Bringing a false advertising claim with unclean hands leads to fee award

Certified Nutraceuticals, Inc. v. Avicenna Nutraceutical,
LLC, 2018 WL 5840042, No. 16-cv-02810-BEN-BGS (S.D. Cal. Nov. 7, 2018)
The court awarded roughly $170,000 in fees in this Lanham
Act false advertising case because the plaintiff engaged in the same conduct
(falsely claiming that its product was patented) as its competitor in the
market for collagen products, and still sued the competitor. The court
previously granted summary judgment based on unclean hands; the briefing
“brought to light filings by Certified that seemingly misrepresented the
status” of one patent, leading the court to impose sanctions against Certified,
its CEO, and its counsel.  (Basically,
when Avicenna showed that Certified’s patent hadn’t issued before it advertised
its “patented” status, Certified claimed that it was referring to another
patent, but years before it had been enjoined from exercising that patent.)
Under Octane Fitness the
exceptionality inquiry for fees requires a court to consider “factors,
including frivolousness, motivation, objective reasonableness (both in the
factual and legal components of the case) and the need in particular
circumstances to advance considerations of compensation and deterrence.”
Frivolousness/unreasonability: “prior to filing its lawsuit,
Certified knew or should have known that its unclean hands barred its Lanham
Act claim and that it did not suffer any injury, barring its two state law
claims.”  As for the California state law
claims, Certified could only identify two customers it “lost” as a result of Avicenna’s
statements, and those two customers’ decisions weren’t based on Avicenna’s
false statements but on the customers’ beliefs in Avicenna’s product’s superior
quality and consistency.  Even under more
stringent older standards, there was no reasonable basis for bringing these
claims.  Nor would the court refuse to
award fees because Certified got Avicenna to stop making patent-related claims,
in that Avicenna’s misrepresentation of its product as “patented” happened only
twice, and Avicenna corrected both instances prior to Certified filing its
lawsuit.
Objective reasonableness of litigation: the sanctions order
provided the court’s basis for finding that litigation was conducted in an
objectively unreasonable manner. Moreover, Certified’s decision to file a
similar case in the district while the present case was pending additionally
demonstrated objective unreasonability; that case was voluntarily dismissed
after a motion to dismiss indicated that Certified didn’t own the second
patent.
Deterrence: Certified has a history of litigation, including
the lawsuit just mentioned (which targeted nearly a dozen competitors) and a
case in which  the California Court of
Appeal affirmed a sanctions award of $34,000 against Certified’s principal for
advancing frivolous arguments in a lawsuit against another competitor.
Certified also filed a second lawsuit alleging similar false advertising claims
against Avicenna, but had yet to serve Avicenna with the lawsuit.  The court found that this conduct was relevant
both for the Octane Fitness totality
of the circumstances test and for the deterrence factor. Also, Certified failed
to comply with the sanctions order by filing a notice that the sanctions were
paid within three days of payment, which had been part of the order.  “To say the least, Certified’s brazen
litigation tactics and utter disregard for this Court’s own order suggest a
lack of respect for the rule of law that should be deterred.”
Avicenna could only recover for fees related to its work on
the Lanham Act claim, not the two state law claims, but the claims here were “so
inextricably intertwined that even an estimated adjustment [for the state law
claims] would be meaningless.” They relied on the same factual allegations and
had many of the same elements.

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literal falsity still needs to be material, and court wants a survey or other direct evidence thereof

LivePerson, Inc. v. [24]7.AI, Inc., 2018 WL 5849025, No.
17-cv-01268-JST (N.D. Cal. Oct. 26, 2018)
LivePerson “provides online chat engagement services through
a digital platform that it sells to website operators.” That is, it helps
websites provide real-time text-based communications with website users
directly on the website. Its platform tries to identify when initiating a chat
with a particular user is most likely to produce a positive outcome, such as a
sale, using rules based on variables such as the user’s navigation history.
[24]7 provides customer service agents to businesses,
including customer service agents that participate in the type of online chats
initiated through LivePerson’s chat platform. In 2006-2007, the parties agreed
to market and provide services to mutual customers; at the time, [24]7 didn’t
have its own chat platform, while LivePerson offered a chat platform, but did
not have digital chat agents to staff that platform.  After the direct contractual relationship
ended, the two companies continued to provide their services to mutual
customers.
Then (curse your sudden but inevitable betrayal!) [24]7
introduced its own digital chat platform. It touted its platform, claiming that
it was the “first smart chat” platform. Three mutual customers switched to
using [24]7’s chat platform. Through these arrangements, [24]7 gained access to
the rules and data developed for the customers, which LivePerson claimed as
trade secrets in this action; the court denied summary judgment on the theory
that LivePerson used improper means. I’ll focus on the false advertising
claims.
The challenged statements touted [24]7 Assist as “the
industry’s first smart chat that uses prediction and real-time decisioning with
big data to drive customer experience,” “the first predictive, real-time
customer assistance solution for chat,” and the “world’s first smart chat
platform powered by prediction in real-time.”  The court declined to grant summary judgment
on puffery, but did on materiality.
This wasn’t puffery because the implication of [24]7’s
“first” claims was that LivePerson’s competing platform lacks some element of
smart or predictive technology, or at the very least, had a less reliable
version. Identifying whether the products possess certain technological
features was specific enough to avoid puffery. Even if “smart” and “predictive”
were vague in the abstract, in context,  [24]7’s statements introduced particular
features as “smart” or “predictive.” “A reasonable consumer could understand
[24]7’s ‘first’ statements as implying that other products available at the
time lacked these features.” That’s falsifiable.
However, materiality wasn’t so easy. The court declined to
presume materiality on the theory that [24]7’s statements were literally false;
materiality is a separate requirement.
LivePerson offered a declaration from its Vice President stating
that the claim of being “first” to develop a product is likely to influence
purchasing decisions because “older technology that has been in the market
longer is viewed as having had more time for refinement and development based
on data collected over the years.” But “untested, generalized assumptions that
a statement is likely to influence purchasing decisions” weren’t sufficient to
demonstrate materiality.  In the
continuing game of telephone courts have played with the relationship between
falsity and materiality, we now hear that materiality “is ‘typically’ proven
through consumer surveys,” which provide direct evidence of a statement’s
impact. [Voiceover: materiality is not typically proven through consumer
surveys. That’s not to say the rule can’t change–it may be changing through this process of doctrinal accretion–but materiality is quite often a matter of common sense where a claim is central to performance or related to health or safety, and that treatment makes plenty of sense.]
Here, there was no evidence of consumer reaction, and
evidence that they didn’t simply take [24]7’s statements at face value in
making purchasing decisions. The parties entering into multi-year contracts
between companies; for example, Sears conducted an extensive head-to-head test before
switching.

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False patent marking claim fails in cannabis case despite clear falsity/motive to crush competition: mostly it didn’t work

Kremerman v. Open Source Steel, LLC, 2018 WL 5785441, No.
C17-953-BAT (W.D. Wash. Nov. 5, 2018)
This case involved cannabis distillation equipment.
Kremerman sued OSS for design patent and trade dress infringement and related
claims. OSS counterclaimed for false patent marking, false advertising under
the Lanham Act, and violation of Washington’s Consumer Protection Act. After
some claims were dismissed, Kremerman filed a motion to voluntarily dismiss the
affirmative claims and submitted a terminal disclaimer to the PTO disclaiming
the remaining term of his patents. (The court also says this disclaimer
rendered his trade dress claims moot, which doesn’t seem right in itself.)  The court here dismisses the counterclaims.
OSS contends Kremerman claimed his distillation products
were patented when they were not and that he falsely disparaged OSS and its
owners with the intent to dissuade customers and suppliers from doing business
with OSS and to put OSS out of business.  Basically, OSS had a Chinese manufacturer
(along with some Kremerman suppliers) copy/reverse engineer the Kremerman
distillation heads, which Kremerman found out about on social media: I kind of
love that he found out by seeing an image of his distillation head on OSS’s
Instagram page. One supplier’s employee testified that OSS told him Kremerman
was a former employee of theirs and that OSS actually owned the rights in
Kremerman’s designs.
Kremerman allegedly claimed on his website that his products
were patented when there were merely pending applications, and in deposition he
testified that he told a supplier that he had patents when in fact, the patents
had not issued, because he felt he had to “protect himself.”  In addition, Kremerman allegedly claimed that
he was in litigation with OSS before he filed suit, also to discourage
others.  He made these kinds of claims in
statements both to suppliers and potential customers, e.g., “I have 2 patents
on distillation, and there is a reason why everyone tries to copy me!…Oh and
we are involved in a federal lawsuit for counterfeiting because of them.” 
The statements were written from Summit Industrial’s email
and posted on its webpage or were sent from Kremerman’s email and/or posted on
his “Jonathan von Braun” Facebook page (he used several names to promote his
products/communicate with customers and others in the industry). There was
evidence he promoted his products on Facebook account, even though he
maintained it was a private/friends-only acccount.
The court found that Kremerman’s statements specifically
representing that he had patents on the distillation heads even though no
patents issued until late December 2016 were clearly false as a matter of law. For
example, “THIS GLASSWARE IS PATENTED” “is something that could easily have been
proven false and is one that customers reading Summit Industrial’s webpage
would rely upon due to Kremerman’s presence in the industry.”
Did Kremerman act with an intent to deceive?  He testified that he corrected his website
when he was “alerted to it by his attorneys” and he came to understand he had
“mistakenly used the word ‘patented’ rather than ‘patent pending.’ ” He also
testified that he “did not understand the process…. I believed that when your
name is put on an application the patent is yours. …” One supplier testified
that Kremerman accurately informed him of the status of his patent applications
and, even though Kremerman referred to his products as “patented” in certain
communications, he did not believe Kremerman ever intended to mislead him. A
C&D letter sent and then posted on Kremerman’s webpage specifically stated
that Kremerman’s patent applications were filed and patents were pending.
Kremerman also testified that he did not understand the lawsuit process and was
“under the assumption that once you begin the process of suing someone, it is
the same thing whether or not you have filed in federal court.”
However, when he made the statements at issue, he knew he
did not have issued patents. Even if he failed to appreciate the difference
between pending patents and granted patents, he claimed he had “granted
patents” before he had filed any patent application. Nor did his alleged
failure to understand the difference preparing for a lawsuit and actually being
in a lawsuit explain his statement “I have 4 of my own patents, and I have
already won cases with my counterfeiters,” at a time when no lawsuits had been
filed and nothing had been won. He made other statements inconsistent with his
claims of lack of understanding, such as “I just released my third patent two
weeks ago. And my fourth patent is under final review.”
However, the false patent marking statute applies only to
“advertising,” not “promotion.” Thus, “the expression ‘uses in advertising’
cannot refer to any and all documents by which the word ‘patent’ is brought to
the attention of the public; it can only refer to use of the word ‘patent’ in
publications which are designed to promote the allegedly unpatented product,
namely, advertisements.” “Advertising” is defined as “the action of calling
something…to the attention of the public esp[ecially] by means of printed or
broadcast paid announcements.” Most of the statements at issue were in
one-on-one emails, not to the public, and not in paid announcements.
Still, there was a question of material fact about whether
statements on the website, or on the Facebook page, were “advertising,”
inasmuch as “it can hardly be disputed that companies (Kremerman’s included)
use their websites to serve the function of advertising by targeting a specific
market, trade, or class of customers seeking products in that marketplace.” But
the court was not willing to conclude that a single email was “advertising”
even when the relevant market was very small. 
 
Nonetheless, summary judgment against OSS was warranted
because on the issue of whether it suffered a competitive injury, which requires
“actual competitive harm.” OSS argued that direct competition allowed a general
presumption of a competitive injury, but it didn’t show that anything Kremerman
said “had a tendency to mislead consumers” [um, the false statements, which the
court deemed plausible to consumers because of Kremerman’s market position?]
and didn’t show loss of sales, goodwill or ability to market that was caused by
the false marking. “This causation is a necessary element of … 35 U.S.C. §
292.”
OSS’s claim that “fielding inquiries from customers
regarding the dispute with Kremerman has become a regular, and unfortunate,
part of OSS’s business” was insufficient. “A party claiming ‘loss of goodwill’
must offer evidence of (1) the original value of its goodwill and (2) the scope
and depth of the defendant’s harm to the plaintiff’s reputation.”  [Trademark owners might want to pay attention
to this idea.] Part one can be done, for example, by considering “a plaintiff’s
expenditures in building its reputation in order to estimate the harm to its
reputation after a defendant’s bad acts.” But there was no evidence that
fielding inquiries caused harm to OSS’s reputation in any appreciable manner.
Nor did OSS show lost business or profits, other than a
failed attempt to establish a business relationship with an equipment dealer with
whom Kremerman had an established relationship and to whom he said he didn’t
want them dealing with OSS because they were “crooks” and “counterfeiters.”
Though they began a relationship with OSS, the dealer soon told them, “As I
[sic] result of pending litigation [we] will be removing your account from our
active account base and suspending your account by end of business day.” However,
there was no evidence that the dealer made any decision based on false or misleading information provided
by Kremerman. Moreover, OSS acknowledged that it was able to secure an
alternative supplier of the relevant equipment and didn’t quantify whether it
made more or less money doing so.
Although a Lanham Act claim for injunctive relief may be
viable even in the absence of proof of damages, OSS didn’t initially ask for
injunctive relief, and such an “extraordinary” remedy wasn’t warranted, given
that the last challenged statements were from 2016 and there was no evidence of
a likely reoccurrence.
What about Lanham Act false advertising? “Courts may presume
consumer deception and reliance if the defendant made an intentionally false
statement regarding the defendants’ product, even if the statement entailed ‘little
overt reference to plaintiff or plaintiff’s product.’” And a court may presume
materiality for literally false statements. Here, the challenged statements
were: (1) Kremerman’s premature and false statements that he had patents and
was in a lawsuit against OSS; and (2) disparaging comments about OSS, its
products, and its founders, also made in the same media as (1), e.g., “Pile of
garbage counterfeit head”; “Boot the frauds. They are scammers”; “hide yo keys.
Oss. Only stolen sh*t”; “…buyers beware, this is counterfeit glass and low
quality….we have images of their glass imploding on customers as well as heads
in our hands that are known not to work”; “Not to mention the class action suit
building from other people they owe money to.” There were other comments about
the conduct of OSS’s business; Kremerman in deposition later said that he
“misspoke” about things like “We also have found out some dirt with
investigators that they do not pay fed tax, or collect it, or give receipts. So
the honest answer is they are f*cked. We filed a motion for a audit….”
Were these statements “commercial advertising or promotion”?
Statements contained in a few emails to prospective customers weren’t
“disseminated sufficiently to the relevant purchasing public”; there was no
evidence that the market was small enough for that to be the case. What about
the website/FB statements? They “arguably” reached a wider audience (and
several were explicitly false), they weren’t widespread ads, and there wasn’t
evidence about the size of the relevant market and their exposure to the
statements.
“And most importantly, there is no evidence that OSS has or
will suffer any injury from the false statements,” as the court discussed
above. This also doomed the Washington state unfair business practices claim.

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Wipe on, wipe off: after survey excluded, plaintiff wins jury verdict on false advertising windshield protector claim

Illinois Tool Works Inc. v. Rust-Oleum Corporation, 2018 WL
5810327, No. H-17-2084 (S.D. Tex. Jun. 21, 2018)

 ITW’s Rain-X and Rust-Oleum’s RainBrella water repellant product compete in the market for use on vehicle windshields. Rust-Oleum advertised that RainBrella lasted twice as long as Rain-X, as proved by use that lasted over 100 car washes.
The parties sought to exclude each other’s experts’
testimony.  ITW’s expert Berger offered a
survey to show consumer perception of Rust-Oleum’s “Last Over 100 Car Washes”
statement.  Respondents were qualified if
they: (1) were eighteen years of age or older; (2) owned or leased a personal
motor vehicle; and (3) had purchased in the past twelve months an automotive
product to maintain or enhance the exterior of their vehicle. The test group
was shown a static image of a modified RainBrella package from which the phrase
“Lasts 2X Longer” had been digitally removed and in a perspective in which only
certain portions of the package were viewable.
The test group was asked: “One of the claims on the package
is that it ‘lasts over 100 car washes.’ Do you see this in the ad?” If they said
yes, they were asked: “In terms of time (weeks, months, years), how long do you
believe that the RainBrella product will last?” The test group respondents were
given four answer choices: (1) between zero and fifty years; (2) between one
and eleven months; (3) between zero and four weeks; and (4) “Don’t Know.” The
average answer was 110.6 weeks. The respondents in the control group were shown
the same image used in the test group, but also without “Lasts Over 100 Car
Washes.” The average duration answer in that group was 19.8 weeks.
A survey validator fully screened seventy-seven of the 359
respondents with working numbers and found that thirty-seven of the
seventy-seven screened respondents didn’t recall taking the survey.
Rust-Oleum hired Akron Rubber Development Laboratory, a
third party independent laboratory facility, to test how long the RainBrella
and Rain-X products lasted on an automotive windshield. ARDL applied the
products to a clean windshield. ARDL mounted the windshield onto a test frame,
turned on a water spray, and ran the wiper blades. It continued, checking every
10,000 cycles, until water droplets no longer beaded on approximately 50% of
the wiper area. ARDL concluded that “RainBrella and its repellent properties
last on average, at least two times longer versus the leading competitor ….”
An in-house ITW test also sought to measure the
hydrophobicity (water repellency) of each product and concluded that RainBrella
did not last twice as long as Rain-X. Rust-Oleum retained a mechanical engineer
to review the parties’ test.
Rust-Oleum succeeded in excluding the survey.  First, the survey didn’t adequately replicate
market conditions because it omitted the statement “Lasts 2X Longer” from the
image of the RainBrella package, which was important to consumer’s perception.  [Interesting question why the control group
didn’t control for this difference—I can see arguments either way.] Second, the
universe was overinclusive, because it selected for people interested in
protecting their car’s exterior, not the windshield in particular.  Third, the 48% validation failure rate
strongly indicated the survey was unreliable.
The question form—suggestive of temporal terms, but not
leading—was relevant to the issue in the case and thus didn’t “greatly” affect
the survey’s reliability, nor did drawing respondents’ attention to specific language
on the package. Still, the other flaws rendered the survey “fundamentally
flawed and unreliable.”
ITW’s motion to exclude Rust-Oleum’s expert didn’t fare so
well.  Although Dr. Brani was not a
chemist and lacked experience testing hydrophobicity, he used lab coursework in
his teaching and worked at an independent law where he “routinely draft[ed]
scientifically based testing protocols and execute[d] this testing to provide
greater insight for various clients including insurance adjusters, attorneys,
manufacturers of products, and designers of products.”  Thus, his knowledge of and experience with
laboratory testing enabled him to assist the trier of fact here.
However, that was limited to his first set of opinions: conclusions
regarding generally accepted methods of scientific testing, including
qualitative and quantitative testing.  He
also offered conclusions regarding the reliability of the ARDL Test and the ITW
Test, and the ultimate conclusion that the ARDL Test substantiated Rust-Oleum’s
claim that RainBrella “Lasts 2X Longer.” 
At the Daubert hearing, he
indicated that he couldn’t testify as to whether the ARDL Test procedures were
superior to other test procedure, nullifying his written opinion that the ARDL
Test was implemented in a reliable way and the ITW Test was not. His final
conclusion that the ARDL test substantiated Rust-Oleum’s claim also conflicted with
his testimony that he could not opine as to the actual implementation or
execution of the ARDL Test, and Rust-Oleum’s counsel represented to the Court
that he wouldn’t be testifying as to whether the ARDL Test results are proper.
This discrepancy showed that his report’s conclusions on this point were
unreliable.

Illinois Tool Works Inc. v. Rust-Oleum Corporation, —
F.Supp.3d —-, 2018 WL 5810326, No. H-17-2084 (S.D. Tex. Oct. 30, 2018)
The jury found in Rain-X’s favor even without the survey.
Here, the court granted a permanent injunction. “The
potential for ongoing harm if a defendant continues to make similar false or
misleading statements and the likely impossibility of quantifying the extent of
harm suffered as a result of false or misleading statements weigh in favor of
finding irreparable injury.” There was testimony that ITW’s reputation and
brand were harmed as a result of the challenged claims, which supported a
finding of irreparable injury.  The
balance of hardships weighed in favor of an injunction, but not a recall; the
public interest in truthful advertising also supported an injunction.
The jury was instructed that “can award ITW the profits
Rust-Oleum earned as a result of its false advertising if [it] finds ITW has
shown by a preponderance of the evidence that Rust-Oleum benefited from its
false advertising” and that it “may award Rust-Oleum’s profits even if
Rust-Oleum’s costs exceed its profits.” The jury awarded profits in the amount
of $392,406, and also found Rust-Oleum “acted maliciously, fraudulently,
deliberately, or willfully.”
There was no direct evidence of sales diversion, which
weighed against a profit award, but there was a strong public interest in
making false advertising unprofitable and there was no unreasonable delay in
ITW asserting its rights. The court wouldn’t touch the jury award of profits.
The jury also awarded a bit over $925,000 for corrective
advertising. Rust-Oleum argued that ITW didn’t engage in pretrial corrective
advertising and there was no evidence ITW it would do so in the future. But
there was no evidence that it wouldn’t, and the evidence showed Rust-Oleum
spent $1,318,023 on advertising. Though the jury could award money for
corrective advertising, the size here was punitive, and instead awarded 25% of
Rust-Oleum’s ad expenditures, according to the principles of equity: a shade
under $330,000.

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Wipe on, wipe off: after survey excluded, plaintiff wins jury verdict on false advertising windshield protector claim

Illinois Tool Works Inc. v. Rust-Oleum Corporation, 2018 WL
5810327, No. H-17-2084 (S.D. Tex. Jun. 21, 2018)

 ITW’s Rain-X and Rust-Oleum’s RainBrella water repellant product compete in the market for use on vehicle windshields. Rust-Oleum advertised that RainBrella lasted twice as long as Rain-X, as proved by use that lasted over 100 car washes.
The parties sought to exclude each other’s experts’
testimony.  ITW’s expert Berger offered a
survey to show consumer perception of Rust-Oleum’s “Last Over 100 Car Washes”
statement.  Respondents were qualified if
they: (1) were eighteen years of age or older; (2) owned or leased a personal
motor vehicle; and (3) had purchased in the past twelve months an automotive
product to maintain or enhance the exterior of their vehicle. The test group
was shown a static image of a modified RainBrella package from which the phrase
“Lasts 2X Longer” had been digitally removed and in a perspective in which only
certain portions of the package were viewable.
The test group was asked: “One of the claims on the package
is that it ‘lasts over 100 car washes.’ Do you see this in the ad?” If they said
yes, they were asked: “In terms of time (weeks, months, years), how long do you
believe that the RainBrella product will last?” The test group respondents were
given four answer choices: (1) between zero and fifty years; (2) between one
and eleven months; (3) between zero and four weeks; and (4) “Don’t Know.” The
average answer was 110.6 weeks. The respondents in the control group were shown
the same image used in the test group, but also without “Lasts Over 100 Car
Washes.” The average duration answer in that group was 19.8 weeks.
A survey validator fully screened seventy-seven of the 359
respondents with working numbers and found that thirty-seven of the
seventy-seven screened respondents didn’t recall taking the survey.
Rust-Oleum hired Akron Rubber Development Laboratory, a
third party independent laboratory facility, to test how long the RainBrella
and Rain-X products lasted on an automotive windshield. ARDL applied the
products to a clean windshield. ARDL mounted the windshield onto a test frame,
turned on a water spray, and ran the wiper blades. It continued, checking every
10,000 cycles, until water droplets no longer beaded on approximately 50% of
the wiper area. ARDL concluded that “RainBrella and its repellent properties
last on average, at least two times longer versus the leading competitor ….”
An in-house ITW test also sought to measure the
hydrophobicity (water repellency) of each product and concluded that RainBrella
did not last twice as long as Rain-X. Rust-Oleum retained a mechanical engineer
to review the parties’ test.
Rust-Oleum succeeded in excluding the survey.  First, the survey didn’t adequately replicate
market conditions because it omitted the statement “Lasts 2X Longer” from the
image of the RainBrella package, which was important to consumer’s perception.  [Interesting question why the control group
didn’t control for this difference—I can see arguments either way.] Second, the
universe was overinclusive, because it selected for people interested in
protecting their car’s exterior, not the windshield in particular.  Third, the 48% validation failure rate
strongly indicated the survey was unreliable.
The question form—suggestive of temporal terms, but not
leading—was relevant to the issue in the case and thus didn’t “greatly” affect
the survey’s reliability, nor did drawing respondents’ attention to specific language
on the package. Still, the other flaws rendered the survey “fundamentally
flawed and unreliable.”
ITW’s motion to exclude Rust-Oleum’s expert didn’t fare so
well.  Although Dr. Brani was not a
chemist and lacked experience testing hydrophobicity, he used lab coursework in
his teaching and worked at an independent law where he “routinely draft[ed]
scientifically based testing protocols and execute[d] this testing to provide
greater insight for various clients including insurance adjusters, attorneys,
manufacturers of products, and designers of products.”  Thus, his knowledge of and experience with
laboratory testing enabled him to assist the trier of fact here.
However, that was limited to his first set of opinions: conclusions
regarding generally accepted methods of scientific testing, including
qualitative and quantitative testing.  He
also offered conclusions regarding the reliability of the ARDL Test and the ITW
Test, and the ultimate conclusion that the ARDL Test substantiated Rust-Oleum’s
claim that RainBrella “Lasts 2X Longer.” 
At the Daubert hearing, he
indicated that he couldn’t testify as to whether the ARDL Test procedures were
superior to other test procedure, nullifying his written opinion that the ARDL
Test was implemented in a reliable way and the ITW Test was not. His final
conclusion that the ARDL test substantiated Rust-Oleum’s claim also conflicted with
his testimony that he could not opine as to the actual implementation or
execution of the ARDL Test, and Rust-Oleum’s counsel represented to the Court
that he wouldn’t be testifying as to whether the ARDL Test results are proper.
This discrepancy showed that his report’s conclusions on this point were
unreliable.

Illinois Tool Works Inc. v. Rust-Oleum Corporation, —
F.Supp.3d —-, 2018 WL 5810326, No. H-17-2084 (S.D. Tex. Oct. 30, 2018)
The jury found in Rain-X’s favor even without the survey.
Here, the court granted a permanent injunction. “The
potential for ongoing harm if a defendant continues to make similar false or
misleading statements and the likely impossibility of quantifying the extent of
harm suffered as a result of false or misleading statements weigh in favor of
finding irreparable injury.” There was testimony that ITW’s reputation and
brand were harmed as a result of the challenged claims, which supported a
finding of irreparable injury.  The
balance of hardships weighed in favor of an injunction, but not a recall; the
public interest in truthful advertising also supported an injunction.
The jury was instructed that “can award ITW the profits
Rust-Oleum earned as a result of its false advertising if [it] finds ITW has
shown by a preponderance of the evidence that Rust-Oleum benefited from its
false advertising” and that it “may award Rust-Oleum’s profits even if
Rust-Oleum’s costs exceed its profits.” The jury awarded profits in the amount
of $392,406, and also found Rust-Oleum “acted maliciously, fraudulently,
deliberately, or willfully.”
There was no direct evidence of sales diversion, which
weighed against a profit award, but there was a strong public interest in
making false advertising unprofitable and there was no unreasonable delay in
ITW asserting its rights. The court wouldn’t touch the jury award of profits.
The jury also awarded a bit over $925,000 for corrective
advertising. Rust-Oleum argued that ITW didn’t engage in pretrial corrective
advertising and there was no evidence ITW it would do so in the future. But
there was no evidence that it wouldn’t, and the evidence showed Rust-Oleum
spent $1,318,023 on advertising. Though the jury could award money for
corrective advertising, the size here was punitive, and instead awarded 25% of
Rust-Oleum’s ad expenditures, according to the principles of equity: a shade
under $330,000.

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In which I appear as a sideshow (but ABC gets the right result on TM/(c) claim based on news report)

Manigault v. ABC Inc., 17-CV-7375 (KNF), 2018 WL 5818101
(S.D.N.Y. Oct. 10, 2018)
I show up in this opinion because I wrote a
blog post
and the pro se plaintiff decided that I was some sort of
publicist for ABC (I am not). Manigault sued ABC for trademark
infringement/dilution, false advertising, and copyright infringement for
running a news story displaying the logo of his software, KeyiCam, which takes
a picture of a key and displays the “biting code” for the key.  ABC here won summary judgment.
Relevant uncontested facts: the news report at issue “examined
a smartphone application for a key duplication service called KeyMe, explained
how KeyMe works and showed several tests performed to assess how well KeyMe
works with two positive and one negative result. The news report also showed
materials published by KeyMe.” The reporter stated: “KeyMe isn’t the only game
in town, though; there’s also Keys Duplicated and KeyiCam” and the report
showed a screenshot from each business’s website for about one second. A text
version included hyperlinks to the websites of each of the companies mentioned
in the news report.
“ABC’s brief use of the KeyiCam mark in its news report did
not suggest in any way that KeyiCam: (i) is affiliated, connected or associated
with ABC; (ii) originates from ABC; or (iii) is sponsored or approved by ABC.”
Likewise, there was no evidence that ABC engaged in materially misleading
consumer-oriented conduct or commercial speech, dooming the false advertising
claims. Nor was there dilution or tarnishment. The news report reported on
KeyMe; no reasonable finder of fact could conclude that ABC used the KeyiCam
logo “in an unwholesome or unsavory context likely to evoke unflattering
thoughts about” KeyiCam’s services. [And even if the news report had been
unflattering about KeyMe, it would be unconstitutional to bar nonfalse
unflattering statements!]
The challenged use was fair. News reporting “is specifically
exempted from copyright infringement by statute.”  Not exactly, but the court then quoted the
more accurate rule that “there is a strong presumption that factor one [of the
fair use factors] favors the defendant if the allegedly infringing work fits
the description of uses described in section 107.” Nature of the work was
neutral: creative, but already published. Amount: the extremely brief showing
was “reasonable and consistent with the news report’s purpose, which was to
inform viewers about the existence of key duplication services other than
KeyMe.” Market effect favored fair use becaue a news report does not compete
with and has no effect on any market for the KeyiCam logo.
And me?  I’m
just irrelevant to the issues here.

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Straight-up falsity can’t get preliminary injunction where lost sales can be calcuated

Vault Cargo Management, LLC v. Rhino U.S.A., Inc., No. 18-cv-01517-H-LL,
2018 WL 5809516 (S.D. Cal. Nov. 6, 2018)
The parties compete to sell products, including a variety of
vehicle straps. Rhino allegedly created the false impression that its products
are made in the United States, even though import records show that the
products are shipped from China. In response to a customer question on Amazon
Marketplace, Rhino said that its products are manufactured overseas, but Vault
also pled examples of Rhino explaining that its products are American made, “hundreds”
of examples of Rhino republishing, approving, or endorsing customer reviews
that state that its products are made in the United States; and one example of Rhino
answering a consumer question on Amazon.com explaining that its products are
made in Naperville, Illinois.
That looks pretty bad, but Vault didn’t show irreparable
harm for preliminary injunction purposes. 
Vault showed that its sales varied depending on Rhino’s market activity,
e.g., when Rhino began selling ratchet straps, Vault’s sales declined by 50
percent and when Rhino’s ratchet strap listing is not active, Vault’s ratchet
strap sales double. But those are “simply economic harms that may be recovered
in the ordinary course of litigation.” 
As to loss of goodwill and damage to reputation, Vault didn’t provide
enough evidence that Rhino would enjoy brand loyalty built on the false
statements even if Vault wins. A declaration from Vault’s CEO to this effect
was insufficient without further evidence/explanation. In addition, Vault
itself pled that there were “many different sellers of cargo and vehicle
recovery accessories, offering varying levels of product quality across a wide
array of price points[.]” There wasn’t enough evidence that customers concerned
with the manufacturing origins of a product wouldn’t instead choose to purchase
the product from one of the other “many different sellers” of similar products.

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