Rebecca Tushnet

a rare freestanding UCL unfairness claim re: service termination that rendered cameras nonfunctional

Posted on September 15, 2020 by rtushnet

Soo v. Lorex Corp., 2020 WL 5408117, No. 20-cv-01437-JSC
(N.D Cal. Sept. 9, 2020)

Plaintiffs brought California and New York consumer
protection claims based on what happened to their home security Flir cameras;
defendants moved to compel arbitration, which was denied because defendants
failed to prove by a preponderance of the evidence that plaintiffs agreed to
arbitrate. Defendants’ motion to dismiss was partly granted and partly denied.

Lorex made Flir cameras, which had the ability to upload
security footage into cloud storage and a “Rapid Recap” feature, with which
users could see a condensed, time-stamped video of activity observed by the
camera. Cloud storage and Rapid Recap were made possible by applications
managed by Lorex. After selling Flir cameras since 2015, in mid-2019 Lorex
announced it was changing technology providers for the apps, rendering the
cameras unable to connect to the apps and thus nonfunctional. Lorex then
offered consumers a “Lorex Active Deterrence Wi-Fi replacement camera” or a
Lorex.com store discount of US $120.00, which plaintiffs alleged were
inadequate substitutes.

Defendants contended that the Warranty inside the box that plaintiffs’
cameras came in contained a binding arbitration provision. For purposes of this
motion, it was undisputed that Lorex provides a hard copy of the Warranty in
the box of every Flir camera it sells. The Warranty in the box advised plaintiffs
that if they kept the cameras they were agreeing to the Warranty as well as to
binding arbitration.

This was a “shrinkwrap” license [I can hear Eric Goldman
sighing from 3000 miles away]. But Lorex’s warranty, unlike that in previous
cases, didn’t give consumers any amount of time to examine the product and
return it instead of accepting the arbitration agreement, and the included
written materials did give the consumer the right to return the camera. “At a
minimum, without evidence that Mr. Lauinger had the right to return the camera
and thus reject the arbitration provision there can be no agreement to
arbitrate formed by ‘keeping the [camera.]’”

Another plaintiff, Soo, “activated” his warranty online. Was
that enough? Under California law, “silence or inaction cannot constitute
acceptance of an offer,” unless an exception applies, such as “when the offeree
has a duty to respond to an offer and fails to act in the face of this duty.” However,
even then, a contract offeree’s silence cannot constitute consent to a contract
“when the offeree reasonably did not know that an offer had been made.” California
courts have held that “even if a customer may be bound by an in-the-box
contract under certain circumstances, such a contract is ineffective where the
customer does not receive adequate notice of its existence.” Previous case shad
held that titles like “Product Safety & Warranty Information” aren’t enough
to provide notice of “a freestanding obligation outside the scope of the warranty.”
So too here. His online activation doesn’t support a finding that had to or
should have been aware of the arbitration agreement. He “could have registered
for warranty protection without ever seeing the in-the-box Warranty that
contained the arbitration provision in the section entitled ‘State/Provincial
Law.’”

Unfairness under the UCL: Courts are divided on how to
assess unfairness, but plaintiffs invoked the balancing test: it asks whether
the alleged business practice “is immoral, unethical, oppressive, unscrupulous
or substantially injurious to consumers and requires the court to weigh the
utility of the defendant’s conduct against the gravity of the harm to the
alleged victim.”

Defendants argued that it wasn’t right to impute an
underlying P2P service provider’s cessation of service to them. But plaintiffs alleged
that “Defendants changed technology providers knowing that such a decision
would cause the Flir Cameras to cease functioning.” And, after changing
providers, defendants “have not created their own P2P software to replace
OzVision that would continue to provide support for Flir Cameras, or otherwise
partnered with another third-party vendor.” The harm could plausibly outweigh
the utility of the conduct to defendants. The cost-benefit analysis of unfairness was
“not properly suited for resolution at the pleading stage.”

Fraudulent omission under the UCL: This was predicated on defendants’
failure to disclose that app support for the Flir cameras was contingent on
Defendants’ contract with OzVision, and that there was no guarantee OzVision
would continue to provide service. Plaintiffs alleged that had defendants
disclosed such a fact, they would not have purchased their Flir cameras at all
or on the same terms. However, the complaint didn’t plausibly support an
inference that, at the time they sold the cameras, defendants knew that the
functionality issue existed. This also disposed of the NY consumer protection
claims.

California unjust enrichment: It was plausible that the
failure of defendants’ replacement program to properly compensate Plaintiffs
for the lost value of their cameras with adequate replacement cameras or a
comparable store credit may sustain a claim for unjust enrichment at the motion
to dismiss stage.

Trespass to chattels: perhaps surprisingly, also survives. Defendants argued that OzVision, not they, rendered
the cameras nonfunctional. But plaintiffs sufficiently pled that it was
defendants’ acts that “substantially harmed the functioning” of their devices,
which “significantly impaired the devices’ condition, quality, and value.”

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Expedia’s unavailability claims sometimes literally false, maybe misleading; materiality is contested for trial

Posted on September 15, 2020 by rtushnet

Buckeye Tree Lodge v. Expedia, Inc., 2020 WL 5372246, No. 16-cv-04721-VC
(N.D. Cal. Sept. 9, 2020)

The court denies cross motions for summary judgment on whether
Expedia violated the Lanham Act by suggesting that plaintiffs’ hotels could in
theory be booked on Expedia’s site but lacked available rooms (except as to
allegedly misleading phone numbers) and whether the plaintiffs are entitled to
a permanent injunction. Expedia also failed to decertify the plaintiff class,
but did get a clarification in the class definition.

There were genuine disputes of fact over whether (1) Expedia’s
unavailability messages and Google ads were misleading; and (2) any deception
was material to consumers’ purchasing decisions. “[A] small number of Expedia’s
unavailability messages—most noticeably, ‘We are sold out’—are literally false
when used to describe availability at hotels for which Expedia never had any
beds to sell.” Also literally false: “Sorry, the [Hotel name] is not available
for your travel dates. You may choose alternatives dates OR select from the
properties below.”; and “Fully booked! We’re sold out for your travel dates on
our site.”

Most of the other unavailability messages weren’t literally
false but nonetheless could be misleading, e.g., “Your dates are popular! Rooms
are unavailable for your trip dates on Expedia. Try new dates to check
availability.” “This message seems intuitively to imply that rooms are
unavailable because of the particular dates selected, rather than because
Expedia is entirely incapable of booking rooms at that hotel.” “Many of the
other messages are similar, e.g.: ‘This property has no availability for your
travel dates on [Expedia, Travelocity, or Orbitz]’; ‘[Hotel name] has no
availability for your travel dates on Hotels.com.’” Indeed, I think it would
have been reasonable to at least the first false by necessary implication;
similarly, the attribution of “no availability” to the hotel, instead of
to the website, in some of these other statements is pretty significant. The court thought other messages
might be less likely to mislead, such as
“Wait a minute. There is no availability for this hotel on Hotels.com.
Please amend your search.” The court found some “quite unlikely to have been
misleading, e.g. ‘Sorry, we aren’t taking reservations for this property on our
site.’” [Once again, there’s a huge gap between what courts find plausible in
trademark cases and what they find plausible in false advertising cases.] Overall,
Expedia “raises fair concerns about the reliability and probative value of the
plaintiffs’ survey evidence, and the question of whether these phrases were
misleading cannot be answered at summary judgment.” [Seems like plaintiffs
would be entitled to an instruction about falsity for the literally false
statements, but it looks like this will be a bench trial.]

There was also a genuine dispute over materiality: Expedia
presented evidence “suggesting that the messages were not material in the
actual context of how consumers make travel decisions,” conflicting with
plaintiffs’ evidence.

Expedia did win summary judgment for claims related to “Expedia’s
allegedly misleading display of telephone numbers,” because plaintiffs offered
“no actual evidence that the phone number displays were false, misleading, or
material to consumers’ purchasing decisions.” That seems like a shame, because
it sounds like evidence could have been developed: proximate to the hotel name,
Expedia apparently put up a phone number that went instead to Expedia and
offered reservations to other hotels. An internal Expedia document “acknowledging
that the placement of phone numbers on the sites often confuses consumers” was
in the class certification record, but plaintiffs didn’t introduce it on
summary judgment or even cite it, and anyway that showed misleadingness rather
than materiality. [If properly used, the bait and switch character would itself
be the materiality: if consumers dialed the number because they thought they’d
reach the hotel in the listing, that belief affected their decision to act;
having been diverted to the Expedia line, many consumers might not search
further. That’s the classic reason bait and switch is actionable.]

Mootness: “The named plaintiffs have standing to seek
injunctive relief because the alleged Lanham Act violations were ongoing at the
time the complaint was filed (or at the time the additional plaintiffs
intervened).” And “voluntary cessation of allegedly unlawful conduct ordinarily
does not suffice to moot a case” and Expedia “bears the formidable burden of
showing that it is absolutely clear the allegedly wrongful behavior could not
reasonably be expected to recur.”

This it did not do, despite arguing that it had “resolved
any errors” causing class member hotels to appear on its websites and has
implemented “proactive measures” to prevent these “errors” from reoccurring. References
to “investigations” conducted by its “Health and Safety team” and to
contractual obligations it imposes on the bed banks it works with were “too
vague and conclusory to meet the high burden of showing mootness.” It portrayed
other measures, such as preventing Expedia from bidding on Google ads for
hotels that do not have availability for a certain period of time, as business
decisions, “while failing to show that there is anything to keep it from reversing
these decisions if business considerations change. Indeed, Expedia’s repeated
assertions about the dynamic and complicated nature of the online travel
industry suggest that business considerations in fact frequently do change, and
undercut its arguments that the changes are permanent or will prevent any
future misrepresentations from occurring.”

There was a genuine question whether class members were
likely to be harmed in the future absent an injunction “that either bars
Expedia from making misleading statements about hotels it is incapable of
booking or requires Expedia to institute reforms designed to minimize the
chances of such statements inadvertently appearing,” and whether these harms
were irreparable.

Clarification: The class consisting of “hotels that do not
have booking agreements with Expedia and are not capable of being booked
through Expedia, but appear on Expedia’s websites” includes “hotels that
appeared on Expedia’s websites when they were not capable of being booked
through Expedia at some point during the class period, regardless of whether
they previously had booking agreements with Expedia or later entered into
agreements with Expedia that gave Expedia booking capabilities.” Also, it
includes “hotels about whom Expedia will make similar statements in the future
despite being incapable of booking rooms at those hotels.”

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escalated materiality requirement precludes class certification

Posted on September 15, 2020 by rtushnet

Oddo v. Arocaire Air Conditioning & Heating, 2020 WL
5267917, Nos. 15-cv-01985-CAS Ex, 18-cv-07030-CAS(Ex) (C.D. Cal. May 18, 2020)

These are consolidated putative class actions alleging that
defendants’ HVAC systems have faulty thermal expansion valves (TXVs). A TXV is
“a precision valve that controls the expansion of refrigerant central to the
cooling process[.]” Because it’s a bottleneck in the system, “[a]ny
contaminants or impurities that may be flowing through the system are likely to
collect around the TXV pin,” which can harm its function. “Ryconox,” a chemical
rust inhibitor, allegedly “reacts with the refrigerant and/or oil and causes a
tar or sludge to form when the systems are put into service.” As such, “within
just weeks or months of installation of a brand-new HVAC system, the tar can
cause the TXV to become stuck, rendering the system inoperable.” Also, “even a
partial clog can impact system performance and efficiency, … such that the
defective HVAC systems are not capable of performing to the efficiency
standards advertised ….”

Defendant Carrier allegedly took various unsuccessful steps
to remediate the problem.

Previously, the court dismissed warranty-based claims and
claims based on affirmative misrepresentations. Not previously dismissed: California
unjust enrichment, negligent misrepresentation, fraudulent concealment, UCL,
CLRA, and FAL claims; Missouri fraudulent concealment, negligent
misrepresentation, and Missouri Merchandising Practices Act (MMPA) claims to
proceed; and Massachusetts unjust enrichment and Massachusetts Consumer Protection
Act (MCPA) claims. The court also previously denied a motion for class
certification without prejudice. Because the gravamen of the fraudulent
omission claims is failure to disclose, those plaintiffs failed to show that
people who bought a home with a Carrier HVAC suffered the same injury as people
who just bought a Carrier HVAC. Homebuyers “may have never been exposed to any
Carrier materials during the homebuying process, much less attached the same
level of importance, if any, to a disclosure of the alleged defect as would a
purchaser of an HVAC unit.” The court rejected plaintiffs’ contention “that
virtually any class can be certified in an omissions-based case as long as the
defendant could have, in theory, ensured that a disclosure would reach its
consumers.”

Carrier moved to exclude the opinions of plaintiffs’ survey
expert, Dr. Maronick. Previously, the court had reasoned that “[p]laintiffs do
not explain how homebuyers could have suffered an injury in the form of paying
a premium price for their HVAC units when they purchased a home that already
had the Carrier HVAC system installed” and “it appears that homebuyers, if they
suffered any injury at all, suffered an injury of a different nature than
purchasers of new HVAC units.” Based on his consumer survey, Dr. Maronick
opines that: (1) “most consumers who purchased a new air conditioner saw the
air conditioner itself prior to payment … regardless of whether the air
conditioner was acquired in connection with [buying a home or just a unit]”; (2)
“the vast majority of consumers who purchased a new air conditioner obtained
information about the air condition from the seller prior to purchase …
regardless [etc.]”; (3) “aside from the brand name, the efficiency rating of
their air condition was the most common piece of information purchasers learned
from their seller or homebuilder prior to purchase”; (4) “most consumers would
have considered a disclosure about the alleged defect in this case to be an
important, if not decisive, factor in their purchasing decision, regardless of
whether they were purchasing an air conditioner alone or a new home”; and (5)
“if the alleged defect had been disclosed prior to sale, the vast majority of
consumers would have demanded a unit that did not contain the rust inhibitor,
or a price discount equal to the cost of removing the rust inhibitor.”

This was relevant to the issues of classwide exposure,
materiality, and injury, and addressed deficiencies that the court previously
identified. Carrier challenged the survey because it: (1) failed to survey “the
relevant target universe”; (2) asked the wrong questions “because the survey
did not ask whether purchasers reviewed any labels on the product itself prior
to deciding the unit”; (3) failed to approximate market conditions and asked
ambiguous, leading questions; and (4) “failed to provide a control to isolate
the effect of the disclosure of the alleged defect.” These criticisms didn’t
require exclusion; they all went to weight rather than admissibility. Maronick used
a nationwide universe of sample individuals who had purchased a central air
conditioning system for their residence in the previous three years (including
respondents who bought a new construction home with a new AC). Questions about “the
relevant target universe” generally go to weight, not admissibility, as do
attacks on the framing of questions and the absence of a control. Even though the court had its doubts, it
denied the motion to exclude. (So too with plaintiffs’ damages expert.)

Carrier offered its own expert testimony, based on a
consumer survey, which Carrier believes “confirms that individual inquiry would
be necessary to determine both whether consumers would have reviewed
information from Carrier prior to purchase and the materiality of that information.”
Dr. Dhar’s contrary opinions that “exposure to and consideration of product
information from an HVAC manufacturer is highly variable across consumers,” were
relevant, proper rebuttal and plaintiffs’ criticism of his survey went to
weight, not admissibility. (So too with
the other experts.)

On to certification: “Resolution of plaintiffs’ fraudulent
concealment claims and plaintiffs’ related consumer protection claims … turn,
in part, on factual questions such as, inter alia: (1) whether the presence of
Ryconox in Carrier’s HVAC systems caused a defect; (2) whether Carrier knew of
the defect; (3) and whether Carrier concealed the defect.” Thus, commonality
was satisfied.

Typicality: the California and Missouri named plaintiffs had
bought new HVAC units, not new houses with HVACs installed, and their claims
were thus only typical of the former subset. The Massachusetts named plaintiff
bought a new house, but testified during deposition that he “was not exposed to
any of Carrier’s materials until after he had already negotiated and agreed to
the purchase price of his new home” and that “he would have not tried to
renegotiate the price of his home based on anything he learned during the
course of this inspection.” Even if that was just a snippet of his
testimony—and he also testified that if there’d been a defect disclosed,
everything would have changed—his vulnerability to a unique defense made him
nontypical.

Predominance: all the theories require that Carrier had a
duty to disclose the alleged defect. Plaintiffs had three arguments for such a
duty: (1) Carrier had exclusive knowledge of material facts not known or
reasonably accessible to them; (2) Carrier actively concealed material facts;
and (3) Carrier made partial representations (i.e., the energy efficiency
labels) that were misleading because other material facts had not been
disclosed.

California: “Even assuming arguendo that California law
recognizes a duty to disclose where an alleged defect does not present a safety
hazard but instead relates to a product’s central function, plaintiffs fail to
establish the existence of such a duty to disclose in this case is capable of
class-wide proof.” [That seems weird. The central function of an HVAC unit
seems invariant across purchasers; why wouldn’t its centrality be capable of
classwide proof? The court cites Ahern v. Apple Inc., 411 F. Supp. 3d 541 (N.D.
Cal. 2019), in which Apple’s failure to install “fans and vents” in its
computers allegedly allowed the fans to “suck in dirt and debris” which
resulted in the dirt and debris “getting stuck behind the screen, causing
permanent dark smudging to appear in the comers of the screens.” But smudging
at the corners (and another case about security flaws in microprocessors) is
pretty different from “the HVAC system may choke and die.”] Since plaintiffs’
expert did not opine that all, or virtually all, of the affected HVAC units
would suffer acute failure as a result of the problem, or be rendered incapable
of use, the alleged defect didn’t go to their central function. The expert also
opined that “the evidence shows that consumers have experienced performance
loss and do not know it.” If many victims didn’t know that they were suffering,
then the units hadn’t been rendered “incapable of use” such as to trigger a
duty to disclose under California law.

And again with redactions on facts that determine the
outcome! Carrier’s internal documents disclosed a redacted failure rate on
certain smaller units. Assuming that was a rate sufficient to impose a duty to
disclose [sure would be nice to know what that was!], plaintiffs’ expert also
argued that the evidence showed problems with larger units, though he
acknowledged that [redacted]. Given that the failure rate may differ among the
range of units making up the proposed classes, there might be a duty to
disclose as to some, but not all, of the proposed class members’ HVAC systems. Plaintiffs
offered no method to determine which class members’ HVAC systems will suffer
acute failure. Thus, individualized inquiries would be necessary.

The court then doesn’t discuss plaintiffs’ theory (3), which
I think is a misreading of the governing law. If you make an affirmative
representation that is misleading because of failure to disclose important
related information, the statement as a whole is misleading and there’s no
“central function” requirement for that basis for a duty to disclose,
predicated as it is on the specific affirmative statements that were made and thus on the message that affirmatively reached consumers.

In Missouri, a “duty to disclose arises from a classical fiduciary
relationship, from a partial disclosure of information, or from particular
circumstances such as where one party to a contract has superior knowledge and
is relied upon to disclose this knowledge.” “Unlike California law, then,
Missouri law does not appear to necessarily limit a manufacturer’s duty to
disclose to circumstances where a defect presents a safety hazard or where the
defect fatally compromises a product’s central functionality.” [Again, this
appears to be an overly constrained reading of California law, which has never
been known for its plaintiff-unfriendliness.] The court assumed without
deciding that whether a duty to disclose existed, given evidence that Carrier
was aware of the problem, was susceptible to common proof.

Reliance/materiality: In California, “[a]n essential element
for a fraudulent omission claim is actual reliance.” “A plaintiff need not
prove that the omission was the only cause or even the predominant cause, only
that it was a substantial factor in his decision,” and this can be inferred if
the omission is material. “Missouri law follows a similar approach with respect
to MMPA claims,” since it too uses the reasonable consumer standard. “If a
statute uses a reasonable person standard, it is more likely to be subject to
common proof because the inquiry into materiality is objective.”

Thus, the relevant claims allowed for class-wide inferences
of reliance and causation. What about the specific omissions here? The court
previously rejected as insufficient (1) Carrier’s surveys showing that,
generally, ‘reliability’ and ‘quality’ are the two most important factors
considered by purchasers” and (2) Carrier’s own purported belief that the
defect was material. Plaintiffs added the Maronick survey, which asked, inter
alia, how consumers would have reacted to learning about a defect that would “cause the air condition to fail in some cases
within either a few weeks or a few years, and, even if the unit doesn’t fail,
the chemical can cause loss of performance and efficiency of the system” and
which cost $1000 to fix at the time of installation. Results: “It would have
been a decisive factor in my decision to purchase or not purchase that central
air conditioner”: 72.2%. “It would have been important information to know but
not a decisive factor …”: 13.9%. “It
would not have been an important factor …”: 8.3%. “Don’t know/Not sure …”: 5.6%.

Similarly, in response to a question regarding what, if any,
respondents likely would have done had they learned about the defect prior to
completing a purchase, “41.0% of the respondents would have ‘demanded a
replacement that didn’t have the chemical in it,” and 22.2% would have
‘demanded the chemical be removed before accepting the unit.’ Another 12.5%
would have demanded a price reduction of $1,000, which is described as ‘the
cost of removing the chemical.’ ”

Carrier argued that the survey didn’t actually test
materiality or causation, criticizing the questions and format, especially how
it focused on and described the alleged defect. The court agreed: the survey
didn’t “question respondents about which, if any, of these attributes [about
which respondents received or sought information] respondents found important
when making a purchasing decision.” To the extent that the questions above don’t address that (which they seem to do), I think the court conflates materiality and
deceptiveness—materiality is about the kinds of claims or omissions that matter. The
court found the survey insufficient to establish, on a class-wide basis,
“how the challenged statements, together or alone, were a factor in any
consumer’s purchasing decisions.”

Because the survey didn’t indicate how consumers “valued”
Carrier’s alleged omissions “compared to other attributes of the product and
the relevant market generally,” “the Court is not convinced that the question
of materiality”—whether reasonable consumers would view Carrier’s failure to
disclose the alleged defect in this case as material to the consumers’
purchasing decision—“is susceptible of classwide proof.”

Thus, no certification.

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Selling two products together doesn’t plausibly cause confusion as to their source

Posted on September 15, 2020 by rtushnet

General Motors LLC v. KAR Auto Gp., Inc., No.
20-CV-2039-CJW-KEM, 2020 WL 5371717 (N.D. Iowa Sept. 8, 2020)

When a court can’t give a doctrinal reason for its decision,
that can signal a deep indeterminacy in the doctrine that can only be resolved
by fiat. Here, the indeterminacy is that confusion theory has very few
doctrinal brakes even when any harm of confusion seems minimal and the
anticompetitive consequences of plausible threats of suit seem great.

KAR (which made me hear the Knight Rider theme, child
of the 80s that I am) is an auto dealer in Iowa. The parties entered into
dealer agreements allowing KAR to sell Chevrolet and Cadillac vehicles at its GM
dealership. KAR formerly operated a separate automobile dealership adjacent to
its GM dealership which sold Chrysler, Dodge, Jeep, and Ram made by Fiat
Chrysler. KAR merged its operations in June 2020. “The practice of selling vehicles from two
different manufacturers at a single dealership is called ‘dualing’ in the car
dealership industry.”

GM sued for breach of contract claims and trademark
infringement, alleging that, as a result of the unauthorized dualing, consumers
will be confused, make mistakes, or be deceived as to the “source, affiliation,
or sponsorship” of its marks.

The court granted the motion to dismiss and denied leave to
amend.

Even under the very broad notion of infringement that allows
infringement when “a legitimate mark [is used] in a confusing manner,” GM
failed to state a claim. GM argued that KAR’s dualing “will cause less
knowledgeable consumers to confuse which vehicle brands are manufactured by plaintiff
and Fiat Chrysler respectively.” It didn’t plead any infringing advertising,
promotion, or marketing, only that GM marks would be present at the dualed
facility.

Although likely confusion “is a factual inquiry that is
seldom resolved at the motion to dismiss stage,” this was the “rare” case of
inadequate allegations.

As to the factors (which of course are a bad fit here), the
GM marks are strong; there was no “infringing mark or infringing product”
because the marks were undisputedly being used to identify GM products. There
were no allegations of intent to confuse the public about who made which
vehicles. “lthough it can reasonably be expected that consumers will do their
homework on a given vehicle before purchasing it, many consumers may not know
or care which particular manufacturer made any given vehicle.” [Materiality as
spackle! Courts tend to mention materiality when they are explaining why
trademark confusion theories shouldn’t expand even further.] There was no
actual confusion alleged, though “extensive discovery” had yet to be conducted.

At the end, though, all GM alleged was that KAR sold and
serviced both GM and Fiat Chrysler vehicles at the same location. “The
existence of two competing products in the same building does not reasonably
signal that they are connected or related in any way. The mere fact that some
consumers may not know which entity manufactures which vehicle model is of
little consequence.” There was no authority for the idea that offering
competing goods side by side is infringing just because some consumers may not
know the difference [in source].

[Given that knowledge of the specific source is not required
for trademark validity, per Congress’s intervention to overrule the
Anti-Monopoly case, it would seem that sauce for the goose is sauce for the
gander: a consumer’s lack of knowledge, or even potential confusion, about corporate parenthood of two completely dissimilar marks isn’t
infringement. More strongly: a survey that found that consumers thought that
Snickers and Reese’s Peanut Butter cups came from the same manufacturer because
they’re found together in thousands of stores across the country should be
disregarded. One version of the insight here: any confusion about whether
there’s a shared corporate source of Snicker’s and Reese’s comes not from mark
similarity, as required for infringement, but from marketplace structure.
So too with dualing (even dualing in breach of contract). This is only hard to
explain in doctrinal terms because false association theories have metastasized
beyond any conceivable consumer protection interest.]

The court continued: “The Lanham Act does not require
sellers to segregate products by manufacturer to affirmatively reinforce brand
identity to consumers.” In a footnote, the court offered the example ofa
restaurant that served both Coca-Cola and Pepsi products. “Consumers may not
know that Fanta is a Coca-Cola product and Sierra Mist is a Pepsi product. That
the restaurant offers both beverages, however, does nothing to confuse
consumers into mistaking that they are connected in any way or originate from
the same source.” Thus, GM failed to plead a use of a mark “in a false,
misleading, or confusing manner.”

In addition, “[d]ualing itself is not confusing. To the
contrary, it is a well-established practice in the car dealership industry.”
Without more than the mere simultaneous presence of two automakers’ marks, GM didn’t
allege facts that would make consumer confusion likely. Dualing itself could
not be “a misleading representation. Although a representation can be made via
conduct, dualing alone does not assert any fact.”

In its moving papers, GM referred to KAR’s advertising,
marketing, and promotion, though not any specific items thereof; it argued that
“advertising and selling both GM and Fiat Chrysler vehicles from a building branded
with both GM Marks and CDJR trademarks” constituted infrignement, and
speculated that “combined, misleading advertising may occur.” This wasn’t
enough, and any further amendment of the complaint would be futile.

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insurer must defend Expedia because its false advertising exclusion didn’t cover false claims about hotels

Posted on September 14, 2020 by rtushnet

National Union Fire Ins. Co. v. Expedia, Inc., 2020 WL
5369261, No. C19-0896RSL (W.D. Wash. Sept. 8, 2020)

While receiving bad news in the underlying false advertising
claims (watch this space), Expedia did manage to keep its insurer involved in the defense, despite
a false advertising exclusion that turns out not to have been broadly worded
enough.

National Union provided Special Risk insurance to defendant
Expedia which included “Special Professional Liability” and “Media Content”
coverage. In 2016, a class action lawsuit was filed in the Northern District of
California against Expedia by four hotel operators, accusing Expedia of “a bait
and switch marketing scheme whereby it advertises deals at hotels with which it
had no contractual relationship and, when a customer attempts to make a
reservation at one of those hotels, Expedia gives the impression that there are
no rooms available on the requested dates and drives the traffic to its
contracting partners.” When Expedia tendered defense of the lawsuit to National
Union, National Union agreed to defend while reserving its rights, then filed
this action for a declaration of its obligations.

National Union didn’t dispute that the coverages applied; it
had the burden of showing that an exclusion nonetheless bars coverage.

The underlying lawsuit alleges, that when customers search
for their hotels on Google or one of Expedia’s websites, Expedia displays the
hotels as if it the customer were able to make a reservation through its
websites. But, because Expedia has no ability to book rooms at their hotels, it
allegedly switches them to other hotels by falsely implying that the chosen
hotel is sold out or that rooms are unavailable for the selected dates. The
remaining claim is false advertising in violation of the Lanham Act: “Expedia
made false or misleading statements in on-line travel and booking services
which misrepresented the nature, characteristics, and qualities of the hotels’
services and commercial activities” (emphasis added).

“Exclusions from coverage are strictly construed against the
insurer because they are contrary to the protective purpose of insurance.” The
Media Content coverage covers “any act, error or omission, negligent
supervision of employee, misstatement or misleading statement” in any form of
media content which results in, among other things, an infringement of
trademark or trade dress. There is an express exclusion for claims “alleging,
arising out of, based upon or attributable to (1) false advertising or
misrepresentation in advertising of an Insured’s products or services . . . or
(3) any infringement of trademark or trade dress by any goods, products or
services, including any goods or products displayed or contained” in any form
of media content. (The Specialty Professional Liability policy covers “any
negligent act, error or omission, misstatement or misleading statement in an
Insured’s performance of Professional Services for others….” There are
exclusions for claims “alleging, arising out of , based upon or attributable to
any misappropriation of trade secret or infringement of patent, copyright,
trademark, trade dress or any other intellectual property right….” and claims
“alleging, arising out of, based upon or attributable to false advertising or
misrepresentations in advertising.”)

For the Media Content exclusion, the parties disagreed about
whether the phrase “of an Insured’s products or services” mattered. “National
Union argues that anything and everything Expedia says in its advertising is in
furtherance of its own business interests and is therefore uncovered.” Expedia
argued that the exclusion was limited only to misrepresentations about its own
products or services, not those of another, contrasting it with the SPL
exclusion which had no such additional language.

The court agreed with Expedia. As written, the false
advertising must be “of an Insured’s products or services,” and if National
Union truly intended to exclude all false statements Expedia made in
advertising, there would be no need to add the phrase “of an Insured’s products
or services.” Citing a practice guide to insurance litigation, the court noted
that the exclusion “is generally thought to refer to inaccurate and misleading
representations…concerning the insured’s own product, rather than that of
another entity.” “Otherwise, protections expressly granted, such as coverage
for claims arising out of disparaging comments aimed at the another’s product,
would be negated by the exclusion. Such an interpretation would be
unreasonable.”

Nor did the trademark exclusion apply, given that “the hotel
operators’ Lanham Act claim can succeed without having to show that they have a
protectable trademark or that Expedia infringed on their intellectual property
rights.”

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closing SeaWorld during pandemic didn’t make “unlimited” entry passes deceptive

Posted on September 14, 2020 by rtushnet

Kouball v. SeaWorld Parks & Entertainment, Inc., 2020 WL
5408918, No.: 20-cv-870-CAB-BGS (S.D. Cal. Sept. 9, 2020)

Kouball failed to state a claim under the usual California
statutes and common law causes of action by alleging that SeaWorld deceptively
failed to disclose that it intended to keep charging her for her annual pass
while its amusement and water parks were closed due to the pandemic. The parks
closed in March; in April, Kouball was charged the full amount of her monthly
payment of $48.99 for her annual passes. Kouball alleged that she would not
have paid for the membership had she known that she would not have access to
the park and that SeaWorld continues charging its customers monthly fees while
the parks remain closed.

Kouball failed to identify an affirmative misrepresentation
of “unlimited access,” but pled only her own subjective belief in such access. “The complaint does not identify when and
where she purchased the annual membership passes, nor does it identify any
specific statement that SeaWorld made that she read, viewed, or heard, that led
her to a belief that she would have unlimited access to the parks.” (She did
cite the website where annual pass options say “unlimited omission” but didn’t
allege reliance on the website or on this statement. This seems easily fixable.
Under each annual pass option it also states, “Restrictions may apply…hours
and services are subject to change or cancellation without prior notice.” Would
reasonable consumers think the park could be completely closed under these
terms?)

Nor did she successfully plead a deceptive omission. Since
she relied on her own subjective belief, disclosure wouldn’t have helped, and
also she didn’t allege that SeaWorld had a duty to disclose. “Under California
law, an allegedly fraudulent omission is actionable only if the omission is ‘contrary
to a representation actually made by the defendant, or an omission of a fact
the defendant was obliged to disclose.’” In particular, “SeaWorld, like the
rest of the world, would not have been aware it would need to temporarily close
its parks due to an unprecedented global pandemic. Moreover, such temporary
closures were likely required under state or local orders and the decision on
how to charge customers or provide other relief would be dependent on the
agreements between them.”

Also, the CLRA covers only “goods or services,” and an unlimited
entry pass is neither.

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sunglasses reseller liable for (c) infringement, maybe TM/false advertising/tortious interference

Posted on September 10, 2020 by rtushnet

Maui Jim, Inc. v. SmartBuy Guru Enters., No. 1:16 CV 9788,
— F.Supp.3d —-, 2020 WL 4435320 (N.D. Ill. Feb. 24, 2020)

Maui Jim alleged that the defendants sold non-genuine
Maui-Jim-branded sunglasses while using its copyrighted photographs to falsely
advertise that they are an authorized retailer. The defendants counterclaimed
that Maui Jim’s statements about their legitimacy constituted defamation or,
alternatively, unjust enrichment. The court partly granted and partly denied
cross-motions for summary judgment, because first sale is now so narrow a
defense that it is almost unavailable for non-used goods; MJ established
liability on its copyright claims outright but must go to a jury on
trademark/false advertising. Also, there are a troubling number of redactions here, including for facts that the court relies on in its holding; hard to see how this can properly inform the public of the legal basis for the decision.

Defendants sold a redacted number of non-prescription and
prescription pairs of Maui-Jim-branded sunglasses into the United States
between 2009 and 2019. The prescription sunglasses contained third-party
prescription lenses glazed into a Maui-Jim-branded frame. Maui Jim alleged that
its sunglasses incorporate patented technology to “wipe out glare and UV rays,
and boost[] color via lens treatments.” Its sunglasses have earned the Skin
Cancer Foundation’s Seal of Recommendation as an effective UV filter for the
eyes and surrounding skin. Maui Jim has registered trademarks, and registered
copyrights for the 93 professional photos at issue here, each issued within
five years of Maui Jim’s first publication.

Maui Jim averred that it required all Maui Jim sunglasses be
sold with authentic Maui Jim lenses, frames, and parts, and not modified in any
manner. Defendants disputed this, noting that nothing in Maui Jim’s European
authorized retailer agreements stated that its warranty would be voided if an
authorized retailer sold Maui Jim sunglasses to third parties or if third-party
lenses were glazed into its frames, and claiming that Maui Jim authorized
retailers in the U.S. had glazed third-party lenses into Maui Jim’s frames
without consequence.

The parties disputed whether their warranties differed, and
whether Maui Jim’s warranty was an integral part of its product offering. Along
with some redacted information, Maui Jim’s representative indicated that
customers used Maui Jim’s repair department for, on average, three to four
non-Maui Jim prescription lenses per week between 2015 and 2018.

Defendants ship all their Maui-Jim-branded sunglasses sold
to the United States from Hong Kong, , and some number of shipments of
Maui-Jim-branded sunglasses contained a packaging slip that identified a
different party as the manufacturer, which defendants blamed on faulty computer
coding. Defendants
also admitted that they wrongly included a Maui Jim’s 2009 Drop Ball
Certification (a certification that lenses comply with certain regulatory
requirements) in a limited number of shipments to U.S. consumers. Defendants
additionally admitted to at least twenty examples of delayed shipments to its
purchasers of Maui-Jim-branded sunglasses, thirteen of which were delayed due
to FDA or customs issues.

Defendants’ webpage touts the supposed authenticity of
eyewear that it sells from “some of the world’s leading eyewear manufacturers” and
their “relationships with some of the world’s leading suppliers.” It oece
contained a diagram indicating that their supply chain is direct from the
manufacturer to the customer rather than the “traditional supply chain” that
routes from the manufacturer to an exporter to an importer to a wholesaler to a
shop and then to a customer. An accompanying sentence said: “By offering the
world’s largest range of authentic designer eyewear, sourced directly from the
world’s leading eywear [sic] suppliers, we are here to help you find what you
love.” Defendants argued that this “was accurate and consistent with
SmartBuyGlasses’ practice for the majority of its sales including
manufacturers/brands – such as [redacted] and [redacted] – from which it buys
genuine products from the manufacturer of the brands and ships it to its
consumers.”

MJ alleged that the FAQ falsely answered “Can I trust the
authenticity of the products?” with “All of our products have a 100%
Authenticity Guarantee, no exceptions. SmartBuyGlasses takes great lengths to
ensure the high quality and product authenticity that our customers have come
to expect, and all products are accompanied with official tags and manufacturer
warranties.”

Defendants’ website does say that “SmartBuyGlasses is not
affiliated with nor an official re-seller for Maui Jim ….” when consumers
select a MJ-branded frame, and it has small, grey type on the bottom of the
pages, stating that it is “a leading independent retailer of the world’s best
designer eyewear since 2006 and is not owned by or affiliated with the brands
it sells unless stated otherwise.” MJ, however, commissioned a survey that allegedly
found that 40.1% of respondents, net, took away the false impression that
SmartBuyGlasses is an authorized MJ retailer. Also, the MJ-specific language,
which goes on to say “therefore we provide our own comprehensive 24 month
warranty, as Maui Jim do not support their own 24 month warranty with us,” was
added after litigation began. The parties also disputed whether defendants’
website adequately informed consumers that they were purchasing third-party
prescription lenses rather than MJ lenses.

MJ also argued that the website falsely suggested that defendants
had an “operation centre” in New York. Although defendants don’t have physical
location or physical office in New York, they do have an “operational dropship
location in New York.” [Query how MJ
plans to show this misrepresentation, if it is one, harmed them.]

Authenticity: There was a material dispute over the
authenticity of (some of) the MJ branded sunglasses based on MJ’s claim that it
hadn’t sold enough pairs to the third parties from whom defendants bought to
make up their supply, though MJ apparently wasn’t able to determine from test
purchases that there were any counterfeits or stolen products. Since the burden was on defendants to show
that first sale applied, they weren’t entitled to summary judgment on that
ground alone.

Separately, there were issues about material difference,
which would prevent a first sale defense. At least twice, a MJ CSR told a
customer that Defendants’ omission from Maui Jim’s authorized retailers list didn’t
automatically mean that defendants’ Maui-Jim-branded sunglasses were
inauthentic. But MJ still argued that none of defendants’ MJ sunglasses had
been subject to an authorized first sale by Maui Jim. Its digital marketing
manager told CSRs to respond to customer inquiries about unauthorized retailers
“that these sites are not listed and therefore are selling diverted, used,
damaged or counterfeit goods and they void our 2 year warranty by purchasing on
these sites.”

The court first addressed the burden of proof for a first
sale defense: the party asserting the defense has the burden to “show ownership
through lawful acquisition.” “Defendants are best suited to know who gave them
the Maui-Jim-branded sunglasses they sell on their website.” And “blanket
self-serving testimony and testimony from third-parties” was insufficient to
grant summary judgment, at least in light of MJ’s own evidence that it hadn’t
sold (enough) pairs to the identified third party sources. But nor was MJ
entitled to summary judgment, because there was a material question of fact on
sourcing.

What about material differences?

The first sale doctrine does not
apply to products that have been materially altered from their original form.
It is incumbent upon the reseller to show that the differences are not of the
kind that consumers would likely consider in purchasing the product. An
alteration is material if it changes something about a product that is relevant
to consumers’ decision to purchase the product.

I note that the application of this rule has made first sale
defenses almost unwinnable for unused goods, despite Supreme Court precedent
recognizing that used goods are subject to first sale even though they are
basically always materially different from unused goods. For used goods, proper
disclosure of their used status is sufficient to avoid actionable consumer
deception despite material differences. Though courts occasionally gesture at disclosure
for unused goods too, they don’t take it seriously, I guess because they think
cutting off the used-goods market would be more socially detrimental than
allowing total trademark owner control of initial sales channels, which seems
like a competition policy decision that trademark law should not be making.
Even this relatively balanced opinion is willing to countenance this control.

MJ identified three alleged material differences, two of
which the court accepted as creating material factual issues. (1) Defendants’
sunglasses customers experience inordinate delays; (2) Defendants’ sales do not
qualify for Maui Jim’s warranty program; (3) Defendants “sold MAUI JIM-branded
sunglasses after removing the original lenses and mounting in the frames
prescription lenses that did not come from Maui Jim” but rather were
“manufactured using a process over which Maui Jim had no control.”

Shipping delays: Although case law holds that “a physically
identical product is nevertheless ‘materially different’ from the genuine article
if ‘the bundle of services’ that attach to that genuine article is not
available to the consumer,” shipping delays are different from other alleged
service differences because they would naturally be attributed to the seller,
not the manufacturer, and “are wholly unrelated to the product’s brand.”

Warranty: MJ argued that its warranty didn’t apply to
sunglasses purchased outside of its authorized dealers; defendants argued that
MJ’s “own communications with customers belie that contention.” The court
disagreed: Instances where MJ told customers that they would repair and replace
a customer’s sunglasses as long as they were authentic didn’t indicate that the
repair would be made pursuant to a warranty.

So the next question was whether MJ’s warranty was
materially different from defendants’ own warranty. “[A]bsence of or a
different warranty has been held to be a material difference.”

The court relied on a prior case about Hyundai equipment,
which illustrates Jeremy Sheff’s point about the damage that post-sale
confusion reasoning has done to direct infringement doctrine. In that case, the
defendant’s customers agreed that they knew they were purchasing a product
without a warranty, but the defendant still lost on summary judgment because, “[w]hile
it may have been [his] intention to warn all of his customers … this would
not protect subsequent customers who may purchase the equipment from [his]
customers.” (How often are sunglasses resold compared to large vehicles, by the
way?)

It was undisputed that the parties have received inquiries
from both present and potential customers about their respective warranty
coverages. But whether their respective warranties were identical was disputed.
Defendants argued that their warranty was identical or better, but: (1) Maui
Jim’s warranty offers repair in addition to replacement, while SmartBuyGlasses’
does not; (2) Maui Jim’s warranty is tracked from the date the customer
receives the product, whereas SmartBuyGlasses’ tracks it from the order date,
meaning that Maui Jim’s is longer (without even accounting for alleged slower
shipping speeds); and (3) both warranties only cover manufacturer’s defects, so
MJ, as manufacturer, was “logically better suited to determine whether an issue
is a manufacturer’s defect or not.”

These differences must be material to overcome first
sale. It was defendants’ burden to show the absence of materiality. Defendants
hadn’t done so: (citation to redacted materials) and there was evidence that
the warranty did matter “as highlighted in consumer complaints and consumer
inquiries directed to both Maui Jim and SmartBuyGlasses.” And “the fact that
warranties and repair services were ranked [redacted] in consumer priorities
when choosing premium sunglasses could support a finding that Maui Jim’s
warranty is a material part of a consumer’s purchasing decision, especially
given Defendants do not offer repair services.” [Look, if the court is relying
on this for its legal conclusion, it should not be redacted—I have no idea what
the justification for this is. Any concept of trade secrets that covers this
information is appallingly overbroad.]

In addition, “a jury could find that the difference in
warranty provider alone could warrant a material difference even if the
warranties’ terms were identical. For example, we conjecture that a warranty
from an institutional manufacturer would certainly be perceived more valuable
to a consumer than the same warranty term provided by a discount retailer.”

Quality control: MJ argued that, even if the glasses were
“once authentic,” MJ’s inability to control their quality once they arrived in
defendants’ hands constituted a material difference. Of course, this rationale,
taken seriously, would make the unauthorized resale of any used product
unlawful—my Toyota has been out of Toyota’s control for over ten years!
Anything could have happened! (And admittedly, much has.) However, the court reasoned
that “[q]uality control measures may create subtle differences in quality that
are difficult to measure but important to consumers.” Thus, courts don’t require
trademark owners to show differences in actual quality. That would be
too hard! But “quality control” also isn’t a magic phrase. “Rather, the test is
whether the quality control procedures established by the trademark owner are
likely to result in differences between the products such that consumer
confusion regarding the sponsorship of the products could injure the trademark
owner’s goodwill.” MJ needed to show that “its quality control procedures
create a likelihood that their sunglasses are different from those that it does
not control,” in particular that it stops enough substandard product from
reaching a consumer “to create a material difference between the categories of
authorized and unauthorized sales.” That wasn’t clear on this record.

Finally, MJ argued that the “sponsorship exception” to first
sale applied because defendants falsely indicated that they were authorized
resellers. “Thus, use of a plaintiff’s trademark in promotional materials such
as advertising or displays is not protected by the first sale doctrine, but use
of a plaintiff’s trademark solely to identify a product up for sale is
protected.” [This is a weird way to phrase it: advertising or displays are
often ways to identify a product for sale. If a used car dealership truthfully
advertises that it has Toyotas for sale, that can’t itself falsely imply
sponsorship.] The court rephrases: “conduct that goes beyond the mere resale of
trademarked goods and its incidental advertising may not be protected by the
first sale doctrine.”

“Maui Jim chiefly takes issue towards SmartBuyGlasses.com’s
representation that it works directly with leading eyewear manufacturers and
suppliers,” such as the diagram showing a supply chain direct from the
manufacturer. Even SmartBuyGlasses’ VP testified that this diagram was a poor
representation of SmartBuyGlasses’ procurement model. Also, MJ submitted [redacted]
instances where defendants’ customer service representatives supposedly
indicated that they were an authorized Maui Jim dealer. One example: a customer
asked “Are you an authorized Maui Jim’s dealer?” and a CSR responded: “Yes, we
are.” The court also worried about the statement “all our products are 100%
authentic[ ] [w]e source the authentic items through authorized distributors,”
even though that doesn’t say that defendants are authorized
distributors. That statement was in response to the following message: “your
section ‘Authenticity’ says you work directly with the manufacturers, in this
case Maui Jim, so why is it that they don’t know where you get your MJ
sunglasses from.” More plausibly, a customer asked how defendants can
“guarantee authenticity when [its] not an authorized dealer of Maui Jim
products?” The CSR stated that it “source[s] it from the manufacturer itself.” When
the customer responded by telling the representative that Maui Jim had told
that customer that they “aren’t supplying you guys with glasses,” the
representative changed course: “we do not source the item from Maui Jim brand,
we source it from the factory or manufacturer on where they also ordered their
items.” While defendants called these statements mere mistakes, they at least
created a factual issue.

I’m not sure why this misrepresents sponsorship as
opposed to misrepresenting the quality of the product, but defendants also at
least sometimes included “Maui Jim’s 2009 Drop Ball Certification,” which
certified that the lenses had been tested for impact resistance, which was not
true.

What about the website disclaimers? First, “SmartBuyGlasses
may have confused customers with its contradictory statements throughout its
website that it is authorized by ‘all’ brands rather than a more accurate word
like ‘most’ or ‘many’ brands.” Second, the survey showed 40% net deception,
though 60% didn’t perceive sponsorship. Too many disputed material facts!

Likely confusion: also disputed. If the goods were in fact
counterfeit, there would be a presumption of confusion. MJ’s digital marketing
manager oversaw secret test purchases and testified that some were not
manufactured by MJ. MJ’s VP of Marketing also testified that he could tell that
some of the glasses sold through SmartBuyGlasses.com were counterfeit because
they were sold “without our Maui Jim lenses.” Is that counterfeiting? Well,
there’s a question of material fact over whether defendants adquately notified
customers about the lenses.

As to the multifactor test, the analysis here is wonky
because the usual multifactor test is not suited to the question of whether
actual Maui Jim frames sold by someone else confuses people about source, which
is why first sale and nominative fair use and other defenses are important.
Interestingly, the court finds degree of care to be neutral, because “Maui Jim
sunglasses are both premium (and so relatively expensive) and widely accessible
on the internet.” MJ’s alleged instances of actual confusion, though disputed,
were admissible hearsay because they were business records of a regularly
conducted activity that were made at or near the time they transpired.

Dilution: summary judgment also denied (no discussion of
fame).

False advertising claims covered four (or maybe five) things:
(1) Defendants’ CSRs’ statements in response to customer inquiries about
authenticity, (2) the website’s authenticity guarantee, (3) the website supply chain
image, (4) the alleged statement that defendants have a U.S. location, and (5)
the non-MJ lenses inserted in MJ frames.

CSR statements: Were these “advertising or promotion”? No;
they were individual statements made in response to customer inquries, not “promotional material disseminated to
anonymous recipients.”

Website authenticity guarantee: Defendants pointed to their
disclaimers, including “With some of the brands that we sell, the
manufacturers’ warranty will be available worldwide however for other brands
the official warranty may not be available in your country due to territorial
limitations and/or brand policies. To cover all scenarios, we offer our own
exclusive 24-month warranty against all manufacturers’ defects without
exception” and the MJ-specific disclaimer it added. There was a question of
material fact on falsity, despite the existence of the survey, given the
disclaimers and other questions discussed in the trademark section. The survey
wasn’t enough because it didn’t specifically evaluate the effects of the
disclaimers.

comparative supply chain graphic

Supply chain image: There was a factual dispute over the
misleadingness of showing a direct supply chain from manufacturer to consumer,
rather from manufacturer to an exporter to an importer to a wholesaler to a shop
and then to a customer. Defendants argued that the diagram was accurate and
consistent with their practice for the majority of sales including [redacted]
brands, and that disclaimers took care of remaining uncertainty.

Operations graphic showing NY “operation centre”

U.S. location: Also a material question over whether the
U.S. dropship location made this truthful.

one prescription lenses statement

another, including ridiculous redaction from public website

Third-party lenses: These were less than 1% of defendants’
sales. MJ argued that defendants advertised that their prescription lenses were
manufactured by MJ, but defendants used words like “our” rather than “Maui
Jim’s prescription lenses” to describe them; this question was for the jury.

Reverse passing off: At one point, defendants incorrectly
identified [redacted] as the manufacturer of MJ branded sunglasses on
commercial invoices it sent to its customers. Defendants attributed this as a
computer coding error and there was no evidence that there was any benefit to
them from doing so, but regardless it wasn’t reverse passing off as defined by Dastar
because they didn’t represent the goods as their own. Following the
“precise words” used by the Supreme Court and the Seventh Circuit, “Defendants
must have substituted its own name for the true manufacturer to be liable for
reverse passing off.” Even without binding law, the court would still reject
reverse passing off, because MJ didn’t show likely damage based on the
invoices, though the result might be different if the mislabeling had been in
ads.

Illinois Uniform Deceptive Trade Practices Act claims
survived for the reasons discussed above.

example of MJ photo compared to image on defendants’ site

As for the copyright claim, the court easily rejected a fair
use defense: the use wasn’t transformative, the modest creativity of the photos
was enough, they were used in their entirety, and there was a licensing market
for the photos insofar as “a benefit of contracting to act as one of Maui Jim’s
authorized retailers is the right to use these copyrighted photographs in
advertisements.” And the court found infringement:

“Although Defendants
ask us to infer that this is merely the same pairs of sunglasses shot at
standard angles against a standard white background, we hold that no reasonable
jury would find these photos are anything but identical.” Damages were a
factual issue for trial.

Tortious interference: Whether Maui Jim produced enough evidence
to establish the existence of its contracts with third parties was a disputed
issue. However, the court rejected the argument that those contracts were
unenforceable under European law: “the European Court of Justice squarely
addressed the legality of authorized retailer contracts and distribution
networks … in the context of luxury or high-end goods and ruled such contracts
are not prohibited when three conditions are met: (1) the product necessitates
a selective distribution system because it is high quality or technical; (2)
resellers must be chosen on the basis of objective criteria; (3) the criteria
defined must not go beyond what is necessary. Case C-230/16, Coty Germany GmbH
v Parfumerie Akzente GmbH, 2017 EUR-Lex CELEX LEXIS 62016CJ0230, at ¶ 24.” [I
don’t really see the court analyzing whether (2) and (3) were satisfied,
especially given the factual issue about whether there were such contracts.]

Also, there was no question of material fact that defendants
were aware that Maui Jim contracted with authorized retailers and that
authorized retailers were prohibited from selling to other retailers (like defendants).
In 2008, Maui Jim wrote to defendants: “By purchasing Maui Jim sunglasses from
any authorized Maui Jim account, you are inducing that retailer to breach its
contract with Maui Jim, which will subject you to civil liability for
interference with a contractual relationship.” Defendants acknowledged receipt.

And there was evidence that Maui Jim incurred financial harm
from the interference. So defendants’ summary judgment motion was denied.

Counterclaims for defamation: Defendants alleged that Maui
Jim’s corporate headquarters and customer service representatives “falsely
instructed potential SmartBuyGlasses’ customers that SmartBuyGlasses sells
counterfeit goods, that the Maui-Jim-branded sunglasses they sell are ‘fake’ or
‘not authentic,’ and that SmartBuyGlasses ‘is not an authentic website,’” as
well as falsely telling customs officials that Maui-Jim-branded sunglasses
shipped by SmartBuyGlasses to U.S. Consumers were “not genuine,” causing U.S.
customs to seize their authentic sunglasses. Since truth is a defense, the
court denied summary judgment here.

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“made with aged vanilla” can be misleading even if not the main ingredient

Posted on September 10, 2020 by rtushnet

Sharpe v. A&W Concentrate Co., — F.Supp.3d —-, 2020
WL 4931045, No. 19-cv-768 (BMC) (E.D.N.Y. Aug. 24, 2020)

Plaintiffs alleged that defendants violated NY GBL §349 by
misleadingly labeling their root beer and cream soda beverages as “MADE WITH
AGED VANILLA,” even though the vanilla flavor comes predominantly – if not
exclusively – from an artificial, synthetic ingredient called ethyl vanillin. Although
the court found that plaintiffs lacked standing for injunctive relief because
they knew the truth now, it rejected defendants’ argument that a reasonable
consumer couldn’t be misled because the products contain real vanilla and were
conspicuously labeled as “Natural and Artificially Flavored.”

The complaint alleged that, even if the products contain any
aged vanilla, “it is in trace or de minimis amounts not detectable by advanced
scientific means.” Therefore, defendants’ misleading message that the drink
contains “aged vanilla” wasn’t dispelled by the information that the beverages
are “Natural and Artificially Flavored,” “which fails to communicate that the
quantity of the artificial flavoring far exceeds the quantity of natural
vanilla.” Plaintiffs alleged that they relied on the label, believing flavor of
the product was vanilla and that any flavor came from macerating the bean and
infusing/extracting the flavor. They also alleged that, in a March 2020 survey
of 411 consumers, around 89% of the consumers stated this representation led
them to believe that the product was vanilla flavored:

These consumers also interpreted
the representation to mean that the vanilla flavor came exclusively (if not
predominantly) from the natural vanilla – not artificial sources. Specifically,
around 68% of surveyed consumers believed that the statement meant that the
vanilla flavor “comes from a vanilla plant, such as a vanilla extract, which is
made from vanilla beans from the vanilla plant.”

Scientific testing by an independent laboratory allegedly revealed
that the vanilla flavoring of the products does not come from the vanilla
plant. Instead, testing allegedly disclosed that the predominant, if not
exclusive, source of the vanilla flavor derives from an artificial, synthetic
ingredient – ethyl vanillin. This is allegedly a cheap and inferior substitute
for real vanilla, and plaintiffs alleged that they wouldn’t have paid a premium
price for the beverages if they’d known the truth, though they also alleged
that they’d buy the drinks again in the future if they were reformulated with
real vanilla or no longer deceptively labeled.

The parties used competing images of the products; the
images plaintiffs used show the products prominently displaying the “MADE WITH
AGED VANILLA” label and from an angle from which the “Natural and Artificially
Flavored” disclosure defendants relied upon is not visible, while plaintiffs
shot the product from a different angle, in which the “MADE WITH AGED VANILLA”
statement was masked and unintelligible, while the statement “Natural and
Artificially Flavored” was clearly visible. The court considered both images,
while drawing all reasonable inferences in plaintiffs’ favor.

plaintiffs’ image

defendants’ image

Even if plaintiffs conceded that the products contained aged
vanilla (which they did not), that was not enough to conclude that reasonable
consumers wouldn’t be misled. The key case is Mantikas v. Kellogg Co., 910 F.3d
633 (2d Cir. 2018), which held that prominent “WHOLE GRAIN” and “MADE WITH
WHOLE GRAIN” labeling could mislead a reasonable consumer on a product that was
predominantly enriched white flour, even when the ingredients list accurately
disclosed “enriched white flour” as the first ingredient and disclosed the
number of grams of whole grain per serving. The Second Circuit held that “a reasonable
consumer should not be expected to consult the Nutrition Facts panel on the
side of the box to correct misleading information set forth in large bold type
on the front of the box.”

So too here. The court emphasized that “the use of the word ‘aged’
suggests to consumers that the vanilla content is naturally derived and has
acquired a desirable quality upon the passage of time.” In Mantikas,
whole grain was “at least present in a discernable quantity,” while plaintiffs
alleged that vanilla wasn’t, making this a stronger case. And the Nutrition
Facts panel in Mantikas was undisputedly accurate, while here “the existence
of ethyl vanillin, the substance plaintiffs allege is exponentially present
compared to natural vanilla, is never explicitly disclosed to consumers.”
Advanced scientific testing was required to reveal its presence.

Plaintiffs plausibly alleged that the “MADE WITH AGED
VANILLA” representation – “prominently displayed underneath the A&W logo
and on front of the bottle or box, bolded and in all capital letters” – falsely
implied that any vanilla content derives “predominantly” from the vanilla plant.
The court said that “the persuasive extrinsic evidence that the overwhelming
percentage of consumers share this misconception” bolstered this conclusion.

True, the labels disclose that the beverages are “Natural
and Artificially Flavored.” “A consumer, however, does not know if this is
referring to vanilla or to the host of other ingredients present in the drinks,
including the root beer or cream soda flavoring.” And more importantly, Mantikas
says that consumers don’t have to rotate the package to correct misleading
information in large bold type on the front.

Nor was Mantikas distinguishable on the basis that
the case involved a misrepresentation as to the cracker’s primary or main
ingredient. The Second Circuit did mention this fact, but the court found that Mantikas
actually rejected the argument that only primary ingredients count:

[T]he rule that [d]efendant
contends emerges from these district court decisions – that, as a matter of
law, it is not misleading to state that a product is made with a specified
ingredient if that ingredient is in fact present – would validate highly
deceptive advertising and labeling. Such a rule would permit [d]efendant to
lead consumers to believe its Cheez-Its were made of whole grain so long as the
crackers contained an iota of whole grain, along with 99.999% white flour. Such
a rule would validate highly deceptive marketing.

This principle is equally true when dealing with a “preferred,
non-primary ingredient”:

A chocolate chip cookie may not
necessarily be comprised predominantly of chocolate (one can only dream), but
it would still likely be misleading to label it as “Made With Natural Chocolate”
if the cookie’s chocolate’s content is 99.999% artificial and synthetic. Likewise,
a frozen pizza manufacturer that labels its products as “Made with Real
Pepperoni” likely cannot prevail at the motion to dismiss stage under Mantikas
by unabashedly using 99.999% artificial or synthetic meat fillers and simply
arguing a pizza’s main ingredient is dough.

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Keratindose hair products may be misleading about keratin content even without a survey

Posted on September 10, 2020 by rtushnet

Price v. L’Oréal USA, Inc., 2020 WL 4937464, No. 17 Civ. 614
(LGS) (S.D.N.Y. Aug. 24, 2020)

Plaintiffs brought California and New York claims against L’Oréal
based on its Matrix Biolage Advanced (MBA) haircare product. This includes the
Keratindose system of three products: the Pro-Keratin + Silk Shampoo, the
Pro-Keratin + Silk Conditioner and the Pro-Keratin + Silk Renewal Spray “Keratindose”
appears on the front with the first seven letters of the word in bold. But:

Keratin is a protein that is found
in human hair and is also a treatment that customers administer to their hair.
The Products do not and have never contained keratin as an ingredient, and the
ingredients lists on the back labels of the Products do not include keratin.

The court partially granted and partially denied L’Oréal’s
motion to exclude the testimony of Bruce Silverman as a marketing, advertising
and branding expert. He opined, inter alia, that “a reasonable consumer would
fully expect a family of hair care products named Keratindose to include
keratin, just as they would expect of any product that includes a well-known
ingredient as part of its name.” L’Oréal argued that his expertise was inadequate
because his “career has provided him with no experience in in-salon hair care
products or the salon channel generally.” However, “Silverman has an impressive
fifty years of experience in advertising,” including reviewing thousands of
studies, interviewing thousands of consumers, and attending thousands of focus
group sessions, many devoted to health/beauty aids. His opinions premised on
his own experience were admissible, including that a reasonable consumer “would
expect [ ] any product that includes a well-known ingredient as part of its
name” to include that ingredient, and “consumers would see the Challenged
Claims as branded ingredient(s) that differentiate the Challenged Products from
competitive products.” However, his opinion that keratin is a well-known
ingredient in hair products, and that “many women … are already aware of (or
have ample opportunity to be aware of) the restorative properties of keratin”
in hair products was not based on his experience, nor is it based on a reliable
methodology, just on an internet search and a review of emails and testimony
from L’Oréal employees and the PTO ruling on L’Oréal’s trademark application. Thus, his opinion on consumers’ awareness of
keratin as an ingredient in haircare products and consumers’ resulting
perception of the challenged terms were excluded as unreliable, including his
opinion that “many shampoos actually contain keratin and feature that word on
their labels,” and the subsequent conclusion that “[c]learly, keratin is a
desirable ingredient that many consumers would believe to be a valuable
component in a shampoo, and if they see that word on a label, they would expect
it to be in the product.”

The court also excluded plaintiffs’ expert’s damages
calculation. The presently unchallenged model concluded that 21% of the price
reflected keratin content claims or a price premium of 7% of the price charged.
Defendants do not seek to exclude this opinion in their current motion. But the
calculation of aggregate economic damages was excluded. The expert used the
formula:

Aggregate Economic Damages = (# bottles) × ($ price) × (%
damages)

But the actual retail price of the products was not
produced, so the expert used the low end of the range of the manufacturer
suggested retail prices (MSRP). And L’Oréal doesn’t report bottle sales by
state, so he used the percentage of conjoint survey respondents who reported
that they had purchased a Matrix Biolage Advanced Keratindose
“shampoo/conditioning product,” and who also reported that they were residents
of California or New York, to apportion bottle sales to the two states. Also,
because L’Oréal only provided wholesale data, and because in practice not all
wholesale bottle sales will be resold to consumers, he proposed either a
shrinkage rate of 5% or, alternatively, using only wholesale orders that have a
corresponding re-sale order at a later date, on the assumption that re-sale
orders occur only when customers have sold their previous inventory.

This was excluded because certain of the assumptions about
quantity and price were are unreliable. The evidence about MSRP was that, though L’Oréal believed that “the MSRP lists
represent good proxies for the prices that salons charge consumers for L’Oréal
Products,” non-salon retailers charged widely varying and unpredictable prices. Since the class here wasn’t restricted to salon purchasers, MSRP
could not be used as an accurate substitute for the actual prices paid by Class
members.

This unreliable methodology for calculating price was exacerbated by
questionable assumptions about number of bottles. The proposed shrinkage rate
of 5%, “more than two to three times the average of reported shrinkage rates in
the United States,” wasn’t sufficiently justified; just being “conservative”
wasn’t enough. Nor was there enough information about reorders for that measure
to be accurate. In addition, the conjoint survey was initially designed to
measure consumer preferences and economic damages as a percentage of actual
price charged, and for that purpose had a sample size of one thousand
respondents. It wasn’t appropriate to retro-fit that to determine the
percentage of the total sales that occurred in California and New York,
especially given the small sample size (105) for the damages calculation, and
there was no confidence interval provided, which was significant “since the
addition or subtraction of a single survey respondent living in California or
New York stating they had purchased the shampoo could account for hundreds of
thousands of dollars in class damages, and millions in statutory damages under
the GBL.”

However, defendants weren’t entitled to summary judgment
based on the claim that reasonable consumers wouldn’t be fooled. Plaintiffs offered
an expert opinion, and there was also anecdotal evidence showing that keratin
was a known ingredient among consumers; the named plaintiffs each testified
that they believed, at the time of purchase, that the products contained
keratin based on the labeling. This was enough to go forward. (However, emails
between L’Oréal employees and the PTO ruling weren’t evidence of deception
because they didn’t show the perspective of a reasonable consumer—which would
make the PTO sad to hear, I think.)

“In essence, Defendants are arguing that, because that the
Challenged Terms are not false on their face, Plaintiffs must proffer extrinsic
evidence to show consumers’ understanding of the terms in the form of consumer
data or a survey.” But California courts have expressly rejected a survey
requirement for misleadingness, and there was no authority that an expert
opinion was insufficient under the GBL.

L’Oréal also wasn’t entitled to summary judgment for failure
to show damages. The expert formula for calculating
aggregate class-wide damages wasn’t excluded, and non-expert evidence might be
applied to this formula to prove aggregate class-wide damages (citing precedent
that classwide damages calculations under California law are “particularly
forgiving” and require only “some reasonable basis of computation”).

Equally, plaintiffs weren’t entitled to summary judgment on
deceptiveness. The meaning of the claims was ambiguous. “ ‘Pro-Keratin’ has no
clear meaning, and consumers could understand “Keratindose” to mean that the
product is designed to deliver ‘a daily dose of keratin’ as Plaintiffs allege,
or understand it to mean that the product is designed to treat hair that has
undergone a keratin treatment as proposed by Defendants, or understand it to
mean something else entirely.” A reasonable jury could reject Silverman’s
expert testimony and agree with L’Oréal.

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advertising/marketing law job: Advertising & E-Commerce Law Attorney (4+ yrs)

Posted on September 10, 2020 by rtushnet

From Gordon Rees Scully Mansukhani. Ideally in DC/Northern Virginia area. See more here.

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Rebecca Tushnet

a rare freestanding UCL unfairness claim re: service termination that rendered cameras nonfunctional

Expedia’s unavailability claims sometimes literally false, maybe misleading; materiality is contested for trial

escalated materiality requirement precludes class certification

Selling two products together doesn’t plausibly cause confusion as to their source

insurer must defend Expedia because its false advertising exclusion didn’t cover false claims about hotels

closing SeaWorld during pandemic didn’t make “unlimited” entry passes deceptive

sunglasses reseller liable for (c) infringement, maybe TM/false advertising/tortious interference

“made with aged vanilla” can be misleading even if not the main ingredient

Keratindose hair products may be misleading about keratin content even without a survey

advertising/marketing law job: Advertising & E-Commerce Law Attorney (4+ yrs)

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