Even more cocaine

Posted on September 6, 2019 by rtushnet

Genus Lifesciences Inc. v. Lannett Company, Inc., 2019 WL
4168958, No. 18-cv-07603-WHO (N.D. Cal. Sept. 3, 2019)
Pleading survey evidence of misleadingness can be pretty helpful, but it can’t help you past theories that target the wrong defendant.
Discussion
of previous opinion. Genus alleged that its competitors in the market for
cocaine hydrochloride nasal spray, defendants Lannett and Cody (Lannett’s
wholly owned subsidiary), falsely advertised their unapproved product. Genus
also sued First Databank, a pharmaceutical pricing list company. The court
previously found that some of Genus’s claims against Lannett and Cody were
plausibly stated but that none of its claims against First Databank were; Genus
filed an amended complaint and a motion for reconsideration, neither of which
changed the basic situation.
Additional allegations in the amended complaint: Genus conducted
a survey of Lannett’s customers, which showed that 73.4% of them falsely
believe that C-Topical is FDA approved and that 70.4% falsely believe that
Lannett only sells FDA approved products. It also alleged new survey data
related to whether C-Topical’s unapproved status is material.  Genus added new false advertising allegations
based on Lannett ads describing C-Topical as a “pre-1998” drug and Lannett’s
product catalog identification of C-Topical as generic, as well as other
allegations that don’t turn out to matter.
The previous order held, among many other things, that Genus
could plead false advertising based on the false implication that C-Topical is
FDA-approved using survey data that 91% of pharmacists believe that all
products pharmacists dispense are FDA approved, but statements in SEC filings
and investor calls that C-Topical is “grandfathered” or sold under a
“preliminary new drug application” couldn’t support a Lanham Act claim without
specific allegations that they were made for the purpose of influencing
customers of cocaine hydrochloride solutions to buy C-Topical, or were
disseminated sufficiently to the relevant purchasing public (pharmacists,
hospitals, and doctors) to constitute “advertising” or “promotion” within the
pharmaceutical industry.  Finally, the
appearance and content of C-Topical’s labeling and packaging didn’t support a
Lanham Act claim because they weren’t literally false and Genus failed to allege
that they actually conveyed the implied message that C-Topical was FDA approved
to a significant number of consumers.
  
Genus now argued that its claim wasn’t based on the
statements in SEC filings or investor calls alone, but rather in combination
with the advertisements describing C-Topical as a “pre-1938” product, which would
render the statements contained in the SEC filings and investor calls
actionable. But “Lanham Act claims must be evaluated on a
statement-by-statement basis.”  Factfinders
must analyze the message conveyed in context, but courts “may not assume
context” and shouldn’t necessarily assume that consumers would be exposed to
every ad in a campaign. “There is no indication that consumers would have
observed the SEC filings and statements in the investor calls along with the
pre-1938 ads.” Thus, the SEC filings/investor calls remained outside the scope
of the Lanham Act.
As for the “pre-1938” statement itself, Lannett disclosed that “Cocaine HCL
is a pre-1938 drug that has not been approved by the FDA” and ENT Journal ads
stated that Cocaine HCL “has not been proven safe and effective by the FDA.”  The court agreed that the complaint
sufficiently alleged meaning: Genus alleged “that the only reason Lannett would
advertise C-Topical as ‘pre-1938,’ or that they had submitted an NDA, would be
to convince consumers that C-Topical is an unapproved ‘grandfathered’ drug
product or otherwise authorized by FDA.”
(Separately, Genus argued that “C-Topical is a pre-1938
drug” and “Cocaine HCL has not been proven safe and effective by FDA” were
literally false because the approval of its competing Goprelto product shows
that Cocaine HCL has been proven safe and effective by the FDA. Those
claims survived.)
Genus argued that Lannett’s immateriality argument based on
its disclaimers failed, because a “pre-1938” drug, or one that has a submitted
NDA, is FDA-authorized even though it is not FDA approved, so Lannett’s ads
still falsely suggested FDA authorization. And on materiality, Genus alleged
that the FDA approval status of a prescription drug is material to customers “since
approved drugs provide customers assurance concerning the quality of the
product not afforded to unapproved prescription drugs.” Genus also pointed to
its survey evidence allegedly showing that the majority of Lannett’s customers
would not buy C-Topical if they knew it was unapproved. However, that didn’t
show that consumers care whether the FDA authorizes a manufacturer to
sell an unapproved drug (though presumably they would be less likely to buy it anyway if they understood that it was unapproved). Just because consumers care about FDA
approval doesn’t mean they care about FDA authorization. Anyway, the claim
based on the pre-1938 ads was dismissed with leave to amend for failure to
allege materiality.
On C-Topical’s labeling and packaging: Genus previously
alleged that there were misleading similarities between it and the labeling and
packaging of an FDA approved drug. Genus now pled that it conducted a survey of
Lannett’s customers and alleged that 73.4% of them falsely believed that
C-Topical was FDA approved after reviewing its packaging. Lannett argued that
this allegation was still insufficient because Genus didn’t allege that specific
information on the label or package was false. 
Using Mead Johnson, Lannett argued that Genus was at best
alleging misunderstanding, and that a survey can’t be used to ascribe a
“misleading” meaning to an otherwise accurate statement. Further, it argued that
it was required by federal law to include the various statements on the
packaging and label.
The court found that it was sufficient to allege that the
overall combination of C-Topical’s packaging misled consumers to believe that
it is an FDA approved product. Mead Johnson was inapposite. “Genus is
not using survey data to parse a particular phrase and establish that it is
misleading.” And the alleged federal requirements weren’t controlling.  Lannett’s “supposed dilemma could be remedied
by including a statement that C-Topical is not FDA-approved without running
afoul of FDA labelling requirements.”
This time, Genus successfully pled that general statements
on Lannett’s website that it complied with FDA regulatory requirements were
misleading because they conveyed the implied message that C-Topical was
grandfathered or sold with FDA approval and deceived a significant portion of
recipients. Genus pled that survey evidence showed that after reviewing
Lannett’s homepage for its http://www.lannett.com website, 70.4% of Lannett’s
customers falsely believed that Lannett sells only drugs that are FDA approved.
 (Verbatims to “What makes you say
Lannett sells only drugs that are FDA approved?” included “Website mentions
generic medications, giving impression that they are selling already FDA
approved pharmaceuticals” and “based on the first page, it is a generic drug
manufacturer. Generic drugs still require FDA approval.”)
Statements in Lannett’s catalog characterizing C-Topical as “generic,”
however, made until 2016, couldn’t have harmed Genus because Genus didn’t enter
the market until after the catalogs were distributed. Thus, without pleading
more of an explanation of harm, the catalogs didn’t plausibly proximately cause
“an injury to a commercial interest in sales or business reputation[.]” Genus
argued that was able to find Lannett’s 2016 catalog as late as April 2019 and
that Lannett hadn’t produced more recent marketing materials.  But that didn’t successfully plead that the
catalogs were currently used in advertising or promotion.
The court also got rid of Sherman Act claims based on
alleged false advertising. For reasons that, whatever their formal
justification, clearly depend on the treble damages available in antitrust
claims, antitrust law generally refuses to consider false advertising to constitute
an antitrust violation. Thus, in antitrust cases, false advertising is presumed
to have a de minimis effect on competitition. To implicate antitrust law, false
advertising must be explicitly false, clearly material, clearly
reliance-inducing, directed at buyers who don’t know the subject matter, long-lasting,
and not subject to neutralization (perhaps by counteradvertising) or other
measures by competitors.  Thus, Genus had
to explain why it couldn’t have engaged in its own advertising promoting its
product as the only FDA approved cocaine hydrochloride product and telling
customers that C-Topical is unapproved or that its route of administration is
misleading.  Genus argued that coutneradvertising
wouldn’t work because the false and misleading statements were being presented
to the market through third-party price lists that appeared to provide
objective and unbiased information. The court disagreed. The main previous case
invoking the third party principle involved a third party, a swimming coach,
who disparaged the quality of the plaintiff’s swim gear.  But here there was no disparagement of Genus’s
product, only allegedly false description of C-Topical.  So it would be easier to rebut.  Nor did it successfully plead that expending
time and money on neutralizing the false advertising would be a
disproportionate burden. And its own pleadings on materiality suggested that an
ad campaign on this theme would be effective, given that roughly 60% of Lannett
customers thought that approval would influence a purchasing decision.
Genus’s amendments to its complaint also didn’t save its
claims against First Databank because there was still no sufficient allegation
that First Databank was engaging in commercial speech when it listed C-Topical.  There was still no facts supporting a finding
that First Databank had any monetary interest in whether customers of cocaine
hydrochloride choose to buy C-Topical rather than Goprelto.
Genus alleged that First Databank falsely advertised that
its database is “reliable” and “accurate.” But that was puffery, and anyway
there was no causal link plausibly alleged between those general statements and
Genus’s alleged injuries sufficient to confer standing on Genus.
Nor did the court reconsider its conclusions on Genus’s contributory
false advertising claim. Genus argued that, under VHT, Inc. v. Zillow Group,
Inc., 918 F.3d 723 (9th Cir. 2019), all that was required for contributory
liability was “material contribution” to the legal violation. Under that
standard, First Databank allegedly controlled the means of dissemination and
was a main channel for Lannett’s false claims. But the court rejected the
copyright treatment. “To do so would open up a vast and currently non-existent
scope of liability for all publishers of non-commercial information.”  [It’s all right for copyright owners, though!] 

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Does Rogers v. Grimaldi apply to false advertising claims?

Posted on September 4, 2019 by rtushnet

Dickinson v. Ryan Seacrest Enterprises, Inc., No. CV
18-2544-GW(JPRx), 2019 WL 3035090 (C.D. Cal. Mar. 26, 2019)
This dispute over alleged supermodel Janice Dickinson’s
appearance in a reality show is going up to the 9th Circuit.  Here, the district court kicked out Lanham
Act claims for false endorsement, false advertising, and trademark dilution and
declined to exercise supplemental jurisdiction over the related state law
claims.
Dickinson has been a producer, judge, contestant, and/or
guest star in America’s Next Top Model, The Janice Dickinson Agency, I’m a
Celebrity … Get Me Out of Here!, Celebrity Rehab with Dr. Drew, and Celebrity
Big Brother. She allegedly attends charity runway shows and photoshoots without
a fee for the dual purpose of serving charity and “maintaining and building
goodwill in her mark and brand,” and doesn’t voluntarily appear on reality
television shows pro bono.
Rosette is a designer and the founder of Art Hearts Fashion,
a charitable organization that produces runway shows during fashion events. Dickinson appeared as
a runway model pro bono during Los Angeles Fashion Week for Rosette each year
between 2010 and 2016, and Rosette allegedly knew that she wouldn’t do this if she
knew that Rosette was planning to exploit her “celebrity” without her consent
to facilitate a reality television show. In 2016, that’s allegedly what
happened: Dickinson’s appearance at the fashion show became part of an episode
of the Shahs of Sunset series that allegedly made it look like she “intentionally
stole or bullied her way into wearing a romper that had supposedly been
previously selected for Golnesa Gharachedaghi, a lead character.”  The episode was allegedly scripted so that Gharacedaghi
would falsely act as though she was experiencing “trauma and consternation,”
and Gharachedaghi would “intentionally, maliciously and falsely disparage” Dickinson
on camera.  Adding to the intrigue,
defendants apparently say they have a signed release, but Dickinson alleged
that she didn’t sign any release (and thus that defendants faked the release to
reassure others in the corporate hierarchy/insurers; she alleged that the
purported signature doesn’t match her own), or that if she did, it was as a
result of deception leaving her unaware that she was signing anything at all or
that she was signing a release. Alleged fraud in the factum!
Defendants allegedly falsely advertised that the series was
an “unscripted” “docuseries” rather than a largely scripted or fictional
series, and traded off Dickinson’s fame to promote the series.  The use of “True Entertainment” as the name
of a credited production entity associated with the series was also allegedly
false, and “[f]eaturing this credit on the screen at the end of the programming
is intended to make viewers believe that the Series tells ‘true stories.’” [OK,
I’m not a huge fan of Twiqbal, but how do we feel about the plausibility
of this allegation?]  
The promotional material allegedly falsely portrayed her as
a “fashion runway ‘thief’ ” who stole Gharachedaghi’s outfit, causing negative
public reaction, including in YouTube comments. [Is there anything a woman can
do that won’t cause negative YouTube comments?] Two of the marketing
clips for the relevant episode on Bravo TV’s website allegedly used Dickinson’s
mark [her name] to make false statements about the content of the episode to
encourage consumers to “commercially engage with” the episode.
One clip includes the statement: “Did Janice Dickinson Just
Steal GG’s Look?! Evidently she took the outfit GG was supposed to wear on the
runway, and GG is pissed …. ”  [The
alleged falsity of this statement is based on the allegation that Dickinson
didn’t “steal” the look; First Amendment doctrine (outside of TM) generally
protects advertising about the content of noncommercial speech to the same
extent as the content of the underlying noncommercial speech, and thus you
can’t usually turn your defamation claim into a false advertising claim by
challenging the advertising of the noncommercial speech.] Another clip says:
“Did we mention Janice Dickinson makes an appearance?” Dickinson alleged that,
given her fame, fans would believe that she would only “appear” on the series
voluntarily, and that as such, she endorsed the show. [Showing the importance
of Rogers v. Grimaldi as a speech-protective test!]  Similar “interstitial” ads ran during the
episode itself to “tease viewers about upcoming content,” which allegedly
“explicitly” falsely “impl[ied] that if consumers continue to tune in they will
be shown documentary footage of a controversy between Plaintiff and
Gharachedaghi.” In one clip, a cast member says “It’s about to go down,” but the
episode never shows any confrontation  and none occurred.
False endorsement: From an earlier ruling: Rogers v.
Grimaldi applies. The use of Dickinson’s persona was artistically
relevant.  And the use wasn’t explicitly
misleading.  Dickinson unsurprisingly
cited Gordon v. Drape to say that there was a factual issue about that,
but even Gordon talks about TV programs as being different from greeting cards.
 The Ninth Circuit has already found that
the following allegations don’t suffice as evidence of explicit falsity:  “mere use of the plaintiff’s likeness,” “a
consumer data survey showing confusion,” and written materials accompanying the
work that didn’t explicitly mislead.  The
complaint didn’t allege any “explicit indication, overt claim, or explicit
misstatement” relating to endorsement. 
The beginning credits list cast members, producers, and companies behind
the episode, and Dickinson’s not on that list. And nothing else “suggest[s]”
that Dickinson, the nemesis in one scene of one episode, endorsed or backed the
episode.  “Though the Episode’s allegedly
false narrative portraying Plaintiff as ‘stealing’ the romper may be unethical
or violate some other law, that narrative does not sustain the Rogers explicitly
misleading prong as to Plaintiff’s Lanham Act claims.”  Nor were there any statements outside the
episode that Dickinson was behind the episode. And many of the statements
Dickinson cited were outside of defendants’ control.
False advertising: Under Lexmark, Dickinson needed to
“allege an injury to a commercial interest in reputation or sales.” In the
light most favorable to her, she did so, alleging harm to her reputation,
thereby diminishing the “desirability of Dickinson’s appearance on other media
projects, and her $75,000 appearance fee value.” Did the economic or
reputational injury flow directly from the deception wrought by the
advertising? The court found this a “closer call.” Dickinson alleged that the
episode’s “false narrative” deceived consumers into believing that she was unprofessional,
and thus diminished the value of her celebrity brand.  But that was about the content of the episode,
rather than about the alleged falsity of the “unscripted” advertising claim.
Thus, she didn’t properly allege that the advertising was the proximate cause
of her injury.
Also, false advertising is only actionable under the Lanham
Act when it’s in “commercial advertising or promotion.”  But there are special rules for commercial
speech where ads promote expressive works. Under governing law, “[f]or private
actions, such as tort suits, advertisements that are ‘adjunct’ to a protected
work are entitled to the same immunity from as the underlying work.” All the
ads that Dickinson cited were clips from the episode itself, a few with short
descriptions. They were noncommercial speech for Lanham Act purposes.  Thus, the court applied Rogers to the
false advertising claim.  [Note that this
step is entirely unnecessary if you agree with the idea that the episode promos
aren’t “commercial speech”; the inquiry is over for §43(a)(1)(B) purposes at
this point. That’s unlike §43(a)(1)(A), which courts have held applicable to
noncommercial speech, which was the reason they needed to invent Rogers
in the first place. The court thus expressed some uncertainty about how to
apply Rogers to false advertising about the content of an
expressive work, but that’s a self-created difficulty.]
In a footnote, the court declined to find that Gordon
counseled in favor of finding a factual issue here.  This isn’t a “minimally expressive” work like
a greeting card. [Sigh.]  Gordon
contrasted use “in the creation of a song, photograph, video game, or
television show” with “just past[ing]” a mark into greeting cards, which could
be explicitly misleading. Here, the use of Dickinson’s likeness, image, and
name in the episode, and concomitant promotional materials obviously had
artistic relevance above zero.
Explicit misleadingness: Dickinson alleged that the
“docuseries” advertising misled as to content because the show was scripted,
but that wasn’t enough under Rogers because Rogers requires the
use of the mark to be explicitly misleading. “Plaintiff’s mark has no bearing
on whether or not Bravo advertises their show as a scripted series or reality
television.” [Which is why proximate cause might be the better move here if you
insist on going further than “not commercial speech.”]
Second, Dickinson argued that the ads explicitly misled
about the content of the episode by making her look bad/promising a fight. Not
so.  The ads were all clips of the
episode itself: “A clip of a television episode could not possibly mislead as to
the content of the episode, as it is itself a portion of the content.” And the
additional descriptive statement: “Did Janice Dickinson Just Steal GG’s Look?!
Evidently she took the outfit GG was supposed to wear on the runway and GG is
pissed ….” wasn’t explicitly misleading; it wasn’t even unequivocal. The
short descriptions of the clips “both accurately preview the controversy
portrayed on the Episode, whether the controversy itself was contrived by
Defendants or not.”  “Did we mention
Janice Dickinson makes an appearance?” is also not misleading, since she does.
Dilution: Not commercial speech, no claim.

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fine print won’t necessarily fix misleading comparison

Posted on September 4, 2019 by rtushnet

Asurion, LLC v. SquareTrade, Inc., 2019 WL 4142154, No. 18-cv-01306
(M.D. Tenn. Aug. 30, 2019)
The parties compete to provide extended warranties for
mobile phones. Typically, wireless carriers bundle Asurion’s insurance with an
extended warranty and technical support and sell the combined “Carrier
Protection Plan.” SquareTrade sells a “Protection Plan” that provides
protection against defects and accidental damages for a variety of consumer
products, including cell phones, but doesn’t cover theft or loss as Asurion’s
plan does. In addition, the SquareTrade plan doesn’t include technical support,
as does the carrier bundle.
Asurion challenged a mail ad:

And an online ad:

The fine print in both advertisements states: “… Price
comparisons based on smart phone protection for the following providers: [a
bunch of bundles]. Prices and terms are as of 08/01/2018 and may change.
SquareTrade plans do not cover loss or theft. …”
Asurion alleged that the side-by-side comparison in the
advertisements falsely and misleadingly implies that SquareTrade offers
coverage equivalent to the bundles for a lower price and that using the name of
its affiliate, Allstate, in the online advertisement misleadingly implies
SquareTrade offers insurance (i.e. theft and loss protection). It alleged false
advertising under the Lanham Act and the Tennessee Consumer Protection Act (TCPA).
The court denied SquareTrade’s motion to dismiss.
Context matters; a disclaimer or clarifying language may
defeat a claim of deception “if it renders an otherwise false statement true,
so that consumers are not misled. To be effective, a disclaimer must actually
be read by the consumer. Consequently, a disclaimer that is unlikely to be read
because of its print size or location will not remedy a misleading claim.” 
Asurion alleged misleadingness. At this stage, it needed to
plead facts that support a “plausible inference that the challenged
advertisements in fact misled a significant number of reasonable customers.”
The core of the complaint was the allegedly implied false equivalency between
the SquareTrade plan and the bundles. For example, the mailer allegedly falsely
suggested” that SquareTrade “offers insurance coverage by co-branding the
advertisement with Allstate (an insurance company) and stating ‘Stop overpaying
for phone insurance through your wireless carrier’ and ‘By switching to
SquareTrade your family could save hundreds vs. carrier insurance.’ ” [It
sounds a bit different to say “save on insurance by not paying for insurance.”]
Asurion argues that the logical conclusion implied by the statements and by the
comparison charts is that “a consumer could replace one of the Carrier
Protection Plans with SquareTrade’s plan without any change in coverage.”
SquareTrade argued that the fine print disclaimer avoided
misleadingness and that any reasonable consumer “would know that each plan
offered by a different company at a different price likely has some differences
in the services offered.” The court disagreed for purposes of a motion to
dismiss. “Here, the side-by-side comparison suggests that the plans are, if not
identical, at least comparable. The fine print disclaimer does not conclusively
remedy the potentially misleading nature of the advertisement as a whole. Other
than the notice that the SquareTrade plan does not cover loss or theft, the
fine print does nothing to dispel any misleading comparisons between
SquareTrade and the Carrier Protections Plans with which it is compared.”  Although people know that dog food isn’t made
from people food, “SquareTrade’s Protection Plan is not so obviously different
from the Carrier Protection plans that consumers would instinctively know they
were not the same product.”  Plus, even
the disclaimer didn’t explain that the other plans listed did cover
theft or loss, so it didn’t dispel the perception that the plans listed had
comparable coverage, the way the ingredient list on dog food explains what’s in
it.
For similar reasons, the TCPA claim survived, after the
court found that competitors had standing to bring such claims, given the
statutory language that a claim may be brought by any person, including
corporations, who “suffers an ascertainable loss” proximately caused by unfair
or deceptive actions declared unlawful by the TCPA.

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benefit of the bargain damages can be measured by cost of repair in car class action

Posted on August 29, 2019 by rtushnet

Nguyen v. Nissan North America, Inc., 932 F.3d 811 (9th Cir.
2019)
Nguyen bought a new 2012 Nissan 370Z with an allegedly
potentially catastrophic design defect hidden in the vehicle’s hydraulic clutch
system. “After the clutch purportedly malfunctioned—and Plaintiff spent more
than $700 replacing it—he filed a putative class action” asserting consumer
protection and warranty claims. The court noted evidence supporting the idea of
a general defect of which Nissan was aware since 2007 or so, such as a project
engineer’s internal email: “This issue is great enough that it warrants a
serious look by R&D as to how we can improve the feel, and function of the
clutch system. … Customers are universally dissatisfied with the feel and
performance of the system even when it is performing as designed. … Combine that
with the frequent claims of clutch pedal sticking to floor and you’ve taken a
dissatisfaction item and made it into a breakdown item.” Nguyen’s son
experienced a scary instance of this when the clutch stopped working on the
highway, though fortunately he was able to move to the shoulder without physical
injury.
The district court denied class certification based on what
it saw as inadequacies in Nguyen’s damages model based on the cost of repairing
the clutch to fix the problem.  The
district court reasoned that the benefit of the bargain would only equal the
cost of replacing the defective clutch if consumers would’ve deemed the
defective part valueless, which was implausible because even Nguyen drove the
vehicle for nearly 27,000 miles before replacing the part.
The court of appeals reversed, finding that a
benefit-of-the-bargain model as measured by the average cost of replacing the
allegedly defective clutch system was appropriate to satisfy Rule 23(b)(3)’s
predominance requirement. The Supreme Court has emphasized that “at the
class-certification stage (as at trial), any model supporting a ‘plaintiff’s
damages case must be consistent with its liability case.’ ”
Damages under the CLRA, the Song-Beverly Act (California’s
warranty law), and the Magnuson-Moss Act could all be measured using a benefit
of the bargain theory.  And that was
consistent with Nguyen’s liability theory. “Plaintiff’s legal theory is not
based on the performance of the allegedly defective clutch system, but instead
the system itself, which he claims is defective. Had Plaintiff alleged that
performance problems constituted the defect and caused his and the class
members’ injuries, then the benefit of the bargain would not be the appropriate
measure of damages because, as the district court noted, class members might
have received varying levels of value based on if and when they experienced a
sticky clutch problem.”  But under Nguyen’s
theory, the defect exists whether or not the symptoms have manifested.  Further, he alleged, “a reasonable person
would have considered [the fact of the alleged defect] to be important in
deciding whether to purchase or lease Class Vehicles,” and thus that Plaintiff
and class members “would not have purchased or leased Class Vehicles equipped
with transmissions, or would have paid less for them.” Thus, “under both causes
of action, the sale of the vehicle with the known defect is the
liability-triggering event, not when the [defect] manifests.” It’s at that
point that a consumer paid more than she would’ve paid had she known the truth.
“[T]he focus is on the difference between what was paid and what a reasonable
consumer would have paid at the time of purchase without the fraudulent or
omitted information.”  Thus, it was
incorrect to say that repair costs wouldn’t measure the harm unless consumers
would’ve deemed the defective part valueless. 
Cases from other circuits have also found similar questions “amenable
to classwide resolution,” explaining that “a manufacturer’s misrepresentation
may allow it to command a price premium and to overcharge customers
systematically. Even if an individual class member subjectively valued the
vehicle equally with or without the accurate [information], she could have
suffered a loss in negotiating leverage if a vehicle with perfect safety ratings
is worth more on the open market.” 
Technically, I can see why the cost-to-fix might not completely match up
with the price drop in the overall negotiated price—though that’s how it works
in buying a house, buying a car might be different—but the court noted that
cost-to-fix “is a proxy for [his] overpayment of the vehicle at the point of
sale.”  In reality, probably many people would’ve
gone with a different car instead of one with a clutch so potentially nonfunctional it needed to be replaced, but since we can’t rewind that transaction the
cost-to-fix seems like a decent proxy for what they would’ve demanded to take this car
instead.
Anyway, Nguyen was seeking to vindicate “the right to take a
product free from defect. The defect did not cause the plaintiffs’ injury; the
defect was the injury.”  Damages for
actual faulty performance would indeed require an individualized analysis that
might defeat predominance. The faulty design, however, didn’t pose that problem
for class treatment. Reversed and remanded.

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When is a sale worth $100,000? court is generous to real estate brokerage ad

Posted on August 28, 2019 by rtushnet

At World Properties, LLC v. Baird & Warner Real Estate,
Inc., 2019 WL 4034636, No. 18-cv-01973 (N.D. Ill. Aug. 27, 2019)
B&W and plaintiff @properties are real estate brokerage
companies serving Chicago and the surrounding area. B&W advertised its
accomplishments in 2017, allegedly falsely touting $8.8 billion in sales and
32,000 transactions in violation of the Lanham Act and the Illinois Uniform
Deceptive Trade Practices Act. @properties alleged that, in fact, in 2017,
B&W’s total volume for properties listed and sold was approximately $5.7
billion and its total number of sales was 17,168, while @properties’s total
volume for properties listed and sold was approximately $8.5 billion and its
total number of transactions was 17,153. B&W allegedly inflated its sales
and transactions figures by including not just its real estate brokerage sales
and transactions, but also mortgage originations and refinances performed by
its affiliate, Key Mortgage Services, and title searches, title insurance
services, and other title-related services performed by its affiliate, BWT, as
well as two other companies, Starck Title and Landtrust National Title. Those
figures also allegedly included property rentals and leases for which B&W
acted as the agent.
B&W allegedly inflated its sales and transactions
figures by double- or triple-counting certain transactions, for example: “if
B&W acted as the real estate broker for the purchase of a property for
$100,000, the purchasers of the property obtained a mortgage from Key Mortgage
in the amount of $80,000, and the purchasers of the property used BWT as their
title company, B&W would have: (a) considered those three distinct
transactions for purposes of the 32,000 transactions figure; and (b) added the
$100,000 for the property purchase, the $80,000 for the mortgage origination,
and $100,000 for the title insurance or other services into the ‘$8.8 billion
in sales’ figure, such that $380,000 would have been added to the ‘sales’
figure for what was a $100,000 transaction.” That does sound hinky.
The ad first appeared in an email from Chicago Agent
Magazine, a publication catering to Chicagoland’s top real estate agents,
brokers, developers, and mortgage professionals claiming “Our 2017 Stats Are
Pretty Interesting” and “IT’S OFFICIAL. WE CRUSHED 2017.” The ad didn’t explain
its methods or sources, or mention other related companies. The email linked to
a blog post on B&W’s website repeating the claims and adding that, “[i]t’s
almost hard to believe everything that happened, and not just with our
residential sales company, but with our mortgage and title companies, too.” It
stated that the “$8.8 billion in sales and more than 32,000 transactions
[B&W] did last year is evidence that [B&W’s] clients and [B&W’s]
agents across Chicagoland are onto something.” Four paragraphs in, the blog
post notes that “[t]he other businesses in our family had impressive results
too,” expressly identifying BWT and Key Mortgage. There were similar ads
elsewhere.
Were the sales and transactions numbers literally false? Literal
falsity depends on how the statement would be understood by a “linguistically
competent person,” and a statement that is ambiguous cannot be literally false.
“Sales” and “transactions” were at least ambiguous about whether they included
property rentals, leases, and mortgage and title services, which seemed like “transactions,”
and revenue derived from these actions pretty clearly would count as “gross
receipts” (a key definition of “sales”). [That doesn’t seem to deal with counting
the amount of title insurance in sale amounts—insuring a property for $100,000
doesn’t mean you’ve made $100,000 in sales/receipts.]
@properties alleged that “sales” and “transactions” are
understood in the real estate brokerage industry to refer “to the exchange of
ownership interest and title of a parcel of real property from one person or
entity to another person or entity.” But that would make this an implicit
falsity claim, which @properties disavowed. “It is not the domain of a literal
falsity claim to evaluate the specialized understandings of consumers in a
particular market; rather, a literal falsity claim asks only how an
advertisement would be understood by a ‘linguistically competent person.’”
[This disturbs me as a blanket statement—the linguistically
competent person has to be competent in something.  And English is probably too broad a category;
otherwise it wouldn’t be possible to literally falsely advertise to watchmakers that one had tourbillons for sale.  Be
truthful: most of you had to look that one up! 
It also conflicts with some older cases (albeit not in the 7th Circuit) allowing for literal
falsity when a term (a) has a specific meaning to the trade and (b) is directed
at the trade; I think falsity in those cases should be provable by expert testimony.]  The court here wanted
survey or other evidence to establish that potential real estate brokerage
clients have a specific understanding of the words “sales” and “transactions.”
Thus, a literal falsity claim based on the fact that
B&W’s $8.8 billion in sales and 32,000 transactions numbers are not limited
to real estate brokerage sales couldn’t proceed, and the court concluded that the
alleged double- and triple-counting didn’t change things, since the actual
property sale, mortgage origination, and purchase of title insurance are each
discrete sales and transactions. [But as pled, the title insurance sale was a
sale of $100,000 in title insurance, not a receipt of $100,000!  How can it be truthful to count receipts of a
couple of hundred dollars as $100,000 in an aggregate sales amount?  The real problem is that each individual
definition of “sales” might be truthful but the effect of adding the dollar numbers
given for those sales together is not truthful because no single definition of
sales can produce the total advertised number.]
However, @properties did successfully plead literal falsity
in alleging that it was false to include sales and transactions consummated by
Key Mortgage, BWT, Starck, and Landtrust. B&W argued that including those
companies’ sales wasn’t literally false because they are B&W affiliates.  That would be a closer question if only Key Mortgage
and BWT had been included; “[e]specially with respect to BWT, which includes
“Baird & Warner” in its own name, a linguistically competent person may
well understand B&W’s sales and transactions figures to include BWT’s sales
and transactions.” And the blog post expressly named them as businesses in the
family (although in a way that seemed to me to suggest that their successes
were separate from the beginning claim). “Ultimately, the issue may turn on the
exact nature of the corporate relationship between the affiliates,” and the
complaint didn’t allege that all of these were in fact affiliates. “[I]f, in
fact, B&W included sales and transactions from wholly unaffiliated entities
in its $8.8 billion in sales and 32,000 transactions figures, it would have
made a literally false statement.”  [I
was just
reading about why one might want to transact with a particular company in a
group, given the use of corporate structure to limit liability risks.]
Materiality: The complaint cited an article stating that a
“real estate broker’s sales volume and position in the real estate market are
material to a consumer’s decision regarding which real estate brokerage firm to
choose.” Kirk Wakefield, et al., What Do Consumers Expect From Real Estate
Agents?, Keller Ctr. Research Report (Nov. 2008). B&W argued that this was
about a consumer’s selection of an individual agent rather than a brokerage
firm. But the article also recognizes how the reputation of the brokerage
company can boost an agent because it “can lead to greater attractiveness or
demand for the brand.” And it was reasonable to infer “that one sign of a
well-established agency is its number of sales and transactions, and thus a
potential client would be more likely to select a real estate brokerage company
that has a high volume of sales and transactions.” Materiality is generally an
issue of fact, though the court noted that, to survive summary judgment, “@properties
would be well-advised to adduce better evidence than a single article.”
Injury: The complaint successfully pled that there was a
trend following the publication of the ads in which B&W’s real estate sales
volume or number of real estate transactions in both the City of Chicago and
Chicagoland markets did one of the following: (i) increased at a higher rate
than @properties’s sales volume or number of transactions as compared to the
same month of 2017, (ii) increased while @properties’s sales volume or number
of transactions decreased, or (iii) decreased at a smaller margin than
@properties’s sales volume or number of transactions decreased. This was sufficient
at the pleading stage, though @properties would need more “evidence that
directly links the trends shown in the charts and any claimed reputational
damage with B&W’s deceptive advertising” to prevail.

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district court ignores Empire, decides that Rogers doesn’t cover nonfiction

Posted on August 28, 2019 by rtushnet

IOW, LLC v. Breus, No. CV18-1649-PHX-DGC, 2019 WL 4010737
(D. Ariz. Aug. 26, 2019)
Every time I think I’ve seen it all …. Here, the court decides that Rogers doesn’t apply
if the challenged book title isn’t itself “expressive,” which means something other
than “conveys meaning.”  I feel like Old
Luke.

Breus “is a clinical psychologist … who studies how his
patients’ chronobiologies [natural circadian rhythms] effect their treatment.”
He’s written three books and more than eighty blog posts discussing
chronobiology and circadian rhythms. 
Breus met Randy Miller, the sole member of plaintiff IOW and the
majority shareholder of plaintiff WEC. Miller told Breus about his business,
WHEN, and shared his ideas for an online counseling platform named “If or When”
or “If not Now When,” “where coaches would help customers achieve their goals
based on the concept of: ‘If I don’t do it now, when will I do it?’” They
entered into a Confidentiality Agreement regarding their discussions, but Breus
provided no services to plaintiffs and was never identified as an associate by
their promotional materials.
This dispute is about Breus’s third book, The Power of When
(initially titled The Overnight Solution), which “posits that an individual can
be healthier and more productive by adjusting when she accomplishes certain
tasks.” In 2015, Breus acquired thepowerofwhen.com to promote the book; it went
live in August 2016. Id. at 5. He also registered thepowerofwhenquiz.com to
publish his Bio-Time Quiz, which went live in July 2016. Plaintiffs claimed
that Breus, in developing the concept for his third book, used and incorporated
information that he discussed with Miller and that was subject to the
Confidentiality Agreement and trade secret protections.
Breach of contract: 
WEC argued that Breus “utilize[d] the confidential materials received
from [WEC], which included the confidential proposed trademarks and branding of
WHEN selected by Mr. Miller.” Miller requested his attorney perform a trademark
search on Power of When, and stated that he and his attorney “considered that
phrase to be highly confidential” until it was publicly disclosed in an August
2016 trademark application. But this didn’t show that Breus violated the
agreement, nor did the evidence show that The Power of When or its marketing
materials mimicked the WHEN programs, ideas, and brand models.
As for the origin of the book title, defendants cited
evidence that Breus’s publisher, LB, “conceived the title in a meeting where
Dr. Breus was not present and later suggested the title to him via email.” The
emails in the record didn’t controvert LB’s employee’s sworn testimony that she
and LB conceived the title without input from Breus; indeed, the emails stated
specifically that Breus had different title suggestions. The employee testified
that she disliked the book’s working title; another person came up with The
Science of When, but the publisher found the word “science” too
technical-sounding so she suggested “power.” There was no contrary evidence;
credibility issues couldn’t preclude summary judgment without evidence
undercutting the truthfulness of the email exchange or the participants’ testimony
about it.
WEC argued that even if Breus did not suggest The Power of
When as a book title, he had a duty under the Agreement not to use it, but
didn’t establish the existence of such a duty. Nor was there a breach of the
implied covenant of good faith and fair dealing on this record; plaintiffs
weren’t claiming misuse of confidential information, but “misappropriation of
use of ‘WHEN,’ ‘Power of WHEN,’ and other uses of ‘WHEN’ throughout the book.”
[Ugh.]
Trade secrets: a similar fate. Plaintiff’s principal Miller
testified that the trade secret disclosed in Dr. Breus’s book is “WHEN” and
“Power of WHEN”; that he did not own the trademark Power of WHEN until August
2016 when he filed a public trademark application [pro tip: the application
isn’t “ownership”]; that the information disclosed in Dr. Breus’s book was “not
confidential information”; and that it was no secret that he used “when” in
connection with his business. Nor did anything identified as confidential by
the plaintiffs show up in the book.
And yet the trademark claims survive, the court becoming
entangled in various doctrinal thickets.
Claims based on WEC’s Power of When trademark: Defendants
pointed out that Breus told Miller the title of his book in December 2015, and
the title was conceived, domain names acquired, websites published, promotions
began, and more than 15,000 copies of the book were shipped to retailers, all
before WEC filed its ITU application on August 28, 2016. 
Plaintiffs’ argument was to cite cases that “the title of a
single book cannot serve as a source identifier” and that “the publication of a
single book cannot create, as a matter of law, an association between the
book’s title (the alleged mark) and the source of the book.” The court thought
the Ninth Circuit might be more flexible, and that the presence of “several
promotional activities and the shipping of 15,000 books to retailers” might
also matter.  However, the court thought
that plaintiffs might be able to establish priority.  But priority isn’t the best way to describe
the issue: even after the registration issued (2017), plaintiff shouldn’t be
able to prevent uses that began before the filing date of the ITU. Prior users
shouldn’t need to have “trademark rights” that would enable them to suppress
others’ uses in order to have rights to continue use. 
The court reasoned that the trademark application constitutes
“prima facie evidence of the validity of the registered mark” [also not true as
stated; only as of 2017, when the registration issued, did the claims of the
registration—not the application—constitute prima facie evidence of validity]
and so a fact-specific inquiry was required. 
“[A]n issue of fact exists regarding whether Defendants’ pre-August 2016
activities rebut Plaintiffs’ presumption of ownership… “A reasonable jury could
weigh the factors and determine that Defendants’ pre-registration activities –
most of which appear to have occurred out of the public eye – were not
sufficiently public to identify the mark in an appropriate segment of the
public mind as Defendants’ mark.”  [This
is also an instance of Bill McGeveran’s observation that multiple overlapping
doctrines allowing defenses can actually impair defendants’ chances—a §33(b)
prior user defense might have worked here, subject to the court deciding that
defendants would need to have had a valid mark as opposed to a use; descriptive fair use might also
have worked. But the real problem is that defendants, in apparent good faith,
began using the phrase before plaintiffs filed their ITU. But don’t worry; it gets worse.]
Now, on to Rogers. 
The court characterized the test as follows: “Under Rogers, a
defendant must first ‘make a threshold legal showing that its allegedly
infringing use is part of an expressive work protected by the First Amendment.’
Gordon v. Drape Creative, Inc., 909 F.3d 257, 264 (9th Cir. 2018).”
Defendants, completely correctly, argued that using a phrase
as the title of a book satisfies that threshold showing because it’s the title
of a book, which is an expressive work. Appallingly, the court disagreed
because the book is a nonfiction book. Although the word “artistic” appears
many times in Rogers cases, the First Amendment concerns about using
trademark to suppress speech are no different for nonfiction. In addition, and
in contradiction to Empire, the governing law of the circuit (cited
several times in this opinion and yet somehow completely ignored on this
point), the court required that defendants show that the phrase had “cultural
significance or meaning beyond its source-identifying function” in order to
invoke Rogers. [And by the way, even if you did require that, the descriptive
meaning of the phrase is clearly meaning “beyond its source-identifying
function”—when the title was chosen, there was no source-identifying
function because even the ITU was not yet filed.]
Thus: “The Court must determine therefore whether
Plaintiffs’ mark, Power of When, has assumed cultural significance such that
Defendants’ use of the mark in Dr. Breus’s book title is expressive, rather
than simply commercial use or advertising for his non-fiction work.”  Defendants, again completely correctly,
pointed out that the book was a creative work with a lot of expression.  “But this evidence addresses the book’s
contents, not whether the book’s title is expressive or artistic.” But of
course that’s not even close to the test: the test is whether the putative
infringer is using the claimed mark as part of a work; a title is part of a
book just as it is part of a movie for First Amendment purposes.  The court cites Rogers’ statement that
purchasers have the right not to be misled about the source of books without
noting, as Rogers does, that titles [like other components of expressive
works that aren’t the publisher’s imprint] don’t usually indicate source, which
is why we have a special test.
And defendants didn’t show that the Power of When mark has
“transcend[ed] [its] identifying purpose,” “enter[ed] public discourse and
become an integral part of our vocabulary,” “assume[d] [ ] cultural
significance,” been imbued “with a meaning beyond its source-identifying
function,” or “evinces an intent to convey a particularized message” that “would
[likely] be understood by those who viewed it.” [Cue endless screaming.]  Thus, “no evidence shows that Dr. Breus’s
allegedly infringing use of The Power of When as a title is an expressive,
creative, or artistic choice, rather than ordinary commercial speech that
describes the content of his non-fiction self-help book.”  [Endless screaming continues; the court said
it right there: the phrase describes the content of his book!  That is a particularized message!]
Thus, the use of The Power of When implicated ordinary
trademark concerns, not the First Amendment. 
Rogers didn’t apply.
Defendants sought to cancel WEC’s fourteen registered marks
covering “personal growth and motivation consulting services,” all filed as
ITUs with subsequent statements of use. However, the claimed use dates seemed
creaky (most were in 2016; a few in early 2017), while “members of a beta test
that presumably used services related to the marks did not complete surveys
until 2017 and 2018. WEC produced a WHEN member status page showing no activity
earlier than June 30, 2017, and produced communications with members of the
beta test group in 2017.”  The court
noted the authority holdign that uses that are sufficient to establish priority
are not necessarily good enough to merit registration, which requires actual
use and not analogous use. However, the Ninth Circuit still applies a totality
of circumstances test to determine “whether a service has actually been
‘rendered in commerce.’”
WEC argued that it had “genuine, commercial, pre-sales
activities before it launched its business, including presenting its service
offerings to 10-15 prospective customers in Powerpoint presentations and in
online and in-person meetings; creating branded apparel and websites; creating
and distributing sales materials; creating and using training manuals and
customer tools, including health journals; creating and marketing various
service levels; raising investor capital; getting evaluations of trainings,
performing beta tests and compiling surveys; and issuing press releases.” Query
whether any of that would have had any chance of satisfying the PTO had it
known that was what WEC called “use.” 
The PTO requires the services to be actually rendered in commerce, and
none of that sounds like rendering services. 
Also query whether it makes any sense to think that this company was
using fourteen marks—is it really plausible that there were fourteen
symbols serving to designate the source of these services?
But anyway, there was evidence that on December 14, 2016,
WEC conducted an online interactive team meeting with a prospective client
using a document that bore the Power of When mark; that WHEN Advisors were
trained in Fall 2016; and that WEC used the marks in actual sales after its
launch. “WEC’s training schedule from September 2016 repeatedly includes the
WHEN mark, and the 2016 Training Manual includes Find Your When. WEC’s other
cited evidence, which appears to include internal documents and promotional
materials, contains references to the other registered marks, including
WHENness, WHEN Advisor, WHEN Way of Life, WHEN is Now, MyWHEN, and FYW.”
Because the Ninth Circuit test “specifically instructs the
Court to consider pre-sales activities in determining whether a trademark owner
uses its marks in connection with services rendered in commerce,” there were
issues of fact about whether WEC’s activities “distinguished the marked
services and were a commercially reasonable attempt to market their services.”

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failure to disclose vaping’s extra risks over smoking could be deceptive; no arbitration for Juul

Posted on August 28, 2019 by rtushnet

Colgate v. Juul Labs, Inc., 2019 WL 3997459, No.
18-cv-02499-WHO (N.D. Cal. Aug. 23, 2019)
Juul makes e-cigarettes and nicotine cartridges/pods.
“Plaintiffs seek to represent a nationwide class and numerous subclasses in
claims for false advertising, fraud, unjust enrichment, several forms of
product liability, several types of negligence, violation of Magnuson-Moss
Warranty Act, breach of express and implied warranty, and violation of the
unfair and unlawful prongs of various state consumer protection statutes.” A
lot goes on here; the court partially grants and partially denies Juul’s motion
to dismiss and denies its motion to compel arbitration because plaintiffs did
not have inquiry or actual notice of the arbitration provision.
Previously, the court had found that some but not all of the
plaintiffs’ claims were preempted by the FDCA as amended by the Tobacco Control
Act: claims based on the allegation that Juul’s labelling fails to warn
consumers that its nicotine formulation is more addictive than other methods of
nicotine ingestion were expressly preempted. Claims based on the mislabeling of
the percentage of nicotine per pod were not preempted because the plaintiffs
had sufficiently alleged that Colgate relied on Juul’s representation that the
pods contained 5% nicotine when they allegedly contained 6.2% nicotine. Also, a
clause in the TCA expressly excepts advertisements from preemption, so claims
based on ads’ failure to warn consumers about the potency and addictiveness of
Juul’s formulation or the amount of nicotine could be repleaded.  Many of the previous consumer protection
claims didn’t satisfy Rule 9(b), but claims based on identified state consumer
protection statutes, unjust enrichment, design defect, manufacturing defect,
breach of implied warranty of merchantability, and negligent misrepresentation
were sufficiently pled. This new complaint added allegations in an attempt to
satisfy Rule 9(b).
At the base of the claim: Juul’s formulation is allegedly
more addictive and dangerous than a normal cigarette because it delivers more
nicotine up to four times faster, and causes less throat irritation, which in
cigarettes slows consumption and inhibits use. 
Juul’s formulation allegedly “delivers doses of nicotine that are
materially higher than combustible cigarettes,” producing “higher nicotine
absorption than expected for the advertised formulation,” or about 30% more
nicotine per puff than a traditional cigarette. Juul allegedly touted data to
claim that it delivered approximately 25% less nicotine to the blood than a
cigarette, creating the false impression that it is less addictive. Advertising
claims that a “JUULpod is designed to contain approximately 0.7mL with 5%
nicotine by weight at time of manufacture which is approximately equivalent to
1 pack of cigarettes or 200 puffs” was therefore false and misleading because
(as Juul allegedly knew) what is important is the amount of nicotine that
enters the bloodstream, which is as much as twice as much as that delivered via
a pack of cigarettes. Worse, each cigarette in a pack must be separately lit,
but Juul can be inhaled continuously and used indoors without detection,
eliminating the need for smoke breaks.
The court ruled that plaintiffs satisfied Rule 9(b) with
respect to named plaintiffs who remembered which ads they’d seen, but not as to
named plaintiffs who didn’t.  Without
identifying specific ads, they didn’t properly plead the “where” required by
9(b).  Attaching representative ads to
the complaint wasn’t enough, as it would be for the FTC as plaintiff.
Juul next argued that plaintiffs didn’t plausibly allege
misleadingness, in part because the risks of nicotine have been well known for
decades. The court found that plaintiffs sufficiently stated both an omission
claim and an affirmative misrepresentation with regards to Juul’s advertising
that one pod has as much nicotine as a pack of cigarettes. “Although the
dangers of nicotine are known to the community, it would go too far to say that
JUUL need not to warn consumers that using JUUL’s product will cause their
bodies to absorb twice as much nicotine as they would from a pack of cigarettes.
It is also irrelevant that certain plaintiffs were smokers before using JUUL.
Being a smoker of combustible cigarettes would not impart knowledge that JUUL’s
liquid nicotine formulation might be twice as potent.”
Thus, claims related to Juul’s pharmacokinetics survived,
though the aesthetics of its marketing (“bright” colors, “clean lines,”
“minimal text,” “eye-catching graphics,” FDA-regulated flavors, attractive
adult models, and other common advertising practices) wouldn’t themselves
constitute misrepresentations, and “claims based on themes and vague terms in
JUUL’s advertising are, as JUUL argues, nothing more than non-actionable
puffery.” Nor did plaintiffs state a claim based on Juul’s statement that a
user may cancel the autoship service at any time (which allegedly
misrepresented their ability to cancel given the likelihood of addiction)
because none of the plaintiffs alleged that they used the service.
Some products liability/warranty claims also survived, as
did UCL unlawfulness and unfairness claims (the latter based on alleged
targeting of minors).
The analysis in Sperry is both analogous and persuasive.
Plaintiffs have stated an “unfair” claim under state consumer protection law
because they have sufficiently alleged that JUUL’s targeting of minors meets
the requirements of Sperry. The allegations also state an unfair claim under
the tethering test because the public policy at issue is tethered to state laws
prohibiting the sale of e-cigarettes to minors.
The court found that the complaint didn’t successfully plead
that Juul was vicariously liable for the acts of third party @JUULnation on
Instagram. @JUULnation “posted tips on how to conceal JUUL devices in school
supplies; ridiculed efforts to combat use in schools; promoted videos of JUUL
influencers; sold JUULpods directly through its Instagram account; and promoted
other sites selling JUUL products to its 650,000 mostly teenage followers.” The
complaint alleged that, because @JUULnation used JUUL’s hashtags in its posts,
“JUUL, which monitors its hashtags, was aware of @JUULnation’s conduct and
could have stopped and condemned @JUULnation’s youth-targeted activity. Id.,
CAC at Instead, JUUL repeatedly promoted @JUULNation’s hashtag (“#JUULnation”)
through its own social media accounts, giving an externally observable
indication that it consented to @JUULnation’s activities and reaped the
benefits of free marketing and increased sales.”  That wasn’t enough when the third party
wasn’t an agent and didn’t purport to be one.
Juul also argued that the minor plaintiffs’ claims should be
dismissed because of the intervening unlawful acts of third parties who sold
Juul products to them. The court pointed out that some of the claims didn’t
stem from Juul’s allegedly minor-targeted ads (theories of product liability,
implied warranty, and failure to warn). Anyway, at this stage, the acts of the
third parties here were plausibly alleged to be foreseeable and therefore did
not constitute an intervening cause were Juul allegedly specifically targeted
minors and had reason to know that its conduct would encourage illegal use and
trade of its products.
As for arbitration for plaintiffs who signed up using Juul’s
website, the signup page had a hyperlink to the terms and conditions, but it
was too inconspicuous to say that plaintiffs had gotten proper inquiry notice.
The link wasn’t in a “different color, underlined, italicized, or in any way
visually distinct from the surrounding text…. Users cannot be reasonably expected
to click on every word of the sentence in case one of them is actually a
link.”  Prior cases have found more
conspicuous links to be insufficient. A later version of the signup page
changed the color of the links, but that wasn’t enough without more (underlining,
highlighting, all caps, or in a separate box), especially given the greater
prominence of the “forgot password?” link on the same page:
A reasonable user scanning the page
would first see the “Forgot Password?” hyperlink and would observe that it is a
different color, underlined, and of a particular font size. That user would not
then see the “Terms and Conditions” and “Privacy Policy” hyperlinks and
conclude that they were clickable. They are not underlined, they are the same
size as the sentence they are in, and the color is different from the initial
hyperlink they would see.

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Dastar bars Lanham Act claims against unauthorized copying of photo for album cover

Posted on August 27, 2019 by rtushnet

Patterson v. Diggs, No. 18-CV-03142 (NSR), 2019 WL 3996493
(S.D.N.Y. Aug. 23, 2019)
Patterson is “an internationally known photographer” who
took photos of “a nickel-silver casing created by nonparty Moroccan company
Yahya Creation” without a written contract and without being paid, spending
over 80 hours doing so. The relevant photo was registered in 2017, though the
metadata referred to 2013.  This casing,
as far as I can tell, is the cover of the unique copy of the Wu-Tang Clan album
“Once Upon a Time in Shaolin,” although the complaint alleged that the album
uses Patterson’s work as cover art, so I’m a bit confused.  He
sued the Wu-Tang Clan and others for using the work as cover art, advertising
the album for sale [though the album is famously not available for ordinary
sale], and using the work to market and advertise musical concerts and tours.
The copyright claims survived, but not Lanham Act claims.  CMI removal claims also survived because
Patterson alleged that defendants, without authorization, “intentionally
remov[ed] and/or alter[ed] the copyright information, in the form of metadata,
on the copy of at least Plaintiff’s copyrighted photograph, and distribut[ed]
copyright management information with knowledge that the copyright management
information had been removed or altered … and distributed and publicly
displayed the material, knowing that copyright management information had been
removed or altered.” This was supported with an exhibit purporting to show the
alleged metadata included in one photograph, which lists Patterson as the
author of the photograph, marks the status of the photograph as “Copyrighted,”
contains a “Copyright Notice” that reads, “image © 2013 Warren Wesley Patterson,”
and includes a “Copyright Info URL” box listing Patterson’s website.  [If it’s metadata, how is it supposed to
persist in analog copies? I can also imagine some other courts being pickier
about alleging which defendants did what given 1202’s nested knowledge requirements. This issue may instead be the subject
of targeted summary judgment, if the case gets that far.]
Likewise, vicarious copyright infringement claims survived
because Patterson alleged the right and ability to supervise plus direct
financial benefit, “including without limitation [through] revenue sharing
and/or royalty payments for each infringing version [of the Album] sold.” It
was at least arguable that Patterson’s work, “which is prominently featured in
advertisements for the Album and in entertainment articles describing the
Album, has played a role in the Album’s marketability, reaping Defendants
direct financial benefits in the form of album sales.”  [Unless I misunderstand what’s going on with
the album entirely, this allegation seems misleading, since there’s only one
copy, now
in the hands of the government, whose marketability is focused on its
uniqueness in an age of mechanical reproduction.] 
Contributory infringement claims were also sufficiently
pled. Defendants allegedly “induced, caused, and/or materially contributed to
the direct infringement of Plaintiffs’ [W]ork … by, among other things,
commissioning and/or licensing the electronic versions of the Plaintiff’s
photograph, and providing galley proofs or similar high-quality source material
for rendition into electronic format.” Though allegations of constructive or
actual knowledge were “a legal conclusion not entitled to a presumption of
truth,” there were sufficient allegations related to knowledge—Patterson
provided email exchanges between himself and one of the defendants related to
the work and referring to the Album. [Which sounds like there’s going to be a
strong implied license defense for at least some uses.]  “[D]rawing all reasonable inferences in
Plaintiff’s favor, it is plausible that the remaining Defendants, as the
recording artists and distributors of the Album, would have reason to know of
the infringing use of Plaintiff’s Work on the Album cover.”  [FWIW, many of the members of Wu-Tang  ultimately said, apparently even before this lawsuit, that they didn’t even know their contributions were going to be worked into an
album.  I also learned that at least one
of the 120 members of the venire who said they couldn’t give Martin Shkreli a
fair trial explained
that it was because  “He disrespected the
Wu-Tang.”]
Lanham Act claims: Patterson alleged both source/endorsement
confusion and false advertising.  For the
former, Patterson alleged that using the cover misrepresented the origin of the
art.  “However, the author of a
photograph that is reproduced in tangible products or goods such as a musical
album cover is not the ‘origin of goods’ within the meaning of the Lanham Act.”
Shepard v. European Pressphoto Agency, 291 F. Supp. 3d 465 (S.D.N.Y. 2017), [wrongly]
held that the author of a “communicative product” such as a photograph who is
also the producer of tangible goods offered for sale may assert a Lanham Act
claim for false designation of origin. This case was distinguishable because
Patterson didn’t allege that he advertised or sold any of his photos, even
though he alleged that the parties’ “products and services” target the “exact
same consumers.” Anyway, the underlying theory was “meritless, as the Amended
Complaint clearly states that Defendants created the Album, and consumers who
purchased the Album were not falsely informed about the origins of the Album
because Defendants did in fact produce it.”
And you can’t restyle the exact same Dastar-barred
facts as false advertising to avoid Dastar. Allegations that
defendants gave the false impression that Patterson authorized the reproduction
and distribution of the work didn’t allege a misrepresentation of “the nature,
characteristics, qualities, or geographic origin” of defendants’ goods. “The
import of Dastar that an author’s recourse for unauthorized use is in copyright
cannot be avoided by shoe-horning a claim into section 43(a)(1)(B) rather than
43(a)(1)(A).”

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conventional pharmacy achieves limited relief against marijuana dispensary

Posted on August 27, 2019 by rtushnet

White Hall Pharmacy LLC v. Doctor’s Orders RX Inc, No.
19-cv-00366-KGB, 2019 WL 3939357 (E.D. Ark. Aug. 20, 2019)
In this cannabis case, the court granted a preliminary
injunction against a dispensary.  White
Hall operates two pharmacies under the trade names “Doctor’s Orders” or
“Doctor’s Orders Pharmacy” in the Pine Bluff area; the first has existed since
2009. It uses a red font, a red logo, and a white backsplash.  Its principal testified to efforts to become
known in Arkansas. It website has “over 40,000 hits, 45,000 plus hits on one
single ad that went out” and it has approximately 12,000 total patients It has
sent prescriptions to “[a] little over 130 cities total” and that “[a]bout 12
of those are out-of-state cities.” “Not many” customers who live in Little Rock
drive down to Pine Bluff to use the pharmacy, and “about 20 to 30” customers reside
in the Hot Springs, Arkansas, area, while approximately 150 customers have
second homes in the Hot Springs area.
 

plaintiff’s logo

Defendants run a medical marijuana dispensary in Garland
County, Arkansas, using the name “Doctors Orders,” “Doctor’s Orders Pharmacy,”
and “Doctors Orders RX,” “roughly one hour away” from White Hall’s
pharmacies.  White Hall’s principal
testified to “seeing posts on Facebook asking … kind of are we involved in
it, asking for directions to the store.” He denied affiliation Facebook around
“20 or 30 times” during the first day. He also said they’d received around 60
phone calls “[i]n the first few days” and that the pharmacies have received
“probably closer to a hundred phone calls … since then,” while they normally
receive “about a hundred phone calls per pharmacy” a day for the prescription
business. An affidavit from an employee also said they received 8-9 calls/day
about marijuana “for a while” after the dispensary opened. An employee also
asked him if he was in the medical marijuana business, as did employees at the
local hospital, a city councilman, a reporter, local news stations, multiple
physicians, his banker, and people at his country club. Three or four people
showed up at the pharmacies trying to buy marijuana, and one job seeker looking
for a job selling marijuana contacted White Hall.
 

defendant’s sign
He testified that he hadn’t seen an immediate change in
revenues, though he notes that revenue in the pharmacy business is “delayed 60
to 90 days ….” He also stated that “[n]o one said they were going to no
longer use my pharmacy once I clarified the issue they wanted to know.”
Defendants’ operation allegedly used signs and advertising
that contain red letters and a white backsplash similar in appearance to White
Hall Pharmacy’s signs and advertising. 
On defendant’s website, there was a logo in the shape of the state of
Arkansas in white, with the following script: “DOCTOR’S ORDERS.” The background
was dark green (though it looked blue to me when I checked).
 

my screenshot of defendant’s site
Defendant’s owner submitted an affidavit that, at the time
he filed his incorporation papers in 2017, he had “never heard of Doctor’s
Orders Pharmacy” and didn’t know about Doctor’s Orders Pharmacy before he got a
cease and desist letter on May 14, 2019.
White Hall presented the affidavit of Jeremy Lambert, a
customer who learned that a medical marijuana dispensary named “Doctor’s
Orders” was open in Hot Springs. At a hearing, he testified that learned about
the dispensary from a customer who was in his office, and he also explained
that he told the customer he “would assume it’s incorrect” that the dispensary
was affiliated with White Hall, then confirmed that was the case. However, his
affidavit averred that he was confused about the medical marijuana dispensary’s
affiliation with White Hall. He testified that he was asked about the medical
marijuana dispensary by three customers and “two to three employees” who worked
with him, as well as other business owners and customers in Pine Bluff. He
“truly believe[s] this has damaged the reputation of [ ] Doctor’s Orders
Pharmacy.” Another Pine Bluff resident submitted an affidavit from a
noncustomer who knew the pharmacy and who was confused, stating that “[i]t was
a common belief in Pine Bluff that this dispensary was somehow affiliated with
White[ ]Hall Pharmacy or [owner] Lelan Stice ….” There was other testimony in
the same vein.
Highlighting the different evolution of false advertising
and trademark doctrine, the court found no likelihood of success on the merits
on the false advertising claim because of lack of evidence of harm.  The theory was misleadingness; though a
full-blown consumer survey isn’t required at this stage of the proceedings,
some sort of extrinsic evidence of deception was. And the deception must be
shown to be likely to influence consumers’ purchasing decisions. There was
record evidence of confusion, but not sufficient evidence of effect on
purchase.  The parties don’t compete in
what they sell—one sells only medical marijuana and the other legally can’t—and
even if there was overlap, there was still no evidence of harm.  The argument that White Hall’s customers
might abandon it because of a perceived association with defendants wasn’t
supported by the record; discovery might be able to show such an impact, but it
wasn’t yet apparent.  And even if
marijuana is controversial, a majority of Arkansas voters voted to allow
medical marijuana, so the net association might even be positive.
Also, the false advertising claim was really a false
association trademark claim, to which the court turned.  White Hall relied on common-law rights, which
are limited by the territory in which a trademark claimant has operated. Under Tea
Rose/Rectanus, “the first user of a common law trademark may not oust a
later user’s good faith use of an infringing mark in a market where the first
user’s products or services are not sold.” There was no evidence of bad faith
here.
Doctor’s Orders/Doctor’s Orders Pharmacy was
descriptive.  White Hall presented
evidence of continuous use since 2009 as well as of actual consumer confusion:
“multiple individuals immediately thought of White Hall Pharmacy when they
heard the name of defendants’ dispensary.” “Although this record evidence is
not overwhelming, … White Hall Pharmacy has a fair chance to prevail on its
argument that, due to its efforts and exclusive use, the phrases ‘Doctor’s
Orders,’ ‘Doctor’s Orders Pharmacy,’ and ‘Rx’ when used in conjunction with
“Doctor’s Orders” acquired secondary meaning by May 2019, at least for certain
customers in certain markets.”
Geographic scope: White Hall argued that its market “includes
the entire State of Arkansas and then some.” The record gave White Hall a fair
chance of showing some competition, even though the competition wasn’t for the
same goods. “[B]oth parties ostensibly offer medicinal services and products to
the public.”  [How that bears on
geographical scope is not super clear to me.] 
White Hall didn’t show rights outside of the Pine Bluff area on this
record. The court relied on the principle that, “[w]here the first user’s
activities in a remote area are ‘so small, sporadic, and inconsequential’ that
its market penetration is de minimis, the first user is not entitled to
protection against a later user’s good faith adoption of the mark in that
area.” About 20 to 30 patients living in Hot Springs (only five lived in Hot
Springs at the time they were White Hall customers), and 150 with second homes
there, out of 12,000 total wasn’t good enough, nor was having advertising and a
website and belonging to some statewide organizations (as well as some in Pine
Bluff, but not in Hot Springs).  There
wasn’t sufficient market penetration outside Pine Bluff; the “possibility of potential
sales” wasn’t enough on its own to establish rights. However, given that
defendants’ dispensary was one of only two in the state, and given the evidence
of confusion, it seemed likely that both parties served customers in the Pine
Bluff area.
LOC: White Hall’s mark was somewhat distinctive; the marks
were similar; the services were related enough to favor confusion; there was no
evidence of intent to pass off; and the evidence of actual confusion favored
White Hall. The amount of actual confusion has to be weighed against the number
of opportunities for confusion. There was evidence of a lot of inquiries,
though much of this evidence was “hearsay of a particularly unreliable nature
given the lack of an opportunity for cross-examination of the caller or sender
regarding the reason for the ‘confusion.’ ” The only evidence of marijuana
seekers actually showing up at White Hall was hearsay—someone saying they’d
heard of it happening.
Moreover, “many of the alleged incidents of actual confusion
may be interpreted as proof that consumers note a distinction between White
Hall Pharmacy and defendants’ dispensary”—the fact that the consumers knew they
needed to ask, because they didn’t have enough information to be sure, can
indicate lack of confusion rather than confusion. Some of the incidents
reported clearly had that character, such as the customer who “assume[d]” that
it was incorrect to associate the parties.
Still, there were “unambiguous incidents of actual confusion
documented in the record,” such as the message from the job seeker and an
instance in which someone “tagged” White Hall Pharmacy in a Facebook post
related to defendants’ dispensary. 
Considered in toto, actual confusion weighed in favor of White Hall.
Degree of care: it’s hard to buy medical marijuana in
Arkansas; it requires a registry identification card. Medical marijuana is also
not cheap. These aren’t impulse purchases, weighing against confusion.
Though it was a “difficult determination,” the court found
that the test favored White Hall at this stage.
White Hall failed to show it was likely to succeed on its
tortious interference claims.  The
C&D letter wasn’t enough to show that defendants knew about any particular
business expectancy of White Hall or that they intentionally sought to
interfere with it. Nor was there record evidence of any loss of sales, revenue,
or customers. Likewise, as to unjust enrichment claims, there was no record
evidence that defendants have benefitted from White Hall Pharmacy’s advertising
or customer goodwill.
Because it’s a trademark case, it’s not that surprising that
the court then found irreparable harm despite what it said about the absence of
harm above.  “Loss of intangible assets
such as reputation and goodwill can constitute irreparable injury.” And because
the Eighth Circuit hasn’t clearly abandoned the presumption of irreparable harm
in trademark cases post-eBay, the court applied that presumption here.
Without that presumption, the court noted, the case would be more difficult,
given the absence of record evidence of competition and the differences in the
parties’ geographic footprints. There was no record evidence of harm to
reputation or goodwill.
Scope of relief: 
White Hall was granted a preliminary injunction only in the Pine Bluff
area (Jefferson County). Defendants were enjoined from holding themselves out using
any combination of words that included “Doctor’s Orders” to the public within
Jefferson County, including any signage and “any advertising that can be viewed
by consumers within Jefferson County, Arkansas.” [Does this mean that they
can’t advertise online unless they can geoblock? That seems … extreme. The
court says the injunction shouldn’t interfere with other regulations on
defendants’ advertising, but that doesn’t really answer the “can they have a
website that doesn’t target Jefferson County but can be accessed from Jefferson
County” question.]

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Rogers question of the day, Grand Theft edition

Posted on August 27, 2019 by rtushnet

Is an escape room sufficiently like a video game that we would expect a finding of explicit misleadingness (assuming that an escape room is an expressive enough experience, like a play in which the audience is invited to participate, for Rogers to apply)?  My prediction is yes.

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