assertion that the defendant is falsely representing those ingredients.” It was not enough to allege that a chemical analysis showed differences in compounds in Simply Organic Madagascar Vanilla Extract—represented to be vanilla derived from vanilla bean—with the compounds in the drink that “are responsible for the bulk of vanilla’s flavor.” Plaintiff alleged that “the Product contains an abnormal excess of vanillin ... which is a strong indicator it contains vanillin from non-vanilla sources.” That wasn’t enough to plead that there was only a trace or de minimis amount of vanilla from vanilla beans in the drink.

Pleading that the label violated FDA standards for food labeling also failed, since the FDCA doesn’t provide for private enforcement, and NY, unlike California, hasn’t adopted all federal food rules as its own to be enforced via the UCL. “To state a GBL claim, the challenged act must be ‘inherently deceptive,’ and ‘such acts cannot be re-characterized as ‘deceptive’ simply on the grounds that they violate another statute which does not allow for private enforcement.’ ”

Other common-law causes of action also failed, though plaintiff had leave to replead the Section 349 & 350 claims.

"free-run" chicken was plausibly misleading, but "wild-caught fish" claims needed more

Sultanis v. Champion Petfoods USA Inc., 2021 WL 3373934, No. 21-cv-00162-EMC (N.D. Cal. Aug. 3, 2021)

Sultanis alleged that petfood sold as being made with “free-run” poultry and “wild-caught” fish was falsely advertised. (Champion’s website also allegedly described its chicken supplier as “Todd of Clark Farms in Lexington, Kentucky,” even though the person depicted alongside that statement was in fact Greg Hefton of Tyson Foods.) She alleged that reasonable consumers expected the poultry products were made with chickens “raised in better, more humane conditions than typical chickens grown for meat,” and that “have access to the outdoors.” She further alleged that “[to] reasonable consumers...‘free-run’ is synonymous with ‘free range.’ ” For example, an Amazon review said that “[f]ree range chicken is the meat in [the Products].” But in fact, she alleged, the products are made from “factory-farmed birds raised under standard industrial conditions— confined in crowded barns without outdoor access.”

Similarly, marketing for fish products allegedly depicted a fisherman next to what looks like a fresh body of water with the caption “trusted supplier of fresh wild-caught fish,” and the website promised that “[Champion’s] saltwater fish are sustainable and wild-caught from New England’s cold and fertile waters, and [their] freshwater fish from American waters.” However, the products are allegedly actually made with “rainbow trout from industrial fish farms” in Idaho and “do not use wild-caught fish.” Animal Equality allegedly commissioned laboratory tests that revealed the fish products tested positive for ethoxyquin, a chemical that is only found in farmed fish, not wild-caught fish.

admittedly wrong "wild-caught rainbow trout" description online

"wild=caught fish" description

The court dismissed claims to represent a multi-state class under Rule 23 because Champion identified “substantial variations in the consumer protection laws of the [13] states at issue,” including whether notice, intent, reliance, or causation are required, as well as whether a three-, four-, five-, or six-year statute of limitations applied.

California statutory claims: The term “free-run,” on its own, could reasonably be read to imply that the chickens used to make the products can freely run outside, especially because the label also depicts chicken running freely on a spacious, grassy, and outdoor field without any disclaimer that those are not the chickens in the products.

Champion argued that its statements were true because “Canadian trade organizations” define it as chickens that are “free to run throughout the barn in which they were raised.” Even if the court were to take judicial notice of the Canadian definition, “it is highly implausible that Ms. Sultanis was aware of this Canadian definition given that she lives in the United States,” and it certainly wasn’t dispositive of what reasonable US consumers would think.

Wild-caught fish: Champion argued that “brimming with wild-caught fish” wasn’t false or misleading because the fish products contained wild-caught catfish and white perch, even though they also contained farmed rainbow trout. Its photos of fishermen in fresh-water lakes were photos of the Kentucky fishermen who supply Champion with wild-caught catfish and white perch.  None of the products claimed that “all” or “100%” of the fish was wild caught, and other parts of the packaging tout rainbow trout from Idaho and wild-caught catfish and white perch from Kentucky.

But “whether a reasonable consumer read the inconspicuous disclaimers that explain the ingredients include wild-caught and farmed fish is, at the very least, a question of fact.” And, even if a consumer did, it’s not clear that would disabuse her of misconceptions; they didn’t specify percentages or explicitly say the Idaho trout was farmed. Nor was the absence of “all” or “100%” dispositive, especially with the phrase “brimming with wild-caught fish.”  And Champion acknowledged that it at least once “inadvertently” claimed to make the product with “wild-caught rainbow trout.”

For poultry, Sultanis also alleged both that she relied on the representations and that reasonable consumers would attach importance to them, citing studies showing that, for example, “84% of food shoppers say it is ‘important’ or ‘very important’ to provide better living conditions for animals”; “74% stated that they were willing to pay more for humanely raised meat products”  three-quarters of respondents “said they were concerned about how chickens are raised for meat”; and even studies showing that consumer concerns with how farm animals—particularly chickens—are raised are “increasingly carrying over to pet foods.”

However, the fish complaint didn’t plead reliance with sufficient particularity. Sultanis didn’t see the erroneous “wild-caught rainbow trout” statements. And the statements she did see “to some extent explain that the Products are made with rainbow trout and wild-caught blue catfish/white perch.” She didn’t explain what part of the labels she saw and relied on.

Champion's disclosure that there were three fish species involved

"rainbow trout from Idaho plus wild-caught blue catfish and whole perch"--better, but not great