Rebecca Tushnet

When is a photoshopped picture not false? when it’s basically accurate

Posted on July 2, 2019 by rtushnet

Louisiana-Pacific Co. v. James Hardie Building Products, Inc.,
No. 18-5913, — F.3d –, 2019 WL 2710225 (6th Cir. Jun. 28, 2019)

Because termites, woodpeckers, and other pests may be able
to damage engineered-wood building siding such as that which LP sells, the district
court correctly denied LP a preliminary injunction to stop its competitor Hardie
from advertising LP’s siding as vulnerable to pest damage.

LP makes “engineered-wood” siding—wood treated with zinc
borate, a preservative that poisons termites; Hardie sells fiber-cement siding.
Hardie advertised that “No Wood Is Good,” claiming that all wood siding—however
“engineered”—is vulnerable to damage by pests. Its marketing materials included
(1) digitally-altered images and video of a woodpecker perched in a hole in
Louisiana-Pacific’s siding; and (2) nearby text boasting both that “Pests Love
It,” and that engineered wood is “[s]ubject to damage caused by woodpeckers,
termites and other pests.”

Was the digitally altered image/video literally false? A
Hardie rep noticed that a home fitted with LP siding had a fist-sized hole; he
photographed the damage and the photos ended up with Hardie’s ad agency. The
agency used one photo in “No Wood Is Good,” “sharpening the image’s colors,
darkening the interior of the hole to make it appear deeper, and superimposing
a woodpecker.” Still, this wasn’t literally false. “The Lanham Act doesn’t
require advertisers to lie in wait, cameras in hand, for an actual woodpecker
to drum away at a house’s siding. Reasonable consumers know that marketing
involves some level of exaggeration, and some amount of digital retouching to
tell a story. Here, neither party contests that the photograph depicts a real
hole in Louisiana-Pacific’s siding. And no reasonable consumer would expect
that Hardie caught a woodpecker in flagrante delicto.” (Footnote: LP challenged
Hardie’s expert’s qualifications to opine on the source of the hole, but he
testified to 35 years of experience involving wildlife and human structures,
including thousands of woodpecker cases. The district court didn’t abuse its
discretion in crediting the expert.)

Additionally, “the advertisement fairly represents engineered
wood’s susceptibility to woodpecker damage.” LP’s rep testified that the
company had never tested its siding’s woodpecker resilience, had no data to
support any assertion “that our product is resistant to some level against
woodpecker damage,” and “can’t say [woodpecker damage] won’t happen …. [I]t’s
possible.” Hardie’s expert evidence was the picture conveyed an accurate
message— “namely, that a woodpecker probably created the photographed hole, and
that woodpeckers often damage wood-based siding. Thus, though its digital
enhancements might, colloquially speaking, render the image ‘false,’ they are
not the sort of literal falsity the Lanham Act targets.” [Inaccurate, not
false?] In other words, LP “proffered no evidence that the photographs
misrepresent woodpecker behavior,” so it didn’t show literal falsity.

Nor did LP show misleadingness. It wasn’t enough to offer
(1) testimony that Hardie intended the advertisements to affect
consumer-purchasing decisions, (2) documentation that the campaign’s
advertisements reached a large audience, and (3) a Hardie study demonstrating
that consumers rely on manufacturers’ websites for product information, and
that an ad featuring a woodpecker nesting in a hole would be more likely to
persuade consumers than just a photo of a hole. None of the evidence showed
that that Hardie’s ads “tricked buyers into believing an untruth (here, that
woodpeckers peck holes in Louisiana-Pacific siding when they actually do not).”

LP also challenged the tagline “Pests Love It,” but that was
just puffery. “No reasonable purchaser would believe that Hardie knows—or could
discover—whether pests ‘love’ engineered-wood siding” or that it conveyed a
quantifiable, objective fact about pest preference. Context can turn puffery
into empirically verifiable claims; LP argued that the accompanying phrase, “[s]ubject
to damage caused by woodpeckers, termites and other pests that can harm wood,”
had been proved false by tests that rated both engineered-wood and fiber-cement
siding as completely resistant to termite damage.

Hardie disputed the interpretation of the tests, and noted
that LP’s siding resists damage because it’s treated with zinc borate, but
termites must still eat small amounts before the zinc borate poisons the
termites. Hardie argued that its statement was truthful, or at least ambiguous.
LP rejoined that such grazing causes no structural or obvious aesthetic damage,
but its own experts admitted that grazing results in some damage. And LP’s
warranty explicitly excluded non-structural termite damage. Under the
circumstances, the question was whether reasonable consumers would interpret
Hardie’s use of the word “damage” to unambiguously mean structural damage. LP
didn’t show that they would. And again, LP didn’t show that consumers were
misled with extrinsic evidence.

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Court formulates survey question in consumer protection case

Posted on June 27, 2019 by rtushnet

Moorer v. Stemgenex Medical Group, Inc., No.
16-cv-2816-AJB-NLS, 2019 WL 2602536 (S.D. Cal. Jun. 25, 2019)

This “complex and troubling case” involves allegedly false
advertising of stem cell treatments; the court found it “narrowly” certifiable
and—unusually—specified the consumer survey questions to be asked by an expert
seeking to test materiality/damages. Plaintiff brought the usual California
claims, and an elder abuse claim, against defendants, alleging that they falsely
and without support claimed that the treatments “effectively treat a multitude
of diseases.” [Sounds like the FDA should be taking notice, too, as it has for other
stem cell promoters.] They allegedly
advertised that “100% of its prior consumers are satisfied with its service” (“Patient
Satisfaction Ratings” or “PSR”), while omitting material information about its
services, including consumer dissatisfaction and complaints regarding the
ineffectiveness of the treatments. Plaintiff Moorer, suffering from lupus, and plaintiff
Gardener, suffering from diabetes, each allegedly relied upon the customer
satisfaction statistics and paid $14,900 for the treatment, did not benefit
from the treatment, and told defendants. They alleged that they would “not have
paid for the Stem Cell Treatment had they known that the statistics on the
StemGenex website regarding consumer satisfaction were false, and that
StemGenex had no reasonable basis for its marketing claim that the Stem Cell
Treatments were effective to treat diseases as advertised.”

Defendants sought to strike an expert report analyzing what
effect the PSR had on a consumer’s decision to purchase the treatment. The
court denied the motion; the expert had relevant expertise in consumer behavior
and marketing. The proposed survey to
determine damages would ask, in essence, (1) how important is the recommendation
of previous customers to your decision to pursue a medical procedure, and (2)
how important are price differentials in out-of-pocket expenses for a procedure. Then it proposed to ask:

Assume that there was a procedure
that could substantially improve [their medical condition]. The procedure costs
$14,900, all of which you would have to pay yourself. Everyone who has had the
procedure (100% of all patients receiving the procedure) report satisfaction
with the results, that is, all patients reported that the procedure met or
exceeded their expectations and were satisfied or extremely satisfied with the
outcome. Now assume that you are considering this procedure and learn that not
all patients were satisfied. In fact, you learn that only 50% of all patients
who obtained the procedure reported any major improvement. Would you still
consider this procedure given what you now know about the potential benefit?

The proposed answers were: Yes, I’ll try anything that might
help; Yes, if I were offered a discount on the price; No; or Don’t know. For
those who indicated they required a discount, the respondents would then be
asked how much of a discount they would want, starting with a minimum discount
of 5% and up to “more than 65%.”

The court found that this was a relevant question, but
directed that it be changed to match the actual language defendants used, with
this as an example (it could be changed but had to follow the court’s basic
directions):

Assume that there was a procedure
that could substantially improve [their medical condition]. The procedure costs
$14,900, all of which you would have to pay yourself. The providers of the
procedure report that 100% of its prior consumers were satisfied with the provider’s
service. Now assume that you are considering this procedure and learn that the
patient’s statements of satisfaction were obtained in exit interviews following
receiving the procedure. Further you learn that only 50% of all patients who
obtained the procedure reported any major improvement following the procedure.
Would you still consider this procedure given what you now know about the
potential benefit?

Comment: The court didn’t explain the legal or factual basis
for the change, but it might well have some interesting effects on the
answers. In particular, the revision
makes it much clearer—without saying as much—that the providers misleadingly
advertised satisfaction. (“Satisfaction”
itself can be misleading because reasonable consumers are likely to focus on
the medical effects of the procedure, not on whether the procedure seemed to go
as planned, which is the only question patients can answer at an exit interview.)
The extra element of learning that the providers overclaimed might have independent
effects on consumers’ willingness to trust the underlying procedure, as
compared to a question (perhaps in a control group) in which the consumers are
given the truth at the outset and the 100% satisfaction claim never appears. There is no neutral baseline from which to
assess the appropriate question; I definitely see the case for asking people
whether it would matter that the provider misstated the truth, because that can
and probably should matter to consumers in taking a chance on an unproven medical
treatment.

Another expert report purportedly showed that a pie chart in defendants’
advertising was material and misleading.
In a survey, respondents were shown screenshots of the
defendants’ web homepage on two different dates. One group saw four pie charts regarding satisfaction with overall experience, the medical
team, if StemGenex was a trusted partner, and whether patients would recommend
StemGenex. The other group saw a screenshot with nine pie
charts, however, in this version all pie charts included a disclaimer stating,
“patient satisfaction ratings above represent data received from patient exit
surveys evaluating patient experience and care, accommodations, staff and
facilities.” The survey asked respondents to rank various statements which
appeared on the screenshots to show which statement “most generated [their]
interest in StemGenex stem cell therapy.” There was only one specific option
based from factual information, selected from the overall experience Pie Chart;
the others were puffery. Anything ranked in the top four was considered material.

The next part of the survey asked respondents what they
thought patients were referring to in the Overall Experience Pie Chart.
Respondents were given five options, one of which being effectiveness of the
product. Defendants argued that only 38% stated the Pie Chart meant
effectiveness, though that would be a pretty big number in a Lanham Act case. Without
a control group, defendants argued, the survey couldn’t determine causation. Plaintiffs argued that the survey compared
two versions of the same page—which is true; the survey does effectively test
whether the disclaimer does any work to change the meaning consumers take away
from the pie charts/diminish the message that the procedure is medically
effective. But they also argued that
there was no control group (as to the pie charts) because the research goal was
to examine “the presence or absence” of the patient satisfaction ratings to
causally establish the impact the charts had on the consumers’ decisions
whether to undergo stem cell therapy. Plaintiffs, and possibly everyone, got a
little mixed up about distinguishing what the control should be from whether
there is a control. As I noted
above, choice of proper control is a normative decision; the best discussion is
Richard Craswell, “Compared to What?”: The Use of Control Ads in Deceptive
Advertising Litigation, 65 Antitrust L.J. 757 (1997). Anyway, the court said that the report couldn’t
be used to show causation, but could be used to show materiality of the pie
chart. “The simple fact is that
Defendants put out an overly vague statement and created confusion where
different interpretations might lie. Defendants cannot then turn around and use
that confusion as a shield.”

As for certification, though there were concerns about
variation among patients, “this is a marketing case, not a medical one,” and even
though damages might differ that wouldn’t prohibit class treatment. Similarly, defenses such as whether consent
forms cured any misrepresentations before the treatment [consumer protection
law answers no by prohibiting bait and switch techniques] were applicable to
the entire class. Defendants argued that
consumer motivations for the therapy were highly varied and individualized, but
the common questions weren’t affected by those motivations: (1) whether
Defendants misrepresented the PSRs; and (2) whether the misrepresentation was
likely to deceive a reasonable consumer.
Under the relevant laws, the plaintiffs only need to show that members
of the public were likely to be deceived—no proof of individualized reliance would
be necessary. Although there was varying testimony about what named plaintiffs
remembered about the PSR/pie charts, only exposure was necessary classwide, not
reliance. And under the CLRA, reliance is inferred for fraudulent and negligent
misrepresentation claims if material misrepresentations are made to an entire
class.

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law firm raises significant 1A questions over nursing home-specific advertising law

Posted on June 27, 2019 by rtushnet

Wilkes & McHugh, P.A. v. LTC Consulting, L.P., —
S.E.2d —-, 2019 WL 2570982 (Ga. Jun. 24, 2019)

Georgia revised its anti-SLAPP law to be more like
California’s (though apparently without the exception for commercial
advertising) and the state supreme court here interprets the revised version
for the first time, sending the case back to the trial court for some actual
findings about whether the law at issue violates the First Amendment.

LTC Consulting sued law firm Wilkes & McHugh, P.A. and
one of its attorneys for violations of a Georgia statute governing nursing
home-related advertising, deceptive trade practices, and false advertising
after the defendants ran full-page advertisements in local newspapers targeting
patients of plaintiffs’ nursing homes.

The ads arose “from acts that could reasonably be construed
as acts in furtherance of the defendants’ right of free speech under the United
States Constitution in connection with an issue of public interest or concern,”
triggering the anti-SLAPP law and shifting the burden to the plaintiffs to
establish that there was a probability that they would prevail on their claims.
But “the parties and the trial court overlooked certain preliminary questions,
which also have not been adequately briefed here.” Specifically, the trial
court thought plaintiffs had sufficiently shown a likelihood of success on
violation of the nursing home advertising law, but that law itself (1) might
not cover defendants’ ads (though it sure looks like it would) and (2) might be
unconstitutional if it did. Those issues
had to be resolved before likelihood of prevailing could be assessed. Back to
the trial court they go!

I’m much more interested in the underlying First Amendment
question than the anti-SLAPP part. Defendants
ran ads referring to specific nursing homes and to the results of one or more
legally required government “surveys,” or inspections, of the nursing home
named in the ad. Each ad stated across
the top in a large font and all capital letters, “THIS IS A LEGAL
ADVERTISEMENT,” followed by a larger, reverse-background stripe stretching all
the way across the page and containing the contrasting words “IMPORTANT NOTICE”
in a still larger font.

The ads stated, “If your loved one has been a resident at” [nursing
home name/address, with the name very large], “[t]his facility has been cited
for multiple deficiencies* including” multiple paragraphs, each beginning with
the word “FAILURE.” The text “purported to recount the deficiencies for which
each nursing home had been cited in a government survey conducted on one or
more dates listed. The text also stated the date by which each deficiency was
corrected and described the level of harm from each deficiency and the number
of residents affected.” Then there was a “densely worded” asterisked paragraph
“that, among other things, said that the ads were not authorized or endorsed by
any government agency, provided information on the survey process and average
numbers of cited deficiencies at nursing homes in Georgia and in the United
States, and listed a government website where those interested could find
additional information.” The ad then
said, in large font, “POOR CARE AND UNDERSTAFFING CAN LEAD TO: BEDSORES,
CHOKING, FALLS, BROKEN BONES, DEHYDRATION, INFECTIONS/ SEPSIS, MALNUTRITION, OR
UNEXPLAINED DEATH” and solicited people with loved ones who were residents to
contact defendants.

Plaintiffs alleged that 91% of nursing homes surveyed are
found to have “deficiencies” and that the defendants did not include in the ads
all the information required by the law, and also that the ads deceptively
omitted important facts and falsely implied that residents of the plaintiffs’
nursing homes had suffered “BEDSORES,” “BROKEN BONES,” and “DEATH” from the
cited deficiencies. One ad allegedly falsely stated that four of the
deficiencies “constituted minimal harm or the potential for actual harm,” when
in reality those four deficiencies were cited at the “D” level, meaning that
there was no actual harm.

Plaintiffs alleged violation of OCGA § 31-7-3.2’s recently
enacted subsection (j), which imposes limitations on advertisements that use or
reference the results of federal or state surveys or inspections of nursing
homes, as well as Georgia’s Uniform Deceptive Trade Practices Act and two state
false advertising statutes, one specific to ads for legal services. The trial court granted a TRO, which enjoined
the defendants from publishing “any false, fraudulent, deceptive and misleading
advertisements concerning the Plaintiffs”; the existing ads, and other ads not
complying with the nursing home-specific law.

The nursing home law says:

(j)(1) The results or findings of a
federal or state survey or inspection of a nursing home facility, including any
statement of deficiencies or reports, shall not be used or referenced in an
advertisement or solicitation by any person or any entity, unless the
advertisement or solicitation includes all of the following:

(A) The date the survey was
conducted;

(B) A statement that the Department
of Community Health conducts a survey of all nursing home facilities at least
once every 15 months;

(C) If a finding or deficiency
cited in the statement of deficiencies has been substantially corrected, a
statement that the finding or deficiency has been substantially corrected and
the date that the finding or deficiency was substantially corrected;

(D) The number of findings and
deficiencies cited in the statement of deficiencies on the basis of the survey
and a disclosure of the severity level for each finding and deficiency;

(E) The average number of findings
and deficiencies cited in statements of deficiencies on the basis of surveys
conducted by the department during the same calendar year as the survey used in
the advertisement;

(F) A disclosure of whether each
finding or deficiency caused actual bodily harm to any residents and the number
of residents harmed thereby; and

(G) A statement that the
advertisement is neither authorized nor endorsed by any government agency.

(2) In addition to any other
remedies and damages allowed by law, a party found to have violated paragraph
(1) of this subsection shall be liable for attorney fees and expenses of
litigation incurred in an action to restrain or enjoin such violation; provided,
however, that damages, attorney fees, and expenses of litigation shall not be
recoverable against any newspaper, news outlet, or broadcaster publishing an
advertisement or solicitation submitted by a third party for a fee.

RT: The newly enacted provision is pretty clearly enacted to
protect nursing homes against negative reputational consequences from
surveys/inspections, and I understand why—no one likes dirty laundry aired, and
it is also the case that things labeled deficiencies might not necessarily be
all that bad—risky, or diagnostic of imperfect procedures, which is itself not
a great thing but may be common enough that no nursing home could expect to be
above reproach. And one might further conclude that consumers are likely to
overweight officially reported deficiencies compared to their actual
seriousness—but that conclusion will have a hard time weathering current First
Amendment scrutiny. Doing this as a
disclosure regime helps, but courts vary in the degree of rigor with which they
evaluate how burdensome a disclosure like this can be. I wonder if the
regulators could instead relabel minor deficiencies as “concerns” (or, heck,
“fizzbins”), leaving the same regulatory consequences (if you don’t remediate
concerns sufficiently, you can lose your license, etc.) without requiring as
much regulation of advertising.

Anyway, lawyer advertising has some First Amendment
protection, and “the alleged existence of serious injuries and deaths at local
nursing homes resulting from deficiencies known to a government agency
certainly qualifies as a public issue or an issue of public concern. Thus,
running the ads could reasonably be construed as an act in furtherance of the
defendants’ constitutional right of free speech in connection with a public
issue or an issue of public concern,” so the anti-SLAPP law’s threshold
requirements had been met. Plaintiffs were
thus required to demonstrate that their claims were both legally sufficient and
supported by a sufficient prima facie showing of facts to sustain a favorable
judgment if their evidence is credited. In doing that, the plaintiffs’ evidence
is accepted as true, and the defendants’ evidence is evaluated only to
determine if it defeats the plaintiffs’ showing as a matter of law.

The trial court said only that plaintiffs demonstrated a
probability of prevailing “by submitting a verified complaint citing to the
Georgia statute limiting the use of survey data and by prevailing on their
temporary restraining order on the same issue before this Court.” The transcript revealed no further
explanation. That wasn’t enough. First,
the court thought that the law establishing Georgia’s regulatory framework for
hospitals and related institutions was “an unlikely place to find a statute
regulating attorney advertising” and might contemplate enforcement only by the
AG, not private parties. “If the most
natural reading of the statutory text is that the cited statutes do apply to
the defendants’ ads, there is a constitutional separation of powers issue that
might require reading them not to apply. There is also a significant First
Amendment issue with respect to the application of each statute here,” which
wasn’t adequately addressed. Given that “the particular claims at issue in this
case implicate complex and important questions of statutory interpretation and
constitutional law,” the trial court should go back and do that.

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failure to show causation dooms duelling flange false advertising claims

Posted on June 26, 2019 by rtushnet

Boltex Mf’g Co. v. Galperti, Inc., 2019 WL 2568338, No.
H-17-1439 (S.D. Tex. Jun. 21, 2019)

This is a false advertising and unfair competition case
about normalization, “a costly heat treatment process that changes the physical
composition of carbon steel to increase its toughness and ductility.” ASTM standards
require heat treatment for certain types of flanges; normalization is one
available method, and though the standards don’t require it, many customers do. Boltex alleged that defendants advertised
their flanges as normalized when they aren’t. Galperti counterclaimed that: (1)
plaintiffs Boltex and Weldbend falsely advertised their products as “Made in
the USA” and/or “American Made”; (2) Weldbend made misrepresentations regarding
the “traceability” of its flanges from manufacture in the US through to the
customer and yield strength; and (3) Boltex made misrepresentations in the
Reference Manual published on its website.

Defendants argued that plaintiffs couldn’t show harm. Plaintiffs
argued that this was a comparative advertising case in which harm could be
presumed, but it wasn’t enough to argue that Galperti sells the same type of
flanges or uses “Boltex’s own price list in describing [their] flanges” in an email
exchange, where there was no explicit comparison. There was evidence that Boltex is one of the
few companies that offers a price sheet and that many competitors may use
Boltex’s price sheet as a guideline to set their prices.

Anyway, it wouldn’t make sense to presume harm here. The
presumption exists because “[a] misleading comparison to a specific competing
products necessarily diminishes that product’s value in the minds of the
consumer.” There is no reason to suggest that the value of plaintiffs’ flanges was
diminished by use of the price sheet.

There was no admissible evidence of injury. Plaintiffs offered
only hearsay from their salespeople who said that customers told them they’d
gone with defendants instead. [Note that
it’s not hearsay when the salespeople testify that customers told them that
defendants had offered the same product for less, because those customer
statements are not submitted for the truth of the matter asserted.] Motion for summary judgment granted. I find this result a bit surprising, assuming
the underlying correctness of the falsity allegations, but it gives plaintiffs
a hell of an advertising tool.

Fortunately for plaintiffs, I guess, defendants also couldn’t
show causation in their counterclaims. “In
some cases, a party need not provide direct evidence of injury if the party
provides evidence that the parties were competitors and that the plaintiff was
in some way injured.” But the jury still needs sufficient evidence to make the
inference. [I would have thought that
the vital materiality of normalization would have counted in this case; if
there’s a real subset of customers that won’t buy without it, and if plaintiffs
set the standards in the industry with their price sheet as the reference
point, I would’ve let the jury see it.] There wasn’t evidence that would allow a jury
to infer that the parties compete in the market for US-sourced flanges [which
is to say that the alleged misrepresentations most obviously harm other,
truthful “made in the USA” advertisers—though that itself seems dubious; it’s
easy to imagine people who prefer made in the USA if they don’t have to pay too
much of a premium for it but do choose between multiple national origins.] It wasn’t enough to have Boltex’s president’s
statement that he “generally considers flanges that are made from U.S. material
and flanges made from non-US material to be competing with each other.” [Again,
seems like grist for an ad campaign, if the charges are accurate.]

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The probiotic worm turns: previous PI loser wins $15 million in Lanham Act case

Posted on June 26, 2019 by rtushnet

De Simone v. VSL Pharmaceuticals, Inc., No. TDC-15-1356, 2019
WL 2569574 (D. Md. Jun. 20, 2019)

Previous
discussions. The parties compete in offering a probiotic
product; De Simone used to license his formulation to VSL, then went out on his
own. VSL had done well in previous iterations
of this case in preventing the De Simone parties from, among other things, truthfully
referring to scientific studies of the De Simone formulation where the studies
used the then-current VSL trademark to identify the object of study, a
restriction I think violates the First Amentment. But before a jury, De Simone did well, and the
court declined to disturb that result. The jury awarded $15 million against
Alfasigma for Lanham Act false advertising.
De Simone’s new partner, ExeGi, sought a permanent injunction against
defendants Leadiant and Alfasigma, and they also asked for attorney’s fees,
costs, and pre- and post-judgment interest.

ExeGi asked the jury to award it nearly $28 million,
representing Alfasigma’s profits from sales of VSL#3 from July 1, 2016 through the
end of trial. A court has discretion to
enter judgment for a “just” sum of the defendant’s profits, as long as it’s
compensation and not a penalty. Relevant
factors, derived from trademark cases, are: (1) whether the defendant had the
intent to confuse or deceive, (2) whether sales have been diverted, (3) the
adequacy of other remedies, (4) any unreasonable delay by the plaintiff in
asserting his rights, (5) the public interest in making the misconduct
unprofitable, and (6) whether it is a case of palming off. The court declined
to disturb the jury verdict.

The evidence established that the VSL parties’ senior
management “knew that in producing a new version of VSL#3 in Italy (“Italian
VSL#3”), they had not been able to precisely replicate the original proprietary
mix,” so the false advertising was deployed with the intent to confuse or
deceive. There was testimony supporting a finding of sales diversion, and the
false advertising “had the effect of ‘palming off’ Italian VSL#3 as the same as
the original VSL#3 product now sold by ExeGi as Visbiome.” [VSL can’t truthfully advertise based on the older
scientific studies; as I noted before, to say that ExeGi can’t use those
studies either because the trademark no longer matches the formulation is
perverse.] ExeGi was a new company so
its own lost profits weren’t adequate compensation; it didn’t delay in asserting
its claims; there’s a public interest in not being misled “into believing that
a particular product offered to address health needs will have the same
efficacy as a trusted product when that has not been established.” However,
there wasn’t definitive evidence that differences between the formulations
rendered new VSL #3 “unsafe or clinically ineffective for all of its users,”
which strikes me as a pretty high standard (would you be happy with a
formulation switch that was unsafe/ineffective for 25% of users?). The jury award wasn’t excessive, but was “sufficiently
substantial,” given ExeGi’s status as a startup with limited marketing
resources.

Permanent injunction: In passing off new VSL #3 as the De
Simone formulation, defendants deprived the De Simone parties “of a legitimate
competitive advantage and reduced consumers’ incentive” to purchase their
product Visbiome, which actually contains the De Simone formulation, which
constituted irreparable injury: it led consumers not even to consider
switching. The monetary remedy was inadequate compensation, because past awards
didn’t prevent the offender “from infecting the marketplace with the same or
similar claims in different advertisements in the future.” Plaintiffs argued
that Alfasigma continued to advertise a continuity between new VSL#3 and the De
Simone formulation, and ExeGi’s CEO provided uncontradicted trial testimony that
this false claim was hampering ExeGi’s ability “to leverage the benefits of the
brand,” so money was inadequate. The balance
of hardships also favored an injunction; ExeGi, “cannot fairly compete” until
Alfasigma and Leadiant “stop[ ] infecting the marketplace with misleading
advertising.” And stopping false advertising is in the public interest,
especially for health-related products.

However, defendants wouldn’t be required to make affirmative
statements about ExeGi’s Visbiome and to issue corrective advertising. Instead,
the injunction would target defendants repeated false assertions in their
advertising that new VSL#3 continued to be composed of the De Simone formulation,
including but not limited to statements claiming that VSL#3 continues to
contain the “original proprietary blend” or the “same mix in the same
proportions.” This was false vecause new
VSL#3 was an attempt to reverse engineer the original formulation and wasn’t an
exact replication. The VSL parties were
also enjoined from citing any clinical study performed on the De Simone formulation
or implying that any such study was conducted on new VSL#3. [Thought experiment: assume the FTC/FDA
argued that VSL couldn’t engage in such advertising. What First Amendment standard would you expect
a court to employ? Should a court accept
“they’re not the same” as enough evidence of falsity without proof that the
differences made a clinical difference?]

Attorneys’ fees: ExeGi prevailed on its false advertising
claims, and the VSL parties voluntarily dismissed their Lanham Act
trademark/false advertising claims with prejudice, making the De Simone parties
prevailing parties for all the Lanham Act claims in the case. Still, under Octane Fitness, a fee
shift was unwarranted; “there was no unusual discrepancy in the merits of the
parties’ positions,” especially given that the VSL parties got two preliminary
injunctions. And even though the jury didn’t credit the VSL parties’ evidence on
the equivalence of the parties’ products, that didn’t mean their arguments were
frivolous or objectively unreasonable, and the jury didn’t necessarily find bad
faith.

As for the manner of litigation, neither party covered itself
in glory. Nor was a fee award necessary
for compensation and deterrence given the damages and injunctive relief
achieved.

De Simone v. VSL Pharmaceuticals, Inc., No. TDC-15-1356, 2019
WL 2570068 (D. Md. Jun. 20, 2019)

Here’s the related Rule 50/Rule 59 decision, rejecting defendants’
motions. Along with the $15 million to
ExeGi from Alfasigma, the jury awarded almost $1 million to De Simone from VSL
for breach of contract and almost $1.9 million for unjust enrichment from VSL
and defendant Leadiant, and rejected VSL’s counterclaim against De Simone
alleging breach of fiduciary duty.

Rule 50: A district court may overturn a jury verdict by
rendering judgment as a matter of law only if there is no “legally sufficient
evidentiary basis to find for the [prevailing] party on that issue.” Alfasigma argued that none of its challenged
ads met all the elements of a Lanham Act claim. The claim turned largely on
three challenged items: a page of the VSL#3 website entitled “VSL#3: new
formula dairy-free,” a similar press release, and statements made on the VSL#3
Facebook page. Viewed in the light most
favorable to ExeGi, the evidence was enough to show that, at a minimum, the webpage
satisfied all the elements of false advertising, since it claimed that the
manufacturer had “revert[ed] back to an established process that removes all
dairy while maintaining the original proprietary mix of eight strains of live
bacteria.” Likewise, Leadiant’s letter to healthcare providers, which was sent
to hundreds of doctors around the United States, also constituted false advertising
when it stated that “VSL#3 is the same quality product, containing the same
genus and species of bacteria, in the same proportions that you have come to
expect.” Both the webpage and the letter “were disseminated in a manner
sufficient to constitute commercial advertising placed in interstate commerce.” There was sufficient evidence of literal
falsity. ExeGi submitted expert testimony that the new version of VSL#3 had
only seven strains of live bacteria, not eight, and that based on a
fermentation analysis, the two products would degrade compounds differently and
thus function differently. VSL’s president/CEO also acknowledged that in
reverse engineering the formulation, “you can determine a certain range of the
presence of the strains but you cannot precisely assess the exact quantity of
the strains,” so its scientists were “not able to give a precise indication of
the percentage of each strain[ ] contained” in VSL#3, or a “formal” range for
such proportions, but instead could only measure the amount of each strain with
a margin of error of 30 percent.

Alfasigma argued that, under the terrible In re GNC Corp.,
789 F.3d 505 (4th Cir. 2015) decision, “when the statement underlying a Lanham
Act false advertising claim is based on scientific representations, the
statement cannot be found to be literally false unless ‘all reasonable experts
in the field agree that the representations are false.’” VSL’s expert testified
that VSL#3 had eight strains of bacteria, and that the relative ratios of
strains was “indistinguishable within one percent,” but he didn’t testify that
the ratio of the strains in Italian VSL#3 were the same as the “original
proprietary mix” of the De Simone formulation. The court misdescribed GNC as involving
a Lanham Act false advertising claim—it was a California state law claim and
thus GNC’s mangling of Lanham Act distinctions was dicta as to Lanham
Act claims—but also emphasized the language that “[w]hen litigants concede that
some reasonable and duly qualified scientific experts agree with a scientific
proposition, they cannot also argue that the proposition is ‘literally false.’
” The court here concluded: “GNC thus does not broadly hold that a false
advertising claim based on a statement grounded in science must fail if the
defendant presents an expert witness supporting its position. In the absence of
a concession that the statement is the subject of reasonable scientific debate,
that question is properly decided by the jury.”

Indeed, the court [unnecessarily] gave a defendant-friendly
jury instruction that: “If an alleged false statement states a scientific
proposition, and you find that there is a reasonable difference of scientific
opinion about that proposition, that is, duly qualified experts in the field
have a reasonable disagreement about the accuracy or validity of the
proposition, the challenged statement is not ‘literally false.’” The jury could
reasonably conclude that to the extent there was a disagreement about the
number of strains in Italian VSL#3, or whether Italian VSL#3 contained the same
original proprietary mix as the De Simone formulation, it wasn’t a reasonable
disagreement. The plaintiffs presented other evidence and experts beyond those
already described: an expert in the field of proteomics, the study of how genes
produce proteins and what proteins they produce, stated that based on his
comparative proteomic testing of VSL#3 and Visbiome, “the two products were
very different,” with a 25 percent difference in the protein expression of new
VSL#3 and Visbiome, meaning that of the approximately 4,000 proteins identified
in the two products, about 1,000 of them were different. The expert concluded
that this difference in protein expression would “result in different
performance.” A Professor of Gut Physiology and Pediatric Gastroenterology at
Harvard Medical School who testified as an expert in the use of probiotics for
the management of gastroenterological and immunological disorders stated that
based on his review of various scientific studies comparing the De Simone formulation
with new VSL#3 that “the new formulation from Italy is not … comparable to
the formulation that is from the United States.”

Plus, the jury could have concluded that the number of
strains or the proportion of those strains were different based on “non-scientific
evidence,” to wit, regulatory filings made by VSL to Health Canada in 2013 and
2018 describing the composition of VSL#3 differently (with eight strains and
seven strains respectively). What makes
this “non-scientific”? GNC is
nonsense, and nonsense decisions create nonsense distinctions.

Anyway, there was also evidence that the challenged
materials were literally false when they said that the manufacturing of VSL#3
would be “moving back to “the original manufacturing facility in Italy,” and produced
“in the same facility that [VSL#3] was originally produced,” since VSL#3 had
“always” been produced for commercial sale in manufacturing facilities in the
United States.

Materiality: The false statements on the number and
proportions of strains were “plainly” material because they related to an
“inherent quality or characteristic” of VSL#3. Plaintiff’s expert testified
that new VSL#3 was not comparable to the De Simone formulation; that, based on
those differences it was “not appropriate” to conclude that Italian VSL#3 is
the same product studied in prior clinical trials; and that no doctor would prescribe
a product that was not itself the subject of clinical tests. And the jury could
reasonably infer that the false claim that new VSL#3 was being made in the
“original manufacturing facility” could influence purchasing decisions by
causing purchasers to mistakenly believe that new VSL#3 and the De Simone formulation
were actually the same and that new VSL#3 was supported by the history of
clinical trials relating to the De Simone formulation. Because of the literal falsity, deception was
presumed.

Injury/proximate causation: The jury could reasonably find
this too. ExeGi’s CEO testified that Alfasigma’s advertising made it hard for
ExeGi to leverage the fact that it had the “real” De Simone formulation. Plaintiff’s expert testified that the change
in manufacturing locations for VSL#3 and the move to a dairy-free formulation
meant it was neither appropriate nor accurate to claim that VSL#3 continued to
be the “same quality product containing the same genus and species of bacteria
in the same proportions that you have come to expect,” and that to make such a
claim would require VSL#3 to be subjected to efficacy testing to ensure
continuity of outcomes. In total, it was reasonable to conclude that false advertising
about the continuity between original VSL#3 and new VSL#3 was leading
physicians to continue to prescribe VSL#3, and thereby fail to prescribe
ExeGi’s product.

Alfasigma argued that ExeGi showed only correlation, not
causation. But the evidence about
doctors’ demand for clinical trials, and evidence that it was important to dieticians
to know what strains of bacteria were in VSL#3 and whether those strains
matched up with the product that was the subject of clinical tests so that they
could make informed recommendations to her clients, was enough for the jury to
reasonably find injury/likely injury.
Unlike in cases cited by Alfasigma, there was no evidence from
purchasers about other reasons they chose new VSL#3 over Visbiome, or
other competitors over Visbiome. More
fundamentally, unlike in those cases, the false statements at issue weren’t
just one reason among many to buy the product; they were “passing off” of one
product for another. The jury could conclude that there was demand for the De
Simone formulation specifically and that Alfasigma falsely promised to satisfy
that demand.

The profits award was also ok. A plaintiff who seeks defendant’s profits
must show that the defendant benefited from the false advertising, and the
evidence supported such a finding.

The court likewise upheld the unjust enrichment verdict
based on continued sales of original VSL#3 past the exclusive license date.
Under Kimble v. Marvel Entertainment, LLC, 135 S. Ct. 2401 (2015), licensing
provisions providing for “post-expiration royalties are allowable so long as
tied to a non-patent right—even when closely related to a patent.” Here, the
situation was exactly like Kimble’s example of a post-patent royalty
tied to trade secrets. De Simone’s exclusive licenses covered first his patent
and later his know-how even after the expiration of the patent; although the royalty
amount didn’t decrease post-patent, at most that would render the royalty
provision unenforceable. But the jury found defendants liable not for breach of
contract, but for unjust enrichment, because they were able to continue to sell
VSL#3 without paying royalties to De Simone for his know-how.

For similar reasons, the court declined to grant defendants’
motion for a new trial. Alfasigma argued that it was error for ExeGi’s false
advertising claim to be submitted to the jury because, as ExeGi sought
disgorgement, the claim was equitable in nature. But Dairy Queen, Inc. v. Wood,
369 U.S. 469 (1962), held that the plaintiff in a trademark infringement claim
who sought the remedy of an “equitable accounting” of the defendant’s profits
was entitled to a jury trial. “Although disgorgement may have some history in
equity, ExeGi’s claim required nothing more than the adding up of unjustly
earned profits, a task well within the ken of the jury.”

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The Supreme Court and the Tone Argument (Iancu v. Brunetti)

Posted on June 25, 2019 by rtushnet

Iancu v. Brunetti, No. 18–302, 588 U.S. — (Jun. 24, 2019)

Unlike in Tam, we get an opinion for the Court (and
unanimity that the bar on registering “immoral” marks is unconstitutionally
viewpoint-based), which manages to find consensus by (1) not saying very much
and (2) backing away from some of the things in Tam that treated the
case like one involving a penalty for an applicant’s speech rather than a
failure to give a government benefit to the applicant. Still doesn’t mention unconstitutional
conditions, but because it goes off on viewpoint discrimination the majority
doesn’t have to; the concurrence/dissents could have but don’t. In my opinion, this was the best result given
Tam: the Court recognizes, at least implicitly, that much of what the
various opinions in Tam said was corrosive of trademark registration
generally, and it would have been really ugly to declare that disparagement
(which protected all sorts of groups) was viewpoint-based while scandalousness
(which protected the sensibilities of the majority only) wasn’t.

Some observations: The distinction the concurrence/dissents
would like to make between whether the core message of the applied-for mark is
scandalous, or whether the manner of conveying the message is scandalous, could
be made, but could benefit from grappling with what registration is. That is, in theory we’re looking for symbols
that perform a source-identifying function.
To the extent that we are distinguishing between FUCT and HAD SEX WITH,
however, it’s not their ability to perform a source-identifying function that
differs. Implications: (1) The
government’s interest in tone policing isn’t related to the basic purpose of
trademark law; this might matter if we did an unconstitutional conditions analysis, but might not if the Court, as the
concurrence/dissents suggested, was willing to accept “incentivize the use of
decorous marks” as a legitimate interest.
(2) As a number of others have noted, if we took functioning as a
trademark more seriously, many of the parade of horribles that the Court
wouldn’t even mention shouldn’t be registrable anyway because their semantic (“informational”
or “ornamental”) content overwhelms their ability to serve as source
identifiers.

Relatedly, I think it matters that nobody on the Court was willing
to say “fuck” or even “the n-word,” resorting to linguistic workarounds that
probably do as much as anything else to prove that specific words can have
outsized power. Did they expect a lot of
kids to be reading? And this prurience has
doctrinal implication, as multiple opinions shied away from offensive words while
insisting that non-offensive versions would convey the same (non-trademark)
meanings, such that a ban on registering those words wouldn’t affect
meaning. Although I call bullshit on that
as a factual claim, I also don’t think the factual claim is the end of the
story. Only the Sotomayor (partial) dissent
cited Cohen v. California, and that was to make the point that Cohen
involved a content-based restriction rather than a viewpoint-based restriction. This is a reasonable argument, but it’s not
the end of a real analysis of when a government program of allocating speech
rights can engage in content-based restrictions. And since the Court didn’t bother to reject
the Federal Circuit’s reasoning—which relied on the bars at issue being content
based and subject to intermediate scrutiny—we are far from done with this issue.

Specific thoughts on Kagan’s opinion for the Court: The opinion
rejects the government’s attempt to rewrite the statute to focus on whether the
way in which the applicant’s (non-source-identifying) message is expressed is
scandalous, regardless of whether the message itself gives wide offense. It’s perhaps not surprising that the opinion
doesn’t discuss deference to executive branch interpretations of long standing;
instead, it suggests that the PTO wasn’t mistaken to interpret the bar more
broadly, given the facially broad language of the Lanham Act. The majority doesn’t opine on a hypothetical
statute that covered only “marks that offend by their mode of expression” or “lewd,
sexually explicit, and profane marks.” Note that these aren’t the same thing—in
particular, the n-word is probably not included in the latter, under an
ordinary meaning of profane or profanity (probably a better word given the
religious meaning of profane).

The opinion seems on particularly solid ground when it
points out that overbreadth analysis is a bad fit for viewpoint-based laws. “Once
we have found that a law ‘aim[s] at the suppression of’ views, why would it matter
that Congress could have captured some of the same speech through a
viewpoint-neutral statute?”

Alito’s concurrence: Vague reference to “viewpoint discrimination”
being tolerated in other countries (insert your own example) and “increasingly
prevalent” in this country, which is pretty perplexing if you think he’s
talking about viewpoint discrimination with the force of law. (Though perhaps he thinks it’s viewpoint
discrimination if the government removes Christian crosses from public memorials
or bans discrimination against LGBTQ+ people.)
He’s concurring not because of “moral relativism” (did anyone think he
was?) but because “a law banning speech deemed by government officials to be ‘immoral’
or ‘scandalous’ can easily be exploited for illegitimate ends,” so he’s not
done treating a registration bar like a speech ban. FUCT could be denied registration under a
more targeted statute, because “fucked” “is not needed to express any idea and,
in fact, as commonly used today, generally signifies nothing except emotion and
a severely limited vocabulary. The registration of such marks serves only to
further coarsen our popular culture.” So,
some content-based regulations are cool.

Roberts, concurring (on “immoral”)/dissenting: Would accept
the government’s rewrite of “scandalous” to bar marks that offend only because
of their mode of expression. Notices now,
as he didn’t in Tam, that denial of registration is not denial of a
right to use—it’s not even a denial of a right to use as a mark—and thus a
registration bar requires different First Amendment treatment than a ban
on “vulgar” or “profane” marks. Argues
now that the government “has an interest in not associating itself with
trademarks whose content is obscene, vulgar, or profane,” without explaining
what “associating itself” means in this context, again contra Tam. Does not want to give “aid and comfort” to
those using such marks.

Breyer, concurring (on “immoral”)/dissenting: Would do the
same thing, but writes separately to be more of a technocrat and less of a
moralist. Consistent with his long-held
views, wouldn’t put as much emphasis on the line between content and viewpoint
based regulation, commercial and noncommercial speech, etc. He would ask whether the regulation at issue
“works speech-related harm that is out of proportion to its justifications.”

Maybe trademark registration is simply commercial speech
regulation, but he’s not sure, because trademarks have “an expressive component
in addition to a commercial one,” though the statute regulates the commercial
function of trademarks. Registration isn’t really government speech, though the
government “may be loosely associated with the mark because it registers the
mark and confers certain benefits upon the owner.” [Hey, did you know there’s actually empirical
research on this by Daniel Hemel & Lisa Larrimore Oullette? Ordinary citizens apparently are roughly
split on whether registration is endorsement, which puts it in the middle of their
reactions to what the case law says is clearly government speech and to what is
clearly not government speech.] Also, registration
isn’t really a limited public forum, though it has some vague resemblance to
one, and also it resembles cases involving government subsidies for private
speech. It’s all a big pudding.

Anyway, he didn’t think that a bar on registration of highly
vulgar or obscene words discriminated based on “viewpoint.” Though these words “often evoke powerful emotions,”
they don’t “typically convey any particular viewpoint.” And though such a bar would be “arguably” content-based,
trademark law is content-based (citing Sonia Katyal,
Trademark Intersectionality). A registration bar wouldn’t harm First Amendment
interests much, because businesses would remain free to use the terms, even as
marks, and could still register other marks.
Anyway, trademark is already highly regulated because its mission is to
help consumers identify the source of goods or services, which requires limits
on speech. “For that reason, an
applicant who seeks to register a mark should not expect complete freedom to
say what she wishes, but should instead expect linguistic regulation.” [Have to
admit, I find this a non sequitur: it regulates speech for a particular purpose,
so it can add in limits for other purposes?
This is the strength of unconstitutional conditions analysis: it asks
for a program-related justification rather than just allowing the government to
disincentivize speech it doesn’t like because of the accident of having a
benefit to hand out.]

What, then, are the government’s competing interests? (1) Registration makes the government “necessarily
‘involv[ed] in promoting’” the mark. “The Government has at least a reasonable
interest in ensuring that it is not involved in promoting highly vulgar or
obscene speech, and that it will not be associated with such speech.” (2) “[S]cientific evidence suggests that
certain highly vulgar words have a physiological and emotional impact that
makes them different in kind from most other words…. These vulgar words originate in a different
part of our brains than most other words. And these types of swear words tend
to attract more attention and are harder to forget than other words.” [Citing a book about swearing (which, in
fairness, may have actual citations) and a study, since this is not in the
record.] Such words may today include “race-based epithets.” He continues:

These attention-grabbing words, though financially valuable to some businesses
that seek to attract interest in their products, threaten to distract consumers
and disrupt commerce. And they may lead to the creation of public spaces that
many will find repellant, perhaps on occasion creating the risk of verbal
altercations or even physical confrontations. (Just think about how you might
react if you saw someone wearing a t-shirt or using a product emblazoned with
an odious racial epithet.) The Government thus has an interest in seeking to
disincentivize the use of such words in commerce by denying the benefit of
trademark registration.

Finally, although some consumers
may be attracted to products labeled with highly vulgar or obscene words,
others may believe that such words should not be displayed in public spaces
where goods are sold and where children are likely to be present. They may
believe that trademark registration of such words could make it more likely
that children will be exposed to public displays involving such words. To that
end, the Government may have an interest in protecting the sensibilities of
children by barring the registration of such words.

Thoughts: (1) if your goal is deterrence, then ordinary
First Amendment jurisprudence does ask (a) does the government have a
legitimate interest in deterring, as opposed to not being associated with, the
speech at issue? and (b) will it work? The
parenthetical explicitly collapses the freedom to use the term with the freedom
to register the mark—and imagines what is likely a non-trademark use, to boot. Given that Breyer has already rested a lot of
weight on continued freedom of use, and also argued that private
companies have incentives to use these terms to attract attention to their
wares despite overall harm to society, this reasoning is incoherent. I am generally sympathetic to Breyer’s desire
not to be so rigid in categories, but there is a point to asking about whether
the speech suppressive measure at issue actually addresses the harm the government
has posited. (2) The second paragraph is
even worse. Some people “may believe” normative
and causal claims—well, are they right?
Even if they’re not right, did we come to have the “scandalous” bar by
some process in which the legislature reasonably accepted their arguments or evidence,
to which the Court should defer? [Answer:
No, that’s not what happened because that’s not what Congress thought it was doing
or needed to do.]

Anyway, he would’ve accepted the government’s narrowing
construction for this facial challenge, trusting to internal agency review to
make sure that the PTO didn’t fall back on its old, bad ways of considering
meaning.

Sotomayor, concurring (on “immoral”)/dissenting, joined by
Breyer: Would have accepted the government’s proposal to limit “scandalous” to obscenity,
vulgarity, and profanity/terms that are offensive because of their mode of
expression and not their content (because she’s outvoted, she doesn’t need to
reconcile the differences between these or explain how the n-word would be
covered). I don’t have much background
in the law of limiting constructions; the opinion reads to me as coherent and
plausible on this point even if I don’t find the specific project to be worth
very much.

Sotomayor recognizes that these would be content-based limits,
with possibly incidental effects on viewpoints, but that is ok when the content
is sufficiently bad (e.g., a ban on fighting words). [More to the point, it can
also be ok when there’s a government program involved.] “Governments regulate vulgarity and
profanity, for example, on city-owned buses and billboards, on registered
vessels, and at school events.” Cohen
v. California was no help to Brunetti because that was a content-based
speech prohibition. It’s true
that “without the profanity, the message is not quite the same,” but that just
gets profanity into the loving arms of the First Amendment. [Sotomayor’s excellent discussion of past
precedent highlights why Tam didn’t involve viewpoint discrimination: it
prohibited disparagement of anyone, rather than aiding a particular side in any
debate, just as she explains that other restrictions of “mode” are
content-based rather than viewpoint-based.]

Once we aren’t talking about viewpoint-based discrimination,
it matters that registration is a discretionary government program. Although four Justices in Tam [wrongly]
refused to analogize to other government subsidy programs, we can usefully
understand registration as a “beneficial, noncash governmental program,” or as something
like a limited public forum. Either way,
“reasonable, viewpoint-neutral content discrimination is generally permissible
under either framework.” (Footnote: not
every registration system would deserve the same treatment, “whether because
not every such system invites expressive content like trademarks or simply
because other forms of registration may not be so ancillary as to qualify
solely as a ‘benefit.’” I’d think this
was aimed at copyright in particular, but the reference to “expressive” is
unfortunate for that.)

What are the government interests making this content-based
regulation reasonable? “Apart from any interest in regulating commerce
itself, the Government has an interest in not promoting certain kinds of
speech, whether because such speech could be perceived as suggesting
governmental favoritism or simply because the Government does not wish to
involve itself with that kind of speech. While ‘there is no evidence that the public
associates the contents of trademarks with the Federal Government,’ registration
nevertheless entails Government involvement in promoting a particular mark.
Registration requires the Government to publish the mark, as well as to take
steps to combat international infringement. The Government has a reasonable
interest in refraining from lending its ancillary support to marks that are obscene,
vulgar, or profane.”

Sotomayor, less a technocrat than Breyer, would want courts
and not just the PTO to police refusals for overextension of “scandalousness”
on an as-applied basis. Sotomayor also identified some other provisions that
could be next on the chopping block: §1052(b) (no flags or insignias); §1052(c)
(no unapproved markers of deceased U. S. Presidents during the lives of their
spouses). But since the majority goes
off on viewpoint discrimination, they’re likely safe from the Supreme Court’s
holding here, if not from the Federal Circuit’s reasoning below.

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lack of specifics, even with certification involved, dooms falsity claim

Posted on June 20, 2019 by rtushnet

Hydro-Blok USA LLC v.
Wedi Corp., 2019 WL 2515318, No. C15-671 TSZ (W.D. Wash. Jun. 18, 2019)

Wedi and Hydro-Blok
compete in the market for construction materials and sealants for use in
bathroom systems, including showers. Wedi accused Hydro-Blok of infringing a
patent in 2014; Hydro-Blok filed a declaratory judgment of non-infringement;
this was dismissed after Wedi represented that it didn’t own and wasn’t a
licensee under the patent. Meanwhile,
Wedi sued defendants for breach of contract and a variety of other claims. The
parties were directed to arbitrate claims for breach of contract, breach of
fiduciary duty, civil conspiracy, and unjust enrichment claims, and also
arbitrated a claim under Washington’s Uniform Trade Secrets Act, which is,
delightfully, known as WUTSA. The arbitrator mostly found against Wedi, and
awarded it $1 in nominal damages on its contract claim.

What remained were
tortious interference, Lanham Act, abuse of process, and Consumer Protection Act
claims against various related defendants.
Wedi’s abuse of process claims failed.
Among other things, given its attorneys’ “repeated representations that
wedi owned the ’900 Patent and intended to take legal action to protect ‘its
patent rights,’ Hydro-Blok was not, as a matter of law, required to
independently investigate whether wedi owned or was a licensee under the ’900
Patent before initiating the declaratory judgment action. Moreover, in asking
wedi and wedi GmbH to identify the owners or licensees of the ’900 Patent,
refusing to dismiss the declaratory judgment action in the absence of a
covenant not to sue, and waiting until after wedi and wedi GmbH declared under
oath that they did not own and were not licensees under the ’900 Patent to
forego the litigation, Hydro-Blok did not, as a matter of law, engage in acts ‘to
accomplish an end not within the purview of the suit.’” Gotta admit, none of that
sounds even noticeably aggressive, much less an abuse of process. Nor was it abuse of
process to counterclaim for abuse of process.
(This sounds like a fun litigation.)

False advertising
under state and federal law: The key
issues here were puffery and falsity.
The following claims were puffery: “Cutting of product is dust free and
quick”/“Environmentally friendly lightweight products with CFC-free XPS foam
core”—both of which had to be understood as relative claims, since cutting
mostly produces some dust or debris, and “environmentally friendly” implied
a comparison as opposed to a promise to have no negative impact on the ecosystem. [These seem like reasons to go for possible
misleadingness over falsity, not reasons these claims are unprovable or even
unbelievable.] Also puffery because not
measurable: “modified cement coating for maximum adhesion of tile & stone”/“When
laid on a floor with your favourite tile or stone, it is commercially rated.” I was a little surprised by the last—there was
declaration testimony that “commercially rated” had meaning in the industry relating
to specific ASTM standards and that the Hydro-Blok products were never tested
using the relevant standard, which would indicate it’s not puffery, but the
court concluded that more was required, since the claim didn’t say outright
that it had passed ASTM testing and didn’t include the quantified rating
language used by other competitors (indicating how many cycles of testing the
tile survived), and there was no evidence that customers had been misled.

Other claims were
puffery because they were general opinions of superiority: “the easiest,
quickest and most user-friendly way to build a water-proof shower or tub
surround at a price you can afford.”/ “the better, easier & more
cost-effective way to build complete shower systems”/ “the most efficient,
light-weighted [sic], 100% water-proof, tile-ready shower system, which can be
installed within [sic] couple hours instead of days, by one person”/. “Speed
and ease of installation for commercial applications can not [sic] be beat”/ “The
BETTER Shower System.”

The remaining
factual assertions, “All HYDRO-BLOK products are IAPMO tested & certified” and
“100% WATERPROOF • HCFC-FREE XPS CLOSED-CELL FOAM CORE,” weren’t proven false.
Although the IAPMO certification claim was made before the certification was officially
issued, it did issue before any Hydro-Blok products arrived in the US. Wedi didn’t show deception or injury
associated with the premature announcement.
Nor did Wedi show that the IAPMO certification was either obtained or
maintained improperly; the certification agreement barred Hydro-Blok from
making any “substantial change” without prior written approval, which was
defined as any change that would make any of the information on the IAPMO certification
documents false or misleading, or would reasonably be deemed to cause the
product to fail to conform to the applicable standards. Wedi provided evidence of quality control
issues and use of some different equipment and components, but didn’t show (or
provide expert testimony) that they resulted in a “substantial change.” With a later certifier, Wedi argued that it
was false/misleading for the new certifier to rely on IAPMO testing and not its
own independent testing, but the certification did in fact issue. A “challenge to the method by which
certification was granted does not form a basis for a false advertising claim
under the Lanham Act or the CPA.”

HCFC-FREE XPS:
Hydro-Blok products contain HBCD, a fire-retardant banned in Canada, but not in
the United States, but HCFC seems to stands for hydrochlorofluorocarbons, substances
composed of hydrogen, chlorine, fluorine, and carbon. HBCD or
hexabromocyclododecane contains bromine and no chlorine or fluorine, and it is
not an HCFC. Thus, the presence of HBCD didn’t make “HCFC-FREE XPS” false or
misleading. One test report did show
testing for 62 CFCs and HCFCs; the test came back “not detected” for all but
two, which had levels of 1.0 and 7.3 μg/g. “Although these levels are above the
detection limit of 0.1 μg/g, they are nominal amounts,” and the testing entity
concluded that the product had “—” ozone-depleting substance, making it “essentially
‘HCFC-free.’”

There was still a
triable issue on tortious interference, given that one individual concededly
shared with some of the defendants confidential information, including
financial data and customer lists, that he acquired while serving as Wedi’s sales
agent.

from Blogger http://bit.ly/31L8tMM

Posted in Uncategorized | Tagged dooms falsity claim false advertising, even with certification involved, lack of specifics, tortious interference | Leave a comment

variety in superiority claims can add up to disparagement

Posted on June 20, 2019 by rtushnet

Deerpoint Group, Inc.
v. Agrigenix, LLC, 2019 WL 2513756, No. 18-CV-0536 AWI BAM (E.D. Cal. Jun. 18,
2019)

Deerpoint sued
Agrigenix for violating the Lanham Act and California’s UCL via false
advertising, violating California and federal trade secret law, and related
claims. Deerpoint allegedly provides chemical water treatment solutions for
agriculture irrigation, using custom-blended fertilizers and patented precision
feeding equipment. Its former CEO
allegedly took confidential information, sued Deerpoint/filed an administrative
complaint with the California Department of Fair Housing and Employment, and
formed a competitor, Agrigenix. Its
fertilizer blends were allegedly copied from Deerpoint and it allegedly
installed at least four devices that copy the feeding equipment. Agrigenix allegedly
told Deerpoint’s customers that it is “the same as Deerpoint with a twist,” and
four large clients of Deerpoint, representing $2.4 million in revenues, switched
to Agrigenix. The parties settled the ex-CEO’s case with an agreement including
a provision that acknowledged that his obligations to keep Deerpoint’s trade
secrets secret were still in force.
Unsurprisingly given the posture, the trade secret claims were not
dismissed.

Intentional
interference with prospective economic advantage: defendants argued that the requisite
independently wrongful act alleged, disparagement, wasn’t sufficient because the
alleged statements were puffery, opinions, too vague, or hyperbole and
invective from a competitor.

The challenged
statements: (1) Agrigenix is the same as Deerpoint with a twist; (2) Deerpoint
is failing and will lose all of its customers to Agrigenix; (3) Mahoney is not
obligated to maintain Deerpoint trade secrets; and (4) Agrigenix’s products are
20% better than Deerpoint’s while being 20% cheaper. Deerpoint argued that
these were necessarily claims that “Agrigenix had superior products when, in
reality, it only had copies of Deerpoint’s proprietary products.” Viewing the allegations in the light most
favorable to Deerpoint, statement (2) could be disparaging. “While some courts
have held that statements about a company’s future financial stability are
non-actionable opinions, the statement alleged in the FAC is alleged in current
terms – Deerpoint is failing. Moreover, given [the ex-CEO’s] past connection
with and knowledge of Deerpoint’s operations, Deerpoint’s customers may have
been more likely to believe the statements were true ….”

Perhaps more
surprisingly, (1) and (4) when read together could be disparaging. By themselves, they were either opinion or puffery,
given the meaninglessness of “with a twist” and the uncertainty of what it
would mean to be “20% better.” But read
together, they reasonably indicated superiority when in fact they were the
same. [The problem that other courts
would find is that the nature of the superiority is still completely undefined.]

(3) was a statement
about the ex-CEO’s own obligations, and it didn’t disparage Deerpoint or indeed
say anything about Deerpoint.

The UCL claim
survived because it was based on the intentional interference claim, which is a
little backwards (why not just go for false advertising directly?) but ok.

from Blogger http://bit.ly/2RsQTIp

Posted in Uncategorized | Tagged false advertising, tortious interference, variety in superiority claims can add up to disparagement disparagement | Leave a comment

Trade dress question of the day, all out of bubble gum edition

Posted on June 20, 2019 by rtushnet

Do the makers of Bazooka have a valid claim against this … whatever it is? (Toy handed out at a birthday party, apparently known by preteens as a “squishy.”)

from Blogger http://bit.ly/31OfwUH

Posted in Uncategorized | Tagged all out of bubble gum edition trademark, Trade dress question of the day | Leave a comment

Uncommon sense on the presumptions granted by registration

Posted on June 17, 2019 by rtushnet

Uncommon, LLC v.
Spigen, Inc., No. 18-1917 (7th Cir. Jun. 11, 2019)

The PTO has
sometimes found “capsule” merely descriptive of cellphone cases, but it also
allowed Uncommon to register CAPSULE for such cases in 2013. (A prior registration for “capsule” for such
cases was cancelled in 2015 for failure to renew.) Uncommon sued a rival, Spigen, that also used
the term and had done so since 2010, with no knowledge of Uncommon’s use.
Spigen applied to register “Capsule Capella,” “Capsule Solid,” and “Air Capsule,”
but the PTO decided that “capsule” was descriptive. Capsule Solid ended up on
the Supplemental Register, and the PTO required Spigen to disclaim “capsule” for
Capsule Capella. It also initially
refused “Rugged Capsule” and “Capsuled Ultra Rugged” on grounds of
descriptiveness and confusion with Uncommon’s mark; those applications had been
suspending pending this litigation. The district court granted Spigen summary
judgment and the court of appeals affirmed, saying some things about
registration.

the accused cases

Uncommon’s cases

Spigen produced a
survey to prove that consumers didn’t associate “capsule” with Uncommon’s
cases, and it erroneously disclosed the person who conducted the survey as a
“non-testifying expert.” Admitting the survey anyway wasn’t an abuse of
discretion on these “unusual” facts, because Uncommon gamed the system by not
seeking discovery or other corrective measures when the error became manifest,
and it was reasonable to call the error harmless. (The court suggested that it also would’ve been
fine to exclude the survey: survey evidence generally requires a foundation,
which will require expert testimony.)

With the survey,
there was no genuine issue of material fact: the registration was invalid and
there was no mark to protect, or any likelihood of consumer confusion.

The registration was
prima facie evidence of validity. It
allowed one of two presumptions, but not both: if the mark was registered
without a requirement of showing secondary meaning, it would be presumed inherently
distinctive; if it was registered as descriptive with secondary meaning, it
would be presumed to have such meaning. Since Uncommon didn’t register under
§2(f), the presumption was of suggestiveness.

The Seventh Circuit
has said that the presumption is “easily rebuttable, since it merely shifts the
burden of production to the alleged infringer.” The presumption “evaporates,”
or “burst[s],” when the challenger presents evidence of invalidity. Some have criticized this approach; though
the Seventh Circuit doesn’t say so explicitly (somewhat surprisingly, given the
general frankness of that court’s approach), the PTO’s inconsistent practice
here demonstrates the wisdom of the Seventh Circuit’s rule. Fundamentally,
examination is not nearly as rigorous as the testing provided by litigation,
and where B&B preclusion doesn’t apply, it makes sense to take
another look once the challenger has provided reason to do so. (Of course, this doesn’t help much for
incontestable registrations, whether or not registered under §2(f), but you do
what you can.) But anyway, even if
Spigen had both burdens, production and persuasion, it would win here.

A descriptive mark “need
not describe the product completely, but it must depict an important
characteristic of the product.” By contrast, a suggestive mark “requires the
observer or listener to use imagination and perception to determine the nature
of the goods.” Drawing the line can be done by looking at “how, and how often,
the relevant market uses the word in question.” The answer is a lot, and
descriptively. At least ten competitors
used the word in their case names; one was even named Capsule Case Corp. Previous cases have used the prevalence of “bliss”
in the beauty care market and “platinum” in the financial services market to
deem those terms descriptive; so too here.

Uncommon argued that
these were all infringers “freeloading on Uncommon’s good reputation with
consumers.” But there was no evidence of such a good reputation, or even evidence
of copying. Uncommon also argued that, in the internet age, people throw lots
of words into their product names to get hits, so competitors’ use of the term
should be discounted. That didn’t make
sense; in fact, the example showed lots of descriptive terms packed into a long
name.

Likewise, using the
imagination test, “capsule” was descriptive.
“The mark directly conveys an idea: coverage, storage,
protection—encapsulation—all of which the cellphone cases provide, according to
Uncommon’s registration.” It didn’t depend on the technical meaning of
capsule. The Seventh Circuit is also
dubious about using dictionaries, “because dictionaries often cite historical
and dated definitions.” But the dictionary
here reaffirmed what the market’s use and imagination test already revealed:
“capsule” describes cellphone cases. Spigen’s evidence included definitions
like: “a small case, envelope, or covering,” “any object that can be used to
hold things,” and a “small container.” “A cellphone case obviously fits the
bill.” The district court shouldn’t have
relied heavily on them, but they weren’t “obscure, functionally irrelevant, or
out-of-date” and could legitimately constitute “a piece of the puzzle.” Thus, “if,
hypothetically, consulting dictionaries revealed that they do not define ‘capsule’
in a manner that so easily fits cellphone cases, Uncommon might have evidence
in its favor. A factfinder could potentially infer from such omissions that ‘capsule’
does not describe cellphone cases.”

The court of appeals
declined to rely on third-party registrations.
The PTO granted Vatra’s registration and Uncommon’s, but “more often
than not, and more recently,” it decided that “capsule” was merely
descriptive. “[G]iven the internal
inconsistency, we find little that can be reasonably gleaned from the Office’s
registration decisions.” [Which is why
the bubble-bursting presumption is a good one.]

Uncommon had one
more bad argument, which was that, because “capsule” could describe an array of
products, it couldn’t be descriptive. Although some circuits—including,
appallingly, the Second—have endorsed this reasoning, the Seventh has it
right. “A term need not ‘bring to mind
the product in question’ to be descriptive, nor must it ‘depict the [product] itself.’
It is enough that the mark in fact ‘refers to a characteristic of the’ product.”

Uncommon relatedly pointed
to the survey, which showed that consumers don’tt often associate “capsule”
with cellphone cases (only 14 percent of the time). Again: “A descriptive mark
need not immediately invoke in the consumer’s mind the product itself; it must
directly convey a characteristic of the product.” Thus, “Work-N-Play” as a name
for vehicles with convertible interiors was descriptive not because consumers
quickly associate “Work-N-Play” with interior-convertible vans, but because the
vans were in fact “usable both for work and for play.” “Consumers may not
immediately think ‘cellphone cases’ when they hear ‘capsule,’ but ‘capsule’ describes
a quality of cellphone cases all the same.”
[Other courts, please take heed. Big is descriptive for every one of the
many, many things that are big.]

With the
registration’s presumption of inherent distinctiveness rebutted, the court
turned to secondary meaning. Since it
wasn’t a §2(f) registration, there was no presumption here. Spigen submitted one of the more “helpful”
kinds of evidence: the survey, which showed that very few customers (six
percent) were familiar with “capsule” as a brand name; only slightly more (14
percent) could connect the mark to cellphone cases when prompted; and barely
any (less than one percent) associated “capsule” with Uncommon. Even assuming
that manner and length of use favored Uncommon, no factfinder could reasonably
decide that a substantial number of consumers think of “capsule” as the product
of one cellphone-case maker.

Uncommon argued
that, because “capsule” had a similar amount of consumer recognition as a few
other brands in the survey, it had “reached a level of distinctiveness.” No,
because none of the “capsule” comparators had much recognition either (citing
McCarthy and past judicial requirements of at least 37% recognition).

Confusion was also
unlikely. “[V]iewing the record in
Uncommon’s favor, as we must, the similarity of the marks favors
Uncommon, albeit slightly,” as did product similarity and area/manner of use
(they’re sold nationwide through online retailers). “But the inference to which Uncommon is
entitled is not a strong one. Selling through Amazon and eBay is ubiquitous,
and it is hard to devise a more generalized customer base than nationwide
cellphone owners.” The products were
cheap, meaning consumers wouldn’t exercise much care.

But the remaining
factors decisively favored Spigen, particularly strength. The court of appeals called “capsule” a “weak
mark,” but of course, lacking inherent or acquired distinctiveness, it is not a
mark at all. There was no other evidence
of the marketing power of the mark, and neither party’s cases featured “capsule”
prominently.”We fail to see how there is a likelihood of confusion caused by a
mark that is hardly featured.” There was also no evidence of actual consumer
confusion or an attempt to pass off. “The marks are, at
most, barely similar, and they are too weak to confuse any purchaser,
especially in the absence of evidence of any intentional freeloading.”

[On this record, they’re
not marks! You were doing so
well! I suspect the desire to call these
terms “marks” has to do with the abandonment of passing off as a separate tort,
as indicated by the repeated reference to intentional copying—the court of
appeals has in the back of its collective mind that maybe sometimes intentionally
confusing copying (as opposed to copying to achieve some non-reputation-related
reason, like the fact that “capsule” is a useful descriptive term) should be
actionable. But you don’t actually need
a “mark” to make that tort work, as Mark McKenna often reminds us.]

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Posted in Uncategorized | Tagged trademark, Uncommon sense on the presumptions granted by registration surveys | Leave a comment

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Rebecca Tushnet

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Uncommon sense on the presumptions granted by registration

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