erroneously collecting sales tax isn’t an unfair act or practice in trade or commerce

Ranalli v. Etsy.com, 2021 WL 5166568, No. 21-88 (W.D. Pa.
Nov. 5, 2021)

Ranalli brought this putative class action for violations of
the Pennsylvania Unfair Trade Practices and Consumer Protection Law (UTPCPL)
and the Pennsylvania Fair Credit Extension Uniformity Act (PFCEU), and unjust
enrichment, fraud, and misappropriation/conversion based on Etsy’s collection
of amounts equal to and purporting to be Pennsylvania sales tax on the sale of
protective face masks, when they were not subject to Pennsylvania sales tax due
to a governor’s order early in the pandemic.

But the UTPCPL applies to “unfair or deceptive acts or
practices in the conduct of any trade or commerce,” and collecting sales tax
isn’t conducting trade or commerce because tax collection is “divorced from private
profit” and “[r]etailers…collect sales tax on behalf of the Commonwealth’s
Department of Revenue” only “because state law requires them to do so.” Similar
cases in Massachusetts and Connecticut based on similar statutory language have
concluded the same thing. The court also endorsed previous holdings that “the
conduct of defendants could not be considered fraudulent, unfair, or deceptive
because they disclosed all relevant information relating to the mask purchase
in an effort to comply with their understanding of the law at the time of the
purchase,” and that there was no justifiable reliance on any misrepresentation,
nor was there injury because a refund was available from the state.

The same analysis applied to the Pennsylvania Fair Credit
Extension Uniformity Act

(PFCEUA), which prohibits “unfair methods of competition and
unfair or deceptive acts or practices with regard to the collection of debts.”

Nor was fraud plausibly alleged, nor
misappropriation/conversion, which requires appropriation of property by the
offending party for his own use; it was for Pennsylvania, which designates Etsy
to collect tax as an agent of the Department of Revenue, and it was “highly
implausible” that Etsy kept the mask money for its own use when it was required
to remit that money to the state. [Hmm…. If I were the Department of Revenue, I’d
just check with Etsy on that one.

So too with unjust enrichment. “It is clear that collection
of the sales taxes was not for profit or revenue but rather for basic
compliance with the law.”

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I can’t believe it’s not butter—because the label said it was all butter

Boswell v. Bimbo Bakeries USA, Inc., 2021 WL 5144552, No. 20-CV-8923
(JMF) (S.D.N.Y. Nov. 4, 2021)

Boswell sued on the theory that the packaging on Entenmann’s
“All Butter Loaf Cake” was misleading because the cake contains not only
butter, but also soybean oil and artificial flavors. However, “All Butter” was
ambiguous in context—it was obvious that the product was not a stick of butter,
but a cake—and it wasn’t enough to allege that reasonable consumers would
expect from the label that there wouldn’t be non-butter shortening. Judge
Furman relied on In re 100% Grated Parmesan Cheese Mktng. & Sales Pracs.
Litig., 275 F. Supp. 3d 910 (N.D. Ill. 2017), without noting that it had been rejected
by the Seventh Circuit in Bell v. Publix Super Mkts., 982 F.3d 468 (7th
Cir. 2020) (albeit with some Seventh Circuit procedural niceties that may be
why the earlier decision is not red-flagged in Westlaw, which is probably
Westlaw’s mistake; Bell resolves the same issue—whether “100% Grated
Parmesan” is plausibly misleading if the product contains additional additives;
it is an appeal from a subsequent 2019 decision in the same MDL).

Judge Furman used 100% Grated Parmesan to state and illustrate
the rule that labels are not misleading if the prominent term is ambiguous and
the ambiguity is resolved by reference to the list of ingredients or a
Nutrition Facts panel, whereas “packaging with a prominent label that is
unambiguous and misleading” is actionable even if the ingredients list
contradicts the unambiguous label. When you’re deciding that a term is
ambiguous, it might be better to rely on a case where there wasn’t judicial
disagreement over that very question.

You might have thought that Mantikas, an actual
Second Circuit case, resolved a label on all fours when it found that the
labeling on “whole grain” Cheez-It crackers could be false or misleading
because, while the boxes “contained the words ‘WHOLE GRAIN’ [or ‘MADE WITH
WHOLE GRAIN’] in large print in the center of the front panel,” the ingredients
list and Nutrition Facts panel revealed that the “grain content” of the
crackers “was not predominantly whole grain, but rather enriched white flour.” This
stated a valid claim under New York law because “the statements ‘WHOLE GRAIN’
and ‘MADE WITH WHOLE GRAIN’ … falsely imply that the grain content is
entirely or at least predominantly whole grain.” Those statements were
unambiguous, so the label couldn’t correct them. Seems kind of analogous to All
Butter/shortening content to me.

But no, this case “falls on the 100% Grated Parmesan Cheese
side of the line” [again, awkward given the reversal!]. Taken literally, it
suggests that the product is entirely butter, but no one would take it
literally because it modifies “Loaf Cake” (which by the way means that it does
not literally suggest that the product is butter, because that’s not how
modifiers work). “[A]ny reasonable consumer would be aware that the product is,
notwithstanding the label ‘All Butter,’ likely to contain other ingredients
commonly found in cake, such as flour, sugar, milk, and eggs.” It was ambiguous
because Boswell herself provided competing definitions—first that consumers
would expect all the shortening would be butter, and then that “no butter
alternatives or substitutes will be used in the Product where butter is capable
of being used.” (I need a baker to tell me whether those actually are different
things.) Anyway, “All Butter” could merely be “description of flavor, denoting
that the product tastes only of butter and does not include a second flavor,
such as almond, chocolate, or cinnamon.” Because of the ambiguity, reasonable
consumers here would not be “lulled into a false sense of security” by the bold
lettering on the product’s package

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Another pandemic university fees claim fails

Yodice v. Touro College, 2021 WL 5140058, No. 21cv2026 (DLC)
(S.D.N.Y. Nov. 4, 2021)

It’s now been long enough that there are a couple of cases
finding potentially valid claims based on Covid closures, but this is not one
of them. Touro allegedly promoted its campus facilities and campus experience
as part of the benefits of its non-online-only degree programs, including “New
York Medical College research facilities, an anatomy lab, a simulation training
center, classrooms and auditoriums, as well many amenities including a
cafeteria and café, a bookstore, a Health Sciences Library, sports facilities,
and many common spaces”; it promoted “Suburban Living with Easy Access to New
York City”; etc. The mandatory fees that Yodice paid included, among others, a
“Campus Fee,” “Tech Fee,” and “Materials Fee.” Touro’s online program was
allegedly marketed and priced as a “separate and distinct product[ ]” and bore
no fees for in-person services.

Because of the NY governor’s orders closing schools, Yodice
was “forced from campus” and did not have access to “facilities such as
libraries, laboratories, computer labs, and student rooms,” “the myriad of
activities offered by campus life,” and “networking for future careers.”

Breach of contract: The complaint failed to allege specific
promises sufficient to form an implied contract to provide on-campus services.
It didn’t identify any specific promise to provide live, in-person instruction.
 Past practice of providing in-person
instruction wasn’t a promise to continue to do so, nor was listing classes with
meeting times and locations. Likewise, “[t]hat an online program had been
offered by Touro with its own format and with a lower tuition before the
pandemic does not constitute an implicit promise that TCDM would provide
exclusively in-person instruction in a separate program it offered prospective
students.”

So too with claims based on fees; the complaint didn’t
explain which services were connected to specific fees or whether related
academic or extracurricular services were subsequently unavailable to Yodice.

Unjust enrichment: Unlike some treatments of this type of
claim, the opinion here dismissed unjust enrichment as duplicative of the
breach of contract claim. “Yodice cannot fill this gap [in pleading relevant
contractual provisions] through pleading an unjust enrichment claim as an
alternative route of recovery.” With an actual contract to interpret,
quasi-contract theories were inappropriate.

N.Y. General Business Law §§ 349, 350: No materially
misleading act or omission was pled. “No reasonable consumer would be misled
into believing that, in the event of a global pandemic and under government
shutdown orders, TCDM would remain open to deliver in-person instruction to students.”

 

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Dastar bars some claims about “patented” statements but related superiority statements are still at issue

BPI Sports, LLC v. ThermoLife Int’l, LLC, 2021 WL 4972975,
No. 19-60505-CIV-SMITH (S.D. Fla. Jul. 27, 2021)

BPI sued ThermoLife for violations of the Lanham Act, 15
U.S.C. § 1125(a), common law unfair competition, and false patent marking.
ThermoLife’s Muscle Beach Nutrition CRTN-3 says, on the label and on its
website, (1) that CRTN-3 is a “first-time fusion of Creatine Nitrate, Creatine
HCl, and Creatine Monohydrate”; (2) that CRTN-3 has a “Hyper Infused Creatine
Matrix”; (3) that CRTN-3 has a “Hydro-GO electrolyte matrix”; (4) that CRTN-3
has “THREE OF THE MOST EFFECTIVE FORMS OF CREATINE IN ONE CUTTING-EDGE
FORMULA”; and (5) that CRTN-3 will “INCREASE VASODILATION.” ThermoLife’s website
also advertises its “Patented Nitrate Technology.” (DE 178-3.) ThermoLife
claims to hold “19 Nitrate Related Patents,” “More Than 450 Valid Claims,” and
“Patent Coverage in 26 Countries.” It states:

If you are interested in making a
dietary supplement with nitrates in it there is a very good chance your
intended use or composition is covered by one or more of the 450 valid claims
in our patent portfolio, so make sure to speak with us about a license. We are
the only legitimate source for patented and licensed amino acid nitrates.

It requires licensees to use its NO3-T logo on products
containing ingredients or technology purportedly protected by any one or more
of ThermoLife’s patents. Between 2015-2019, its website identified 14 patents
as “protect[ed]” by the logo, though in 2019 it modified the site to include a
table purporting to demonstrate which of ThermoLife’s patents were practiced by
ThermoLife’s licensees. One of the patents was reexamined in a way that did not
favor ThermoLife.

ThermoLife argued that BPI didn’t show materiality. But a
factfinder could conclude that “the challenged advertising statements are
material in that the statements involve inherent qualities or characteristics
of the CRTN-3 product that could influence a consumer’s decision to purchase
the product.” Each of the five targeted statements “plainly relate to the
quality or describe a characteristic of the CRTN-3 product as a dietary
supplement,” whether to ingredient quality/characteristics or to purported
performance benefits:

The quality of ingredients that
compose a dietary supplement directly correlates to the nutritional and/or
performance benefits that derive from consuming the product. While most
consumers could care less about the chemical composition of glue, it is
possible that a consumer who purchases a dietary or nutritional supplement with
a desire to “push harder, get stronger, recover quicker, and reach [his or her
goals] faster” could be so scrupulous as to care about the quality of
ingredients contained within and the performance results advertised to derive
from the product that he or she ingests.

Injury: likewise a factual issue. BPI’s CEO’s declaration
stated that it suffered a decline in sales of its creatine products because of
the introduction of products containing creatine nitrate, which compromised its
ability to fairly compete in the market with its traditional creatine-based
product. This evidence of lost market share was sufficient to get to a factfinder.

Falsity: Some (“expert” or other) evidence of misleadingness
would be required, but the plaintiff could still argue that the ads were
misleading even though it didn’t produce market research or a consumer survey;
it did produce declarations stating that the ads created a false impression in
the marketplace that creatine nitrate was a new, superior form of creatine. And
BPI’s expert offered opinions that the five challenged statements were
literally false (and misleading and unsubstantiated).

What about statements about the scope of patents? ThermoLife
relied on Baden Sports, Inc. v. Molten USA, Inc., 556 F.3d 1300 (Fed. Cir.
2009) and Robert Bosch LLC v. Pylon Mfg. Corp., 632 F. Supp. 2d 362 (D. Del.
2009), to argue that they weren’t covered by the Lanham Act. Baden relied
on Dastar to hold that “authorship, like licensing status, is not a
nature, characteristic, or quality, as those terms are used in [the Lanham
Act].” BPI didn’t successfully distinguish the cases, though the statements
about proprietary rights to and licensing requirements for creatine nitrate could
be used in support of the remaining claims, where applicable.

False marking: The
court previously concluded that ThermoLife didn’t have patent rights in the
composition of matter “creatine nitrate” under one of the cited patents. As for
intent to deceive, it could be inferred from circumstantial evidence: Notwithstanding
the fact that the USPTO rejected ThermoLife’s claim for creatine nitrate, a
decision that was affirmed by the PTAB and the Federal Circuit Court of
Appeals, it continued to assert propriety rights to creatine nitrate on its
websites, and issued a press release entitled “ThermoLife To Be Announced
Additional Patent Claims on Creatine Nitrate By The USPTO, Effectively Monopolizing
The Use of Creatine Nitrate in Dietary Supplements.” For damages, BPI argued
that the false marking prevented it from entering the creatine nitrate market
itself and caused decreased sales of its own creatine-based products. This was
enough to create a genuine issue of material fact.

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policy of paying only 85% purchase price for claims under service policy isn’t inherently deceptive/abusive

Shuman v. SquareTrade Inc., 2021 WL 5113176, No.
20-cv-02725-JCS (N.D. Cal. Nov. 3, 2021)

SquareTrade sells service contracts for the protection of
consumer goods. Shuman alleged that it consistently fails to provide consumers
with the full terms and conditions of the contract at the time of purchase and
systematically pays reimbursement in an amount that is less than the purchase
price of the covered item when claims are filed. After UCL claims were
dismissed, Shuman sought to add new plaintiffs.

Standing to seek injunctive relief: new plaintiff Gonzales
alleged that he “felt misled and is not currently inclined to purchase
additional SquareTrade protection plans, but he continues to purchase consumer
products that could be covered by a SquareTrade protection plan, and would
purchase additional SquareTrade protection plans in the future in the event
that SquareTrade’s reimbursement practices were to be reformed to eliminate the
unlawful practices discussed in this complaint.” This was sufficient to
establish standing to seek injunctive relief.

However, he still didn’t allege a violation under either the
“unfair” or the “fraudulent” prongs of the UCL or that he lacked an adequate
remedy at law.

Unfairness is analyzed two different ways: “First, the
‘tethering test’ requires ‘that the public policy which is a predicate to a consumer
unfair competition action under the “unfair” prong of the UCL must be tethered
to specific constitutional, statutory, or regulatory provisions.’ ” “Second,
the ‘balancing test’ asks whether the alleged business practice ‘is immoral,
unethical, oppressive, unscrupulous or substantially injurious to consumers and
requires the court to weigh the utility of the defendant’s conduct against the
gravity of the harm to the alleged victim.’ ”

Plaintiffs alleged that the harm arising from SquareTrade’s
conduct is the systematic underpayment of customer claims by 14.2%. That is, SquareTrade’s
2018 “Fast Cash” program began systematically reimbursing consumers only
approximately 85% of the covered product’s purchase price, “regardless of the
actual value of the product, when it was purchased, or its cost of
replacement.” Plaintiffs argued that SquareTrade’s allegedly secret policy of
underpaying its customers violated the principles undergirding both the
Consumers Legal Remedies Act, and the Song-Beverly Consumer Warranty Act.

But those arguments were premised on the assumption that
Gonzales was entitled to receive the purchase price of the covered item when he
filed a claim, but they didn’t allege any facts showing that this was ever
promised to him or that he was entitled to recover the full purchase price on
any other ground. “Without any such allegations, the ‘harm’ Plaintiffs cite
(underpayment of claims by 14.2%) is not a cognizable harm; nor do any of the
consumer protection laws Plaintiffs cite embody a policy that a product
protection policy must cover the full purchase price of a product.” Likewise,
the allegations didn’t state a claim under the UCL’s fraudulent prong.
Gonzales’s allegations as to what was promised to him with respect to
replacement cost were “so minimal that they do not give rise to a plausible
inference that a reasonable consumer would have been misled.”

In addition, Gonzales didn’t lack an adequate remedy at law
because the restitution he sought was the same as the damages he sought on his
breach of contract claim, namely, reimbursement for the difference between the
purchase price and the amount that was actually paid on the claim. “This is not
an election of remedies issue. The question is not whether or when Plaintiffs
are required to choose between two available inconsistent remedies, it is
whether equitable remedies are available to Plaintiffs at all.”

The unjust enrichment claim also failed for similar reasons.
NY GBL claims by new plaintiff Abbott also failed. Abbott alleged that she was
misled because she saw references to “protection” on a brochure that she didn’t
read and a sales clerk used the word “warranty” in describing the plan. She was
then “surprised and displeased” when SquareTrade paid only 85.8% of the
purchase price of her covered products when she filed claims for coverage. But
“a party does not violate General Business Law § 349 by simply publishing
truthful information and allowing consumers to make their own assumptions about
the nature of the information.” However, the original plaintiff’s unjust
enrichment claim proceeded.

 

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Small company successfully pleads materiality/damage against Microsoft

TocMail Inc. v. Microsoft Corp., 2021 WL 5084182, No.
20-60416-CIV-CANNON/Hunt (S.D. Fla. Jul. 16, 2021)

Previous
ruling
; new judge still finds the false advertising claims sufficiently
pled. TocMail sued Microsoft for false advertising of its cloud-based cybersecurity
software, Safe Links, which competes with TocMail’s cloud-based link scanner,
as part of a greater Advanced Threat Protection program that accompanies Office
365.

Most malicious websites allegedly send users to malicious
sites but send security software to benign sites to avoid detection. TocMail
alleged that other cloud-based scanners have a key weakness allowing bad guys
to discriminate based on the IP address of the user that clicked the link,
since cloud-based link scanners (including Safe Links) cannot mimic a user’s IP
address. TocMail alleged that only its patented product can successfully
protect cloud-based servers from IP cloaking attacks by sending users directly
to the benign site to which the link scanner had been redirected. Thus, Microsoft
allegedly falsely advertises its scanner as possessing a security capability
that it does not actually possess; TocMail identified statements such as “a
higher standard of security at lower cost than … [is available] with
on-premises productivity servers [which are not vulnerable to IP cloaking],”
“with Safe Links, we are able to protect users right at the point of click by
checking the link for reputation and triggering detonation if necessary,” Safe
Links “ensure[s] hyperlinks in documents are harmless,” and Office provides
“the benefits of cloud computing with … enterprise-grade security.”

A previous version of the complaint alleged false
advertising and contributory false advertising, and the latter claim was
dismissed; TocMail refiled with a single count of false advertising. Microsoft
moved to dismiss again for want of materiality/injury.

“Although the Eleventh Circuit appears not to have
characterized the materiality standard specifically in Lanham Act cases, it has
noted in related contexts that materiality is a mixed question of law and fact
that requires delicate assessments of the inferences that a reasonable person
would draw from a given set of facts, and therefore, that such assessments are
peculiarly ones for the trier of fact.” Microsoft argued that Safe Links
represented only one of the many services included in Office 365 and is not, by
itself, an “inherent quality or characteristic of the product.” TocMail
rejoined that security is one of Office 365’s major selling points, and that it
had alleged an effect on consumer behavior. The court sided with TocMail.
Microsoft had allegedly admitted that “organizations must consider security”
when deciding on whether to accept cloud-based services; and that “[b]usinesses
and users are going to embrace technology only if they can trust it,” and its
2020 Form 10-K stated that “[t]he security of our product and services is
important in our customers’ decisions to purchase or use our products or
services.” That was sufficient at the pleading stage.

Injury: Microsoft argued that TocMail could not have
suffered injury because TocMail did not have its product readily available
until 2019, and because it markets only one service and has little brand
recognition, so it is too small to plausibly allege it has been reputationally
harmed by Microsoft’s marketing campaign. TocMail responded that it has in fact
entered the market by actively marketing and selling a competing product
through their website. TocMail was also seeking disgorgement, so it argued that
it didn’t need to show actual harm. At the motion to dismiss stage, the court
wouldn’t seek to calculate damages. TocMail sufficiently pled injury by
alleging that TocMail and Microsoft currently compete for the same customers, and
that it “is hindered from selling its patented solution because Microsoft has
convinced companies that is has already solved this issue.”

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Classmates.com, the right of publicity, and copyright preemption

Callahan v. PeopleConnect, Inc., 2021 WL 5050079, No.
20-cv-09203-EMC (N.D. Cal. Nov. 1, 2021)

Plaintiffs in this putative class action alleged that
PeopleConnect misappropriated their names, photographs, and likenesses and used
the same in advertising its products and services, “including reprinted
yearbooks and subscription memberships to the website Classmates.com.” They
sued for ROP violations, intrusion on seclusion, and unjust enrichment.

The court rejected the CDA §230 defense because PeopleConnect
would only count as providing “information provided by another information
content provider” if the other info content provider had given it the yearbooks
contemplating that they could be published online. And there was at least a
question of fact whether the yearbook authors/publishers had done so; rather
the yearbooks seemed to have been provided by users/purchasers. A service
provider can be “held accountable if, e.g., it is obvious that the person or
entity providing information to the service provider is not the creator or
developer of the information.” [I’m guessing the court means to cabin its
holding to situations in which the service actively decides to put specific
content online instead of just serving as a user conduit for, e.g., revenge
porn.] Here, it was obvious that yearbook users/purchasers weren’t
creators/developers of the yearbooks.

Copyright preemption: PeopleConnect did a little better. Plaintiffs
argued that, because PeopleConnect didn’t own copyright in the yearbooks, it
had no standing to assert copyright preemption. The court rejects this argument,
for good reason. (The court doesn’t mention it, but one reason clearly implicated
by this situation is first sale: if someone has a lawfully made copy of a
yearbook to sell, their lack of copyright ownership shouldn’t affect the fact
that ROP claims against the sale are preempted.) The Ninth Circuit has clearly
held:

Whether a claim is preempted…does
not turn on what rights the alleged infringer possesses, but on whether the
rights asserted by the plaintiff are equivalent to any of the exclusive rights
within the general scope of the copyright. The question is whether the rights
are works of authorship fixed in a tangible medium of expression and come
within the subject matter of the Copyright Act. If a plaintiff asserts a claim
that is the equivalent of a claim for infringement of a copyrightable work,
that claim is preempted, regardless of what legal rights the defendant might
have acquired.

Jules Jordan Video, Inc. v. 144942 Canada Inc., 617 F.3d
1146 (9th Cir. 2010). Allowing such a claim would provide “a de facto veto over
the [copyright holder’s] rights under the Copyright Act,” [including its rights
to tolerate use/also would provide a veto over fair uses].

But were the claims preempted? Yes, as applied to ads for copies
of yearbooks, but no, as applied to ads for the subscription service. “[U]sing
a portion of the copyrighted work to promote the copyrighted work does not take
a publicity-right claim outside of copyright preemption.” This distinction
between the reprints and the service doesn’t make a ton of sense to me, but
perhaps I misunderstand the subscription service—if it gives you access to the
materials in the yearbooks, then I don’t understand why the ruling on the
yearbooks doesn’t also cover the service. This seems to me like saying that ROP
claims are preempted for advertising a movie, but not for advertising that you can
see that movie on HBO. But the court cited another case with favor that declined
to find copyright preemption because defendant did not simply “display[ ] or
publish[ ] photographs depicting Plaintiffs”; “[w]here, as here, the platform
containing a plaintiff’s photograph sells information about the plaintiff and
not limited rights to his image alone, the Copyright Act will not preempt a
claim concerning the use of the image.” So the ROP and unjust enrichment claims
were preempted only to the extent they were based on advertising for reprinted
yearbooks.

In addition, the complaint stated a claim for ROP
violations: The statute requires injury, and plaintiffs asserted an economic
injury because “[i]f a defendant uses a plaintiff’s name and/or likeness to
advertise, then it can reasonably be inferred that the name and/or likeness has
some economic value, even if small.” California courts have clearly held that
“the statutory right of publicity exists for celebrity and non-celebrity
plaintiffs alike.” And statutory damages were also available, even if the only injury
was economic and not mental anguish.

Nor was endorsement required to violate the statutory ROP,
only use of name or likeness. And the public affairs exception in the statute
didn’t apply. The exception is “based on First Amendment concerns” but is “not
coextensive with [the First Amendment].” It covers “something less important
than news, … related to real-life occurrences.” But only reprinted yearbooks had
a potential connection to public affairs; the subscription membership “clearly
does not.”

Plaintiffs also brought a derivative UCL unlawfulness claim,
which additionally requires that a plaintiff must have “suffered an injury in
fact and…lost money or property as a result of the unfair competition.” The
alleged loss of IP rights qualified as economic injury/lost money or property.

Intrusion upon seclusion: “PeopleConnect understandably
argues that Plaintiffs could not have a reasonable expectation of privacy
because their names and likenesses were used in yearbooks which (1) were
clearly intended for public distribution and (2) ultimately had no restrictions
on their dissemination.” But an expectation of privacy need not be of “absolute
or complete privacy.” This was a fact question, but fortunately for
PeopleConnect, plaintiffs failed to plead that intrusion took place in a manner
highly offensive to a reasonable person. Plaintiffs alleged that dissemination
to millions was offensive and that at least some of the information was “highly
sensitive, including photographs of Plaintiffs as minors and information about
where they grew up and attended school.” But “it is entirely speculative that
Plaintiffs’ information was actually disclosed to millions,” and the
characterization of the information as highly sensitive was “hyperbolic.”  Dismissed with leave to amend.

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facially plausible false advertising claim can be added to TM complaint

In case you’re looking for a roadmap for leave to amend: 

Ideavillage Products Corp. v. Copper Compression Brands LLC,
2021 WL 5013799, No. 20 Civ. 4604 (KPF) (S.D.N.Y. Oct. 27, 2021)

Ideavillage sued CCB for trademark infringement and false
designation of origin related to Ideavillage’s “Copper Fit” line of
copper-infused compression garments. Here, the court granted leave to amend to
add a false advertising claim.

Ideavillage uses the “As Seen on TV” model to sell its
stuff, as well as its own website/Amazon. One of its  most popular products is a line of copper-infused
compression clothing, marketed under the trademark “Copper Fit,” allegedly
designed to alleviate muscle and joint soreness and pain. Defendants also
market and sell copper-infused compression products online, including on their
own website/Amazon. They allegedly advertise their products using the term
“copper” in close proximity to the term “fit” “and have deliberately caused
searches for Copper Fit products to yield results for Defendants’ products”
[the horror!].

The deadline for amended pleadings was in January 2021, with
fact and expert discovery currently set to close in November 2021, and January 2022,
respectively, after several extensions. In May 2021, plaintiffs moved for leave
to file a second amended complaint to add a false advertising claim based on statements
on CCB’s website. A “court should freely give leave when justice so requires,” but
when a scheduling order is in effect, deadlines for amendment of pleadings “may
be modified only for good cause and with the judge’s consent.” The “primary
consideration” in determining whether good cause exists “is whether the moving
party can demonstrate diligence.” The standard is typically not met “when the
proposed amendment rests on information that the party knew, or should have
known, in advance of the deadline.”

Plaintiffs alleged that they only recently discovered that
certain website statements were (allegedly) false and misleading after they initiated
a test buy of certain of defendants’ products “[i]n or about late January
2021,” and performed tests on samples of these products. This allegedly
revealed the falsity of representations that Copper Compression products have
the “highest copper content, [g]uaranteed” and that their products are
constructed with “85% copper-infused nylon[.]”

Defendants argued that plaintiffs should have investigated
sooner. “While the Court agrees with Defendants that Plaintiffs likely could
have initiated test buys of and performed tests on Defendants’ publicly
available compression products earlier, Plaintiffs have nevertheless presented
acceptable justification for their delay.” Plaintiffs argued that, despite
their general awareness of the relevant statements, it was only through
discovery that they “recently [became] aware of the extent to which Defendants
prominently, and repeatedly use these claims in connection with” their
advertising. Materials revealed in discovery can support a finding of good
cause.

Though plaintiffs weren’t wholly unable to investigate
sooner, they weren’t dilatory once they became aware of the key facts. They initiated
test buys in or about late January 2021, received the products in or about
mid-February 2021, and received preliminary testing results in or about
mid-April 2021. “Within a matter of weeks,” they informed defendants of their
intent to add a claim and then in mid-May filed notice of the motion to amend. “At
this relatively early stage in the proceedings, with fact discovery still open
and prior to any dispositive motion practice, the Court does not find that
Plaintiffs’ failure to investigate Defendants’ advertising claims at an earlier
time, when it had no basis to suspect their falsity, constitutes a lack of
diligence that would negate a showing of good cause.”

There was no reason to “conflate Plaintiffs’ knowledge of
certain of Defendants’ advertising with knowledge of the existence of a viable
claim for false advertising.” Using ads that have been on defendants’ website
since the inception of this case didn’t defeat a finding of good cause, because
“[a party] need not prove that they uncovered new facts or law in order for
this Court to grant leave to amend.”

Moreover, permitting the amended complaint wouldn’t be
prejudicial in any legally relevant respect. “[M]ere allegations that an
amendment will require the expenditure of additional time, effort, or money do
not constitute ‘undue prejudice.’ ” Though it would expand the scope of
discovery somewhat, it would not alter “the focus of the entire case,” or cover
new products. In addition, defendants apparently already conducted their own
testing, which they paid for before the formal institution of a false
advertising claim. Also, “as discovery is ongoing and ample time remains before
trial, allowing the amendment would not significantly delay the resolution of
the dispute.”

Nor would amendment be futile.   Plaintiffs specified at least two allegedly
deceptive statements: (i) that defendants’ products “contain the highest amount
of copper,” and (ii) “that all of Defendants’ Products are made with 85%
copper-infused nylon.” They alleged materiality and deception as well as injury
to them as direct competitors. It wasn’t important that they failed to specify
which lab they used or to attach the test results to the complaint, or to
allege that none of defendants’ products contained 85% copper.

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Lanham Act willfulness satisfies Bankruptcy Act willful/malicious standard

In re Better Than Logs, Inc., 631 B.R. 670, No. 20-20160-BPH
(D. Mont. Jun. 11, 2021)

A rare bankruptcy/false advertising interaction. Creditor Everlog
sued BTL for patent infringement and false advertising; BTL ultimately
defaulted and Everlog was awared nearly $1 million in damages, of which almost
$180,000 was allocated as disgorgement for false designation of origin/false
advertising, on the theory that BTL falsely described its products as
manufactured in Montana when, in fact, the concrete “blanks” used in BTL’s
products were poured in China.

BTL then entered bankruptcy and listed the Everlog judgment
as disputed. Everlog’s proof of claim was for over $1.2 million, including the
judgment, post-judgment interest, and projected damages from BTL’s alleged
continuing infringement of its patent.

Of relevance here, Everlog argued that the false advertising
damages were nondischargeable in bankruptcy. Everlog relied on the finding of
the district court that BTL acted “willfully” in falsely describing its
products as manufactured in Montana and awarding Everlog $117,116 in disgorged
profits accordingly. The creditor has the burden of showing nondischargeability
by a preponderance of the evidence; the relevant exception is § 523(a)(6), which
excepts from discharge any debt “for willful and malicious injury by the debtor
to another entity or to the property of another entity.” This exception applies
only where the debtor intends the consequences of their act, not simply the act
itself, and both willfulness and maliciousness is required.

BTL argued that summary judgment was inappropriate because
the district court didn’t consider whether the false advertising was “malicious.”
Because this was a default judgment, the court here looked to both the district
court’s order and the material allegations of the complaint.

In the Ninth Circuit, the “willful injury” requirement is
satisfied only if “the debtor has a subjective motive to inflict injury or when
the debtor believes the injury is substantially certain to result from his own
conduct.” Lanham Act false advertising requires injury or likely injury. [Does
false designation of origin require injury as an element of the cause of action?
If it’s a trademark claim, it does not.]

And “[a]n award of disgorged profits based upon false advertising
or false designation of origin is appropriate only upon a showing that the
defendant’s violation was willful.” NB: No longer true under Romag!

“Willfulness” under the Lanham Act “requires a connection
between a defendant’s awareness of its competitors and its actions at those
competitors’ expense.” “Only deliberate conduct will satisfy this standard;
mere negligence will not.” The willfulness holding was a finding that BTL acted
deliberately when it falsely advertised its products, and that BTL was aware of
Everlog and acted in a manner that was detrimental to it, causing Everlog
injury. “At a minimum, BTL was substantially certain its conduct would result
in injury to Everlog.” Thus, issue preclusion applied to willfulness.

“Naliciousness” under § 523(a)(6) requires: 1) a wrongful
act; 2) done intentionally; 3) which necessarily causes injury; and 4) is done
without just cause or excuse. Prior case law establishes that “a debtor’s
decision to act in violation of a law despite knowing the legal way to conduct
business satisfied the malice prong.” The undisputed facts here led to the same
conclusion. The district court found that BTL looked into the “Made in USA”
standards and chose to market its products as manufactured in Montana, despite
the fact that they were partially manufactured in China. The willfulness
finding also satisfied elements (2) and (3). BTL argued that it researched and
worked with the State of Montana to verify its products qualified for the “Made
in Montana” designation. But it relied on testimony that the district court
considered and rejected. Thus malice was also subject to issue preclusion.

Was this issue actually litigated, though? “[A] default
judgment is generally not entitled to [issue preclusion] because there is no actual
litigation of the issues.” Here, the “actual litigation” requirement was
satisfied on these facts because BTL initially actively participated in the
prior litigation for over a year but eventually abandoned its efforts. “[A]ll
that remained at the time Everlog moved for entry of BTL’s default were two
final pretrial conferences and the trial itself.”

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Seen in NYC: the Twix bar that isn’t.

 Yum. “A shortbread cookie topped with a layer of caramel, a layer of chocolate ganache, dipped in dark chocolate and drizzled with white chocolate.”

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