The fact/opinion divide: threat or menace? 9th Cir revives suit against Malwarebytes

Posted on June 6, 2023 by rtushnet

 Enigma Software Grp. USA, LLC v. Malwarebytes, Inc., No.
21-16466 (9th Cir. Jun. 2, 2023)

Courts generally seem more likely to find falsifiability
instead of puffery when a speaker makes negative claims about rivals rather
than positive claims about itself. Enigma sued its competitor Malwarebytes for
Lanham Act false advertising and NY business torts for designating its products
as “malicious,” “threats,” and “potentially unwanted programs” (PUPs). The
district court dismissed the complaint on the grounds that these designations
were “non-actionable statements of opinion.” Over a dissent, the court of
appeals reverses, except as to “PUP.” “[W]hen a company in the computer
security business describes a competitor’s software as ‘malicious’ and a ‘threat’
to a customer’s computer, that is more a statement of objective fact than a
non-actionable opinion.” This also required reversal of the NYGBL §349 false advertising
claim and tortious interference with business relations claim, though the
tortious interference with contractual relations claim still failed for want of
specific allegations of interfered-with contracts.

Enigma alleged that its software products “(i) detect and
remove malicious software (i.e., malware)” such as “viruses, spyware, adware,
ransomware, and Trojans; (ii) enhance users’ Internet privacy; (iii) offer
users the choice to block ‘Potentially Unwanted Programs’ (‘PUPs’); and/or (iv)
eliminate security threats and risks from problematic software programs.”

Malwarebytes software also allegedly claims to “detect and
remove malware, PUPs, and other potentially threatening programs on users’
computers.” Enigma alleged that, for eight years, Malwarebytes’s products
didn’t identify any Enigma products as malicious/threats/PUPs, but began to do
so in 2016. This was allegedly in retaliation for Enigma suing an affiliate of
Malwarebytes called Bleeping Computer, which held itself out to the public as
an independent website reviewing software products; in that lawsuit, Enigma
alleged that Bleeping Computer was in fact economically allied with
Malwarebytes.

“Malicious” and “threats,” in this context, were falsifiable
rather than opinion: “terminology that is substantively meaningful and
verifiable in the cybersecurity context.” These terms were not “extremely
unlikely to induce consumer reliance,” but rather “make[] a claim as to the
specific or absolute characteristics of a product” and were accordingly
actionable statements of fact under the Lanham Act. “As Enigma points out, its
products either contain malicious files and threaten the security of users’
computers, or they do not. These statements are not the type of general,
subjective claims typically deemed non-actionable opinions.”

Context was key: “malicious” and “threatening” are
“adjectives [that] admit of numerous interpretations,” but when an anti-malware
program specifically labeled Enigma’s software as “malicious” and a “threat,” a
reasonable person would plausibly interpret that as the identification of
malware. And “whether software qualifies as malware is largely a question of
objective fact, at least when that designation is given by a cybersecurity
company in the business of identifying malware for its customers.” (PUP, by
contrast, was too vague to be factual.)

The majority relied on the “ordinary meaning” of malware: software
“written with the intent of being disruptive or damaging to (the user of) a
computer or other electronic device; viruses, worms, spyware, etc.,
collectively.” This was a verifiable claim encompassing “viruses, spyware,
adware, ransomware, and Trojans.” [Prof. Goldman is going to note that one of
those things is not like the others!] “[T]he term necessarily implies that
someone created software with the intent to gain unauthorized access to a
computer for some nefarious purpose.” Does adware count as unauthorized access
if the ad part is sufficiently disclosed? The majority  thought that malware status could be determined
objectively.

And Malwarebytes plausibly accused Enigma of being malware
according to the complaint, which alleged that Malwarebytes’s software tells
users that conducting a recommended “Threat Scan” “scans all the places malware
is known to hide.” If Malwarebytes’s software detected something as a “threat”
or “PUP,” the default configuration was to “treat detections as malware.” Thus,
Enigma customers using Malwarebytes’s software to conduct a “Threat Scan” were allegedly
left with the impression that Enigma’s products were malware; the complaint
alleged that one customer contacted Enigma to inquire why “Malware bites [sic]
says [Enigma’s software] is an infection” and “another customer reported the
‘malware bytes’ program keeps detecting malware every time I try to download
your software.’”

In addition, “judges are not experts in the cybersecurity
field.… Enigma has alleged that those terms have implied meaning in that field
which was understood by a significant portion of its users, such that
Malwarebytes’s allegedly false use of those terms can be proved or disproved as
a matter of objective fact.” That was not implausible for purposes of a motion
to dismiss.

The NYGBL § 349 and tortious interference with business
relations claims were also revived; for the latter, Enigma sufficiently
identified specific customers that it lost by alleging that consumers
downloaded its products to try them out but decided not to buy a full subscription
after Malwarebytes labeled them malware. Even without the Lanham Act/§ 349 claims, a claim for
tortious interference with business relations under New York law does not
require the plaintiff to show an “independent wrongful act.” Instead, Enigma
only needs to allege that Malwarebytes acted “solely out of malice, or used
dishonest, unfair, or improper means,” which it did. But tortious interference
with contract failed because allegations that preexisting customers cancelled
their subscriptions and requested refunds because of Malwarebytes’s conduct did
not allege any contractual breach by those customers.

Judge Bumatay dissented, arguing that the statements at
issue were subjective opinions, not readily verifiable, and thus protected by
the First Amendment. The dissent pointed to Malwarebytes’ statements such as:

Analyzing and categorizing
potentially unwanted software is a complex problem. Developers of potentially
unwanted software rapidly evolve their products. Some even contain a few
characteristics that resemble legitimate software to mask the unwanted
functionality. It’s an on-going process, and we work hard to identify common
behaviors that help provide you the highest level of protection. In some cases,
where the behavior is questionable, we will list the application even if it
does not neatly fit into the listed criteria. In other words, we use our
judgment….

More details followed that covered both annoying and dangerous features. Malwarebytes also warned that “sometimes [it] get[s] it wrong” and provided an email address to ask for “reconsideration” of its decisions. The flags at issue here labeled two Enigma products as “scareware”—which Malwarebytes defines as programs that detect harmless system files and browser cookies and present them with alarming graphics “to convince users their systems have problems.”

Given the First Amendment protections for opinion even in
commercial speech, when “it is highly debatable” whether a statement is
verifiable enough to be actionable, courts must “err on the side of
nonactionability.” Here, “potentially unwanted,” a “threat,” or “malicious” all
had an “inherently subjective element.” “Even if Malwarebytes employed these
terms to protect its products from competition from Enigma, there are no
dispositive, objective criteria that would allow us to police whether the three
terms were falsely used against Enigma.”

“Threat” was “tentative,” not absolute or specific, and
whether something is a “source of harm or danger” was subjective. [Gotta say,
the dissent is not exactly selling me on this point in this context.] Enigma’s
allegations, including definitions of “threat” from statutes and other
authorities, still had a subjective component. So too with “malicious.”

As for “malware,” Enigma never alleged that Malwarebytes
explicitly labeled Enigma’s software as malware. Instead, it alleged that
Malwarebytes called its programs “threats” or PUPs and its website and domains
were “malicious” and “disruptive.” Malwarebytes’ user guide defines
“potentially unwanted programs” as a “class[] of non-malware,” and explains
that some programs “may [be] categorized as threats” even though they “are not
malicious.” The user guide did discuss malware, but also looked for PUPs in the
same places. “[U]ser guide statements that Malwarebytes’ program treats
something as ‘malware’ or scans where malware is known to be isn’t the same
thing as calling Enigma’s products ‘malware’ in commerce.” [Except the
allegations of the complaint suggest that at least some, presumably reasonable,
consumers, understood the identifications to mean “malware.” The dissent says
that “what Enigma’s customers say about Enigma is not a basis to find Lanham
Act liability against Malwarebytes,” but that’s what misleadingness is.]

The dissent also hits on the problem I noted above: adware
isn’t obviously malware, even if it can be annoying; it isn’t obviously used
for “some nefarious purpose.” Even if you can say “this isn’t malware,” that
doesn’t make it a binary determination. “One could also say, ‘whether green is
the best color is objective and verifiable, because either it is the best, or
it’s not the best.’” It’s still subjective!

The dissent thought the state law claims should also have
failed.

Enigma Software Grp. USA, LLC v. Malwarebytes, Inc., No.
21-16466 (9th Cir. Jun. 2, 2023)

Courts generally seem more likely to find falsifiability
instead of puffery when a speaker makes negative claims about rivals rather
than positive claims about itself. Enigma sued its competitor Malwarebytes for
Lanham Act false advertising and NY business torts for designating its products
as “malicious,” “threats,” and “potentially unwanted programs” (PUPs). The
district court dismissed the complaint on the grounds that these designations
were “non-actionable statements of opinion.” Over a dissent, the court of
appeals reverses, except as to “PUP.” “[W]hen a company in the computer
security business describes a competitor’s software as ‘malicious’ and a ‘threat’
to a customer’s computer, that is more a statement of objective fact than a
non-actionable opinion.” This also required reversal of the NYGBL §349 false advertising
claim and tortious interference with business relations claim, though the
tortious interference with contractual relations claim still failed for want of
specific allegations of interfered-with contracts.

Enigma alleged that its software products “(i) detect and
remove malicious software (i.e., malware)” such as “viruses, spyware, adware,
ransomware, and Trojans; (ii) enhance users’ Internet privacy; (iii) offer
users the choice to block ‘Potentially Unwanted Programs’ (‘PUPs’); and/or (iv)
eliminate security threats and risks from problematic software programs.”

Malwarebytes software also allegedly claims to “detect and
remove malware, PUPs, and other potentially threatening programs on users’
computers.” Enigma alleged that, for eight years, Malwarebytes’s products
didn’t identify any Enigma products as malicious/threats/PUPs, but began to do
so in 2016. This was allegedly in retaliation for Enigma suing an affiliate of
Malwarebytes called Bleeping Computer, which held itself out to the public as
an independent website reviewing software products; in that lawsuit, Enigma
alleged that Bleeping Computer was in fact economically allied with
Malwarebytes.

“Malicious” and “threats,” in this context, were falsifiable
rather than opinion: “terminology that is substantively meaningful and
verifiable in the cybersecurity context.” These terms were not “extremely
unlikely to induce consumer reliance,” but rather “make[] a claim as to the
specific or absolute characteristics of a product” and were accordingly
actionable statements of fact under the Lanham Act. “As Enigma points out, its
products either contain malicious files and threaten the security of users’
computers, or they do not. These statements are not the type of general,
subjective claims typically deemed non-actionable opinions.”

Context was key: “malicious” and “threatening” are
“adjectives [that] admit of numerous interpretations,” but when an anti-malware
program specifically labeled Enigma’s software as “malicious” and a “threat,” a
reasonable person would plausibly interpret that as the identification of
malware. And “whether software qualifies as malware is largely a question of
objective fact, at least when that designation is given by a cybersecurity
company in the business of identifying malware for its customers.” (PUP, by
contrast, was too vague to be factual.)

The majority relied on the “ordinary meaning” of malware: software
“written with the intent of being disruptive or damaging to (the user of) a
computer or other electronic device; viruses, worms, spyware, etc.,
collectively.” This was a verifiable claim encompassing “viruses, spyware,
adware, ransomware, and Trojans.” [Prof. Goldman is going to note that one of
those things is not like the others!] “[T]he term necessarily implies that
someone created software with the intent to gain unauthorized access to a
computer for some nefarious purpose.” Does adware count as unauthorized access
if the ad part is sufficiently disclosed? The majority  thought that malware status could be determined
objectively.

And Malwarebytes plausibly accused Enigma of being malware
according to the complaint, which alleged that Malwarebytes’s software tells
users that conducting a recommended “Threat Scan” “scans all the places malware
is known to hide.” If Malwarebytes’s software detected something as a “threat”
or “PUP,” the default configuration was to “treat detections as malware.” Thus,
Enigma customers using Malwarebytes’s software to conduct a “Threat Scan” were allegedly
left with the impression that Enigma’s products were malware; the complaint
alleged that one customer contacted Enigma to inquire why “Malware bites [sic]
says [Enigma’s software] is an infection” and “another customer reported the
‘malware bytes’ program keeps detecting malware every time I try to download
your software.’”

In addition, “judges are not experts in the cybersecurity
field.… Enigma has alleged that those terms have implied meaning in that field
which was understood by a significant portion of its users, such that
Malwarebytes’s allegedly false use of those terms can be proved or disproved as
a matter of objective fact.” That was not implausible for purposes of a motion
to dismiss.

The NYGBL § 349 and tortious interference with business
relations claims were also revived; for the latter, Enigma sufficiently
identified specific customers that it lost by alleging that consumers
downloaded its products to try them out but decided not to buy a full subscription
after Malwarebytes labeled them malware. Even without the Lanham Act/§ 349 claims, a claim for
tortious interference with business relations under New York law does not
require the plaintiff to show an “independent wrongful act.” Instead, Enigma
only needs to allege that Malwarebytes acted “solely out of malice, or used
dishonest, unfair, or improper means,” which it did. But tortious interference
with contract failed because allegations that preexisting customers cancelled
their subscriptions and requested refunds because of Malwarebytes’s conduct did
not allege any contractual breach by those customers.

Judge Bumatay dissented, arguing that the statements at
issue were subjective opinions, not readily verifiable, and thus protected by
the First Amendment. The dissent pointed to Malwarebytes’ statements such as:

Analyzing and categorizing
potentially unwanted software is a complex problem. Developers of potentially
unwanted software rapidly evolve their products. Some even contain a few
characteristics that resemble legitimate software to mask the unwanted
functionality. It’s an on-going process, and we work hard to identify common
behaviors that help provide you the highest level of protection. In some cases,
where the behavior is questionable, we will list the application even if it
does not neatly fit into the listed criteria. In other words, we use our
judgment….

Here are some of the criteria we
use:

•           obtrusive,
misleading, or deceptive advertising, branding, or search practices

•           excessive
or deceptive distribution, affiliate or opt-out bundling practices

•           aggressive
or deceptive behavior especially surrounding purchasing or licensing

•           unwarranted,
unnecessary, excessive, illegitimate, or deceptive modifications of system
settings or configuration (including browser settings and toolbars)

•           difficulty
uninstalling or removing the software

•           predominantly
negative feedback or ratings from the user community

•           diminishes
user experience

•           other
practices generally accepted as riskware, scareware, adware, greyware, or
otherwise commonly unwanted software by the user community

Malwarebytes also warned that “sometimes [it] get[s] it
wrong” and provided an email address to ask for “reconsideration” of its
decisions. The flags at issue here labeled two Enigma products as
“scareware”—which Malwarebytes defines as programs that detect harmless system
files and browser cookies and present them with alarming graphics “to convince
users their systems have problems.”

Given the First Amendment protections for opinion even in
commercial speech, when “it is highly debatable” whether a statement is
verifiable enough to be actionable, courts must “err on the side of
nonactionability.” Here, “potentially unwanted,” a “threat,” or “malicious” all
had an “inherently subjective element.” “Even if Malwarebytes employed these
terms to protect its products from competition from Enigma, there are no
dispositive, objective criteria that would allow us to police whether the three
terms were falsely used against Enigma.”

“Threat” was “tentative,” not absolute or specific, and
whether something is a “source of harm or danger” was subjective. [Gotta say,
the dissent is not exactly selling me on this point in this context.] Enigma’s
allegations, including definitions of “threat” from statutes and other
authorities, still had a subjective component. So too with “malicious.”

As for “malware,” Enigma never alleged that Malwarebytes
explicitly labeled Enigma’s software as malware. Instead, it alleged that
Malwarebytes called its programs “threats” or PUPs and its website and domains
were “malicious” and “disruptive.” Malwarebytes’ user guide defines
“potentially unwanted programs” as a “class[] of non-malware,” and explains
that some programs “may [be] categorized as threats” even though they “are not
malicious.” The user guide did discuss malware, but also looked for PUPs in the
same places. “[U]ser guide statements that Malwarebytes’ program treats
something as ‘malware’ or scans where malware is known to be isn’t the same
thing as calling Enigma’s products ‘malware’ in commerce.” [Except the
allegations of the complaint suggest that at least some, presumably reasonable,
consumers, understood the identifications to mean “malware.” The dissent says
that “what Enigma’s customers say about Enigma is not a basis to find Lanham
Act liability against Malwarebytes,” but that’s what misleadingness is.]

The dissent also hits on the problem I noted above: adware
isn’t obviously malware, even if it can be annoying; it isn’t obviously used
for “some nefarious purpose.” Even if you can say “this isn’t malware,” that
doesn’t make it a binary determination. “One could also say, ‘whether green is
the best color is objective and verifiable, because either it is the best, or
it’s not the best.’” It’s still subjective!

The dissent thought the state law claims should also have
failed.

from Blogger http://tushnet.blogspot.com/2023/06/the-factopinion-divide-threat-or-menace.html

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Are surcharge disclosures fair?

Posted on May 31, 2023 by rtushnet

 Seen on a recent menu. They reprinted it to include this information; they could have reprinted with the actual higher prices, and if they ever intend to drop the surcharge they’ll have to reprint again, so the only motivation seems to be to disguise the price hike/keep it out of customers’ minds as they are ordering. 

from Blogger http://tushnet.blogspot.com/2023/05/are-surcharge-disclosures-fair.html

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Mexican flag and “taste of Mexico” not enough to deceive reasonable consumers about non-Mexican origin, 2d Cir rules

Posted on May 23, 2023 by rtushnet

Hardy v. Olé Mexican Foods, Inc., 2023 WL 3577867, No.
22-1805 (2d Cir. May 22, 2023) (per curiam)

There was a CD
Cal case raising the same “false Mexican origin” claims with a different
result. Hardy alleged that defendant’s La Banderita tortilla products violated
the NY GBL by deceiving consumers into believing the products were made in Mexico,
not the US. The court of appeals affirmed the dismissal of the complaint.

Hardy had standing for the product he purchased, and class
standing for three unpurchased products that made the same allegedly false
claims that led to a price premium.

“On the La Banderita Products, a graphic resembling the
Mexican flag (but with corn stalks instead of the coat of arms of Mexico)
figures prominently in the center of the packaging and sets the green-white-red
color scheme of the packaging.” The edges of the packaging may also display a
smaller version of the flag graphic – this time with a white bull replacing the
white segment of the flag – and the phrase “A Taste of Mexico!” On the back of
the packaging there is a La Banderita logo and the flag graphic, followed by a
“Nutrition Facts” table, heating instructions, and barcode. The bottom-left
corner includes graphics stating that the products are “MANUFACTURED BY: OLÉ
MEXICAN FOODS, INC. NORCROSS, GA 30071” and “MADE IN U.S.A.”

In the context of the whole package, this was not likely to
mislead a reasonable consumer. While the front of package features “may
encourage consumers to draw associations with Mexico and promote the belief
that the products contain Mexican-style flavors and ingredients, no reasonable
consumer would construe these elements to be an affirmative representation that
the La Banderita Products were in fact manufactured in Mexico.” This was
especially true given the conspicuous back-of-package statement. There is no
rule that information on the back of a package is always irrelevant.
While a small-print ingredient list cannot “cure” front-label representations
that are otherwise highly deceptive because “reasonable consumers expect that
the ingredient list contains more detailed information about the product that
confirms other representations on the packaging,” that isn’t necessarily true
outside the context of nutritional labels. It’s not true here, where “the
front-side packaging makes no express representations as to the origin of the
La Banderita Products, while the back of the packaging unambiguously notes
where the products were ‘made’ and ‘manufactured.’”

from Blogger http://tushnet.blogspot.com/2023/05/mexican-flag-and-taste-of-mexico-not.html

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court: there’s no right to jury trial when seeking only injunction/disgorgement in false advertising case

Posted on May 22, 2023 by rtushnet

Bluegreen Vacations Unlimited, Inc. v. Timeshare Lawyers
P.A., 2023 WL 3510374, No. 20-24681-Civ-Scola (S.D. Fla. May 17, 2023)

The court grants these timeshare plaintiffs’ motion for a
bench trial, ruling that the Seventh Amendment doesn’t guarantee a jury trial
in a false advertising case where the plaintiffs seek only equitable remedies.
I presume that the defendants think that a jury might be more sympathetic to
their unclean hands-type arguments, and they also argued they’d wasted a bunch of time and resources preparing for a jury; the court notes that “a significant portion
of the Defendants’ opposition highlights what is perhaps best referred to as
Bluegreen’s persistent gamesmanship in this and related cases.”

 The issue of “whether
a right to a jury trial exists turns on whether the claims were historically
cognizable at law or considered equitable.” This requires comparing the
statutory action to 18th-century actions, then examining the remedy sought; the
latter is the more important consideration. The Eleventh Circuit previously held
that a plaintiff in a trademark infringement suit under the Lanham Act is not
entitled to a jury trial when it seeks only disgorgement of the defendant’s
profits in lieu of actual damages. Hard Candy, Ltd. Liab. Co. v. Anastasia
Beverly Hills, Inc., 921 F.3d 1343, 1348 (11th Cir. 2019).

Although this was a false advertising case with no obvious
18th-century analogue, the court found Hard Candy dispositive. The
nature of the relief requested—disgorgement and an injunction—was the
determining factor. This also applied to plaintiffs’ tortious interference and
civil conspiracy claims, even though both causes of action were traditionally
cognizable at law.

from Blogger http://tushnet.blogspot.com/2023/05/court-theres-no-right-to-jury-trial.html

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alleged price bait-and-switch with large “processing fee” suffices to plead Lanham Act false advertising

Posted on May 22, 2023 by rtushnet

New Vision Unlimited, LLC v. Glasses USA, Inc., 2023 WL
3535386, No. 22-22534-Civ-Scola (S.D. Fla. May 18, 2023)

New Vision, an eye-care professional and provider of optical
goods and services, including contact lens fittings and contact lens sales with
seven brick-and-mortar locations and two websites, brought a putative class
action against four online contact-lens retailers for Lanham Act false advertising.
The court denied a motion to dismiss.

Defendants promote their lenses through Google and other
search engines, advertising low prices that are allegedly “far lower” than the
prices New Vision and other “honest” retailers advertise. Consumers of contact
lenses are allegedly very price conscious and thus this works, but, New Vision
alleged, “only after a customer has filled out online forms, providing details
about her prescriptions, contact information for her doctor (to verify her
prescription), and certain biographical and payment information, do the
Defendants reveal there is a ‘processing fee’ added to the order” of about
twice the initially advertised cost. This final cost is allegedly “about the
same as the prices honest retailers such as Plaintiff advertise, because this
is the true market price.”

Although New Vision alleged that the processing fee was
hidden enough that, “many times,” “consumers do not even notice that the total
amount they are being charged for the order is about the same as what they
would have paid if they bought from [New Vision],” screenshots in the complaint
show the processing fee presented in plain type, in normal-size font, in the
middle of the secure checkout page. (Those things are not necessarily
incompatible, given that consumers might think there’s nothing more than
ministerial stuff to do to check out, especially given autofill. I wonder what
discovery may show about whether consumers ever complain afterwards.) New
Vision alleged that, even if consumers do notice the fee, sunk costs keep them
at the sites, and they may also mistakenly believe that all contact-lens
retailers charge similar “processing fees.”

Defendants argued that their ads were literally true because
consumers can actually purchase one box of the advertised contact lenses for
the published price, and any conceivable deception was cured by the full
disclosure of the added processing fees prior to final purchase.

Defendants supplied screenshots from each of their websites,
showing that no processing fee is added to a consumer’s purchase when only one
box is selected. But first, there was no way of knowing whether these current
offerings were the same as those during the period at issue in the complaint.
Second, the allegations of the complaint were that the typical orders were
twice as much as advertised, which this didn’t refute. Third, some of the ads
were at least capable of being false even under this interpretation. E.g., one
of the Contact Lens King ads in the complaint offers a “90 Pack” for “Only
$26.22/box.” “While it may be possible to interpret this, as the Defendants
urge, to mean that Contact Lens King will in fact honor the $26.22 price if a
customer’s purchase is limited to one box, that is certainly not the only
interpretation. … [A] reasonable interpretation would be that the advertised
$26.22 price is per box, regardless of how many boxes are ordered.”

Nor did disclosure prior to final checkout solve the
problem, given the sunk costs allegations that “the complained of fees are not
revealed until deep into the purchasing process or at least not until the
consumers have already been lured away.” The court also rejected the argument
that, because the complained-of practices were allegedly commonplace, they
weren’t actionable. There is consumer protection even in the market for lemons!

Along with literal falsity, misleadingness was also
plausible. Even if “consumers won’t notice a processing fee that doubles the
cost” was problematic as an allegation, New Vision offered other deceptiveness
theories, based on bait and switch advertising/sunk costs.

Materiality was also plausible. Defendants argued that, if
consumers didn’t notice the near doubling of the price, then the advertised
prices couldn’t have been material; and if they did notice but buy anyway, that
also showed immateriality. But “the role the initial alleged price deception
played in driving consumers away from New Vision and towards the Defendants”
was also relevant. “It is not the materiality of the processing fees that is at
issue here but, rather, it is the materiality of the deceptive prices published
in the Defendants’ ads that drives consumers to the Defendants’ websites and
then ultimately influences their final purchasing decisions.”
Defendant-favorable cases, including resort fee cases, were distinguishable as
involving more/earlier disclosure (and mostly ignore the sunk costs problem
anyway). Defendants “improperly framed their materiality analysis, focusing
only on the consumers’ ultimate decisions to go through with their purchases of
the Defendants lenses, without any consideration of the separate deceptive
advertisement that got them there.”

Although some of the injury allegations were conclusory, New
Vision alleged sufficient harm. It described a “typical scenario,” in which one
of New Vision’s patients asks for a price for a particular product, compares
New Vision’s price to defendants’ ads, “complains that Plaintiff’s store is
‘overcharging’ and ‘too expensive,’ ” and, despite staff’s attempts to explain,
leaves without buying and ends up “believing that Plaintiff’s prices are not
competitive across the board.” The court was willing to accept that New Vision
was attesting to actual sales it has lost in the manner it describes as a
“typical scenario.”

from Blogger http://tushnet.blogspot.com/2023/05/alleged-price-bait-and-switch-with.html

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Great balls of fire: lawsuit over malt sold looking nearly identical to whisky can continue

Posted on May 22, 2023 by rtushnet

McKay v. Sazerac Co., 23-cv-00522-EMC (N.D. Cal. May 17,
2023)

The court rejected Sazerac’s motion to dismiss McKay’s usual
California statutory and common law claims on behalf of a putative class
based on Sazerac’s labeling and marketing of mini bottles of Fireball malt
beverages, which look almost the same as Fireball Whisky.

image from complaint
Fireball Malt back

Did you know that Fireball Whisky has been sold since 1989
and is the fifth best-selling spirit in the United States? It’s Canadian
whisky—a distilled spirit—with added cinnamon syrup and sweeteners, and is 66
proof (33%) alcohol by volume (ABV). It’s sold in many sizes, from 1.75L
bottles to 50ML mini bottles. The label reads “Cinnamon Whisky.”

Fireball Malt debuted in 2020. It is a malt or wine-based
beverage with added cinnamon syrup, sweeteners, and whisky flavors, and results
in 33 proof (16.5%) alcohol by volume (ABV). It has no whisky and is only sold
in 50ML mini bottles. The label reads “Cinnamon” and, in smaller font, “Malt
Beverage With Natural Whisky & Other Flavors and Carmel Color.”

Because it’s not hard liquor, it can be sold in more
locations, such as gas stations and convenience stores.

The court rejected Sazerac’s argument that it was protected
by the safe harbor doctrine, which allows conduct that the legislature has
specifically considered and permitted. Here, the Alcohol and Tobacco Tax and
Trade Bureau granted a certificate of label approval (COLA) covering Fireball
Malt. The regs say that a COLA may not be issued if the label contains “any
statement or representation, irrespective of falsity, that is misleading to
consumers as to the age, origin, identity, or other characteristics of the malt
beverage” or if any label statement “directly creates a misleading impression
or if it does so indirectly through ambiguity, omission, inference, or by the addition
of irrelevant, scientific, or technical matter.” But “neither of these
provisions clearly permit the type of representations made by Sazerac in the
Fireball Malt label.” “To forestall an action under the unfair competition law,
another provision must actually ‘bar’ the action or clearly permit the
conduct.”

The claims here didn’t turn solely on Sazerac’s failure to
use font of the minimum size required by a regulation or disclose added
flavoring as required by another regulation. “Rather, it is the combination of
the labeling and appearance that creates confusion between the whisky and malt
bottles. Plaintiff’s claims are predicated on a comparative analysis of the two
products in question. Importantly, there is no evidence that the TTB
regulations address any sort of comparative analysis with other labels, or test
for consumer confusion.”

As another court reasoned, “COLAs are too ‘informal’ to be
considered regulations having the force of law. Compared to the ‘rigorous’
approval process for prescription-drug labels, the TTB process ‘hinges on self
reporting’ and reflects only the representations made to it by the distributor,
not an endorsement of those claims.”

The court also found fraud adequately pled, including for
the statutory claims. The complaint plausibly alleged affirmative
misleadingness given that the two products’ labels were “substantially the
same,” including the brand name “Fireball,” Sazerac’s fire- breathing dragon
logo, the words “RED HOT,” the same color scheme, burnt edge, font and labeling,
and the words “CINNAMON.” Fireball Malt bore the ambiguous descriptor “Malt
Beverage With Natural Whisky & Other Flavors and Carmel Color” and was
packaged in a 1.7-oz, shot-size bottle “common for hard liquor.” The court
rejected Sazerac’s argument that the other descriptors on the label make plain
that Fireball Malt is a malt beverage, not a whisky, citing to the language of
“Malt Beverage,” “ALC 16.5% BY VOL,” and “WHAT YOU HAVE HERE TASTES LIKE SMOOTH
WHISKY WITH A FIERY KICK OF RED HOT CINNAMON” located on the back of the
product.

Tasting “like” whisky didn’t clearly preclude a reasonable
interpretation that it was or included whisky. “It is also not clear that
consumers would carefully scrutinize the tiny print of ‘Malt Beverage’ and ‘ALC
16.5% BY VOL’ in light of the other flashier language and design of the packaging.”
Ordinary consumers don’t have “an obligation to conduct extensive linguistic
analysis on their grocery shopping runs.”

Sazerac further argued that McKay should have known that the
products he bought in a gas station were not whisky because gas stations are
not licensed to sell hard liquor. But a reasonable consumer “could well be
unaware of which establishments hold which liquor license types. He may not
know that a gas station store can sell malt but not whisky. This is especially
so if he is making a quick roadside purchase. He might also assume that the
store is not complying with the terms of its liquor license.” The complaint
even alleged that “[o]ne radio personality who saw a huge Fireball display in
front of the cash register at a gas station wondered if ‘that specific store
was doing something they’re not supposed to be doing’ by selling ‘cinnamon
flavored whiskey!!’” Nor would a reasonable consumer need to compare his
purchase with other beverages in the vicinity to assess whether the store sold
only beer/wine and malt. Sazerac argued that it has structured its distribution
such that Fireball Whisky and Fireball Malt and never both placed in the same
store. “But the reasonable consumer may not be aware of Sazerac’s distribution
practices.”

McKay also successfully alleged concealment under the CLRA,
FAL, and UCL. An actionable “omission must be contrary to a representation
actually made by the defendant, or an omission of a fact the defendant was obliged
to disclose.” Such an obligation arises when (1) “the omission was material,”
(2) the omission relates to a fact that is “central to the product’s function,”
and (3) one of four special circumstances exists, including partial
representations that are misleading because some other fact has not been
disclosed. That was alleged here.  

It was too early to tell whether equitable claims had to be
dismissed because legal relief was sufficient; McKay also had standing to seek
injunctive relief.

from Blogger http://tushnet.blogspot.com/2023/05/great-balls-of-fire-lawsuit-over-malt.html

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Second Circuit signals some minimal flexibility on Polaroid analysis in another strip club false endorsement case

Posted on May 22, 2023 by rtushnet

Souza v. Exotic Island Enters., Inc., 2023 WL 3556053, No.
21-2149-cv, — F.4th —- (2d Cir. May 19, 2023)

Whereas the timeshare false advertising cases might be
making law largely applicable to other timeshare cases, what’s going on in the
strip club advertising cases might have somewhat broader implications. (Both
sets feature lots of cases against lots of defendants; the strip club cases
seem to be more geographically dispersed, which may also contribute.)

Appellants, current and former professional models, appealed
their summary judgment loss on a variety of claims arising from the use of
their images in social media posts promoting a “gentlemen’s club” operated by EIE.
The court of appeals affirmed, including on the district court’s decision not
to exercise supplemental jurisdiction over remaining state claims.  

The basic undisputed allegation was that EIE, through a
third-party vendor, used plaintiffs’ images without their permission in social
media posts promoting its club.

The district court concluded that plaintiffs’ false
endorsement claims were foreclosed by Electra v. 59 Murray Enters., Inc., 987
F.3d 233 (2d Cir. 2021); their false advertising claims were founded upon
injury that either fell outside the zone of interests protected by the Lanham
Act, or that was unsubstantiated by the record; and the bulk of their state-law
right of publicity claims were barred by New York’s one-year statute of
limitations for such claims.

In substantially identical declarations, plaintiffs testified
that because they “rely on [their] professional reputation[s] to book modeling
and advertising jobs,” their reputations are “critical” to the opportunities
they are offered, and they therefore “have spent considerable time and energy”
protecting and policing their images and reputations, and carefully negotiating
their modeling fees based on “informed assessment[s]” of any given job’s effect
on their brands. Plaintiffs had “varying levels of success and visibility in
their modeling careers.” Several had appeared in magazines, advertising
campaigns, television episodes, and films. Some were former Playboy Playmates.
Their highest yearly modeling earnings range from around $18,300 to around
$107,000. Their social media footprints range from several thousand to a few
million followers. They had “fleeting” links to New York, and most no longer
work as full-time models.

From 2014-2018, the posts at issue used revealing photos of
the plaintiffs against ad copy linked thematically to the visual, e.g., a picture
of one plaintiff “in an apparent school uniform that included a short plaid
skirt, captioned: ‘Friday Oct 17th SEXY SCHOOL GIRL PARTY! No Cover For Ladies
That Wear A Sexy School Girl Skirt[.] All Our Dancers Will Be Wearing Short
Plaid Skirts!’” 

In response to interrogatories, plaintiffs couldn’t identify
specific jobs or work lost as a result of the posts. Instead, they responded
that “prospective clients have no duty to disclose to the model their reasoning
for why the model was denied an endorsement opportunity. It is also a widely
known fact that on the outset of creating a highly coveted endorsement deal,
clients and/or their advertising agencies will conduct due diligence of models
in advance of contacting a model to discuss an endorsement opportunity.” Thus,
they argued, they couldn’t know their losses.

Is likely confusion an issue of fact or one of law? “[A]lthough
our stance may have wobbled over the years, recent cases have solidified our
view that, ‘[i]nsofar as the determination of whether one of the Polaroid
factors favors one party or another involves a legal judgment – which it often
does – we must review that determination de novo.’” Thus, the overall standard
of review is de novo: whether confusion is likely is a matter of law.

False endorsement assesses the Polaroid factors.
Here, the district court correctly held that strength of the mark favored
defendants. Recognizability is the bottom line for strength of a mark. As
previously held, “misappropriation of a completely anonymous face could not
form the basis for a false endorsement claim.” Although inherent
distinctiveness is also relevant to strength generally, there was no argument
that plaintiffs’ marks were inherently distinctive. And the court noted that
inherent distinctiveness as a concept was “more awkward to apply when it
effectively interrogates how much one human being does, or does not, physically
resemble another…. The usual criteria for inherent distinctiveness … have
little application here.”

For false endorsement, the “mark” in question “is the
identity of the purported endorser herself.” But

an endorser’s face and body fall
nowhere on the familiar spectrum from “arbitrary” to “generic”; their identity
inherently is their mark. And where any face or figure regarded as “attractive,”
will do, notwithstanding the anonymity of the actual person whose face or
figure is depicted (and the negligible endorsement value derived from that
actual person’s connection to the product being sold), the unauthorized use of
that person’s image may invade rights granted by other statutes or common law
sources, but creates no risk of consumer confusion as conceived under the
Lanham Act.

Some limits on the Polaroid spectrum! The other way
to say it is that indicia of identity are descriptive, but this works too.
Anyway, “recognizability thus serves the purposes of trademark law in the false
endorsement context.”

The district court correctly evaluated the relevant evidence
of recognizability. It didn’t abuse its discretion in excluding plaintiffs’
proffered expert testimony as unreliable, and there was next to nothing left
without that. A district court “should only exclude [expert] evidence if the
flaw is large enough that the expert lacks good grounds for his or her
conclusions.” The proffered expert’s survey of 812 respondents “who had
patronized … a ‘Bikini Bar/Gentlemen’s Club/Strip Club’ in the past two
years,” wasn’t reliable because of methodological problems: The study lacked a
control group; had an “overly inclusive” approach to recognition; and failed to
show respondents several plaintiffs’ full faces “(which, the court noted,
somehow did not appear to have meaningfully affected respondents’ professed
ability to recognize the Plaintiffs who were pictured).” The overly inclusive
bit was because recognizability is about whether consumers would actually
assume sponsorship or approval and not just mere appearance in an ad; finding
an image “vaguely familiar” or having “in some manner” seen the plaintiff
before taking the survey wasn’t helpful in answering that question.

The remaining evidence was insufficient:

This consisted of (1) vague and
conclusory (and identical) written testimony from Plaintiffs that each had
“achieved celebrity status and fame” and that “[o]n any given day, regardless
of where I’m at, I am recognized by complete strangers and my fans who follow
me on social media,” and (2) evidence of Plaintiffs’ relatively modest modeling
income, professional prominence, and social media footprints, which the
district court determined (in a finding Plaintiffs do not contest on appeal) to
be, at best, comparable to evidence the Electra panel had deemed
insufficient to establish a strong mark.

After excluding more of the expert’s testimony, actual
confusion also favored defendants. That testimony claimed that: (1) 62% of
respondents agreed with the statement that “[a]ll the women shown in these ads
have some affiliation, connection or association with those clubs in whose ad
they appear”; (2) 75% agreed that “[a]ll of the women in these ads have agreed
to sponsor, endorse or promote the club represented in these ads”; and (3) 76%
agreed that “[a]ll of the women in the ads approve of the use of their image in
those Club advertisements in which they appear.”

But this part of the survey required respondents to give
their impressions of all the images, rather than differentiating among
different images and/or plaintiffs, and the survey neither provided respondents
with a “don’t know” option nor instructed them “not to guess.” This wasn’t
abuse of discretion (even though other district judges might have done otherwise).

Without that, there was no “meaningful” evidence of actual
confusion. At deposition, one of defendants’ witnesses was asked if the fact
that one of the posts at issue included the phrase “our girls” would cause a
“reasonable customer” to believe “well, they’re saying our girls; this is one
of the girls who is going to be there.” He responded: “That’s up to them. I’m
not – some may, some may not. It’s the individual’s discretion if they choose
to believe what they see.” This was his own subjective perception of the post’s
effect on consumers; it “may be probative of his state of mind, but nothing
about [his] speculative answer to a speculative question establishes that any
actual consumer was actually confused.”

In addition, even if consumers were “hoodwinked” as
described, “thus giving rise to a plausible deceptive trade practices claim,” that’s
not false endorsement:

A generic misconception that the
anonymous, unrecognized models in the posts are in fact the same models who
work at [the club] inflicts the same injury on a consumer irrespective of any
goodwill those models have cultivated in their own “marks,” because that
misconception does not rely upon such goodwill in the first place…. In other
words, the misconception goes to the nature of the product itself, not the
mistaken belief that someone whose imprimatur the consumer values has vouched
for that product.

The district court also correctly held that bad faith
weighed in defendants’ favor. As in Electra, they used third-party
contractors to create the ads and publish them, and there was no evidence that
they ever asked those contractors to use a photo of a specific person.

The district court’s factor balancing was also correct; it
focused on three of the eight factors, discussed above, and then assumed
without deciding that the remaining ones favored plaintiffs. Although that
approach is “discouraged” in this circuit, and to avoid a costly remand
district courts should go through all the factors, it was ok here.

Comment: I’m not really sure how to evaluate this
argument—if it’s often a matter of law, that suggests remand wouldn’t be
necessary in many cases, and if the district court errs in the factors it does
analyze, that seems like it would often make remand necessary anyway, but the
larger problem is, I think, that not all the factors are always relevant. Like
“quality,” for example, which the Second Circuit refuses to go en banc to get
rid of (and, by the way, its rule that you have to march through all the
factors was a later panel rejecting an earlier panel; shouldn’t they have had
to go en banc to do that?) Technically, one could now argue that the
nominative fair use factors should be considered in every Second Circuit case,
at least where raised by the defendant, but that seems useless and perhaps
misdirective where it’s the other factors that are really more relevant.

Anyway, the court concluded, vacatur was not inevitable even
when a district court “neglects to account” for all eight factors. Though it’s
“risky,” in “rare cases … the weight of binding precedent may obviate the need
for a complete Polaroid analysis.” This was such a case, given Electra.
“We cannot fault a district court for its reasonable adherence to recent,
directly-on-point, binding precedent constructed upon substantially
indistinguishable facts.” And plaintiffs didn’t present any reasons to suggest
that the other factors weighed more strongly in their favor than they did in Electra.

Plaintiffs argued that, if more factors favored them than
disfavored, they should have won, but the balancing isn’t a counting exercise
(which, not for nothing, is why the “gotta count them all” analysis is
not great).

False advertising: Lexmark was consistent with prior
circuit precedent that a viable false advertising claim requires the plaintiff
to have been “injured as a result of the misrepresentation, either by direct
diversion of sales or by a lessening of goodwill associated with its products.”
Likewise, Lexmark supported the circuit rule that, although such injury
may be “presumed” from a direct competitor’s “false comparative advertising
claim,” in all other cases, a plaintiff must present some affirmative
“indication of actual injury and causation.” Lexmark didn’t foreclose
courts from granting a presumption of injury to direct competitors while
requiring others to present evidence of injury and causation. There was no
evidence of direct competition, nor was there evidence of injury and causation.

Plaintiffs claimed that they might have lost out on work due
to the “reputational hit” from being linked with a strip club, and that they
were deprived of licensing revenue for their images. The first type of injury
could satisfy Lexmark; there just wasn’t any evidence that it happened.
Even if they couldn’t get direct evidence because people don’t explain why they
don’t hire you, there were other things they could have done: There was nothing
in the record that anyone who might conceivably have hired them ever saw the
posts in question; there was no temporal evidence correlating downturns in
their careers with the appearance of the posts; there was no expert testimony
of “the effect of this kind of R-rated association on a typical model’s career
– much less on these particular models’ careers.”

The second type of injury, lost
licensing revenue, didn’t fall within the Lexmark zone of interests
test. It wasn’t “reputational” injury, and it didn’t flow from the deception
wrought by the ads.  

Finally, the district court
correctly found most of the right of publicity claims time-barred. Recent
changes to the NY right of publicity didn’t change the limitations period.

from Blogger http://tushnet.blogspot.com/2023/05/second-circuit-signals-some-minimal.html

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court allows some claims based on allegedly misleading statistical claims for pregnancy test: Bayes’ Theorem in the courts

Posted on May 19, 2023 by rtushnet

In re Natera Prenatal Testing Litig., No. 22-cv-00985-JST,
2023 WL 3370737, — F. Supp. 3d – (N.D. Cal. Mar. 28, 2023)

Natera sells Panorama, a noninvasive prenatal testing
(“NIPT”) product which screens for an array of fetal chromosomal and genetic
conditions:

NIPTs are screening tests, not
diagnostic tests; while an NIPT can screen patients for a “high risk” of the
presence of a particular fetal condition, a patient who receives a positive
NIPT result should follow up with diagnostic testing to confirm the presence of
that condition.… Diagnostic tests, though more accurate than NIPTs, are also
more invasive, are associated with a risk of miscarriage, and must be conducted
later in the pregnancy term. In 2020, the American College of Obstetricians and
Gynecologists (“ACOG”) changed its guidance to recommend that all pregnant
persons “be offered both screening and diagnostic testing options.”

Natera’s advertising touted “fewer false positives and fewer
false negatives” and offered patients the ability to “[d]iscover more about
your baby’s health.” It included a testimonial from a patient “now planning a
birth at a regular maternity ward instead of closer to the children’s hospital
thanks to this painless test!” Its website described Panorama as “the most
reliable way of non-invasively assessing a baby’s health,” having been tested
with “the largest prospective NIPT study” with outcomes of “~90% samples with
genetic truth.” It stated that a “high risk” finding for a particular condition
“indicates a very high probability that your baby may have [the] condition.” It
highlighted Panorama’s positive predictive value (PPV) for Down syndrome of
over 90% and describes Panorama as “[n]on-invasive and highly accurate, …
identif[ying] more than 99% of pregnancies affected with Down syndrome [with]
the lowest reported false positive rate of any prenatal screening test for the
commonly screened chromosomal abnormalities: [Down syndrome], trisomy 18, and
trisomy 13.”

The importance of PPV is easy to overlook. (I’m working on a
paper with Chris Buccafusco now about this problem in music copyright cases.)
If there is any false positive rate at all, and if the base rate of the
tested-for condition is low, then a positive result can be much more likely
than not to be a false positive, even if the test has a very low false positive
rate. And most people find this very difficult to understand—how could a
99% reliable test be wrong more often than not? This is sometimes known as
“base rate neglect.” Down syndrome is the best case for PPV because its
prevalence in the population is much higher than most of the other tested-for
conditions.

As the court explained,

Panorama’s accuracy varies widely
across conditions. While Panorama is very effective in screening for Down
syndrome, it is much less effective in screening for rare genetic conditions,
including those caused by microdeletions. … Natera knew, but did not disclose,
that Panorama has a high rate of false positives for microdeletion-related and
other rare conditions. In 2016, Natera acknowledged the results of a published
study which found that Panorama had an 18% PPV for DiGeorge syndrome, a rare
genetic condition. In other words, 82% of Panorama’s positive results for DiGeorge
syndrome were false positives. Panorama’s PPVs for other rare conditions –
which similarly were not disclosed in marketing materials – are as low as 2-5%,
such that up to 98% of positive results for those conditions are false
positives.

Yet Natera allegedly advertised Panorama “as reliable
overall, prominently emphasizing the accuracy rates of the tests for more
common conditions like Down [s]yndrome [which] Panorama can reasonably detect.”
Natera’s brochure for consumers didn’t include any information about PPV rates,
and the website listed only the PPV for Down syndrome.

The putative class plaintiffs all received Panorama results
requiring further evaluation and subsequently underwent subsequent monitoring
by medical specialists or invasive diagnostic testing, incurring additional
expenses. Each of their Panorama results turned out to be a false positive.
They brought the usual California
statutory claims, warranty and common-law claims, and claims under the
consumer protection laws of other states (Maryland, Illinois, Florida, and New
Jersey).

Claims for misrepresentation by partial omission with
particularity, plaintiffs needed to identify the allegedly misleading
representations that each of them saw and relied upon in deciding to purchase
Panorama, but they didn’t.

However, the court rejected the learned intermediary
doctrine as applied to the fraud-based claims. “Under California law,
failure-to-warn claims brought in products liability actions are subject to the
learned intermediary doctrine, which holds that a manufacturer of prescription drugs
or certain medical devices satisfies its duty to warn by providing adequate
warning to the prescribing physician, rather than the patient.” Natera didn’t
identify any California courts that applied this doctrine to consumer
protection claims. Even if that was sometimes appropriate, Natera didn’t
explain why these claims were “essentially” or “disguised” failure-to-warn
claims, as would be required to do so; plaintiffs were arguing that the
products’ accuracy was misrepresented, not that they posed undisclosed safety
risks. The court reasoned similarly as to other states’ laws.

Did Natera owe a duty to disclose? Under California law, “to
be actionable[,] the omission must be contrary to a representation actually
made by the defendant, or an omission of a fact the defendant was obliged to
disclose.” A plaintiff sufficiently pleads a duty to disclose where: (1) the
plaintiff alleges the omission was material; (2) the alleged defect was central
to the product’s function; and (3) the defendant (a) is plaintiff’s fiduciary,
(b) has “exclusive knowledge” of material facts, (c) “actively conceals” a
material fact, or (d) makes misleading partial representations. Plaintiffs
failed to identify a relevant “defect” in the tests. In another false
advertising case challenging the undisclosed presence of child and slave labor
in the supply chain, the Ninth Circuit rejected the existence of any duty to
disclose because “the labor practices in question … are not physical defects
that affect the central function of the chocolate products.” Thus, the
omission-based California claims were dismissed with leave to amend. (This
seems to me to be slicing the salami a bit too fine, but I admit I’m
uncomfortable with product liability analogies anyway. The “defect” here is
that the product doesn’t provide the information it claims, which is central to
its function of providing medical information. If it were a physical monitor
that flashed red when it shouldn’t, it seems to me that should count, so why
would it be different here? Also, whether something is a “defect” may depend
entirely on how it’s advertised: if I advertise paint as paint, it’s not
defective, but if I advertise it as a cancer cure it is.)

The court also found that the plaintiffs didn’t need not
plead an independent duty to disclose for omission-based claims brought under
the Maryland, Illinois, Florida, and New Jersey laws.

Implied warranty of merchantability: this requires that
consumer goods, among other things, “are fit for the ordinary purposes for
which such goods are used.” “Plaintiffs plausibly allege that the basic
function of a test which screens for a specified set of genetic conditions is
to accurately detect the risk of such conditions, and that Panorama was unfit
to do so.” But there was no privity as required for an implied warranty of
merchantability, even though plaintiffs alleged reliance on Natera’s
advertising. However, there was a split of district court authority about
whether there’s a third-party beneficiary exception to the vertical privity requirement,
which the court resolved in plaintiffs’ favor. 
Plaintiffs alleged they “are the intended third-party beneficiaries of
agreements between Natera and their physicians and health insurers”; that these
agreements to use Panorama “were designed and intended for the benefit of
Plaintiffs … to make health care decisions,” and that Natera “understood that
Plaintiffs[ ] … would require that [Panorama] provide reliable and accurate
information regarding genetic abnormalities that may affect their pregnancy and
the well-being of their bab[ies].”

 

from Blogger http://tushnet.blogspot.com/2023/05/court-allows-some-claims-based-on.html

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courts continue to jack up materiality requirements; the Lanham Act and the death of common sense?

Posted on May 19, 2023 by rtushnet

Delta T LLC v. MacroAir Technologies, Inc., No. EDCV
20-1489-GW-JPRx, 2022 WL 19827572 (C.D. Cal. Nov. 18, 2022)

MacroAir asserted – among other things – a counterclaim for
false advertising under the Lanham Act. Of potential note: Plaintiff aka BAF
(Big Ass Fans) argued that MacroAir needed consumer testimony, consumer
surveys, or expert testimony to establish materiality. The court
stated—contrary to actual practice—that “materiality in false advertising cases
is ‘typically’ proven through consumer surveys,” but immediately qualified this
claim: “that type of evidence is not required.” Still, “[w]hile surveys are not
required, a party advancing a false advertisement claim still must have some
basis for demonstrating a triable issue of fact on the subject,
when-challenged.” This is an example of courts cranking up the liability
standard over time, in the inverse of what they’ve done in trademark cases
where they’ve accepted ever broader theories of liability. Historically,
materiality was usually a matter of common sense; it still should be in
appropriate cases.

The court rejected MacroAir’s attempt to presume materiality
from (alleged) literal falsity. It surveyed the caselaw in the Ninth Circuit,
which was not consistent. Even though materiality is itself not provided for in
the statute—it developed from the injury requirement—the court reasoned that,
in the absence of any statutory guidance, “the elements of a false advertising
claim under the Lanham Act should be treated like the elements of any other
claim which a plaintiff must prove in order to prevail – MacroAir must come
forward with evidence to demonstrate a triable issue of fact on the question.”
Moreover, “it is not the type of advertisement or communication in question in
general that must be material, but the deception itself.”

The court rejected MacroAir’s evidence as insufficient
because of this. Its expert apparently opined on the materiality of
“manufacturers’ claims about warranty, performance, reliability, [ ] safety,
and perceived differences between manufacturers’ offerings in these areas,” but
“that evidence is too broadly-drawn for the false advertising element of
materiality.” Summary judgment dismissing the claim.

from Blogger http://tushnet.blogspot.com/2023/05/courts-continue-to-jack-up-materiality.html

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copying/explicit references let Roblox proceed with dubious (c) claim; Lego should be watching

Posted on May 19, 2023 by rtushnet

Roblox Corp. v. Wowwee Gp. Ltd., 2023 WL 2433970, — F.
Supp. 3d –, No. 22-cv-04476-SI (N.D. Cal. Mar. 9, 2023)

Roblox runs a “digital world where users create virtual
games and experiences and connect with other users.” Users interact with the
platform through virtual characters known as “Avatars.” Roblox’s “Classic
Avatars” are “humanoid figures with cylindrical heads, C-shaped hands,
block-shaped bodies and legs, square or rounded arms, and cartoon-like facial
expressions.” (Comment: That is, they’re just like Lego minifigs.) Roblox
authorized plaintiff Jazwares to manufacture “Avatar Figurines,” real-world
toys based on the digital Avatars. Its TOS provide that users will not use
Roblox content outside of the Roblox Platform, monetize Roblox content, or
imply an association with Roblox for their businesses outside of the Roblox
Platform.

Wowwee sells a line of dolls called “My Avastars,” which
plaintiffs allege were “copied directly from Roblox’s Classic Avatars.” WowWee’s
Vice President of Brand Development & Creative Strategy, Sydney Wiseman,
used her WowWee email address to create a Roblox user account and used her
Roblox account to promote My Avastars dolls on social media, including videos
on her TikTok account. Wiseman narrates, “I was playing roblox and as I was
customizing my avatar I was inspired to create a doll line called my Avastars.”
Defendants allegedly marketed the My Avastars dolls with a “code” that could be
used in the Roblox platform.

Roblox sued for copyright infringement, false advertising,
trademark infringement, false association and false designation of origin,
trade dress infringement, intentional interference with contractual relations,
breach of contract, and false advertising and unfair competition under California
law.

The court found copyright infringement adequately pled as to
several figures, although substantial similarity was a “close issue.” “While
the features for which plaintiffs allege protection are similar to those of
other toys, there are differences including the customizability of features of
plaintiffs’ avatars and the shape of the avatars’ legs.” And defendants’ dolls
were “virtually identical” in shape to Roblox’s avatars.  

Looking at the side by side pictures in the complaint, this is a bit hard to swallow, but the evidence of copying/references to Roblox clearly bleed over from the TM side.

Lindsey Roblox avatar


Cindy Roblox avatar

Allegedly jnfringing Dreamer My Avastars

The trade dress claim also survived based on a trade dress
definition that Lego surely doesn’t like: “a distinct overall look and feel
stemming from at least their (1) humanoid, blocky shape; (2) cylindrical heads;
(3) C-shaped hands; (4) block-shaped legs; (5) square or rounded arms; (6)
cartoon-like facial expressions and lack of a nose; and (7) the particularized
combination of these elements.”

 The court also found that the alleged use of the Roblox name
was not, as a matter of law, nominative fair use. The allegations that WowWee
advertised the dolls would be sold with a code redeemable in a game on Roblox,
used the hashtags #roblox and #newroblox to advertise the My Avastars dolls,
and included the Roblox mark and interface in social media advertisements,
including responding to user inquiries by stating that WowWee was “working with
top [R]oblox developers.” This was enough survive the motion to dismiss.
There’s no blanket rule that hashtags can’t constitute infringement, as long as
“the use otherwise meets the test for trademark infringement.”

more images from the complaint

 Interestingly, the contract/tortious interference claims
against US resident defendants had to be arbitrated because of Roblox’s own TOS. And
Jazwares, Roblox’s licensee, lacked standing for copyright claims, but did have
Lanham Act standing because that doesn’t require copyright or trademark
ownership. “Jazwares has adequately pled injury due to customers associating
the My Avastars dolls with Roblox, leading to lost sales of Jazwares’ Avatar
Figurines.”

Interestingly, the contract/tortious interference claims
against US resident defendants had to be arbitrated because of its own TOS. And
Jazwares, Roblox’s licensee, lacked standing for copyright claims, but did have
Lanham Act standing because that doesn’t require copyright or trademark
ownership. “Jazwares has adequately pled injury due to customers associating
the My Avastars dolls with Roblox, leading to lost sales of Jazwares’ Avatar
Figurines.”

from Blogger http://tushnet.blogspot.com/2023/05/copyingexplicit-references-let-roblox.html

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