Just stocking a falsely advertised product isn’t enough for contributory liability

In re Outlaw
Laboratory, LLP, 2020 WL 2797425, No. 18-CV-0840-GPC (S.D. Cal. May 29, 2020)
 

Plaintiff makes male
enhancement products, allegedly in compliance with the DHSEA. It sued 51
convenience and liquor stores in the San Diego, California area; 23 of those
defendants have been terminated, 20 are actively litigating, and eight haven’t
appeared/answered. The defendants allegedly sold falsely advertised male
enhancement products containing undisclosed pharmaceuticals; some of the
accused products contain hidden ingredients including sildenafil, the
consumption of which can cause “life-threatening hypotension” and greatly
“increase[s] the risk of heart attack,” among other effects.
 

The court applied
issue preclusion to Outlaw’s argument for direct liability for the retailers
under the Lanham Act, based on past litigation. Outlaw’s only allegations about
the stores were that they sold the products, not that they advertised or
marketed them beyond placing them on their shelves. Failing to disclose the bad
ingredients was not itself actionable under the Lanham Act.
 

Contributory
liability under the Lanham Act is a cognizable theory, but wasn’t plausibly
pled here. After all, courts accept contributory liability in §43(a)(1)(A)
cases, and such claims arise from clauses that are “subpart[s] of a single
statutory provision,” “share the same introductory clause,” “were motivated by
a unitary purpose” to prohibit unfair competition, and are rooted in tort law
(which, of course, permits contributory liability). POM Wonderful even recognized
that, of these two provisions, false advertising is “the broader remedy.”
 

The leading case,
from the Eleventh Circuit, requires a showing that (1) there was direct false
advertising, and (2) “the defendant contributed to that conduct either by
knowingly inducing or causing the conduct, or by materially participating in
it.” Duty Free Americas, Inc. v. Estee Lauder Companies, Inc., 797 F.3d 1248,
1277 (11th Cir. 2015). In other words, the plaintiff “must allege that the
defendant…intended to participate in or actually knew about the false
advertising” and “that the defendant actively and materially furthered the
unlawful conduct—either by inducing it, causing it, or in some other way
working to bring it about.” (Note that “material participation” in the initial
description looked like it did not require knowledge, but apparently not.)
Outlaw didn’t properly allege the required elements with specificity.
 

Among other things,
the complaint lacked allegations that the stores “actively and materially
furthered the unlawful conduct.” For example, there were no allegations that
they “controlled,” “monitored,” or even “encouraged” the false advertising. There
was no reference to “a clear contractual power” to stop the false advertising,
or any extensive communications with the unknown third parties who supplied the
products “regarding the false advertising.” Even allegations of knowledge were
unspecific, as if general FDA announcements put the stores on notice.
 

Outlaw’s allegations
also failed if the court applied the standard of ADT Sec. Servs., Inc. v. Sec.
One Int’l, Inc., No. 11-CV-05149-YGR, 2012 WL 4068632, at *3 (N.D. Cal. Sept.
14, 2012): contributory liability can arise if the defendant “(1) intentionally
induced the primary Lanham Act violation; or (2) continued to supply an
infringing product to an infringer with knowledge that the infringer is
mislabeling the particular product supplied.” Since we don’t know who the
primary violator is, we can’t tell that they were “induced” by the stores.
 

California’s FAL:
also failed. Outlaw lacked standing because it didn’t rely on the
misrepresentations. The majority approach requires the plaintiff to have lost
money or property in reliance on the misrepresentations, not merely because
other people relied on the misrepresentations, as was alleged here. Also, as
with the Lanham Act claims, the stores weren’t personally responsible for the false
advertising, and “[a] defendant’s liability must be based on his personal
‘participation in the unlawful practices’ and ‘unbridled control’ over the
practices that are found to violate section 17200 or 17500.” (Citing Emery v.
Visa International Service Ass’n, 95 Cal. App. 4th 952, 960 (2002).) And there’s
no vicarious liability under California consumer protection laws. Nor is there
a duty to investigate and disclose the falsity on the packaging.
 

Also, “remedies for
individuals under the FAL are limited to restitution and injunctive relief.”  There was nothing to restore to Outlaw; an
injunction was permissible, but only if the claims had been properly alleged.
 

UCL fraudulent/unlawful:
Again, putting a falsely advertised product on a shelf is not itself “fraudulent”
in the absence of acts to adopt and further the false advertising. (Citing
Dorfman v. Nutramax Labs., Inc., No. 13-CV0873-WQH, 2013 WL 5353043, at *14
(S.D. Cal. Sept. 23, 2013) (finding retailer defendant could be liable under
the UCL where the defendant sold the products in their stores, entered into
sales agreements with the manufacturer, provided pictures of the deceptive
packaging, and made statements on their website with misleading labeling).) And
again Outlaw lacked standing.
 

Unlawful: Outlaw
alleged that it was unlawful to sell pharmaceuticals without a prescription,
but didn’t identify any particular section of any statute that was violated, so
it still failed to state a claim.

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“Belgium 1926” label on chocolate plausibly indicates current Belgian origin

Hesse v. Godiva
Chocolatier, Inc., 2020 WL 2793014 No. 19-cv-972 (AJN) (S.D.N.Y. May 29, 2020)
 

The forgiving plausibility
standard allows consumer protection claims about Godiva’s use of “Belgium 1926”
on its American-made chocolates to continue. The court points out that,
although “founded in Belgium in 1926 but not still there” might be a plausible
interpretation, “founded in Belgium in 1926 and still there” is at least as
plausible if not more so. Other moments of note: (1) injunctive standing
lacking because plaintiffs now know the truth and future desire to buy properly
labeled chocolate isn’t concrete enough; (2) Godiva raises a First Amendment defense
to this garden-variety consumer protection claim. Expect more of this even
though the court disposes it in a footnote as putting the cart before the
horse: if this is misleading commercial speech, it’s not protected by the First
Amendment.

 

example of challenged packaging

Godiva puts “Belgium
1926” “prominently … on the front packaging of all the Godiva chocolates.”
Amended Complaint, and “across its entire marketing campaign, such as on its
Godiva storefronts, supermarket display stands, and print and social media
advertising,” but made all its chocolates in Reading, Pennsylvania during the
relevant time period. Plaintiffs alleged that “Belgium is widely understood and
recognized as producing among the highest quality chocolates in the world” and that
American chocolate differs in taste from that produced in Belgium, due “to the
use of different butters, creams, and alcohol.”
 

Article III standing
for injunctive relief: the court reasoned that plaintiffs’ injury was “hypothetical—if
they choose to purchase Godiva’s products in the future, then they may be
harmed.” But isn’t the injury the ongoing lack of ability to rely on the label?
That doesn’t require a choice to buy Godiva; it’s about interference with the decisional
environment. But anyway, plaintiffs know the truth so they couldn’t be harmed
by the continued representation of Belgian origin. (Again, the 9th Circuit
pointed out that products can change, so that doesn’t necessarily mean that
they never face Godiva-related choices again.)

New York General
Business Law the usual California statutory claims survived. The reasonable
consumer applied to all these claims. Godiva claimed that its statement was “unambiguous
and historically accurate message” about the founding, but “an equally, if not
more, plausible inference is that the phrase represents both the provenance of
the company—Belgium, in 1926—and a representation that its chocolates continue
to be manufactured there.” Godiva relied on a trademark registration, several
pages on Godiva’s website, and a CBS News article stating that Godiva’s
chocolates are manufactured in Pennsylvania. “Godiva asks the Court to draw an
inference in its favor: that because these documents were public record,
reasonable consumers were aware of where its manufacturing occurs. That
inference is couched in assumptions—that everything in the public record is
universal knowledge and that, even if this information was widely disseminated,
Godiva’s label could not lead a reasonable consumer astray, to name a few.” Not
on a motion to dismiss! 

This is especially
true because reasonableness takes the entire context of product labeling into
account. Part of the “mosaic” was that “some of Godiva’s packaging and
social-media advertising describe its chocolates as Belgian. The front
packaging of one of its boxes, for example, contains the phrase “ASSORTED
BELGIAN CHOCOLATE CARAMELS,” and its social-media advertising states “Delicious
Belgian chocolates brought to you …” Those facts bolstered the conclusion
that a reasonable consumer could conclude that its chocolates are manufactured
in Belgium. The court distinguished other cases “where the label in question
expressly disclaims its actual origin—which is not the case here.” Though
disclosures aren’t always curative, “the absence of a disclosure counsels
strongly against Godiva’s argument.”  Fundamentally, “it is reasonable that a
consumer would view a label touting the location and year of a company’s
founding as representing the products’ continued place of production,” even if reasonable
consumers would not think that individual chocolates were produced in 1926.
 

Most of the warranty
claims also survived, but common-law fraud, intentional misrepresentation, and
negligent misrepresentation did not.

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“truly tiny” disclaimer at bottom of website didn’t prevent factual issue on misleadingness

Lemberg Law, LLC v. eGeneration
Marketing, Inc., 2020 WL 2813177, No. 18-cv-570 (CSH) (D. Conn. May 29, 2020)

Lemberg sued eGeneration
for running stopcollections.org, a site engaged in “matching lawyers who focus
their practice on filing claims under the federal Fair Debt Collection
Practices Act (“FDCPA”) with consumers who are interested in engaging a lawyer
for assistance with such a claim.” Lemberg is a Connecticut consumer law firm that
represents clients in FDCPA cases. eGeneration isn’t a law firm, but allegedly
“holds itself out” as a provider of legal services for FDCPA claims.” Its site
“offers ‘100% free legal consultation’ relating to debt collectors and
harassment” its advertising was allegedly “specifically designed to deceive and
mislead consumers into believing that Defendants are lawyers and/or are
providing legal services in relation to FDCPA claims.” Lemberg sued for
violation of the Lanham Act and the Connecticut Unfair Trade Practices Act (CUTPA).
The court allowed the claims to proceed, but required Lemberg to get a separate
lawyer for trial rather than representing itself. 

Defendants argued
that their site’s “plain-language statements” expressly disclosed that “Website
operators are not lawyers and the Website connects users with independent
lawyers who provide free consultations.”
 

Along with the facts
above, Lemberg alleged that
 

• “When a consumer
searches for “debt harassment” on http://www.google.com, a paid ad for Defendants’
Website appears above any other search results, advertising ‘Debt Collection
Harassment Speak With A Lawyer Free.’ ”

• Defendants
advertise their Website in a Google paid ad which states “Harassment From Bill
Collectors Contact Our Debt Lawyers Now … Get up to $1,000 per violation. ….”

• Consumers can
submit a request for consultation without scrolling below the fold at the
bottom of the page. However, scrolling will reveal the bold print “FDCPA legal
representation is completely free regardless of whether you win or lose your
case.” Moreover, “[t]he burden of payment to the attorney will fall on the debt
collector if they [sic] are found guilty of a violation.”

• The bottom of the
website says: “Connect with a Lawyer.”

• The very bottom of
the website has the sole and “inconspicuous disclaimer” – “in a font size that
is significantly smaller than the rest of the text on the Website” – that
“Stopcollections.org is not a lawyer or a law firm,” and “not an attorney
referral service.” Rather, “[i]t is an advertising service paid for by the
lawyers and advocates whose names are provided in response to user requests.”
 

Lemberg alleged that
the site headline and the Google ad headline, “Contact Our Debt Lawyers Now,”
intentionally “lure[ ] a prospective customer into believing that he/she is
dealing with a law firm when that is not in fact the case.” The photo on the
front page of “a man and a woman in professional attire [i.e., business suits]
further impresses upon the visitor that the website belongs to a law firm
licensed to offer legal advice.”
 

Further, Lemberg
alleged that defendants were violating state rules on lawyer advertising, and
solicited Lemberg to become a recipient of eGeneration’s “lead generation
services.”
 

Defendants argued
that “a Lanham Act false advertising claim fails when an advertisement’s
truthful language, including that contained in a disclaimer, dispels any
misimpression it is alleged to give.” They relied on Pernod Ricard USA, LLC v.
Bacardi U.S.A., Inc., 653 F.3d 241 (3d Cir. 2011), for the propositions that (1)
“unambiguous plain language can warrant disposing of a false advertising claim
as a matter of law” and (2) “explicit clarifying language can be dispositive as
to whether an advertisement is ‘misleading’ under Section 43(a)(1).” They
argued that their site stated “in no uncertain terms” that EMI “is not a lawyer
or law firm” and that “interested users are contacted by ‘an independent lawyer
or advocate’ to evaluate their potential FDCPA claims,” so it could not mislead
a reasonable consumer.
 

Defendants also
relied on Forschner Group, Inc. v. Arrow Trading Co., Inc., 30 F.3d 348 (2d
Cir. 1994), which overturned a district court finding that the use of the
phrase “Swiss Army knife” in connection with its poorly-crafted
Chinese-manufactured knife was false advertising. Despite a consumer survey
showing deception, the Second Circuit relied on the fact that the main blade of
the knives was marked “STAINLESS/CHINA” and the packaging expressly stated,
“Made in China.”
 

Defendants argued that
“truthful disclaimers and explanations on the Website cannot be disregarded
because of their placement or font size,” so whether they were conspicuous or
not didn’t matter. Anyway, it’s fine to make consumers scroll down and to use
fine print/the bottom of pages.  
 

The court was not
particularly impressed. As prior cases have said, a “disclaimer or
contradictory claim placed in an ad will not remedy an ad, which is misleading,
per se.” Also, “a footnote or disclaimer that purports to change the apparent
meaning of the claims and render them literally truthful, but which is so
inconspicuously located or in such fine print that readers tend to overlook it,
will not remedy the misleading nature of the claims.”
 

Pernod Ricard was distinguishable on the facts (and
nonbinding). The front label clearly stated that it was a “Puerto Rican Rum,”
and the “Havana Club rum” actually “ha[d] a Cuban heritage and, therefore,
depicting such a heritage [was] not deceptive.” The “ambiguity” here was
greater, creating a factual dispute that couldn’t be resolved on a motion to dismiss.
“While a disclaimer may be so plain, clear and conspicuous as to bar a claim as
a matter of law, this is not [always] the case.” As the court summarized, the
case law, “[t]o be effective, a disclaimer must be sufficiently bold and clear
to dispel any conflicting false conclusions.”

Here, it would be
reasonable for a consumer, noting the large headline toward the bottom of the
page, “Connect with a Lawyer,” to overlook the significantly smaller disclaimer
in tiny font at the very bottom of the page that the site “is not a lawyer or
law firm” and “not an attorney referral service.” Indeed, it was plausible that
“even if a consumer read the disclaimer, he or she might become confused by the
instruction, ‘[t]o find out the attorney or advocate in your area who is
responsible for the advertisement, click here’” and think that they were revealing
the names of the attorneys who own the website because they are “responsible
for the advertisement.” 

The court also noted
that the link at the top of the site to the privacy policy and disclaimer was
in “truly tiny font” in contrast with the bold opportunity to “Get Started” in
obtaining an FDCPA attorney. “[A] reasonable consumer, plagued by debt
collectors and eager to ‘Get Help,’ might fail to click on that tiny link,
which is arguably not noticeable in that it is printed in white ink against a
navy blue background.”
 

Thus, both because
of the minimal visibility of the disclaimer here and because there was no
arguably true alternate interpretation (the site is not really owned by
lawyers and has no “lawyer heritage”) justifying tolerance for the message, Pernod
Ricard
was distinguishable. The court pointed out that Pernod Ricard
expressly declined to resolve what would happen if the statement of geographic
origin was in “fine print.”
 

Likewise, whether
the photo of a man and woman dressed in “professional attire” appeared to be
lawyers in the absence of briefcases, books, legal pads, etc., that was also a
question of fact to be considered in the overall context of the site. The
website says in bold print, “Connect with a Lawyer.” Moreover, directly next to
the image, it says, “Receive a 100% FREE legal consultation.” There was no
explicit label to the contrary.
 

CUTPA bars “unfair
or deceptive acts or practices in the conduct of any trade or commerce.” Along
with the Lanham Act allegations, Lemberg alleged that Section 7.2 of the
Connecticut Rules of Professional Conduct mandates that any advertisement for
legal services “shall include the name of at least one lawyer admitted in
Connecticut responsible for [the ad’s] contents” and that “soliciting cases for
third party attorneys” was illegal under state law and thus “unfair.”
 

Unfairness considers
“(1) [w]hether the practice, without necessarily having been previously
considered unlawful, offends public policy as it has been established by statutes,
the common law, or otherwise—in other words, is it within at least the penumbra
of some common law, statutory or other established concept of unfairness; (2)
whether it is immoral, unethical, oppressive or unscrupulous; [and] (3) whether
it causes substantial injury to consumers, [competitors or other
businesspersons].” The Connecticut Supreme Court has expressly held that
entrepreneurial aspects of the practice of law, such as attorney advertising,
fall well within scope of CUTPA.
 

Given the Lanham Act
discussion above, confusion was properly alleged.
 

Defendants argued purported
violations of the Connecticut Rules of Professional Conduct couldn’t form the predicate
of any cause of action, including under CUTPA. But the claim here was based on more
than such a violation; the parties agreed that defendants weren’t attorneys and
couldn’t be personally subject to those Rules. Mere references to the Rules
didn’t take the CUTPA claim out of the court’s jurisdiction. L
emberg also referred
to Connecticut and similar state laws that prohibit one “not admitted as an
attorney in this state” from soliciting another person to “cause an action for
damages to be instituted” in return for compensation from that person or his
attorney. This at least showed conduct that might be viewed as offending public
policy – falling “within at least the penumbra of … [an] established concept
of unfairness.”

However, given the
need to preserve the integrity of the trial process, Lemberg Law would need to
find separate counsel for trial. “This will allow Lemberg Law to have the
benefit of Attorney Lemberg’s litigation skills and diligence in the
preliminary phases of the case, but prevent the potential taint of him acting
as both advocate and witness at trial.”

 

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Copyright preempts/Dastar precludes lawsuit based on Fortnite’s copying of a dance move

Brantley v. Epic
Games, Inc., No. v. 19-cv-594-PWG (D. Md. May 29, 2020)
 

Plaintiffs Brantley
and Nickens alleged that in 2016 they created, named, and popularized a dance
move, which they titled the “Running Man,” and which subsequently went viral on
social media. (In part this came after a live performance of the dance by
Brantley and Nickens on the Ellen DeGeneres Show, during which two high school
students from New Jersey, Kevin Vincent and Jeremiah Hall, were credited with
creating the dance; Brantley and Nickens stated later in the segment that they
copied the dance from a video that they saw on Instragram.) They alleged that
the “Running Man” has become synonymous with them. 
 

Epic makes the
Fortnite video game franchise, allegedly popular not just because of gameplay but
also because of the incorporation and popularity of in-game emotes, moves that
express the player’s emotions in the game. In 2018, Epic introduce a new emote,
the “Running Man,” which cost about $5.
 

Plaintiffs sued for invasion
of the right of privacy/publicity, unfair competition, unjust enrichment,
trademark infringement, trademark dilution, and false designation of origin.
Finding all the claims either copyright-preempted or inapposite, the court
dismissed the complaint.
 

Common-law privacy,
unfair competition, and unjust enrichment were preempted. First, the Running
Man dance was within the subject matter of copyright, since copyright covers
choreographic works. The court noted that “the scope of copyright preemption is
broader than the scope of copyright protection”; an unprotectable social dance
step that was insufficiently extensive to constitute a chorographic work is,
like an unprotectable idea, still within the subject matter of copyright. The
court thought it a “closer question” than in previous cases whether the Running
Man could be copyrightable, but in any event it was “somewhere on the continuum
between copyrightable choreography and uncopyrightable dance,” and that was all
the court needed to know for preemption purposes.
 

Second, the rights
asserted were, under these circumstances, equivalent to the rights granted by
copyright. Unfair competition via misappropriation is regularly preempted; unjust
enrichment too where there are no elements other than reproduction,
performance, distribution, or display constituting the alleged violative
conduct.
 

Privacy/publicity: Plaintiffs
argued that misappropriation of identity/likeness constituted an extra element.
But just because ROP claims are sometimes not preempted does not mean they are
never preempted. The question is whether plaintiffs were claiming something “qualitatively
different” than the rights protected by the Copyright Act. Here, they were not:
their claims were based on alleged copying of the Running Man dance, squarely
within the scope of the Copyright Act. The court did not accept that the dance
was plaintiffs’ “likeness.”

Lanham Act/common
law trademark claims: Dastar!  Plaintiffs
alleged that Epic’s use of the Running Man “has caused and will continue to
cause confusion and mistake by leading the public to erroneously associate the
Emote offered by Epic with the Running Man, as executed and associated with
Plaintiffs, as exemplified in their online video.”

Dastar instructs that causes of action under §
43(a) of the Lanham Act based on misappropriation and confusion can proceed
only where there is confusion as to “the producer of the [] product sold in the
marketplace” not the “person or entity that originated the ideas or
communications that ‘goods [or services]’ embody or contain.”  This was a claim based on copying ideas or
concepts, not based on source confusion. As a previous emote case held, the
complaint didn’t plausibly allege that there was confusion over who produced
the emote. At most, the complaint alleged only confusion over who came up with
the move, which is not Lanham Act confusion.
 

Separately,
plaintiffs failed to allege that the Running Man was a valid mark identifying a
good or service. “[A]s a general rule images and likenesses do not function as
trademarks” (citing ETW Corp. v. Jireh Publ’g, 322 F. 3d 915, 922-923 (6th Cir.
2003)). And plaintiffs didn’t adequately allege how the Running Man dance was
used to identify a unique good or service. It could not be a trademark for
itself.
 

False endorsement
theory: plaintiffs alleged that Epic “creat[ed] the false impression that
Plaintiffs endorsed Fortnite.” The court pointed out that several courts have
dismissed similar claims using Dastar—if all you had to do to avoid Dastar
was to plead false endorsement, the case would be a dead letter and the
conflict with copyright law would reignite, at least for accused “communicative
products.” However, the previous emote case didn’t rely on Dastar,
distinguishing endorsement as distinct from authorship or origin. Here, the
allegations didn’t support such a distinction: plaintiffs’ allegations of false
endorsement were based solely on copying the Running Man dance. “”A false
endorsement claim based on these allegations would lead to the type of conflict
between the Lanham Act and the copyright law that the Supreme Court sought to
avoid in Dastar.”

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turnabout is fair play: undisclosed sponsorship of “objective” report could be misleading; overstatement of court holding could be defamatory

Pegasystems, Inc. v.
Appian Corp., 2020 WL 2616280, No. 19-11461-PBS (D. Mass. May 22, 2020)

Pegasystems
sued Appian
for allegedly falsely touting a paid for report as independent;
now the court deals with Appian’s counterclaims for false advertising under the
Lanham Act and Mass. Gen. Laws ch. 93A; commercial disparagement; and
defamation, in connection with four separate fact patterns, granting Pegasystems’
motion to dismiss in part and denying it in part. 

(1) In March 2011,
Pegasystems posted “Pega BPM System z Benchmark Test Results” on its site, providing
the results of testing done in collaboration with IBM to determine if
Pegasystems’ platform could be “effectively deployed across an entire corporate
enterprise … with a servicing population of approximately 10,000 users.” The
paper concluded that Pegasystems “met or exceeded all performance goals” for
the testing. But the testing employed the IBM System z processor, “a
$26-million machine — the highest-end and most expensive mainframe IBM sold in
its class at the time.” Appian alleged that “extremely few (if any) Pegasystems
customers would ever be using such a powerful supercomputer to run Pegasystems’
software” and that the paper was currently misleading because the testing was
performed on a long-discontinued version of Pegasystems’ platform.
 

But this was not
misleading because the fact that the test used “a computer too expensive for
most businesses to afford,” was “obvious” from the paper’s title and from the
website’s description: Anyone would immediately know that the System z
processor was used to conduct the test.  “Particularly
given the technically savvy consumer base for the products at issue, a
limitation contained in the title of the paper cannot give rise to a Lanham Act
false advertising claim.” Likewise, the fact that the Pegasystems version that
had been tested had long been discontinued didn’t amount to
falsity/misleadingness, since any reader would see that the paper was published
in 2011 and could take that date into account.
 

(2) At Pegasystems’ 2019
annual conference PegaWorld, attended by over 6,000 people, Pegasystems
allegedly made “false statements … designed to exaggerate narrow claims
regarding Pegasystems’ products by third parties and to present them as
statements relating to broader areas of wider relevance to customers,” which
are still available on video on Pegasystems’ website, included: Stating that
Pegasystems has “40,000+ certified professionals globally” when that number
included professionals whose certification had expired or whose certification
was for an older version of Pegasystems’ software; and stating that Pegasystems
“get[s] accolades from analysts” while displaying four charts, three of which
Appian alleges were “falsely and misleadingly captioned.”
 

Appian alleged that
the second chart was labeled “Digital Process Automation” but
came from a report on “Software For Digital Process Automation For Deep
Deployments”; the third was labeled “Real-Time Decisions & AI” but came
from a report on “Real-Time Interaction Management”; and the fourth was labeled
“End-to-End Work Management” but came from a report on “Intelligent Business
Process Management.”
 

These changes to the
graph titles were not plausibly material to “the sophisticated consumers who
purchase business process management software.” So too with Pegasystems’
statement that it has “40,000+ certified professionals globally” when some of
them have lapsed certificates or certificates for obsolete versions of
Pegasystems. “It is implausible that the precise number of currently certified
professionals, as conveyed in passing on a presentation slide, would be
material to a consumer.”
 

(3) In 2014, Jim
Sinur published a six-page paper on Pegasystems’ website titled “Appian and
Pegasystems – Head to Head Comparison”; it was removed in January 2019. The
paper describes Sinur as “an author and independent thought leader in applying
business process management (BPM) to innovative and intelligent business
operations (IBO)” and refers to his prior experience at Gartner, a global
research and advisory firm. “The paper does not explain its objective or
methodology, beyond one reference to what Sinur ‘saw’ ‘[w]hile at Gartner.’”
The final summary says: “If you are picking one over the other, you need to
look at the nature of the processes you will attempt over time. If they are
strategic, pick Pega. If you happen to own both tools, use Appian for tactical
standalone processes that will not grow in performance needs and use Pega for
strategic and wide impact processes.” That same year, a Pegasystems executive tweeted
a link to the paper along with text reading, “Great comparison of @pega vs
@appian via @JimSinur shows why our technology is better business software,” and
a blog post by an Appian competitor, Bizagi, called the paper “a tongue-lashing
from an industry analyst and thought leader, Jim Sinur” and noted that “[t]he
report claims to ‘look objectively at the strengths and weaknesses of both
vendors.’ ”
 

Appian alleged that
the Sinur Paper was commissioned by Pegasystems and that Pegasystems
“influenced its content,” though it nowhere disclosed a commission.
 

Was this claim
untimely? For the Lanham Act claim, the most analogous statute of limitations was
the four-year period under Chapter 93A. The laches period starts to run when
“the plaintiff knew or should have known” of the defendant’s wrongful conduct. That’s
hard to figure out on a motion to dismiss, and this one was no exception. For
commercial disparagement and Chapter 93A, the limitation periods were three and
four years, respectively. Under Massachusetts law, “a cause of action … does
not accrue until the plaintiff knew, or in the exercise of reasonable diligence
should have known of the factual basis for his cause of action.” Appian alleged
that it was unable to learn the factual basis for its claim until the discovery
in this case; that was plausible on a motion to dismiss.
 

Falsity: “[T]he
presentation of a commissioned paper as the analysis of a neutral third party
is at least misleading,” and Appian plausibly alleged this, such as in Pegasystems’
description of Sinur as an “independent thought leader.” Were consumers deceived?
Given that a competitor described the Sinur Paper as a “tongue-lashing from an
industry analyst and thought leader” who sought to “look objectively” at the
two platforms, it was reasonable to assume that customers also thought Sinur
was objective. Commercial disparagement claims also survived even without any
allegations of skewed data beyond the representation of objectivity.
 

(4) Finally, soon
after the court denied Appian’s motion to dismiss (linked above), a Pegasystems
executive published a post on LinkedIn that read, “We all encounter examples of
business ethics we find questionable … patent trolls, paid content promoted
as ‘unbiased truth,’ and sometimes just blatant lies. I’m proud to work for a
company that is not afraid to undertake the unpleasant action of litigating
against those whose actions we believe are unlawful and unethical. If you’re
thinking about Appian, you should read this first …” The LinkedIn post shared
a link to a post by the Boston-area community news blog Universal Hub, which discussed
this Court’s motion-to-dismiss decision and wrote that “Pegasystems … [had]
shown enough proof” of its claims against Appian to “make its case to a jury.” Seven
other Pegasystems employees on LinkedIn reposted or “echoed” this post.
 

Defamation: Here,
calling Appian’s business practice “unethical” was a protected opinion since
ethical standards can vary. But accusing another party of being a “liar” has
generally been held to be defamatory. Although the LinkedIn Post ostensibly
relied on the court’s prior opinion, that opinion arguably does not support
that Appian told “blatant lies.” As to scienter, the post’s author had access
to the opinion and would have known that the opinion did not support an
accusation that Appian told “blatant lies.” Appian wasn’t required to plead
special damages because the LinkedIn Post’s statements are “actionable without
proof of economic loss” as “statements that may prejudice the plaintiff’s
profession or business.” Thus, the defamation claim was properly alleged.

Lanham Act and
Chapter 93A: Was this “commercial advertising or promotion”? Though the
LinkedIn post didn’t directly advertise Pegasystems’ products, it was “made
with the intent of influencing potential customers to purchase [Pegasystems’]
goods or services” over those of Appian, and targeted readers who were
“thinking about Appian” as a vendor, so it was commercial advertising. And the
falsity element was properly pled, see above.

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another case says Google’s “free speech” statements are puffery

Ugh, Google’s new Blogger interface is terrible–will I be forced to decamp to WordPress? Anyway:

Lewis v. Google LLC, — F. Supp. 3d —-, No. 20-cv-00085-SK, 2020 WL 2745253 (N.D. Cal. May 20, 2020)

Plaintiff, an antifeminist, is sad that Google considered his YouTube videos to be hate speech. Ignoring the First Amendment/other state-action-requiring claims/claims barred by §230 (for the moment, I guess? Depends on what level of authoritarianism we graduate to), his Lanham Act/similar claims also fail. Lewis argued that YouTube’s statements that “everyone deserves to have a voice,” that it believes “people should be able to speak freely,” “everyone should have a chance to be discovered,” etc. constituted false advertising.

First, Lewis didn’t allege that he was within the Lanham Act’s zone of interests. Even assuming that he was a competitor to YouTube because YouTube also makes videos, his injury was suffered as a consumer and the challenged statements were not about YouTube’s own videos but about the forum YT provides. He didn’t explain how YT’s statements about itself, as opposed to shutting down/demonetizing his videos, caused him harm.

Plus, the Prager case teaches that YT’s statements about its welcoming arms are puffery.

Fraud/fraudulent omission claims also failed. Lewis alleged that Google “failed to disclose that they wrongfully censor hate speech and do so at the behest of foreign governments in contravention of American Constitutional free speech.” But YT discloses that it reviews flagged content and prohibits “hateful content” and other things from being monetized. There was no properly pled omission contradicting the TOS; any reliance on the alleged omissions wouldn’t be reasonable; and Lewis didn’t allege any facts showing that the ability of foreign governments to flag videos was material.

Unsurprisingly, there was also no breach of the implied covenant of good faith and fair dealing, given the TOS, nor tortious interference with prospective economic advantage.

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Sam’s Club exposed to disgorgement for potential warranty differences in grey goods it sold

Monahan Prods. LLC v.
Sam’s East, Inc., 2020 WL 2561255, No. 18-11561-FDS (D. Mass. May 20, 2020)
Plaintiff makes
UPPAbaby strollers. Sam’s is a chain of membership-only retail warehouse stores
and, despite not being an authorized retailer, it sold actual UPPAbaby
strollers, and it can’t get out of a trademark infringement claim because
basically anything can be a material difference.
Although UPPAbaby
characterized the strollers as “gray market” goods—intended for distribution
and sale in foreign countries—they were physically identical. But UPPAbaby
argued that there were three post-manufacture differences that would consumer
confusion and injure its brand. “First, it contends that it maintains strict
quality control in its domestic distribution chain, while Sam’s Club does not.
Second, it contends that only its authorized retailers provide appropriate
customer support, and that Sam’s Club is not such a retailer. Third, the
warranty protection provided by UPPAbaby does not apply if the product is sold
by an unauthorized retailer such as Sam’s Club.” (Amazon is an authorized
retailer, if you thought that there might actually be customized support
services involved.)
Cross-motions for
summary judgment were mostly denied. Europeans think of the US as more
freewheeling than the EU on trademark, but I really have to wonder if that’s
true for first sale given the costs of litigating issues like this when the
products are physically identical.
Despite being sold
by Amazon, one of the company’s founders testified that the UPPAbaby “brand and
[its] products have a reputation and an assumption by a consumer of certain
quality and services”—a reputation that she said could be harmed if the
strollers were sold by unauthorized retailers who lack “the same level of knowledge
and service” as authorized retailers or who sell the strollers at lower prices.
The parties disputed
whether the strollers were unpacked or re-packaged by Sam’s Club along the way,
by which UPPAbaby apparently includes the allegation that Sam’s employees may
have removed them from their original shipping pallets and put them on
different pallets; Sam’s disputes that there was any re-packaging.
Unlike authorized
retailers, Sam’s Club does not provide replacement parts or repair services for
UPPAbaby strollers. Sam’s Club employees are not specially trained on how to
sell or service the strollers. Under the terms of the warranty, strollers sold
by Sam’s were not covered, though on several occasions, UPPAbaby allowed
customers who said they had bought a stroller at Sam’s Club to register for the
warranty, and Sam’s also argued that UPPAbaby’s warranty limitation was illegal
under NY law.
Sam’s Club offered
its own warranty on the strollers—a “100% Merchandise Satisfaction Guarantee” promoiing
that “[i]f the quality and performance of member’s purchases don’t meet their
expectations, [Sam’s Club will] replace it or give them a refund in most
cases.” For some time, the Sam’s Club website represented that the strollers
were covered by a “6 month manufacturer warranty,” but Sam’s removed the
reference after the complaint was filed and replaced it with its own “100%
Merchandise Satisfaction Guarantee.”
First sale does not
bar trademark enforcement when “genuine, but unauthorized, imports” “differ
materially from authentic goods authorized for sale in the domestic market.”
Sam’s argued that
these weren’t even gray market goods, given that they came into the US with
UPPAbaby’s consent and then were dispatched to Sam’s, some allegedly by round
trip to Canada; at least some of the strollers never left the country. UPPAbaby
argued that nonetheless, they weren’t authorized to be sold in the US. The
court found that UPPAbaby’s definition—a grey-market good is one unauthorized
for sale in the United States, whether or not it was originally imported with
the consent of the trademark holder—was better supported by the case law.
So the remaining
question was whether there were material differences between the strollers sold
by Sam’s and the authorized versions. The “threshold of materiality” is “always
quite low” in gray-market goods cases and covers “any difference between the
registrant’s product and the allegedly infringing gray good that consumers
would likely consider to be relevant when purchasing a product.” If a material
difference does exist, it “creates a presumption of consumer confusion as a
matter of law.”
While the existence
of differences is a factual question, materiality may be a matter of law. Quality
control: The case law says (interestingly without any particular evidence, as
compared to what may be required in a false advertising case) that “[d]ifferences
in quality control methods, although not always obvious to the naked eye, are
nonetheless important to the consumer” and that “substantial variance in
quality control” constitutes a material difference.
Here, the
quality-control procedures at issue didn’t involve the actual manufacture of
the product. UPPAbaby argued that it ensures that the strollers “reach the
customer with as few supply chain steps as possible and maintain[s] close
quality control at all steps in its distribution.” Sam’s contends that there
was no evidence that this affected the strollers. Such evidence isn’t strictly
necessary because quality control measures “may create subtle differences in
quality,” but “‘quality control’ is not a talisman the mere utterance of which
entitles the trademark owner to judgment.” There was a factual dispute: “on one
occasion, Sam’s Club shipped a stroller to a customer that was different from
what it had advertised,” and it was possible that this was caused by different inventory
tracking procedures. [How this could affect the reputation of the manufacturer is
left as an exercise for the reader.] And “due to supply chain differences, the
strollers sold by Sam’s Club were likely to have been shipped several more
times than those sold by authorized UPPAbaby retailers,” though there was no
evidence that Sam’s shipping precautions were any different from those taken by
UPPAbaby or its authorized retailers, especially Amazon. Other than number of
shipping instances (which might not differ for Amazon), UPPAbaby didn’t show
what specific actual quality-control procedures it observed, or how they
differed from those used by Sam’s Club or its suppliers. “On this record, a
jury could reasonably conclude either that there are important differences
between UPPAbaby’s and Sam’s Club’s quality-control procedures or that there
are no (or only trivial) differences.”
Customer support: “The
question here is whether the advice and information that is available for
UPPAbaby strollers sold by Sam’s Club differs materially from what is available
for strollers sold by UPPAbaby’s authorized retailers.” It wasn’t clear that
there were any differences; Sam’s customers seemed to have the same access to
the UPPAbaby support team as anyone else, and there was evidence that those
customers called and received help from UPPAbaby’s customer-support team on
several occasions.
UPPAbaby argued that
only its authorized retailers had invested the time and money to train their
employees on how to display its strollers properly, recommend a suitable model
for each customer, and answer maintenance questions. There was some evidence that
Sam’s Club’s customer-support staff was less than fully informed about
UPPAbaby’s strollers. “On one occasion, a member of its customer-support staff
called UPPAbaby’s own support hotline to ask about a stroller.” But it wasn’t clear
that authorized retailers were substantially different, only “broad statements”
by UPPAbaby’s employees. Given that UPPAbaby sold through Amazon, the court was
dubious “whether Amazon trains its employees on how to display UPPAbaby
strollers properly and recommend suitable models to customers, or how it would
even go about doing so.” Still, this created a factual dispute. [Sometimes I
imagine false advertising claims being treated with this level of deference.
Sometimes I don’t.]
Warranty
differences: It was unclear whether a difference in warranty protection,
standing alone, could be material in the absence of functional product
differences. The court rejected Sam’s argument that UPPAbaby’s voluntary
extension of its warranty to some Sam’s purchases made this putative difference
arbitrary and immaterial. Though UPPAbaby did seem to have done this, “[i]t
would frustrate the purpose of federal trademark law to require UPPAbaby to
refuse warranty protection, risking further harm to its goodwill, in order to
preserve its trademark claims.” [How this is material to consumers if
the warranty is honored is again left as an exercise for the reader.] Anyway,
UPPAbaby doesn’t always honor the warranty for Sam’s purchases. Nor does state
law requiring warranty coverage to be extended change things. New York law, for
example, prohibits manufacturers from limiting warranty coverage “solely for
the reason that such merchandise is sold by a particular dealer or dealers.” But
there was no evidence UPPAbaby ever complied, and its violation of NY law (if
violation there be) was a different issue. [Again, how this could be material
to NY customers, at least, is not clear.]
Sam’s argued that
the difference in warranties was not material because its own “100% Merchandise
Satisfaction Guarantee” was superior. But the question was whether the products
it sold were materially different, not whether they were inferior. “Thus, even
a product covered by a more generous warranty may still be materially different
if that warranty is substantially unlike the one that applies to authorized
versions.” Again, whether the differences were material were not clear on this
record. On paper, the differences would likely to matter, since UPPAbaby’s
warranty allows for repairs and replacement parts for a broken stroller, but
not an entirely new stroller or a refund, while Sam’s is vice versa. However,
that difference might be only theoretical; UPPAbaby apparently never actually
repaired a stroller under its manufacturer’s warranty. “Its own employee
admitted that the warranty primarily serves as “marketing,” rather than to
provide real product support.” And UPPAbaby’s implementation of its warranty
also apparently does allow refunds.  
The court noted that
the fact that several Sam’s customers apparently contacted UPPAbaby to ask
whether their strollers were covered by the manufacturer’s warranty. While that
tended to show confusion about which warranty applied, it didn’t show that
there were ultimately real differences in those warranties that would have
mattered to them.
“[O]n this record
jurors could reasonably disagree as to whether any of the alleged product
differences meaningfully exist in a way that would likely be relevant to
consumers.”
Sam’s moved for
partial summary judgment on whether UPPAbaby could get money damages. Under First
Circuit rules:
(1) a plaintiff seeking damages must prove actual harm, such as the
diversion of sales to the defendant;
(2) a plaintiff seeking an accounting of defendant’s profits must show
that the products directly compete, such that defendant’s profits would have
gone to plaintiff if there was no violation;
(3) the general rule of direct competition is loosened if the defendant
acted fraudulently or palmed off inferior goods, such that actual harm is
presumed; and
(4) where defendant’s inequitable conduct warrants bypassing the usual
rule of actual harm, damages may be assessed on an unjust enrichment or
deterrence theory.
UPPAbaby sought: (1)
the costs of future corrective advertising; (2) compensation for extra
personnel expenses incurred; and (3) the disgorgement of Sam’s Club’s profits.
UPPAbaby hadn’t done
any corrective advertising; courts occasionally award prospective corrective advertising
costs, but with reservations, given the “substantial potential for inaccuracy.”
Such awards are appropriate “only if it compensates the injured party for
identifiable harm to its reputation.”
There was some evidence
of identifiable harm to UPPAbaby’s brand in the record because some Sam’s customers
called the UPPAbaby support hotline or communicated online, unsure about
whether their strollers were under warranty. Another customer called to report
that Sam’s Club had advertised a different model year stroller than what it had
for sale, possibly due to quality-control differences, and that he or she felt
“confused” and deceived. “Any harm to UPPAbaby’s brand caused by this consumer
confusion is compensable, and therefore, at least in theory, it could recover
the costs of a corrective advertising campaign that would effectively repair
that harm.” [I really don’t understand the harm story here. How is harm done to
the “brand”? Ok.]
Still, Sam’s got
summary judgment on this, because UPPAbaby’s marketing expert based his corrective
advertising cost estimate at least in part on the fact that Sam’s sold the
strollers cheaply. “But even if such harm occurred, sales at discounted prices
do not violate the Lanham Act. … [A]ny harm to UPPAbaby’s brand caused simply
by discount sales is not recoverable.” Indeed, the court noted in a footnote—something
that bears on the discussion above—“[E]ven if Sam’s Club’s versions had
unavoidable material differences—for example, because they were not covered by
the manufacturer’s warranty—Sam’s Club could still legally sell them if it
effectively disclaimed those differences.” Nor did UPPAbaby show that its
proposed remedy would actually redress harm to its brand. The expert proposed “an
unspecified message—either by mail or by digital advertising—to as many
consumers who may have seen Sam’s Club’s advertising as is possible. He did not
identify the contents or layout of that message, let alone explain how it would
remedy the consumer confusion arising from any material differences in the
strollers sold by Sam’s Club.” Without that, UPPAbaby was just seeking a free
ad campaign, which was not an ok way to measure damages.
Damages for personnel
expenses: UPPAbaby sought compensation for the time spent by its employees
investigating the sale of its strollers by Sam’s Club and addressing related
complaints by customers and retailers. Sure, “additional personnel expenses
arising from unauthorized sales in violation of the statute are recoverable as
a general matter.” But “[o]ne obvious issue is that most, if not all, of those
employees were salaried, so the company would have paid them regardless, and
therefore it has not suffered any incremental out-of-pocket losses.” Still, it
was theoretically possible to prove lost opportunity costs; had UPPAbaby provided
sufficient factual evidence to create a factual issue as to whether there was a
reasonable likelihood of actual harm to the company? Some of UPPAbaby’s
employees who worked on this issue may have been compensated on an hourly basis,
so their efforts might be compensable, and even for the salaried employees, “using
the number of hours those employees spent on remedial efforts is not an
unreasonable approximation” of lost opportunities, given that wrongdoers bear
the risk that the harm they do will be hard to quantify. So no summary judgment
on this kind of damages.
Disgorgement: Romag
doesn’t matter much here because the First Circuit already allowed disgorgement:
“(1) as a rough measure of the harm to plaintiff; (2) to avoid unjust
enrichment of the defendant; or (3) if necessary to protect the plaintiff by
deterring a willful infringer from further infringement.” To recover under (1),
a plaintiff must prove both actual harm and direct competition. But the parties
weren’t direct competitors, because Sam’s is a retailer selling directly to
consumers and UPPAbaby is manufacturer that doesn’t (also, UPPAbaby also got
paid for these strollers!). True, consumers might instead have bought from an
authorized distributor, but that wasn’t the same thing as direct competition,
and it thus wasn’t inherently plausible that “defendant’s profits may be
presumptively similar to what plaintiff would have earned on the sale.”
Fraud or willfulness
could still justify disgorgement even without direct competition. A jury could
reasonably conclude that Sam’s Club acted willfully or in bad faith. “Its
supplier informed it in writing that the UPPAbaby warranty would not apply to
the strollers if sold in the United States.” But Sam’s nonetheless allegedly
put the strollers on the website as having a manufacturer’s warning. “A jury
could reasonably conclude either that it was a mistake, or that it was done
willfully and with the intent to mislead consumers.”
However, Mass. Gen.
Laws ch. 93A claims failed because the statute expressly provides that no
action may be brought under the statute unless the complained-of conduct
occurred “primarily and substantially within the Commonwealth.” The critical
inquiry is “whether the center of gravity of the circumstances that give rise
to the claim is primarily and substantially within the Commonwealth.” It was undisputed
that the actionable conduct was not centered in Massachusetts, but was
throughout the US. It didn’t matter that UPPAbaby’s strollers are stored in its
warehouse in Massachusetts and sold by several authorized retailers in
Massachusetts, because that wasn’t the relevant conduct. A place of injury
within Massachusetts is not a sufficient basis for finding that conduct
occurred “primarily and substantially” within the Commonwealth.

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