Some Lanham Act/UCL claims against TM filing entities can proceed despite potential difficulties of proof

LegalForce RAPC Worldwide P.C. v. Swyers, No.
17-cv-07318-MMC, 2018 WL 4961660 (N.D. Cal. Oct. 12, 2018)
RAPC alleges that Swyers, an attorney, owns TTC and
Trademark LLC, which provide “trademark related services,” and also owns
Trademark PLLC, a law firm that provides “legal services in trademark related
matters.” TTC allegedly made false statements on its website, and the
defendants’ business is allegedly “built upon the foundation of the
unauthorized practice of law” and involves “submitting or aiding and abetting
their customers in submitting fraudulent specimens to the USPTO” in violation
of the Lanham Act and California’s UCL.
The court partially granted defendants’ motion to dismiss,
with limited leave to amend. In terms of standing, direct competition means
that “a misrepresentation will give rise to a presumed commercial injury that
is sufficient to establish standing,” and RAPC alleged it “compete[s]” with TTC
to provide “small businesses” with “services that allow them to protect their
marks through filings with the [USPTO].” As for proximate cause, RAPC alleged
lost customers, supported by the allegation that, from the year TTC was formed
until the lawsuit was filed, its market share declined from “nearly 2.4%” to
“approximately 1.8%,” or “approximately 2670 trademark[ ] filings per year.” RAPC
alleged that it had to reduce its prices from “$499 to $199 and lower to match
the unfair competition of TTC.” Though proof might be difficult, these
allegations were sufficient at the pleading stage.
As for specific challenged statements, most of them were actionable.
“Created by USPTO Attorneys” and similar statements were allegedly false because
TTC was created by just one former USPTO Attorney – Swyers, and statements that
didn’t include “former” were also allegedly false because Sywers “was excluded
from practice by the USPTO in January 2017” and cannot apply for reinstatement
for “at least five years.” The court found Rule 9(b) satisfied given the
specificity of the allegations.  “We’ve
Prepared and Filed Over 20,000 Office Action Responses” was allegedly false
because TTC hadn’t done this in the time since 2015, when it was formed. The defendants
argued that its statement “may refer to TTC’s successor entities, or to other
lawyers.” But the complaint made no reference to any such successors or
predecessors, and defendants didn’t identify any mentions of such on its
website. Thus, the court couldn’t find as a matter of law that a customer would
reasonably understand “we” to refer more broadly to successors or predecessors
in interest, or to “other lawyers” from TTC’s “Network of Independent Attorneys.”
Indeed, the webpage the defendants cited “distinguishes between ‘we’ and ‘your
attorney’” by stating “Depending on the package you select we, or your attorney
you select through our Network of Independent Attorneys (NIA) will work with
you to assemble your office action response ….” For similar reasons, “Trusted
by over 100,000 Businesses Since 2003” was sufficiently alleged to be false,
since TTC was only formed in 2015 and allegedly hadn’t had over 100,000
customers.
“Created by the Top Trademark Law Firm in the United States”
was allegedly false because TTC was created by Swyers personally as a sole
member, and that if Trademark PLLC, a law firm, created TTC, the reference to a
“top” firm is false because Trademark PLLC’s owner Swyers was disbarred by the
USPTO.  However, this statement was nonactionable.
First, the pages on which the statement was found couldn’t reasonably be read
to say that TTC was created by a law firm. Instead, TTC stated that one of its “packages”
was “created” by the unnamed “Top Trademark Firm” and that the other two
packages include “software” the unnamed law firm “created,” neither of which
were alleged to be false.  Also, the use
of “top” to describe the firm was puffery.
TTC’s website allegedly contained the false claim “As
featured in,” under which were displayed “rotating banners showing logos” of a
number of businesses, specifically, “Yahoo Finance, CNNMoney.com, CNBC, Compare
LegalForms, Bank of America Small Business Community, Time, NBCNews.com, the
Wall Street Journal, and INC500.” But the allegation that “upon information and
belief, TTC has never been featured on these websites” was not accompanied by a
statement of the facts upon which the belief was founded, so it was dismissed.  
State law claims: RAPC alleged that TTC has violated § 17200
of the UCL by submitting to the USPTO “fraudulent specimens” and by engaging in
the “unauthorized practice of law.” 
However, RAPC lacked standing to bring the first claim; it failed to
allege any facts to support a finding that its injuries occurred as the result
of the submission of fraudulent specimens. 
Plus, the allegations of fraud weren’t specific enough to satisfy Rule
9(b).  By contrast, RAPC had standing for
the unauthorized practice of law allegations because it alleged that it “suffered
losses in revenue and asset value and was required to pay increased advertising
costs specifically because of the [alleged unauthorized practice of law],” even
though the general purpose of the law is to protect the public and not to
protect lawyers from competition.  Rule
9(b) didn’t apply because this part of the claim didn’t sound in fraud; rather
than being based on advertising that defendants could engage in the practice of
law, it was based on the unauthorized practice of law itself, which was
sufficiently alleged in the complaint. Nor did primary jurisdiction bar the claim:
“although the USPTO, as set forth above, has identified on its website conduct
that, in its view, constitutes the unauthorized practice of law, the USPTO has
made clear its position that ‘Congress has not authorized [it] to regulate
entities such as TTC.’” However, RAPC was limited to seeking injunctive relief,
not restitution because it failed to allege that TTC obtained any property from
RAPC in which RAPC had an ownership interest.
§ 17200 claims against the Trademark defendants were
dismissed because there were no allegations that the claims arose out of or
resulted from California-related activities (e.g., submission of a fraudulent
specimen or unlawful practice of law on behalf of a California customer).

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FDCA doesn’t preempt false advertising suit based on claims about protein source

Durnford v. MusclePharm Corp., — F.3d —-, 2018 WL
4938190, No. 16-15374 (9th Cir. Oct. 12, 2018)
Durnford brought the usual California consumer claims
against MusclePharm for making false or misleading statements about the protein
in one of its supplements. The district court dismissed Durnford’s action as
preempted by the FDCA, reasoning that any declarations of protein content
anywhere on a product label could not be false or misleading if the listed
amount of protein reflected measurements made in accordance with federal
regulations concerning the federally mandated nutrition panel. The court of
appeals reversed: the FDCA and its implementing regulations governed the
calculation and disclosure of protein amounts, but Durnford could still base
state-law claims on allegedly false statements about the source or composition
of protein.
The supplement is marketed as a muscle-building or
weight-gain product, with a focus on its “revolutionary 5-stage mass delivery
system.” The second stage is described as “Muscle plasma protein technology:
40g of a potent blend of hydrolyzed beef protein and lactoferrin protein.” The
fourth stage is described as “Performance growth & muscle volumizer: Creatine
and BCAA nitrates help promote muscular strength, size and endurance.” The
ingredients correspond to the stages, including the “Muscle Plasma Protein
Matrix,” consisting of “Hydrolyzed Beef Protein, Lactoferrin” and the
“Performance Growth & Muscle Volumizer,” consisting of “Creatine
Monohydrate, L-Glycine, BCAA Nitrates (Leucine, Iso-Leucine, Valine) … ,
D-Ribose” respectively. The nutrition panel states that a single serving of the
supplement contains 40 grams of protein, or 72% of the recommended daily value.
Durnford alleged that MusclePharm engaged in “protein
spiking” or “nitrogen spiking” — the practice of inflating measurements of a
supplement’s protein content using non-protein substances, specifically
creatine monohydrate and free-form amino acids (l-glycine, leucine,
iso-leucine, and valine), and that its true protein value was not 40 grams per
serving, but 19.4 grams per serving. 
MusclePharm also tweeted that product reviews accusing it of nitrogen spiking
were “fake …. We don’t do anything like that. All products legit and
scientifically backed[.]”
FDA regulations allow a manufacturer to use nitrogen content
as a proxy for protein content, thus permitting the practice of nitrogen
spiking, and the FDCA preempts non-identical state law requirements, so that
was it, according to the district court.
The court of appeals began with a presumption against preemption
for areas of traditional state police power such as consumer protection. Nonetheless,
Durnford’s protein content theory of misbranding—that he was misled by the
40-gram figure on the nutrition panel—was foreclosed by the FDCA, which
requires the disclosure of the total amount of protein; FDA regulations set out
the proper means of calculating that amount, using nitrogen as a proxy, so it
doesn’t matter whether doing so is misleading. (The court noted that Durnford
didn’t challenge the regulation under Chevron
for authorizing an inherently misleading means of calculating protein.)
However, Durnford’s “protein composition” theory of
misbranding was that the label misled him into believing the protein, in
whatever amount, came entirely from genuine protein sources — hydrolyzed beef
protein and lactoferrin — rather than nitrogen-spiking agents. The court of
appeals found his premise correct: the label twice identifies specific protein
sources, then apparently distinguishes those protein sources from nitrogen
compounds, which are listed and identified separately not as protein, but as
“performance growth and muscle volumizer.” The label continues that the
proteins are present in the amount of “40g of a … blend of … beef protein
and lactoferrin” — the same amount of protein claimed per serving on the
nutrition panel. The ingredients list repeats the distinction: hydrolyzed beef
protein and lactoferrin are part of the “protein technology,” and the free-form
amino acids are “muscle volumizer.”
Durnford’s theory was thus that the label falsely disclaimed
nitrogen spiking. This adequately alleged misbranding, and was not preempted by
rules about how protein was to be measured, though the complaint didn’t
sufficiently connect the one tweet to Durnford’s injury and was thus on its own
inadequate.

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RipoffReport review isn’t “advertising or promotion,” without more evidence of reception

Wilson v. AdvisorLaw LLC, No. 17-cv-1525-MSK, 2018 WL
4932088 (D. Colo. Oct. 11, 2018)
Wilson and defendant Kennedy allegedly did business through
corporate entities, Wilson Law Ltd. and AdvisorLaw LLC, respectively. The
relationship ended badly, with Kennedy accusing Wilson, via email, of “competing
with my business” and asserting that Wilson was using AdvisorLaw without
authorization and to its detriment. The day of that last claim, a “Patrick
Erickson” posted a negative review of Wilson Law on the website
ripoffreport.com claiming that Wilson “lied to me with no reservations,” that
Erickson had needed an experienced lawyer for FINRA and IRS issues from a
divorce, and that Erickson paid over $15,000 before learning that Wilson lied
about his expertise/progress; when confronted, Erickson said, Wilson told him “good
luck getting any money back” and “I am very good at hiding from judgments and
collections.”  Forensic evidence
indicated that the review came from Kennedy’s home, though the parties dispute
whether Kennedy or another person posted the review.
The court granted summary judgment to defendants on the
Lanham Act claim and declined supplemental jurisdiction over the coordinate state
law claims.  I was a little surprised
that the court accepted the argument that a widely available post on the
internet wasn’t “commercial advertising or promotion” because there wasn’t
enough evidence that it was “sufficiently disseminated to the relevant
purchasing public such that the industry would consider it advertising,” though
perhaps the court would have reacted differently to a single, standard paid-for
ad.  Still, to be actionable, the
dissemination “must reach some significant number of actual or potential
customers of the parties’ products.” Evidence of that dissemination didn’t come
from the number of AdvisorLaw’s clients compared to those of Wilson, because
the mere fact of defendants’ success didn’t show that the review was a causal
factor.
Nor were general facts about RipOffReport.com helpful:
[T]he mere fact that
ripoffreport.com is a heavily-trafficked site does not mean that the Review
itself was broadly seen by the Plaintiffs’ potential customers. Just as opening
a storefront on a busy street does not guarantee a steady flow of actual
customer traffic, the fact that ripoffreport.com may attract millions of
visitors does not guarantee that any of those millions of viewers went looking
for reviews of the Plaintiffs’ services in particular, much less that such
visitors saw the Review in question. And even if they did, the Plaintiffs offer
no evidence to show that the visitors reading the review were otherwise
potential customers of the Plaintiffs’ services, rather than, for example, disinterested
internet scamps vicariously enjoying particularly scathing poison-pill notes.
Nor was Wilson’s own opinion that he had difficulty getting
clients after the review was posted, absent facts indicating that this happened
and that the review was the cause.  Nor
was it helpful that internet searches using 12 different search terms (e.g.
“wilson law, ltd.”; “mark h. wilson attorney”; “mark wilson finra”) routinely
yielded a link to the review on the first page. That didn’t prove that the
review was seen; even Wilson’s expert
report didn’t provide evidence of how potential customers of the parties’
services typically investigated those services. 
“It may be that the Plaintiffs’ potential client base consists of
unsophisticated and credulous individuals who might be influenced by an
anonymous internet review, or it might be that the client base consists of
sophisticated businesspeople and investors who would likely ignore such
scurrilous material, were they to even encounter it in the first place.” The expert
could not estimate how many people likely read the review.

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Former supplier can sue supplement maker for falsely implying FDA approval & making claims based on old ingredients

In re Elysium Health-Chromadex Litig., 2018 WL 4907590,
No. 17 Civ. 7394 (CM) (S.D.N.Y. Sept. 27, 2018)
  
Elysium, which makes dietary supplements, sued Chromadex, a
former supplier, for false advertising under the Lanham Act, trade libel,
deceptive business practices under New York General Business Law § 349, and
tortious interference with prospective economic relations.  Chromadex argued that entertaining Elysium’s
lawsuit would violate the Noerr-Pennington doctrine, which protects a party’s
right to petition the government for redress, and filed a mirror image
complaint.
Elysium’s Basis is sold as an anti-aging product, and has
two main ingredients: nicotinamide riboside (NR) and pterostilbene (PT). Chromadex
sold these as Niagen and pTeroPure, respectively. In 2017, after the parties’
relationship soured, Chromadex filed a citizen petition with the FDA. A citizen
petition is “a means afforded by the FDA for raising concerns about products
the FDA reviews; any individual may file such a petition concerning scientific
or legal issues before or while the product is on the market.” Chromadex
asserted that it was the only NR supplier in the US, and that Niagen was sold
under a New Dietary Ingredient Notification (NDIN) filed with the FDA and has
obtained generally recognized as safe (GRAS) status. The petition further
alleged that Elysium was using a new, unknown supplier “for which no [NDIN] has
been filed with the FDA and which does not have GRAS status.” Chromadex claimed
that it had analyzed samples of the new Basis and found the solvent toluene in
them, but not in old Basis; this (and the lack of NDIN) made the new source of
NR “adulterated” in contravention of the law. The FDA hasn’t set any allowed
levels of toluene, but a CDC publication states that “Single exposures to
toluene or repeated exposures over a few weeks can cause headaches and
sleepiness, and can impair your ability to think clearly.”
Elysium’s suit alleged that the petition was false and
misleading and that it was filed for the sole purpose of harming Elysium,
rather than bringing any genuine concerns about Basis’ safety to the FDA’s
attention. In particular, Chromadex allegedly knew (or, as a regulatory consultant,
should have known) that the FDA does not grant citizen petitions like this one seeking
the commencement of enforcement actions. In addition, Elysium alleged that
Chromadex’s own Certificates of Analysis showed that its pTeroPure contains
similar levels of toluene, so Chromadex could not actually have believed that
Basis was unsafe. Further, the levels of toluene allegedly found in Basis were “far below the allowable
levels” accepted by the FDA. Finally, Elysium alleged a coordinated effort
to distribute claims in the citizen petition via an investor alert listserv
available on Chromadex’s website. 
The court declined to dismiss the complaint under Noerr-Pennington or under New York’s
anti-SLAPP law or litigation privilege. At this point, the court couldn’t
reject the sham exception: petitioning activity that is objectively baseless
and is a “mere sham to cover an attempt to interfere directly with the business
relationships of a competitor.” Chromadex itself, in its exhibits attached to
its motion to dismiss, submitted evidence in the form of a letter from the FDA that
it knew that the action it sought in its petition—a seizure order/injunction
against distributors—couldn’t be had through a petition; the letter was dated
well before the petition. Other courts have ruled that a petition is
objectively baseless when the petitioned agency lacks authority to take the
action requested or has a policy against doing so.
Chromadex argued that its petition could be granted in part,
by getting some other order or action from the FDA.  Elysium argued that a motivation to inform
the FDA of a potential health issue could have been carried out by a
(nonpublic) trade complaint; again, Chromadex’s filings demonstrated its
awareness of this possibility. That wasn’t enough to make the petition a sham.
But more “damning” was the allegation that pTeroPure contained comparable
levels of toluene, which if true would be good evidence of objective
baselessness.  The court wanted that
question resolved on summary judgment; otherwise there was enough for the complaint
to proceed under the sham exception to Noerr-Pennington
immunity.
Chromadex alleged false advertising by Elysium about the
scientific research, chemical composition, clinical testing, purported health
benefits, and FDA approval of Basis.  To
the extent the claims were based on toluene content, the court seemed to
decline to exercise jurisdiction because it wasn’t in a position to judge, and
the FDA could weigh in on, the precise acceptable level of toluene in a dietary
supplement. That alone doesn’t seem like a good enough reason to not resolve
the claim before the court in the absence of preemption/preclusion; courts
judge scientific matters like this all the time.
Other statements did survive the motion to dismiss, though
not a statement that Basis was now “even purer” and “consistently white”
instead of having color variations, which was made in response to a consumer
email inquiry and then posted to a Yahoo! message board by an anonymous poster.
That wasn’t enough to constitute advertising or promotion.
Chromadex alleged that Elysium misrepresented its FDA
approval. Elysium’s “Our Mission” page on its website says that all its
products go through various steps, including the “FDA NDI Submission” stage: “We
conduct rigorous safety studies for new dietary ingredient (NDI) submissions to
the FDA. The Federal Food, Drug, and Cosmetic Act (FD&C) requires that we
submit studies to demonstrate the safety of “new dietary ingredients.” It then
goes on to describe the “Safety Testing” stage (“Typically characterized as a
‘Phase 1’ clinical trial, this stage determines the safety and pharmacokinetics
of the compound in healthy individuals,”) and the “Efficacy Testing” phase
(“Typically characterized as a ‘Phase 2’ clinical trial, this human study looks
at the safety and efficacy of a given molecule.”). Chromadex argued that these
statements were misleading because they indicated that Basis – Elysium’s only
consumer product – has received FDA approval. The court agreed: “Statements
relating to the government approval process of nutritional supplements, coupled
with the fact that Elysium only sells one consumer product, gives rise to the
plausible conclusion that Elysium’s sole consumer product has undergone that
process.”
Chromadex also challenged statements touting the scientific
support for Basis, including a report of an Elysium-sponsored banner ad on
Facebook celebrating Basis as “the world’s first cellular health product
informed by genomics” and an interview with one of Elysium’s founders published
by Allure magazine quoting him: “With regard to Basis, the pill seems simple,
but the amount of science behind it is quite extensive…. [The science behind
Basis] began almost 30 years ago. The research progressed from studying aging
in yeast to the discovery of a family of proteins called sirtuins that control
aging. That led to the identification of two compounds, [PT] and [NR], that
activate sirtuins…. [Those sirtuin-stimulating compounds are the main
ingredients in Basis].”
Elysium argued that statements in news articles aren’t
commercial speech, but that’s not always true. 
Specific factual statements might still be actionable, and here the
statements “give rise to a plausible inference that they were part of a broader
advertising campaign intended to mislead consumers into believing that Elysium
developed the science behind a one-of-a-kind product.” Elysium’s statements on
its website celebrating the work of its Scientific Advisory Board and its
“Research Partnerships” could also create “an implied endorsement” about the
research undergirding Basis.
Similarly, Chromadex alleged that statements on Elysium’s
website about clinical trials conducted on Basis were misleading because the
only clinical trials were conducted while Basis was being produced with Chromadex’s
NR and PT products. This too supported a plausible inference that Elysium
misrepresented the clinical testing of the actual product it was now selling.
The court also found that competitive injury was plausibly
pled—so statements made by a former customer can now provide Lanham Act
standing, under appropriate circumstances. Chromadex could also bring a NY GBL
§ 349 claim for the same sets of statements. However, its § 350 claim failed
because that required the plaintiff to show actual reliance, which Chromadex
didn’t and couldn’t plausibly plead.
Tortious interference: Elysium allegedly interfered with Chromadex
prospective economic relationships by negotiating and enforcing an exclusivity
provision in the parties’ supply agreement, only to then “sabotage” Chromadex
by “refusing to pay for extraordinarily large orders of NR and conspiring” with
Chromadex employees.  But that wasn’t
enough: Chromadex needed to plead that Elysium “direct[ed] some activities
toward[ ] [a] third party and convince[d] the third party not to enter into a
business relationship” with Chromadex.

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Court presumes failure to comply w/FDA labeling rules to be misleading

Campbell v. Freshbev LLC, 322 F.Supp.3d 330 (E.D.N.Y. 2018)
Campbell bought several bottles of Freshbev juices at Whole
Foods, allegedly relying on misrepresentations (1) that the juices were
unpasteurized; (2) that the juices were cold-pressed; (3) that the juices were
fresh; and (4) that the Cranberry Apple juice had more cranberry juice than
apple juice.

Initially, the court declined to resolve at this stage
whether Bristol–Myers Squibb Co. v. Sup. Ct. of Cal., ––– U.S. ––––, 137 S.Ct.
1773 (2017), meant that federal courts, not just state courts, lacked personal
jurisdiction for claims by out-of-state plaintiffs against an out-of-state
defendant that had no connection to the forum state, or whether that even
applied to nationwide classes. Without a motion to certify a nationwide class,
the issue wasn’t squarely before the court.
The court found Campbell hadn’t shown standing for
injunctive relief, because he didn’t plead a willingness to buy the juice again
if he could be confident about the truth.
Freshbev argued that the challenged statements weren’t
materially misleading. Campbell’s first argument was that “unpasteurized” was
misleading because the juices were treated with high pressure processing (HPP),
which was allegedly equivalent to pasteurization.  Freshbev responded that FDA regulations treat
pasteurization and HPP as two separate treatments and allow “unpasteurized” on
HPP-treated juice. The FDA has issued nonbinding guidance on treating juice
safely, and a proposed rule (1998!) that allowed an “unpasteurized” label as
long as that was truthful and nonmisleading. The problem was that “unpasteurized”
might be misleading insofar as it didn’t distinguish between “a product that
may contain harmful pathogens that could result in serious disease and one that
is treated using a method (other than pasteurization) that is capable of
achieving a 5–log reduction in the target pathogen.”  Thus, additional information was required on
such a label. Here, two of the labels showed that the juices were treated with
pressure, providing the requisite additional information, and the claim was
preempted. One label didn’t, so the claim was unpreempted. [Freshbev submitted
a graphic that allegedly represented the full label and had pressure
information, but that couldn’t be considered on a motion to dismiss.]
Cold-pressed: Campbell alleged that this was misleading
because the juices were treated with HPP after being cold-pressed. It was
implausible that a reasonable consumer would think that nothing had been done
to the juice except cold-pressing, in the absence of an “only” or “exclusively”
or similar modifier.
Fresh:  21 C.F.R. §
101.95 governs use of the word “fresh” on a label.  Of course there’s no private right of action
under the FDCA and its regulations, but NY “forbids the misbranding of food ‘in
language largely identical to that found in the FDCA.’” And also, “if FDA
regulations provide that a claim on a product’s label is misleading, that is
evidence that a reasonable consumer might be misled by the packaging.”  21 C.F.R. § 101.95(a) states that “[t]he term
‘fresh’ [in labeling] in a manner that suggests or implies that the food is
unprocessed, means that the food is in its raw state and has not been frozen or
subjected to any form of thermal processing or any other form of
preservation….” Syllogistically, HPP is a form of preservation, and thus juice
products treated with HPP shouldn’t be advertised as “fresh.”
There’s an exception if “the term [fresh] does not suggest
or imply that a food is unprocessed or unpreserved.” The FDA’s example was
pasteurized whole milk, which consumers understand to “nearly always” be pasteurized;
by contrast, “fresh” cannot be used to describe pasteurized pasta sauce because
pasta sauce is not always pasteurized, so consumers would assume that “fresh”
sauce is unprocessed.  Because juice is
widely sold with and without processing, the exception didn’t apply here.  Freshbev argued that the labels’ disclosure
of “pressure” would avoid any consumer confusion, but “because the term ‘fresh’
is misleading in isolation, it is not clear as a matter of law that confusion
generated by the misuse of the term would be resolved by additional statements
elsewhere on the label.”
“Cranberry Apple”: Campbell argued that this was misleading
because the product had more apple juice than cranberry. Freshbev argued that
that the name of the product wasn’t plausibly read as a proportion claim, and
that any confusion could be resolved by reading the ingredients list.
21 C.F.R. § 102.33(b) states that names “must be in descending
order of predominance by volume unless the name specifically shows that the
juice with the represented flavor is used as a flavor (e.g., raspberry-flavored
apple and pear juice drink).”  Defendants’
label was a pretty clear violation of this rule without the “flavored” caveat. “Because
it violates FDA labeling requirements, a reasonable consumer may be misled into
believing that Cranberry Apple juice has more cranberry juice than apple.”
However, a common law fraud claim against the failure to put
an unpasteurized warning label on the bottles failed; the most plausible reason
Whole Foods failed to do so was not an intent to defraud, but an understanding
that HPP avoided the risk of untreated, unpasteurized juice.

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Third Circuit holds that misrepresentation of safety isn’t actionable false advertising for consumables that didn’t cause individual harm

In re: Johnson & Johnson Talcum Powder Products
Marketing, Sales Practices & Liability Litig., 903 F.3d 278 (3d Cir. 2018)
Plaintiff Estrada alleged that perineal use of Johnson &
Johnson’s Baby Powder can lead to an increased risk of developing ovarian
cancer.  Over a dissent, the court of appeals held
that a plaintiff suffered no Article III injury when she bought a product that
she now believes she should never have bought: buyer’s remorse is not
cognizable, and a purchase is itself not an economic injury where the buyer got
the benefit of the bargain.
Estrada didn’t allege even an increased risk of cancer, or
emotional injury from the fear of developing cancer, or medical monitoring
costs.  Nor did she allege that the
product didn’t live up to its claims: “designed to gently absorb excess
moisture,” “keep[ ] skin feeling soft, fresh and comfortable,” and “reduce the
irritation caused by friction.” Nor did she allege that she still possessed a
durable but now-useless product; she’d consumed what she’d bought, so she also
didn’t allege transaction costs associated with reselling or returning Baby
Powder. The core allegation was that, if she’d known of the risk, she wouldn’t
have bought the powder in the first place.
She might have successfully pled economic injury by pleading
that she’d have bought a less expensive alternative, and her complaint did
suggest that alternative cornstarch-based products existed that didn’t pose the
same risk. But she failed to allege that cornstarch-based products would have
been cheaper, or that there was a price premium associated with J&J’s
superiority claims for its products.
On appeal, she argued that she hadn’t received the benefit
of the bargain: she paid for a product that didn’t increase the risk of ovarian
cancer but received one that did, which was worth less than what she paid. But
she got baby powder that “successfully did what the parties had bargained for
and expected it to do: eliminate friction on the skin, absorb excess moisture,
and maintain freshness.” But wasn’t she also, at least implicitly, promised
that the product would do that safely?
 To have Article III standing, a
plaintiff has to allege “facts that would permit a factfinder to value the
purported injury at something more than zero dollars without resorting to mere
conjecture.”
Although courts often “credit allegations of injury that
involve no more than ‘application of basic economic logic,’ … there is a
difference between allegations that stand on well-pleaded facts and allegations
that stand on nothing more than supposition.” References to future expert
opinions weren’t enough to establish constitutional standing, even though the majority
also said that “a plaintiff need not develop detailed economic models at the
pleading stage to establish that she has standing.”  Here, all Estrada alleged was that, although she
bought the product at a given price, she later wished that she hadn’t.
But what about that implied promise of safety? Why not
presume that Estrada would pay more for safe than unsafe powder?  First, to presume that “would turn the
standing question on its head” because federal courts lack jurisdiction unless
the record shows that it exists. [That’s a weird move. Not all allegedly
implied promises are promises of safety; especially since we can rely on other
economic theories in the standing inquiry, it seems very commonsensical to
infer the relevance of safety, which wouldn’t provide standing in every case even if it would provide
standing in every case about safety.] “[O]ur refusal to leap to such a
conclusion is supported by Estrada’s apparent desire to continue purchasing
Baby Powder in the future despite being aware of its alleged health risks.” That
desire apparently wasn’t conditioned on receiving a price discount in the
future.
Second, Estrada’s own allegations indicated that the powder
she received was safe for her, given
the absence of allegations about risk to her.
The majority clarified that there was no conflict with its
reading of Kwikset Corp. v. Superior Court, 51 Cal.4th 310, 120 Cal.Rptr.3d
741, 246 P.3d 877 (2011), which held that, “[f]or each consumer who relies on
the truth and accuracy of a label … the economic harm is the same: the
consumer has purchased a product that he or she paid more for than he or she
otherwise might have been willing to pay if the product had been labeled
accurately.” The key language was “paid more”: in Kwikset, there was a sufficient pleading that the plaintiffs didn’t
receive the benefit of their bargain.
Thus, Estrada’s claim for restitution also failed.  And her claims were “further weakened by her
alleged desire to purchase Baby Powder in the future despite knowing of its
alleged health risks,” which suggested that other consumers might want to do so
too. Also, “consumers are already highly informed of the alleged health risks
associated with Baby Powder given the numerous publicly available studies and
publications that she cites in her complaint. Estrada’s complaint refers to,
inter alia, … a pamphlet allegedly distributed ‘to all ovarian cancer patients
at nearly every medical facility in the United States.’ Wouldn’t such
widespread knowledge already have been factored into the current market price
of Baby Powder? And if so, how did Johnson & Johnson earn unlawful profits
by withholding information that the market might have already taken account of?”
[This argument is unworthy of a circuit court. 
As far as I can tell, Estrada never alleged that consumers of baby
powder are “highly informed” of the health risks, even if other people know
(ovarian cancer patients strike me as finding out too late, for example).]
And for injunctive relief, Estrada’s knowledge of the risks
made her unlikely to suffer future injury; the court wouldn’t allow a “stop me
before I buy again” claim.  “The law
affords Estrada the dignity of assuming that she acts rationally, and that she
will not act in such a way that she will again suffer the same alleged ‘injury.’”
Judge Fuentes dissented, beginning with the possibly relevant
fact that juries around the country have found J&J liable for its powder’s
propensity to increase ovarian cancer risks. Estrada alleged that, if she’d
known that, she wouldn’t have bought the powder. In the abstract, it was
correct that a plaintiff who gets the benefit of her bargain can’t claim injury
in fact. But the majority ignored key terms in that bargain, in the dissent’s
view, specifically safety. Estrada alleged that J&J held the product out as
safe.
The powder need not be unsafe as to Estrada in order for
safety to be part of her bargain. Her economic harm wasn’t an increased risk of
cancer. Her harm was the economic harm caused by purchasing a product due to
J&J’s misrepresentation about safety. 
She alleged that she wouldn’t have bought the product had she known the
truth, and that’s an Article III injury in fact.  Its actual safety as to her was non-economic
harm, not at issue.
The dissent addressed the majority’s hypothetical—what if
J&J had been able to go back in time 50 years, when Estrada first started
buying the product, and reassure her (based on what we know from her
allegations) that she personally wouldn’t be among the people harmed by the
product? The majority concluded that this “legal fiction” proved that she hadn’t
been harmed. 
But safety representations have two related meanings: First,
“is this going to hurt and/or kill me?” That was the realm of products
liability.  Second, “is this product safe
in general?”  Consumers might want to
know this because, among other things, they might be buying the product for
others’ use.  And they also might want to
know this simply because it’s among the reasons to choose one product over
others.  Kwikset showed why Estrada did suffer injury: she wanted something
that she didn’t get, despite the alleged misrepresentation that she would get
it. “I see no reason we should devote ourselves to understanding why a
plaintiff values what she values.”  We
don’t ask whether an observant Jew’s preference for kosher meat represents
anything real, or a Rolex consumer’s preference for a real Rolex over a
substantively identical counterfeit. All they had to do was plausibly allege
that they wouldn’t have bought a properly labeled product, or wouldn’t have
paid as much for it.  So too here.
Estrada alleged that she valued “safety.” That should be enough. [There is a
real basis for this preference, too.  Time-travel
fantasies aside, I want to know what general risks products pose when I buy
them. I don’t expect Dr. Who or J&J to pop out and reassure me that I’ll dodge a bullet, and
I doubt I’d believe them if they did.] 
There was no attenuated causal chain here; she alleged that she wouldn’t
have bought the product had she known the truth, making the injury the total
sum she paid.
The dissent would further hold that injury was “no more than
application of basic economic logic.”  “Dealing
only with the allegations of the pleadings, it seems sufficiently elementary
that a product held out as safe will command a higher price than a product held
out as markedly increasing a woman’s risk of developing ovarian cancer.”  As for allegations about willingness to
purchase again, the majority read her pleadings to state that she was willing to
buy the product as-is, but it made more sense that her pleaded desire to buy
baby powder in the future was contingent on J&J credibly offering a product
that met the terms of her bargain.  “She
is only unlikely to suffer future economic injury if we presume that Johnson
& Johnson has lied and will continue to lie in its labeling, or that
Estrada will assume that any label offered by Johnson & Johnson is
untruthful.”
Plus, the majority’s interpretation of lack of standing to
seek injunctive relief essentially struck down a part of California’s UCL,
which was not a good idea.

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it’s not defamatory to conflate 2 legally distinct entities when unity is what they wanted consumers to perceive

RainSoft v. MacFarland, No. 15-432 WES, 2018 WL 4696737
(D.R.I. Sept. 30, 2018)
MacFarland runs lazymanandmoney.com, where he blogs about
companies who provide consumer products and services. He and his wife “sat
through an in-home demonstration of RainSoft’s water-treatment products.” The
demo was  conducted by Oster, an employee
of Basement Technologies (a local RainSoft dealer) who used a script that was
written by RainSoft that didn’t mention Basement Technologies; the Basement Technologies/RainSoft
agreement was intended to foreground RainSoft’s brand name and reputation.
MacFarland’s first RainSoft post, “Is Home Depot’s Water
Test from RainSoft a Scam?” the post mixed narration – “The salesman was super
nice, and very friendly with our dog.” – and critique. McFarland called the
in-home presentation a “magic show”: the demo ostensibly showed RainSoft’s
products purifying McFarland’s tap water, but McFarland wondered if the bottles
used in the demo might have been doctored—“I’m not saying they were, but it’s
possible.” He also accused RainSoft of making “false promises,” using
“high-pressure sales tactics,” and other “slightly deceptive practices.”  The putatively “false promises” included that
RainSoft’s filtration system would save him $20,000 in appliance-replacement
costs over 20 years – this MacFarland “highly doubt[ed].”  The “high-pressure sales tactics” included
offering five years of free soap if MacFarland purchased a RainSoft system on
the spot. Because it did not include the cost of labor, MacFarland also found
RainSoft’s lifetime warranty deceptive. His first post concluded that the
products weren’t worth their price: “I don’t want to say that the RainSoft EC4
product doesn’t work…. From what I’m reading though, the quality is closer to
midlevel, but it is really high-priced ….” He ended by asking his readers for
more feedback on water purification systems, including any RainSoft experiences.
Despite his skepticism, MacFarland and his wife – who MacFarland “recognized
… was impressed by the product” – gave Oster a $100 check to keep the
free-soap option open.
His second post, “RainSoft Scam? (Part 2),” recounted a
conversation he had had with a “RainSoft representative” in which he haggled
$1,000 off the price Oster quoted him.  He
told the story of a trip he made to Lowes where a “representative in plumbing
was shocked” that Home Depot, where he learned of RainSoft, would “only connect
[MacFarland] to this shady RainSoft company,” rather than show him “a range of
filtration systems from various manufacturers.” The post again mentioned
Oster’s “magic tricks” and “bad logic,” before answering the scam question by
saying he was “leaning towards yes, but you are free to make your own
decisions.”
His third post, “Yep. RainSoft Scammed Me Out of $100,” reported
that Oster cashed the $100 check that had held open the free-soap option,
contrary to MacFarland’s expectations. He warned, “if you suspect a company to
be a scammer, don’t even give them an inch, they’ll take a mile.” He later
added an update to the top of this post: “RainSoft’s parent company, Aquion,
saw this and … sent me a $100 check to make it right.”
Finally, “How to Get Clean, Purified Water (at [t]he Best
Price)” “recounted a spat MacFarland had, in the comments section of one of his
other RainSoft posts, with someone he suspected was, though who denied being, a
RainSoft dealer. MacFarland called that glowing review a “comment scam.” The
post reiterated MacFarland’s previous complaints about RainSoft and added
another about the vagueness of RainSoft’s guarantee that if a customer finds a
better-performing product, the customer keeps the RainSoft system gratis. (“There’s
no real fine print[,] … and the terms are ambiguous ….”).) MacFarland then
summoned “a little common sense” to piece together a “formidable water
purification system” – hyperlinking to other companies’ products – “[t]hat’s
less than 1/6th the cost of what RainSoft was going to charge.”  “I’m not a water purification expert,”
MacFarland wrote, “but I know basic problem solving, scientific process, and
consumer scams ….”
MacFarland also reiterated in comments his position that
“RainSoft salesmen” were “selling fear” via “scammy sales tactics” and “magic
shows.”
After RainSoft sued, MacFarland posted “What is a Scam
Anyway?” stating that when he uses the word ‘scam’ he does not necessarily mean
to connote illegal activity, but instead, more colloquially, a “confidence
trick.” MacFarland’s reluctance to make legal claims stems, he said, from the
fact that he does not “possess a 100% understanding of all laws.” Discovery
revealed that he wrote this post to “cover [his] ass,” which is to say, to
circumvent MacFarland’s understanding of Illinois precedent (the original
location of the case) that treated the word ‘scam’ as “libel per se.”  Viewed in the light most favorable to RainSoft,
the evidence showed that MacFarland always knew that Basement Technologies and
RainSoft were distinct entities. He thought RainSoft had “a point” when it
attempted to educate him on the finer points of its relationship with Basement
Technologies, but that its argument was “most[ly] … bullshit.”
The court found that MacFarland’s negative statements could
be divided into two categories: nonactionable epithets (“scam,” “shady,” “magic
tricks,” “bad logic,” etc.) and “more-sober assessments” (“false promises,”
“high-pressure sales tactics,” and “slightly deceptive practices,” as well as
the implication that Oster worked for RainSoft, not Basement Technologies). The
first category was protected by the First Amendment as “imaginative expression”
or “rhetorical hyperbole.”  “Any reader
of his RainSoft posts would reasonably understand these as metaphor.” Though MacFarland’s
post on the meaning of “scam” had no legal import, it accurately described some
of the word’s many meanings. First Circuit precedent establishes that “the
assertion ‘X is a scam’ is incapable of being proven true or false.”
Category two was protected by “other First Amendment
overlays: the concept of false ideas, issues of public concern, and substantial
truths.” In particular, “[a]n opinion whose factual basis is expressed and
(substantially) true is protected speech.” Minor inaccuracies about an issue of
public concern are fine if the gist or sting is true. Here, MacFarland’s
opinions about “false promises,” “high-pressure sales tactics,” and “slightly
deceptive practices” were all accompanied by their factual bases. RainSoft didn’t
materially challenge MacFarland’s account of Oster’s presentation, and thus
failed to create a disputed factual issue on material falsity. Without
challenges to the factual account, “the law acts a bulwark against liability
for the opinions MacFarland draws from these facts, no matter how unwarranted.”
As for the Basement Technologies/RainSoft distinction, the
court still found substantial truth. A statement is substantially true unless
“it would have a different effect on the mind of the reader from that which the
pleaded truth would have produced.” Just as the difference between being a
member, rather than a mere friend, of the white supremacist Aryan Brotherhood
was immaterial to a reasonable member of the law-abiding contemporary
community, Bustos v. A & E Television Networks, 646 F.3d 762 (10th Cir.
2011) (even though this distinction was life-threatening to the wrongly portrayed
Hispanic inmate involved), the difference between Basement Technologies and
RainSoft was also immaterial.  “Basement
Technologies was under contract to sell only RainSoft products, and to ‘protect,’
‘embrace,’ and ‘promote’ the RainSoft brand ‘in every customer facing
opportunity” to ensure that someday ‘every person in the world [would]
recognize the RainSoft® trademark.’ … Basement Technologies was basically a de
facto arm of RainSoft.” The legal differences were “just too fine to have
piqued public concern.”
False advertising: This wasn’t commercial advertising or
promotion. MacFarland sold ad space (and there was no evidence that his alleged
misrepresentations deceived those
customers), and gained revenue from affiliate links, but his own “product” was
free advice, which hadn’t been shown to be commercial speech. Running ads and
receiving promotional kickbacks isn’t enough to turn content into commercial
speech.  The affiliate links “were
clearly incidental to his objective of providing consumers information.” Overstating
the matter (at least as to commercial speech), the court concluded that “[t]he
First Amendment … protects us while we freely discuss how we should live and
love, how to wage war and keep peace, how best to govern ourselves. And
equally, or almost, how to filter tap water on a budget.”

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