WVa SCt immunizes religious schools and camps for false advertising about services

State ex rel. Morrisey v. Diocese of Wheeling-Charleston, 851
S.E.2d 755 (W.Va. 2020)

In response to a certified question, the West Virginia Supreme
Court, over a dissent, held that the AG could not sue the Diocese and a former
bishop for violating the deceptive practices provisions of the West Virginia
Consumer Credit and Protection Act, reasoning that the law didn’t apply to
educational and recreational services offered by a religious institution.

The allegations of deception related to the Diocese’s knowing
employment, for decades, of people who admitted to sexually abusing others or
who were credibly accused of sexual abuse at its schools and camps. The Diocese
allegedly neither disclosed that material information to consumers nor warned
them of the alleged dangers inherent to the educational and recreational
services it provided, and also falsely represented that it conducted background
checks (an allegation of affirmative misrepresentation that is buried in a
footnote of the main opinion). The alleged deceptive practices were advertising
services not delivered and failing to warn of dangerous services.

The relevant statute says: “Unfair methods of competition
and unfair or deceptive acts or practices in the conduct of any trade or
commerce are hereby declared unlawful.” “ ‘Trade’ or ‘commerce’ ” is “the
advertising, offering for sale, sale or distribution of any goods or services
and shall include any trade or commerce, directly or indirectly, affecting the
people of this state.” “ ‘Services’ include[ ] … ‘privileges with respect to
… education[ and] recreation.’ ”

Nonetheless, West Virginia Code §§ 18-28-1 to 7 created a
conflict by imposing requirements on “private, parochial or church schools or
schools of a religious order” (church schools), such as observance of a 180-day
instructional term, maintenance of attendance and immunization records,
compliance with the West Virginia school bus safety regulations, administration
of a nationally-normed standardized achievement test, and establishment of a
school specific crisis response plan. If a church school meets those
requirements, then the Legislature has directed that it “shall [not] be subject
to any other provision of law relating to education except requirements
of law respecting fire, safety, sanitation and immunization” (emphasis added).
The majority held that, though church schools might not be exempted from the
entire CCPA, this preemptive provision barred “the regulation of educational
services offered by a church school under the deceptive practices provisions of
the CCPA.” [Are living circumstances part of “educational services”?]

The deceptive practices provisions were “provisions of law
relating to education” when the AG tried to apply them to educational services.
“[W]hile the deceptive practices provisions may regulate the commercial
relationship between a church school and consumers, its enforcement depends on
the assessment of the qualities of the education actually supplied by the
church school.” Finding a violation would require “passing judgment upon the
substantive educational services actually provided.”

Because of this preemption and because of West Virginia’s
public policy of freedom of religion in education, there was also implied
preemption of any regulation of educational and recreational services by a
religious institution, because it was silly to preempt regulation as to only school-related
services, thus allowing the AG to regulate false statements made by a church
about a trip it sponsored but not false statements by a church-affiliated
school about the same trip. [I’m not sure that argument proves what the
majority wants it to prove, and it’s also pretty odd as a theory: explicit
preemption is usually limited to what it explicitly covers.] Thus, and despite
the fact that the CCPA is a remedial statute intended to be liberally
construed, “[i]t would also be absurd to conclude that the Legislature intended
to exempt a church school’s representations about its educational services from
regulation under the deceptive practices provisions of the CCPA, but not those
same representations when made by the affiliated religious institution
regarding its recreational services.”

The majority ended by commenting that the allegations were
nonetheless “deeply troubling,” and might have allowed liability under other
legal theories, such as a violation of mandatory reporting law, which
definitely covers religious institutions and their schools and camps.

Justice Workman’s dissent was persuasive:

The majority opinion is
transparently result-oriented which explains its logical incoherence and sins
of omission. The issue before the Court is one of fairness and honesty in
commercial communications to the public—potential purchasers of goods and
services. The fundamental question involves matters of unfair or deceptive acts
or practices in advertising or selling and in advertising based on false
promises. That is all. Nothing else is at issue. This case has absolutely
nothing to do with the free exercise or expression of religious thought and
nothing to do with regulating religious institutions in the sense of excessive
State entanglement. As brought and pled by the State, what is at issue is
alleged false promises and deceptive advertising promoting a safe environment
aimed at getting students and campers to attend for-fee-based schools and
camps, when alleged facts indicated the contrary to be true.

As the dissent pointed out, the yearly fees ranged from
$6,000 to $8,000. “The Diocese also provides partial scholarships, arranges
financing through third parties, and uses in-house installment payment plans.
Just as any other creditor may act, the Diocese has availed itself of the
courts and legal system to enforce credit agreements.” The Diocese advertises
to the public at large with no faith-based restrictions for either schools or
camps. Starting in 2002, it advertised its “Safe Environment Program for the
protection of minors from abuse by religious and lay employees of the Diocese
and volunteers,” which plainly sought to “attract consumers away from
competitors that did not advertise similar safety measures.” 

In the dissent’s view, truthful advertising and safety are
purely secular concerns. The majority agreed that “services” encompassed the
activities here, and that should have been enough.

Instead, the majority wrongly asserted that enforcing the
deceptive practices provisions would require “assessing the qualities and
substance of the education actually provided.” But the allegations here did not
require anything of the sort. “Requiring fairness when selling advertising and selling
educational and recreational services simply does not interfere with the
services themselves. Rather, it is the marketing of the services that is at
issue.” Given the CCPA’s specific coverage of educational services, this
manufactured conflict was even more unjustified; the legislature has exempted
other institutions from the CCPA, such as lawyers, accountants, stockbrokers,
and licensed pawnbrokers, but not religious institutions.

The majority approach authorized religious schools to
advertise one tuition but, halfway through the year and as a matter of policy,
demand more or the student will be expelled. Religious schools could advertise ten-to-one
student/teacher ratios and deliver forty-to-one. This freedom would provide
them an unfair advantage over nonreligious schools.

I share the dissent’s view that “most incredible is the
sophistry exhibited in the opinion’s bootstrapping into its unfounded
conclusion the issue of recreational services.” As it pointed out, the supposedly
preemptive code provisions simply do not cover recreational services or camps,
but now religious institutions can advertise whitewater rafting or other
dangerous activities, promise fully certified instructors, and deliver nothing
of the sort. This results both in consumer danger and competitive disadvantage
to regulated camps.

“[N]othing about religious freedom, thought, or instruction
is infringed upon by virtue of enforcing an act mandating that entities
offering services for-fee tell the truth about the services.” Fear of overly
broad enforcement actions wasn’t a justification for disallowing these specific
claims, even if remedies would have to be carefully crafted to avoid infringing
on religious freedom.

 

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Rogers v. Grimaldi and the TMA

The legislative history of the TMA, just enacted into law, includes several paragraphs blessing Rogers v. Grimaldi and saying it’s what Congress understands the Lanham Act to mean. I’d be interested to know how that got in there, and I wonder if there are any judges left who care.

H.R. Rep. No. 116-645, pp. 19-20:  

In providing that a plaintiff is entitled to a rebuttable
presumption of irreparable harm following a court’s finding of trademark
infringement, or upon a finding of likelihood of success on the merits in the case of a motion for preliminary injunction or temporary
restraining order, the Committee acknowledges the need to take special care to
ensure that the interests protected by the Lanham Act do not encroach on the rights to free speech and expression
enshrined in the First Amendment. Courts have long been appropriately
circumspect in applying the Lanham Act so as not to interfere with the First
Amendment rights of creators and distributors of ‘‘artistic works’’ (sometimes
called ‘‘expressive works’’), including without limitation movies, television
programs, songs, books, plays, video games, and the like, which may depict or
reference third-party marks within such artistic works or in such artistic
works’ titles.59 It is the intent of the Committee that this legislation will not
in any way affect that jurisprudence.

The standard for accommodating First Amendment interests in the
Lanham Act context for infringement and unfair competition claims was first
articulated in Rogers v. Grimaldi,60 which has been widely adopted by courts
across the nation in the subsequent three decades. As a threshold matter under
the Rogers test, a plaintiff cannot state a viable trademark claim in the
context of an artistic work (1) unless the defendant’s use of the mark ‘‘has no
artistic relevance to the underlying work whatsoever,’’ or (2) ‘‘if it has some
artistic relevance, unless the [use of the mark] explicitly misleads as to the
source or the content of the work.’’ 61 The ‘‘no artistic relevance . . .
whatsoever’’ standard sets an extremely low bar, requiring only that ‘‘the
level of relevance must merely be above zero.’’ 62 ‘‘This black-and-white rule
has the benefit of limiting [the court’s] need to engage in artistic analysis
in this context.’’ 63 When that bar is met and any level of artistic relevance
to the underlying work is present, the use may be actionable only where the
creator explicitly misleads consumers. This test appropriately recognizes the
primacy of constitutional protections for free expression, while respecting a
trademark owner’s right to prevent unauthorized use of its mark and the
public’s interest in avoiding confusion.

In enacting this legislation, the Committee intends and
expects that courts will continue to apply the Rogers standard to cabin the reach
of the Lanham Act in cases involving expressive works. The Committee believes
that the adoption by a court of a test that departs from Rogers, including any
that might require a court to engage in fact-intensive inquiries and pass
judgment on a creator’s ‘‘artistic motives’’ in order to evaluate Lanham Act
claims in the expressive-works context would be contrary to the Congressional understanding
of how the Lanham Act should properly operate to protect important First
Amendment considerations, and upon which the Committee is relying in clarifying
the standard for assessing irreparable harm when considering injunctive relief.

 

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American Merck and German Merck’s TM battle doesn’t involve covered “advertising injury”

EMD Millipore Corp. v. HDI-Gerling Am. Ins. Co., 2021 WL
66441, No. 20-cv-10244-ADB (D. Mass. Jan. 7, 2021)

Is trademark infringement (or similar) “advertising injury”
because a trademark is an advertising idea? I’ve always thought that’s the core
of what a trademark is, which makes many insurance policies seem conflicting to
me, but the exclusions for trademark are often pretty clear. In this case
growing out of underlying German Merck v. US Merck litigation, the court finds
that the TM-like claims don’t involve covered advertising injury because the
parties’ campaigns weren’t allegedly similar, only their names.

One of the plaintiffs here is Merck KGAA (aka MKGD), the
German Merck (the US government split US Merck off in WWI). The relevant
policies covered “personal and advertising injury,” including “[o]ral or
written publication, in any manner, of material that slanders or libels a
person or organization or disparages a person’s or organization’s goods,
products or services” and “[t]he use of another’s advertising idea in [an
insured’s] ‘advertisement.’ ” The policies didn’t define “disparage” or
“advertising idea.” There was also an exclusion for “‘personal and advertising
injury’ arising out of the infringement of copyright, patent, trademark, trade
secret or other intellectual property rights.” The exlusion further states that
“such other intellectual property rights do not include the use of another’s
advertising idea in [an insured’s] ‘advertisement,’ ” and that the exclusion
“does not apply to infringement, in [an insured’s] ‘advertisement,’ of
copyright, trade dress or slogan.”

US Merck sued MKGD for trademark infringement, trademark
dilution, unfair competition, false advertising, and cybersquatting, and New
Jersey state law claims for trademark infringement, trademark dilution, unfair
competition, deceptive trade practices, and breach of contract. The two Mercks
have entered into coexistence agreements around the world, under which MKDG
cannot use the trademark “MERCK,” or attempt to acquire rights in any trademark
containing “MERCK,” in the United States or Canada. They’ve fought over this
agreement for internet and other uses.

MKDG is permitted to use the word “Merck” as part of a firm
or corporate name in the United States but only in the phrase “E. Merck,
Darmstadt, Germany,” and only if the four words are given equal prominence.
Nevertheless, MKDG allegedly used the trade names “MERCK,” “Merck KGaA,” and
“Merck KGaA, Darmstadt, Germany” in the United States, including on a website
and social media, and allegedly used “Merck KGaA” and “MERCK” in ways so “prominent
and widespread that they function as a trademark.” This included promotion and
sale of products called “SedalMerck®,” “Merckognost®,” and “MRCKβ Protein,” as
well as signs at kiosks at multiple industry conferences.

Merck also alleged that MKDG engaged in two marketing
campaigns “specifically intended to confuse consumers as to MKDG’s history”: MKDG’s
“Original” campaign, referring to MKDG as “the Original Merck” and Merck as
MKDG’s “younger brother/sister.” Likewise, its “125 Years” campaign allegedly
touted that it has been in the United States for 125 years, even though, in
reality, MKDG has been re-established in the United States only since 1971. Finally,
MDKG allegedly registered a number of domain names virtually identical to
Merck’s registered “THE MERCK MANUAL.”

Prior Massachusetts cases have interpreted “advertising
idea” broadly, including use of the name of an athlete: A “wide variety of
concepts, methods, and activities related to calling the public’s attention to
a business, product, or service constitute advertising ideas.” Here, MKDG argued
that the advertising idea was using the “MERCK” name, in connection with the
“Original” and “125 Years” campaigns, to draw attention to the business and
attract customers. But the court agreed with the insurer that Merck didn’t
allege that it had used either “Original” or “125 Years,” and thus the
advertising idea allegedly used was not “another’s.” “To the contrary, the few
allegations in the NJ Litigation complaint about Merck’s advertising efforts
are so vague that it is impossible to divine anything about the content of its
advertisements or the style, manner, or method in which it advertises.”

Likewise, the underlying complaint didn’t plausibly allege
disparagement. Most of the statements identified were about MKDG, not about
Merck, and they didn’t say anything bad about Merck. A restaurant that
advertised “fresh” and “delicious” food would not disparage competitors by
implication. Even if “younger” was pejorative, that didn’t reference any
specific good or service and thus wasn’t disparaging. Also, the policies could
have included false advertising or publications that harmed another’s
reputation if this kind of conduct was supposed to be covered, instead of using
“disparage.” Anyway, the gravamen of the claim was false association: using
Merck’s good reputation for itself. “While harm resulting from badmouthing
would be an injury covered by the policies, harm resulting from falsely
implying an affiliation is not.”

 

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literal falsity as Q of fact v. law and other important issues in a dueling ladder case

Wing Enters., Inc. v. Tricam Indus., Inc., No. 17-cv-1769
(ECT/ECW), 2021 WL 63108 (D. Minn. Jan. 7, 2021)

After remand
because the court of appeals concluded that a materiality survey was wrongly
excluded
, the court here tries again in this false advertising case between
competing sellers of articulated ladders, also known as multi-position (or MPX)
ladders. Given the inclusion of the survey, a reasonable jury could find both
that Tricam made a literally false statement and that Wing suffered cognizable
commercial injury. One thing worth noting here is the relevance of greater
availability of disgorgement of profits, creating the potential for an award
even when damages can’t be proven with reasonable specificity.

Wing’s claims all revolve around ANSI A14.2, a voluntary
industry standard that “prescribes rules governing safe construction, design,
testing, care and use of portable metal ladders of various types and styles.” The
standard says, inter alia, that when a ladder uses particular types of rungs
those rungs “shall have a step surface of not less than 1 inch, either flat or
along a segment of 3 inches or greater radius.” The outer rungs on Tricam’s
multi-position ladders are greater than one inch deep in the middle, but they
are crimped and less than one each deep at each end, where the rung meets the
rail. Wing argued that they therefore fail to comply with the standard, despite
(1) the label affixed to each ladder containing an oval icon that bears the
text “MANUFACTURER CERTIFIES CONFORMANCE TO OSHA1 ANSI A14.2 CODE FOR METAL
LADDERS”; (2) the portion of each product’s page at Home Depot’s website that
provides: “Certifications and Listings: ANSI Certified”; and (3) the portion of
each product’s page on Tricam’s website that provides: “CERTIFICATIONS: ANSI
A14.2 OSHA.”

Tricam argued that it couldn’t be held responsible for
statements on Home Depot’s website. The court found a jury issue (which is a
gift to Tricam). “The gist of this argument is that Tricam only made this
statement to Home Depot—not to the public—and that Home Depot was the one to
disseminate it.” Thus, it wasn’t Tricam’s statement. Wing pointed out
that Tricam “expected and intended that [statements to Home Depot] would be
used in commercial advertising.”

How did the statements get on the website? Home Depot uses an
Item Data Management (IDM) system vendor portal for “managing online content
relating to products Home Depot sells (or that vendors hope Home Depot will
sell)”:

Home Depot chooses what fields a
vendor can or must populate within the IDM system, reviews the content vendors
submit through the IDM system, may reject content that does not follow Home
Depot’s requirements, must approve any changes requested by the vendor, and may
itself change content on a product page without prior notification to the
vendor.

Tricam knew that if it did not
select some type of ANSI certification from a drop-down menu in the IDM system,
Home Depot would not issue a SKU number for the product, and the product would
likely not be sold at Home Depot. A Home Depot representative testified that
the “IDM is the source of truth for all content as it relates to Home Depot”
and that Home Depot relies on its suppliers, like Tricam, to make sure the
content it enters into the IDM system is accurate.

Home Depot doesn’t independently audit that information, and
Tricam warranted that its marketing materials were accurate, including
specifically ANSI statements. Deposition testimony unsurprisingly confirmed
that Tricam expected and intended that the information it entered would appear
on Home Depot’s website and that customers would use it for comparison when
ladder-shopping.

Tricam monitors Home Depot pages for Tricam ladders; it can
request content changes by submitting a ticket in the IDM system. It considered
doing so after this lawsuit was filed, when it removed the ANSI-certification
language from its own website, but didn’t, “in part because it wanted customers
to be able to differentiate its products from other articulated ladders on Home
Depot’s site.”

The court found no previous authority addressing “whether
and when a supplier’s Lanham Act liability is cut off after the supplier passes
on an allegedly false statement to a retailer expecting and intending that the
statement will reach the purchasing public.” Tricam made the novel but too
clever by half argument that it could only be contributorily liable, and Home
Depot was not alleged to be primarily liable (and Wing might lack standing
against Home Depot).

I would have rejected this claimwashing attempt out of hand
given the evidence of both intent and effect—the claim reached the consumer
just as if Tricam had paid the transit authority to put posters up on buses—but
the court was more sympathetic. Wing pointed out that false advertising precedent
indicates that retailers can’t be liable for statements from manufacturers,
which indicates that the manufacturers are the appropriate target for primary
liability, but the court thought that was irrelevant to whether Tricam could be
liable, apparently comfortable with the idea that nobody could be liable for a
false ad. The court reasoned that because it’s possible that both manufacturer
and retailer could be liable, authorities that retailers weren’t liable
for transmitting false advertising to consumers didn’t bear on whether
manufacturers were liable. This seems to me like a logic error.

The court found that, with reference to the language of the
Lanham Act, which requires “use” of a false statement in commerce, the relevant
question was “whether the business has ceded so much control that it is no longer
‘using’ the ad.” [Even under the court’s own terms, the issue should be whether
the business is controlling the statement at issue. Extensive editorial
control by the publisher over the format or other non-false portions of the ad
should be irrelevant.]

The court held that there was a genuine dispute of material
fact over “whether the degree of control Home Depot exercised over its website
means that Tricam did not ‘use’ the online ANSI-certification statement in
commerce”:

The evidence that Home Depot could
change the content on its webpage without notifying Tricam could suggest that
Tricam effectively surrendered control over the allegedly false content. But
there is also evidence that Home Depot relies on its vendors to enter accurate
information in the system without independently auditing that information; that
Tricam expected and intended that customers would use the information it
entered into the IDM system to make purchasing decisions; and that Tricam could
request changes to the information after it was posted on the website.

I don’t understand how Home Depot’s “potential”
control could allow a reasonable jury to conclude that Tricam didn’t “use”
this information.

Anyway, a reasonable jury could also find literal falsity.
Literal falsity requires a clear answer to the question “what message is being
conveyed?” because “[o]nly an unambiguous message can be literally false.” Is
this a question of fact or of law? The Eighth Circuit cases are not clear, with
at least one case treating it as a factual question by applying the clearly
erroneous standard of review to an appeal of a preliminary injunction, and
another stating that “[a] literally false statement can be determined as a
matter of law, but whether a statement is misleading is considered a matter of
fact.” The majority approach in district courts and other circuits is to treat what
message is being conveyed as a question of fact, like the question of whether
that message is false. The court found that the better approach was that potential
ambiguity is a question of fact; the former Eighth Circuit case was decided
first and the weight of authority was on this side.

Again, the court gives weight to what I would have dismissed
as mere chutzpah: Tricam argued that the only reasonable reading of its
statements was that its ladders were tested for ANSI compliance, not
that they passed, and they undisputedly were tested. This was a genuine
dispute over what it means to “certify” ANSI conformance or to claim an ANSI
“certification.” Although Tricam thus posited competing meanings, there would
only be ambiguity if there were multiple “reasonable” interpretations of the
advertisement, and a jury could find that all reasonable interpretations were
just different ways of saying the same thing: ANSI conformance.

Actual deception: The Eighth Circuit has held that once a
plaintiff has proved that a statement is literally false, “the court may
presume that consumers were misled … without requiring consumer surveys or
other evidence of the ad’s impact on the buying public.” Tricam argued that this
rule only applied to comparative statements, but cases saying this are talking
about presumptions of harm to the plaintiff/irreparable injury, not
presumptions of consumer deception.

Injury: “Relying primarily on cases involving money damages,
Tricam asserts that the record lacks evidence to support Wing’s claimed
injuries—diversion of sales, price erosion, and loss of business
opportunities—and that Wing has not adequately tied those injuries to Tricam’s
statements, as opposed to other market factors.” But the nature of a plaintiff’s
burden on the injury-and-causation element depends on the type of remedy that
it seeks. There’s no presumption of causation when the parties compete
directly, though courts will presume injury and causation “in comparative
advertising cases where money damages are sought and where there exists proof
of willful deception.” The plaintiff’s burden is highest when it seems money
damages, and lower (now of course presumptive) when it seeks injunctive relief.
Given the congressional policy in favor of protecting consumer rights, “courts
are not and should not be reluctant to allow a commercial plaintiff to obtain
an injunction even where the likelihood of provable impact on the plaintiff may
be subtle and slight.”

Important move: “The burden is similarly low when a
plaintiff seeks the equitable remedy of disgorgement of profits. That is
because, rather than aiming to compensate the plaintiff for specific,
identifiable losses, this remedy ‘exists to deter would-be infringers and to
safeguard against unjust enrichment.’” Once a plaintiff has shown the likely
harm necessary to establish an underlying Lanham Act violation—and remember, a
plaintiff also seeking injunctive relief now gets a presumption of irreparable
harm, so courts now have to decide whether that counts— the plaintiff must
“prove defendant’s sales only; defendant must prove all elements of cost or deduction
claimed.” Willfulness, while a relevant factor, is not an “inflexible
precondition to recovery” of profits under the Lanham Act—the court quoted
McCarthy for the proposition that Romag should also apply to false
advertising claims.

Wing seeks injunctive relief and disgorgement, and thus “does
not need to meet the heightened injury-and-causation burden that applies when a
plaintiff seeks money damages.” Although Wing didn’t provide sufficient
evidence of its alleged lost opportunity to sell ladders in Home Depot stores,
it created a genuine issue of material fact on lost sales/market share and price
erosion. (It didn’t show lost opportunity to sell ladders because the evidence
showed a previous falling out between Wing and Home Depot leading Home Depot to
blacklist Wing. Even though this dispute provided Tricam “an opportunity to get
back into the business” of multi-position ladders, and even though Wing
eventually returned to Home Depot with some other products, Home Depot’s former
ladder merchant declined to speculate about whether she would have invited Wing
back into Home Depot’s retail stores if Tricam had not represented itself as
conforming to ANSI A14.2, saying only that she “would probably reach internal,
to existing suppliers, before [she] reached external, to new suppliers.” Under
these circumstances, including the fact that Home Depot merely accepted Tricam’s
offer rather than conducting a search for a new supplier, the causal chain was
too speculative.)

Sales/market share: Wing argued that Tricam could not have
entered the market if it had not represented that its ladders conformed to the ANSI
standard, and that such ANSI-certification statements made customers more
likely to purchase Tricam’s ladders than Wing’s. There was a close but triable
issue of fact. The parties were in direct competition, including on Home Depot’s
website, and Tricam sold over 565,000 ladders in the first year and a half that
they were on the market. “The combination of the competitive relationship
between the two companies and the volume of Tricam’s sales led Wing’s expert …
to conclude that the introduction of Tricam’s ladders cost Wing sales and
market share.” Add to that testimony that Home Depot likely would not have
continued selling Tricam’s ladders if it had attempted to change its
ANSI-compliance statements and the evidence of materiality accepted by the
Federal Circuit, and you get a triable issue.

There was evidence in the record pointing the other way;
Wing had higher sales on the Home Depot website than projected, and, after
Tricam’s ladders had entered the market, Wing obtained a substantial new line
of business by selling its ladders at Lowe’s. But Wing does not need to
identify “specific damage,” and the jury should resolve the question.

So too with Wing’s evidence of price erosion:

[A] reasonable juror could find
that Tricam’s false ANSI-compliance statements allowed it to enter and remain
in the market by selling its ladders at Home Depot. Once in the market, Tricam
consistently charged a lower price than Wing for its ladders. One of the
reasons Tricam was able to do this was that the crimped design of its ladder
rungs—the source of the dispute over ANSI compliance in this case—made its
ladders cheaper to manufacture.… And this led several of Wing’s retail
partners, particularly Lowe’s, to repeatedly pressure Wing to lower its prices
to compete with Tricam. On one occasion, Wing agreed, at the urging of Lowe’s,
to a 27% promotional discount on 75,000 ladders in order to compete with
Tricam, and the “[e]very day” price of Wing’s ladders “[e]asily” dropped by $40
or $50.

The court cautioned that, while Wing was entitled to go to the
jury, “there is no guarantee that Wing will ultimately be able to obtain the
monetary relief—disgorgement of profits—that it seeks,” given courts’ broad discretion
under the principles of equity. The Eighth Circuit recently suggested that
disgorgement is only appropriate in “exceptional” cases. (Does that survive Romag?)
Given the new presumption of irreparable injury, however, and the possibility
that ANSI certification is necessary in this market, an injunction alone might
be worthwhile for Wing.

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Nominative fair use in the Seventh Circuit: a practical tool

Data Mgmt. Ass’n Int’l v. Enterprise Warehousing Solutions,
Inc., 2020 WL 7698368, No. 20 C 04711 (N.D. Ill Dec. 28, 2020)

Without resolving burden of proof issues, the court uses nominative fair use to quickly resolve a case where fair competition requires some use of the mark, but not as much as the defendant made.

DAMA-I, which runs a standardized data management
certification program whose exam is called the Data Management Fundamentals
Exam, sued EWS, which offers prep courses for the exam, for trademark
infringement. It sought an injunction against EWS’s use of any of its marks,
including suspension of EWS’s website, damacdmp.com. The court granted a
limited injunction against the use of the domain name and the use of “stylized
trademarks and graphics that resemble those marks.” But EWS “may continue to
use DAMA-I’s marks on a limited basis to describe its exam preparation course,
consistent with nominative fair use.”

DAMA-I has incontestable registrations for “CERTIFIED DATA
MANAGEMENT PROFESSIONAL”; “CDMP”; “DAMA”; “DAMA INTERNATIONAL”; and a stylized
DAMA mark.

EWS’s allegedly infringing use includes referring to its
prep course as the “DAMA CDMP® Data Management Fundamentals exam preparation
course” and using DAMA-I’s marks, including its stylized mark, throughout the
http://www.damacdmp.com website.

Although the Seventh Circuit hasn’t formally adopted NFU,
the district court thought it was the right approach here. As the court pointed
out, the traditional multifactor test was ill-suited for this particular type
of inquiry: “EWS must use DAMA-I’s marks to describe its product—a product that
DAMA-I does not itself offer— making factors like the ‘similarity of the marks,’
the ‘strength of the plaintiff’s mark,’ the ‘relatedness of the products’ and
the ‘defendant’s intent to “palm off” its product as the plaintiff’s’
meaningless.”

Is the product readily identifiable without the use of the mark?
DAMA-I argued that EWS has “no need to use any of the Marks” because the
official name of the test—the “Data Management Fundamentals Exam” —was not “trademarked.”
But

DAMA-I does not contend that the
official name of the exam is so widely known that use of the marks is redundant
or gratuitous, just that such use is technically avoidable. That the name of
the exam is not itself trademarked, however, suggests just the opposite—that
the name of the exam itself is not widely recognized independent of a connection
with DAMA-I’s registered marks. And if EWS were only allowed to use the exam’s
official name, lack of consumer awareness about that name would significantly
hinder EWS’s ability to reach its target audience. EWS’s prep course is
exclusively tailored to DAMA-I’s test, which individuals take in the hopes of
achieving DAMA-I’s CDMP certification, so using the marks at issue is the “most
straightforward, obvious and truthful way” for EWS to describe its product.

However, “EWS’s admittedly ‘liberal’ use of the marks, and
particularly its use of the domain name damacdmp.com, go well beyond what could
reasonably be considered necessary to identify the exam to which its prep
course relates.” As the Ninth Circuit’s Tabari case indicates, unadorned
use of a mark (here, two marks together) in a domain name is often going to
suggest sponsorship or endorsement.  

And EWS’s use of the marks throughout its website “similarly
goes well beyond what is needed to make its advertisements intelligible to its target
audience and falsely creates the impression that DAMA-I officially sponsors its
prep course.” The marks “DAMA” and “CDMP” were used over twenty times on the
website’s landing page alone, and EWS also used a graphic that combines the
globe-like background of DAMA-I’s stylized trademark with the term “Certified
Data Management Professional” superimposed.

[W]hile EWS repeatedly warns
customers that they are purchasing only a prep course, and not the actual exam,
through disclaimers at the point of sale and throughout the website, it does
not go to similar lengths to dispel the potential (and understandable)
impression that DAMA-I sponsors the prep course offered at the damacdmp.com
URL. Weighed against the totality of the domain name and repeated references to
DAMA-I, the DataManagementU.com logo at the top left and the confusingly worded
disclaimer at the bottom left of the website are relatively easily overlooked
and ineffective even if noticed.

The court applied a presumption of irreparable harm (now rebuttably
presumed due to the recently signed COVID relief law, though not when the court
was considering the issue). DAMA-I argued that, because it was not involved in
the development of EWS’s prep course curriculum, it “cannot vouch for the
quality or comprehensiveness of the course.” While “[i]t takes quite a leap to
conclude that DAMA-I will inevitably be scapegoated for a hypothetical test
taker’s disappointing performance,” the court was willing to make that leap
because inability to control the nature and quality of defendant’s goods is
inherently irreparable. [I have never seen why that is true if there is no
evidence that the defendant’s goods are actually bad—a risk is not itself the
materialization of that risk. But I guess that won’t matter much going
forward.] The court was unimpressed by DAMA-I’s alleged delay in seeking
relief, unwillingness to negotiate, or inability to approximate damages, which
itself suggested irreparable harm. “To be sure, DAMA-I could approximate its
monetary losses related to EWS’s unauthorized use of its marks using the
licensing fees paid by the authorized users referenced at oral argument. But
this type of calculation would only capture one facet of DAMA-I’s injury.” The
value of lost control can’t be reduced to dollars.

Likewise, “the onus on avoiding trademark infringement falls
on EWS, and DAMA-I has no obligation to negotiate with EWS about what
constitutes an acceptable use of DAMA-I’s marks.” DAMA-I could well have
avoided unnecessary litigation costs and months of alleged consumer confusion
if it had been more receptive to EWS’s offers to modify its use of DAMA-I’s
marks on its web site, but that isn’t the standard for irreparable harm, and
EWS could have offered more to DAMA-I.

And the delay here didn’t lull EWS into a false sense of
security. There were threat letters, and in light of the ongoing pandemic, “it
is understandable that a lawsuit did not immediately follow; when DAMA-I did
file its complaint, it also filed its motion for a preliminary injunction.”

But the scope of the resulting injunction was key, since a trademark
injunction, “particularly one involving nominative fair use, can raise serious
First Amendment concerns because it can interfere with truthful communication
between buyers and sellers in the marketplace.” A blanket injunction like the
one DAMA-I requested here “does not advance the Lanham Act’s purpose of
protecting consumers and preventing unfair competition.”

The court instead ordered EWS to suspend operations “at” its
current domain name [can it redirect? That seems like an important question];
prohibited its use of DAMA-I’s stylized marks or confusingly similar graphics;
and ordered EWS to “reduce” its use of the other marks: it can’t use any of the
text marks “more than five times on any web page or two times in any social
media or print advertisement, such restrictions exclusive of the use of any of
DAMA-I’s marks that may appear in quoted customer testimonials.” Though “the
proper remedy for infringing use of a mark on a site generally falls short of
entirely prohibiting use of the site’s domain name,” “EWS cannot legitimately
claim nominative fair use of a URL that is comprised solely of two of DAMA-I’s
incontestable marks, and it will not be disproportionately harmed by migrating
its operations to a different URL.”

Of note: there’s no real confusion analysis of the “five times/two times” rule; it seems to be what the court thinks is fair under the circumstances. 

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product changes as false advertising: TM may serve as express warranty of formulation & quality

Starr v. VSL Pharmaceuticals, Inc., No. TDC-19-2173, 2020 WL
7694480 (D. Md. Dec. 28, 2020)

This putative class action is related to the longstanding trademark/false
advertising litigation between the VSL parties and Claudio De Simone parties,
and probably qualifies as a follow-on class action.

Plaintiffs alleged violation of RICO, breach of express
warranty, unjust enrichment, and violations of various state consumer
protection statutes. Many claims survive, including RICO claims—at least at the
motion to dismiss stage.

The relevant proprietary probiotic formulation, aka the De
Simone Formulation, was sold for many years under the name “VSL#3,” a trademark
owned by VSL. Relevant VSL parties are now enjoined from (1) stating or
suggesting in VSL#3 promotional materials directed at United States consumers
that the present version of VSL#3 produced in Italy continues to contain the De
Simone Formulation, including by stating that VSL#3 contains the “original
proprietary blend” or the “same mix in the same proportions” as the earlier
version of VSL#3; and (2) “citing to or referring to any clinical studies
performed on the De Simone Formulation or earlier versions of VSL#3 as relevant
or applicable to Italian VSL#3.” Plaintiffs allege that defendants made equivalence
claims despite scientific evidence establishing that the new VSL#3 was neither
the same, nor as clinically effective, as the De Simone Formulation.

In addition, plaintiffs alleged that “Defendants improperly
continued to use the VSL#3 trademark to identify the new probiotic, even though
that mark had become associated with the De Simone Formulation.” At some point,
the packaging was changed to remove listing specific bacterial strains, but on
the product information sheet inside the package, defendants allegedly
continued to state that the new VSL#3 had been the subject of extensive
clinical research and cited to clinical studies establishing the efficacy of
the De Simone Formulation, not the new formulation. Defendant Leadiant also
sent a letter to all health care providers who had previously recommended VSL#3
to their patients stating that production of VSL#3 would be moving to Italy but
assuring customers that they would be receiving “the same quality product,
containing the same genus and species of bacteria, in the same proportions you
have come to expect.” “Other Leadiant marketing materials made similar
representations,” such as that the new VSL#3 remained “the same multi-strain
probiotic” and was “supported by more than 170 studies.” Defendant Alfasigma took
over the distribution of VSL#3 and allegedly advertised the same message,
including in an August 2016 press release asserting that the new VSL#3
“maintain[ed] the original proprietary mix of eight strains of live bacteria”
and was “supported by more than 170 published studies over the past 15 years.”

The named plaintiffs alleged that they purchased the new
VSL#3 in reliance on the packaging and marketing materials and the
recommendation of their doctors, believing that the new VSL#3 continued to
contain the De Simone Formulation.

As mentioned, the RICO claims survived because the
misrepresentations were sufficiently alleged.

Express warranty: Was there an express affirmation of fact
or promise as to the quality or characteristics of VSL#3? Plaintiffs identified
the product information sheet statement that “VSL#3 has been the subject of
extensive clinical research in the dietary management of IBS, UC, and an ileal
pouch” and that seemed to be an affirmation of fact or promise about the new
VSL#3.

Plaintiffs also alleged that the continued use of the term
“VSL#3” on the packaging of the new VSL#3 itself constituted an affirmation of
fact that the product was the same as the prior version of VSL#3. This was a
more interesting argument, because defendants rejoined that this was just a
trademark use, rather than a warrant of particular ingredients and of
particular quality. The court was not persuaded by cases finding no warranty in
the use of “Gap” on clothing or “Apple” on electronics: “[T]hese cases focus on
the meaning conveyed by the use of a brand name or trademark for multiple
products at the same time and do not address the present issue of whether a
brand name or trademark can, over time, become so identified with a particular
product that its continued use constitutes an affirmation of fact of
continuity.” McCarthy holds that “a sudden or substantial change in the nature
or quality of the goods sold under a mark may so change the nature of the thing
symbolized that the mark becomes fraudulent.” 3 McCarthy on Trademarks and
Unfair Competition § 17:24 (5th ed. 2020). In Royal Baking Powder Company v.
Federal Trade Commission, 281 F. 744 (2d Cir. 1922), Royal Baking had for 60
years produced a “superior” baking powder under the brand name “Dr. Price’s
Cream Baking Powder” which contained cream of tartar, rather than phosphate or
alum, and had in its advertising touted the benefits of cream of tartar while
warning of the dangers of phosphate and alum. When it substituted phosphate in
place of cream of tartar for cost reasons, but kept the same product name and
used the reference “Makers for 60 years,” the court upheld an FTC cease and
desist order unless the word “cream” was omitted and the word “phosphate”
included, because it was a “deception of the public” to sell an “inferior
powder” “under an impression induced by its advertisements that the product
purchased was the same in kind and as superior as that which had been so long
manufactured by it.” Likewise, the Eighth Circuit held that “[i]f the
manufacturer makes a change in the article and that change be of a character
which would, considering all of the attendant circumstances, naturally affect
the attitude of the purchasers of that article, fair dealing and the law
require that such purchasers be effectively informed of that change.” Royal
Baking Powder Co. v. Emerson, 270 F. 429, 440 (8th Cir. 1920).

The case law supported the conclusion that “a brand name can
come to function as a representation of a continuity of product contents and
quality that could deceive those ‘familiar with the old brand and ignorant of
any change.’” Thus, the trademark-as-warranty legal theory was at least
plausible, especially when accompanied by a product information sheet
containing more specific false affirmations.

Defendants argued that the product information sheet wasn’t visible
pre-purchase and thus couldn’t become part of the agreement. But “[t]he focus
is not on any particular language at a particular point in time but whether the
seller’s actions or language when viewed in light of his relationship with the
buyer were fairly regarded as part of the contract to purchase the good.” No
dismissal at the pleading stage.

Defendants also argued that privity was required for express
warranty claims under various state laws, but the court noted that many states
relax that requirement where the manufacturer makes warranties directly to the
consumer on product packaging, though Tennessee and Michigan did not and so
those claims were dismissed. Of the claims under the surviving state laws,
where reliance was required, plaintiffs adequately pled it, based on pleading past
purchases under the VSL#3 brand name.

Consumer protection claims under Florida and Texas survived,
but the court thought that the Michigan, and California law claims didn’t plead
reliance sufficiently, which I find a bit puzzling given that the allegations
are the same. The court treated the consumer protection claims as largely
resting on failure to disclose, which can be harder to plead, but I would think
the affirmative misrepresentation argument is the same here: VSL#3 allegedly had a
meaning and defendants did not honor that meaning. If they’d sold margarine as
butter based on an undisclosed definition of “butter” that included all
dairy-like spreads, we’d easily see that as deceptive. Challenges to the plaintiffs’
claims under the consumer protection statutes of Washington, Wisconsin,
Illinois, Tennessee, Massachusetts, and New Jersey under the heading of
causation failed; causation is typically a factual question, and plaintiffs
sufficiently alleged that, where the VSL#3 packaging identified no material
change to the product, they bought VSL#3 believing it to continue to contain
the De Simone Formulation, “resulting in the foreseeable loss of monies spent
on a product that was no longer of the quality and content that it appeared to
be.” To the extent required, plaintiffs also sufficiently alleged intentional
deception.

Ascertainable loss: In general, there is “no pleading
requirement of a specific quantity inherent in this term.” But for New Jersey,
the state supreme court emphasized the importance of the ascertainable loss
requirement “as an integral check upon the balance struck” under the New Jersey
Consumer Fraud Act “between the consuming public and sellers of goods.” Thus,
courts applying New Jersey law have required pleading an actual quantification
of the loss, even if not entirely specific. Thus, the NJCFA claim was
dismissed.

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business can assert California consumer protection claims against platform

Gaby’s Bags, LLC v. Mercari, Inc., No. C 20-00734 WHA, 2020
WL 7664455 (N.D. Cal. Dec. 25, 2020)

After the court dismissed
plaintiff’s Lanham Act false advertising claims against a platform because the
plaintiff was a customer and not a competitor
, the plaintiff sought to
amend to assert California consumer protection law (and related) claims. The
court agreed that leave to amend was justified.

Mercari allegedly promoted its web platform as a venue where
“anyone can sell.” Plaintiff opened a Mercari account and began selling
handbags, making nearly $400,000 over a two-year period until Mercari
terminated plaintiff’s account for violating its TOS, which barred “business
accounts.”

Mercari argued that the word “anyone” clearly indicated any
individual, but the court wasn’t so sure. Plaintiff seemed to be a consumer who
had been harmed by reliance on the alleged misrepresentation, which was enough
to allow the amended complaint under the circumstances, which included the
court’s own invitation to replead when it dismissed the Lanham Act claim.

Mercari also argued that California law didn’t apply, but
the complaint sufficiently alleged that the misconduct originated in
California, tethering the alleged harm to Mercari’s headquarters in California.
Plus,

Mercari’s terms of service foisted
a California choice-of-law provision onto plaintiff, which was the basis for
dismissing plaintiff’s Florida consumer protections claims. Mercari argued that
plaintiff cannot invoke Florida law because of the California choice-of-law
provision. Now, when plaintiff does just that, Mercari flips flops and says
plaintiff cannot invoke California law. Apparently, in Mercari’s universe,
plaintiff is simply without any recourse. This absurd result will not be
tolerated.

A negligent misrepresentation claim, however, would not be
allowed, because plaintiff failed to plead anything other than an arms-length
relationship between the parties, not the extra duty required.

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no Lanham Act claims, including false advertising, allowed over cannabis

Shulman v. Kaplan, 2020 WL 7094063, No. 2:19-CV-05413-AB
(FFMx) (C.D. Cal. Oct. 29, 2020)

The parties compete in the cannabis market, and some
defendants formerly worked with Shulman, but that relationship broke down.
Shulman sued, alleging four federal claims and 21 state law business and/or
contract-related claims.

RICO claims failed because “[a] court order requiring
monetary payment to Plaintiffs for the loss of profits or injury to a business
that produces and markets cannabis would, in essence (1) provide a remedy for
actions that are unequivocally illegal under federal law; and (2) necessitate
that a federal court contravene a federal statute (the CSA) in order to provide
relief under a federal statute (RICO).”

Likewise, Lanham Act claims failed because cannabis is
federally illegal and thus the plaintiff couldn’t have trademark priority. This
reasoning also applied to “derivative” false advertising claims. Note: I don’t
think that conclusion necessarily follows—other courts have held, in other
contexts, that lacking enforceable trademark rights doesn’t preclude either a
§43(a)(1)(A) or (B) claim under appropriate circumstances. If generic terms and
terms in which there are only foreign rights can found a claim when there is
consumer deception, why not terms for cannabis? Note that this is also the issue
obviated by Tam and Brunetti with respect to unregistrable-on-public-policy-grounds
marks.

The court bolstered its conclusion by reasoning that
plaintiffs lacked statutory standing because they weren’t engaged in “lawful”
commerce and thus didn’t come within the zone of interests protected by the statute.

The court declined to exercise supplemental jurisdiction
over the remaining claims.

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Test yourself: would you have approved this “covid-free” claim?

 From the NYT this weekend (h/t Zachary Schrag):

“It’s time to put COVID on hold … and set out for the ultimate escape to the world’s only 6-star hotel, Quintessence Hotel. The sixth star is for our (and Anguilla’s) diligence in creating a COVID-free environment…. If you long for the tranquility of a COVID-free Caribbean island sanctuary … be our guest.”

What substantiation, if any, would you consider sufficient?

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Another pandemic education case: false advertising fails, contract claim survives

Bergeron v. Rochester Inst. of Technology, No. 20-CV-6283
(CJS), 2020 WL 7486682 (W.D.N.Y. Dec. 18, 2020)

Different
district, same result as this case involving Rensselaer Polytechnic
.
Contract/unjust enrichment claims survive based on allegations that RIT promised
in-person learning, but conversion and false advertising claims go. Also:
Parents of adult students lack Article III standing; paying the fees isn’t
enough to make them the injured parties.

Objectively,

[N]o reasonable prospective student
could consider him- or herself “deceived” or “misled” where the school’s normal
course of on-campus instruction was altered mid-semester by an unforeseen
global pandemic that prompted the Governor of New York to issue an unprecedented
executive order prohibiting on-campus, in-person instruction. Whatever the
merit of Plaintiffs’ breach of contract or unjust enrichment claims, there is
nothing in the complaint that plausibly alleges that RIT’s publications would
lead a reasonable prospective student to believe that the institution would so
risk student safety and defy the Governor’s orders.

The pandemic may give us a new line of cases holding that “reasonable
consumers” understand something like the contract doctrine of impossibility. If
that’s true, are there other exceptions that reasonable consumers understand must
apply?

Of note: plaintiffs argued that RIT’s online degree program
was relevant to the plausibility of the claims/ascertainability of damages,
since the programs are marketed separately, and tuition for the online program
is “significantly less.” Given this, they argued that no subjective evaluation
of the quality of in-person versus online instruction would be required: Expert
testimony could establish the price premium for an in-person education, based
on the hundreds or thousands of universities that offer online and in-person
programs.

 

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