Apple’s misleading use of “episode” to describe promo clips could lead to liability (w/o its contract)

Posted on March 20, 2019 by rtushnet

Zaragoza v. Apple Inc., 2019 WL 1171161, No. 18-cv-06139-PJH
(N.D. Cal. Mar. 13, 2019)
Plaintiffs sued Apple for how it sells TV seasons on its
iTunes store. The home page for each season “provides general information about
the season and three purchasing options,” which include buying individual
episodes, buying an existing full season, and buying all current and future
episodes of an as-yet-to-be-completed season (Season Pass). Apple represents
the number of “Episodes” available in a season on each season’s home page, with
individual video clips in a horizontally scrolling list along the bottom, with
cost information and text along with a thumbnail image.

Plaintiffs alleged that Apple delivers fewer than the
advertised number of episodes with its “Buy Season” or “Season Pass” options,
because Apple counts both promotional videos and what consumers allegedly
understand the word “episode” to mean—plot-based episodes of a television
show—in its advertised number of episodes. Plaintiffs thus received fewer
episodes than they believed they were purchasing, and also received a smaller
discount by buying the entire season than they believed they were getting
compared to buying individual episodes. For example, plaintiff Zaragoza
purchased a season of “Genius: Edison” that advertised “13 Episodes” at the
time of purchase, but only six of those 13 were plot-based episodes, and seven
were promotional videos. By season’s end, Zaragoza received only four more plot-based
episodes and iTunes was advertising “22 Episodes,” which included ten
plot-based episodes and 12 promotional videos. Likewise, iTunes ultimately advertised
“17 Episodes” for the first season of “Killing Eve,” but only eight of those
videos were actually “episodes,” as plaintiffs allegedly understood the term.
Each “episode” can also be selected, which then presents
more detail about it, including a title, the “episode number,” the length of
the video clip, its individual price, and a written description.
Apple argued that plaintiffs’ interpretation of “episode”
was implausible and that a reasonable consumer had to understand that “episode”
includes advertisements, trailers, promotional videos, and other videos that
are not part of the show’s narrative. Apple contended that its scrollable list
of videos appearing immediately below the word “Episode” provided context that
necessarily dispels any belief to the contrary.
This was not the “rare situation” where plaintiffs’ alleged
understanding of the word “Episodes” was implausible as a matter of law. “It is
plausible that consumers understand the word ‘Episode’—particularly in the
context of a description of a season of a television series—to mean an episode
that is part of the television show’s season, and not a commercial for the show
or another type of promotional or behind-the-scenes video. Reviewing the word’s
definition in readily-available dictionaries confirms that plaintiffs’ alleged
understanding could be found reasonable by a trier of fact.” [Notably, those
dictionary definitions didn’t suggest that Apple’s interpretation was also
reasonable.] Though context does matter, the court wasn’t willing to hold that,
as a matter of law, a reasonable consumer must scroll through the list of
videos in sufficient detail to view the curative information. Moreover, there
was a factual issue about what consumers of the Season Pass feature would be
able to view in the list of videos when making their purchases. “The Apple TV
appears to make no representation about how many future episodes there will be,
but rather reports only on the total number of video clips associated with a
show’s season at the time the consumer views that season’s home page.” If it
said there were 10 episodes at the time of purchase and there were 5 narrative
episodes and 5 promo videos at the time, a reasonable consumer might expect
that 10 episodes was the total number of narrative episodes in the season.
Moreover, there were factual questions “concerning how much a consumer would
have to investigate into the Apple TV menu structures to be exposed to much of
the allegedly-curative information Apple describes.”
Apple also argued that it didn’t sell “goods or services”
within the meaning of the CLRA, but only licenses to view content. The CLRA definitions
say “(a) “Goods” means tangible chattels bought or leased for use primarily for
personal, family, or household purposes, … (b) “Services” means work, labor,
and services for other than a commercial or business use….” And it provides that
it “shall be liberally construed and applied to promote its underlying
purposes, which are to protect consumers against unfair and deceptive business
practices and to provide efficient and economical procedures to secure such
protection.” The complaint alleged that the “Season Pass” was a service, including
a promise to offer current and future episodes for viewing on an ongoing basis
as the season progresses. The court refused to take judicial notice of the
alleged contract between the parties. Though these purchases weren’t “tangible
chattels,” plaintiffs plausibly alleged a purchase of services and there was at
least a factual dispute. [We call VOD a service, even if it inherently involves
“licenses” as well.]
Warranty claims survived for similar reasons, though the
California U.C.C. applies only to contracts for the sale of “goods.” Unlike
under the CLRA, goods are “all things (including specially manufactured goods)
which are movable at the time of identification to the contract for sale[.]” Courts
look to the “essence of the agreement” and “have generally found that
‘mass-produced, standardized, or generally available software, even with
modifications and ancillary services included in the agreement, is a good that
is covered by the UCC.’ ” Plaintiffs adequately alleged that the essence of the
agreement concerned the sale of the episodes. (See also the “Buy Now” button
and this
very helpful article by Aaron Perzanowski & Chris Jay Hoofnagle.)
“Episode” could be an affirmation of fact or promise relating to the goods sold
and therefore a warranty.

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Lanham Act claim based on patent threats fails even with invalidation of the patent

Posted on March 20, 2019 by rtushnet

American Fireglass v. Moderustic, Inc., — F.Supp.3d —-,
2019 WL 1227963, No. 15-CV-2866 JLS (BGS) (S.D. Cal. Mar. 15, 2019)
The parties compete in the market for pieces of broken
tempered glass for use in fireplaces and fire pits (Moderustic also sells
“fireglass” for use in aquariums), where it apparently gives an appealing
visual effect (fire on ice). Moderustic obtained a patent for a method of
creating tumbled tempered glass and began contacting American Fireglass, its
dealers, and other glass sellers alleging infringement. In a newspaper article,
its principal stated that “he hopes to shut down competition and bring his
annual sales up.”
American Fireglass originally tumbled many of its products,
but by November 2014 it had completely “stopped tumbling the tempered glass
fragments that it sold because tumbling slowed production and caused the glass
fragments to become scratched and dull and less desirable.” It “began removing
references to tumbling its fireglass from its advertising and promotional
material, including its web site.” However, it “mistakenly overlooked some
products that appeared on its website” but “removed these remaining references
to tumbling … immediately after it was brought to [Plaintiff’s] attention in
August 2016.”
American Fireglass sued Moderustic to invalidate the patent
and for its patent-related threats; Moderustic counterclaimed for false
advertising about tumbling. The court invalidated the Moderustic patent as
obvious. Its remaining counterclaim, false advertising, survived summary
judgment because the claims on the website were literally false as to some
products, and there is no “de minimis damage” exception to the Lanham Act. [The
real issue here sounds like it might be materiality.] “[A]n inability to show
actual damages does not alone preclude [ ] recovery” under the Lanham Act, but
the real issue was American Fireglass’s lack of evidence on lack of harm.
Moderustic sought summary judgment on the patent-based
Lanham Act/UCL claims. In the Ninth Circuit, “where Lanham Act claims … are
based on a defendant’s representation that someone infringed his patent,
plaintiff must show that defendant’s representation was made in bad faith.” Moderustic’s
statements in letters that it had been issued patents covering its methods
weren’t literally false—it had an issued patent at the time, and while the PTO
had rejected a different patent, “it was technically being reconsidered by the
Federal Circuit at that time the letters were sent” and the letter clearly
indicated its status. Thus, no reasonable jury could find the statements
misleading, especially since the second patent was duplicative of the first.
Nor was there evidence of bad faith. “Without a showing that
Defendant had some malicious intent, rather than simply asserting its rights as
the patentholder, the Court cannot find bad faith present here.” The same
result obtained under California’s UCL.

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commercial speech requirement defeats Lanham Act claim against competing news channel

Posted on March 20, 2019 by rtushnet

Tang v. Guo, No. 17 Civ. 9031 (JFK), 2019 WL 1207859
(S.D.N.Y. Mar. 14, 2019)
Plaintiff Tang is a political activist, author, and “one of
the leading Chinese political dissidents.” He currently runs two pro-democracy
nonprofit organizations and co-founded the online, independent media outlet
“Conscience Media,” which are supported with donations. Tang also “conducts and
host[s] conferences and fundraising events.”
In early to mid-2017, defendant Kwok, “a Chinese
multi-billionaire and real estate mogul,” began to market a YouTube series,
“Everything Is Just Beginning.” Tang alleged that the real purpose of
“Everything Is Just Beginning” “was to compete with Mr. Tang personally and
socially, as well as professionally, in the online media business.” Kwok
allegedly “began to contact Tang’s potential donors” to dissuade them “from
doing business with or contributing to … Tang or his online media outlet,
Conscience Media.” Kwok also began posting “taunting material and defamatory statements”
about Tang and his wife Jing on YouTube and Twitter, accusing them of being
spies and accusing Tang of defrauding donors and of being a “swindler” and
convicted rapist. As a result, many individuals allegedly cancelled their
upcoming trips to Tang’s Democratic Revolutionary Conference and Tang lost
donors to his organizations and website.
Tang sued for violation of the Lanham Act and brought
various state law claims for slander, tortious interference, and the like. The
court dismissed the Lanham Act claim for want of commercial speech, and
declined to retain jurisdiction over the pendent state claims.
Tang argued that Kwok’s web postings were commercial speech
because he made them to divert viewers and donors from Tang’s media platform to
“Everything Is Just Beginning.” In addition, Kwok allegedly presented links to
his real estate properties alongside his videos. The court found that Tang
failed to adequately allege economic motivation from his communications on
YouTube, Twitter, and to individual donors. Though Kwok allegedly sought to
gain viewers, they didn’t allege that he intended to profit from that increase
by, for example, ad revenue or donations. As to links to Kwok’s Chinese
properties, there were no allegations that Kwok’s communications were made with
the intent of gaining potential customers to his real estate ventures. As the
court noted, the subject matter of the videos didn’t relate to Kwok’s hotel
business.

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Expedia’s “sold out” labels and diversionary phone numbers for hotels lead to class certification

Posted on March 19, 2019 by rtushnet

Buckeye Tree Lodge & Sequoia Village Inn, LLC v.
Expedia, Inc., No. 16-cv-04721-VC, 2019 WL 1170489 (N.D. Cal. Mar. 13, 2019)
Really interesting false advertising class action, with a
smaller-than-plaintiffs-wanted class of hotels certified against Expedia, which
offers hotel bookings on its websites. The plaintiffs own hotels that are not
available through Expedia. Apparently, the information of a hotel that hasn’t
contracted with Expedia sometimes “finds its way onto one of the numerous
websites Expedia operates, including Expedia.com, Hotels.com, Orbitz.com, and
Travelocity.com.”  When customers search
for their hotels on Google or within one of Expedia’s websites, Expedia
allegedly falsely suggests that these hotels can generally be booked on the
websites, but that they are “sold out” for the period that the customer wants
to book them. Expedia then allegedly steers customers to similar hotels that
are, in fact, available on its websites. 
I’m interested in what Eric Goldman will think—he generally doesn’t like
holding websites liable for design features, but “sold out” sure seems likely
to mislead consumers. The Lanham Act is strict liability, and it may make sense
to require advertisers to bear the costs of mistakes like this one–as this case indicates, they lack nonlegal incentives to fix the problem on their own.
An ad on Google may offer a customer the chance to book a room at the searched
hotel through Expedia’s websites. When the customer clicks on the ad and
navigates to the “infosite” page for that hotel on Expedia’s sites, they will
see a picture of the hotel, a map of where it’s located, a star rating, and
details about the property’s amenities, like parking, wifi, and breakfast. Sounds
pretty standard for a website that can provide bookings, but … “Next to the
hotel’s name and information, the website will communicate some variation of
the message: ‘We are sold out.’” The same basic thing happens to a customer who
starts searching on an Expedia site and picks a specific not-carried hotel from
the list of search results.
Expedia also lists a phone number with each hotel, both on
the infosite and search results pages. But “[t]he numbers simply connect to the
Expedia call center,” and call center employees are trained on how to handle
“customers [who] think they are calling the hotel directly,” “[b]ecause … the
placement of our phone numbers within the hotel search results or on the hotel
details page of the website[ leads] some customers [to] think they are calling
the hotel directly.” The employees are instructed to encourage callers to book
at hotels that have booking agreements with Expedia.  (Okay, even I think an initial interest
confusion claim passes the laugh test here.)
For named plaintiff Buckeye Tree Lodge, from January 2015
through August 2016, 149 people landed on the Buckeye infosite page on Expedia;
four of those people subsequently made a reservation with another hotel during
the same visit to the website.  Only one
of the named plaintiffs was able to get itself removed from Expedia before
joining the lawsuit; the others weren’t until they sued/joined the suit.
To certify a Rule 23(b)(2) class to pursue injunctive
relief, the plaintiffs needed to show standing, including a likelihood of
future injury for the class. Expedia argued that the named plaintiffs lacked
standing because they weren’t listed on the websites anymore. But defendants can’t
“rob a court of jurisdiction by taking strategic unilateral action to moot a
plaintiff’s claims before the plaintiff has had the opportunity to seek class
certification.” Expedia’s reform wasn’t “genuine, irrefutably demonstrated, and
comprehensive”: there was no evidence that it had “made a meaningful attempt to
ensure that its website will stop suggesting that hotels it cannot book are
sold out.” Indeed, the court thought that the named plaintiffs themselves could
end up on Expedia’s websites again because Expedia hadn’t taken measures to
stop that.
Rule 23(a)’s numerosity, commonality, typicality, and
adequacy of representation requirements were satisfied, as was Rule 23(b)(2)’s
condition that the plaintiffs seek “uniform relief from a practice applicable”
to the whole class, but only for a specific class: “owners of hotels that do
not have booking agreements with Expedia and are not capable of being booked
through Expedia, but appear on Expedia’s websites.”  Commonality was the only serious question,
and proceeding as a class would generate common answers to the false advertising
requirements given the facts above. Did the phone numbers mislead consumers? Did “We are sold out” mislead the reasonable consumer
to think that the hotels are fully booked? If so, were the hotels likely to
lose business due to Expedia’s conduct? Classwide evidence could be provided,
including through surveys.
Expedia argued that it used different language during the
class period, including “We have no rooms available for your selected dates
…”, “No rooms available on our site for the selected dates …”, or “Sorry,
the [hotel name] is not available on Hotels.com for your travel dates. You may
choose alternative travel dates OR select from the hotels below.” It didn’t
track which unavailability messages were displayed to which customers. However,
three of the websites used the same unavailability message on their search
results page throughout the class period: “We are sold out.” Further, the
messages weren’t so different or so numerous that they couldn’t be evaluated
through common proof. And because a class was being certified only for
injunctive relief, the plaintiffs might only need to evaluate the current messages.
Expedia also argued that typicality was defeated by the
myriad unique ways through which the plaintiffs’ information landed on the
websites. For example, named plaintiff Buckeye had begun the onboarding process
to create an account with Expedia, but ultimately did not go through with the
agreement. Plaintiff Mansion’s information got to Expedia because the hotel had
contracted to share its information with a third party, TravelClick, that
itself disseminated the information to three distribution systems, which in
turn gave the information to Expedia. When the Mansion ended its relationship
with TravelClick, two of the distribution systems failed to tell Expedia that
it would no longer be providing the Mansion’s data, and the other named
plaintiffs had similarly complicated stories of data-sharing.
But the plaintiffs were all not capable of being booked through
Expedia, which made the Lanham Act question of deception uniform.  Other common questions included: “Given the
automated-but-disorganized nature of the online travel industry, does the
Lanham Act impose on Expedia an affirmative obligation to institute controls to
ensure that its systems are not causing customers to be misled about
availability at unaffiliated hotels? And if so, is Expedia satisfying this
affirmative obligation?”
And injunctive relief would uniformly benefit the class
members. “Expedia could also be required to clearly indicate when listed phone
numbers connect directly to its call centers. It could be enjoined to ensure
that Google ads pertaining to unbookable hotels clearly say as much. And … Expedia
could be ordered to take measures to better comb its system to ensure that
unaffiliated hotels are not being listed in the first place.”
The court declined, however, to certify a Rule 23(b)(3)
class to seek disgorgement Expedia’s profits for want of predominance. Plaintiffs
“failed to proffer a model or a legitimate theory for how those damages would
be estimated, let alone disseminated among class members.” They couldn’t
explain how they’d prove sales related to Expedia’s false advertising. An
earlier model estimated the percentage of all hotels in Expedia’s inventory
that were actually unaffiliated and were marked, like the plaintiffs’ hotels
were, as “sold out.” Plaintiffs’ counsel previously proposed that their
disgorgement award should be that percentage of Expedia’s total revenue, but
that percentage wasn’t logically connected to consumers’ reaction to the false
advertising here.  Nor would the court certify
a limited class action to decide common issues of liability under Rule 23(c)(4)
class, because that wouldn’t advance the disposition of the litigation as a
whole.

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consumer successfully pleads falsity for “weight management” supplement

Posted on March 19, 2019 by rtushnet

Nathan v. Vitamin Shoppe, Inc., 2019 WL 1200554, No. 17-cv-01590-BEN-KSC
(S.D. Cal. Mar. 12, 2019)
Vitamin Shoppe sells Garcinia Cambogia Extract with a label
promising “Weight Management” and “Appetite Control.” Nathan alleged that this
was false and misleading, since GCE (also known as HCA) can’t deliver those
benefits over placebo. Dismissing a previous complaint, the court emphasized a
distinction between “Weight Management” and “Appetite Control” and the alleged
misrepresentations about weight loss, which the court thought was completely
different. (Given the reasons most, perhaps all, people take supplements to
manage their weight and control their appetites, I consider that exactly the
kind of legalistic distinction that consumer protection law is supposed to
protect consumers against.)
In the amended complaint, Nathan added references to more
studies and alleged misrepresentations about weight management and appetite
control specifically.  
First, this wasn’t a pure lack of substantiation claim.  “[A]n advertising claim is false if it has ‘actually
been disproved,’ that is, if the plaintiff can point to evidence that directly
conflicts with the claim.” Nathan did so here because her cited studies tested,
among other things, whether the supplement might affect body weight regulation
by inducing satiety and reducing food intake, and found no statistically
significant difference from placebo, showing that it was ineffective “with
respect to satiety and energy intake.” 
The study measured variables relevant to “Appetite Control” and “Weight
Management” (e.g., hunger, appetite, anticipated food intake, desire to eat,
fullness, satiety, and thirst) and reached a conclusion contradicting the label
claims.
Nathan further alleged that, “for a supplement to be
effective in aiding weight management, it must help users either (1) lower
their energy intake, (2) increase their energy output, or (3) otherwise alter
the manner in which the body processes the energy they consume.” As pled, her
cited studies indicated that the supplement did none of these things: the
supplement didn’t change calorie intake, metabolism or energy expenditure, or
fat oxidation (the only relevant mechanism for (3)).  The court declined to parse the studies
further on a motion to dismiss.
Vitamin Shoppe argued that no reasonable consumer would be
deceived because the label didn’t include words like “weight loss” or “appetite
reduction,” and provided a disclaimer: that its “statements have not been
evaluated by the Food and Drug Administration,” and it “is not intended to
diagnose, treat, cure or prevent any disease.” Nonetheless, it was still
plausible that a consumer would be misled by “weight management” and “appetite
control.” Nor would the disclaimer (which of course doesn’t actually disclaim
any of the allegedly false/misleading parts of the statement, even if it goes
indirectly to the level of proof behind them) suffice on a motion to dismiss.
Vitamin Shoppe argued, as the awful and
now-rejected-in-the-9th-Circuit In
re GNC case did, that “the mere existence of scientific support and an
acknowledgement that the issue is not settled are fatal to Plaintiffs claims.” That
was a weighing of the evidence inappropriate on a motion to dismiss.
The court also declined to stay the case under the primary
jurisdiction doctrine. This was “a typical false advertising case well within
the province of the courts,” and there was no evidence that the FDA had any level
of interest in regulating GCE products in this context.
Under settled law, though, Nathan couldn’t assert claims for
injunctive relief because she alleged the product was worthless, so she’d have
no reason to buy it if the labels were trustworthy.
Rule 9(b): it was enough to allege that in approximately
“February 2017 in San Diego,” she “purchased a 180-caplet bottle of [the
Product] for approximately $20 from Vitamin Shoppe” without identifying the
exact address, date of purchase, purchase price, or whether she paid cash or
credit. Nor was she required to allege that she consumed the product, that she
took it as directed, or her weight and exercise habits, none of which were
relevant to the alleged mislabeling.
For the reasons discussed above, she also properly alleged a
breach of express warranty claim: these were plausibly affirmations of fact or
promise, not “merely indications of use for the Product.” So too with the
implied warranty of merchantability; her claims plausibly indicated that the
product was “not ‘fit for the ordinary purposes for which such goods are used’
or fails to ‘conform to the promises or affirmations of fact made on the
container or label.’” She wasn’t required to try the product to bring these
claims.

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mere market participation insufficient to allege standing in noncomparative advertising case

Posted on March 19, 2019 by rtushnet

AAVN, Inc. v. Westpoint Home, Inc., 2019 WL 1168102, No.
17-CV-8329 (N.D. Ill. Mar. 13, 2019)
AAVN sells woven textile fabrics, including fabrics made
from a cotton-polyester blend. AAVN’s president owns patents that teach a
method of manufacturing a cotton-polyester blended textile to successfully
achieve high thread counts. WestPoint sells bed sheets it advertises as 1,200
thread count sheets, but that allegedly have a 257 or 236 thread count according
to a third-party laboratory test of two samples.
The court found that AAVN lacked standing.  AAVN didn’t allege that it markets or sells
high thread count sheets, and it didn’t connect how the alleged false
advertising on WestPoint’s sheet packaging harms AAVN. Nor did it allege how
deception of WestPoint customers would harm AAVN’s reputation for purposes of
proximate cause.  [Lexmark has the potential to contract standing in non-concentrated
markets, which this may well be.]  Even
if AAVN had a subsidiary selling high thread count textiles, that didn’t conver
standing on the parent corporation, and even if it could sue on behalf of a
subsidiary, there was still no link alleged between WestPoint’s alleged false
advertising and its own sales or reputation. “Although under some circumstances
a plaintiff may present a viable complaint without alleging specific damages,
AAVN’s failure to allege how influence of WestPoint’s customers actually
impacts AAVN’s business proves fatal.”
Then, and quite unnecessarily, the court said that AAVN “fails
to assert any specifics regarding the process by which Vartest determined that
WestPoint’s sheets had a lower thread count than advertised.” That doesn’t seem required by Twiqbal.

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misrepresentation that OSHA rules required certain tools was literally false

Posted on March 19, 2019 by rtushnet

Louisiana-Pacific Corp. v. James Hardie Building Products
Inc., 2018 WL 7272047, No. 18-cv-00447-JPM (M.D. Tenn. Dec. 20, 2018)
“This is an unfair trade practices action between two fierce
competitors in the residential and multi-family home siding market.” Defendant JH
is the dominant producer of cement board (Hardie Board), though the court
redacted details about its percentage in that category. LP is the industry
leader for OBS, “a type of engineered wood siding and a product which is
synonymous with its brand.” It uses agents such third party defendants The
Kruse Brothers to provide training seminars across the U.S. that compare LP’s
products with others in the industry including JH.
The court granted a preliminary injunction against one LP
sales sheet but not against the other claims challenged by JH (both parties
were challenging each other’s ads).  Respirable
crystalline silica (RCS) is a potentially dangerous dust byproduct from cutting
fiber cement, and OSHA standards explain when levels of RCS require additional
safety measures. An Action Level (25 micrograms per cubic meter of air averaged
over an 8-hour work day) triggers a specific standard, which includes a
suggested table of safety measures meant to assess and limit exposure.  Some of the options include not using a
circular saw, warning other people nearby, and, in certain circumstances, using
a respirator.
LP and The Kruse Brothers made statements in English and
Spanish that circular saws are now prohibited and respirators are a requirement
when cutting fiber cement. LP’s OSHA sale sheet included a summary of the
requirements of new OSHA Regulations and included a heading “Special Tools Now
Required For Cutting Fiber Cement,” under which it listed specific anti-dust
features for saws and respirators. JH argued literal falsity because those
measures don’t apply if RCS does not rise to the Action Level or if the
employer assess and limits exposure below the permissible level. The court
agreed. “LP’s language conveys that a worker cannot comply with OSHA
regulations without following each of the bulleted requirements. Labeling those
bullets points as requirements is literally false” because an employer can do
other things to limit exposure (though the court doesn’t explain how likely
that is to be possible).  Without
qualifications such as “if an employer chooses to follow the Table 1 safe
harbor they may be required to…” the bulleted statements “would be understood
as categorical.”
An LP rep sent an email to various third parties, customers,
and potential customers after the new OSHA silica rule came out likewise
claiming that “OSHA regulations prohibit the utilization of a standard circular
saw for cutting fiber cement siding. Doing so, could result in an OSHA imposed
citation,” though he later acknowledged that a circular saw could be used with
a dust collection system to cut fiber cement siding.  OSHA gives specific recommendations as to how circular
saws can be used within the Table 1 safe harbor provisions; his statement was
literally false, though the statement that using a standard circular saw “could
result in an OSHA imposed citation” was neither literally false nor misleading.
Similar, but more disputed, claims were allegedly made by
the Kruse Brothers at LP training sessions. 
If phrased as absolutes, they’d be literally false, but statements that
workers might have to warn neighbors
or use respirators wouldn’t be literally false or misleading, and it was hard
to say because the people listening didn’t necessarily take exact notes.  [Interesting question: how does the court
know that statements about what might be necessary aren’t misleading, absent
more information about probabilities/the circumstances under which such
measures would be necessary?  More
interesting question: assume that they said “might,” but many people—like the
witnesses here—took away “must.”  Why
isn’t that misleading?  I think there’s a
possible answer having to do with the cost-benefit analysis of providing useful
information to people even if some misunderstand that information, but more is
needed than just assuming that the modality of the verb is dispositive.]
The court also found that it wasn’t literally false or
misleading to emphasize that no respirator was required to work with LP
products; nothing about that suggested that a respirator was required to install other materials.
JH also challenged various social media statements:
• We are definitely making Hardie
nervous (in response to one of its contractor’s statements that OSHA is
cracking down on the Silica dust created from cutting James Hardie Fiber Cement
Siding)
• Use of a circular saw could
result in an OSHA imposed citation
• Moral of the story. Don’t want to
be stung by OSHA. Use LP Smartside as your exterior cladding of choice (made
when forwarding an article stating that silica citations hit 116 in 6 months,
allegedly implying that those citations were issued to siding contractors using
fiber cement products)
But these weren’t shown to be literally false. “Making
Hardie nervous” was an opinion. And it was true that a circular saw could
result in an OSHA imposed citation if it is not used according to the Table 1
safe harbors and the exposure limit was exceeded. Likewise with the 116
citations—that was a factual assertion not disputed by JH, and LP didn’t itself
claim that the citations were issued for siding.
LP also used the slogan “the easiest way to operate safely
with silica dust is don’t create it.” The court also thought that was fine: “LP
is accurately describing one way of operating to avoid safety risks of silica
dust,” and it wasn’t saying that was the only
way.
Materiality: LP argued that its statements weren’t material
because they didn’t specifically mention fiber cement or JH. That’s not necessary.
Here, the evidence of deception also supported a finding of materiality; the
OSHA sale sheet was created to convince people to use LP products, and its internal
communications encouraged its sales team to distribute the LP OSHA sale sheet
“as much as possible.”
The individual rep’s statements also produced evidence of
actual deception; one person “informed JH that she intended to discontinue
future work with JH because she believed from LP’s email that circular saws
could not be used to cut fiber cement boards,” while another “forwarded the
Rose email to other potential customers to inform them that circular saws are
no longer an option when cutting fiber cement board.” That was evidence of
materiality. This same evidence showed harm causation.
Thus, there was a limited likelihood of success on the
Lanham Act claims, but not on the Tennessee Consumer Protection Act claims,
since they required showing “an ascertainable loss of money or property under
the TCPA.”  For this, “[s]tatements that
customers said they were thinking about leaving but ended up staying with JH”
were insufficient. Likewise, tortious interference claims require LP to know of
specific relationships under Tennessee law, “and not a mere awareness of the
plaintiff’s business dealings with others in general.” There wasn’t enough
evidence of that here.
The court presumed irreparable harm from the risk to JH’s
reputation from the OSHA sheet, specifically “due to an inability to quantify
it and the difficulty in returning the injured party to the pre-injury
position.” LP wouldn’t be prevented from talking about the OSHA standard, but
only “from making specific statements that are false or misleading when made
out of context.” Thus, an injunction wouldn’t unconstitutionally restrain its
speech and the public interest weighed in favor of an injunction for the sale
sheet. The court didn’t grant an injunction as to the rep’s email, which hadn’t
been shown to be likely to be resent.

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can a retailer be directly liable for false advertising on packages?

Posted on March 18, 2019 by rtushnet

two cases (out of several involving this plaintiff)
Outlaw Laboratory, LP v. Shenoor Enterprise, Inc., 2019 WL
1040644, No. 18-CV-2299-B (N.D. Tex. Mar. 4, 2019)
Outlaw, which makes male dietary supplements, sued
convenience stores because they “advertise and offer for sale” competing male
dietary supplements, the Rhino products, that were allegedly falsely labeled
“all natural” and state they contain “no harmful synthetic chemicals.” (The FDA
has announced that certain products, including the Rhino products, contained
potentially dangerous hidden drug ingredients.) The court found that displaying
and selling the products weren’t enough for [direct] Lanham Act liability. [Secondary
liability seems like a potential theory, though.]
Standing: the court expressed concerns about Article III
standing—whether plaintiff’s injury was traceable to the defendants’ alleged
conduct—as well as Lanham Act standing—whether the injury was proximately
caused by that conduct. I’m pretty surprised by the former, without more
discussion; if plaintiff allegedly lost sales when a consumer bought the products
defendants stocked, then defendants’ conduct was at least a but-for cause of
those losses. But the court disagrees: “it is difficult to see how merely
placing products on display and selling them qualifies as conduct that caused
Plaintiff’s injuries under Article III or the Lanham Act.”
Can a defendant “who merely sells a product at a retail
outlet” be held liable for false advertising under the Lanham Act? Start with
the text:
Any person who, on or in connection
with any goods or services, or any container for goods, uses in commerce
any…false or misleading description of fact, or false or misleading
representation of fact, which…in commercial advertising or promotion, misrepresents
the nature, characteristics, qualities, or geographic origin of his or her or
another person’s goods, services, or commercial activities, shall be liable in
a civil action by any person who believes that he or she is or is likely to be
damaged by such act.
The test has been reframed as requiring “that the defendant
made a false statement of fact about its product in a commercial advertisement.”
The court didn’t believe that it had been alleged that defendants “made” a false statement of fact by offering the falsely
labeled products for sale; only the nonparty manufacturer “made” statements in
commercial advertising or promotion, even with allegations that defendants knew
of the falsity.
Outlaw argued that selling the products necessarily involved
the “use[ ] in commerce” of a “false or misleading description of fact,
or…representation of fact” “in connection with any goods or services, or any
container for goods[.]” [A trademark case would have zero hesitation concluding
that defendants made a “use in commerce” of the Rhino mark, which was on the
very same packages as are at issue here.] But false advertising also requires a
misrepresentation “in commercial advertising or promotion.”
Outlaw didn’t cite binding caselaw supporting its
claim.  [Basically, the court rejects
trademark cases as inapplicable because in trademark cases it’s retailers’ “use”
(which is to say placing on sale) of an infringing mark that causes confusion.  The court doesn’t discuss any policy basis
for the divergent treatment, and if the retailers are “causing” confusion in
those cases even though they don’t create the infringing goods or copy the
infringing mark, then why aren’t they “causing” deception here?  But the court understandably returns to its
conclusion that the defendants must have “made” false statements.]
Another case, JST Distrib. v. CNV, et al., 2:17-cv-06264
(C.D. Cal. Mar. 7, 2018), was factually similar to this one, where the
defendant argued that it hadn’t made the allegedly falsely advertised products
or the ads, but just posted them on its website and sold the products. The
district court held that the website owner could still be held liable because
the plaintiff alleged that the website owner “disseminated the false
advertising through its website.” The court agreed that placing products on
sale in a brick-and-mortar store isn’t “disseminating” false advertising.

The court found other nonbinding cases more persuasive. Cohn v. Kind, LLC, 2015
WL 9703527 (S.D.N.Y. Jan. 14, 2015) (under NY law, retailers’ sale of allegedly
falsely labeled power bars wasn’t advertising); Optimum Technologies, Inc. v.
Home Depot USA, Inc., 2005 WL 3307508 (N.D. Ga. Dec. 5, 2005) (displaying a
competitor’s product under signs labeled with the plaintiff’s product name wasn’t
commercial speech for Lanham Act purposes); and a number of state false
advertising law cases that hold “that a defendant should not be liable,
whatever the cause of action, for merely selling a product affixed with a false
label, so long as the defendant had no role in creating the label.”  These were only minimally persuasive because
of the different legal regimes, but still better than plaintiff’s cases.  Burger v. Lowe’s Home Centers, LLC, 2016 WL
1182266 (Cal. App. 4th Dist., 2016), reh’g denied (Apr. 26, 2016) (“The trial
court agreed with [the retailer’s] argument a retailer cannot be held liable
for the statements of others by merely placing the product on its shelves for
resale. The court determined the false advertising claim was based solely on
the product’s packaging, which was produced by the manufacturer or distributor
and not [the retailer].”); In re Hydroxycut Mktg. & Sales Practices Litig.,
801 F. Supp. 2d 993 (S.D. Cal. 2011) (“Plaintiffs suggest that the Defendant
Retailers can be held liable under the consumer protection laws for placing the
falsely advertised Products on the shelf and failing to disclaim the
Manufacturer Defendants’ representations. However, none of the cases cited by
Plaintiffs…supports this legal proposition.”); Fagan v. AmerisourceBergen
Corp., 356 F. Supp. 2d 198 (E.D.N.Y. 2004) (drugstore was not liable for
negligent misrepresentation for selling mislabeled drugs without evidence that
it “itself, made any false statement or material misrepresentation” or that it
“affixed the label, which contained the alleged misrepresentation”).
The court also analogized to Baldino’s Lock & Key Serv.,
Inc. v. Google, Inc., 88 F. Supp. 3d 543 (E.D. Va. 2015) (Google not liable for
misrepresentations made by third parties in ads), aff’d, 624 F. App’x 81 (4th
Cir. Dec. 4, 2015), and Lasoff v. Amazon.com, Inc., 2017 WL 372948, at *8 (W.D.
Wash. Jan. 26, 2017) (Amazon could not be held liable for “truthfully
depict[ing]” products of third-party sellers that were labeled with false
representations). Lasoff involved a
party, Amazon, who was actually selling the third-party products, like the
defendants here, though it was also a summary judgment case and might not have
reached the same result if Amazon had actual knowledge of the falsity, as
alleged here. [Which is why secondary liability is a better theory.] But Lasoff involved little or no record
evidence, and the allegations of knowledge here were conclusory.
The court was more convinced by the policy implications: “Defendants
undoubtedly sell many products—should they be responsible for scrutinizing and
determining the veracity of every claim on every product label in their stores
simply because they sell the product?” 
[Who should be?  In a globalized
economy, are we so sure that we can always grab the manufacturer?]  The court answered “no” for false
advertising.  It’s not that retailers or
sellers can never be held liable for false advertising, but they can’t be held
liable based solely on display and sale of the Rhino products in their stores.
“[I]f these claims are permitted, the scope of the Lanham
Act would be dramatically expanded. False-advertising cases like this one would
turn retailers into the guarantors of manufacturers that falsely label their products.
The Court declines to construe the Lanham Act so broadly.” [Note that it’s all
right for some: contrast the trademark rule.]
The court allowed leave to replead, but cautioned that “re-litigating
the issues raised in the instant motions through future frivolous, repetitive
filings will result in the imposition of sanctions, including dismissal,
monetary sanctions, and restrictions on the ability to file pleadings in this
court.”
Outlaw Laboratory, LP v. Trepco Imports & Distribution,
Ltd., 2019 WL 1173347, No. 18-cv-00369-JAD-CWH (D. Nev. Mar. 11, 2019)
Outlaw sued two wholesalers and eight retailers of competing
male-enhancement products for falsely advertising “all natural” composition
while containing synthetic ingredients like sildenafil nitrate, aka Viagra.  The remaining defendants moved to dismiss on
standing grounds. The court found standing, but also that Rule 9(b) hadn’t been
satisfied, and dismissed the complaint without prejudice.
In the abstract, defendant-wholesaler Trepco could be sued
under the Lanham Act even though it didn’t  manufacture or make packaging. Disseminating
the false advertising on the products’ packaging could fall within the language
of the Lanham Act (relying on Grant Airmass Corp. v. Gaymar Indus., Inc., 645
F. Supp. 1507, 1512 (S.D.N.Y. 1986) (finding that defendant who independently
distributed and presented false report that it used against plaintiff
competitor could still be liable for false advertising)), a contributory
infringement case not cited by the other Outlaw opinion above.  Nonetheless, the specific allegations here
weren’t enough; the complaint lumped the defendants together too much and didn’t
specify which claims are made by which product or what products Trepco
allegedly sold.
Claims against the retailer defendants failed for similar
reasons, though the court also rejected their Article III standing argument. “In
a false advertising suit, a plaintiff establishes Article III injury if some
consumers who bought the defendant’s product under a mistaken belief fostered
by the defendant would have otherwise bought the plaintiff’s product.” To do
so, a plaintiff may “provide direct proof such as lost sales figures, or may
rely on ‘probable market behavior’ by establishing a ‘chain of inferences
showing how defendant’s false advertising could harm plaintiff’s business.’”  Outlaw’s allegations that the sales of the accused
products hurt sales of its competing products sufficed, even without “solid
data,” at the pleading stage.  It
properly alleged that the retailer-defendants’ acts of putting the accused
products out for sale harmed its own sales. 
Likewise, Outlaw pled statutory standing, even though the parties aren’t
direct competitors.  (Actually, it sounds
like they are—Outlaw alleged that it both made and sold its products directly
to consumers, which sounds like it’s in competition with anyone in the chain.)  The court accepted that, as manufacturer of
these sexual performance supplements, Outlaw was in direct competition with “those
who manufacture, sell, distribute[,] and market sexual performance enhancement
products” and targeted the same customers, which allegations were enough for
Lanham Act standing.
Outlaw, however, made insufficiently specific allegations
about how it knew the retailer-defendants sold the products, when the retailers
stocked them, or how they disseminated the allegedly false messages: “were the
products merely on a shelf available for purchase, or did the retailers display
them in some prominent way?” Rule 9(b) required more.

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unauthorized use of model’s photo for strip club wasn’t false advertising or endorsement

Posted on March 18, 2019 by rtushnet

Edmondson v. 2001 Live, Inc., 2019 WL 670201, No. 16-cv-03243-T-17AEP
(M.D. Fla. Jan. 15, 2019)
Edmondson, a model and public figure, sued for the alleged
commercial misappropriation of her image used on 2001 Live’s social media
account promoting its “gentleman’s” club’s live feed of the stage and dressing
room. Edmondson has appeared in various magazines and reality TV episodes,
served as “Playmate of the Month,” and signed as an official model for swimwear
and sports companies. She had 1.6 million Instagram followers, over 41,000
Facebook likes, and over 201,000 Twitter followers.  Defendants used a photo of her with the text:
Cyber-Monday was here, and we got a
little sick of all the “check out this 1//2 price gadget” posts! We want to
give someone something, specifically a FREE 30-day subscription to http://www.2001live.com!
All we need is at least 20 likes for this post by tomorrow morning!
Defendants had outside vendors for social media monitoring,
and their corporate representative testified that he believed those vendors had
the authority and consent to use Edmondson’s image.
The Lanham Act claims failed.  False advertising: The image of her was
literally true/not false; it didn’t identify Edmondson and attribute statements
to her, and it wasn’t altered. Edmondson argued that it necessarily implied her
association with and endorsement and support of the defendants’ “business, the
strip club lifestyle, and activities known to occur on Defendants’ premises.” The
court disagreed; the image was ambiguous because “it provides no explanation or
context for the relationship between the model, Defendants’ establishments,
Defendants’ websites or any subscription service offered by Defendants.”  The image could be misleading, but not
literally false. 
However, there was insufficient evidence of consumer deception.
Edmondson submitted an expert report purporting to show confusion about her
endorsement of defendants. Although the survey was admissible, it wasn’t good
enough to show deception because it didn’t use a control group or have respondents
who were actual patrons of defendants’ services. The group had attended a strip
club in the last two months, but it wasn’t taken from defendants’ client list,
e-mail list, or actual patrons in compiling his survey respondents.  Nor were there any individual statements from
patrons or others who saw the ads and believed that Edmondson endorsed the club
or would be present at any events. 
Separately, there was insufficient evidence of materiality. Ninety
percent of survey respondents said they were more likely to consider the
possibility of attending the club after viewing images with models than they
were to consider it after viewing the same ads but without the models. But that
wasn’t evidence of the materiality of this image because there was no control
group or inclusion of patrons or potential patrons of this strip club.  Further,
the court thought that an expression of likely interest wasn’t the same thing
as actually being likely to visit.  [It’s
not clear to me what would show materiality in a survey, then, unless the court
didn’t like the wishy-washiness of the question and even then it’s hard to
frame something that makes sense; “I definitely would go” is not a realistic
response from a survey-taker.  The real
problem is that the survey did nothing to show that Edmondson’s image mattered
as compared to a properly licensed stock image of a beautiful woman.]
False endorsement also failed as a theory. Edmondson had
standing for this theory because she had “an existing intent to commercialize
an interest in identity.” [The court is quoting other cases but if it’s a
trademark theory she shouldn’t be able to use it without more than intent;
intent to use a mark is not enough to have a protectable mark in any other
context. That said, her activities go beyond intent to active commercialization,
so I don’t think it makes a difference here.]
In a celebrity false endorsement case the most relevant confusion
factors include the strength of mark, the existence or extent of actual
confusion, and defendants’ intent to misappropriate plaintiff’s goodwill.  Edmondson argued that she had a strong mark,
but presented nothing specific about her degree of recognition among defendants’
consumers. The survey didn’t ask whether any respondents recognized her. Strength
favored defendants.
The survey also didn’t show actual confusion; this favored
defendants.
Intent: there was an issue of fact about who created and
uploaded the social media posting and whether or not defendants knew that the
use of the image was unauthorized, “which would belie any intent on their part.
Thus, the Court finds that this factor is neutral.”
Comment: Intent to do what? This gets at a key problem with
some kinds of false endorsement claims. 
Probably defendants didn’t intend to use unauthorized images—but using
stock images to which they had purchased rights would have sent the exact same
message, or not, to consumers about whether
the models therein had endorsed the advertised venues.  The FTC
thinks that unidentified models in ads aren’t generally serving as
endorsers, just as models, unless there is some extra reason to think that they’re
doing endorsement work—that extra reason could include having enough of a
reputation that would make them seem to be experts about the factual claims
being made, like a racecar driver making claims about tires. But according to
the FTC, even a well-known entertainer won’t be treated as an endorser under
circumstances that indicate she’s not presenting her own views. 
Taken together, Edmondson’s claim couldn’t survive summary
judgment.

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occasional door-to-door false claims covered by state, but not federal, false advertising law

Posted on March 18, 2019 by rtushnet

Vivint, Inc. v. Northstar Alarm Services, LLC, a Utah
limited liability company, 2019 WL 1098986, No. 16-cv-00106-JNP-EJF (D. Utah
Mar. 8, 2019)
The parties compete in the market for electronic home
automation and security systems. They market themselves in various ways, but a
majority of sales come from door-to-door or direct-to-home sales.. Vivint presented
evidence of 216 individual Vivint customers who experienced deceptive sales practices
by NorthStar representatives between 2012 and 2015.  It sued for deceptive trade practices in violation
of the Utah Truth in Advertising Act; violation of the Lanham Act; unfair
competition; and intentional interference with customer contracts.
Interpreting the Utah Truth in Advertising Act, which lists
a number of banned deceptive practices, the court found that “advertising” was
not a threshold requirement of each banned practice. Rather, if the listed item
didn’t include “advertising,” then it was banned even if it occurred in
door-to-door solicitation and not “advertising.” A previous federal district court
had disagreed because the UTAA’s purpose statement “effectively imposes an
overarching requirement that otherwise actionable conduct constitute
advertising.” In the absence of a state court ruling, the court here reexamined
the issue and determined that “the plain language of the statute does not limit
the covered conduct to advertising.” The purpose statement says:
The purpose of this chapter is to prevent deceptive,
misleading, and false advertising practices and forms in Utah. This chapter is
to be construed to accomplish that purpose and not to prohibit any particular
form of advertising so long as it is truthful and not otherwise misleading or
deceptive.
There’s also a definition of “advertisement” that excludes “any
oral, in person, representation made by a sales representative to a prospective
purchaser.” But in Utah, “a statement of purpose is generally ‘not a
substantive part of the statute’ ” and “cannot override the clear terms of the
law.” The substantive part of the law listed twenty-odd “deceptive trade
practices,” some of which included the words “advertisement” or “advertising” and
others didn’t. The definition of “advertising” applied only where the term was
used to define the deceptive trade practice at issue. “If the Utah Legislature
had intended that limitation to apply to the entire statute, it would have been
listed not in the definitions section, but in the section … titled ‘Exemptions.’”  Here, the alleged violations didn’t require “advertising,”
e.g., causing confusion “as to the source, sponsorship, approval, or
certification of goods or services”; representing “that goods or services have
sponsorship, approval, characteristics, ingredients, uses, benefits, or
qualities that they do not have”; and “disparag[ing] the goods, services, or
business of another by false or misleading representation of fact.”
However, the Lanham Act claim failed for want of sufficient “commercial
advertising or promotion.”  False
statements made by NorthStar’s door-to-door sales representatives to 216 Vivint
customers were not “disseminated sufficiently to the relevant purchasing
public” to constitute commercial advertising or promotion.  “[T]here must be some statistical analysis of
the number of alleged incidents in comparison to the relevant market, “and given
the millions of pitches, NorthStar argued that this was only 43 customers per
year, “less than 0.5%” of NorthStar’s total door-to-door sales in any given
year and a small percentage of Vivint’s customers (as the relevant market).
Vivint argued that this was just the falsity it had identified and that there
was other falsity that it hadn’t caught, but the court found that speculative.  If there was a script or other direction to
sales reps encouraging them to make the allegedly false statements, it seems to
me that Vivint’s argument ought to work, but this was a motion for summary
judgment and Vivint apparently hadn’t developed evidence about that.

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