Monday, November 20, 2017

Another court declines to apply GNC where plaintiff alleges only negative studies

Yeldo v. MusclePharm Corp., 2017 WL 5499588, Case No. 17-11011 (E.D. Mich. Nov. 16, 2017)

Yeldo brought a putative class action alleging that MusclePharm used misleading marketing practices to promote its glutamine dietary supplement, whose label and online ads indicate that it “enhances muscle growth and recovery, supports rebuilding and recovery from the toughest workouts, reduces catabolism and supports an anabolic environment, aids in muscle growth, causes faster recovery, and helps consumers rehydrate, rebuild, and recover faster and more efficiently.” Although glutamine naturally found within the body plays a role in muscle growth, recovery, and immunity support, Yeldo alleged that “glutamine supplementation has been found to be completely ineffective at mimicking these physiological responses.” Yeldo based his claims on nine scientific studies finding no benefit from glutamine.

The court found that Yeldo plausibly alleged falsity.  Although the court accepted that a plaintiff must plead the existence of a study that tests the combination of ingredients used in a given product, that means the active ingredient/s in combination.  Here, the product at issue relied only on one active ingredient. The studies alleged “support the proposition that glutamine supplementation has no effect on muscle performance or strength, muscle growth, recovery, or performance during exercise,” even if they didn’t test MusclePharm’s specific products or dosages. 

MusclePharm argued that some of the studies supported its claims, making the case more like In re GNC Corp., 789 F.3d 505 (4th Cir. 2015), which (wrongly) held that literal falsity is impossible unless all reasonable experts disagree with the advertising claim. Here, the complaint didn’t concede that any scientists found glutamine effective, and MusclePharm merely “cherry-pick[ed] sentences from the papers’ introduction sections, which summarize the findings of other studies or hypothesize conditions where supplemental glutamine may create the represented effects.”  Because the conclusions supported Yeldo’s argument, he stated a claim.  Weighing the merits of these scientific findings to determine which is most credible wasn’t appropriate on a motion to dismiss. [Which is why GNC is wrong.]

Nor did Yeldo need to plead how and when he consumed the product or whether he experienced the advertised benefits; he alleged that he bought and consumed the product and either would not have done so or would not have paid as much for the product if he’d known defendant’s representations were false. That monetary harm was sufficient. However, his negligent misrepresentation claim was barred by the economic loss doctrine.

Yeldo also had Article III standing to seek injunctive relief, because consumer protection statues, which provide for injunctive relief, could never be invoked to enjoin deceptive practices if the complaining consumer’s standing dissipated the moment she discovered the alleged deception and could no longer be fooled.

Yeldo’s claims weren’t preempted by the FDCA, since that statute deems food misbranded when the label contains a statement that is “false or misleading in any particular,” and so Yeldo’s claims paralleled the FDCA’s requirements; the conduct at issue would also give rise to liability under Michigan common law even if the FDCA had never been enacted. Nor did the doctrine of primary jurisdiction bar these claims.


To the spoliator does not go the victory in corporate betrayal case

OmniGen Research, LLC v. Wang, No. 16-cv-268, 2017 WL 5505041 (D. Or. Nov. 16, 2017)

After OmniGen successfully moved for a default judgment in its favor due to spoliation of evidence, the court awarded damages on OmniGen’s trade secret, false advertising, and related claims.  Default means that the factual allegations of the complaint, other than those about damages, will be taken as true.

While working for OmniGen, which makes feed addditives that improve the health of dairy cows and other animals, defendant Wang breached his contracts by secretly creating an OmniGen-clone Chinese business based on stolen OmniGen research and information, forming at least two entities, Bioshen and Mirigen.  He also applied for a Chinese patent that covers a knockoff of an OmniGen product, and had fellow individual defendant Zheng—who is Wang’s wife and ... does not have a background in biological sciences—listed as an inventor in his place, and employed similar tactics with the contact information for Bioshen and Mirigen.  He presented an OmniGen Research slide presentation (whose copyright OmniGen registered) as if it was his own at a large scientific conference in China, with many slides altered only to add the Mirigen logo.  At the conference, which was attended by over a thousand people, including academics, government officials, and business leaders, defendants’ marketing materials claimed to employ “the most advanced modern green agricultural technology from the United States.”  Wang represented the material copied from OmniGen’s slides as Mirigen’s and Bioshen’s, as well the innovations described therein.  [This seems to be Dastar-barred at least as a §43(a)(1)(A) claim, but in a default situation, don’t expect that to matter.]  His acts also led to the dissemination of confidential OmniGen research notes at the conference and elsewhere.  Bioshen and Mirigen also submitted a paper falsely describing research as part of their participation in the conference: the paper described a study conducted with pigs by Bioshen and Mirigen using their feed additive, when in fact the studies were conducted by OmniGen on sheep and dairy cattle using its feed additive. 

Unsurprisingly, the court found for OmniGen on its breach of contract, intentional interference with economic relations, and trade secret misappropriation claims.  As for false advertising, the court also found for OmniGen, including for stating that OmniGen’s slides were defendants’ work, for falsely describing the study, and for falsely claiming that Mirigen and Bioshen were affiliated with a ‘professor’ at Oregon State University.” The court accepted the complaint’s allegations that these statements were material because “they lend credibility to Wang, Bioshen, and Mirigen, giving them the appearance of relying on original scientific research and thinking.” The court further accepted that the statements were made in commercial advertising or promotion, and that the parties competed around the world, including in China.  Finally, and perhaps of greatest interest, the court accepted that defendants’ conduct affected interstate commerce because “Bioshen promotes itself as a U.S. company, attendees at the conference included people who do business in the U.S. and who represent companies that do business in the U.S., and people who review and comment on U.S. scientific research.”

The court also found that Wang breached his fiduciary duties to OmniGen, including, along with the above acts, intentionally sabotaging an OmniGen study he was assigned to work on, and fabricating or falsifying data.  OmniGen therefore repeated the work he was assigned to do.

As to damages, they must be proved to a reasonable degree of certainty, but where a defendant’s conduct makes damages difficult to determine, courts allow “broad latitude” in quantifying damages. Defendants’ $821,000 initial investment in Mirigen reflected OmniGen’s expectation interest under its agreements with Wang: if Wang had fully performed, “the Chinese patent would have been assigned to OmniGen and the investment garnered by that patent and other confidential information would have accrued to Plaintiffs rather than Wang’s competing business entity. These are concrete, certain, and quantifiable injuries under a contractual theory of recovery.” OmniGen didn’t seek a separate award for the intentional interference with economic relations.

On the trade secret claim, $821,000 was likewise reasonably certain and a conservative valuation of what was misappropriated.  OmniGen was also entitled to punitive damages due to Wang’s willful and malicious misappropriation, to a maximum of twice actual damages; the court determined that this was warranted, resulting in a total award of $2,463,000.  For copyright infringement, the court accepted that infringement occurred post-registration, entitling OmniGen to statutory damages.  Although the court was required to accept that infringement occurred post-registration, it wasn’t required to accept that the infringement was willful, as this wasn’t alleged in the complaint, and thus the court awarded the statutory minimum of $750.

Under the Lanham Act, OmniGen was entitled to damages, including profits, but defendants’ discovery abuse and spoliation of evidence related to damages prevented a precise calculation of Defendants’ profits.  The court found it equitable to award OmniGen the $821,000 as the value of Mirigen. Treble damages could be awarded “if the allegations in the complaint support it.”  OmniGen was harmed by defendants’ knowingly false statements, and “[a]s is common in such false advertising cases, quantifying damages is difficult (especially where evidence has been systematically destroyed by the defendant).”  The court nonetheless declined to award OmniGen an estimated $80,000 based on defendants’ head start/avoided costs of conducting its own studies, finding them an improper measure of actual damages, and one that would be punitive rather than compensatory. Nonetheless, the $821,000 was a conservative proxy of damages, and so the court enhanced it to $2,463,000, as justified by defendants’ intentional/willful conduct, especially in destroying evidence.  Enhancing damages would capture otherwise evanescent measures of goodwill, as well as deter defendants and others similarly situated from engaging in unfair and deceptive behavior.

Damages from Wang’s breaches of fiduciary duty were the costs to re-create or repeat research projects because of Wang’s breaches of fiduciary duty, or $252,000, as well as the recovery of all compensation paid during his period of disloyalty as damages, or $92,000.

Because OmniGen was limited to a single recovery, the total was $821,000 for breach of contract, misappropriation of trade secrets, and false advertising; $344,000 for Wang’s breach of fiduciary duty;  $750 for copyright infringement; and $1,642,000 for enhanced damages under the Lanham Act/punitive damages under state trade secret law.  [The language of the Lanham Act that enhanced damages can’t be punitive seems not to do a lot of work, given how the cases come out.]

The court likewise granted a permanent injunction.  The disclosure or threatened disclosure of trade secrets or even non-trade secret confidential information was sufficient to meet the irreparable injury requirement for a preliminary injunction, as was the consumer confusion, loss of good will, and increased market place barriers which can result, and, in this case, did result, from false advertising.  [Not clear whether this is entirely consistent with Herb Reed.]  Damages/legal remedies were also inadequate because the injuries were difficult to quantify, and they were also ongoing and could worsen without an injunction.

However, the court would not enjoin defendants from working for certain types of feed industry businesses; that was too much of a restraint on trade, as well as unfairly limiting defendants’ ability to satisfy the judgment in this case. The defendants were enjoined against further use of confidential information and false advertising, and also required to assign to OmniGen all their interest in the Chinese patent and application, as well as register the assignment with the Chinese government.

The court’s injunction was worldwide, given that defendants’ wrongful actions included conduct in China.


The court also awarded attorneys’ fees and costs pursuant to the Lanham Act, the Oregon Trade Secrets Act, and Fed. R. Civ. P. 37(b)(2)(C) (relating to spoliation of evidence).  As for the Lanham Act, the complaint’s allegation of intentional and willful false advertising was, “on its own, sufficient to establish the substantive weakness of Defendants’ litigation position.”  Defendants also litigated in an unreasonable manner, including Wang’s attempt to evade service by lying to the process server, an initial default, discovery violations, and a destruction of evidence “beyond anything previously witnessed by this Court.” The award of attorneys’ fees pursuant to the Oregon Trade Secrets Act and Lanham Act applied to the entire action and not just the individual claims under which the fees are authorized, because the claims all involved a common core of facts and were interrelated. Fees awarded were nearly $990,000.

Friday, November 17, 2017

We got the empire, now as then: Rogers precludes record label suit against Fox show

Twentieth Century Fox Television v. Empire Distribution, Inc., No. 16-55577 (9th Cir. Nov. 16, 2017) 

“Empire Distribution, founded in 2010, is a well-known and respected record label that records and releases albums in the urban music genre.”  Then came Fox’s TV show Empire, “which portrays a fictional hip hop music label named ‘Empire Enterprises’ that is based in New York” and “features songs in every episode, including some original music.” Columbia Records releases music from the show, and Fox promotes the show and its music through live musical performances, radio play, and consumer goods such as shirts and champagne glasses bearing the show’s “Empire” brand.  Fox sought a declaratory judgment of noninfringement and Empire counterclaimed for infringement and dilution. The district court granted summary judgment to Fox, relying on Rogers v. Grimaldi, and the court of appeals affirmed.

Empire argued that at least some of Fox’s uses weren’t part of expressive works and thus outside Rogers: Fox allegedly used the “Empire” mark “as an umbrella brand to promote and sell music and other commercial products.” The court of appeals found that these were only “technically” outside the title or body of an expressive work: works protected by Rogers “may be advertised and marketed by name.”  There was no reason to think the TV show was a pretextual expressive work “meant only to disguise a business profiting from another’s trademark”; Fox’s promotional activities, “including those that generate revenue, are auxiliary to the television show and music releases, which lie at the heart of its ‘Empire’ brand.”

A footnote in Rogers says that Rogers’ limiting construction of the Lanham Act wouldn’t apply to titles that are confusingly similar to other titles, because the public interest in sparing consumers this type of confusion outweighs the slight public interest in permitting authors to use such titles. But appellate courts haven’t cited this footnote, and even the Second Circuit applied Rogers in the subsequent Cliffs Notes case involving conflicting titles.  Any such exception might be “ill-advised or unnecessary,” and was anyway inconsistent with Ninth Circuit precedent speaking of Rogers as the test that applies when expressive works are accused.

Applying Rogers: Empire argued that, in order for Rogers to apply, the mark must have attained a meaning beyond its source-identifying function.  [Which, not for nothing, “empire” does—it just had that meaning before Empire entered the scene.] But that’s merely a consideration—expressive uses often, but not always, occur “when a brand name enters common parlance and comes to signify something more than the brand itself,” and Rogers is broader. Then, unfortunately, the court commented that “a mark that has no meaning beyond its source-identifying function is more likelyto be used in a way that has ‘no artistic relevance to the underlying work whatsoever,’ because the work may be “merely borrow[ing] another’s property to get attention’” (citing Dr. Seuss Enters. v. Penguin Books, sigh)—which of course is inconsistent; if the mark didn’t have some sort of meaning beyond source identification, it wouldn’t make sense to use it to get attention for an expressive work.

Here, Fox used the common English word “Empire” for artistically relevant reasons: “the show’s setting is New York, the Empire State, and its subject matter is a music and entertainment conglomerate, ‘Empire Enterprises,’ which is itself a figurative empire.”  Prong one was satisfied. There was no additional requirement, as argued by Empire, that the junior work refer to the senior mark. “A title may have artistic relevance by linking the work to another mark, as with ‘Barbie Girl,’ or it may have artistic relevance by supporting the themes and geographic setting of the work, as with Empire.”


The title wasn’t explicitly misleading.  Empire Distribution argued that the “relevant inquiry . . . is whether the defendant’s use of the mark would confuse consumers as to the source, sponsorship or content of the work.” But that’s the general likelihood-of-confusion test, which applies outside the Rogers context of expressive works. Likely consumer confusion wasn’t the key, but rather whether there was “an ‘explicit indication,’ ‘overt claim,’ or ‘explicit misstatement’ that caused such consumer confusion.” Fox’s Empire show contained no overt claims or explicit references to Empire Distribution, and thus wasn’t explicitly misleading; game over. 

Thursday, November 16, 2017

false advertising of copyright ownership of songs not preempted, court rules

Carter v. Pallante, 256 F. Supp. 3d 791 (N.D. Ill. 2017)

Tollie Carter sued, as relevant here, alleging that ARC, Fuji, and BMG infringed his copyrights in certain songs by selling unauthorized licenses to third parties, who in turn publicly performed the songs. Carter’s father, Calvin Carter, and his uncle, James Bracken, were songwriters, and Carter is their heir who allegedly recaptured rights in their works under §203 and §304.

Nonetheless, Carter alleged that the publisher defendants, “without [Carter’s] authorization or consent, represented to numerous third parties it could license—and did license to those third parties—the performance rights and other rights to [Carter’s songs].” The court found that claims for copyright infringement and contributory infringement were sufficiently pled.  Selling licenses plausibly violated Carter’s exclusive right to “distribute copies or phonorecords of the copyrighted work to the public by sale or other transfer of ownership, or by rental, lease, or lending.” [Which right?  Authorization isn’t usually considered a separate right, but merely the foundation for secondary liability, which does seem adequately alleged here.] The court rejected defendants’ argument that Carter needed to state who the third parties were, which songs were licensed, or when the licenses were sold, none of which is required under Rule 8 for copyright claims. “He cannot be expected to know at this stage who the third parties were, when these sales occurred, or which of his songs were licensed. This information, if it exists, is exclusively within the Publisher Defendants’ knowledge, and Carter can obtain it only through discovery.”  So too with contributory and vicarious copyright infringement.

DMCA §1202: The claim for removing CMI also survived, even though the alleged removal here didn’t relate to “the Internet, electronic commerce, automated copyright protections or management systems, public registers, or other technological measures or processes as contemplated in the DMCA as a whole.” The plain text of the statute doesn’t require any of that.  Further, defendants argued that Carter didn’t plead that false copyright information was conveyed “with copies of the work.”  But under Rule 8 he didn’t to plead particularized facts as to how, when, and to whom the publishers communicated false information in connection with their purported licensing agreements. “In any event, Carter unmistakably alleges that false copyright information was conveyed with copies of the work by way of the licensing agreements he claims the Publisher Defendants entered into with third parties.” [That doesn’t seem right—again the court seems to be conflating authorization with actual exercise of a §106 right.]

State law claims, however, were mostly preempted, including tortious interference claims. The partial exception was deceptive trade practices under the Illinois Uniform Deceptive Trade Practices Act, which covers “pass[ing] off goods or services as those of another” and “caus[ing] likelihood of confusion or of misunderstanding as to the source ... of goods” as deceptive trade practices. The claim that publishers passed off the copyrighted songs as their own, so that consumers would license them, “falls squarely within the Copyright Act and is therefore preempted.”  However, allegations that the defendants “misrepresented that they owned the copyrighted songs in advertising material without infringing copyrights to the songs” were sufficient, since “[m]aking misrepresentations about a copyrighted work in advertising material—short of licensing the copyrighted works at issue or taking any other action in connection with a copyright owners exclusive rights—is not among the exclusive rights enumerated in § 106 of the Copyright Act.”  This doesn’t seem right under Dastar—the interpretation of “source” is usually the same under state and federal law, and Dastar’s reasoning should justify conflict preemption of state law anyway.

physical harm to the public isn't irreparable harm for competitor plaintiff

Nutrition Distribution, LLC v. Enhanced Athlete, Inc., 2017 WL 5467252, No. 17-cv-2069 (E.D. Cal. Nov. 14, 2017)


Defendants allegedly falsely advertised products containing 2,4-Dinitrophenol (DNP) to body builders, gym users, and the like. Defendants allegedly promote it as an ingestible fitness supplement that increases fat loss, despite the health dangers it poses. The plaintiff sells its own competing supplement, and sued for false advertising and RICO violations. The court found that there could be no preliminary injunction because the plaintiff hadn’t shown irreparable harm.  After eBay, the court declined to presume irreparable harm from falsity and materiality. Health harm to the public was third-party harm, relevant to the public interest but not to whether the plaintiff had shown irreparable harm to itself.  The plaintiff’s claim of lost sales since the introduction of DNP into the market didn’t show a causal connection between the two, and anyway lost sales could be remedied by money damages.

Wednesday, November 15, 2017

Church & Dwight not protected against challenge to "Made in USA" claim for condoms

Claiborne v. Church & Dwight Co., 2017 WL 5256752, No. 17-cv-00746 (S.D. Cal. Nov. 13, 2017)

At least two lines of Trojan brand male condoms have the words “Made in U.S.A.” printed on the packaging. This statement allegedly violates California law because more than ten percent of the condoms’ wholesale value allegedly derives from natural latex material produced outside of the United States.  Claiborne alleged that the condoms state that they contain natural latex, and that US domestic production of natural latex is minimal, with 90% of the global supply coming from Southeast Asia.  Further, the US is allegedly the largest consumer of natural latex—accounting for approximately 20% of global consumption. In addition, the natural latex is allegedly the only substantial component of the Condoms.

The court found that Claiborne plausibly alleged that more than ten percent of the condoms’ wholesale value comes from outside of the United States, which would make it unlawful to market as “Made in U.S.A.” in California.  It was true that Claiborne didn’t allege exactly what percentage of the wholesale value comes from abroad, but all he needed to do was plausibly allege that the foreign wholesale value was greater than ten percent, rather than an exact percentage above that.

Claiborne also plausibly alleged that he suffered damage: he alleged that, but for the “Made in U.S.A.” representation, he would not have purchased the condoms or he would have paid less. That’s enough under Kwikset.  He also had standing to pursue injunctive relief even though he now believed the representations were currently false (this opinion appeared to have been drafted before the 9th Circuit’s recent ruling on this, because the court says there’s no binding authority; fortunately the court’s reasoning is consistent with the current law).  “[W]here false advertising misleads a consumer, the consumer tends to suffer continuing injury in the form of a lessened ability to trust that any similar future representation is accurate.” Relief “could restore the consumer’s trust, thus aiding him in making informed purchasing decisions in the future.”  Claiborne didn’t need a present intention to purchase a Trojan product in the future; false advertising still injured him “because it lessens his ability to gather all relevant information and incorporate it into his future purchasing decisions.”

Church & Dwight argued that, even under this approach, the allegations of the complaint established that it is not possible for a natural latex condom to carry a lawful “Made in U.S.A.” label because of insufficient domestic natural rubber production. That wasn’t true; it merely alleged that, because of the current domestic supply/demand imbalance, C&D uses imported natural latex.  If C&D changed its sourcing, it could keep the label.


TM question of the day

Game of Bones (at the science museum):

Thursday, November 09, 2017

230 bars false advertising claim against antimalware provider

Enigma Software Group USA LLC v. Malwarebytes Inc., No. 5:17-cv-02915, 2017 WL 5153698 (N.D. Cal. Nov. 7, 2017)

Malwarebytes and Enigma compete in the anti-malware software market.  When Malwarebytes’s software detects an unwanted program, it displays a notification and asks the user if she wants to remove the program from her computer. Enigma alleged that, in 2016, Malwarebytes started to misleadingly identify Enigma’s software as a potential threat, in order to interfere with Enigma’s customer base and to retaliate against Enigma for a separate lawsuit Enigma filed against a Malwarebytes affiliate.  Enigma sued for false advertising under state and federal law, as well as tortious interference. The court found all claims barred by § 230(c)(2) of the Communications Decency Act, specifically subsection (B): “No provider or user of an interactive computer service shall be held liable on account of … any action taken to enable or make available to information content providers or others the technical means to restrict access to material [that the provider or user considers to be obscene, lewd, lascivious, filthy, excessively violent, harassing, or otherwise objectionable, whether or not such material is constitutionally protected].”

Zango, Inc. v. Kaspersky, 568 F.3d 1169 (9th Cir. 2009), indicated that “companies that provide filtering tools,” such as Kaspersky, are eligible for immunity under § 230(c). It found that Kaspersky qualified as a service provider, and “has ‘made available’ for its users the technical means to restrict items that Kaspersky has defined as malware.” Thus, Kaspersky qualified for immunity under § 230(c)(2)(B) “so long as the blocked items are objectionable material under § 230(c)(2)(A).” Kaspersky properly classified malware as “objectionable” material.

Enigma argued that Zango was distinguishable because malware, as defined by Malwarebytes’s criteria, wasn’t material that is “obscene, lewd, lascivious, filthy, excessively violent, harassing, or otherwise objectionable” because it is “not remotely related to the content categories enumerated.” Zango did not address whether an anti-malware provider has discretion to decide what is “objectionable” because that argument was waived.  However, Zango clearly held that § 230(c)(2)(B) immunity applies to “a provider of computer services that makes available software that filters or screens material that the user or the provider deems objectionable.” Thus, Zango was factually indistinguishable.

Enigma then argued that Malwarebytes was entitled to § 230(c)(2)(B) immunity only if it acted in “good faith.” Subsection (A) protects “any action voluntarily taken in good faith” to restrict access to objectionable material, but subsection (B) has no good-faith requirement.  The court refused to imply one; Congress knew how to put one in if it wanted, especially given that subsection (B) includes an explicit reference to subsection (A) with respect to the types of material to which immunity applies.

Finally, Enigma’s Lanham Act claim didn’t entitle it to use the IP exclusion; a false advertising claim is not a trademark claim for §230 purposes.


Tuesday, November 07, 2017

Ad intermediary lacks standing under Lexmark to challenge false ads

Congoo, LLC v. Revcontent LLC, 2017 WL 5076397, No. 16-401 (D.N.J. Nov. 3, 2017)

A rare case discussing Lexmark’s proximate cause requirement in some detail. Congoo operates an online ad business as Adblade, an aggregator that serves as an intermediary between advertisers and publisher websites that display native ads on their pages.  Revcontent competes with Adblade.  Advertisers pay aggregators a fee based on the numbers of clicks on their ads. Publishers usually contract with the aggregator who “pays the higher rate, higher guaranteed minimums, or greatest revenue.” An aggregator may pay a publisher a fee calculated by multiplying a negotiated display rate, CPM/cost per 1000 impressions of an of an ad, by the number of times the aggregator’s advertising unit is displayed on the publisher’s website. In the alternative, an aggregator may pay a publisher a percentage of the revenue the aggregator received from advertisers for the display of the ads on the publisher’s website.

Adblade alleged that it avoids business with advertisers using false and deceptive ads, such as negative option membership charges or undisclosed automatic enrollment in expensive membership programs.  This is an issue in direct response advertising, “a subset of native advertising that seeks consumer action, e.g., an online purchase.” When a user clicks on a direct response ad, she navigates to a “landing page” that endorses the good or service, followed by an “order page” where she can buy. 

In 2015, Adblade allegedly discovered that Revcontent was promising Adblade publishers deals with better economic terms through its “use[ ] [of] false and misleading ads that obtain higher CPMs”; Revcontent allegedly also assisted with the creation of such ads.  Revcontent’s algorithm allegedly “automatically” displays “false and misleading” advertisements on publishers’ websites because they “have the highest CPM and revenue to be generated.” Adbeat, a well-known industry data source, allegedly confirmed that the most popular advertisements in Revcontent’s network were “false and misleading.” Its report stated that Revcontent’s top mobile ads included those for diet pills, muscle pills, and skin cream; Adblade provided hundreds of copies of such ads, and alleged that false and misleading ads appeared on five top Revcontent publishers that previously did business with Adblade. (Id. at ¶ 20.)
           
Lexmark requires plaintiffs’ interests to “fall within the zone of interests protected by the law invoked”:  “an injury to a commercial interest in reputation or sales.” In addition, a plaintiff must demonstrate that its alleged harm was proximately caused by the false advertising, though “the intervening step of consumer deception” does not necessarily break the chain of proximate causation. Economic or reputational injury “flowing directly from the deception wrought by the defendant’s advertising … occurs when deception of consumers causes them to withhold trade from the plaintiff.” By contrast, “[t]hat showing is generally not made when the deception produced injuries to a fellow commercial actor that in turn affect the plaintiff.”

For purposes of their motion for summary judgment, Revblade didn’t contest that Congoo’s interests fell with in the zone of interests protected by §43(a)(1)(A), or that there was a causal connection between deceptive native ads and Congoo’s loss of publisher clients.  However, the court agreed that the purportedly false advertising didn’t have a sufficiently close causal link to Congoo’s alleged harm.

In Lexmark, the connection between the actual competitors in the market and Static Control was very close: because Static Control seemed to be the only relevant supplier, every harm to the competitors was also inflicted on Static Control.  Here, however, there was a disconnect “between the injury to the direct victim”—here, competitors of falsely advertised goods—and Congoo’s own injuries as an indirect victim, “unlike the injuries to companies supporting those competitors in the marketplace.” The loss of publisher clients wasn’t “surely attributable” to injury to a competitor, but could have “resulted from any number of [other] reasons.”

Congoo’s expert stated that false and misleading advertisements deceive consumers into clicking on the advertisements and/or making purchases, thereby “enabl[ing] the unscrupulous advertiser to make high cost-per-click bids to an advertising aggregator, such as Revcontent, who in turn offers higher rates to a publisher to obtain its business. … In addition, native ads that are deceptive and misleading likely have higher click-through rates that also translates into a greater revenue to the publishers.” But this was a too-long chain of causation from higher sales/higher revenues to Revcontent’s ability to pass on more money to publishers.

Congoo’s state common law unfair competition claim also failed because standing wasn’t broader than under Lexmark. To the extent, however, that any allegations of fraudulent representations didn’t relate to consumer products but instead to statements to publishers, such claims survived.


Monday, November 06, 2017

Competitor can't challenge compliance w/certification standards

Board-Tech Electronic Co. v. Eaton Electric Holdings LCC, 2017 WL 4990659, No. 17-cv-5028 (S.D.N.Y. Oct. 31, 2017)

Board-Tech accused its competitor in the light switch market, Eaton, of false advertising because, while Eaton was authorized to apply the “UL” certification mark to certain products (as Board-Tech was), those Eaton products allegedly didn’t comply with the requisite safety standards. For the parties’ light switches, the prevailing standard is UL 20, required by the National Electric Code for new buildings; the NEC is state or local law in all 50 states, and even where its use is voluntary, consumers rely on UL 20 labeling for safety information; many retailers also require UL 20 labeling before they’ll sell a switch.

The UL certification mark, “certifies that representative samplings of the goods conform to the requirements” of Underwriters Laboratory.  Authorization requires a manufacturer to provide six sets of representative samples of switches they want certified, which must then pass a series of tests.  The testing can’t guarantee that the products actually sold comply with applicable safety requirements, merely that a purportedly representative sample did.  However, Board-Tech alleged (plausibly, to me) that consumers rely on the certification mark or listing, and base their purchases on the belief that every product containing a mark or that is listed actually complies with the applicable written safety standards. According to UL, “it is the responsibility of the manufacturer to ensure that all of the products it sells bearing the UL mark actually comply with the standards tested for, not just the samples that were tested.”

Board-Tech alleged that tested samples of UL 20-labeled switches sold by Eaton from the 7500, 7600, and 7700 series, and that all eight sets of six light swiches, 48 in total, failed the UL 20 standards.  However, the court dismissed the complaint for failing to specify the precise products at issue from the relevant series.  Board-Tech alleged that it had sufficiently alleged testing of a sample, but the court disagreed, because Board-Tech failed to specify what it had sampled.  Nor had it explained why it was plausible to extrapolate from a few non-specific switches to entire product lines—more than 125 of them.  Failure to provide any allegations as to which product(s) within a broader product line failed was also necessary in order for defendants to investigate the claim and prepare a defense. “If allowed to proceed in such a broad manner, plaintiff would no doubt seek access to the internal design of competitive products as well as highly sensitive technical data. Damages discovery would involve all of defendants’ sales of this series of products.”  The court wasn’t willing to let that happen without more specifics.

Separately, the court didn’t think Board-Tech could bring claims based on failure to meet the UL’s standards when the UL certification concededly existed.  “[P]laintiff’s claim is that even if defendants are authorized to use the mark, they are deceiving customers by using it.”  But Board-Tech didn’t allege there had been post-certification changes to the product, or that the UL had found Eaton non-compliant.  The authorized use of the mark was not “capable of being a deceptive use.”  The mark was limited by the scope of its registration, and it certified merely that (manufacturer-designated) representative samples conformed to UL’s safety requirements.  [Do consumers know this?  Why would they?]  Board-Tech conceded that Eaton’s switches had been through that process.  “[I]f defendants are authorized to apply the mark (which plaintiff concedes they are), then plaintiff is simply policing the mark. It is up to United Laboratories to police the mark.”  Board-Tech could only challenge UL’s policing by seeking to cancel the mark for failure to police. 


The court was unwilling to allow a competitor to police the use of a certification mark by a competitor, because “[p]rivate testing of a product against standards could be used to commence a lawsuit that could expose competitive design and information to precisely the entity that should not have it. While there are many cases in which competitors are proper plaintiffs – and do obtain discovery – one should not open the floodgates to such litigation without careful consideration.” Comment: Compare to the cases finding that claims requiring interpretation of FDA rules, or policing of compliance with the “organic” standard, can’t be brought under the Lanham Act because the enforcement of those rules has been delegated to an entity other than the court.

Friday, November 03, 2017

"look like new forever" might not be puffery in context of technological innovation claims

EP Henry Corp. v. Cambridge Pavers, Inc., 2017 WL 4948064, No. 17-1538  (D.N.J. Oct. 31, 2017)

Disclosure: I consulted on this case. 

EP Henry and Cambridge compete in the market for concrete pavingstones. Cambridge made superiority such as “only Cambridge pavingstones have ArmorTec - a unique process that guarantees the color will never fade, backed by our fully transferable, lifetime guarantee.” Cambridge also claimed that ArmorTec pavers would “always look like new,” they’d would “look like new forever,” and that their color “will never fade.” EP Henry alleged that consumers had told EP Henry distributors that they were misled, and that after purchase they discovered that the pavingstones didn’t continue to look like new and weren’t fade-proof.

The court ruled that, in context of additional claims about advanced technology, phrases like “they’ll look like new forever” and “the color will never fade” weren’t puffery as a matter of law, even though they would be without additional context. “[C]ourts around the country regularly find that, standing alone, language suggesting perpetuity or an indefinite period of time constitutes non-actionable puffery,” but Cambridge’s ad campaign allegedly touts its breakthrough technology, telling potential customers that ArmorTec is a “unique process.”  It was “plausible that a potential customer could reasonably come to the conclusion that Cambridge is not puffing, but has actually found the ‘secret sauce’ to enable pavingstones to ‘look like new forever’ or ensure that ‘the color will never fade.’”

With that out of the way, the New Jersey Consumer Fraud Act claim (if any) failed because the NJCFA only grants standing to consumers and commercial competitors “who are acting as consumers” or who are involved in a “consumer transaction,” but not to commercial competitors generally. Negligent misrepresentation and common law fraud claims failed because EP Henry couldn’t allege reasonable or justifiable reliance on the alleged misstatements. Though EP Henry argued that it reformulated its advertising campaign in response to Cambridge’s alleged misrepresentations, it didn’t allege that it relied upon or believed Cambridge’s alleged misstatements in doing so. The common law unfair practices claim wasn’t recognized by New Jersey, which limits common law unfair competition to (1) the “passing off” of goods or services; (2) unprivileged imitation; and (3) tortious interference.


The Lanham Act false advertising claim, however, survived.  EP Henry didn’t allege “a specific instance of a consumer choosing to purchase pavers from Cambridge over EP Henry because of Cambridge’s false advertising statements,” but that wasn’t required before discovery.  It sufficiently pled that, as a direct competitor, it suffered harm to its reputation and sales by losing customers as a result of Cambridge’s alleged misstatements. Without evidence from third parties and discovery, however, Cambridge could still be entitled to summary judgment.

Tuesday, October 31, 2017

Consumers can't recover for GM's self-tarnishment

In re General Motors LLC Ignition Switch Litigation, --- F.Supp.3d ---- 2017 WL 2839154, No. 14–MD–2543 (S.D.N.Y. Jun. 30, 2017)

This multidistrict litigation arose from the 2014 recall by General Motors LLC (New GM) of General Motors (GM) vehicles that had been manufactured with a defective ignition switch, which could cause moving stalls and disable critical safety systems such as the airbag. After that recall, New GM recalled millions of other vehicles, some for ignition switch-related defects and some for other defects. The putative class plaintiffs sought recovery on behalf of GM car owners and lessors, arguing that they were harmed by, among other things, a drop in their vehicles’ value due to the ignition switch defect and other defects.  While brand owners can be protected against reputational injury, the court here holds that a brand’s self-tarnishment provides its consumers no remedy. 

The lost brand value theory was “unprecedented and unsound.” Brand owners don’t have to provide an indefinite guarantee of both “the product’s resale value and the brand’s continuing good name.” It’s true that “labels and brands have independent economic value,” but “it does not follow that a consumer can recover if he or she buys a defect-free and functional product that performs as expected, but the company’s actions somehow affect the value of the company’s brand.” To do so might even over-deter manufacturers and “diminish the resources available to plaintiffs who have been more directly injured by the manufacturer’s products.”  

Plaintiffs attempted to amend their brand devaluation claims to only those putative class members who have or had defective cars, but there was no logical reason that only such people would have suffered from the brand devaluation.  In addition, plaintiffs pled facts from the work of a brand expert “about how the repeated recalls had a negative impact on the brands and models that were recalled, about the relationship of New GM to its sub-brands, about New GM’s brand architecture, and … the primary variables that will inform the calculation of the spillover effect of the ignition switch recalls to other recalled cars.”  These allegations merely provided a factual basis for the proposition that “labels and brands have independent economic value,” which the court accepted, while still rejecting the idea that consumers purchase a guarantee of both “the product’s resale value and the brand’s continuing good name.”

However, the court did allow certain claims to proceed, including claims for the value of time lost to repairs, and some state law claims if the relevant state allowed claims in the absence of a manifested defect; did not require a special trust relationship between the parties for a duty to disclose to arise; and/or permitted plaintiffs to plead both contract claims and unjust enrichment claims. Most of plaintiffs’ consumer fraud, fraudulent concealment, and breach of implied warranty claims survived, while most of their unjust enrichment claims didn’t.  As the court noted, “most state courts construe their consumer protection statutes to permit recovery beyond actual damages, including incidental and consequential damages,” which would generally permit lost time claims.

Nonetheless, plaintiffs who bought their cars before July 10, 2009—the date on which New GM purchased most of the assets of Old GM as part of the bankruptcy proceedings—couldn’t pursue claims for economic loss, because the economic injury took place at the time of sale. New GM’s alleged concealment of the ignition defect couldn’t cause economic injury to people who bought before New GM came into existence.  Likewise, plaintiffs who sold, traded in, or returned their vehicles prior to New GM’s announcement of the recalls beginning in 2014 couldn’t pursue such claims. Because they didn’t own any affected GM vehicles at the time of the recall, they couldn’t suffer diminished value as the result of the market correcting for the true value of the defective vehicles.  However, a plaintiff who bought her car after New GM bought GM and sold it before the recall was announced could still plead and prove damages in the form of out-of-pocket expenses and lost time, such as a plaintiff who experienced shutoffs while driving and had to go to the service shop often.


Just in time for Halloween, a Reese's question

Should Reese's object to the following description of candy molds?
The "Reese's Shape" version of the tartlet/candy mold
Nominative fair use?

Initial decision in FTC 1-800 case finding that anti-keyword agreements violated antitrust law

Agreed-on limits on advertising, like agreed-on limits on other inputs, risk being a per se violation of the antitrust laws.  Here, a blanket ban, including a negative keyword requirement (so that someone bidding on "contacts" wouldn't get ads run against "1-800-Contacts" based on broad matching), was not justified by fear of trademark infringement/confusing consumers.  The ALJ also notes that 1-800's extensive evidence that people often can't distinguish between organic and paid results has nothing to do with whether they can distinguish between results for 1-800 and results for its competitors.  Initial ruling here.  NB: I testified for the FTC, but the ALJ doesn't rely on my testimony.

Friday, October 27, 2017

Public disclosure of private facts

Setting FERPA aside, does Taiwan Jones have any claim based on the viral tweet about his failed midterm?  (Skepticism here.)

Website copying allegations allow potpourri of claims

DHI Group, Inc. v. Kent, No. 16-1670, 2017 WL 4837730 (S.D. Tex. Oct. 26, 2017)

DHI and Oilpro compete in the market for websites for oil and gas professionals that include job postings. DHI filed a lawsuit against Oilpro and others asserting that the defendants hacked into their system, and Oilpro counterclaimed for DHI’s alleged copying from Oilpro’s own website, alleging multiple claims, which the court refused to dismiss on grounds that give lots of leeway to website owners to make breach of contract, copyright, CFAA, and DMCA claims.

Breach of contract: Oilpro had a browsewrap agreement on its website, not requiring affirmative assent to access the website.  To enforce a browsewrap, “it is necessary to show the user had actual or constructive knowledge of the terms and conditions to prove a valid contract exists between the user and the owner of the website.” Oilpro plausibly alleged such knowledge by alleging that DHI “knew or should have known that Oilpro’s Terms and Conditions prohibited this conduct because [DHI’s] terms of use for [its] own website prohibit this same sort of conduct.” This was enough, where both parties were “sophisticated businesses that use browsewrap agreements on their websites.”
 
Copyright: DHI argued that Oilpro didn’t identify any material, information, or work that was both subject to copyright protection and actually copied by DHI. However, Oilpro alleged that it owned a valid copyright to its website and that DHI accessed it and copied data, member profiles, and other information from the website. Under the Twombly/Iqbal plausibility standard, it was enough to plead that the entire Oilpro website was an original work that includes a “distinctive page layout, design, graphical elements, and organization of member profile pages....” and that DHI “improperly downloaded data, member profiles, and other information from the Oilpro Website” and “then published information from the Oilpro Website on a website owned by DHI Group called Dice Open Web....” Since Oilpro alleged ownership of the entire website, and that DHI published Oilpro’s copied information on its own website, Oilpro stated a plausible claim for copyright infringement. [No no no—owning the overall layout doesn’t mean owning everything that might be copied.  The proper allegation would be that DHI copied copyrightable elements.]  DHI’s objections to the Magistrate Judge’s recommendation to deny its motion to dismiss the copyright infringement claim is OVERRULED.

The court also denied DHI’s motion to dismiss Oilpro’s DMCA counterclaim because it alleged that it “had technological measures in place, including a robots.txt file, monitoring software, and firewall software, to prevent automated technologies from accessing the website” and DHI “circumvented these technological measures to access the Oilpro website and download material that was then published on [DHI’s] own website.” Specifically, robots.txt was plausibly a technological measure, as other cases have held.  But note: The statute also requires that the measure “[e]ffectively controls access to a work” defined as a measure that, “in the ordinary course of its operation, require[ ] the application of information, or a process of treatment, with the authority of the copyright owner, to gain access to the work.” How does robots.txt require the application of information to gain access, as opposed to provide extra information to potential accessors?

Trademark infringement: Oilpro successfully alleged that it had a protectable mark that DHI used to cause confusion about the authorization/sponsorship of the DHI site.  [The court then proceeds to confuse nominative and descriptive fair use, applying the standards for descriptive fair use.] DHI argued that it used Oilpro’s mark to acknowledge Oilpro as the source of certain information, but the fair use defense was not available on a motion to dismiss because the complaint didn’t indicate on its face that DHI used the mark on its website in good faith—which, of course, is not an element of a nominative fair use defense.

CFAA and the coordinate state Texas Harmful Access by a Computer (THACA):  The court held that Oilpro’s allegations of a knowing violation of the terms and conditions of the website are sufficient to state a claim under both the CFAA and the THACA.

Misappropriation: Oilpro did enough by alleging that it expended time, skill, and financial resources to create the website and information on the website, that DHI wrongfully accessed the site without authorization and obtained Oilpro’s data without having the expend the same time, skill, and financial resources, that DHI was free-riding on Oilpro’s investment, that Oilpro has had to expend even more time and resources because of this alleged unfair competition, and that Oilpro has been and will continue to be damaged by the misappropriation. [However, there seems to be a serious copyright preemption problem with this misappropriation claim.]

Tortious interference: also ok.


Likely success & irreparable harm still doesn't justify ex parte TRO against false ad. given counterspeech

Verified Nutrition, LLC v. Sclar, 2017 WL 4785948, No. 17-cv-07499 (C.D. Cal. Oct. 23, 2017)

Verified sells ProstaGenix, which is “an all-natural supplement with a proprietary form of Beta-sitosterol” (BetaRexin). Verified primarily advertises ProstaGenix through an infomercial featuring Larry King, available on Verified’s website, Prostate Report.  Prostate Report also provides “reviews” of various prostate supplements on the market, including Verified’s product ProstaGenix and defendants’ competing product, Prostate Miracle. Plaintiff Buckley also publishes a magazine called “The Men’s Guide to Prostate Supplements,” which provides similar reviews. The website allegedly discloses that Buckley is the inventor of ProstaGenix and writes the reviews on the website, and that Verified Nutrition sponsors the website. Buckley claims he has “spent approximately $150,000 to have five reputable and independent laboratories conduct more than 280 laboratory tests on over 150 different prostate supplements.”

On Prostate Review, Buckley wrote about his determination that his product was superior to Prostate Miracle because ProstaGenix contained almost twice as much Beta-sitosterol.  He included Prostate Miracle’s ingredient list on Prostate Review (which the court suggests might be the source, however unjustified, of defendants’ “plagiarism” claim).

Defendants began operating three websites: http://www.larry-king-prostate-report.com, http://LarryKingProstate.com, and http://www.best-prostate-formulas.com. They take images directly from the Larry King infomercial and superimpose negative text over them. [Verified also sued for copyright infringement; even if the claims are false, it’s hard to see how this isn’t fair use—the problem if any is in the falsity, not in the exploitation of a market to which Verified has a right.] Defendants’ claims allegedly include: 1) calling ProstaGenix and Buckley’s business a “total scam;” 2) claiming that Verified Nutrition “does not exist;” and 3) calling Buckley a “liar, plagiarist, and conman,” a “career huckster,” a “slimeball,” a “serial fraudster,” a “career con artist,” a “despicable schmuck,” and a “sociopath.” They also accuse Buckley of pretending to be an “independent, unbiased 3rd party” reviewer, “fraudulently selling one bogus product after another, since 2005,” and having a “long history of defrauding consumers.”

Verified alleged that these negative statements were false and had an adverse effect on their sales and goodwill. Searches for “Larry King prostate,” among others, returned links to defendants’ websites, and a YouTube video that is also embedded on the websites, which states, among other things, that “In the Larry King Prostate report, Larry King stages a fake interview with career huckster Fred Buckley and partner in crime, wife Corinne Buckley.”

Verified sought the TRO based on its claims for false advertising, defamation, trade libel, and unfair competition.  The court found that falsity appeared likely, and that the allegedly false statements were material, because “statements that certain reviewers or distributors are fraudsters would be material.”  Plaintiffs submitted evidence that Verified Nutrition exists as a Nevada limited liability company, disproving the claim that it is a “fake company,” as well as evidence that they spent approximately $150,000 in testing the ingredients of prostate supplements to review them on Prostate Report, which goes to the “fake review” statements.

Thus, the court found likely success on the merits for false advertising, as well as for the defamation/trade libel claim, though I’m not sure where the special damages are alleged/proved—claims about general goodwill/reputation are usually insufficient to plead special damage. This is what happens when only one side shows up to litigate—which is why it’s good to be nervous about ex parte proceedings.  Plaintiffs were also likely to succeed on their UCL claim.

Plaintiffs claimed irreparable harm to their reputation and also the decline in sales of their product, but lost sales “is just the type of harm that could be remedied by monetary compensation after a full trial on the merits.” So, was potential harm to reputation enough?  Many of plaintiffs’ allegations of harm relied on the fact that defendants’ websites were “gaining traction on the Internet, and rising in the results when Buckley entered certain search terms on Google, which typically would have resulted in Plaintiffs’ websites being on the top of the list.” [At some point, courts are going to have to note the importance of personalized results—if Buckley clicked on defendants’ websites before, they’re going to come up again for him, but that’s less helpful evidence about what J. Random Searcher will see.]  In order to counter this false advertising, plaintiffs alleged that they’d have to spend a lot of money on ads, but money could be recovered after a full trial on the merits.  Only 400 people had seen the YouTube video at the time of filing, after about 30 days (so much for “rising in the results”). The court found that reputational harm could increase over time, tipping the irreparable harm factor in favor of plaintiffs.  [Not clear how this is less speculative than in other cases, but ok.]

Balancing the equities/public interest. The harm to defendants seemed limited, “given they do not have a right to disseminate allegedly false statements.” As for the public interest, “while the public has an interest in not being exposed to false information, currently the public is able to view both Plaintiffs’ and Defendants’ advertisements regarding their respective prostate supplements, and can come to their own conclusions. Much of the information Plaintiffs use to demonstrate their claims are true and that Defendants’ are false, is also available on Plaintiffs’ website, Prostate Report, and thus also available to consumers to weigh the parties’ claims themselves.”  This reasoning is interesting and troubling in equal measure; it seems to suggest that the parties ought to fight it out in the marketplace of ideas—but will consumers actually consult both websites?  The answer might well be yes, if this is the kind of product that consumers do seek to educate themselves a bit about, but applied outside the TRO context it would seem worrisomely in conflict with the basic premises of false advertising law.  However, applied to the ex parte TRO, where the speech ultimately might be true/nonactionable, caution is more understandable—and consistent with a First Amendment tradition of protecting speakers from speech-suppressive orders they have not been able to contest.


As the court noted, none of the defendants had yet appeared, and plaintiffs hadn’t filed proofs of service for the individual defendants. There’s no requirement of formal service of process before a TRO can issue, but the court was troubled by the possible lack of notice. On balance, the court found that a TRO was not indicated, but they did provide sufficient evidence warranting an order to show cause as to statements that Verified Nutrition “does not exist”; ProstaGenix is ineffective and “just a cheap imitation of Prostate Miracle”; Prostate Report is a “fake review site” using “fake lab tests” and fake lab reports, promoted through a “gang of fraudsters”; and Buckley is “a liar, plagiarist, and con man” as well as a “sociopath” who publishes plagiarized and “fake review magazines” promoting his business and ProstaGenix. [Query whether “sociopath” can be proven true or false, and thus capable of defamatory meaning.]

Monday, October 23, 2017

9th Circuit rules failure to recognize labeled ads as such "implausible"

Novation Ventures, LLC v. J.G. Wentworth Co., No. 16-55289, 2017 WL 4711477 (9th Cir. Oct. 19, 2017)

District court opinion discussed here. The court of appeals affirmed the dismissal of this case against J.G. Wentworth arguing that its use of different names to advertise structured settlement products, creating the appearance of competition but allowing Wentworth to charge higher prices/driving competitors further down in search results, was misleading and anticompetitive.  Novation failed to allege antitrust injury; merely having a harder time competing isn’t actionable, and any harm to consumers would have made it easier for Novation to compete on price. Also, “the whole advertising market was open to Novation—that market was not Google alone, and, at any rate, Novation could compete for Google advertising.”

And here’s a quote that defense lawyers will like a lot: “the assertion that consumers are not wise enough to recognize labeled advertisements for what they are, or to scroll down farther than the first three entries they see, is itself not plausible.”  This indicates why the false advertising claim was doomed; Novation didn’t plead any literally or implicitly false statement by the ads, only that the separate entities didn’t advertise their affiliations. And it was implausible that consumers seeking to sell future payments from structured settlements would fail to exercise a relatively high degree of care in considering ads from structured settlement companies.


9th Circuit rules inability to trust future representations provides standing for injunctive relief

Davidson v. Kimberly-Clark Corp., 2017 WL 4700093, -- F.3d --, No. 15-16173 (9th Cir. Oct. 20, 2017)

Rejecting a number of district court decisions, the Ninth Circuit finds standing to seek injunctive relief under California consumer protection laws even when the named plaintiff now knows the truth: “A consumer’s inability to rely in the future upon a representation made on a package, even if the consumer knew or continued to believe the same representation was false in the past, is an ongoing injury that may justify an order barring the false advertising.”  This case involves wipes advertised as “flushable” which allegedly are not. Davidson would like to buy truly flushable wipes, if such actually exist.

The district court dismissed the complaint under Rule 9(b)) because it concluded that Davidson failed to adequately allege “why” the representation that the wipes were flushable was false; she didn’t allege that she personally experienced problems with her home plumbing or the relevant water treatment plant.  The court of appeals reversed, finding her allegations sufficient and plausible.  Davidson alleged that flushable means “suitable for being flushed,” requiring an item to be capable of dispersing within a short amount of time. This definition of flushable was supported by dictionary definitions and Kimberly–Clark’s own statement on its website that its flushable wipes “are flushable due to patented technology that allows them to lose strength and break up when moving through the system after flushing.”  Davidson alleged that the actual wipes she purchased failed to “disperse and disintegrate within seconds or minutes” and “did not break up in the toilet bowl like toilet paper but rather remained in one piece.”  To the extent the district court dismissed the original complaint because Davidson failed to allege facts “showing how she came to believe that the [Scott Wipes] were not ‘flushable,’ ” that was wrong, because the complaint otherwise satisfied Rule 9(b).

The district court also held that Davidson didn’t allege damages, in that she hadn’t pled “facts showing that her use of the wipes damaged her plumping, pipes, or septic system.” But that wasn’t required—paying a premium for a falsely advertised product is sufficient harm to maintain a cause of action.  Davidson alleged that, without the misrepresentation, she wouldn’t have bought the wipes or would have paid less for them; that was enough.

Article III standing for injunctive relief: A plaintiff must demonstrate constitutional standing separately for each form of relief requested. The courts that have found no standing to seek injunctive relief generally reason that “plaintiffs who are already aware of the deceptive nature of an advertisement are not likely to be misled into buying the relevant product in the future and, therefore, are not capable of being harmed again in the same way.” The court of appeals disagreed:

Knowledge that the advertisement or label was false in the past does not equate to knowledge that it will remain false in the future. In some cases, the threat of future harm may be the consumer’s plausible allegations that she will be unable to rely on the product’s advertising or labeling in the future, and so will not purchase the product although she would like to. In other cases, the threat of future harm may be the consumer’s plausible allegations that she might purchase the product in the future, despite the fact it was once marred by false advertising or labeling, as she may reasonably, but incorrectly, assume the product was improved.

This result also prevents the untoward result that, otherwise, removing a case from state to federal court—as happened here—would enable a defendant to get rid of a remedy otherwise available.  After all, “the primary form of relief available under the UCL to protect consumers from unfair business practices is an injunction.” Without injunctive relief, “California’s consumer protection laws would be effectively gutted.”  Or there could be a “perpetual loop” of “plaintiffs filing their state law consumer protection claims in California state court, defendants removing the case to federal court, and the federal court dismissing the injunctive relief claims for failure to meet Article III’s standing requirements.”

Given Davidson’s allegations, she adequately alleged a desire to buy flushable wipes and an inability to rely on Kimberly-Clark’s representation of flushability, which was enough to constitute a “threatened injury [that is] certainly impending,” thereby establishing Article III standing to assert a claim for injunctive relief.

Judge Berzon concurred, noting that the majority assumed that it was required to perform a separate standing analysis for each “form of relief.”  She disagreed that this assumption was a requirement of the “case or controversy” requirement of Article III, and argued that it was instead “an artifact of the discredited practice of conflating the prerequisites for injunctive relief with the Article III prerequisites for entry into federal court.” Instead, “we have a single dispute—a single case, a single controversy—giving rise to multiple forms of relief.”  Where “state law clearly envisions those remedies as the product of a single adjudication of a single issue,” to proceed otherwise in federal court “fundamentally undermines, substantively, the enforcement of state laws in federal court.”  A remand to state court on injunctive relief alone was motivated by the same desire not to let defendants strip plaintiffs of their state-law remedies through removing a case over which there is clearly Article III jurisdiction, but was not an acceptable solution. 

Citing Lexmark, she contended that federal courts “have a history of improperly elevating the prerequisites for relief to the status of jurisdictional hurdles.” In Judge Berzon’s reading, the Supreme Court case on which the 9th Circuit relied to require separate Article III analysis of each remedy in previous cases, Lyons, did not actually make the jurisdiction/remedy mistake, but rather inquired into whether the nonjurisdictional requirements for equitable prospective relief were met, and concluded they were not because of the absence of irreparable harm. This is of little consequence in most cases following Lyons, because where the availability of injunctive relief is governed by federal law, the common-law prerequisites for injunctive relief “must eventually be satisfied, and largely mirror the standing prerequisites.” But that’s not good enough when this interpretation “imposes substantive limits on the availability of relief under state law, in the service of constitutional interests that aren’t actually under threat.” 


Still, Judge Berzon concurred fully, recognizing that the 9th Circuit en banc opinion interpreting Lyons the other way does require a separate standing analysis with regard to prospective relief. 

Thursday, October 19, 2017

When the specifics are misleading: medical test stats draw false advertising claim

Quidel Corp. v. Siemens Med. Solutions USA, Inc., 2017 WL 4654644, No. 16-cv-3059 (S.D. Cal. Oct. 16, 2017)

Quidel is a “diagnostic healthcare manufacturer” that “developed, promotes and sells the Thyretain TSI Reporter BioAssay,” which is “intended for the qualitative detection in serum of thyroid-stimulating immunoglobins (TSI).” Quidel alleged that Thyretain “is the only commercially available assay that detects TSI only, as opposed to those that fail to differentiate between thyroid-stimulating and thyroid-blocking immunoglobins” (TBI), commonly known as “TRAb” assays. Siemens sells the IMMULITE 2000/2000 XPi TSI assay, which is intended to compete with Thyretain. In 2016, Siemens obtained FDA clearance to market IMMULITE, under a “substantial equivalence” finding through the Section 510(k) premarket notification process.

Quidel cited seven scientific studies and alleged that IMMULITE detects both TSI and TBI, and therefore “compares similarly to other TRAb assays, detecting but not differentiating between stimulating and blocking antibodies.” E.g., one study found that while IMMULITE was “about as sensitive and consistent as the Thyretain bioassay,” it did not “consistently distinguish[ ] between stimulating and blocking activities in 20 selected cases of hypothyroid Hashimoto’s thyroiditis.”  Thus, Quidel challenged Siemens’ claims about its ability to differentiate TSI from TBI, e.g., “Unlike TRAb (TSH receptor antibody) assays which detect both stimulating and blocking antibodies, the Siemens TSI assay specifically detects only thyroid stimulating antibodies, which are the hallmark of Graves’ disease.”  The “only” claim was later discontinued (though the press release and marketing statements that included that word have not been removed from the web), but the current product description claims that IMMULITE detects TSI with 98.5% specificity, contrasting that to TRAb assays that detect both TSI and TBI, thus allegedly implying that IMMULITE is TSI only.  (What I can't tell from the specificity claim, and I haven't looked up the underlying documents, is whether this applies when there's TBI but not TSI present, which would affect how similar IMMULITE is to Thyretain.)  Given that IMMULITE costs less and works faster than Thyretain, Quidel alleged that this falsity caused it damage, including the loss of at least one lab customer at a cost of $250,000 a year and corrective advertising costs.

The court found that Quidel had sufficiently pled falsity and misleadingness to satisfy Rule 9(b) for its Lanham Act and California state law false advertising claims, as well as with intentional interference with economic advantage.  Likewise with materiality for false advertising: given the alleged cost and time differences, it is reasonable to infer that an equivalence claim would influence purchasing decisions.  Siemens argued that materiality was inadequately pled because labs are sophisticated parties and are required to independently verify an assay’s performance data, but that’s a matter of reliance at most, not materiality.


Siemens argued that the FDCA precluded the Lanham Act claim because the FDA pre-approved Defendants’ product name and performance data and required Siemens to include that information on the IMMULITE label and packaging insert. Moreover, Siemens couldn’t IMMULITE’s name or alter its specificity and sensitivity data without prior FDA approval.  Under Pom Wonderful, this argument failed. It’s still true that “a private action brought under the Lanham Act may not be pursued when...the claim would require litigation of [an] alleged underlying FDCA violation in a circumstance where the FDA has not itself concluded that there was a violation.”  However, the claim here didn’t implicate FDA determination of whether the premarket approval was ok.  Quidel didn’t challenge the product name and performance data in the labeling, but rather the marketing statements (including the use of specificity to distinguish IMMULITE from TRAb assays).  Thus, the court’s evaluation of Siemens’ similarity claims/failure to disclose the similarity of IMMULITE to TRAb assays wouldn’t intrude on FDA’s exclusive enforcement authority.  Likewise, it would not be impossible to comply both with the FDCA and state false advertising law.  “Removing the phrase ‘TSI only’ from Defendants’ marketing materials or adding a disclaimer that IMMULITE does not differentiate between stimulating and blocking antibodies does not reasonably lead to Defendants being forced to change their assay’s name or performance data such that Defendants would first need FDA approval.”

Wednesday, October 18, 2017

Reading list: scientific claims and anti-fraud laws

Shannon Roesler, Evaluating Corporate Speech About Science (forthcoming, Geo. L.J. 2018)

Pull quote: “[C]onsumer protection laws should encourage accurate representations of contemporaneous scientific knowledge, rather than lucky guesses about the state of scientific knowledge in the future.”  Amen.

Abstract: How should courts evaluate the truth or falsity of corporate speech
about science? This question is critical to antifraud actions like the ongoing state
investigations into whether ExxonMobil misrepresented scientific knowledge regarding
global climate change. ExxonMobil claims that these investigations chill scientific
inquiry and burden speech on a matter of public concern in violation of the First
Amendment. Of course, the notion that scientific progress depends on the free exchange
of ideas is uncontroversial. But although the free-market approach to scientific discourse
has firm foundations, this Article suggests that it is a misguided approach to the question
of when corporate speech about science is misleading.
Too often, courts and commentators assume the truth of corporate speech about
science, an assumption that inevitably results in First Amendment scrutiny. The
reluctance to analyze the truth of such speech is understandable given the nature of
scientific knowledge itself. Scientific knowledge is not easily described in terms of truth
or falsity. But corporate speech that uses the inherent uncertainty of scientific inquiry to
mischaracterize scientific knowledge is not participating in scientific discourse.
Moreover, when courts treat such speech as part of a larger scientific debate, they
threaten to undermine the deterrent function of antifraud laws and shift the costs of

misleading speech onto the public.

Monday, October 16, 2017

Consumer's ability to trust future representations provides standing to seek injunctive relief

Delman v. J. Crew Group, Inc., 2017 WL 3048657, No. 16-9219 (C.D. Cal. May 15, 2017)

This is another factory outlet false advertising case. The J. Crew Factory Website sells clothing and other items at what appears to be a significant discount. It used two prices for each item: the “Valued At” price and “Your Price.” A reasonable consumer would allegedly believe, falsely, (1) that the Valued At price was the original price of an item sold at one of J. Crew’s higher priced stores and/or (2) that the item is similar to one sold by other merchants at or near the Valued At price. Instead, while the items resemble those sold at non-outlet J. Crew stores, they’re of inferior quality and were never offered, at a J. Crew store or anywhere else, for sale at the Valued At price. “Despite the promise of a discount implicit in the comparison between the Valued At and Your Price sales prices, J. Crew is in fact selling the goods available on the Factory Website at full price.” 

J. Crew maintained in a previous lawsuit that the Valued At price represented the price at which other retailers offered the same or similar goods. Delman hired an expert who investigated to see whether the same or similar goods were available for purchase from other retailers at or around the Valued At price, but did not find comparable goods available at the Valued At price.  Instead, many (if not all) of the goods could be bought at or below the Your Price price.

The court found that Delman’s allegations satisfied Rule 9(b), both as to the implied discount-from-regular-J. Crew claim and the “Valued At means prevailing market price for a similar item” theory. J. Crew argued that her decision to plead two theories of deception made her allegations fatally vague, but “there is no reason why a pricing scheme that is purposely ambiguous could not also be deceptive or misleading.”  If a reasonable consumer could interpret the Valued At price to mean one of multiple, mutually exclusive things, all of which are untrue, that states a claim. 

Nor were the theories so implausible that no reasonable consumer could be misled.  J. Crew argued that “value” could only reasonably be interpreted to mean the defendants’ subjective opinion of the worth of the goods, based on dictionary definitions.  But the dictionary wasn’t the end of the matter, when the issue was “how a reasonable consumer would interpret the phrase ‘Valued At’ in the context of the specific commercial interaction that Plaintiff has challenged.” In context, “the great esteem in which J. Crew holds its wares” was not the only interpretation a reasonable consumer could give the term. As the court pointed out, the Valued At price was located right next to the Your Price sales price, and was struck out.  “Why place the two prices next to one another if they are not meant to be compared? And why strike out the Valued At price, if not to suggest to the purchaser that he or she is getting a bargain of some sort?”  This “visual language,” the court wisely noted, “could easily be understood to mean that the Valued At price refers to a real, objective price, which the Factory Website has discounted for the benefit of its customers.”

Plaintiff did fail to provide proper notice as required to bring a breach of contract claim in California, and also had to wait to bring a CLRA claim given the notice requirement of the CLRA.

J. Crew argued that Delman suffered no damages, because she received the goods that she paid for at the agreed-upon price.  But courts have rejected this argument under California law.  “[A] bargain hunter is, in fact, economically harmed when the seller inflates the perceived value of its products” (citing Hinojos v. Kohl’s Corp., 718 F.3d 1098 (9th Cir. 2013)).


Finally, J. Crew argued that Delman lacked standing to seek injunctive relief because she no longer risked being deceived by J. Crew’s deceptive pricing. However, Delman alleged that she would purchase more apparel from J. Crew if it were to cease making its false representations.  The issue wasn’t whether policy concerns for the enforcement of California law could trump Article III, but rather that Delman alleged irreparable injury in the future: she couldn’t ascertain, from J. Crew’s pricing scheme, the true value of the items she’d like to buy, and thus she can’t trust its bargain claims.  This continued inability to trust was a sufficient likelihood of future injury to confer Article III standing.

TM use in ad text and on website not confusing where true source is clearly marked

Guardian Pool Fence Sys. Inc., Plaintiff, v. Sunwest Industries, Inc., No. 16-0824, 2017 WL 2931413 (C.D. Cal. Jun. 1, 2017)

Guardian and All-Safe compete in the market for mesh pool fences; a Guardian fence costs around $2,000, and an All-Safe fence costs around $1,500. The parties previously litigated keyword ad buys, but dismissed the litigation. In 2016, a potential Guardian customer reportedly said that he had seen the Guardian name in numerous places on All-Safe’s website and asked if the two companies were related.

As a result, Guardian found that its name appeared on All-Safe’s website in several places. “Guardian Pool Covers,” “Guardian Pool Safety,” “Guardian Pool Fence,” and “Guardian Pool Products” all appeared as “Topics” listed in the right hand column of All-Safe’s website, along with many other topics such as “Swimming Pool Safety.”  Each topic had its own page collecting all of the posts tagged with that specific topic.  Each post had a “by” field, which All-Safe used to insert topic labels.  Guardian argued that this practice suggested that Guardian had authored the posts, but the court disagreed, given that other “by” entries included “Removable Mesh Pool Fence” and “Swimming Pool Safety.”  The Guardian-tagged posts didn’t discuss Guardian, but were generally about pool safety, and they didn’t offer products for sale.  All-Safe said that it didn’t authorize the Guardian tags, but that its third party vendor created them without specific authorization, and they were removed shortly after this litigation began.  The Guardian topic pages were viewed 17 times total by 5 unique users, presumably some of them Guardian’s counsel; 17 views was less than .01% of all All-Safe website traffic. 

Here's what the topic list looked like:
Here are some tagged posts: 




As for the keyword aspects of the case, from January 2008 until February 2011, All-Safe used “guardian pool fence” as a search term targeted at Spain, Portugal, Puerto Rico, and Costa Rica, resulting in four clicks.  These campaigns ended in February 2011.   From January 2008 to May 2016, All-Safe’s AdWords campaigns together generated well over 800,000 clicks.  Also, for a few months in 2016, Guardian included “all safe pools” in its Google AdWords, along with eighteen other search terms, several of which included the term “all safe” or “all-safe,” though Guardian argued that this was inadvertent and in contravention of its standard practice. In May 2016, a search for “all-safe” returned an ad for Guardian with the headline “all safe pools – Guardianpoolfence.com.” “All safe pools” generated six clicks on Guardian ads.

Guardian didn’t challenge All-Safe’s AdWords search program, only the Guardian Topics on All-Safe’s website. The court found confusion unlikely.  Along with the usual multifactor test, internet search-related cases also require considering “an additional factor of particular importance”: “the labeling and appearance of the advertisements and the surrounding context on the screen displaying the results page.” Though Guardian wasn’t making a search-related claim, but rather challenging a webpage layout and tags in a topics section, this factor was still applicable “because the full context of the webpage is important to assessing how a consumer would understand the Guardian Topics.” In cases challenging online activity, the Ninth Circuit has sometimes skipped the Sleekcraft test “in favor of a more streamlined inquiry: ‘(1) Who is the relevant reasonable consumer?; and (2) What would he reasonably believe based on what he saw on the screen?’” This was the appropriate analysis here, “because it is a website rather than a product that bears the mark.”

The consumers here would be careful and accustomed to shopping online, given the cost of the pool nets.  What would such customers understand? 

The fact that the Guardian Topics are listed as topics suggests that somewhere on All-Safe’s website there is discussion of the various Guardian Topics. A company discussing a competitor on its own website does not alone amount to trademark infringement or generate confusion. A reasonably prudent consumer would draw very little from the fact Guardian appeared as a topic on the All-Safe website. At worst, a reasonable consumer might click on a topic “uncertain as to what they will find.”

A consumer who did click would find blog posts about pool safety, not about Guardian.  “The use of the term Guardian in the topic names is confusing, but it is confusing in that it makes little sense given the ultimate content of the posts tagged with the topic. It does almost nothing to suggest that Guardian is in any way the source of the pool nets for sale through All-Safe, and pool nets are not directly offered for sale anywhere in blog posts.”  Thus, the uses wouldn’t create confusion as to the origin of All-Safe’s goods or services.  Moreover, the Ninth Circuit has cautioned that reasonable consumers “expect to find some sites that aren’t what they imagine based on a glance at the domain name or search engine summary.” Similarly, the court here considered reasonable consumers “capable of dismissing dead-end topics labels as oddities, indicative of almost nothing.”

The fact that a single consumer might potentially have been confused—the one who talked to Guardian’s VP—was insufficient to show likely confusion, especially given the hundreds of thousands of views of All-Safe’s website. All-Safe’s website prominently displayed its logo, and only its logo, on every page. “This ‘broader context’ of the topics pages mitigates against any possible confusion as to a connection with Guardian.” Summary judgment for All-Safe.


All-Safe counterclaimed based on Guardian’s use of “all safe” or “all-safe” in Google AdWords. However, as All-Safe itself said, “there is growing consensus in the case authorities that purchasing trademarked keywords for the purpose of competitive keyword advertising does not violate the Lanham Act.” Guardian didn’t use the All-Safe mark on its website or the phrase “all safe” in its domain name. Plus, clear labeling of a search result as an ad “can help eliminate any possibility of confusion.”  Interestingly, the court applied this principle to an ad whose text arguably used both All-Safe’s mark and Guardian’s mark, which not all courts would—the court thought that clear marking as an ad was enough of a signal that consumers might get competing information.  Even though All-Safe’s trademark appeared in the ad, it “also clearly incorporated Guardian’s non-infringing domain name,” and thus Guardian’s ad wasn’t likely to confuse.