Southern Poverty Law Center’s “hate group” designation isn’t false advertising, false association

Coral Ridge Ministries Media, Inc. v. Amazon.com, Inc., No. 17cv566-MHT,
2019 WL 4547064 (M.D. Ala. Sept. 19, 2019)
Coral Ridge sued the Southern Poverty Law Center (SPLC),
Amazon.com, and the AmazonSmile Foundation. It alleged that, “because of its
religious opposition to homosexual conduct, SPLC has designated it as a ‘hate
group’ and that, because of this designation, Amazon and AmazonSmile have
excluded it from receiving donations through the AmazonSmile charitable-giving
program.” This allegedly constituted defamation, false association [!] and
false advertising under the Lanham Act; Coral Ridge also alleged that it had been
excluded from the AmazonSmile charitable-giving program based on religion, in
violation of Title II of the Civil Rights Act of 1964.  The court granted defendants’ motion to
dismiss.
The court considered whether “anti-LGBT hate group” was defamatory—the
“anti-LGBT” part wasn’t contested, but the court considered it as an
inseparable part of SPLC’s use of “hate group” and thus it mattered to whether “hate
group” was defamatory: SPLC made clear that Coral Ridge’s designation was with respect
to LGBT people specifically. Coral Ridge was a public figure.
Coral Ridge pled that “A hate group is legally and commonly
understood as one that engages [in] or advocates crime or violence against
others based on their characteristics.” Whether the categorization was false/falsifiable
thus depended on whether a required trait of “hate groups” is engaging in or
advocating crime or violence.  Here, the
allegation was conclusory and not supported by any facts, e.g. dictionary or other
definitions.  “If courts considering
motions to dismiss were obligated to accept as true plaintiffs’ factually
unsupported definitions of words, concepts, and terms, it would make a mockery
of Federal Rule of Civil Procedure 12(b)(6)’s pleading standard. Requiring
courts to accept as true plaintiffs’ pleaded definitions of words would be
particularly inappropriate in public-figure defamation suits such as this one,
where ‘there is a powerful interest in ensuring that free speech is not unduly
burdened by the necessity of defending against expensive yet groundless
litigation.’”
In addition, Coral Ridge’s definition was contradicted by
other facts that it pled/cited/sought judicial notice of.  The variety of uses of the term from judicial
opinions, the FBI, and the Anti-Defamation League directly contradicted Coral
Ridge’s allegation limiting the term to advocates/committers of violence. The
FBI defines “hate group” as, “An organization whose primary purpose is to
promote animosity, hostility, and malice against persons of or with a race,
religion, disability, sexual orientation, ethnicity, gender, or gender identity
which differs from that of the members or the organization, e.g., the Ku Klux
Klan, American Nazi Party.” The ADL defines a “hate group” as “an organization
whose goals and activities are primarily or substantially based on a shared
antipathy towards people of one or more different races, religions,
ethnicities/nationalities/national origins, genders, and/or sexual identities.
… “  Neither required crime or
violence.
The SPLC itself defines “hate groups” as those groups that
“have beliefs or practices that attack or malign an entire class of people,
typically for their immutable characteristics.” This itself undermined Coral
Ridge’s conclusory allegation about how “hate group” is “commonly understood,”
given that Coral Ridge also pled that, “[a]s a result of SPLC’s position as the
alleged ‘premier U.S. nonprofit organization monitoring the activities of domestic
hate groups and other extremists,’ … SPLC’s Hate Map [and other ‘hate group’
materials, goods, and services] reach a large number of people in every state
in the United States and beyond.” This prominence made it less plausible that
some other definition of “hate group” was controlling. 
And Coral Ridge’s definition was inconsistent with common
sense.  The FBI and ADL definitions also showed
that there wasn’t a single, commonly understood meaning.  The ADL, for example, didn’t require
promotion of the views at issue, while the FBI did.
For related reasons, Coral Ridge couldn’t plausibly allege that
“hate group” was falsifiable; was actually false; or that SPLC made the
designation with “actual malice.” “Similar to the terms ‘fascism,’ ‘radical
right,’ and ‘political Marxist,’ the term ‘hate group’ also suffers from a ‘tremendous
imprecision of the meaning and usage … in the realm of political debate.’”  It might be possible to falsify in some
circumstances—if aimed at “a middle-school chess team with no views on anything
other than chess strategy”—but not here, where Coral Ridge loudly touts its
opposition to recognizing LGBT equality.
For the same reasons of openness in definition, the facts
pled didn’t allow the court to draw the reasonable inference that the
defendant, “instead of acting in good faith, actually entertained serious
doubts as to the veracity of the published account, or was highly aware that
the account was probably false.” Even if the court accepted that there was a
single, commonly understood meaning of “hate group” requiring that the group
engage in or advocate crime or violence, creating a significant discrepancy
between the commonly understood meaning and SPLC’s definition, that still
wouldn’t be enough, given that Coral Ridge also pled that SPLC held itself out
as an expert on hate groups and widely disseminated its own definition. That was
far more consistent with sincere belief than with actual malice.  “[E]ven if the term had achieved a commonly
understood meaning, that meaning would not be fixed forever, but rather could
evolve through public debate. To sanction a speaker for promoting a genuinely
held dissenting view of the meaning of ‘hate group’ would be akin to punishing
a speaker for advocating new conceptions of terms like ‘terrorist,’ ‘extremist,’
‘sexist,’ ‘racist,’ ‘radical left wing,’ ‘radical right wing,’ ‘liberal,’ or ‘conservative.’
Punishing speakers to preserve status quo ideas would be anathema to the First
Amendment.”
Lanham Act claims: SPLC allegedly engaged in false advertising
by falsely designating Coral Ridge a “hate group” on its Hate Map,
disseminating the Map and “hate group” designation in connection with reports
and trainings, and engaging in fundraising focused on the Hate Map and “hate
group” designations. And Coral Ridge alleged that the use of its trademarked
name on the Hate Map was likely to cause confusion as to Coral Ridge’s
“association” with other hate groups on the Map, such as the Ku Klux Klan and
the American Nazi Party. Unsurprisingly, neither of these worked.
The court’s treatment of Coral Ridge as a public figure and
this dispute as involving a matter of serious public interest structured its
Lanham Act analysis. “[W]hen Coral Ridge, as a public figure, entered the
public debate about gay rights, it took on the risk that it and its goods and services
would be adversely affected.” And simply because a public figure sells goods or
services shouldn’t give it an advantage over public figures that don’t. Thus,
even in asserting Lanham Act claims, Coral Ridge would have to show actual
malice. [This reasoning conflicts with the Third Circuit’s Blue Cross/Blue
Shield case, which says that the substantive limits on the Lanham Act—specifically
the commercial speech part—are sufficient to protect the speech interests of
those targeting public figures, but the result is perfectly consistent.]
Coral Ridge argued that SPLC used the Hate Map and “hate
group” designations to promote and make money from Hate-Map-related “goods and
services.” But reports, trainings, and other informational services aren’t
commercial speech, even if they are sold. Nor did use of the Hate Map and “hate
group” designations in fundraising mean that SPLC’s designations should receive
a lesser level of First Amendment protection. The Supreme Court has often treated
fundraising speech as deserving of the highest level of protection, based on
“the reality that solicitation is characteristically intertwined with informative
and perhaps persuasive speech …, and … that without solicitation the flow
of such information and advocacy would likely cease.”
The legislative history behind requiring both “commercial
advertising and promotion” and false or misleading representations “of fact”
further supported these conclusions. As one representative said, the categories
of speech excluded from the coverage of the Act “are the type which raise free
speech concerns, such as a Consumer Report which reviews and may disparage the
quality of stereo speakers or other products, misrepresentations made by
interested groups which may arguably disparage a company and its products
because of the company’s failure to divest its South African holdings, and
disparaging statements made by commentators concerning corporate product
liability and injuries to the public (e.g., A.H. Robins and the Dalkon shield
cases, or the Manville Corporation asbestos cases). All of these would be
judged by first amendment law (including New York Times v. Sullivan) and not
section 43(a) law ….”  [Note that none
of this required actual malice, which is a really bad idea to require just
because the target of false advertising is a public figure; the commercial
advertising/promotion limit is far better.]
Anyway, regardless of constitutional limits, the false
advertising and false association claims weren’t even plausible. False advertising:
not falsifiable; not in commercial advertising or promotion because not
commercial speech.  Neither the Hate Map
nor the “hate group” designations plausibly propose a commercial transaction.
Nor were they plausibly “expression related solely to the economic interest of
the speaker and its audience.” Even if the Hate Map is a “fundraising tool,”
the complaint alleged that SPLC wanted to shut “hate groups” down, which isn’t
an economic interest. The complaint also alleged that the audience for the Hate
Map includes government agencies that seek information about “hate groups,” presumably
not solely or even primarily for economic reasons but instead for law
enforcement.  Even assuming there was an “economic
element” related to SPLC’s fundraising, that wasn’t enough.  Charitable fundraising is often highly
protected because it’s inextricably intertwined with fully protected speech, and
so it was here. Likewise, even assuming that SPLC generates fees from trainings
and has sold the contents of the Hate Map to other organizations, that still
wasn’t commercial speech.
Nor was the “hate group” designation plausibly made for the
purpose of influencing consumers to buy defendant’s goods or services, which is
an additional part of the Lanham Act test for commercial advertising or
promotion. Rather, the complaint alleged that SPLC’s “very purpose for placing
the Ministry on the Hate Map was to harm the reputation of the Ministry as to
lower it in the estimation of the community and to deter third persons from
associating or dealing with the Ministry.” 
Coral Ridge conclusorily alleged that the purpose of using Coral Ridge’s
mark was “to influence the relevant consumers to buy SPLC’s goods and services,
in advancement of SPLC’s publicly stated goal of destroying the Ministry and
the other organizations that SPLC has placed on its Hate Map.” But that wasn’t
enough; it contained its own refutation.
Nor did the complaint allege sufficient dissemination to the
relevant purchasing public. [This holding, like the actual malice holding,
makes me itch. It can and will be cited by ordinary defendants in ordinary
false advertising cases.]  Coral Ridge alleged
that the “relevant purchasing public” was “those people and those organizations
that engage in charitable giving to tax-exempt organizations.” But that was too
high a level of generality, given the variety in the nonprofit world “just as
it would make no sense to consider the relevant purchasing public the same for
a subway-car manufacturer and a health-food store simply because they are both
for-profit organizations.” Given the allegations of the complaint, Coral Ridge’s
industry was Christian television and media. There was no allegation of
sufficient dissemination through that relevant purchasing public, or of
explicit targeting of that public.
False association: Coral Ridge didn’t plausibly plead likely
confusion as to association.  Coral Ridge’s
argument is a little different here, because it’s not claiming false association
with SPLC—the usual false association claim.  Still, the same First Amendment concerns
weighed heavily on the court. “The Lanham Act must be construed narrowly to
avoid impinging on speech protected by the First Amendment.” Furthermore,
citing the Radiance Foundation v. NAACP case, the court noted that §
1125(a)(1)(A) “is not designed to protect mark holders from consumer confusion
about their positions on political or social issues…. Actual confusion as to a
non-profit’s mission, tenets, and beliefs is commonplace, but that does not
transform the Lanham Act into an instrument for chilling or silencing the
speech of those who disagree with or misunderstand a mark holder’s positions or
views.”
Thus, the proper meaning of the Lanham Act’s requirement of likelihood
of confusion as to the “association of a person with another” means “confusion
as to whether the seller or the trademark holder is associated with another
person or organization by virtue of a legal or other relationship—not whether
the trademark holder belongs in the same category as, or might be associated in
some other vague sense with, another person or organization.”  Not just any “mental association” is enough.
For example, we don’t want a health food producer to be able to sue for false
association “because a supermarket advertised the health food company’s
products next to those of a company that produces junk food on the theory that
consumers might falsely ‘associate’ the junk food with the health food
company’s trademark. Furthermore, such a broad interpretation of ‘association’
could be applied to a wide range of protected speech, and would allow companies
to shield themselves from valid criticism.”
Thus, Coral Ridge didn’t plausibly plead that the public was
likely to be confused into believing, based on SPLC’s use of Coral Ridge’s
trademark on the Hate Map and in its “hate group” designation, that Coral Ridge
had an actual relationship any other group on the Map.
Title II discrimination claim against Amazon: These are public
accommodation claims.  Even assuming that
the Amazon defendants were places of public accommodation, Coral Ridge didn’t
plausibly plead that admission to AmazonSmile was protected by the statute, or
that it was subject to discrimination on the basis of religion.  Specifically, the AmazonSmile program wasn’t
a service, privilege, etc. that “serves the public” and thus covered by Title
II; among other things, it excluded all natural persons and allowed in only
approved 501(c)(3) entities. Constitutional avoidance also supported this
holding, since the court didn’t want to essentially force Amazon to donate to
Coral Ridge. The Amazon defendants don’t want to donate money to organizations
that SPLC classifies as “hate groups.” Even if it’s Amazon’s customers choosing
the organization they support, they choose from among Amazon’s offerings, and
it’s Amazon that sends the money.
Separately, it wasn’t plausible that Coral Ridge was
discriminated against based on its religion, rather than on its anti-LGBT stances.  Coral Ridge argued a disparate impact theory;
even if Title II recognizes such claims, Coral Ridge didn’t allege even an
elementary statistical disparity between religious and nonreligious, or
Christian and non-Christian, entities in the SPLC classifications. It was not
enough to allege that 501(c)(3) groups not deemed “hate groups” by SPLC were allowed
into AmazonSmile, because being deemed a hate group isn’t a protected trait.
Nor did Coral Ridge plausibly allege intentional
discrimination by alleging that “Amazon specifically chose SPLC’s on-its-face
religiously discriminatory hate group criteria as its eligibility standard.” This
allegation was contradicted by Coral Ridge’s more specific allegation that SPLC
defines a “hate group” as one that has “beliefs or practices that attack or
malign an entire class of people, typically for their immutable
characteristics.” That’s not “on-its-face religiously discriminatory.” It wasn’t
sufficient to allege that the “SPLC placed [Coral Ridge] on the Hate Map
because of [Coral Ridge’s] religious beliefs regarding LGBT issues.” “[T]he
fact that Coral Ridge’s opposition to homosexual conduct happens to be rooted
in its religious beliefs does not mean that SPLC targeted Coral Ridge because
of its religious beliefs, as opposed to its belief, full stop, regardless of
whether that belief is religiously rooted.” The Amazon defendants’ failure to let
Coral Ridge in after this case began didn’t convert its exclusion into
intentional discrimination.

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coconut milk could mislead by claiming “no cholesterol” where it’s too high fat for that label

Marshall v. Danone US, Inc., No. 19-cv-01332-RS, 2019 WL
4509045, — F. Supp. 3d — (N.D. Cal. Sept. 13, 2019)
Marshall brought a putative class action alleging false
advertising (the usual California claims) against Silk coconut milk, which on
its back lists substances that Silk does not contain, including, e.g., “dairy,”
“gluten,” and “cholesterol,” with “cholesterol” in larger font than some of the
other listed items. The symbol beside “cholesterol-free” is a heart allegedly
intended to show it is “broken,” which is also crossed out with a line
(allegedly indicating that, because the product is cholesterol-free, it will
not be damaging to heart health).  The nutrition
panel states that a serving of Silk contains 0 mg cholesterol, but 3 or more
grams of saturated fat, depending on the specific variety of the product.
However, under 21 C.F.R. § 101.62(d)(1), to bear the nutrient content claim “no
cholesterol,” “cholesterol-free,” or similar claims, a food must, among other
things, contain less than 2 grams of saturated fat per “Reference Amount
Customarily Consumed.”
“While there is no direct private right of action under 21
C.F.R. § 101.62(d)(1), it is at a minimum relevant for determining what can
plausibly be alleged to be deceptive under state law.”  Danone argued that consumers could only be
confused if they knew about the regulation, saw the cholesterol-free
statements, then didn’t see the nutrition panel.  Nope.  “What
section 101.62 serves to show is that the FDA, which has expertise in, and
responsibility for, determining what food labeling practices may mislead
consumers, believes that consumers may understand ‘cholesterol-free’ to convey
certain health benefits that in fact do not exist if the product contains
saturated fats above a certain level. Whether the FDA is right or wrong on that
point, or whether Danone may ultimately prevail on the merits for any number of
reasons, there simply is no doubt that plaintiff has stated a plausible claim
that the labels are misleading.”
Danone also argued that consumers generally understand
excessive consumption of saturated fat may impact cholesterol and
cardiovascular health. Nope.  “The FDA
apparently believes consumers will draw unwarranted conclusions about health
benefits of ‘cholesterol-free’ products despite that general understanding, and
therefore prohibits use of the term on products with saturated fat levels
exceeding 2 grams per serving.”  Nor was
Danone successful in arguing that the alleged implication of healthiness was
too vague.  “The precise conclusions consumers
might draw are not critical, at least at this stage,” given the FDA’s
conclusion.

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outdated website uses preserve TM infringement claim; false use of (R) doesn’t matter if it doesn’t cause harm

Max Rack, Inc. v. Core Health & Fitness, LLC, 2019 WL
4451698, No. 16-cv-01015 (S.D. Ohio Sept. 17, 2019)
Sloppy website maintenance likely denies defendant what
otherwise would have been summary judgment victory on its ex-partner/now-competitor’s
trademark infringement claims; meanwhile, false advertising claims based on a
false use of “®” go nowhere.
Max Rack sells weightlifting equipment, including a machine
known as the Max Rack, for which it owns a registered trademark.  Max Rack used to contract with defendant Star
Trac for it to exclusively make and distribute the Max Rack; after the
associated patents expired in 2015, the agreement would terminate and Star Trac
would have a 6-month sell-off period. 
Star Trac’s successor Core Fitness told Max Rack that, when the
agreement terminated, it would continue selling a product identical to the Max
Rack but under the name Freedom Rack. Although it began implementing the name
change on its company website, in associated printed materials, with its
manufacturer, and with its independent dealers and distributors, “as late as
November 2017, Core Fitness had failed to remove every reference to MAX RACK
from its website.” Core Fitness also sold 24 Max Rack units after the six-month
run-off period had expired (and agreed to pay gross revenues for those).
Max Rack sued for state and federal trademark infringement
and false advertising.
Trademark infringement: No evidence of particular strength
within the field (against confusion); goods and marketing channels are identical
(pro confusion); Freedom Rack and Max Rack aren’t similar but continued use of “Max
Rack” on the website could weigh in favor of confusion, though it wasn’t clear
how often this happened (didn’t weigh in favor of anybody).  Plaintiff’s COO claimed to have received “less
than ten” calls from customers who claim to own a Max Rack bought from
defendants that turned out to be a Freedom Rack, which was minimal evidence of
confusion in light of the market size (more than 5000 Max Rack units sold
during the licensing term, and nearly 800 Freedom Rack units sold quickly after
the expiration of the agreement), weighing against likely confusion. The likely
degree of purchaser care was high: the products cost around $2,000, and are
typically purchased by fitness equipment dealers, health clubs, hotels, and
other establishments operating fitness centers.
Intent: Freedom Rack was a fine name; “Rack” is not
protectable. There was an issue of fact over whether retained references to Max
Rack were human error or intentional, considering that the references remained “for
at least a year and a half after the parties’ agreement terminated.”
Ultimately, “[a] reasonable juror considering Defendants’
unauthorized references to MAX RACK, coupled with the similarity of the
parties’ products, could come out on either side of this question.”  Clean up your websites!
False advertising: “For some unspecified period of time,
Defendants displayed a registered trademark symbol alongside its advertisements
for the FREEDOM RACK prior to the United States Patent and Trademark Office
issuing such a trademark.” Even if this was literally false, the court couldn’t
find a connection between the falsity and any harm to Max Rack’s business
reputation, its reputation with its customers, or its loss in sales. No
causation, no liability. Nor was there a separate private right of action for
trademark misuse.
State law claims followed the same pattern: yes to
infringement, no to any other false advertising claim.

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calling NBC’s lawyers: gold company can claim #1 rank by Today Show, can’t make additional misrepresentations

Express Gold Cash, Inc. v. Beyond 79, LLC, 2019 WL 4394567,
No. 18-cv-00837 EAW (W.D.N.Y. Sept. 13, 2019)
The parties are two of the top competitors in the market for
nationwide mail-in precious metals purchases. When a customer mails in items, they receive an offer; if
the offer is declined, the items are returned free. “In 2010, the Today Show, a
nationally televised morning show on the NBC network, aired a segment in which
it ‘claimed to have compared the prices offered by ten different mail-in
precious metals dealers by mailing a single item of gold to each one,’ and
further claimed that it received the highest offer from Defendant, which ‘offered
90% of market value.’”
“Beginning in 2011 and continuing into the present,” defendant
“published variations of an advertisement that it is ‘ranked [or rated] #1 on
[or by] NBC’s Today Show.” This was allegedly misleading because it (1)
concealed the date of the segment, (2) conveyed a false impression that
Defendant is currently and actually “ranked #1” by Today, (3) falsely indicated
Today and NBC’s current or former endorsement, (4) and falsely suggested that
Today really evaluated the services overall rather than a single sale of gold.  [This last is a classic “false establishment claim” argument.]
Defendant’s website also used “the sound of three tones that
are reasonably identical to the famous three tones used by NBC to identify its
broadcasting service.” [It seems to me that contact with someone at NBC legal
might be at least as effective as suing directly; I can’t imagine NBC loves
these ads.] Separately, Express Gold alleged that “Defendant’s website displays
stock photographs allegedly depicting its ‘latest payouts’ to customers,” and
that these “stock photographs are false and misleading because they grossly
exaggerate the kind, quality and quantity of recently purchased items[.]” The
stock photographs in question have captions stating that “photos are
illustrative and depict items of similar kind, quality and quantity to actual
items purchased.”
Express Gold brought NY state and federal false advertising
claims and claims for unjust enrichment.
Laches: The Second Circuit has held that for claims alleging
unfair competition or false advertising under the Lanham Act, the analogous
statute of limitations is New York State’s six-year statute of limitations for
fraud. Laches couldn’t be resolved at the motion to dismiss stage; not only
might the continuing wrong doctrine apply, it wasn’t clear when Express Gold knew
of defendant’s conduct, and it wasn’t clear from the complaint that defendant
suffered prejudice from the delay.
The Second Circuit has cautioned courts not to “permit
overextension of the Lanham Act to intrude on First Amendment values,” ONY,
Inc. v. Cornerstone Therapeutics, Inc., 720 F.3d 490, 496 (2d Cir. 2013)
(quotation omitted), and “generally a false advertising claim will not lie
where the defendant has done nothing more than accurately present a study’s
conclusions, even if those conclusions are flawed.”  That’s not a Cornerstone quote, but
the court’s phrasing of the case.  But Cornerstone
is about reprints of studies, disseminated to doctors expert in the field
capable of seeing the study’s weaknesses for themselves, not a situation in
which an advertiser incorporates a third party’s non-scientific study into its
advertising to the general public. 
Rather than recognizing this limit, the court noted that it was possible
to have liability if the defendant misstated and misrepresented the Today
Show’s methodology and findings, which is also true but not the same thing (if
the Today Show used an unreliable methodology, it couldn’t be liable for doing
so, but the defendant shouldn’t be able to launder a bad study in its own
advertising).
Anyway, based on Cornerstone, use of the statement
“ranked #1 by NBC’s Today Show,” or variants thereof, wasn’t literally false,
and also wasn’t a misrepresentation of the Today Show’s conclusions. Nor was it
false to use the present tense even though the segment was eight years old.
Board-Tech Elec. Co. v. Eaton Corp., 737 F. App’x 556 (2d Cir. 2018), affirmed
a district court decision dismissing a Lanham Act false advertising claim in a
similar arguably-stale-but-not-replaced-by-a-more-current-finding situation.  
Nor was the use of “ranked #1” and the accompanying use of
NBC’s name and logo misleading.  This was
an appropriate conclusion on a motion to dismiss because misleadingness was
conclusorily pleaded: “[u]pon information and belief, based on online customer
reviews, Defendant has lured consumers into sending their items by publishing
the Today Segment and the Deceptive Advertising.” There was no detail about the
“online customer reviews” or how they supported the misleadingness allegation; “information
and belief” was only appropriate for facts particularly within the defendant’s
possession and control, or where the belief is based on facts making an inference
of culpability plausible.  Comment: can
you imagine a court rejecting NBC’s false endorsement claim as implausible,
even without anything about customer reviews?
However, there were some things beyond “ranked #1,” such as
falsification of the Today Show’s broadcast date—a printout from its website
stated a 2015 date; screenshots of a video description posted by defendant on
YouTube allegedly falsely stating that the Today Show “investigated dozens of
Cash for Gold companies” (it tested 10); and letters to customers stating that
the Today Show “found that Sell Your Gold offered the highest payout of any
competitor.” These statements were both false/plausibly false and plausibly
material. “The Court cannot say, as a matter of law, that a reasonable consumer
would not be influenced by the claim that Defendant offered the highest price
of any competitor, or of ‘dozens’ of competitors. Similarly, a reasonable
consumer could find it material whether Defendant had been found to offer the
highest payouts in 2010 or 2015, because a reasonable consumer could conclude
that a more recent ranking is more likely to be representative of the current
status of Defendant’s services.”  These
claims were neither mere opinion nor so exaggerated as to be unreliable.
Claims based on the “latest payout” photos failed. Express
Gold didn’t allege any facts about “the actual kind, quality, or quantity of
items that have recently been purchased by Defendant, and therefore provides no
basis to conclude that the ‘latest payouts’ stock photographs are either
literally false or likely to mislead consumers. Plaintiff cannot state a false
advertising claim by picking a statement from Defendant’s website and alleging,
with no factual support, that it is untrue.”
The same things happened to the NY GBL and unfair
competition claims; unjust enrichment failed because the complaint didn’t
plausibly allege that defendant was unjustly enriched by money taken from
Express Gold. Specifically, it failed to allege any facts from which a
fact-finder could conclude that, but for defendant’s deceptive conduct,
consumers would have done business with Express Gold rather than with someone
else.

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Use of under 10% of photos in catalogue raisonné was fair use

De Fontbrune v. Wofsy, No. 5:13-cv-05957-EJD (N.D. Cal.
Sept. 12, 2019)
De Fontbrune first sued defendants in France in the late
1990s for publishing a book, The Picasso Project, which reproduced photographs
of Picasso’s works. (Defendants allegedly used over 1400 of 16,000 of these
photos, which had been assembled into the Zervos Catalogue; it appears that
rights are held in the catalogue rather than primarily in the individual photos.)
In 2001, the French court issued an “astreinte,” which would subject defendants
to damages for any further acts of infringement. “About ten years later, de
Fontbrune discovered copies of The Picasso Project in a French bookstore and initiated
legal proceedings in France to liquidate the astreinte.” An award of €2 million
issued; de Fontbrune then sued in Alameda County seeking recognition of the
judgment; it was duly removed.  Now the
court, while rejecting other barriers to enforcement (at least for purposes of defendants’
summary judgment motion), finds that fair use protects the relevant conduct and
thus the judgment is unenforceable in the US on public policy grounds.
Under the uniform recognition of judgments act, a court is
not required to recognize a foreign judgment when “[t]he judgment or the cause
of action or claim for relief on which the judgment is based is repugnant to
the public policy of this state or of the United States.” This is a high bar: “[T]he
public policy exception … does not apply unless a foreign-country judgment or
the law on which it is based is so antagonistic to California or federal public
policy interests as to preclude the extension of comity.”  First Amendment-based public policy counts,
but only where there are “stark differences” between foreign and domestic law.
Such direct conflicts are more likely to be found where foreign law directly
targets speech/expression, rather than incidentally affecting it.  (By contrast, the SPEECH Act prevents
recognition of defamation judgments unless they’d be ok under domestic law.)
The court adopted the Second Circuit’s approach: identify the constitutional
protections for the unauthorized use of the IP at issue, and then determine
whether French intellectual property laws provide comparable protections
“It is well accepted that the fair use doctrine implicates
the First Amendment.” If defendants’ use wouldn’t be fair, then enforcing the
judgment would be no problem.  But it was
fair.
First, defendants’ books were “reference works intended for
libraries, academic institutions, art collectors and auction houses, and such
institutions find it an attractive reference due to its price point.” The Picasso
Project also “includes information about the photographed works, such as their
titles, literary references, provenance, current ownership and sales
information, that is generally not included in the Zervos Catalogue.”  Commerciality didn’t defeat the fact that
this factor weighed strongly in favor of fair use (mentioning the preamble of
§107, but not transformativeness).
Second, defendants argued that the photos were unoriginal
and documentary in nature, but a French court found them creative because of “the
deliberate choice of lighting, the lens, filters, framing or angle of view.”  As Eva Subotnik has written, this reasoning
calls photos creative because of the technical features that make them
photographs rather than some other kind of object or representation, and that’s
not particularly well-justified.  But
that didn’t turn out to be dispositive because the Zervos Catalogue itself was “documentary
in nature. The Zervos Catalogue is a catalogue raisonné, and the purpose of a
catalogue raisonné is to faithfully reproduce an artist’s work, not to showcase
the original artistic expression of the photographer.” Disfavored fair use, but
only slightly.
Amount and substantiality: The French court already found
that The Picasso Project didn’t copy the “sequences and the specific representations
which, coming from the personal choices of Mr. ZERVOS . . . cause [the Zervos
Catalouge] to be [an] original work[].” Defendants copied less than ten percent
of the photos, and there was no evidence that those photos were “the heart” of
the work, so this favored fair use.
Market effect: “undoubtedly the single most important
element of fair use,” and heavily favored fair use. The parties’ books didn’t
compete. The Picasso Project cost about $150 per volume, or $2,780, $3,400, or
$3,780 for all 28. The original Zervos Catalogue is only available second-hand,
and a 2013
reprint is only available as a complete set for $20,000 (an
original is a lot more). “The Picasso Project is intended for libraries, academic
institutions, art collectors, and auction houses, whereas the Zervos Catalogue
has a niche market due to its historic nature and high price.”
After The Picasso Project was published, the price of the
Zervos Catalogue rose significantly, going for over $100,000 at no fewer than three
auctions from 2007 to 2011, and for $74,200 at an auction in 2012; the later
decline was apparently attributable to the 2013 reprint.  There was no evidence indicating that defendants’
use had “any effect—let alone a negative one” on the market for the Zervos
Catalogue.  Unmentioned: derivative works
rights—though it sounds like the Catalogue is valuable as a whole rather than
in parts, so perhaps there’s no derivative market as such.
Although factor two slightly favored plaintiffs, the fair
use doctrine “exists to promote criticism, teaching, scholarship, and research,”
and defendants’ product, unlike the Zervos Catalogue, was “intended for a
market serving those interests.” Thus, defendants’ use was fair.
Moreover, French law doesn’t have fair use. Thus, the French
judgment was “at odds to the U.S. public policy promoting criticism, teaching, scholarship,
and research” and repugnant to U.S. public policy. But the judgment wasn’t
separately repugnant to public policy favoring the arts, given the French
finding that the photographs are themselves original works of art, a finding
the court wouldn’t revisit (though I think there’s justification for
questioning it, especially given the finding about the Catalogue as a whole).

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Not worth a hill of beans: can label showing mound of beans plausibly misleads

Beckman v. Arizona Canning Co., 2019 WL 4277393, No. 16-cv-02792-JAH-BLM
(S.D. Cal. Sept. 9, 2019)
If the can shows lots of whole, plump beans, but the
ingredients list puts water first, is there a plausible deception claim? The
court here answers yes. “Unlike the image advertised on the principal display
panel, consumers receive mostly water, with a portion of beans fully submerged
and undetectable at first sight.” Plaintiffs brought the usual California
claims.
can with beans

website showing can labels
 

Actual contents, per pleading

Arizona Canning argued that, of about 361 bean products
listed by the USDA branded food products database, which contains information
provided voluntarily by food producers, at least 15 bean products list water as
a primary ingredient. But that couldn’t be taken to show the existence of an
industry standard, which was a factual dispute.
“Based on an informal survey, Plaintiffs allege that when
consumers were asked to look at a can of Defendant’s Sun Vista Beans, each
consumer expressed a belief that the can was predominantly filled with beans.”  Arizona Canning argued that it was
unreasonable to look at the picture to determine the ingredients, instead of
the ingredients label. Williams v. Gerber Product Co., 552 F.3d 934 (9th Cir.
2008), is a problem for that argument, and plaintiffs alleged that because Sun
Vista Beans are sold in opaque canned containers, consumers depend upon the
product advertisement, label, and the fill of the can to conduct product
comparisons and make purchasing decisions.
The court began with the proposition that “images can
reasonably be interpreted to have various meanings.” Context, “judicial
experience’ and “common sense” all play roles in whether a misleadingness claim
is plausible. Here, the plausible meanings of the image of cooked beans is
either: (1) identifying the type of bean being sold or (2) depicting the can’s
contents. In this specific context, the dehydrated beans in the background and
the placement of the bowl of hydrated beans in the forefront of the image
supported (2), and so did comparing the image of this product with Arizona
Canning’s other bean product – pinto beans with jalapenos – which showed
chopped jalapenos sprinkled throughout the bowl of beans. 
Arizona Canning argued that the image was “a picture of
beans as they are suggested for serving.” “While this interpretation seems
reasonable, it is contrary to the detailed information offered within the
nutrition fact panel, which indicates the primary ingredient is water. For this
‘suggestion’ to be accepted, consumers must drain more than half of the can’s
contents – leaving the consumer with either a smaller serving size or
significantly less servings than represented.”
Unlike the products in other image cases, “beans are not
made up of various heterogenous ingredients.” Thus, a consumer “could
reasonably believe that a can labeled ‘pinto beans,’ with no additional
descriptor, is primarily filled with just that.”
Plaintiffs also alleged that the net weight, serving size,
and number of servings per container were deceptive because, for example, a 29
oz. can of Sun Vista whole pinto beans advertised “about 6 servings.” The label
also defined a serving as one half cup, or 4 oz., which a consumer would think meant
that the can contained 24 oz. beans and 5 oz. water. But that contradicted the
ingredient label. “It is not plausible that a reasonable consumer would believe
the entire 4oz serving consisted of only one ingredient,” but—based on “common
experience”—it was plausible that consumers would believe that one serving of
cooked ready-to serve “pinto beans” “typically does not have the same
consistency as soup.”  Thus, if the
serving size x number of servings listed was relatively close to the can’s
capacity, a consumer could reasonably believe that the can was filled nearly to
capacity with the ingredient advertised and reflected in the name of that
product—here, pinto beans.
Defying Williams, Arizona Canning argued that
consumers should look at the ingredient list. But “most shoppers digest the
information on the back after seeing the pretty picture on the front,” and the entirety
of the advertising had to be considered. Consumers often look for whether
specific ingredients are present or absent, but they are less likely to
consider which ingredient is most predominant, “especially if it appears
obvious from the name of the product or the label’s display panel.”
UCL unfairness: Under the balancing test (more often used in
cases brought by consumers, like this one), “courts must examine the practice’s
impact on its alleged victim, balanced against the reasons, justifications and
motives of the alleged wrongdoer. In short, this balancing test must weigh ‘the
utility of the defendant’s conduct against the gravity of the harm to the
alleged victim.’” The harm was selling consumers a less-than-half-full product,
depriving them of the benefit of the bargain. Arizona Canning argued that, if
the case succeeded, food manufacturers would be “unnecessarily stifled from
displaying their product on the label.” The Court didn’t agree. “Countless food
manufactures have successfully displayed and marketed their product without
consumer confusion or a likelihood of deception… [A]ny utility derived from
Defendant’s practice and desire to display an image of a ‘suggested serving’ of
beans, that omits or abates the predominant ingredient, is outweighed by the
alleged negative impact on Plaintiffs and other putative class members.”
Under the competing tethering test (usually used when claims
are brought by competitors, “unfair means conduct that threatens an incipient
violation of an antitrust law or violates the policy or spirit of one of those
laws because its effects are comparable to or the same as a violation of the
law…”  Ignoring the antitrust part of
this, plaintiffs alleged (and the court agreed) that they also satisfied the
tethering test because defendants violated the spirit of the FDCA and the Sherman
Food, Drug, and Cosmetic Law. Arizona Canning rejoined that, as a matter of
public policy, it is common for food/beverage products to indicate items on the
principal display panel that are not the predominant ingredient. That’s true,
but even then, false advertising is not ok, and complying with the FDCA isn’t
enough to preclude a false advertising claim. “It is quite possible to comply
with FDA regulations and still violate the policy or spirit underlying those
regulations.”

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ownership/control of whole company isn’t enough for individual liability under FTCA

F.T.C. v. Quincy Bioscience Holding Co., 389 F. Supp. 3d 211
(S.D.N.Y. 2019)
On remand from the Second Circuit, which
fixed the mistaken earlier dismissal of this claim against a supplement seller
,
a principal gets off the hook (for now) but otherwise the case continues.
Defendants Underwood and Beaman are Quincy’s co-founders and
two largest shareholders; Underwood is Quincy’s President and Mr. Beaman is its
CEO and former President. Each is also a director of related companies.  Prevagen allegedly falsely advertises that “Prevagen
improves memory,” that it “has been clinically shown to improve memory,” and so
on, in defiance of a placebo-controlled test that showed no such effects (but
was subsequently p-hacked to suggest improvements in specific subgroups on
specific tasks). In addition, the FTC alleged that defendants’ claims about
Prevagen rely on the theory that its dietary protein enters the human brain to
supplement proteins that are lost during the aging process. But the FTC alleged
that defendants’ studies show that it is rapidly digested in the stomach and
broken down into amino acids and small peptides like any other dietary protein.
“An individual may be held liable under the FTCA for a
corporation’s deceptive acts or practices if, with knowledge of the deceptive
nature of the scheme, he either participate[s] directly in the practices or
acts or ha[s] authority to control them.” And under the relevant state consumer
protection laws, NY Exec. Law § 63(12) and NYGBL §§ 349 and 350, “Officers and
directors of a corporation may be held liable for fraud if they participate in
it or have actual knowledge of it.”
The complaint adequately alleged that Underwood had the requisite
involvement. Along with the previously cited facts, he is allegedly “the final
decision maker on advertising claims across all channels of distribution and
media platforms” and participated in other ways in disseminating the relevant
claims, including by appearing in ads. “The statements that Mr. Underwood made
final decisions on advertising claims, wrote advertising materials, and
appeared in Prevagen advertisements sufficiently allege that Mr. Underwood
participated directly in the alleged false advertising of Prevagen.”  In addition, allegations that he directed the
research, translated scientific data into marketing language, and wrote a user
guide explaining the science behind Prevagen “support an inference that he knew
what the research and studies concluded and thus had knowledge of the deceptive
nature of the advertisements.” The standard is “actual knowledge of material
misrepresentations, reckless indifference to the truth or falsity of such
misrepresentations, or an awareness of a high probability of fraud along with
an intentional avoidance of the truth,” and that was satisfied.
By contrast, despite Beaman’s alleged central ownership/control
interests, the complaint merely alleged that Beaman “has given media
interviews, signed research agreements, pre-approved research proposals, and
reviewed Defendants’ advertising.” That was insufficient to allege that he “knew
the results of the research or participated in the false advertising,” though
the governments were granted leave to amend.

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9th Circuit drives big hole through 230(c)(2) immunity

Enigma Software Group USA, LLC v. Malwarebytes, Inc., —
F.3d —-, 2019 WL 4315152, No. 17-17351 (9th Cir. Sept. 12, 2019)
Section 230(c)(2) “immunizes computer-software providers
from liability for actions taken to help users block certain types of unwanted,
online material,” including sex, violence, and material that is “otherwise
objectionable.” “We have previously recognized that the provision establishes a
subjective standard whereby internet users and software providers decide what online
material is objectionable.”
The parties compete in the market for software that help
internet users filter unwanted content from their computers. Enigma alleged
that Malwarebytes violated the Lanham Act and New York state law by configuring
its software to block users from accessing Enigma’s software in order to divert
Enigma’s customers. The district court found this covered by 230(c)(2), but
because the parties are competitors, the majority (over a dissent)
disagreed.  “Otherwise objectionable” isn’t
broad enough to encompass an anticompetitive motive.  Malwarebytes argued that its reasons were legitimate,
but Enigma’s allegations of anticompetitive animus were sufficient to avoid a
motion to dismiss.
Eric Goldman is gonna hate that.
The court also, correctly, held that just because the Lanham
Act claim was a Lanham Act claim didn’t bring it within §230’s exception for “any
law pertaining to intellectual property.” The Lanham Act covers trademarks and
false advertising; the former fall within the IP exception and the latter doesn’t.
In its recitation of the legislative history and caselaw,
the majority drops a line that is going to prove particularly destructive of (c)(2)
immunity: “What is clear to us from the statutory language, history and case
law is that the criteria for blocking online material must be based on the
characteristics of the online material, i.e. its content, and not on the
identity of the entity that produced it.” 
(What happens when a provider says “this entity has produced
objectionable content in the past and we are therefore going to screen material
from this entity”?  Does the majority
really mean that screening has to be applied on an item by item basis?  Does that mean you can’t block an entire
website, perhaps even for things that are explicitly listed in (c)(2) like violent content, unless each page has objectionable content, since blocking an entire
website focuses on the entity?  Honestly,
I can see a case for that rule—but it seems like something we should talk
about.)  Where the OSP at issue is a
host, however, the identity of the identity that produced content is a classic
publisher consideration and (c)(1) immunity should be unaffected.  Eric Goldman has identified a shift from
§230(c)(2) to (c)(1) in many situations where (c)(2) could in theory apply;
this language will only harden that shift.
Facts: Malwarebytes software searches for what it calls
Potentially Unwanted Programs (PUPs), including software that contains
“obtrusive, misleading, or deceptive advertisements, branding or search
practices.” If the user tries to download a program that Malwarebytes has
determined to be a PUP, a pop-up alert warns the user of a security risk and
advises the user to stop the download and block the potentially threatening
content. “In their first eight years as competitors, neither Enigma nor
Malwarebytes flagged the other’s software as threatening or unwanted. In late
2016, however, Malwarebytes revised its PUP-detection criteria to include any
program that, according to Malwarebytes, users did not seem to like…. Malwarebytes’s
software immediately began flagging Enigma’s most popular programs—RegHunter
and SpyHunter—as PUPs.” Enigma alleged that its programs are “legitimate”,
“highly regarded”, and “pose no security threat,” and that it’s lost customers
and goodwill from Malwarebytes’ deceptive practices.
Judge Fisher’s concurring opinion in the 9th Circuit’s
previous case considering §230(1)(c), Zango, warned that extending
immunity beyond the facts of that case could “pose serious problems,” allowing
a content provider to “block content for anticompetitive purposes or merely at
its malicious whim.” District courts have disagreed on whether Malwarebytes can
be sued for its blocking and how expansive Zango is. Allowing
Malwarebytes to block based on “anticompetitive” motives would be “contrary to
CDA’s history and purpose,” which included an express congressional aim “to
preserve the vibrant and competitive free market that presently exists for the
Internet and other interactive computer services” and to “remove disincentives
for the development and utilization of blocking and filtering technologies.”
The point was to help consumers, who “must trust that the
provider will block material consistent with that user’s desires. Users would
not reasonably anticipate providers blocking valuable online content in order
to stifle competition.” Immunizing anticompetitive blocking would therefore [?]
also conflict with the express policy of “removing disincentives for the
utilization of blocking and filtering technologies.”
However, “otherwise objectionable” was broader than the rest
of the categories in the statutory list: “obscene, lewd, lascivious, filthy,
excessively violent, harassing or otherwise objectionable.” Thus, the majority
rejected Enigma’s argument that its software has no such content, and that
Malwarebytes definitively couldn’t claim immunity for blocking it. Under
ejusdem generis, when a generic term follows specific terms, “the generic term
should be construed to reference subjects akin to those with the specific
enumeration.” But the specific categories listed in § 230(c)(2) “vary greatly:
Material that is lewd or lascivious is not necessarily similar to material that
is violent, or material that is harassing. If the enumerated categories are not
similar, they provide little or no assistance in interpreting the more general
category.”  Anyway, even if ejusdem
generis did apply, Enigma’s interpretation failed. Congress identified “harassing”
as one of the problematic categories, and spam, malware and adware are close
enough. [So if Malwarebytes  succeeds in showing that it reasonably categorized Enigma’s software as such, that’s enough to win.] But the majority wasn’t making a
final ruling on the relationship between “otherwise objectionable” and the
other listed categories. It’s merely that “if a provider’s basis for objecting
to and seeking to block materials is because those materials benefit a
competitor, the objection would not fall within any category listed in the
statute and the immunity would not apply.” Key takeaway: now we fight about what else is like “anticompetitive” and thus not legitimately “otherwise objectionable,” since the majority has left the issue open (except to the extent you think identity v. content is the holding).
Malwarebytes argued that it had legitimate reasons for its
acts and that Enigma’s programs, SpyHunter and RegHunter, use “deceptive
tactics” to scare users into believing that they have to download Enigma’s
programs to prevent their computers from being infected. This is a factual
dispute.
Judge Rawlinson dissented. The CDA is broadly worded;
Congress hasn’t acted to clarify it; and the statute should be applied
according to its provisions. “[N]othing in the statutory provisions or our
majority opinion in Zango supports” limiting (c)(2) when the parties are
competitors. “The majority’s real complaint is not that the district court
construed the statute too broadly, but that the statute is written too broadly.
However, that defect, if it is a defect, is one beyond our authority to
correct.” The dissent pointed out that, although the parties in Zango weren’t
direct competitors, the plaintiff asserted similar anti-competitive effects,
but that didn’t matter there.

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Reading list: Cheating Pays

Emily Kadens, Cheating Pays, 119 Columbia Law Review 527 (2019)

Common private-ordering theories predict that merchants have an incentive to act honestly because if they do not, they will get a bad reputation and their future businesses will suffer. In these theories, cheating is cheating whether the cheat is big or small. But while reputa­tion-based private ordering may constrain the big cheat, it does not necessarily constrain the small cheat because of the difficulty in discover­ing certain types of low-level cheating and the consequent failure of the disciplining power of reputation. Yet the small cheat presents a signifi­cant challenge to modern contracting, both between businesses and in the contracts of adhesion imposed on consumers. To encourage private law scholars to address the unique governance challenges posed by low-level cheating, this Essay describes the conditions under which low-level cheating can flourish and become widespread. It demonstrates this so-called “Cheating Pays” scenario using a historical case study in which a seventeenth-century London grocer, trading under precisely those condi­tions that private-ordering theories predict will incentivize honesty, not only cheated extensively but also successfully remained in business after having been caught and publicly punished. Identifying the scenarios in which cheating pays has implications for how firms use contracts and how consumers might use the courts to try to reduce opportunistic behavior.

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You know antitrust law is failing when …

This ad runs:

Shopify ad: You could make lip balm. Or you could corner the lip balm market.

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