TM use in ad text and on website not confusing where true source is clearly marked

Posted on October 16, 2017 by rtushnet
Guardian Pool Fence Sys. Inc., Plaintiff, v. Sunwest
Industries, Inc., No. 16-0824, 2017 WL 2931413 (C.D. Cal. Jun. 1, 2017)
Guardian and All-Safe compete in the market for mesh pool
fences; a Guardian fence costs around $2,000, and an All-Safe fence costs
around $1,500. The parties previously litigated keyword ad buys, but dismissed
the litigation. In 2016, a potential Guardian customer reportedly said that he
had seen the Guardian name in numerous places on All-Safe’s website and asked
if the two companies were related.
As a result, Guardian found that its name appeared on
All-Safe’s website in several places. “Guardian Pool Covers,” “Guardian Pool
Safety,” “Guardian Pool Fence,” and “Guardian Pool Products” all appeared as
“Topics” listed in the right hand column of All-Safe’s website, along with many
other topics such as “Swimming Pool Safety.” 
Each topic had its own page collecting all of the posts tagged with that
specific topic.  Each post had a “by”
field, which All-Safe used to insert topic labels.  Guardian argued that this practice suggested
that Guardian had authored the posts, but the court disagreed, given that other
“by” entries included “Removable Mesh Pool Fence” and “Swimming Pool Safety.”  The Guardian-tagged posts didn’t discuss Guardian,
but were generally about pool safety, and they didn’t offer products for
sale.  All-Safe said that it didn’t
authorize the Guardian tags, but that its third party vendor created them
without specific authorization, and they were removed shortly after this
litigation began.  The Guardian topic
pages were viewed 17 times total by 5 unique users, presumably some of them
Guardian’s counsel; 17 views was less than .01% of all All-Safe website
traffic. 
Here’s what the topic list looked like:
Here are some tagged posts: 

As for the keyword aspects of the case, from January 2008
until February 2011, All-Safe used “guardian pool fence” as a search term
targeted at Spain, Portugal, Puerto Rico, and Costa Rica, resulting in four
clicks.  These campaigns ended in
February 2011.   From January 2008 to May 2016, All-Safe’s AdWords
campaigns together generated well over 800,000 clicks.  Also, for a few months in 2016, Guardian
included “all safe pools” in its Google AdWords, along with eighteen other
search terms, several of which included the term “all safe” or “all-safe,” though
Guardian argued that this was inadvertent and in contravention of its standard
practice. In May 2016, a search for “all-safe” returned an ad for Guardian with
the headline “all safe pools – Guardianpoolfence.com.” “All safe pools”
generated six clicks on Guardian ads.
Guardian didn’t challenge All-Safe’s AdWords search program,
only the Guardian Topics on All-Safe’s website. The court found confusion
unlikely.  Along with the usual
multifactor test, internet search-related cases also require considering “an
additional factor of particular importance”: “the labeling and appearance of
the advertisements and the surrounding context on the screen displaying the results
page.” Though Guardian wasn’t making a search-related claim, but rather challenging
a webpage layout and tags in a topics section, this factor was still applicable
“because the full context of the webpage is important to assessing how a
consumer would understand the Guardian Topics.” In cases challenging online
activity, the Ninth Circuit has sometimes skipped the Sleekcraft test “in favor
of a more streamlined inquiry: ‘(1) Who is the relevant reasonable consumer?;
and (2) What would he reasonably believe based on what he saw on the screen?’” This
was the appropriate analysis here, “because it is a website rather than a
product that bears the mark.”
The consumers here would be careful and accustomed to
shopping online, given the cost of the pool nets.  What would such customers understand? 
The fact that the Guardian Topics
are listed as topics suggests that somewhere on All-Safe’s website there is
discussion of the various Guardian Topics. A company discussing a competitor on
its own website does not alone amount to trademark infringement or generate
confusion. A reasonably prudent consumer would draw very little from the fact
Guardian appeared as a topic on the All-Safe website. At worst, a reasonable
consumer might click on a topic “uncertain as to what they will find.”
A consumer who did click would find blog posts about pool
safety, not about Guardian.  “The use of
the term Guardian in the topic names is confusing, but it is confusing in that
it makes little sense given the ultimate content of the posts tagged with the
topic. It does almost nothing to suggest that Guardian is in any way the source
of the pool nets for sale through All-Safe, and pool nets are not directly
offered for sale anywhere in blog posts.” 
Thus, the uses wouldn’t create confusion as to the origin of All-Safe’s
goods or services.  Moreover, the Ninth
Circuit has cautioned that reasonable consumers “expect to find some sites that
aren’t what they imagine based on a glance at the domain name or search engine summary.”
Similarly, the court here considered reasonable consumers “capable of
dismissing dead-end topics labels as oddities, indicative of almost nothing.”
The fact that a single consumer might potentially have been
confused—the one who talked to Guardian’s VP—was insufficient to show likely
confusion, especially given the hundreds of thousands of views of All-Safe’s
website. All-Safe’s website prominently displayed its logo, and only its logo,
on every page. “This ‘broader context’ of the topics pages mitigates against
any possible confusion as to a connection with Guardian.” Summary judgment for All-Safe.

All-Safe counterclaimed based on Guardian’s use of “all
safe” or “all-safe” in Google AdWords. However, as All-Safe itself said, “there
is growing consensus in the case authorities that purchasing trademarked
keywords for the purpose of competitive keyword advertising does not violate
the Lanham Act.” Guardian didn’t use the All-Safe mark on its website or the
phrase “all safe” in its domain name. Plus, clear labeling of a search result
as an ad “can help eliminate any possibility of confusion.”  Interestingly, the court applied this
principle to an ad whose text arguably used both All-Safe’s mark and Guardian’s
mark, which not all courts would—the court thought that clear marking as an ad
was enough of a signal that consumers might get competing information.  Even though All-Safe’s trademark appeared in
the ad, it “also clearly incorporated Guardian’s non-infringing domain name,”
and thus Guardian’s ad wasn’t likely to confuse.

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Uncontradicted testimony that defendant’s claim lacks scientific support requires judgment for plaintiffs

Posted on October 10, 2017 by rtushnet
Rosendez v. Green Pharmaceuticals, No. D071073, 2017 WL
4400011 (Cal. Ct. App. Oct. 4, 2017) (unpublished)
Plaintiffs alleged that Green’s SnoreStop, a homeopathic
remedy for snoring, was a sugar pill falsely advertised to stop snoring.
Although the trial court found the testimony of Green’s homeopathy expert was
not credible and gave it no weight, the court also concluded that plaintiffs
failed to meet their burden of proof on their UCL, FAL, and CLRA claims, noting
they “proceeded on the theory that there is no scientific basis for the
advertised efficacy of SnoreStop” but “provided no evidence of tests to determine
the efficacy of SnoreStop.” The court of appeals reversed, implicitly rebuking
a number of recent cases that have (wrongly) interpreted California’s
standard—which does not allow private plaintiffs to require substantiation from
defendants—as precluding claims by private plaintiffs that rely on evidence
that shows no scientific support for the defendant’s scientific claims.
Green claimed that a clinical study showed that 79.5 percent
of SnoreStop users reported noticeable improvements within the first five
nights, but the study, according to plaintiffs, didn’t support the findings
attributed to it and “is instead characterized by severe methodological
deficiencies.” SnoreStop allegedly “simply consists of a myriad of toxic
substances that are provided in such extremely diluted form that they have no
impact on the human body whatsoever.” 
Homeopathy relies on dilution, and of SnoreStop’s seven “purportedly
active ingredients,” five were diluted to one part per million, one of to one
part per ten thousand and one part per million, and one to one part per
trillion.
Plaintiffs’ expert was Dr. Lynn Willis, who has a Ph.D. in
pharmacology.  Willis testified about the
two fundamental principles of homeopathy—the law of similars (treat a disease
with substances that cause symptoms mimicking the disease) and the principle of
dilution (diluting drugs makes them more powerful).   Willis testified he was not aware of any
valid scientific support for dilution, which is in direct opposition to dose
response theory, the basic principle of pharmacology.  The theory of homeopathy is that tapping the
diluted solution against a hard surface causes a release of healing energy, but
this has never been detected.  Based on
his education, training, research, and scientific review of homeopathic
literature, Willis opined that the homeopathic law of similars is “not
compatible with conventional theories of how drugs and other medications work,”
and was contrary to proven scientific theory, as was dilution.  He also specifically addressed each of
SnoreStop’s seven “active” ingredients (including belladona) and their dilution
levels.  He testified that each
ingredient would not, in isolation, relieve snoring, and that he was unaware of
any credible scientific evidence to support the claim that the combination, at
that dilution level, would be able to shrink swollen tissues that block air
passages (as claimed by defendant).  He
further testified that defendant’s clinical study was unreliable: among other
things, it relied on snorers’ bedmates’ opinions, and it failed to include a
power analysis to figure out how many subjects would be needed to detect a real
difference.  The study also showed that
45% of the placebo group showed a reduction in snoring, meaning that the test
group was also likely responding due to placebo response.  The net improvement that should have been
attributed to the treatment group was thus 20.4%, and he concluded that the
study should not be relied on to claim efficacy for SnoreStop.
Plaintiffs’ evidence also included the named plaintiff’s
testimony about her own experience with SnoreStop and its inefficacy for her.
At the close of plaintiffs’ case, Green moved for judgment
as a matter of law, which was denied.  Green
called, as an expert on homeopathy, Gregory Dana Ullman, who testified that he
practiced homeopathy and had written hundreds of articles on homeopathy. He
testified that he believed all of the statements at issue on the SnoreStop
package label were accurately stated and correct.  After closing arguments, the court concluded
that plaintiffs failed to meet their burden of proof, because Dr. Willis
couldn’t testify to the product as a whole, and thus there was insufficient
evidence that the combined ingredients failed to work.  As to the study, the court found that Dr.
Willis hadn’t conducted counter-testing of his own or proved that the study was
flawed.  However, the court found
Ullman’s testimony not credible and entitled to no weight, in part because of
his support for the use of a radionics machine, whereby a physician puts a
picture of his patient on one side, and a few medicines on the other side, and
then sees which of the medicines the needle points toward.
When the trial court concludes that the party with the
burden of proof failed to carry that burden, the question on appeal is whether the
evidence compels a finding in favor of the appellant as a matter of law. This
requires a finding that appellant’s evidence was (1) “uncontradicted and
unimpeached” and (2) “of such a character and weight as to leave no room for a
judicial determination that it was insufficient to support a finding.”  A trier of fact isn’t automatically required
to give a verdict that conforms to expert opinion, even if unanimous; the value
of the expert opinion depends on the quality of the evidence the expert
provides.  The trier of fact can only be
reversed unless it could not, in light of the record, reasonably reject the
expert’s testimony, which was the case here.
 
“Willis’s expert testimony regarding the efficacy of
SnoreStop was uncontradicted and unimpeached and constituted ample proof that
SnoreStop is not an effective snoring remedy.” Willis had relevant training and
expertise; he testified that there was no valid scientific support for the
dilution theory, and that it contradicted dose response theory, “the basic
principle of pharmacology. Willis also testified that he had never detected any
evidence to support the homeopathic idea that striking a substance releases
healing energy, noting that ‘science has no way to measure this energy.’” Thus,
he opined that homeopathic theories were “contrary to proven scientific theory.”  This testimony was unimpeached and
uncontradicted; the trial court gave Green’s witness testimony no weight. And
uncontradicted and unimpeached testimony of an expert witness may not be “arbitrarily
disregarded” by the trier of fact. 
“Willis’s testimony about the inefficacy and scientific
implausibility of homeopathy in general alone was sufficient to satisfy
plaintiffs’ burden of proving the inefficacy of SnoreStop as a snoring remedy.”
Moreover, his testimony wasn’t limited to homeopathy in
general, because he also testified about the inefficacy of each of SnoreStop’s
“active” ingredients and the inefficacy of those ingredients in combination.
The trial court mischaracterized his testimony in stating that Willis “could
not testify as to the product as a whole.” But he testified that each
ingredient wouldn’t work, and that he wasn’t aware of  any credible scientific evidence that the combination
would work and that he was of the opinion that they wouldn’t.  Also, though the court stated that plaintiffs
didn’t prove that Green’s cited study was flawed, Willis testified about a
number of flaws in the study.  Contrary
to the trial court’s statement, plaintiffs provided scientific evidence to
support their theory that there is no scientific basis for the advertised
efficacy of SnoreStop.
The trial court based its holding largely on plaintiffs’
lack of tests on the actual SnoreStop tablets. But Willis “was entitled to
accept the information on the label and could competently testify that given
that information, there is no scientific basis to conclude that SnoreStop could
have any effect on snoring beyond a placebo effect.” An expert’s opinion is not
unreliable simply because the expert’s opinions are based on data collected by
others. Because Willis’s reasoning, qualifications, or credibility were
unchallenged, the rejection of his opinions was arbitrary.
“Given the uncontradicted and unimpeached evidence that the
fundamental principles of homeopathy have no basis in science and that
SnoreStop in particular is not an effective remedy for snoring, the court
should have found for plaintiffs on both of their causes of action and awarded
the appropriate relief requested in plaintiffs’ complaint.”  In a footnote, the court noted that one older
California appellate case suggested that if a homeopathic product is listed in
the Homeopathic Pharmacopoeia of the United States (HPUS), its efficacy is
sufficiently established under the FDCA to avoid false advertising liability. However,
unlike non-homeopathic OTC drugs, homeopathic OTC drugs are not evaluated by
the FDA at all, and the FDA explicitly says that a homeopathic drug’s
compliance with the requirements of the HPUS “does not establish that it has
been shown by appropriate means to be safe, effective, and not misbranded for
its intended use.” So inclusion in the HPUS or compliance with FDA guidelines
regarding the HPUS “does not establish, much less guarantee, the product’s
efficacy.”

Finally, the trial court’s apparent decertification of the
class was in error; there was no indication that the requirements for
certification were no longer satisfied at the time of trial. The trial court was
directed to determine the damages, restitution, and other relief to which the
plaintiff class members were entitled. 

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Suing Doe reviewers under the Lanham Act fails

Posted on October 6, 2017 by rtushnet
Reybold Gp. v. Does 1-20, 2017 WL 4326360, No. 17-810 (D.
Del. Sept. 29, 2017) (magistrate judge)
Reybold sued the Does for infringement, dilution, injurious
falsehood, and defamation based on their statements on ApartmentRatings.com
about Reybold’s St. Andrews Apartment Complex, and made an ex parte motion for
discovery.  Reybold wanted to issue a
third-party subpoena to ApartmentRatings.com seeking, among other things, the
IP addresses from which the online postings originated. Reybold planned to then
subpoena the relevant ISPs associated with those IP addresses, in order to
identify names, payment information, and other identifying information
associated with those addresses.  The
court, rightly, denied the motion.
Here’s two examples of the comments at issue:

(b) anonymous
I would in no way recommend this complex. Apartments are
old, lawns are always trash covered, cigarette butts and dog crap everywhere.
Trash areas are always a mess. Maintenance stuff never gets done. When it does
they have to come back 3 or 4 times. My rent goes up every year and new people
get deals, yet I get nothing for staying. I’m out of here this year. There is
tons of new stuff around that is cheaper. Rock wood, Emblem, check these out.
So much nicer for less money. Also, my UPS and FedEx packages are always
getting stolen from my door and they don’t do anything about it. Good Riddance
$hlt Andrews.
Added Feb 01, 2017 …
(e) anonymous
I’ve been living at this place with bad wiring for months
now and no one seems to care. I have several outlets that spark when I use
them, some that don’t work at all, and one that only works when you tap on it.
The wiring in my home is obviously not right. I have been begging them to fix
it and they keep telling me they’re trying to get an electrician out to look at
it but no one ever shows. I have children and I should feel safe having them
live her[e] but I don’t. But let me pay rent one day late and they’re all over
me. I hate this place.

Expedited discovery requires the party seeking discovery to
demonstrate that its request is “reasonable” in light of the relevant
circumstances. Where such discovery is sought in order to identify unknown or
anonymous John Doe defendants, courts first ask whether the plaintiff has
established a prima facie case for each essential element of the claim(s) in
question. If so, courts have asked whether the plaintiff has demonstrated: (1)
that it has no other way to identify the alleged wrongdoers, aside from
obtaining the discovery at issue; or (2) that expedited discovery is necessary
because evidence identifying the defendants may be otherwise destroyed (e.g.,
as a result of routine deletion by third party ISPs). Good cause can exist in
these cases, although courts will still consider other protections for
defendants from misuse of their personal information.
The court looked at the Lanham Act claims first, since they
provided federal subject matter jurisdiction. There was no suggestion of false
association in the complaint; claims for “Unfair Competition” and “Commercial
Defamation” were both really false advertising claims.  Reybold failed to sufficiently allege
commercial advertising or promotion: that the reviews were commercial speech,
that they came from a defendant in commercial competition with Reybold [note
that this should have been replaced with the Lexmark standard, but it makes no difference], or that the speech
was made for the purpose of influencing consumers to buy a defendant’s goods or
services.  Seven of the 14 challenged
posts were listed as being written by a “Resident” or “Prospective
Resident[,]” and all 14 postings either directly state or very strongly imply
that the poster currently lives in, has previously lived in, or was thinking of
moving to St. Andrews.  No post was
explicitly identified with a competitor; one post mentions competitors, but
still claims to be from a renter making comparisons.  And no other facts were pleaded to explain
why the posts could plausibly be from competitors. 
Without the Lanham Act claims, the question arose whether
the court had subject matter jurisdiction over the remaining claims.  With anonymous Does, it was hard to show
diversity jurisdiction.  (Given the
content of the posts, the more plausible inference was that there was no
diversity jurisdiction.)  Some federal
courts apparently think otherwise, but the Third Circuit has a fairly clear
rule about whether the existence of unidentified or “Doe” defendants defeats
diversity jurisdiction: where there are no allegations as to their citizenship,
“John Doe parties destroy diversity jurisdiction if their citizenship cannot
truthfully be alleged.”

Given the lack of a prima facie federal claim and the apparent
lack of subject matter jurisdiction, the court denied Reybold’s motion for
expedited discovery.

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Fantasy gambling is newsworthy, doesn’t violate players’ rights of publicity

Posted on October 5, 2017 by rtushnet
Daniels v. FanDuel, Inc., No. 16-cv-01230 (S.D. Ind. Sept.
29, 2017)
Akeem Daniels, Cameron Stingily, and Nicholas Stoner played college
football and sued FanDuel and DraftKings for violating their Indiana right of
publicity. Defendants run fantasy sports websites and mobile apps; they
assemble a group of select collegiate players—including plaintiffs—to appear on
a list of available athletes, and they assign each player a fictitious
“salary.” A customer can then buy the services of individual athletes, and each
athlete on the fantasy team scores a certain number of points in each contest
based on real-life performance.  Defendants allegedly generated roughly $3.0
billion in customer entry fees in 2015, and used athletes’ names and likenesses
in marketing.
Indiana Code Section 32-36-1-8(a) provides that a “person
may not use an aspect of a personality’s right of publicity for a commercial
purpose during the personality’s lifetime or for one hundred (100) years after
the date of the personality’s death without having obtained previous written
consent ….” The statute defines a person’s right of publicity as “a
personality’s property interest in the personality’s: (1) name; (2) voice; (3)
signature; (4) photograph; (5) image; (6) likeness; (7) distinctive appearance;
(8) gestures; or (9) mannerisms.”
The law does not apply to:
1. The use of a personality’s name,
voice, signature, photograph, image, likeness, distinctive appearance,
gestures, or mannerisms in material that has political or newsworthy value.
2. The use of a personality’s name,
voice, signature, photograph, image, likeness, distinctive appearance,
gestures, or mannerisms in connection with the broadcast or reporting of an
event or a topic of general or public interest.
3. The use of a personality’s name,
voice, signature, photograph, image, likeness, distinctive appearance,
gestures, or mannerisms in literary works.
4. The use of a personality’s name
to truthfully identify the personality as the performer of a recorded
performance.
Newsworthiness: plaintiffs argued that this exception didn’t
apply to noncommercial speech.  But the
statute only covers uses with a commercial purpose. Thus, “the exceptions must
apply to uses that are commercial in nature.” [Not all uses that have a
commercial purpose are commercial speech; the analysis here doesn’t require
understanding that, but below the conflation will cause some trouble.] 
Newsworthiness is broad under Indiana law. As a 1993 federal
court applying Indiana law wrote, “The privilege of enlightening the public is
by no means limited to dissemination of news in the sense of current events but
extends far beyond to include all types of factual, educational and historical
data, or even entertainment and amusement, concerning interesting phases of
human activity in general.” Plaintiffs argued that this 1993 case was
inapplicable because it was decided prior to the enactment of the ROP
statute.  But, of course, that’s exactly
why it applies—“[t]he legislature is presumed to know the common law and to
incorporate it into the statute except where it expressly indicates otherwise.”  Plus, a contrary holding would raise
significant constitutional issues, so avoidance supported a broad
interpretation as well. Given the breadth of the exception, plaintiffs’
athletic achievements and activities were newsworthy.
Plaintiffs argued that defendants weren’t “news
organizations” engaged in “reporting,” so they couldn’t qualify for the
exception, but neither of those were predicates for qualifying for the
exception, and the court wouldn’t read in any such requirements.  Plaintiffs then argued that the assignment of
fictitious salaries to plaintiffs and commentary posted in comment fields or in
commentary/blog portions of the sites weren’t newsworthy.  However, the statute doesn’t prohibit the use
of materials “associated with” the name, likeness, etc. of an individual—it
prohibits the use of the names and likenesses themselves. “Adopting Plaintiffs’
reading of the statute would bring an almost limitless universe of materials
within its reach, with obvious First Amendment implications.” Thus, fictitious
salaries and commentary [about those salaries?] didn’t constitute a person’s
name or likeness, and weren’t encompassed within the definition of a person’s
right of publicity. [For an example of what would be at risk with a contrary
holding, consider Joyce Carol Oates’ Blonde
or the more low-brow Alternate Presidents,
a collection of fictional stories (also, not coincidentally, including some
alternate Marilyn Monroe stories).] 
Thus, defendants’ motion to dismiss was granted on this ground.  (Defendants’ ads were also covered because
advertising related to exempt material is also exempt, which only makes sense.)
For the same reasons that the defendants’ materials were
newsworthy, they were also matters of public interest.  But the public interest exemption requires use
“in connection with the broadcast or reporting of an event or a topic.”
Defendants argued that their websites “report” information about college
sports, because they profile players on their websites; “corral [the] week’s
news, notes and injury updates;” and disseminate performance information. But
they also allow customers to create fantasy football teams.  The Ninth Circuit, in In re NCAA
Student-Athlete Name & Likeness Licensing Litig., 724 F.3d 1268, 1271 (9th
Cir. 2013), considered a similar challenge raised by former student athletes to
a video game, which allowed individuals to “control avatars representing
college football players as those avatars participate in simulated games,” and
ruled that the material at issue did not constitute “publishing or reporting.”  However, it also distinguished the video games
from the C.B.C. fantasy baseball case
because video games use “virtual likenesses” rather than just performance and
biographical data.  Here, defendants’ websites
could be used as “reference sources,” “either for purposes of playing the associated
game, or for information about the collegiate sports and athletes represented
on the websites.” This was a close call, but given the policy of defining
reporting broadly/constitutional avoidance, the court found that the materials
were “reporting” and defendants also won their motion to dismiss on that ground.
That was good, because they fared less well on their other
objections, which the court presumably addressed to save time after the
inevitable appeal.
DraftKings argued that its contests fell within the “literary
works” exception.  Other courts have
determined that video games are literary works for similar purposes, and
websites are literary works under the copyright law.  However, for the publication/reporting
exception, DraftKings tried to distinguish itself from video games, and it also
didn’t explain why “the particular features of fantasy sports competitions are
similar to the video games that courts have determined constitute literary
works.” This created factual issues not suitable for resolution at the motion
to dismiss stage.
Plaintiffs also argued that they were entitled to the
exemption for naming performers of recorded performances. The statute doesn’t
explicitly require that a protected entity be the entity that “otherwise
rightfully reproduce[s], exhibit[s], or broadcast[s] the recorded performance.”
However, defendants also used plaintiffs’ names and likenesses for purposes
other than to identify them as performers of a recorded performance. “At a
minimum, Defendants also listed selections of Plaintiffs’ athletic and statistical
achievements.” “The statute itself only lists a personality’s ‘name’ as subject
to coverage by this exception, and Defendants have offered no justification as
to why it should expanded to cover the other uses—including Plaintiffs’
likenesses—that are at issue in this case.”  [Does that mean that a greatest hits DVD would
violate the law if it talked about the players on the promo text on the back?]
The court also declined to recognize a First Amendment
defense at this stage, because it wasn’t clear (among other things) whether
defendants’ speech was noncommercial. In classifying whether “mixed” speech should
be classified as commercial or non- commercial, the Seventh Circuit has
highlighted the following relevant considerations: “whether (1) the speech is
an advertisement; (2) the speech refers to a specific product; and (3) the
speaker has an economic motivation for the speech.”  [But not all speech offered for profit is “mixed”
speech—I doubt the court would think that a (non-sponsored, I have to add) NYT
article or editorial was “mixed” speech even though the NYT seeks to make a
profit. The court thought it couldn’t figure this out at the motion to dismiss
stage, even though the pleading itself apparently distinguished between
defendants’ ads and the service defendants sold, so I’d say this could be done
on a motion to dismiss.

The court also rejected defendants’ copyright preemption
argument, because the Seventh Circuit’s holding in Toney indicates that persona (etc.) isn’t copyrightable subject
matter because it can’t be fixed.  It may be that a person’s likeness can’t be fixed
in a specific photo, but if she uses the same name through time I can’t see
what’s so unfixable about the name; I guess the argument must be that the name
is just the manifestation of the unfixed persona which is really what the ROP
protects.  Still, that name is fixed in a tangible medium, like other uncopyrightable stuff as to which state-law protection is preempted.  Sigh.

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Kate Spade fails to toss outlet lawsuit alleging inferior quality compared to boutiques

Posted on October 5, 2017 by rtushnet
Irvine v. Kate Spade & Co., 2017 WL 4326538, No. 16-CV-7300
(S.D.N.Y. Sept. 28, 2017)
Plaintiffs alleged that Kate Spade marks merchandise sold at
outlets with an illusory and arbitrarily higher price from which a substantial
“discount” is then offered, in violation of New York’s GBL § 349 and Florida’s
Deceptive and Unfair Trade Practices Act (FDUTPA). Plaintiffs bought
merchandise at outlet stores; the products were marked with unique four-letter
identifiers and advertised with two prices: Tags on the goods themselves listed
a figure referred to as “Our Price,” while signs advertised steep discounts
ranging from twenty to seventy percent off; the two prices appeared again on
sales receipts along with a number reflecting the relevant percentage “off” the
product, and a final total amount of “savings.”
However, the goods at Kate Spade outlets were allegedly
fundamentally different than the goods at Kate Spade boutiques, and had never
been offered for sale at the “Our Price” figure either at Kate Spade boutiques
or at third-party retailers. These products were allegedly “of inferior
craftsmanship and utilized different hardware, materials, logos and product
demarcations.” Plaintiffs alleged that they wouldn’t have made their purchases,
or would’ve paid less than they did, but for their “mistaken belief” that they
were purchasing “boutique-quality merchandise at substantially reduced outlet
prices.”
The parties disputed whether Rule 9(b) applied, requiring
the claims to be pled with particularity. 
Courts have divided both for §349 and FDUTPA.  The court here reasoned that plaintiffs’
claims weren’t “premised on allegations of fraud,” as they didn’t claim actual
reliance or knowing intent to induce reliance. 
Thus, the court concluded that only Rule 8(a) applied.
The parties treated the statutes the same in other ways, and
the court analyzed the claims under both states’ laws together. The court
accepted one theory of deceptiveness and rejected another.  First, plaintiffs alleged that Kate Spade
“misrepresented the existence, nature and amount of price discounts” in their
outlet stores by “tout[ing] steep discounts” from former retail prices that
“did not constitute the prevailing market retail prices or values.”  Although this conduct is generally unlawful,
that didn’t mean that the plaintiffs had standing—both NY and Florida required
actual injury.  Allegations that a
plaintiff paid a price premium or didn’t receive the product for which she paid
would suffice, but under this theory neither occurred.  Deception itself is not injury.  Neither is pleading that one wouldn’t have
bought a product but for a deceptive practice. 
It wasn’t enough to allege conclusorily that the deception induced them
to pay more than they were subjectively willing to pay otherwise—that
disappointment isn’t cognizable.  In the
absence of allegations that, for example, Kate Spade sells the same products
for a lower price when they don’t have the allegedly deceptive “Our Price”
anchoring them, there was no connection between the alleged deception and the
injury.  (Query how the research about
anchoring and perceptions of value should play into this; the court accepts a
similar theory below when connected to quality, but it seems to me that the
same manipulation of perceptions of value could also lead people to pay more
than they’d otherwise pay under the pure “deceptively marketed” theory.)

Second, plaintiffs alleged that Kate Spade “touted its
artificially inflated former ‘our price’ price as a value anchor to create the
illusion of greater” quality, even though “the Outlet Merchandise was of
inferior quality.”  It was plausible that
the “Our Price” labels conveyed an implicit message of quality and that that
message is false or misleading.  By
alleging that the goods they purchased at the Kate Spade outlets were worth less
than than the “discounted” prices they paid, plaintiffs alleged a plausible,
and cognizable, injury. 

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FTC loses motion to dismiss because court doesn’t deal well with statistics

Posted on October 5, 2017 by rtushnet
FTC v. Quincy Bioscience Holding Co., 2017 WL 4382312, No. 17
Civ. 124 (S.D.N.Y. Sept. 28, 2017)
Lawyers and especially generalist-by-necessity judges need
to understand some statistical basics. When they don’t, they let bad science
shape consumers’ decisions and even law. 
The FTC and NY’s AG sought to hold Quincy liable for false
advertising.  Quincy sells a dietary
supplement known as Prevagen, whose active ingredient, apoaequorin, is a
dietary protein originally derived from the jellyfish Aequorea victoria. Defendants
claim that “Prevagen improves memory,” that it “has been clinically shown to
improve memory,” that “A landmark double-blind and placebo controlled trial
demonstrated Prevagen improved short-term memory, learning, and delayed recall
over 90 days,” that Prevagen “Helps with memory problems associated with
aging,” that “Prevagen is clinically shown to help with mild memory problems
associated with aging,” and that Prevagen can support “healthier brain
function, a sharper mind and clearer thinking.”
The primary support for these claims is the Madison Memory
Study, a randomized, double-blind, placebo-controlled study involving 218
adults between the ages of 40 and 91. Participants were assigned “AD8” scores
of 0 through 8, with an AD8 score of 2 used to differentiate between those who
are cognitively normal or very mildly impaired (with scores of 0-2) and those
with higher levels of impairment (with scores of 3-8). At intervals during the
90-day trial, participants were assessed on a variety of cognitive skills. “No
statistically significant results were observed for the study population as a
whole on any of the cognitive tasks.” 
However, test cell participants in the AD8 0-1 subgroup showed
statistically significant improvements over those who received the placebo in
three of the nine tasks (measuring memory, psychomotor function, and visual
learning), and showed a “trend toward significance” in two more tasks
(measuring verbal learning and executive function). Test cell participants in
the AD8 0-2 subgroup showed statistically significant improvements over those
who received the placebo in three of the nine tasks (measuring executive
function, attention, and visual learning), and showed a “trend toward
significance” in one more task (measuring memory). Thus, the study concluded,
“Prevagen demonstrated the ability to improve aspects of cognitive function in
older participants with either normal cognitive aging or very mild impairment,
as determined by AD8 screening.”
The FTC allegegd that “the researchers conducted more than
30 post hoc analyses of the results looking at data broken down by several
variations of smaller subgroups for each of the nine computerized cognitive
tasks,” and that post hoc subgroup analysis “greatly increases the probability
that the statistically significant improvements shown are by chance alone.” As
a result, “the few positive findings on isolated tasks for small subgroups of
the study population do not provide reliable evidence of a treatment
effect.”  Further, plaintiffs alleged
that Quincy’s theory was that apoaequorin enters the human brain to supplement
endogenous proteins that are lost during the natural process of aging, but
there are no studies showing that orally-administered apoaequorin can cross the
human blood-brain barrier. Instead, Quincy’s studies allegedly show that
orally-administered apoaequorin is rapidly digested in the stomach and broken
down into amino acids and small peptides like any other dietary protein.
In a footnote, the court said that these studies were “contradicted
by canine studies whose relevance plaintiffs challenge,” and also that the
FTC’s argument “loses force when applied to the results of the subgroup study
which make it clear that something
caused a statistically significant difference between those subjects who took
Prevagen and those given a placebo” (emphasis added).
And here, in the footnote, we have the core of the problem:
that “something” causing the statistically significant difference is, at a
minimum, plausibly random error.  When you analyze 20 different subgroups, and
one of them shows a statistically significant difference at the .05 confidence
level, that is exactly what you would expect
when the hypothesis that there is no effect is true: 19 out of 20 times, experimental
results from the sample match underlying truth, and 1 out of 20 times they
don’t.  That’s literally (numerically)
what .05 confidence means.  And it’s also
part of why post hoc subgrouping is so risky and potentially misleading: once
you slice and dice, you have decreased your sample size and increased the
chances of getting a false positive.  If
the only evidence you had were from the subgroup, then yes, the results support
the hypothesis of efficacy, but you can’t ignore that you also have the evidence from the other subgroups.  Moreover, a related reason why post hoc
subgrouping is dangerous is that it’s post hoc because you had no preexisting
reason to suspect a difference in reaction to the test substance.  Occam’s Razor works well here: the simplest
and most plausible explanation is that the subgrouped results, which aren’t
even for the same cognitive tasks across groups (thus making a posited
mechanism other than random error even harder to come up with), are positive as
a result of random error. This is why lawyers desperately need statistics
classes.
Xkcd has this on lock, as usual with math stuff:

Despite this, the court found that the FTC didn’t plausibly
allege that the representations at issue were false or unsubstantiated, given
that “the Madison Memory Study followed normal well-accepted procedures,
conducted a ‘gold standard’ double blind, placebo controlled human clinical
study using objective outcome measures of human cognitive function using 218
subjects.”  The parties agreed that it
failed to show a statistically significant improvement in the experimental
group over the placebo group as a whole. The court said “[t]hat confined
plaintiffs’ attack to the studies of subgroups,” but that’s an odd way to frame
it: the best evidence we have is that the claims that Quincy actually made, phrased
generally in the advertising, and not directed at people with low AD8, are
untrue.  The best evidence we have that
the claims Quincy made are substantiated comes from the subgrouping, but at a
minimum the claims would then not be properly qualified, and the better evidence is from the study as a whole.  Anyway, ignoring that, the court ruled that,
as to the subgroups, “the complaint fails to do more than point to possible
sources of error but cannot allege that any actual errors occurred.”  
The court thought that the FTC’s post hoc argument was
merely theoretical.  “They say that
findings based on post hoc exploratory analyses have an increased risk of false
positives, and increased probability of results altered by chance alone, but
neither explain the nature of such risks nor show that they affected the
subgroups performance in any way or registered any false positives.”  When I was in practice, we had a case where
we ended up having a math professor testify. He concededly had absolutely no
expertise in trademark law, or surveys, or drug errors, but he was really
helpful in explaining statistics, and why a supposedly positive result from a
“confusion analysis” didn’t mean that confusion was likely.  (Bayes’ theorem, so useful.)  Given the substantiation standard and the
other evidence from the study as a whole and the evidence about the blood/brain
barrier, it is at least plausible that the positive results were false positives.
Perhaps that could be refuted by replicating the study and seeing whether the
same subgroups and tasks show up as significant, as a start.  The court thought there was no “reason to
suspect that these risks are so large in the abstract that they prevent any use
of the subgroup concept, which is widely used in the interpretation of data in
the dietary supplement field.”  Even if
that’s true, (a) what is the court doing deciding this on a motion to dismiss?
And (b) post hoc subgrouping is a very different animal.  There’s a very good book about this, Richard
Harris’ Rigor Mortis, which I highly recommend to the interested. Still, “[a]ll
that is shown by the complaint is that there are possibilities that the study’s
results do not support its conclusion,” which isn’t enough for plausibility.

The court dismissed the coordinate state law claims to be
renewed (I hope) in state court, if not on appeal.

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Pleading facts indicating that ad claims are likely impossible suffices for plausibility

Posted on October 2, 2017 by rtushnet

Fan Fi International, Inc. v. Interlink Prods. Int’l, Inc., 2017 WL 4293144, No.16-cv-00661 (D. Nev.
Sept. 27, 2017)

After being sued in New Jersey, Fan Fi and ETL sued Interlink in Nevada for false advertising under the Lanham Act and deceptive trade practices and unfair competition under Nevada law, alleging that some of Interlink’s showerheads violated federal regulations because they permitted a flow of greater than 2.5 gallons per minute at 80 pounds per square inch when the flow restrictor was removed and that the flow restrictors could be removed with less than eight pounds of force.

False advertising claims can’t be based on unsettled regulatory provisions. The court found that the force test regulation was ambiguous.  The Department of Energy itself—the promulgating agency—expressly stated in the Federal Register that the meaning was so unclear that DOE had yet to establish a test method to determine whether a shower head satisfies the test. Though the 8-pound requirement is clear, the method by which resistance to removal was to be tested was unclear (e.g., what angle should the force be applied from).

Fan Fi previously alleged that Interlink advertised a 100,000-hour lifespan, exceeding typical industry claims of 25,000-to-50,000 hours, and argued falsity because this claim would take 11 ½ years to substantiate and unidentified consumers had complained that the LEDs failed in as little as two weeks. The court previously dismissed, with leave to amend, reasoning that a claim of product life could be based on a reasonable estimate, and that isolated instances of product failure did not show falsity. To plead falsity required something objective, “e.g., a mechanical comparison of Defendant’s LED system with an LED system of known lifespan” or the like.  Fan Fi now alleged that another entity tested one of the showerheads, finding a lifetime of 199 hours.  The allegations continued that the LED system comprised a motor that generates power to the LED light from the movement of water through the showerhead, and that this motor lasts for several hundred or several thousand hours, meaning that 100,000 hours wouldn’t be possible for the system.  Interlink argued that there was no indication of expert testing or testing of more than one unit, but that didn’t matter at the pleading stage, where plausibility could be achieved by alleging testing and an explanation of mechanical characteristics that made the ad claims likely impossible.

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“information and belief” isn’t enough to allege competitive injury in false advertising case

Posted on October 2, 2017 by rtushnet
Brickstructures, Inc. v. Coaster Dynamix, Inc., 2017 WL
4310671, No. 16 CV 10969 (N.D. Ill. Sept. 28, 2017)
Brickstructures, a LEGO-structure-creating business, sued
Coaster for breach of contract, breach of fiduciary duty, and false advertising
under the Lanham Act. Given that the complaint’s allegations of diversity
jurisdiction were insufficient, the court looked at the Lanham Act claims.  Brickstructures’ founder conceived of the
idea of a brick-based roller coaster many years ago. He began by adapting a
piece from a model roller coaster kit sold by Coaster, which used glue and not
LEGOs, then reached out to Coaster to propose a possible partnership. The
parties agreed to collaborate and their joint venture began a small production
run of a brick-based roller coaster. After a thousand kits were made and sold,
Brickstructures alleged, Coaster remitted far less than Brickstructures was
due, and then stopped communicating.  Coaster
then launched a successful Kickstarter campaign for a nearly identical toy.
The allegedly false claims were that Coaster’s solo kit, the
Cyclone, was the first commercially available kit combining the leading block system
with the Coaster Dynamix track system, that it was the first brick-based roller
coaster of its kind and the first commercially available brick compatible
roller coaster construction toy, and that it was created by the Coaster Dynamix
team.

It didn’t matter that the parties weren’t direct
competitors, because of Lexmark.  However, what must be pleaded (and proven) is
that plaintiff suffered an injury to its sales or business reputation, and the
allegations of injury, all stated on information and belief, were too
conclusory and superficial to sustain this complaint under Twiqbal. “[W]here something is alleged which should be within a
plaintiff’s personal knowledge, an information and belief allegation thrusts
the complaint into the realm of speculation.” Reputational injury wasn’t outside
Brickstructures’ knowledge.  And without
an adequate allegation of injury, there was an Article III problem.  (Brickstructures definitely alleged a
contract-based injury, but it needed a Lanham Act-based one.) 

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Are Crocs’ uniqueness claims a crock?

Posted on October 2, 2017 by rtushnet
Crocs, Inc. v. Effervescent, Inc., No. 06-cv-00605, 2017 WL
4286148 (D. Colo. Sept. 25, 2017)
Crocs makes molded clogs, and Dawgs is a competitor. Allegedly,
“[e]ach and every functional feature disclosed in the [’858] patent
application, except the heel strap, already existed in the Battiston Molded
Clog,” while pivoting heel straps also existed and were sold attached to molded
clogs, and these features were also disclosed in an Italian patent granted in
2002.  Nonetheless, in 2006, the PTO also
issued a design patent, which “contains diagrams of the base shoe that are
substantially similar to the diagrams that were created by Ettore Battiston in
2000 and assigned from Battiston to [Foam Creations, Inc.], with a strap added
that serves a functional purpose and such as had previously existed for many
years on a wide variety of footwear, including clogs.”  Thus the patent allegedly lacked both novelty
and appropriate inventorship. Crocs allegedly failed to get patents similar to
the ’858 and ‘789 patents outside the United States because of the “well-known
existence of prior sales, the widely-recognized existence of invalidating prior
art, and the established identity of the true and proper inventorship and
origin of the shoe.”
After the ‘789 patent issued, Crocs filed a complaint with
the ITC against various respondents, alleging infringement. While ITC initially
found no infringement of the ‘789 patent and that the ’858 patent was invalid
as obvious in view of prior art, the Federal Circuit reversed on the latter
issue and remanded. Crocs allegedly acted in the ITC proceedings “knowing that
these patents were invalid and unenforceable,” and also filed a 2006 lawsuit
alleging patent infringement.  Dawgs was
added to the case in 2012, and argued that the litigation was objectively
baseless in light of the unenforceability of the patents and because, by the
time Crocs filed its amended complaint adding Dawgs, it “knew or should have
known” that the Battiston patent “rendered the claims of at least the ’858 patent”
invalid.
In 2012, another Crocs opponent filed an application for
inter partes reexamination of the ’858 patent, and, allegedly in retaliation,
Crocs sued CVS, which sold Dawgs products. Dawgs filed an application for inter
partes reexamination with the PTO of the ‘789 patent. In 2016, the PTO rejected
the sole claim of the ‘789 patent as unpatentable and closed the reexamination
prosecution related to that patent.
Dawgs argued that Crocs’ acts violated antitrust law and
that Crocs engaged in false advertising. The individual named defendants
allegedly “directed, participated in, sanctioned, ratified, or acquiesced” in
the decision to sue Dawgs and to continue the 2006 lawsuit through the present.
The court found that the court had personal jurisdiction
over the individual defendants, though they reside outside Colorado.  The fact that Crocs was headquartered in
Colorado and conducts business in the forum wasn’t relevant to the minimum
contacts analysis, since “each defendant’s contacts with the forum State must
be assessed individually.” However, “the act of authorizing and directing a
lawsuit [may] be enough to establish jurisdiction over officers of a
corporation.” As the Tenth Circuit has noted, “[i]t is scarcely unfair to make
those who have initiated a lawsuit in a particular state undergo suit in that
state to determine whether the lawsuit was tortious.”
The antitrust claims failed. 
 Defendants were immune from suit
for seeking and enforcing Crocs’ patents. The other antitrust claims failed
because it’s basically impossible to plead successful antitrust claims.  So too with intentional interference with
business advantage. 
False advertising claims, however, survived.  These were based on claims that Crocs misled
the public and consumers by claiming that Crocs were made of” an exclusive and
proprietary closed-cell resin that they call ‘Croslite.’”  “Croslite” is in fact ethyl vinyl acetate,
used by footwear companies around the world, including Dawgs. Crocs’
promotional materials refer to “our patented CrosliteTM material” and “our
proprietary CrosliteTM material,” and claim that Croslite is a “revolutionary
technology.” These claims allegedly misled consumers into believing that Crocs
uses a different material from competitors and that Crocs owns the rights to
such material, so that consumers mistakenly believe that Dawgs are “made of
inferior material.”

Defendants argued that Dawgs didn’t allege that each
individual defendant made a false statement of fact.  “The statute itself does not insulate
individuals from liability who authorize the use of false statements in
commerce, and defendants cite no authority barring Lanham Act liability where a
defendant approves promotional statements that he or she knows are false.”  Also, Dawgs properly alleged standing as a competitor
under Lexmark. Its alleged injuries
“flow[ ] directly from the deception” caused by Crocs’ advertising. 

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Reasonable consumers needn’t expect individual products to differ from overall brand recommended by experts

Posted on September 28, 2017 by rtushnet
Eidelman v. Sun Prods. Corp., No. 16-cv-3914, 2017 WL
4277187 (S.D.N.Y. Sept. 25, 2017)
Eidelman allegedly bought Sun Product’s “237-fl oz. bottle
of ALL PLUS + FREE CLEAR … liquid detergent” based on its label that it was “from
the #1 Detergent Brand Recommended by Dermatologists for Sensitive Skin.”  But he discovered that this particular
product wasn’t recommended, and sued under New York law.  He alleged that the words “from the” were presented
in an “excessively small” font size, as compared to the remainder of the text,
and the words “recommended by dermatologists” were in bold, misleading consumers to
believe that the product itself was the “#1” detergent recommended by
dermatologists for sensitive skin, when it wasn’t.  Eidelman also alleged that a reasonable
consumer would presume that if the product was “from the #1” recommended brand
for sensitive skin, this should include the detergent contained in the labeled
bottle.

from the website

on the product

Sun allegedly makes a standard bottle for an alternate
detergent which has a label that states that it is “#1 recommended by
Dermatologist, Allergists [and] Pediatricians for Sensitive Skin,” without the “from
the” qualifier. Given the similarities between the bottles, at the time of
product choice and purchase, consumers would allegedly be misled into believing
that both detergents are the most highly recommended by dermatologists for
those with sensitive skin types. Eidelman also alleged that the product he
bought contained a “number of known skin irritants,” but that the ingredients
for the Detergent are not listed on the bottle, nor easily accessible online.
 

Another product, slightly different label
The court found that Eidelman stated a claim under NY GBL §§
349 and 350.  Defendants argued that the
claim was limited to the “brand,” and that a “reasonable consumer acting
reasonably under the circumstances understands what it means for doctors to
recommend a ‘brand’ as opposed to a particular product.” Even assuming the
entire text of the label was fully visible and easily read, the court refused
to conclude as a matter of law that no reasonable consumer could be misled—the claims
weren’t “patently implausible” or unrealistic.
Eidelman also alleged negligent misrepresentation, which
requires “(1) the defendant had a duty, as a result of a special relationship,
to give correct information; (2) the defendant made a false representation that
he or she should have known was incorrect; (3) the information supplied in the
representation was known by the defendant to be desired by the plaintiff for a
serious purpose; (4) the plaintiff intended to rely and act upon it; and (5)
the plaintiff reasonably relied on it to his or her detriment.” Defendants
challenged whether a special relationship existed.  “[L]iability in the commercial context is
‘imposed only on those persons who possess unique or specialized expertise, or
who are in a special position of confidence and trust with the injured party
such that reliance on the negligent misrepresentation is justified.’ ” Eidelman
argued that Sun’s claim on its website to have “clinical proof” of the products’
benefit and mild effects on skin satisfied his burden. And the label claims
that it’s from the “#1” brand recommended by dermatologists for sensitive skin.  These claims weren’t as extensive, in volume
and substance, as they were in other cases where a seller’s claims to special
expertise were enough to create a special relationship.  Eidelman didn’t overcome the presumption that
advertisements are generally insufficient to establish such a relationship.
An unjust enrichment claim did survive, even though defendants
argued that Costco couldn’t be held liable because there was no allegation that
it actually participated in misleading activities.  Costco as retailer allegedly received a price
premium from selling the falsely labeled product, which was enough at this
stage.

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