230 defense fails where speaker’s ownership/control of D is sufficiently alleged

Posted on November 4, 2020 by rtushnet

Tang v. Guo, 2020 WL 6414371, No. 17 Civ. 9031 (JFK)
(S.D.N.Y. Nov. 2, 2020)

Further
on this case about a dispute between a political activist and a rival. Plaintiffs
sued defendants including Guo a/k/a Kwok and four entities that Kwok allegedly
founded and controls, collectively the media defendants and the ROL defendants
(“Rule of Law” Society and Foundation). A media defendant and the ROL defendants
moved to dismiss the claims against them under §230 and the court denied the
motion because it was properly pled that they were owned/controlled by the speaker
who posted the challenged content on their websites, and thus not third parties
for §230 purposes.

Plaintiffs allege that Kwok owns, directs, and/or controls
the media Defendants and ROL defendants, which he allegedly created to promote
certain for-profit endeavors of his under the guise of advocating for greater
human rights and democracy in China. Each entity operates out of Kwok’s
residence; and Kwok is the sole agent and promoter of the corporations’
services, which are allegedly designed to compete with plaintiffs’ nonprofit
organizations and media outlet, which also advocate for greater human rights
and democracy in China.

Kwok, via the media defendants and other outlets such as
YouTube and Twitter, allegedly made and continues to make available, false and
defamatory statements about plaintiffs, as well as false or misleading
statements about the purported use of funds donated to the ROL defendants, in
order to garner attention for Kwok’s nonprofit and media organizations and
ultimately drive donors away from plaintiffs’ competing organizations.

After an initial dismissal, the court allowed plaintiffs
leave to file an amended complaint alleging Lanham Act, unfair competition,
defamation, and harassment claims to move forward, and adding media defendant
SMG and the ROL defendants to be added to this action. Relevant allegations:
(1) that the ROL defendants, which are owned and controlled by Kwok, use the media
defendants to publish Kwok’s false and misleading statements; (2) that the ROL defendants
engaged in false advertising regarding the foundations’ non-tax exemption for
certain charitable donations, and the foundations’ lobbying efforts and
non-charitable expenditures; and (3) that the media defendants promote Kwok’s
and the ROL defendants’ false statements and advertising by receiving funding
from the ROL defendants and publishing Kwok’s misleading infomercials on their
platforms.

Media defendant SMG argued that §230 shielded it from any
liability, and the ROL defendants argued that the complaint didn’t plausibly
allege a principal-agent relationship between Kwok and the ROL defendants, and
even if it did, the complaint didn’t allege how the ROL defendants’ purportedly
false advertising caused any harm to Plaintiffs.

Previously, the court found Lanham Act/unfair competition
claims permissible because the complaint plausibly alleged (1) a sufficient
economic motivation for Kwok’s speech based on the “DONATE” buttons he included
in certain video infomercials as well as the plausible allegation that Kwok sought
to increase viewership on the media defendants’ platforms in order to encourage
donations to the ROL defendants; (2) that Kwok and the entities he controls
have misled the public regarding the use of donated money; and (3) that Kwok’s
false statements were made for the purpose of influencing donors to make
contributions to his charitable organizations instead of to Plaintiffs’
competing organizations. [I suspect there’s a greater noncommercial speech
problem here than litigated out here, given Riley & progeny.]

CDA:  “[I]mmunity
pursuant to the CDA is generally only available where the complained of content
is provided by a third-party.” The complaint plausibly alleged that defendant
SMG itself published the false statements, because plaintiffs plausibly alleged
that Kwok owns and controls SMG and used it to violate the Lanham Act and
unfairly compete with plaintiffs’ fundraising efforts.

The ROL defendants: The complaint alleged that the two organizations
are essentially the same except that one is a 501(c)(4) entity which is allowed
to engage in lobbying, and the other is a 501(c)(3) entity which is not, and
that the two organizations compete with plaintiffs for donations, gifts, and
other contributions intended for promoting human rights and democracy in China.
They allegedly engaged in false advertising by soliciting charitable
contributions without distinguishing between the two or disclosing to potential
donors that the ultimate use of the funds was for non-charitable purposes, such
as lobbying efforts, funding Kwok’s personal asylum application, and funding
his for-profit media organizations, the media defendants.

The ROL defendants could be held directly liable based on
the plausible allegation that they failed to disclose that the use of certain
donations was for purposes other than the organizations’ stated objectives. And
proximate cause was plausibly pled because plaintiffs alleged that they derived
income from the same types of donations and gifts that were redirected to the
ROL defendants based, at least in part, on their false advertising.

Comment: Not every court would be so generous with this
proximate cause allegation—why would money be diverted from plaintiffs in
particular? Are there literally no other organizations doing similar work?

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press release in supplement battle could be false advertising

Posted on November 4, 2020 by rtushnet

ThermoLife Int’l LLC v. NeoGenis Labs Inc., 2020 WL 6395442,
No. CV-18-02980-PHX-DWL (D. Ariz. Nov. 2, 2020)

Plaintiff/counterdefendant ThermoLife and defendant/counterplaintiff
HumanN both hold patents related to the use of nitrate technology for
supplements. ThermoLife alleged that HumanN engaged in false advertising and
false marking by, among other things, marking three of its nitrate-related
products with inapplicable patent numbers. HumanN’s counterclaims were based in
part on a previous, unsuccessful lawsuit that ThermoLife filed against HumanN,
in part on a press release that ThermoLife’s principal Kramer issued after this
lawsuit was filed, and in part on ThermoLife’s alleged interference with
HumanN’s business relationship with Amazon.com.

This decision deals with ThermoLife’s motion to dismiss the
counterclaims.

The prior litigation was stayed when the PTO instituted
proceedings to reexamine the ThermoLife patent asserted in the suit. During
reexamination, Kramer allegedly sent a letter to HumanN to “open a dialogue for
possible resolution” of the litigation. He “threatened to bring a false
advertising suit” and another infringement suit based on two additional patents
if “HumanN did not…negotiate a deal.” Kramer and ThermoLife allegedly “promise[d]
to stifle competition for HumanN if HumanN agree[d] to a sub-license, and
alternatively threatened to drive HumanN out of business entirely if it [did]
not.” ThermoLife voluntarily dismissed the infringement suit, but allegedly
continued to demand that HumanN pay licensing fees despite HumanN’s contention
that it didn’t practice the patent.

ThermoLife also told Amazon that HumanN’s products infringed
another of ThermoLife’s patents, as a result of which Amazon took down some of
HumanN’s product listings. This allegedly caused HumanN to expend “significant
efforts to restore its product pages,” rendered HumanN “unable to sell three of
its top selling products on Amazon” for one month, and diminished HumanN’s
seller ranking.

ThermoLife ultimately sued again, and issued a press release
entitled “ThermoLife Serves HumanN A Beet Down For Selling Falsely Advertised
And Misbranded Products Including SuperBeets, BeetElite, And Neo40.”  

The Sherman Act attempted monopolization counterclaim was
dismissed because of failure to sufficiently define the relevant market, albeit
with leave to amend.

Lanham Act false advertising: This was based on the “Beet
Down” press release, which disclosed that ThermoLife had filed this action and
described ThermoLife’s basis for doing so.

ThermoLife argued that because the press release simply
repeated the allegations contained in its complaint in this action, while
prefacing each set of allegations with the phrase “has alleged,” the press
release was truthful. Not so. The headline was not qualified and affirmatively
stated that HumanN “sell[s] falsely advertised and misbranded products.” “Resolving
all reasonable inferences in favor of the non-movant, this is a statement of
fact.” Also, a quotation from Kramer included an assertion that “HumanN relies
on false representation after false representation to deceive consumers into
purchasing HumanN’s products.” This was also plausibly a statement of fact
rather than a statement of opinion.

Arizona’s state-law litigation privilege also didn’t bar
HumanN’s Lanham Act claim. And the press release wasn’t protected by Noerr-Pennington
immunity. It accused HumanN of falsely marking HumanN’s products with patents
the products do not practice; it didn’t mention ThermoLife’s patents except for
in Kramer’s quote, “ThermoLife holds the patents for the technology in HumanN’s
products, not HumanN.” But that seemed to be about ThermoLife’s earlier
contention that “contrary to HumanN’s false advertising, none of [the] patents
that HumanN licenses and falsely marks on its products protect ‘patented Nitric
Oxide technology.’ ” ThermoLife couldn’t claim Noerr-Pennington immunity
for asserting its patent rights “in a press release about a lawsuit that has
nothing to do with enforcement of its patents.”

The substantive analysis was the same for Arizona unfair
competition and trade libel claims, but the court had to analyze Arizona’s
litigation privilege. At this stage, ThermoLife hadn’t shown that it was
entitled to a qualified privilege. Although the general rule is that “[a]nyone
may describe what transpired at a public proceeding so long as the publisher
provides a fair and accurate rendition…[o]ne exception to this wide application
is the speaker who by design uses the privilege to republish defamation he
previously made during the public proceeding.” This was because “[t]he
privilege does not sanction self-serving re-publication.” That was exactly the
scenario alleged here. Arizona also holds that a speaker can forfeit its
entitlement to the qualified privilege via “abuse of that privilege,” such as by
“excessive publication…to an unprivileged recipient not reasonably necessary
to protect the interest upon which the privilege is grounded.” Given the posture,
it was vital that “whether the occasion for the privilege was abused is a
question of fact for the jury.”

Tortious interference with relations with Amazon: Federal
patent law preempts state tort law where the state tort is based on “conduct
that is protected or governed by federal patent law.” Thus, “patentees do not
violate the rules of fair competition by making accurate representations, and
are allowed to make representations that turn out to be inaccurate provided
they make them in good faith.” HumanN didn’t sufficiently allege that
plaintiffs acted in bad faith when they told Amazon that HumanN’s products
infringed. “HumanN has not identified any authority suggesting that a judicial
determination of infringement is a prerequisite to notifying a potential
infringer (or a third party) of infringement.” And, while HumanN alleged
specific facts suggesting that ThermoLife was aware that HumanN’s product
didn’t infringe the initially asserted patent yet chose to file suit anyway, it
didn’t provide any comparable allegations concerning the report to Amazon,
which involved different patents.

Arizona also has a Patent Troll Prevention Act (PTPA), which
prohibits “an assertion of patent infringement in bad faith.” The statute expressly
exempts civil actions “that include[ ] a demand or assertion of patent
infringement.” But HumanN sufficiently alleged that ThermoLife “threaten[ed]
HumanN with sham litigation, even after [ThermoLife] dismissed its sham
infringement suit.” As for bad faith, ThermoLife argued that the challenged
communications contained “a detailed infringement analysis” and that there is
“no dispute” that it provided information set out in the PTPA as relevant to
the bad faith analysis: the patent number, contact information of the patent
owner or assignee, infringement facts, and an explanation of standing. But on a
motion to dismiss HumanN plausibly alleged bad faith. HumanN alleged that
ThermoLife’s infringement analysis was unsupported, contradictory, and without
merit and that, after ThermoLife dismissed its infringement suit, ThermoLife still
“insisted” that HumanN grant a $1 per unit licensing fee and pay $1 million in
“back damages” within 10 days. Those could plausibly show bad faith, and providing
the information listed in the statute isn’t automatically sufficient to defeat
a PTPA claim. The statute made clear that the factors are “nonexclusive”—a
court may consider “[a]ny other factor that the court determines to be
relevant.”

The court found it unnecessary to resolve whether federal
law preempted the PTPA because ThermoLife raised the issue only in passing in a
footnote.

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solar flareup: Panasonic and Tesla successor in interest in false advertising battle

Posted on November 3, 2020 by rtushnet

I know you want to read about a false advertising dispute that, for once, tries to work around the restrictions of trademark law and not the other way around!

Kinect Solar, LLC v. Panasonic Corp., No. 1:20-CV-378-LY, 2020
WL 6385292 (W.D. Tex. Oct. 30, 2020) (magistrate R&R)

Panasonic entered into a partnership with Tesla to
manufacture a line of solar panels known as “SolarCity” solar panels. Tesla
began liquidating its SolarCity panels in 2019, and Kinect bought them. It
began selling the SolarCity panels “through its normal channels” at a price
that was “substantially discounted” compared to the solar panels that Panasonic
sells directly through its own distribution network. Panasonic calls these
“grey market” sales, even though they … aren’t? And one reason we know this is
that there is no trademark counterclaim, despite trademark claims being much
easier to win than false advertising claims.

Kinect allegedly contained Panasonic’s authorized installers
“claiming that they were selling discounted SolarCity modules that were backed
by and warranted by Panasonic.” Panasonic allegedly received messages from its
authorized installers “inquiring whether the SolarCity solar panels were
subject to the same warranties as Panasonic solar panels and whether these
panels were part of Panasonic’s authorized installer program.”

A Panasonic rep told Kinect: “I just want to make sure that
you guys understand that these panels do not have Panasonic Warranty and only
Tesla is responsible for their warranty on those panels so the fact that we
make them has not value to them [sic]. We’ll soon communicate to all our
authorized installers about this to make sure they are aware of it.”

Kinect argued that this and related statements to installers
were false, because Panasonic issued an “OEM Warranty” on the SolarCity panels.
Panasonic acknowledged that Panasonic owed a 10-year workmanship warranty to
Tesla for the SolarCity panels.

Panasonic then sent a letter to “certain of its business
partners,” stating that the SolarCity panels “were not covered under any
warranty by Panasonic Life Solutions of America,” and allegedly disseminated
the letter to PV Tech, “an online news and trade company,” which published an
article titled “US solar installers of Tesla designated panels [are] on the
market with no warranties.” This allegedly harmed Kinect’s sales, and Kinect
sued for business disparagement, defamation, tortious interference with
prospective business relations, and unfair competition.

Panasonic counterclaimed for Lanham Act false advertising
and tortious interference with business relations. Panasonic alleged that
“there are significant differences in warranties and benefits associated with
the two brands of solar panels including the entity issuing and administering
the consumer warranty.” The Panasonic warranty only applies where the SolarCity
panels are included in a photovoltaic systems sold by SolarCity/Tesla. And the
SolarCity panels provide purchasers a 10-year limited warranty for workmanship
by Tesla, while Panasonic-brand panels are provided a 25-year workmanship
warranty. Kinect allegedly “knew that the limited warranty associated with the
SolarCity panels was provided to end consumers by Tesla,” but nonetheless
marketed the SolarCity panels under the Panasonic brand name and failed to
disclose the differences between the brands of panels, including the
warranties. Panasonic “is now inundated with installer and consumer questions
and complaints directly associated with the misinformation being spread by
Kinect.”

The magistrate largely recommended refusing to dismiss the
claims/counterclaims, with the exception of an undeveloped common-law unfair
competition claim.

Kinect’s business disparagement claim: Requires “(1)
publication of disparaging and false words, (2) with malice, (3) which cause
special damages, and (4) lack of privilege.”

Panasonic argued that it was literally true that the
SolarCity panels were not covered by warranties issued by Panasonic Life
Solutions Company of America, as it said, but Kinect sufficiently alleged
implied falsity because the panels were backed by another Panasonic
entity/division, and omitting that fact from the Panasonic letter created a
false impression that Kinect was falsely advertising the presence of a
Panasonic warranty. Kinect also sufficiently alleged the other elements,
including special damages by alleging that sales representatives “have had
prospective purchasers decline to purchase the [SolarCity panels], citing the
reason that they were informed that the panels were not covered by a Panasonic
warranty.”

Defamation: Requires that “(1) the defendant published a
false statement; (2) that defamed the plaintiff; (3) with the requisite degree
of fault regarding the truth of the statement (negligence if the plaintiff is a
private individual); and (4) damages, unless the statement constitutes
defamation per se.” Similarly, the challenged statements were capable of a
defamatory meaning. A plaintiff can bring a claim for defamation “when discrete
facts, literally or substantially true, are published in such a way that they
create a substantially false and defamatory impression by omitting material
facts or juxtaposing facts in a misleading way.”

Tortious interference with prospective business relations:
Here, Kinect didn’t identify specific prospective or existing clients with
which it would have done business but for Panasonic’s conduct, so the
magistrate recommended dismissal.

Panasonic’s false advertising counterclaim: Also facially
plausible. The court couldn’t resolve whether Panasonic was right on a motion
to dismiss. Panasonic alleged that Kinect marketed the solar panels with “a
doctored spec sheet … which completely removes the Tesla name and refers to the
SC-Series as “Panasonic SC Modules.” In fact, the only company identified on
the spec sheet is Panasonic with the words ‘manufactured by Panasonic’ at the
top of the sheet.” Although this was literally true, Panasonic plausibly
alleged misleadingness because “the panels were manufactured by Panasonic for
Tesla in accordance with Tesla’s specifications” and the original spec sheet “clearly
identified Tesla as the seller issuing the end consumer warranties.” The
revised specification sheet could plausibly lead a reasonable consumer to
believe Panasonic would be their contact for the warranties covering the
SolarCity panels. [Given what I said above, I should say that this does strike me as a perfectly coherent false advertising claim, and grey goods cases would benefit from being framed as false advertising cases so that courts would take materiality seriously, as they do in false advertising cases.]

The court’s own examination of the marketing spec
sheet—integral to the complaint and thus properly considered on a motion to
dismiss—showed that the words “Manufactured by Panasonic” had been added, while
this was deleted:

Modules are manufactured by
Panasonic to the specification of SolarCity. Modules are only warranted by Panasonic
if the modules are included in a PV system sold by SolarCity or Tesla.
SolarCity and Tesla make no warranties related to the modules, which are sold
as-is. SolarCity will handle any warranty claims on behalf of any purchaser.

Also, a reference to the module technology replaced “Manufactured
by Panasonic for SolarCity” with “Panasonic SC Series Modules.” This was enough
for a motion to dismiss.

Panasonic’s tortious interference claim was also sufficient,
which seems a little contradictory since Panasonic didn’t identify specific
customers, but it did allege that, “[w]hen the end-consumers and installers
discovered that Kinect misrepresented the product affiliation, warranties, and
benefits associated with the SolarCity panels, the end-consumers looked to
Panasonic to remedy the mistake. In order to protect the goodwill of the
Panasonic brand and maintain the loyalty of its customers, [Panasonic] assisted
with the replacement of the SolarCity panels with Panasonic branded panels for
these end-consumers,” which sufficed.

 

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Trade dress question of the day, butterbeer–I mean butterscotch beer–edition

Posted on October 30, 2020 by rtushnet

 Found this product, Flying Cauldron butterscotch cream soda:


Harry Potter fans (or former fans), what say you?

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trademark law continues as 500 pound gorilla in glue case

Posted on October 30, 2020 by rtushnet

J-B Weld Company,
LLC v. Gorilla Glue Co., — F.3d —-, 2020 WL 6144561, No. 18-14975 (11th
Cir. Oct. 20, 2020)

This case illustrates how much leeway trademark claims often get and how little false advertising claims do.

My daughter provided
the best summary of my take on the trademark part of this dispute: if you can’t
tell these two apart, you have no business working with powerful adhesives. But
the court found the evidence of copying was so strong as to allow a jury to
infer an intent to confuse. This triggered a concurrence emphasizing that
intentional copying isn’t necessarily evidence of intent to confuse. But if intentional
copying can always or usually reasonably allow an inference of intent to
confuse, which itself can be assumed to succeed, then ordinary competitors will
find it difficult to avoid a full jury trial, which is an anti-competitive
result. (Side note: the court also remanded the state law dilution claim
because dilution doesn’t require confusion and the court of appeals couldn’t
tell if the district court fully understood that, given that it focused on how
different the parties’ products looked, even though that’s also an excellent
reason there’d be no blurring either.)

The parties compete
in the adhesive market. J-B Weld makes a two-part epoxy adhesive. “J-B Weld
Original’s epoxy resin paste also contains iron dust as a filler, purportedly
to strengthen and support the adhesive when cured, which J-B Weld recognizes by
referring to the product as a ‘steel reinforced epoxy.’” It describes its trade
dress as:

(1) two squeezable tubes in a blister package, with the tubes angled
inwardly to create a “V-shape;” (2) a black-bannered tube on the left side of
the package and a red-bannered tube on the right side of the package; (3) black
and white caps on each respective tube; (4) a clear “blister” style protective
package that angles inward in the same manner as the tubes; (5) a background
card with a width of five inches; (6) a “technical information box,” located in
between the two tubes on the background card, including four lines of
information separated by white lines; (7) colored banners stretching across the
top and bottom portions of the background card; (8) the capitalized/emphasized
word “WELD” inside the upper banner on the background card; (9) a list of
potential uses for the product in the bottom-right corner of the background
card

In 2017, Gorilla
Glue introduced a two-tube adhesive under the brand name “GorillaWeld.” GorillaWeld’s
adhesive differs from J-B Weld’s in that GorillaWeld uses methyl methacrylate
chemistry (MMA), which, chemically, is not an epoxy-group polymer.
GorillaWeld’s resin also does not contain any iron or steel. It’s still
marketed as an “epoxy” adhesive and, on its packaging, as a “steel bond epoxy.”

Gorilla Glue
recognized that it was entering the epoxy market to go head to head against J-B
Weld. Its graphic designer stated: “The objective of this project was to go
straight up against the top competitor (J-B Weld) and create packaging that
mimics the competitor’s architecture. I was able to pull subtle elements into
our package, but still keep the package looking tough and geared towards the
Gorilla brand.”

The district court
found confusion unlikely,  because the packages look so different, but
the court of appeals thought it had resolved disputed questions of fact against
J-B Weld on similarity, intent, and actual confusion.

Similarity:

Here, reasonable minds could disagree as to which of these features
contributes most to the overall impression conveyed by the two marks. Where one
consumer may think that the color scheme and Gorilla Glue logo are central to
the trade dress’s impression, another consumer may believe that the particular placement
and angling of the black-and-red labeled tubes, the identical location of
product specifications such as hold strength and set and cure time, and the
presence of “WELD” in large, bolded text comprised the primary impression of
the two products’ packaging. With this amount of conflicting evidence as to the
similarity of the two designs, it was error for the District Court to conclude
that, as a matter of law, J-B Weld had not shown that the two products’ trade
dress designs were similar.

Intent: Again, the
district court erred by failing to make J-B Weld’s “best case.” Intent to
confuse can be found based on circumstantial evidence, so a factfinder “may”
infer “intent to derive a benefit from a competitor’s goodwill—and,
accordingly, an intent to cause confusion—from evidence of intent to copy.” This
is especially true if there are substantial similarities.

J-B Weld’s evidence
included “communications from Gorilla Glue’s packaging design team that
repeatedly referenced J-B Weld Original’s packaging and expressed a desire to
use similar elements for GorillaWeld’s packaging.”  The team described certain GorillaWeld
packaging options as “[c]lose to JB Weld brand” and aspiring to “go[ ] directly
after [J-B Weld Original],” and the team stated their target market was
consumers that had used the J-B Weld Original product in the last six months. One
Gorilla Glue employee later called the GorillaWeld design a “knock off” of J-B
Weld. [Note that GG apparently didn’t choose the closest options, but
its consideration and rejection of them gets to weigh against it!]

The district court
wrongly relied on the graphic designer’s statement, “I was able to pull subtle
elements [of J-B Weld’s Dress] into our package, but still keep our package
looking tough and geared towards the Gorilla brand.” This was error because
there was evidence that Gorilla Glue intended to “mirror,” “copy,” and “knock
off” J-B Weld Original’s trade dress, not simply “construct a worthy
competitor.”

And “GorillaWeld was
designed with the knowledge that it would be sold on shelves near its
competitor in retail stores,” which is apparently evidence favoring likely
confusion instead of easily allowing consumers to recognize big differences
between them. “This evidence of Gorilla Glue’s intent to copy creates an
inference that Gorilla Glue intended to capitalize on J-B Weld’s goodwill, and
that evidence is probative of the likelihood of confusion issue.”

It was also improper
to impute innocuous motives from the testimony of Gorilla Glue’s employees that
the “V-shape” design of GorillaWeld’s packaging served purposes other than
mirroring J-B Weld’s trade dress. It’s true that “intentional copying does not
necessarily indicate a desire to capitalize on another’s goodwill,” but it can,
so it had to weigh in J-B Weld’s favor for summary judgment purposes.

Actual confusion: “J-B
Weld’s evidence indicated that other industry professionals, including a buyer
at a retailer that carries J-B Weld Original, asked J-B Weld representatives
whether J-B Weld ‘had anything to do with’ GorillaWeld, or if J-B Weld was
making or supplying Gorilla Glue with ‘private Label Epoxy Twin Tubes’ pursuant
to some sort of agreement.” The district court went with case law saying that
questions about affiliation show lack of confusion, not confusion—they
understand that the signals they’re receiving are at least ambiguous.

But this wasn’t the
only reasonable inference from this evidence. It would also be reasonable to
infer that “even if the industry professionals knew the two products were
different, they were confused as to whether GorillaWeld was the product of a
collaboration or other liaison between the two companies.” [Except they asked,
rather than assuming—they knew they didn’t know the answer to that question
based on what they’d seen. It’s not just that they differentiated the products,
which I can do with Diet Coke versus Coke, it’s that they didn’t presume that
they were joint productions based on the similarities.] Because affiliation
confusion is actionable, this confusion could be legally significant. The
question about whether there was a private label deal “leads to a reasonable
inference that the person was confused because he or she believed that the
similarities in packaging signified a business relationship or other agreement
between the companies. Asking if one company ‘had anything to do with’ another
company’s product would — or, at least, could — generate a similar inference.”

Plus, the district
court failed to consider “any of the circumstantial factors that we have held
are integral to determining how much weight should be assigned to any
individual instance of actual confusion,” such as “the extent of the parties’
advertising, the length of time for which the allegedly infringing product has
been advertised, or any other factor that might influence the likelihood that
actual confusion would be reported.” Since the GorillaWeld product was
introduced in 2017, and J-B Weld sued quickly thereafter, “in all likelihood
the number of reported instances of actual confusion would be on the lower
side, making each instance of reported confusion more probative.”

And finally, the
district court “failed to appropriately discuss four of the seven applicable
factors — the similarity of the products, the similarity of retail outlets and
purchasers, the similarity of advertising media used, and the strength of the
J-B Weld mark,” which was error. [Query: Pepsi and Coke are at least as similar
in appearance—they even use only the same colors. Would it be error to dismiss a
confusion claim by Coke against Pepsi based merely on dissimilarity because
these factors (product similarity, marketing channels, and mark strength) favor
Coke?] A court has to evaluate the weight given to the factors; though that
weight varies case by case, it was insufficient to discuss the facts
supporting, and weight due, only the three factors discussed above. It was
particularly error to rely on the court’s own determination that the trade
dress was only moderately strong because the jury could find otherwise given “J-B
Weld’s presentation of evidence that J-B Weld Original’s dress is recognizable
and has retained consistent features for decades.” [Even though neither of
those things are actually evidence of a strong mark as opposed to a mark
that works fine but is not particularly strong.]

False advertising:
The district court did correctly grant summary judgment on the claim that
GorillaWeld is falsely advertised as a “steel bond epoxy.” J-B Weld failed to
show materiality of either “steel bond” or “epoxy.”

J-B Weld argued that
“epoxy” was material because it refers to the chemical composition of an
adhesive, which constitutes an “inherent quality or characteristic” of the
product. “But the ‘inherent quality or characteristic’ formulation adopted by
this Circuit does not replace the consumer-oriented nature of the materiality
inquiry with a scientific one.” The mere fact that components or ingredients
are often found to be “inherent qualities or characteristics” that are
important to consumer purchasing decisions didn’t mean that they always are. [I
sense a bit of tension with the “it’s a jury question” treatment of
infringement above.]

While J-B Weld
argued that “consumer[s] know[ ] that ‘epoxy’ is a specific and desirable
category of adhesives,” it didn’t show that consumers would deem GorillaWeld’s
MMA-based adhesive not to be an “epoxy.” It didn’t present “any evidence that
consumers are so scrupulous about the chemicals in their adhesives.” Instead,
the evidence that there was indicated that consumers probably deemed all
two-part adhesives to be “epoxies” regardless of chemical composition. J-B
Weld’s survey didn’t ask consumers whether or not they understood epoxy
adhesive to have “a specific type of chemistry to it,” and its expert opined
that consumers likely only care about whether the product sticks two surfaces
together effectively. Gorilla Glue also pointed to evidence that MMA-chemistry
based adhesives, such as GorillaWeld, “are frequently marketed, and categorized
by retailers, as epoxies.”

Although J-B Weld
was correct that retail purchasers or middlemen could be considered in
assessing materiality, it didn’t manage to show a factual question as to them
either.  The speculation that retailer
demand for GorillaWeld increased in 2017 merely because GorillaWeld began
including “epoxy” on its labeling couldn’t succceed without proof that it was
the inclusion of “epoxy,” and not some other factor, that increased demand for
the product.

J-B Weld argued that
chemical epoxies and MMA chemistries have “different physical properties,”
including “safety and odor differences.” “Maybe so. But J-B Weld has not made
any showing that these differences would matter to a consumer.”

“Steel bond”: First,
the court was skeptical that Gorilla Glue was really using “steel bond” to
describe “a strong bond that works well on metal,” rather than “an adhesive
that physically contains iron or steel as a reinforcing agent.” But even so,
J-B Weld needed to show that the presence or absence of steel in GorillaWeld
resin would be material to a consumer’s purchasing decision, and it didn’t. Its
survey asked respondents to identify which of the products they believed
contained steel, but didn’t ask about materiality. Internal Gorilla Glue
documents showing that it very much wanted to make some reference to “steel” on
the package (e.g., “play up on steel”) also didn’t matter. [Now this is definitely
in tension with the treatment of intent in the trademark part of the case. Why
isn’t it the most reasonable inference that Gorilla Glue, which presumably
knows its customers better than the court does, knew what would likely
influence them?]

Judge Carnes
concurred, but wrote separately “to emphasize the distinction between ‘intentional
copying’ and ‘intentional copying with intent to cause confusion.’”
Unfortunately, despite celebrating fair competition involving copying, the
concurrence doesn’t actually explain when summary judgment for a partial trade
dress copier could be proper, making procompetitive copying a risky endeavor.
Perhaps if your internal documents don’t say that you seek to “mirror” or be
“close to” the competition, or call it a “knock off,” you can still be ok. The
concurrence said that the majority doesn’t “alter the well-established rule
that intentional copying does not — without more — permit an inference of
copying with intent to confuse,” but instead found evidence of that “more”
here. I wonder how many instances of copying will not involve people saying that
they copied (sorry, “mirrored”), and how people are supposed to talk about
their legitimate copying without generating the “more.” I also suspect that,
despite all that, product design trade dress copying will continue to get more
leeway than product packaging copying.

 

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website traffic quality assessment isn’t advertising, or defamatory as to site

Posted on October 30, 2020 by rtushnet

Young Hollywood LLC v.
White Ops, Inc., No. CV 20-03334 PA (RAOx), 2020 WL 6162795 (C.D. Cal. Aug. 6,
2020)

Plaintiff is a
“publisher and distributor of exclusive, premium celebrity and lifestyle
content.” Its revenue comes exclusively from advertising and licensing content.
It worked with Telaria to sell ads and Prodege to advertise/drive traffic.
Prodege is an online marketing company that uses “incentivized” or “rewarded”
traffic in exchange for viewing ads in order to drive traffic to a client’s
website.

Defendant White Ops
is a “cybersecurity company that claims to provide fraud detection services.” It
offers “MediaGuard pre-bid prevention,” which is a “ ‘pre-bid filter’ intended
to prevent fraud before [a] publisher’s [like Plaintiff’s] advertising
inventory is offered to advertisers for bidding.” The pre-bid filter “evaluates
every request for a bid and blocks fraudulent website traffic – known as
invalid traffic or IVT – from being seen or offered to advertisers.” White Ops
then publishes a “ ‘taxonomy’ list that categorizes [what Defendant] considers
to be IVT.” It allegedly maintains a domain blacklist, and distributes that to
clients.

Telaria became a
White Ops client, and then Prodege did. After that, White Ops allegedly “began
classifying a significant portion of [Plaintiff’s] traffic as [invalid] and
[began] blocking [Plaintiff’s] inventory from Telaria’s exchange.” Young
Hollywood “learned Telaria was rejecting [65-70%] of [Plaintiff’s] advertising
due to [Defendant’s] pre-bid filter,” meaning that [65-70%] of the advertising
opportunities [Plaintiff] sought to sell were not being shown to advertisers.” Young
Hollywood’s sites were also allegedly placed on the White Ops blacklist, and
White Ops allegedly blocked 99% of its traffic, even though its algorithms
couldn’t distinguish between “invalid traffic” and “incentivized” or “rewarded”
traffic such as the traffic Prodege brought. Young Hollywood allegedly lost its
main source of income as a result, and suffered harm to its reputation as a
digital media provider.”

When Young Hollywood
tried to fix the problem, White Ops allegedly “made it clear that becoming a
client of [Defendant] is what it would take to resolve [Plaintiff’s] problem.” In
2020, the president/cofounder of White Ops allegedly acknowledged that its
updated algorithm could not differentiate between incentivized traffic and IVT,
which was likely the reason White Ops was flagging Young Hollywood’s
inventory.” Although he allegedly promised a technical solution, none
materialized.

White Ops allegedly
falsely labeled Young Hollywood’s advertising space offerings as invalid in
reports disseminated to all of its clients,” including divisions of AT&T
and Verizon. Telaria allegedly “ended its over a decade long relationship with
[Plaintiff] after it was unsuccessful in helping remove [Defendant’s] blocks,” causing
a “direct loss of millions of dollars in advertising revenue.”

Young Hollywood sued
for (1) defamation, (2) trade libel, (3) product disparagement, (4) unfair
competition, (5) intentional interference with prospective economic advantage,
(6) negligent interference with prospective economic advantage, and (7)
negligence. The court granted a partial motion to dismiss.

Defamation: the
statements at issue didn’t call into question Young Hollywood’s “honesty,
integrity or competence,” as required for defamation.  The statements were about the quality of the
traffic to its site, not about its site itself or even whether Young Hollywood
knew about the supposed problems.

Lanham Act false
advertising: The court wrongly applied a competition requirement as an element
of whether the statements at issue were commercial advertising or promotion.
But it’s harmless error because the court also pointed out that the alleged
statements “were made to existing customers of Defendant, not to induce new
customers to purchase Defendant’s goods or services.” Such “private
communications to already existing customers of Defendant” weren’t advertising
[though I note it could be if it served customer retention purposes; still,
just listing Young Hollywood’s sites in itself isn’t obviously done to keep
customers buying.

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descriptive fair use defeats counterfeiting claim (on PI motion)

Posted on October 29, 2020 by rtushnet

Freelancer Int’l Pty
Ltd. v. Upwork Global, Inc., 2020 WL 6271030, No. 20-cv-06132-SI (N.D. Cal.
Oct. 23, 2020)

The parties compete
in offering “software platforms matching freelancers with freelancing jobs.” Plaintiff
Freelancer Tech has standard character mark registrations for FREELANCER for,
inter alia, computer software for personal information management; computer
software for accessing, browsing and searching online databases; computer
software for identifying, locating, grouping, distributing, and managing data
and links between computer servers and users connected to electronic
communications networks; online retail store services featuring computer
software; and online social networking services. (I have omitted some of the
claimed goods/services.) The registrations are incontestable.

But Tech was also
refused registration on descriptiveness grounds for “online business
directories in the field of employment; providing a website allowing users to
post messages offering or seeking job opportunities; providing online project
management services for others for business purposes in the field of
scheduling, accounting, business project management and business development,
providing an on-line searchable database featuring classified ad listings and
employment opportunities”, “Providing on-line electronic bulletin boards for
transmission of messages among computer users concerning job opportunities”,
and another list that was more clearly employment-related than the successful
registrations.

Meanwhile, defendants
have a registration for UPWORK and provide two Upwork-branded mobile apps, as shown
in Apple and Google’s app stores:

 

One app is meant for
use by clients, titled “Upwork for Clients,” while the other app with a
reversed color scheme is meant for use by freelancers, titled “Upwork for
Freelancers.” The latter app has been downloaded nearly three million times since
2019. Plaintiffs didn’t object to use of the term “Upwork for Freelancers.” But,
on devices, the display name listed beneath the app’s “Up” logo icon is
“Freelancer” on iOS devices and “Freelancer-Upwork” on Android devices. Plaintiffs
also objected to app notifications allegedly using the “Freelancer” mark. Comparison
of the parties’ apps as they display on devices (iOS on left, Android on
right):

 

The court denied a
preliminary injunction on infringement and counterfeiting claims. And here we
have an important application of the Ninth Circuit’s recent counterfeiting
ruling: plaintiffs can’t bootstrap the counterfeiting allegations (same mark/same services aka double identity) into a
finding of infringement without showing likely confusion. Arcona, Inc. v.
Farmacy Beauty, Ltd. Liab. Co., No. 19-55586 (9th Cir. Oct. 1, 2020). [Note that doesn’t completely answer the question of the descriptive fair use/counterfeiting issue because, as the court noted, descriptive fair use can be available even where there is confusion, but it also seems implausible that a descriptive fair use should be deemed counterfeit, which is why “use as a mark” is such a useful concept.]

So, confusion: The
court focused on descriptive fair use, and only analyzed the “use as a mark” element. Plaintiffs argued that they were only
challenging instances in which Upwork used “Freelancer” as a mark, but didn’t
show that the challenged uses were uses as a mark. “To determine whether
a term is being used as a mark, we look for indications that the term is being
used to ‘associate it with a manufacturer.’ ” At least two factors are
relevant: (1) “whether the term is used as a symbol to attract public
attention, which can be demonstrated by the lettering, type style, size and
visual placement and prominence of the challenged words”; and (2) “whether the
allegedly infringing user undertook precautionary measures such as labeling or
other devices designed to minimize the risk that the term will be understood in
its trademark sense.”

The key arguments
around use as a mark involved (1) defendants’ app display names: “Freelancer”
on iOS devices and “Freelancer-Upwork” on Android devices; (2) when defendants’
app states “This is a Freelancer account” instead of for example “This is an
Upwork account for freelancers”; and (3) when defendants’ software prompts the
user that “ ‘Freelancer’ Would Like to Send You Notifications”; and (4) a
document that encouraged freelancers on the Upwork app to migrate to Upwork’s
new app meant for freelancers. Plaintiffs also argued that capitalization of
Freelancer showed use as a mark.

The court disagreed.
These were all “proper and descriptive uses of a common word distinguishing
Upwork’s freelancer app from its client app.” Bold font and a capital letter
were insufficient, “especially when Upwork’s distinctive lime green logo or
coloring is placed directly alongside the various notifications.” Defendants
never claimed Freelancer as a mark, used a stylized font for it, or used a TM
symbol for it.

Separately,
plaintiffs didn’t show irreparable harm. They estimated that “up to as many as
1,800 users per day or 56,000 users per month” were diverted, but didn’t
convince the court that any diversion was based on app display names shown
post-download, especially given the “distinctively different logos.” The court
noted that “the disputed titles only become apparent after a user makes a
conscious decision to download the apps,” and plaintiffs didn’t object to the
app store displays. Nor would post-download notifications cause irreparable
harm, since they occurred only after that same conscious decision.

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Disparagement doesn’t cause TM confusion (and a covid-related claim)

Posted on October 29, 2020 by rtushnet

Dupart v. Roussell, 2020
WL 6308339, No. 20-1406 (E.D. La. Oct. 28, 2020)

Plaintiffs (Dupart
and Harris) alleged that Roussell’s YouTube videos and Instagram posts discuss their
personal lives and Dupart’s cosmetics brand, Kaleidoscope, which competes with Roussell’s
Sip Cosmetics. Dupart alleged that she had rights in the Kaleidoscope logo and
word marks, and Harris alleged rights in Da Brat/her social-media handle, @sosobrat.

Roussell allegedly
posted a YouTube video claiming that plaintiffs are in a same-sex relationship,
and later added negative comments that Kaleidoscope products are made with
“canola oil,” are “laced with cayenne pepper,” are “Chinese concoctions,” and
“brought Corona over [to the United States].”

Plaintiffs sued for trademark
infringement and false advertising under the Lanham Act, as well as defamation
and coordinate state law claims.

The court ruled that
they failed to state a claim for trademark infringement. There were no plausible
allegations that Roussell’s use of the marks caused likely confusion. “To the
contrary, plaintiffs’ factual allegations suggest just the opposite—defendant
uses plaintiffs’ marks in a manner that differentiates his products from
plaintiffs’ marks, mostly by making negative comments about Kaleidoscope or
Dupart and Harris personally.”

Harris didn’t state
a false advertising/false designation of geographic origin claim, but Dupart
did. The complaint didn’t allege that Harris provided any goods or services at
all, or engaged in commercial activity (despite owning trademarks). [Assume she
offers entertainment services and properly alleges this. Should the result
differ?]

But Dupart had Lexmark
standing because of the disparagement of Kaleidoscope products. Indeed, Dupart
alleged that Roussell said: “So [Dupart is] basically saying that I used her to
sell products…my response to that is, she’s one-hundred percent right. Let’s
just get that off the table. I used her to sell products. I used her to sell
products.”

Was Roussell engaged
in commercial advertising or promotion? The court joins the overwhelming weight
of authority that Lexmark modified the classic Gordon &
Breach test, which has been adopted by the Fifth Circuit but not yet
readdressed by that circuit post-Lexmark. Lexmark reasoned that “nothing in the statute’s text required a
competitive relationship between plaintiffs and defendants,” and the statute
doesn’t even use the word “competition” in 15 U.S.C. § 1125(a)(1)(B). And “it
would be inconsistent with Lexmark’s holding to say that a class of
plaintiffs—those who are not in competition with defendants—may bring suit for
false advertising, yet those same plaintiffs could never prevail on their
claims.”

The only circuit to hold
otherwise merely pointed to the fact that Lexmark said it wasn’t
expressing a view on the meaning of “commercial advertising or promotion.”
Strauss v. Angie’s List, Inc., 951 F.3d
1263 (10th Cir. 2020). But [setting aside that the question of whether the
threat letters in that case constituted advertising/promotion is very different
than that addressed here], the reasoning of the case logically bears on the
meaning of “commercial advertising or promotion.” McCarthy agrees that “[t]he
Tenth Circuit misreads the Lexmark precedent….[T]he Supreme Court’s
conclusion [in Lexmark was] that the Lanham Act provides a remedy to anyone,
competitor or noncompetitor, with a commercial injury due to false advertising
or false disparagement” J. Thomas McCarthy, McCarthy on Trademarks and Unfair
Competition § 27:94 (5th ed. 2020).

Thus, the test asks
whether Roussell’s conduct amounts to (1) commercial speech, (2) made for the
purpose of influencing consumers to buy his goods or services, (3) disseminated
sufficiently to the relevant purchasing public to constitute “advertising” or
“promotion” within that industry. Each part was sufficiently alleged.

Commercial speech: Roussell
allegedly admitted that the purpose of his negative comments was to sell his
own Sip Cosmetic products. In an Instagram post attached to the complaint,
Roussell states: “All in all today was successful! While there is a definite
method to my madness and purpose to my petty it is paying off. Sip Cosmetics
got 854 orders for $10,000 in sales since launch,” which allegedly related to
his content about Dupart. Thus, his speech was plausibly economically motivated
and plausibly part of “advertisement[s]”— “widespread communication through
print or broadcast media,” here involving 81,500 followers on Instagram and
40,700 subscribers on YouTube, with over 716,089 views for the videos in which
he mentions Dupart or the Kaleidoscope brand. Roussell allegedly encourages his
viewers to purchase his own Sip Cosmetic products in the same videos. And he
referred to specific products or services.

For the same reasons,
the other elements of the test were met.

As for falsity: the
complaint plausibly alleged literal falsity as to both “characteristics” and “geographic
origin.” And in the Fifth Circuit, literally false statements are presumed both
deceptive and material.

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robust TX anti-SLAPP law protects critic despite arguments that she was partly competing

Posted on October 19, 2020 by rtushnet

ADB Interest, LLC v.
Wallace, 606 S.W.3d 413 (Tex. Ct. App. 2020)

This is an
anti-SLAPP case about statements by a disgruntled customer/alleged competitor.

Black, the managing
member of ADB, invented the FasciaBlaster, which is marketed by ADB. The user is
supposed to roll the product vigorously over his or her body. ADB claimed
benefits for pain reduction, flexibility, joint function, circulation, muscle
definition and performance, nerve activity, posture, and enhanced beauty, “including
the virtual elimination of cellulite.” The product allegedly works by “opening
the fascia,” which is a layer of tissue that encloses muscles and organs.

Blac published a
book that is “an instructional guide to ‘FasciaBlasting’ ” that identifies numerous risks associated with using
the FasciaBlaster, including to people with any history of deep vein thrombosis
or a blood clot (“the consequences could be deadly”), or people with a “severe
connective tissue problem such as fibromyalgia, Ehlers-Danlos Syndrome, or any
issues that makes skin sensitive.” The book lists other symptoms including “changes in menstrual cycles, spotting, swelling, strange-colored
bruises, hot skin, flu-like symptoms, and in some extreme cases, vomiting….
This is not an all-inclusive list, and to be honest, the product is fairly new
and every day someone experiences something new…. Please check with your
doctor for any issues that set off alarm bells.” The FasciaBlaster
website also had similar (and some additional) warnings.

The FasciaBlaster
has fans and detractors, including in private FB groups; defendant Wallace “is
only one of many people claiming on social media that the FasciaBlaster causes
serious, adverse side effects.”

Wallace “owns a spa
in Corpus Christi, Texas that provides a variety of skin care services to its
clients, including massages.” She bought several FasciaBlasters for personal
use also used the FasciaBlaster on one or more of her clients as part of her
rendition of skin care services. She initially recommended the FasciaBlaster to
her friends, family, and clients, but changed her mind, as announced on FB:

After my own experience and after seeing results from doctors and
specialist[s] [and] [c]ompleting tests and extensive blood work, the tests are
showing that extended use of these products can cause a chain reaction in the
body that starts with inflammation. That inflammation leads to raised cortisol
levels in the body. That raised cortisol causes eventual thyroid dysfunction,
hormone imbalance, increased estrogen, extreme detox, and cellular shutdown in
your body. [etc.]

… So any endorsements I gave this product in the past I sincerely
apologize for without knowing the long term or adverse effects it may be
causing people. As it has caused these adverse effects in myself by using it
long term[,] I HAVE to warn anyone who is using it [o]r anyone who might be
thinking of using it for esthetic reasons to use EXTREME caution.

She became a frequent critical poster on FasciaBlaster-related websites and Facebook groups. She attributed her fibromyalgia diagnosis, other problems, and two miscarriages
on her use of the FasciaBlaster (the last because of high cortisol levels).

In response,
ADB/Black’s social media/cybersecurity firm publicly named Wallace as one of
the “professional trollers” who had written “bad reviews” on Black’s page and
were making “false claims and [using] fake profiles.” Its employee also urged
these Facebook pages to block the named individuals. Black also left a
voicemail for a critic stating, inter alia, “I will prosecute you if this
continues.” Two months before Wallace posted her allegedly defamatory and
disparaging statements on FB, their attorney contacted another critic, stating
that “while the company recognizes that consumers have First Amendment rights
and other consumer rights provided by the Federal Trade Commission (FTC), those
rights are limited by the company’s rights to not be defamed through slander or
libelous actions that include actual malice or negligence regarding the truth of
the statement.” The company also posted on its FB group that “While we welcome
the opportunity to hear from people who feel they have experienced negative
effects from using the FasciaBlaster device, we also need our audience to be
aware that knowingly making false or fraudulent injury or defect claims is
illegal and may subject you to criminal and civil liability.”

Black and ADB then sued
Wallace for business disparagement, defamation and defamation per se, invasion
of privacy, intentional infliction of emotional distress, and violations of the
Lanham Act. Within days of filing suit, the company sent messages to other
participants in the FB groups pointing to the lawsuit.

Side note: the FDA investigated ADB and the FasciaBlaster after it became aware of “over 70 [Medical Device Reporting (MDR) ] reportable
complaints and 04 consumer complaints, filed in the last 12 months (June
2016-June 2017), alleging injury due to your Class I medical device,
FasciaBlaster.” The FDA’s report revealed failures to create procedures for
reviewing and evaluating complaints, despite several specific complaints of
serious bodily injury allegedly caused by the device. Although ADB’s attorney
initially told the FDA inspector that it had evidence of internal
investigations—supposedly represented by pdf attachments to a spreadsheet ADB
provided to the FDA—when the inspector asked for a sample of the attachments, “[i]t
was later determined that these files (investigation results) did not exist.” The court doesn’t explicitly connect this to the legal analysis, but it seems relevant.

Wallace moved to
dismiss the claims based on the Texas anti-SLAPP law (the Texas Citizens
Participation Act); the trial court granted the motion and awarded Wallace
attorney’s fees and imposed sanctions against ADB and Black. Under the TCPA, if
the trial court grants a motion to dismiss, it must award costs, reasonable
attorney’s fees, and other expenses of defending against the action “as justice
and equity may require.” The trial court must sanction the plaintiff in an
amount “sufficient to deter the party who brought the legal action from
bringing similar actions.”

First, ADB/Black
argued that the commercial speech exemption applied to their claims. Not so. The
TCPA does not apply:

to a legal action brought against a person primarily engaged in the
business of selling or leasing goods or services, if the statement or conduct
arises out of the sale or lease of goods, services, or an insurance product,
insurance services, or a commercial transaction in which the intended audience
is an actual or potential buyer or customer.

The Texas Supreme Court
explained that “[c]onstruing the TCPA liberally means construing its exemptions
narrowly,” in part because of “the legislature’s clear instruction to construe
the TCPA liberally to protect citizens’ rights to participate in government.” It
was plaintiffs’ burden to show that the exemption applied. It does when:

(1) the defendant was primarily engaged in the business of selling or
leasing goods [or services], (2) the defendant made the statement or engaged in
the conduct on which the claim is based in the defendant’s capacity as a seller
or lessor of those goods or services, (3) the statement or conduct at issue
arose out of a commercial transaction involving the kind of goods or services
the defendant provides, and (4) the intended audience of the statement or
conduct were actual or potential customers of the defendant for the kind of
goods or services the defendant provides.

The exemption does
not apply when a defendant “speaks of other goods or services in the marketplace,”
i.e., goods or services that the speaker does not sell or lease.

The record showed
that Wallace’s statements were primarily aimed at two overlapping but
nonidentical audiences: ADB’s and Wallace’s actual or potential customers—Wallace
didn’t provide services outside of a limited geographic area, but posted to
reach everyone. To the extent that her statements were directed at her clients,
they could be subject to exemption from the TCPA if the other requirements were
met. But they weren’t. Under the circumstances, her statements about ADB’s
product “cannot reasonably be considered statements about the services that
Wallace provides.” Even though she directed readers to her business FB page to
read her statements about the FasciaBlaster and mentioned that she provides
skincare services in some of her posts, “it is not reasonable to infer from the
record that Wallace was intending to promote her services or enhance her
business by making the allegedly defamatory and disparaging statements about
FasciaBlaster.”  There was “no evidence
of a commercial purpose or motive behind Wallace’s posts.”

Given this,
ADB/Black had to show, by “clear and specific evidence,” a prima facie case on
their causes of action. The TCPA doesn’t “require direct evidence of each essential
element of the underlying claim to avoid dismissal.” For example, pleadings and
evidence that establish “the facts of when, where, and what was said, the
defamatory nature of the statements, and how they damaged the plaintiff should
be sufficient to resist a TCPA motion to dismiss.”

Defamation: Note
that in Texas, corporations can bring defamation claims, since “corporations,
like people, have reputations and may recover for harm inflicted on them.” Plaintiffs
conceded that they were limited-purpose public figures here.

Actual malice
requires knowledge of falsity or reckless disregard for truth. The Texas
Supreme Court has held: “A failure to investigate fully is not evidence of
actual malice; a purposeful avoidance of the truth is.” Also: “[A]ctual malice in defamation is
a term of art that does not include ill will, evil motive, or spite”; none of
that is enough because “the constitutional focus is on the defendant’s attitude
toward the truth, not his attitude toward the plaintiff.”

ADB/Black argued
that they submitted the only medical evidence in the record, allegedly establishing
that there is no biological mechanism by which the FasciaBlaster could have
caused Wallace’s medical issues, and thus the only rational inference from this
evidence is that no medical professional would have told Wallace that the
FasciaBlaster caused her to have two miscarriages and led to the onset of lupus
and fibromyalgia. Therefore, they continued, one could rationally infer that
Wallace knew that her statements were false. This wasn’t enough to infer that
Wallace knew of the falsity or acted with reckless disregard for the truth.
There was no “established body of scientific or medical evidence” about the
FasciaBlaster for Wallace to ignore or proceed in reckless disregard of. ADB’s
proof was an affidavit not available until after the litigation began; it, and
the research it recorded, had not yet occurred when Wallace spoke.

ADB/Black argued
that it was reckless disregard for the truth for Wallace to make statements
about the source of her symptoms “based on self-administered tests she is not
qualified to perform,” and that it was obviously dubious to blame “a simple
massage tool.” Again, this wasn’t a case involving “a wealth of scientific
literature that is widely available to the medical community, much less the
general public.” Indeed, when Wallace made her allegedly defamatory statements,
“there were no scientific studies addressing whether there was a link between
FasciaBlasting and any of Wallace’s illnesses or symptoms.” It hadn’t been
reviewed or tested by any physician [and one thus has to wonder about whether
those disease claims are ok with the FDA], and based on the statements in ADB’s
terms and conditions, they “had no intention at that time to subject their
product to meaningful scientific or medical review.” An understandable
misinterpretation of ambiguous facts does not show actual malice, even if
Wallace was mad at Black.

Nor are Wallace’s
claims  “inherently improbable” “considering
the fact that ADB acknowledges that the FasciaBlaster’s effects are more than
skin deep.” ADB’s own warnings reinforced that impression; indeed, “Wallace did
what Black advised her book readers to do if they experienced any alarming
symptoms while using the FasciaBlaster—consult a physician.” No actual malice,
no defamation.

Business
disparagement: Although the Restatement isn’t sure this is constitutional,
malice in Texas business disparagement differs from defamation malice because it
can be proved by demonstrating “ill will, evil motive, gross indifference, or
reckless disregard, of the rights of others.” Here the key problem was special
damages. ADB argued that in at least two instances in the record, women stated
that they were going to return their products in response to Wallace’s posts
(e.g., “I watched your videos and heard your story and it convinced me to send
mine back and not let this thing ever touch my body because of what you are
going through.”), along with other instances in which women promised to quit
using the products they’d already purchased. Black also averred that this all the
coincided with a decline in ADB’s sales.

However, neither the
video that attracted these comments nor a transcript was in the record, so we
don’t know what specific statements Wallace made, much less if any of these
statements were defamatory or disparaging. Nor was there any other record
showing of economic damage from returned or lost sales. Likewise, there was no
specicfic evidence that the avowed no-longer-users would otherwise have
purchased related specialty massage creams and ointments from ADB. As for the
general sales decline, it was clear that Wallace’s statements “were not made in
a vacuum,” and no specific evidence supported the inference that her
posts were solely, or even principally, responsible for decreased sales.

Lanham Act: Not
commercial advertising or promotion, given the mismatch between ADB’s business
and Wallace’s.

The court also
upheld the award of attorneys’ fees and $125,000 in sanctions under the TCPA.
“Although the award of sanctions is mandatory, the trial court has broad
discretion with respect to the amount of sanctions awarded.” Relevant factors
include: (1) the plaintiff’s annual net profits; (2) the amount of attorney’s
fees incurred; (3) the plaintiff’s history of filing similar suits; and (4) any
aggravating misconduct, among other factors.

Wallace argued for a
large sanctions award “because both parties were self-described millionaires
who have taken aggressive responses to quiet their online critics,” including
advertising the lawsuit against Wallace.  Along with the measures described above, ADB
subsequently sued at least two other critics who posted negative comments about
the FasciaBlaster on the same Facebook group that Wallace used. ADB sought
between $2,000,000 and $5,000,000, plus injunctive relief requiring both women
to “remove disparaging and defamatory comments,” though it ultimately dismissed
those suits.

ADB/Black argued
that no deterrence was necessary because Black was not party to either of these
suits, Wallace didn’t prove that ADB’s other lawsuits were unsound; and it
non-suited its claims anyway, making sanctions unnecessary. It also argued
that, unlike Wallace, the other two “voluntarily participated in ADB-sponsored
studies, signed contracts that included non-disclosure agreements, and then
breached those agreements by publicly complaining about ADB’s products.”
[Query: were these contract provisions federally illegal under the Consumer
Review Fairness Act?]

But even
disregarding those lawsuits, the other evidence of “a deliberate plan to
discredit and quiet their detractors, prevent or remove negative reviews of
ADB’s products, and threaten those who made negative comments” sufficed to
avoid any abuse of discretion.

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lack of irreparable harm dooms injunction against false advertising of drug disposal product

Posted on October 19, 2020 by rtushnet

In re C2R Global
Manufacturing, Inc., No. 18-30182-beh, 2020 WL 5941330 (E.D. Wisc. Bkcy Oct. 6,
2020)

Verde sought a preliminary
injunction against C2R, its direct competitor in the drug disposal market, from
engaging in false and misleading advertising in violation of the Lanham Act,
and an order requiring corrective advertising. Despite likely success on the
merits, lack of irreparable injury precluded an injunction. The court applied eBay,
as it predicted the Seventh Circuit would, and also relied on Verde’s delay.

Verde sued C2R in
March 2018 for false advertising and patent infringement; a few months later,
C2R filed for Chapter 11 protection, and Verde timely filed a nearly $7 million
proof of claim. After a Markman hearing and decision, the parties settled their
patent claims. In February 2020, Verde sought both preliminary and permanent
injunctive relief; the court considers only the former.

The technical
details are complex, but the core of the claim is that C2R falsely advertised
how much drug content its products could render inert. Although it removed
specific pill number claims from its website, at the time of the motion it
still included the statement that its containers could be filled until contents
are two inches from the cap, which was allegedly false. C2R based its claims on
various analogies/evidence about the product components/similar competitors; Verde’s tests of C2R’s product yielded at most a 30% adsorption rate, and its experts persuasively critiqued the assumptions on which C2R’s claims relied.

After Verde sued,
C2R commissioned independent testing that found that the Rx Destroyer
deactivated 90-99% of the pills in his experiments. Among other criticisms, however, Verde’s expert critiqued the testing
methodology, which included filtering out material that included drug residue
(paste), which (Verde’s expert argued) improperly altered the drug deactivation
conclusion, and critiqued C2R’s expert’s technique of constant agitation, which
was both not realistic and not consistent with the product use instructions.

Verde argued that,
based on the testimony of its Chairman and CEO, “if unused
drugs are tossed in the trash, they risk being inadvertently diverted by
neighbors, children or pets,” and that the “toilet flushing of drugs is now
also discouraged, owing to environmental contamination risk to the nation’s
watershed.” He asserted that customers purchase C2R’s product over Verde’s
because the Rx Destroyer cost-per-pill appears lower due to C2R’s capacity
representations compared to its price point. In addition, he opined that “when
C2R advertises a product using activated carbon that does not work as
represented, that casts doubt on all products using activated carbon.”

C2R, by contrast,
argued that Verde wasn’t its primary competitor, though it acknowledged that
the fact that Rx Destroyer has a larger capacity is a competitive advantage
over Verde, or over anything else on the market. C2R has advertised Rx
Destroyer as being more affordable on a cost-per-pill basis. The parties also
submitted dueling declarations about whether the damages were merely financial
and not irreparable. C2R’s expert, for example, found no
meaningful customer overlap, “noting that Verde does not offer product data
sheets that are required by many hospitals, and thus cannot sell to those
entities, while C2R does provide such data sheets and has such hospitals as
customers.” Plus, he indicated that “Verde has enjoyed faster growth and higher
annual revenues than C2R during the relevant time period,” suggesting lack of
harm.

Verde’s expert
disagreed that financial evidence enabling partial quantification of the
damages was the same as an adequate remedy at law. [Can a company in bankruptcy
be assumed to be able to provide an adequate remedy at law?] Verde identified
twenty-five customers to which both Verde and C2R sell. And Verde’s growth
could have been greater: the entire market for drug disposal products offered
by these parties “dramatically increased during the 2015-2019 period.”

On the merits, when
advertising explicitly or implicitly represents that tests prove the claim, a
plaintiff can prevail by showing that the tests did not establish the
proposition for which they were cited. Even if there is no industry standard
test for deactivation capacity, “when advertisements purport to rely on
testing, the presence or absence of a government certified test is not
relevant.” Predicting capacity for drug disposal products may be challenging, “that
does not absolve the manufacturer—here, C2R—from fashioning truthful
advertising statements, even if on relatively short notice.” Verde showed
likely success on the merits.

Irreparable harm:
First, no presumption applies; the Seventh Circuit has yet to say so in the
Lanham Act context but likely would apply eBay, given that it has
already done so in copyright cases. “But certainly, all of the cases cited
above recognize the particular difficulty in assessing harm when a competitor
engages in false advertising.”

Verde argued: (1)
the parties compete directly; (2) effectiveness and cost are two of the most
important factors in a purchase decision; and (3) the false representations
were “critical” to effectiveness and cost. However, the Chair/CEO’s testimony
didn’t identify specific facts such as survey data or sales reports to show
lost sales, and if his opinions were based on statements made to him by
customers, those statements would be inadmissible hearsay. “Courts in this
circuit consistently have rejected vague summaries of hearsay statements by
unidentified consumers.”  His testimony
didn’t meet the requirements of Rule 701 for non-expert testimony.

The fact that the
parties compete didn’t prove harm. This wasn’t express comparative advertising,
and the record didn’t show a two-party market. Trademark cases are different
because confusion about source can show irreparable harm because of lost
control over reputation; harm to reputation is inherently intangible/impossible
to quantify. [Sigh.]

Verde’s expert
couldn’t help because he didn’t provide alternative evidence of harm, just
criticized C2R’s expert. It wasn’t enough to infer that any customers who knew
of both companies would purchase more from Verde absent C2R’s advertising.

Separately, delay
proved lack of irreparable harm. The pertinent measurement is from the time the
plaintiff discovers the trademark infringement (or false advertising) until the
injunctive relief motion is filed, or from the time plaintiff first sent its
cease-and-desist letter until filing its motion. “Here, that time frame would
be June 2014 to January 2020, or 67 months.” Verde argued that, while it had
experimental evidence undermining C2R’s capacity claims prior to filing suit,
it had not yet conducted any discovery, and it moved promptly but prudently
only after completing that discovery. Verde also argued that “it was not in a
position at the time of its earlier testing to expend significant funds on
legal fees in pursuit of litigation.”

But this delay was “longer
than prudence can bear.” Verde had test results for years. “[T]he span of time
during which Verde at least possessed test results discrediting C2R’s website
statements is far beyond any duration accepted by courts as reasonable and
could well have allowed C2R to relax its defenses and continue its advertising
expenditures.” Its reference to the costs of litigation was “an internal
cost-benefit assessment Verde made, and when weighed against the amount of time
between the first testing in 2014 and the motion in 2020, does not justify the
substantial delay in seeking a preliminary injunction.”

Belt and suspenders:
It hadn’t been shown that Verde lacked an adequate remedy at law [which I still
wonder about—C2R is in bankruptcy!]. Also, harm to the environment or public
safety “is not of a degree warranting a preliminary injunction.” Indeed,
official websites say that putting unused medications in the trash is not ideal
but don’t definitely nix it, mitigating the public interest at this stage.

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