NY false food labeling law still exists despite being old

Posted on April 2, 2019 by rtushnet

Warner v. StarKist Co., 2019 WL 1332573, No. 18-cv-406
(GLS/ATB) (N.D.N.Y. Mar. 25, 2019)
Warner survived a motion to dismiss his claims for deceptive
practices, false advertising, dealing in misbranded food, and unjust
enrichment, under New York law, based on StarKist’s use of a “Heart-Check Mark”
on certain seafood products. The failure to disclose that the check mark, accompanied
by “American Heart Association – CERTIFIED – Meets Criteria For Heart-Healthy
Food,” was a paid-for endorsement was plausibly misleading, though the court
thought it was “a close call, which could be revisited at the summary judgment
stage.”
Also, Warner’s mislabeling claim under the Agriculture and
Markets Law survived.  StarKist argued
that there was no private remedy, but Abounader v. Strohmeyer & Arpe Co.,
243 N.Y. 458 (1926), held that “the statute confers a right of action upon an
ultimate purchaser against the person who originally prepared for market and
sold the containers with false labels or statements of their contents” and “no
one doubts that the statute by express provision might give to an ultimate
purchaser of falsely labeled containers however remote a right of action
against the person who violated the statute by marketing them with false labels.”
StarKist argued that this case was old but “case law does not expire solely
with the passage of time.”
However, injunctive relief claims were dismissed because
Warner, who now knows the truth, lacks standing to maintain a request for
injunctive relief on behalf of the class.

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Fifth Circuit upholds denial of disgorgement despite willfulness & some sales diversion

Posted on April 2, 2019 by rtushnet

Retractable Technologies, Incorporated v. Becton Dickinson
& Co., — F.3d —-, 2019 WL 1346002, No. 17-40960 (5th Cir. Mar. 26,
2019)
“A jury found that Becton Dickinson & Co. falsely
advertised its products for years. The district court determined that neither
disgorgement of profits nor further injunctive relief would be equitable under
the circumstances. It did not abuse its discretion.”
Retractable syringes are designed to reduce risk of
accidental needlesticks; they compete with other varieties of safety syringes
and with “conventional” syringes. They provide significant protection against
accidents but their needles prevent use for some hospital and clinical
purposes.  RTI and BD compete in the safety
syringe market along with two other major safety syringe manufacturers. RTI dominates
the retractable syringe sub-market; BD produces retractable syringes, but
conventional and non-retractable safety products that account for the bulk of
its revenue.
BD falsely advertised the “world’s sharpest needle,” which
is important because consumers see needle sharpness as a proxy for patient
comfort, and persisted in doing so after its internal tests indicated
otherwise. It also falsely promoted its retractable syringes as having seven
times less “waste space” than RTI’s product, meaning that the syringes would
waste less medicine.  BD’s testing initially
supported this claim, but not after 2003.
RTI sued BD for antitrust violations and false advertising
under the Lanham Act and won a jury verdict on one of its antitrust claims and
all of its Lanham Act false advertising claims. The jury found that RTI was due
more than $113.5 million in antitrust damages ($352 million with trebling +
attorneys’ fees), but the court of appeals kicked that out because it’s an antitrust
case and sent the case back to see if there were Lanham Act damages. RTI had
requested disgorgement of BD’s profits and injunctive relief; the district
court had concluded that equity favored disgorgement, but that any relevant
profits were subsumed by the trebled antitrust damages award. The district
court also enjoined BD to cease certain advertising claims for several years,
post a notice on its website, notify various entities of the false claims
(stayed as to end users pending appeal), and implement a training program for
employees and distributors.
The court of appeals specifically approved of some of the
district court’s findings on false advertising: “at least some portion of BD’s
profits were attributable to the false advertising,” BD intended to confuse or
deceive consumers, and RTI did not unreasonably delay in seeking relief. On
remand, the district court declined to disgorge profits or reinstate any
portion of the vacated injunction.
On injunctive relief, this result was foretold by the
remand, which emphasized that, though a further need for injunctive relief was
“theoretically possible,” “[a] plaintiff seeking injunctive relief must show a
real and immediate threat of future or continuing injury apart from any past
injury,” and that any injunction should be “no broader than reasonably
necessary to prevent the deception.”  BD
took multiple steps to comply with the non-stayed aspects of the injunction for
two years before the court of appeals reversed.  It notified “over 750 distributors, over
10,000 employees, and all the major Group Purchasing Organizations, stating
that its needle sharpness and waste space claims were inaccurate.” Further, “BD
removed the false advertising from its marketing materials … and posted a
notice on its website.” It also implemented a training program for employees
and distributors. This was enough, the district court reasonably deemed, to
remedy any injury or threat of injury RTI had suffered from the false
advertising.
RTI argued that all this still didn’t provide notification
to end users, who play a significant role in medical decisions to purchase
syringes. But the district court found no “real and immediate threat of future
or continuing injury.”
Disgorgement as a remedy requires weighing (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.  A district court can consider other
factors.  It must also consider whether
the defendant’s profits are attributable to the Lanham Act violation. When the
plaintiff doesn’t show the defendant benefited from the false advertising,
disgorgement isn’t allowed even if the rest of the test favors disgorgement. However,
it was the law of the case that “at least some portion of BD’s profits were
attributable to the false advertising” and that the “intent to confuse or
deceive” and “unreasonable delay” factors favored disgorgement. The public
interest also favored disgorgement.
Still, the district court found that the equities weighed
against disgorgement because RTI had not shown diversion of sales or palming
off and injunctive relief was an adequate remedy.  [Why is palming off weighed separately from
intent to confuse or deceive?  They are
in essence the same thing, only trademark infringement gets double-counted,
even though one might think that materially false advertising was at least as
bad as infringement that need not be material to consumers. Along with
unjustified trademark exceptionalism, this formulation is a classic instance of
a series of considerations turning into a “balancing test,” without much thought about the
justifications.]
RTI argued (I think correctly) that palming off is irrelevant
in false advertising cases; if it should be included in the balancing test, it’s as a measure of the egregiousness of trademark infringement and not as a reason that false
advertising always has a thumb on the scale against disgorgement. The court of
appeals wasn’t fully convinced: “If a false advertising plaintiff has otherwise
shown concrete harm due to the false advertising, such as diverted sales, a
court should not heavily weigh the absence of palming off against disgorgement.”
But palming off retains its significance as a way in which RTI could have demonstrated
concrete harm, but did not.  [Hunh?  It’s
not a trademark case.  RTI also didn’t
demonstrate that BD broke in and stole its chattels.  So what?  If there had been palming off without sales diversion–if a trademark plaintiff couldn’t produce more or didn’t produce the palmed-off things at all–that just goes to the unjust enrichment of the defendant.] 
In the absence of sales diversion or palming off, disgorgement “would
grant RTI an unjustifiable windfall” and in such cases the plaintiff “faces an
uphill battle in obtaining disgorgement.”
RTI argued that the district court should have considered
loss of goodwill in lieu of palming off. In principle, that’s right, but RTI’s
evidence of lost goodwill and steps taken to combat that lost goodwill was merely
speculative, especially given that its market share in the retractable syringe
sub-market increased and its sales nearly doubled over the relevant period of
false advertising.  (The evidence was that
its employees who were worried about loss of goodwill “had to expend effort and
energy to go around and try to … tell people and convince them that it wasn’t
true” and “spent a lot of time going to customers and trying to correct the
misinformation, a lot of meetings, direct meetings, letter-writing, things like
that.”)        
Although sales diversion favored disgorgement, the district
court found that it did so only slightly because at least some of BD’s profit
from its false advertising may well have come not at RTI’s expense but at the
expense of others in the market.  [Note
that if you think of disgorgement as a deterrent, it’s not clear why that
should matter, at least as long if you think that some of BD’s profit did come
at RTI’s expense and as long as there’s no double recovery in another suit by a
different competitor.]  This finding was
not an abuse of discretion.
First, the jury’s finding of Lanham Act liability did not “conclusively”
establish sales diversion.  Injury and
actual damages are different.  So are having
profits attributable to the false advertising (law of the case) and showing
sales diversion (not law of the case). “[I]nternal BD documents suggested that
the false advertising allowed BD to command premium pricing and claim increased
market share,” but “it was not clear that every dollar BD earned came out of
RTI’s pocket,” only that some of the dollars did.
We want to avoid unjustified windfalls to plaintiffs.  The “profits attributable to the false
advertising” requirement is one protection against that, but “sales diversion”
is separate; these are related but distinct elements.  [I gotta say, it seems to me that the court is
requiring the plaintiff to quantify its damages to receive the defendant’s
profits, which is not the standard in other situations—one reason I thought we
had disgorgement was to deal with the inequitable situation in which we’re sure
the plaintiff was harmed, but not sure enough how much it was harmed to award a
dollar amount of its damages.  Disgorgement
(and injunctions) can make sure that the defendant doesn’t stay better off for
having falsely advertised, and the risk of error is appropriately on the false
advertiser especially if we’re requiring willfulness.  I can see the justification for the result
here as well—it’s largely a matter of preferences/beliefs about deterrence—but what
I really don’t like is the special treatment trademark gets.  The statutory language is the same; the
reasoning should be the same too.]
Nor did the district court clearly err in finding that RTI offered
insufficient proof of diversion. The best evidence of diversion was internal BD
correspondence boasting about the commercial impact of its “needle sharpness”
and “waste space” claims, and “the trial court was persuaded that this
correspondence did not actually prove that RTI’s customers or potential
customers chose to purchase from BD instead of RTI as a result of the false
advertising…. At least some customers expanded their purchases from RTI after
the dates they were allegedly presented with the deceptive waste space
comparisons. In contrast, BD had difficulty selling its retractable syringes
during the same period.”
These findings were consistent with the court of appeals’
reasons for holding that BD’s false advertising, standing alone, could not
ground antitrust liability. The parties’ customers were sophisticated; none
testified to being driven by BD’s false claims and several testified that they
weren’t. “RTI’s evidence consisted mostly of boastful e-mail exchanges between
BD sales representatives recounting what they believed were successful sales
pitches, but notably there was no testimony from the customers themselves.”  [Again, fair enough! But if you tried that argument
in a trademark case, there’s tons of cases about how courts should presume that
bad intent is successful, and that divergence doesn’t make a lot of sense.]
Fundamentally, RTI and BD weren’t the only players in the
safety syringe market, so no presumptions about false comparative advertising
were appropriate (if they’re even allowed).
The district court also relied on “the adequacy of other remedies”
in rejecting disgorgement even as it decided not to reimpose injunctive relief,
which RTI pointed out was weird. Still, it was ok to weigh the steps BD had
already taken to comply with the injunction as a factor counseling against the
need for disgorgement, given the absence of evidence of concrete harm. However,
the court cautioned that “[w]e do not necessarily approve of a general rule
that, ex ante, injunctive relief is preferable to disgorgement.”
RTI finally argued that the court should value deterrence and
avoidance of unjust enrichment more. But those values don’t require disgorgement
where it’s not equitable to disgorge profits to a particular plaintiff. There
was no abuse of discretion.  And we get
another TM comparison! The district court distinguished a previous case approving
of disgorgement on deterrence grounds because that case was a trademark case,
and trademarks and trade dress are unique “protected property right[s].” RTI
argued that the Lanham Act also protects trade reputation and goodwill as
property interests. [Note: as a matter of history, RTI is correct that the same
property language has been used for all these things; indeed, the classic
treatment of the “trademark is property” concept was really always “the
property is the underlying goodwill; the trademark is the symbol of the
property, which only exists appurtenant to the goodwill of a business.”  It’s only casual shorthand that confused some
later courts into thinking there was some sort of property right in the trademark
as such.] But the court of appeals doesn’t wade into that because RTI failed to
show that its goodwill was harmed in a way that affected potential customers’
decisions, and thus didn’t show harm that “parallels the harm caused a
markholder whose mark is used without consent.”
Anyway, BD was not “unscathed” by its violation of the
law.  It complied with (most of) the
original injunction for nearly two years. And for deterrence, “future would-be
false advertisers” should note that a plaintiff who shows harm may be able to
get disgorgement.
In closing, the court of appeals put the denial of
disgorgement in the larger context of a “meritless” antitrust claim [interesting
word—should BD get attorneys’ fees?] made during a time in which RTI nearly
doubled its own sales and increased its share of the retractable syringe
sub-market to two-thirds. “RTI elected not to test its proof of Lanham Act
damages before the jury,” and the court wouldn’t let it wave the flag of the
public interest to get BD’s profits now. The public interest would be best
vindicated in the marketplace.
Judge Graves dissented; he would have vacated and remanded
on the theory that the district court erred in reweighing the diversion factor
and in finding insufficient evidence to support disgorgement.  He thought that the prior court of appeals
opinion’s treatment of sales diversion related to the amount to disgorge, but fixed the law of the case as to whether
sales diversion had happened, merely remanding for assessment of other factors
in light of the disappearance of the antitrust award. The district court had
clearly already found that “RTI produced evidence that on occasion BD relied on
these false advertisements to divert sales from RTI directly” and “[t]his
evidence confirms the rational conclusion that some portion of BD’s ill-gotten
sales came at RTI’s expense.”
Of the three factors that weren’t law of the case, the
public interest factor favored disgorgement. On remand, the district court “improperly
weighted the absence of diversion and palming off to the exclusion of other
factors.” In light of this reweighing “and the fact that the adequate remedies
the district court had previously found no longer exist,” the dissent thought
that the district court likewise erred in its reconsideration of the adequacy
of other remedies.

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smells bad? 9th Circuit approves tuna voucher settlement as not a coupon settlement

Posted on April 1, 2019 by rtushnet

Hendricks v. Ference, 754 Fed.Appx. 510 (9th Cir.
2018)
Objectors appealed the approval of a class action settlement
over the alleged under-filling of Starkist tuna cans; over a partial dissent,
the court of appeals affirmed. In particular, the court affirmed the district
court’s determination that the award of tuna vouchers was not a form of coupon
relief under the Class Action Fairness Act (CAFA). “The vouchers did not
expire, they were freely transferrable, they could be used at a wide variety of
stores (any retailer selling Starkist products), and the vouchers had sufficient
value that class members could use them to purchase tuna without additional
out-of-pocket expense.”  The underlying claims
were about insufficient tuna, and the settlement supplied the missing tuna—using
a voucher instead of mailing cans to class members “does not transform the
settlement from a tuna settlement into a coupon settlement” (and is almost
certainly a better idea from an olfactory/health perspective).  CAFA’s restrictive coupon provisions don’t
apply to all non-cash settlements; this was an in-kind settlement and the in
kind redress could be provided with “a voucher that is sufficiently usable and
related to the harm suffered.”
A partial dissent would have found that this was a coupon
settlement. Judge Friedland doesn’t like the governing 9th Circuit
standard for determining what’s a coupon (and would find this to be a coupon even
under that standard).  These are coupons
within the common meaning of the term: they’re only good for buying canned
tuna. Lack of expiration and free transferability are important for things like
cash cards or even credit cards [debit cards? The case citation is to gift cards
redeemable at Walmart, a giant retailer] but not where the “vouchers” are “remarkably
inflexible.”  Canned tuna bought five
years from now is still canned tuna; you still have to buy the thing that was
the source of your problem to benefit. 
Transferability is also less relevant where the market for the vouchers
is dependent on the fact that they are vouchers for canned tuna. “After all,
Congress ‘targeted [coupon] settlements for heightened scrutiny out of a
concern that the full value of coupons was being used to support large awards
of attorney’s fees regardless of whether class members had any interest in
using the coupons.’”  The dissent also
pointed out that the vouchers were going to be in round dollar amounts; using
them might require the consumer to make an outlay or leave tuna money on the
table, which were coupon-like effects. “Even though many class members will
leave a portion unredeemed, and even though many class members will not redeem
the voucher at all—whether because they lose it, forget they have it, decide
they no longer like tuna, or for any other reason—the majority’s holding that
the vouchers are not coupons means all the distributed vouchers will be counted
at their full face value for purposes of calculating the settlement value and
the resulting attorney’s fees. This is exactly the sort of result Congress was
trying to prevent when it adopted the coupon provisions in CAFA.”
If writing on a blank slate, the dissent would treat “any
type of discount, credit, gift card, or voucher” as a coupon under CAFA, and
would also treat vouchers for replacements for the original product as coupons even
if the class member didn’t have to put in any more cash.  [The dissent doesn’t outright say that
mailing cans of tuna would be “coupons,” but why not under that logic? If you’re
concerned about overvaluation, Starkist would get to count the retail price of
the tuna as the value of the settlement even though the production cost is much
lower, so it’s possible to manipulate the final settlement value that way too.]  If the coupons were close-to-cash (e.g., Walmart
gift cards), redemption rates would be high and attorneys’ fees would be based
on those high rates. If not, then the fees wouldn’t be that high, which was
Congress’s goal.  A bright line rule
would also make things easier for district courts and for attorneys, who’d find
it easier to tell whether they’d crafted a coupon settlement.

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Oklahoma’s Indian arts & crafts consumer protection law preempted by federal law

Posted on April 1, 2019 by rtushnet

Fontenot v. Hunter, No. CIV-16-1339-G  (W.D. Okla. Mar. 28, 2019)
Oklahoma’s American Indian Arts and Crafts Sales Act of 1974
was amended in 2016 to exclude from its definition of “American Indian” all
persons but citizens or enrolled members of a federally recognized tribe.  Fontenot, a member of the Patawomeck Indian
Tribe of Virginia, a tribe recognized by the State of Virginia but not by the
United States, sued under a variety of theories including a general right to
engage in her trade; she lost on all of them except the Supremacy
Clause/federal preemption argument based on the Indian Arts & Crafts Act.
Oklahoma’s law is a specific false advertising statute whose
purpose “is to protect the public, under the police powers of the state, from
false representation in the sale of authentic and imitation American Indian
arts and crafts.”  The law makes it
“unlawful to distribute, trade, sell or offer for sale or trade within th[e]
[S]tate [of Oklahoma] any article represented as being made by American Indians
unless the article actually is made or assembled by American Indian labor or
workmanship.”
Fontenot is an artist who’s made her heritage part of her
art and her marketing for decades. Before 2000, Plaintiff marketed herself “as
a Cherokee artist” even though she is not a member of the Cherokee Nation and
the Cherokee Nation had not certified her as a tribal artisan. After 2000, Fontenot
changed statements on her event signs and business cards from “Cherokee artist”
to “Cherokee descent,” since she is “not certified by that tribe, and Cherokee
artist implied that [she] was.”  In 2006,
she became a tribal member of the Patawomeck Indian Tribe of Virginia, which
requires descent from a tribal member for membership.  Her current advertising describes her artwork
as “Native American” and she uses the designations “Patawomeck,” “Potawatomi,”
and “Cherokee Descent.”
Fontenot challenged the law as a violation of her Fourteenth
Amendment due process rights, “irrationally burden[ing] . . . [her] right to
earn a living,” and “protect[ing] artists who are members of federally
recognized tribes from economic competition,” without a legitimate government
interest. The state law was an economic regulation that didn’t affect
fundamental rights. It passed rational basis review: Consumer protection is a
traditional area of state concern and the law here was rationally related to a
legitimate government purpose. “[N]otwithstanding Plaintiff’s disagreement with
the definition of American Indian reflected in the State Act, there is no
reasonable dispute that the Oklahoma legislature could rationally have
concluded that, to meet the purpose of the State Act, some definition must be
drawn and the definition it adopted was a reasonable one.”
Equal protection: Fontenot argued that the law “creat[ed] an
irrational and arbitrary distinction among American Indian artists.”  Again, this passed rational-basis
review.  “As the State has argued, that
distinction ‘prevents consumers from being misled as to the status of the
artist as “American Indian,” given the rigorous process associated with federal
tribal recognition and membership.’” Rational basis review is especially forgiving
when linedrawing is necessary, and defining “American Indian” for the purpose
of a consumer-protection statute must “‘inevitably require[] that some persons
who have an almost equally strong claim to favored treatment be placed on
different sides of the line.’” That’s a matter for the legislature.
Dormant Commerce Clause: Fontenot argued that the law “discriminates
against and excessively burdens interstate commerce in American Indian art by
favoring in-state American Indian artists at the expense of out-of-state
artists.”  She failed to show
discrimination between in-state artists and out-of-state artists, either on the
law’s face or in its direct effects. Nor was there an undue burden. Undue
burden analysis requires balancing (1) the nature of the putative local
benefits advanced by the [statute]; (2) the burden the [statute] imposes on
interstate commerce; (3) whether the burden is “clearly excessive in relation
to” the local benefits; and (4) whether the local interests can be promoted as
well with a lesser impact on interstate commerce.  There was no genuine issue of material fact that
could avoid summary judgment here. “The State Act does not prohibit an artist
from offering his or her art and crafts for sale in Oklahoma; it restricts the
manner of how these goods are marketed,” and it did so equally for
in-state and out-of-state artists. There was no evidence
that the burden on out-of-state artists was clearly excessive in relation to
the local benefit of protecting the public from improperly identified goods.
First Amendment: Fontenot argued that this law constituted
impermissible content-based and identity-based discrimination.  Although Central
Hudson excludes false/misleading commercial speech from any First Amendment
protection, the court nonetheless ran through the remaining three part test for
nonmisleading commercial speech. First, there’s substantial interest in
“protect[ing] the public . . . from false representation in the sale of
authentic and imitation American Indian arts and crafts.” Second, there’s “a
reasonable fit” between the law and the state’s “consumer protection
interests,” meaning that the law “directly advances those interests and is narrowly
tailored.”  The fact that there were
other reasonable definitions of “American Indian” didn’t change that, as long
as this definition was reasonable,
which it was. Central Hudson requires
a reasonable fit between the legislature’s ends and its means, not a perfect
fit.
But all is not lost! 
Under the Supremacy Clause, IACA had to control. Congress passed IACA “to
protect Indian artists from unfair competition from counterfeits.” It provides
for liability for any “person who, directly or indirectly, offers or displays
for sale or sells a good . . . in a manner that falsely suggests it is Indian
produced, an Indian product, or the product of a particular Indian or Indian
tribe or Indian arts and crafts organization.” For purposes of this prohibition,
IACA expressly includes in its definition of “Indian tribe” any Indian group
that has been formally recognized as an Indian tribe by “a State legislature; a
State commission; or another similar organization vested with State legislative
tribal recognition authority.”
Although there was no express preemption provision, and no
field preemption (“Congress expressly contemplated continuing state regulation”),
the court found conflict preemption.
What constitutes a sufficient obstacle to the federal
objectives depends on Congress’s intent, which itself is primarily evidenced by
its statutory language.  The statutory
language and legislative history of IACA reflect a struggle with the definition
of “Indian.”  The initial draft was
narrow and included only federally recognized tribes and their members, but
even then the drafters noted their belief that these definitions would “have to
be broadened.”
By excluding from the state definition of “American Indian”
members (or certified artisans) of tribes that are recognized by a state but
not the federal government, the state law constituted “an obstacle to the
accomplishment and execution of the full purposes and objectives of” IACA,
whose express purpose was “to promote the economic welfare of the Indian tribes
and Indian individuals through the development of Indian arts and crafts and
the expansion of the market for the products of Indian art and craftsmanship.” The
state’s narrower definition prohibited the marketing and sale of works by some
artists that would otherwise be protected by IACA, harming the market IACA was
supposed to promote and develop. The state’s definitions weren’t unreasonable
or unconstitutional in the abstract; they just conflicted with the federal law.

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Bad argument of the day: potential registration should count as (R) because opposer is accused infringer

Posted on April 1, 2019 by rtushnet

Herman Miller, Inc. v. Blumenthal Distributing, Inc., 2019
WL 1416472, No. LA CV17-04279 JAK (SPx) (C.D. Cal. Mar. 3, 2019)
Lots of stuff going on here. 
Herman Miller sued Blumenthal for infringing on the trade dress of one
of its office chairs, the Caper, with a “distinctive bowler-hat-like backrest.”  The court found a factual issue on
nonfunctionality, relying in part on the existence of design patents as
evidence of nonfunctionality even though that’s not right given the mismatch
between “functionality” for design patent and “functionality” for trademark
purposes.  The court found the other
evidence also admitted of different interpretations—the advertising touted
functional benefits, but a jury could find that the particular configuration of
the whole chair, especially the specific perforations in the backrest, was
distinctive and nonfunctional.

Caper chair

accused designs
Herman Miller whinily argued that it had applied to register
the trade dress, had the application published for opposition, and then had been opposed
by defendant.  If not for defendant’s
opposition, then the registration would have issued and Herman Miller would
have a presumption of validity/nonfunctionality in this infringement litigation.  So, Herman Miller reasoned, it should have a presumption of validity
and nonfunctionality.  This argument has
chutzpah, but little else to recommend it. 
As the court noted, the law requires the registration to issue before it
can provide favorable presumptions, and it provides for the mechanism of
opposition to prevent a registration from issuing.
The court also deemed it too late for Herman Miller to add,
after the close of discovery, unfair competition claims based on a defendant’s
alleged use of its reputation as a seller of “knock-off goods” to “position the
accused chairs as substitutes for real Caper chairs,” and that it “target[ed]”
and “interfere[d] with” Herman Miller dealers who were “contractually obligated
to not sell Caper knock-offs.” This was not a trade dress infringement theory
and it came too late.

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making claims against counsel’s advice could be willful for disgorgement remedy

Posted on April 1, 2019 by rtushnet

Dependable Sales & Service, Inc. v. Truecar, Inc., No. 15-cv-1742
(PKC), 2019 WL 1407440 (S.D.N.Y. Mar. 27, 2019)
“Plaintiffs are 108 new-car dealerships located throughout
the United States.”  TrueCar is a lead
generator: online, it puts consumers in contact with a car dealership that
contracted with TrueCar. TrueCar allegedly falsely advertised by promising
consumers a negotiation-free, haggle-free buying experience through the TrueCar
website. Customers were allegedly channeled toward a TrueCar-affiliated
dealership with a pledge of “guaranteed savings” on vehicles that often were
not available on the dealership’s lot, then put into the negotiation process
typically associated with buying a new car. TrueCar’s website also generated a
graphic called the “TrueCar Curve,” which allegedly misled consumers about
vehicles’ pricing data, specifically as to the “factory invoice” price paid by
dealers to manufacturers.
TrueCar moved for summary judgment on the issue of harm. Plaintiffs’
consumer surveys went to falsity, not harm; their deposition testimony “describes
only vague, general perceptions of injury.” This was insufficient to avoid
summary judgment as to plaintiffs’ damages. However, there was evidence of
willfulness, which meant that equitable disgorgement might be an appropriate
remedy.
The evidence of falsity (and willfulness) included TrueCar’s
generation of a “Certificate” showing a “guaranteed savings” off the MSRP,
which the consumer could then take to a dealer and apply toward the purchase
price of a specific make, model and trim of car from a specific dealership. But
plaintiffs argued that “TrueCar-affiliated dealerships seldom honored the
Certificate’s terms, and the particular make and model of vehicles searched by
consumers were rarely available on the dealerships’ lots. In an internal
TrueCar presentation, one of the Company officer’s discussed findings that 80%
of consumers reported that TrueCar-affiliated dealers did not honor the
Certificate price.”  [That’s bad—that’s a
level that might attract state AGs/the FTC.] 
A TrueCar co-founder and former officer described the Certificate as
highly successful in attracting consumer business, and also as going toward
“bullshit virtual vehicle[s]” that were seldom available on dealer lots.
TrueCar’s ads also touted a negotiation-free, haggle-free
purchasing experience; TrueCar didn’t dispute literal falsity for the purposes
of this motion, which seems like a good idea insofar as “No negotiation” was a
big part of the ads, e.g. this
anti-traditional-dealers ad with the happy guy indicating: “Because I used
TrueCar, there was no haggling about the price.” “TrueCar’s market research
concluded that a promise of ‘no negotiation’ was a ‘magic bullet for people’ because
negotiations were generally challenging to consumers.”  TrueCar’s outside counsel advised the Company
against using the “No Negotiation” claim given the claim’s “lack of clarity,
concerns with regulators and the likelihood that dealers and consumers would
negotiate.” TrueCar chose not to follow this advice, though it stopped
advertising a haggle-free buying experience in 2016; some of the plaintiffs in
this case were affiliated with TrueCar for some of the false advertising
period.
Separately, TrueCar’s “Curve” was allegedly false to the
extent that it showed a “TrueCar Price” lower than a “factory invoice” price,
implying that the dealer paid a factory invoice price and misled consumers into
thinking that TrueCar allows them to pay “less than the dealer paid.” TrueCar
argued that “factory invoice” doesn’t mean the dealer’s cost to buy a car,
while plaintiffs argued that consumers understand the term to mean just that.
Although a disclaimer defined the term “factory invoice” as the price a
manufacturer initially charges a dealer, excluding discounts, dealer incentives
and money allocated to the dealer upon a sale, plaintiffs argued that this
definition was not conveniently displayed or easily accessible to consumers.

The court found that the parties weren’t direct competitors and TrueCar’s ads
weren’t specifically comparative to them, thus preventing any presumption of
injury and causation. Although “[t]he type and quantity of proof required to
show injury and causation has varied from one case to another depending on the
circumstances,” ads that “do not draw direct comparisons,” or products “that
are not obviously in competition,” will “require a more substantial showing” of
injury.  Here, the parties occupied
different positions in the marketplace, since TrueCar didn’t sell cars at all
(though there was evidence that TrueCar’s former CEO considered non-TrueCar dealerships
“competitors”).  The key was that “[a]
sale made through TrueCar is not necessarily a sale lost by a plaintiff
dealership, as opposed to some other competing dealership in the same market.” Where
a plaintiff “operates in a large market” that includes numerous types of
retailers, injury “may well be difficult to prove” where it “depends upon the
idea that [plaintiff’s] sales are specifically affected by [defendant’s]
behavior.” Famous Horse Inc. v. 5th Ave. Photo Inc., 624 F.3d 106 (2d Cir.
2010), abrogated on other grounds by Lexmark.
Plaintiffs’ proposed expert on damages was successfully
excluded, so that evidence couldn’t be used to show harm causation. The expert
didn’t weigh the “no-haggle” claim against other features on the TrueCar site, didn’t
account for other factors that influenced a consumer’s choice of dealerships,
and didn’t consider what portion of TrueCar-generated sales could have gone to
other competing dealerships in the same geographic markets.  Nor could evidence of falsity, including
consumer survey evidence showing that more than half of consumers received a
no-haggling/you’ll know the price when you show up message, substitute for evidence
of harm.  Individual witnesses “articulated
only a vague impression of lost sales and damage to reputation, and did not
identify a discernable harm that would permit a reasonable trier of fact to
find injury.”  None of the witnesses identified
a specific actual sale lost to a TrueCar-affiliated dealership, or evidence of
harm to the business reputation of their respective dealers.
TrueCar argued that it should win summary judgment on
materiality. The court understandably disagreed. TrueCar argued that consumers
who purchased through TrueCar after haggling were obviously not affected by the
no-haggle promise, and consumers who were turned off by the surprise haggling
wouldn’t buy from TrueCar.  “TrueCar does
not cite evidence to support of its description of consumer behavior, and for
that reason alone has not met its burden as summary judgment movant. Even if
the scenario TrueCar describes is assumed to be accurate and complete, it
describes a bait-and-switch transaction … which sometimes led to a sale by a
TrueCar-affiliated dealer.”
The Second Circuit has identified “three categorically
distinct rationales” for ordering disgorgement of a defendant’s profits: “The
rule in this circuit has been that an accounting for profits is normally
available ‘only if the defendant is unjustly enriched, if the plaintiff
sustained damages from the infringement, or if the accounting is necessary to
deter a willful infringer from doing so again.’ No matter what the theory,
willful deceptiveness is required. The first two rationales require some sort
of showing of injury, whereas disgorgement based on deterrence “is not
compensatory in nature, but rather seeks to protect the public at large.” Disgorgement
can be partial or full, depending on the need to satisfy a relevant rationale.
Willfulness is necessary, but not always sufficient. Along
with the egregiousness of the conduct, other relevant factors include “(1) the
degree of certainty that the defendant benefited from the unlawful conduct; (2)
availability and adequacy of other remedies; (3) the role of a particular
defendant in effectuating the infringement; (4) plaintiff’s laches; and (5)
plaintiff’s unclean hands.”
There was enough evidence of willfulness to proceed.  First, “failure to follow the advice of
counsel … must factor into an assessment of … bad faith.” TrueCar’s outside
counsel stated in email, “I strongly advise against using the phrase
‘negotiation-free’ in any form in our ads or other self-attributed public
communications …. In my view it is a much greater risk than we should bear at
this point.” The CEO, responded in part, “I am inclined to take some practical
risk here.” Counsel noted that use of the phrase “negotiation free” “was over
my objection, but that is an historical footnote that will hopefully be
irrelevant over time ….”  [Narrator: It
wasn’t.]  Another email: “I do not
believe we should talk about being ‘negotiation free’ in the present tense
because we are not (both for the reasons we have debated at length and
additionally because in nearly 20% of our jurisdictions we cannot even promise
a guaranteed savings, meaning in those states nothing about the experience is
‘negotiation-free’.)” Although counsel approved “no hassle,” he rejected “no haggle”
because TrueCar couldn’t assure users that they would not be expected to
bargain about price and because consumers would believe that TrueCar would take
an “active role” in arranging for sales terms.
Second, TrueCar was “separately aware that its ads left
consumers with a false impression about the process of purchasing a new vehicle
through TrueCar,” as shown by evidence from several years before it
discontinued the claim. Its Chief Product Officer told the CEO that customers
were using TrueCar to “configure a virtual vehicle that has less than a 2%
chance of existing on a dealer’s lot.” He continued: “when we send in our
prospects with a certificate of a bullshit virtual vehicle, we don’t arm them
with the proper tools to ensure they know we have their back at the most
critical moment.” In deposition, he walked back the 2% figure, but yikes.  Separately, a TrueCar executive noted a
consumer survey finding that 80% of respondents stated that TrueCar-affiliated
dealers did not honor the “Guaranteed Savings” certificate.
There was also evidence that TrueCar acted against the
advice of counsel in listing a factory invoice price on the TrueCar Curve. And
a dealer from TrueCar-affiliated dealership that was active in an advisory
committee called the “TrueCar dealer council” told TrueCar that certain
manufacturers “strictly prohibited” their dealerships “from advertising a price
below dealer invoice” as a way “to prevent ‘bait and switch’ advertisements.” He
stated, “Many car buyers believe that the dealer invoice is the true cost of
the car; it is not.”

There was evidence that weighed against a finding of willfulness. TrueCar
stopped running the disputed advertisements in 2016 (the evidence above was
mostly from 2013). The homepage included a disclaimer stating that “[e]ach
dealer sets its own pricing. Your actual purchase price is negotiated between
you and the dealer.” Disappointingly, although TrueCar’s chief marketing
officer described the text as “mouse print,” the court considered the
disclaimer to be “some evidence” that TrueCar qualified its “negotiation-free”
claim on its homepage, rather than simply contradicting the explicit, key claim
in ads. 
TrueCar argued that it didn’t profit from its
advertisements, meaning that “there are no profits to disgorge” after accounting
for its operating expenses. But a court of equity “has considerable discretion
in deciding whether operating expenses during a start-up period ought to be netted
against profits in a later period.”
A reasonable trier of fact could conclude that TrueCar
willfully violated the Lanham Act’s prohibition against false advertising and
profited therefrom.  Injunctive relief
and corrective advertising also remained remedies on the table.
State law claims were stayed pending resolution of the
Lanham Act claim—which sounds like it’s headed for a bench trial.

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claim to cure addiction can be false advertising, as can hidden bias

Posted on March 25, 2019 by rtushnet

Grasshopper House, LLC v. Clean and Sober Media LLC, 2018 WL
6133710, No. 18-cv-00923-SVW-RAO (C.D. Cal. Oct. 18, 2018)
This is a dispute about addiction treatment. Counterclaim plaintiff
Cliffside alleged that counterdefendant Passages violated the Lanham Act (1) by
maintaining and operating websites with the appearance of neutrality or
independence that actually promote Passages’ services without disclosing the
affiliation to Passages, and (2) by representing that Passages possesses a
“cure” for addiction via its treatment program and that a specific person was
fully “cured” of addiction after completing the treatment program. Passages
moved to dismiss and invoked California’s anti-SLAPP law, but both measures failed.
The court held that “websites violate the Lanham Act when
they take advantage of their purported lack of bias to disseminate false or
misleading information,” and that the “failure to disclose bias can be
actionable under the Lanham Act ‘where that failure renders some other
affirmative statement false or misleading.’ ” Cliffside sufficiently alleged
that Passages operated websites that conveyed a lack of bias in order to
disseminate information promoting Passages’ services, including direct links to
Passages’ website.
Anti-SLAPP motion: “While Passages’ statements generally
proclaiming that addiction can be ‘cured’ could be considered to be an issue of
public interest,” those statements were part of its advertising.  Passages’ website repeatedly promised a cure,
e.g., “we want to help you identify why you are using so that you can be cured
of addiction, forever,” and
Our team of highly skilled
therapists will show you or your loved one how to completely cure your
dependency. I want you to notice that I do not mince words. I do not say
“however,” “maybe,” “although,” “perhaps,” or use other qualifying terms or
conditions. We will show you how to bring about a cure. That statement is based
on the results we achieve at Passages, the world’s most effective center for
the treatment of substance abuse, where our success rate at the time of this
writing is 84.4%.
A “promotional book” claims that, through Passages’
treatment plan as detailed in the book, “[o]nce the underlying problems are
discovered and cured, the need for drugs, alcohol, or addictive behavior will
disappear—along with the craving.” And Passages repeatedly made statements that
a specific person had been cured of addiction through Passages’ treatment
program, e.g., “Pax has come out the other side whole, healed, and cured …”
These statements were commercial speech and thus not covered
by the anti-SLAPP law. The statements weren’t simply informative; they
pertained to Passages’ specific “product”—addiction treatment programs at
Passages’ facilities—and were made for the purpose of promoting Passages’
product and soliciting new clients. Even if Passages’ statements advertising
its services were “intermingled with noncommercial speech” regarding the
general curability of addiction, Passages “may not immunize false or misleading
product information … simply by including references to public issues.” Kasky
v. Nike, Inc., 27 Cal. 4th 939, 966 (2002). Somewhat confusingly, the court
says that “Passages’ ‘opinion’ that addiction is curable is merely an ‘opinion’
about the nature of Passages’ own product, which is sufficient to constitute
commercial speech exempt from anti-SLAPP analysis,” conflating the fact/opinion
divide with the commercial/noncommercial divide.  Apparently Passages also argued that addiction
could be cured, probably contributing
to the court’s mashup of issues: Passages submitted a declaration and purported expert report that
the court thought “further bolsters Cliffside’s argument of false advertising.”
Along with other problems, the report’s definition of a “cure” was that the
former addict no longer consumes substances for the foreseeable future, even if
the former addict “might still think about the substance, desire it, or dream
about it.” This definition directly contradicted Passages’ statements that,
following the completion of Passages’ treatment program, “[o]nce the underlying
problems are discovered and cured, the need for drugs, alcohol, or addictive
behavior will disappear—along with the craving.”

Even without the commercial speech exemption, Cliffside sufficiently
demonstrated a probability of success on its false advertising claims against
Passages. In a related case, another judge found that statements that a
facility possesses a “cure” to addiction through its treatment program were
clearly actionable as distinct from statements about “treatment” of addiction.
See Grasshopper House, LLC v. Accelerated Recovery Ctrs., LLC, No. CV 09-08128
DMG (PLAx), 2010 WL 11549437, at *5-7 (C.D. Cal. Mar. 23, 2010).  The court here agreed.

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Amazon case shows profound difference between DMCA safe harbor & 230 immunity

Posted on March 22, 2019 by rtushnet

Kangaroo Mfg. Inc. v. Amazon.com Inc., No.
CV-17-01806-PHX-SPL, 2019 WL 1280945 (D. Ariz. Mar. 20, 2019)
The Amazon
Chronicles often asks “what is Amazon?” 
An interesting question to build a law school course around might be “what
can Amazon do?”  Here, the DMCA doesn’t
let it avoid an infringement claim on a motion to dismiss or partial summary judgment,
suggesting that Eric Goldman has a point when he says the DMCA is useless in
actual litigation, whereas §230 gets rid of other claims about Amazon’s alleged
practice of merging counterfeit and legitimate listings for the same product.
Kangaroo sells emoji beach balls. On Amazon, third-party
sellers create their own listing for a product that they plan to sell,
including uploading their own images of the product, and set their own prices
for the product.
Each product is identified with a
universal product code (“UPC code”) and an Amazon Standard Identification
Number, and each product also receives its own product detail page (“PDP”). Multiple
sellers can list the same product for sale on the same PDP. However, only one
seller may be awarded the “Buy Box” on a PDP, which makes the seller’s item the
default for a customer’s purchase. When a seller signs up to sell products on
the Defendant’s website, it agrees to the terms of the Amazon Services Business
Solutions Agreement (the “BSA”) and the policies incorporated by the BSA.
Kangaroo alleged that Amazon, and third party sellers, sold
unauthorized/counterfeit products in violation of Kangaroo’s trademark and
copyright, including reselling some of the counterfeit product that it
re-purchased from Kangaroo as reimbursement for unauthorized sales.
Amazon didn’t seek summary judgment on the trademark
infringement claim or counterfeiting claim to the extent that Kangaroo alleged
that Amazon itself sold the accused products.
Copyright infringement: Amazon argued that third parties uploaded
the accused images and that it had a license to use Kangaroo’s images—the court
doesn’t address the licensing argument.  For
the DMCA, the court found genuine disputes “on when and whether the Defendant
knew of the infringing material on its website and whether the Defendant took
reasonable steps to quickly remove that content” because Kangaroo alleged that it
filed several complaints, while Amazon stated that Kangaroo “never submitted an
infringement report regarding the images used” for the emoji beach balls. [Can’t
both of these be true? Kangaroo complained generally, which isn’t enough, but
didn’t file a complaint about images?  This
seems like a sloppy treatment of the evidence for summary judgment; the court
is clearly annoyed that Amazon isn’t specific enough about when it’s seeking
summary judgment and when dismissal in its papers.]  Further, Amazon contended that it removed
infringing content “usually within days” of Kangaroo’s complaints, but Kangaroo
disagreed.  [I don’t understand this.  Did Kangaroo submit evidence that content
remained past “days”?  There are cases
finding that a period of days is expeditious as a matter of law.]  Amazon also allegedly continued to use the
protected images to sell counterfeit products after the notifications of
infringement.  This created disputed
issues of fact. 
Negligence: dismissed because of §230. The negligence
allegedly stemmed from Amazon’s improper merger of the UPC code assigned to Kangaroo’s
product with the code assigned to a competitor’s product. Amazon argued that
any content listed on a PDP is provided by third-party sellers, but the court
looked to Amazon’s contract, which made it clear that Amazon “had full control
over the content displayed on its websites. The Defendant’s pleadings
demonstrate that it took the responsibility of managing and cultivating the
content provided to it. Therefore, the issue is not the content that was
provided to the Defendant, but the Defendant’s alleged mismanagement of the
content through conflating UPC codes in a manner that harmed the Plaintiff.”  Nonetheless, Amazon was acting as an
interactive computer service under §230 when it took the challenged acts and
was immune.
Unjust enrichment: unavailable because of the contract
between the parties.
Unfair competition: not dismissed to the extent it was an
infringement/counterfeiting claim. But dismissed to the extent it was based on
allegations that Amazon harmed Kangaroo by earning fees related to sales made
by unauthorized competitors and counterfeiters.

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failure to show damages from literal falsity still allowed injunctive relief

Posted on March 21, 2019 by rtushnet

Nutrition Distribution LLC v. IronMag Labs, LLC, No. CV
15-8233-R, 2018 WL 6264986 (C.D. Cal. Nov. 16, 2018(
“This is a false advertising case between two competitors in
the business of selling fitness supplements.” IronMag allegedly unlawfully
marketed its products as “dietary supplements” and as having no side effects.” The
accused products allegedly contain Ostarine, a type of Selective Androgen
Receptor Modulator (SARM), deemed dangerous to human health by the FDA. ND sought
an injunction and damages under the Lanham Act, California’s UCL, and
California’s FAL.
The court granted summary judgment in IronMag’s favor on the
money damages claims.  This was a
noncomparative false advertising case, meaninig that actual evidence of some
injury was essential to recover damages. 
ND had no evidence of damages, and it also couldn’t recover profits
without proof of harm, again because this wasn’t a comparative advertising or
disparagement case, and it wasn’t a misappropriation case involving noncompeting
goods (where disgorgement also might be appropriate to deter). “Rather, the
parties are two of many competitors in an industry comprised of a broad range
of products, and Plaintiff has provided no basis to infer that any profits made
by Defendants would have otherwise gone to Plaintiff partially or in full…. The
Lanham Act requires that damages awards be compensatory and not designed to
punish. Because Plaintiff has offered no proof of actual injury, the Court has ‘no
way to determine with any degree of certainty what award would be compensatory.’”
Nor was this an exceptional case for purposes of a fee
award.
However, injunctive relief remained possible. It was
literally false to claim that products with Ostarine have “basically
non-existent” side effects.  No further
evidence of a tendency to deceive was required; IronMag didn’t rebut the presumption
of deception from literal falsity.  “Even
without this presumption, common sense requires a finding that statements
denying the existence of negative health effects in a fitness product have a
tendency to deceive a substantial segment of interested consumers.”
Common sense also showed materiality.  [There is a lurking contradiction—not a split—in
courts about this: some say that additional evidence is required, but I think
the court here is right.  Often the content
of the literal falsity itself can provide all the information required to find materiality.]
“It can naturally be assumed that consumers of fitness supplements take into
account the existence and extent of negative side effects when deciding whether
to buy them and in comparing different products.”
Even without showing past injury, there was a likelihood of
future injury if IronMag could keep selling Ostarine products with deceptive
advertising. As the Ninth Circuit has said, “competitors vie for the same
dollars from the same consumer group, and a misleading ad can upset their
relative competitive positions.”  The
injury was irreparable because of the presumption of deception.  “Monetary damages have not been awarded here
and in any case would be inadequate to protect the public in the absence of an
injunction due to the possibility of Defendants selling products in the future
which may pose a risk to public health and safety.” An injunction would issue.
The result was the same under state law.  Monetary relief is allowed under the FAL “to
restore to any person in interest any money or property, real or personal,
which may have been acquired by means of such unfair competition.” This “allows
awards of restitution, but not awards of non-restitutionary disgorgement,” which
was all ND was seeking here.

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survey isn’t evidence of actual deception, court says in First Amendment case w/TM relevance

Posted on March 21, 2019 by rtushnet

Express Oil Change, L.L.C v. Mississippi Board of Licensure
for Professional Engineers & Surveyors, No. 18-60144 (5th Cir. Feb. 19,
2019)
Just as a matter of client advocacy, it is time for these
First Amendment cases about the government’s near-inability to regulate based
on the meaning of words to start being cited in run-of-the-mill trademark and
false advertising cases.  I don’t think
the results will be good policy, but at the very least we will see whether
courts mean what they say, or instead mean “legislative and administrative
entities shouldn’t get to regulate but it’s ok when private parties sue under
the same theories.”  In particular, where
trademark and false advertising treat “false and misleading” as the regulable
category (albeit with different standards of proof for “misleadingness” in
§43(a)(1)(B) cases than for falsity), First Amendment commercial speech law has
for decades made a distinction
between actually/inherently misleading speech and potentially misleading
speech.  Here the Fifth Circuit applies
that distinction to disregard a survey showing 55% deception—that’s just
“potential”—and hold that, without actual consumer deception, only a disclaimer
remedy is allowable.  (Among other
things, the First Amendment doctrine has yet to engage with what we know in
TM/advertising law about the ineffectiveness of disclosures and the range of
responses among consumers—a few actually confused consumers out of millions
don’t necessarily justify liability, especially where the challenged use provides
useful information to other consumers. 
The libertarian anti-statistical bent of this crop of judges may have
additional implications for their reactions to those arguments in trademark and
other First Amendment cases.)
Mississippi legally restricts the use of the term
“engineer.” Express Oil Change operates several automotive service centers in
Mississippi under the name “Tire Engineers.” In 2015, the Mississippi Board of
Licensure for Professional Engineers & Surveyors determined that the name
“Tire Engineers” violated the pertinent statutes and requested that Express
cease using it.  Express sued for a
declaratory judgment that its use was ok; the trial court ruled against it.
The district court found that “Tire Engineers” was inherently
likely to deceive consumers that the services performed at Tire Engineers are
performed by tire engineers or under the supervision of tire engineers.” The
court accepted “substantial evidence” that “the term ‘tire engineers’ is used
by courts, universities, tire manufacturers, tire manufacturers, general
periodicals, specialized periodicals, and the general public to refer to actual
engineers who have expertise in the manufacture, selection, and repair of
tires.” A survey conducted by the Center for Research and Public Policy found
that “[s]ixty-six percent of the respondents expected that Tire Engineers ‘has
professional engineers on staff,’” and “[f]ifty-eight percent [of respondents]
expected Tire Engineers to use engineers to service tires.” Additionally, the
Board highlighted an Express advertisement claiming that “[a]ll of our Express
Oil Change & Tire Engineers have tire engineers who are qualified to
[service] . . . tires . . . .”  (Express
discontinued use of “Tire Engineers have tire engineers” in 2017, but the court
didn’t indicate that Express couldn’t bring the phrase back.)
“The party seeking to uphold a restriction on commercial
speech carries the burden of justifying it.” This “burden is a ‘heavy’ one,”
and may not be “satisfied ‘by mere speculation or conjecture.’” Commercial
statements that are actually or inherently misleading aren’t protected by the
First Amendment. “[A] statement is actually or inherently misleading when it
deceives or is inherently likely to deceive.” Joe Conte Toyota, Inc. v. La.
Motor Vehicle Comm’n, 24 F.3d 754, 756 (5th Cir. 1994). Statements that are
only potentially misleading, however, are within the scope of the First
Amendment, and their regulation is judged by Central Hudson (or, though the court doesn’t say so here, by Zauderer when the state’s remedy is
requiring an additional disclosure).
Express argued that “[t]he term ‘engineer’ is commonly used
to describe jobs and trades other than professional engineering” and pointed
out that the Fifth Circuit had already rejected the “circular” reasoning that a
term “is inherently misleading because it does not conform to [a state actor’s]
definition . . . of the term.”  The court
of appeals agreed with Express: “Because its essential character is not
deceptive, Tire Engineers is not inherently misleading. The name, first
trademarked in 1948, apparently refers to the work of mechanics using their
skills ‘not usu[ally] considered to fall within the scope of engineering’ to
solve ‘technical problems’ related to selecting, rotating, balancing, and
aligning tires.”  “Engineer” “can mean
many things in different contexts, and it is certainly not limited to those
professionals licensed by Mississippi to practice engineering.”  Since it was not “devoid of intrinsic meaning,”
it wasn’t inherently misleading.  [That
formulation, though derived from earlier cases, seems particularly unhelpful
here. Even if we think that non-onomotopoeiac words had “intrinsic” meaning,
that meaning would seem determine whether a use was inherently misleading—is
the use consistent with its meaning, or contradictory?  Words without
intrinsic meaning, by contrast, would seem more readily
non-false/non-misleading, as we hold in puffery cases.]
Lanham Act lawyers, pay attention: The court thought that
the survey cut both ways, given that it asked: “The company ‘Tire Engineers’
advertises that it has ‘qualified personnel’ to repair tires. As a result of
this advertising how strongly do you expect the following[:] . . . That the
company, Tire Engineers, is performing engineering services.” “Just over
one-half of all respondents with an opinion, [fifty-five percent], suggested
they believed a company that uses the name ‘Tire Engineers’ performs
engineering services for tires,” but nearly 45% percent of respondents stated
that they did not share this belief or were unsure. “While this suggests that
the name is potentially misleading, it also suggests that the name is not
inherently—that is, its essential character is not—misleading.”  If 55% deception isn’t enough for
actual/inherent deceptiveness, then no survey will be. 
In addition, the district court failed to account for the
way the Tire Engineers mark is used: “on the company’s website, which describes
its automotive services (not any professional engineering services), and at its
retail stores, which appear like any other store that performs automotive
services . . . .”
The district court separately determined that “Tire
Engineers” was actually misleading, based on a phone poll commissioned by the
Board, which found that “[a]lmost half of the respondents (47.8%) believed that
a company [using] the name ‘Tire Engineers’ performs engineering services for
tires.” This wasn’t evidence that any actual consumer had been misled, which is
required for “actual” misleadingness. 
But the court of appeals decided that Supreme Court and circuit precedent
required “evidence of deception” to find actual misleadingness, even though
none of those cases actually addressed whether survey evidence could be
“evidence of [actual] deception.”  [I am
even more convinced after this case that the rejection of probabalistic
evidence is a core aspect of today’s conservative jurisprudence, which
conveniently allows the rejection of all kinds of regulation/legislation that
is based on probabalistic calculations.]
The district court wasn’t wrong that the name was potentially
misleading, but its remedy—the ban on the use of “engineers”—flunked Central Hudson because it was more
extensive than necessary.  Express wanted
at most “a simple point-of-sale disclaimer that ‘Tire Engineers does not employ
professionally-licensed engineers or provide engineering services.’” [Express
has no worries about initial interest confusion/bait and switch,
apparently.]  The court of appeals didn’t
rule on what kind of disclaimer would be sufficiently tailored, but the Board
needed to consider less restrictive means such as a disclaimer.
Because of all this, the court of appeals didn’t reach
whether INS v. Sorrell trumped Central Hudson.

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