Is a ban on the words “climate change” in grants consistent with Tam?

Posted on August 25, 2017 by rtushnet

This image, of a government employee telling a grant applicant that her proposal can’t use “climate change” or “global warming” and get funded, seems like a pretty good example of a “happy talk” provision.  Is this new requirement an unconstitutional condition/viewpoint discrimination under Rust and Finley?

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cy pres-only settlement ok’d in Google privacy case

Posted on August 24, 2017 by rtushnet
In re Google Referrer Header Privacy Litigation, — F.3d
—-, 2017 WL 3601250, No. 15–15858 (9th Cir. Aug. 22, 2017)
The underlying class action claimed that Google violated
users’ privacy by disclosing their internet search terms to owners of
third-party websites. The court of appeals, over a partial dissent, finds that the
district court didn’t abuse its discretion in approving the $8.5 million cy
pres–only settlement.  The settlement
provided that Google would provide information on its website disclosing how
users’ search terms are shared with third parties.
About $3.2 million was set aside for attorneys’ fees,
administration costs, and incentive payments to the named plaintiffs, and the
remaining $5.3 million or so was allocated to six cy pres recipients who agreed
“to devote the funds to promote public awareness and education, and/or to
support research, development, and initiatives, related to protecting privacy
on the Internet”: AARP, Inc.; the Berkman Center for Internet and Society at
Harvard University (disclosure: I am affiliated with the center, now the
Berkman-Klein Center); Carnegie Mellon University; the IIT Chicago–Kent College
of Law Center for Information, Society and Policy; the Stanford Center for
Internet and Society; and the World Privacy Forum. Each recipient submitted a
detailed proposal for how the funds would be used to promote Internet privacy;
the dissent criticized the inclusion of the relatively new Chicago-Kent
program, and the majority opinion touts its accomplishments.
Because this settlement took place before formal class
certification, settlement approval requires a “higher standard of fairness.” Cy
pres-only settlements are the exception, not the rule.  They are appropriate where the settlement
fund is “non-distributable” because “the proof of individual claims would be
burdensome or distribution of damages costly.” The district court reasonably
found the settlement here non-distributable; “each class member was entitled to
a paltry 4 cents in recovery—a de minimis amount if ever there was one,” and
the cost of finding and verifying them would far exceed that.
Objectors sought a requirement that some non-named class
members be compensated, perhaps by lottery. 
But that’s not required for fairness. 
Further, the fact that the settlement fund was non-distributable doesn’t
disprove superiority under Rule 23(b)(3). “[T]he purpose of the superiority
requirement is to assure that the class action is the most efficient and
effective means of resolving the controversy.” Small individual recoveries are
a hallmark of situations where class actions are superior, so that’s consistent
with a cy pres-only settlement. 
The majority also rejected objectors’ challenges to the
recipients due to claimed relationships between counsel or the parties and some
of the cy pres recipients. To avoid unfairness and abuse, cy pres awards must meet
a “nexus” requirement by being tethered to the objectives of the underlying
statute and the interests of the silent class members. But objectors didn’t argue
that the nexus requirement had been violated; the recipients were independent,
established national organizations with “a record of promoting privacy
protection on the Internet.” “Although the district court expressed some
disappointment that the recipients were the ‘usual suspects,” it recognized
that “failure to diversify the list of distributees is not a basis to reject
the settlement … when the proposed recipients otherwise qualify under the
applicable standard.’”  
However, the objectors argued, Google had in the past
donated to some of the cy pres recipients, three of the cy pres recipients
previously received Google settlement funds, and three of the cy pres
recipients were organizations housed at class counsel’s alma maters. The ALI
says, “[a] cy pres remedy should not be ordered if the court or any party has
any significant prior affiliation with the intended recipient that would raise
substantial questions about whether the selection of the recipient was made on
the merits.” But not every prior relationship is disqualifying. The fact that
Google had a role in reviewing the recipients wasn’t disqualifying, as long as
the nexus requirement was satisfied, because Google was entitled to bargain in
its own interests.  Moreover, Google’s
earlier donations were unsurprising, given “the burgeoning importance of
Internet privacy” and the breadth of its donations; the district court
conducted its own review of the recipients’ proposals and found them
appropriate.  “Notably, some of the
recipient organizations have challenged Google’s Internet privacy policies in
the past,” but more importantly, the process was transparent and the proposed
recipients disclosed previous Google donations and explained how the cy pres
funds were distinct from Google’s general donations.
Previous receipt of cy pres funds from Google wasn’t
disqualifying “without something more, such as fraud or collusion,” and a ‘new
recipient every time’ rule would be in tension with the nexus requirements,
which prefer a cy pres recipient with a “ ‘substantial record of service.’ ” “But
in emerging areas such as Internet and data privacy, expertise in the subject
matter may limit the universe of qualified organizations that can meet the
strong nexus requirements we impose upon cy pres recipients.”
Finally, class counsel’s alma maters didn’t matter.  There might be a case where alumni
connections could cast doubt on the propriety of the selection process, but
this wasn’t it. “[C]lass counsel have no ongoing or recent relationships with
their alma maters and have no affiliations with the specific research centers,”
which were well-recognized in the relevant field; the objectors didn’t suggest
more qualified alternatives.
Judge Wallace agreed that a cy pres-only settlement was
appropriate in this case and agreed that the fee award was fine, but was
troubled that “47% of the settlement fund is being donated to the alma maters
of class counsel” and wanted an evidentiary hearing at which class counsel
would be examined under oath about the role of their prior affiliations in the selection.  Given the connection, Judge Wallace wouldn’t
put the burden on the objectors to show that the settlement might be tainted; district
courts “must be particularly vigilant not only for explicit collusion, but also
for more subtle signs that class counsel have allowed pursuit of their own
self-interests and that of certain class members to infect the negotiations.” A
cy pres-only settlement was a yellow flag, as was a settlement before class
certification; adding several million dollars being given to class counsel’s alma
maters raised a red flag, especially to the newborn Chicago-Kent center.  The burden should be on class counsel to show
appropriateness, and one-line declarations of a lack of present affiliation
with the relevant institutions weren’t sufficient.  Unsworn statements in court weren’t enough: “My
experience as a trial judge taught me to be skeptical of unsworn statements
from lawyers, especially when it comes to conflict of interest issues.” Judge
Wallace wanted to know, among other things, what other institutions were
considered, whether counsel donated funds in the past, whether their family
members served on any alma mater committees or boards, and how often counsel
visited.

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4th Cir. holds certification nonprofit’s self-promotion to retailers is commercial speech

Posted on August 24, 2017 by rtushnet
Handsome Brook Farm, LLC v. Humane Farm Animal Care, Inc.,
No. 16-1813, 2017 WL 3601506, — F. Appx. – (4th Cir. Aug. 22, 2017)
The court of appeals affirmed the district
court ruling that a nonprofit egg certifier’s disparagement of an egg
seller who wasn’t certified by the nonprofit was commercial speech.  HFAC certifies egg producers for humane
treatment of their laying hens, and it sent an email to thirty-six grocery
retailers, including some of the largest grocery chains in the nation, stating
that Handsome Brook Farm lacked up-to-date certifications to support its
representations that its eggs are organic and pasture raised. The email
continued, “I hope you reconsider changing suppliers,” and touted egg producers
with HFAC’s certification.  Though Handsome
Brook lost existing and potential retailers as a result, its organic
certifications were up-to-date and its pasture-raised certification had been
recently audited. The district court preliminarily enjoined HFAC from circulating
the email and required HFAC to publish a retraction email.
HFAC’s “Certified Humane” certification process is one of
several in the market.  HFAC charges
between $75 and $300 for an application, $600 per day per inspector for any
farm inspection, and five cents for every thirty dozen eggs the producer sells
with the Certified Humane label. It also solicits donations, because its
revenue doesn’t fully cover its expenses.
Gordon & Breach,
once the leading case on the matter, defined “commercial advertising or
promotion” as (1) commercial speech (2) by a defendant in commercial
competition with the plaintiff (3) for the purpose of influencing consumers to
buy goods or services, (4) sufficiently disseminated to the relevant purchasing
public to constitute advertising or promotion within that industry.  The court of appeals adopted the Gordon & Breach factors, except for
(2), indicating that Lexmark had
defined standing beyond direct commercial competition.   “[A]ny communication that is commercial
speech, promotes a good, and is sufficiently disseminated is an advertisement
for the promoted good, regardless of the speaker.”  Competition was a gatekeeping factor that had
been superseded by Lexmark.
So, was the email commercial speech?  The basic factors are: whether the message is
economically motivated, promotes a specific product, and is an advertisement. The
Fourth Circuit has also previously asked whether the message is “placed in a
commercial context and [is] directed at the providing of services rather than
toward an exchange of ideas.” Greater Balt. Ctr. for Pregnancy Concerns, Inc.
v. Mayor & City Council of Balt., 721 F.3d 264 (4th Cir. 2013).
HFAC, as a nonprofit, had a noneconomic purpose in
advocating for the humane treatment of farm animals. But it also had an
economic motivation in the sale of its licensees’ eggs, not just from revenue
from egg sales, but also from becoming a market leader in certification.  “This hope of economic gain is made even more
apparent by the email’s target audience: grocery store chains, including some
of the largest in the nation, that HFAC had a relationship with and that were
considering switching their egg supplier from another brand to Handsome Brook.” 
The speaker’s identity “factors into the reasonable
recipient’s perception of economic motivation,” such that a for-profit company
“is often presumed to have primarily economic motivations for its speech. Thus,
a corporation’s informative literature or seminar is often still seen as
commercial speech, especially if it includes any product promotion,” as in Bolger.  “Conversely, a non-profit organization is
often presumed to have primarily noneconomic motivations for its speech, even
if there are ancillary economic benefits. Thus, a watchdog non-profit
organization’s report on allegedly abusive or unethical practices is still
likely noncommercial speech, even if the report garners more donations; a
reader would know that the watchdog organization’s primary motivation for
publishing the report is noneconomic.” 
But the speaker’s nonprofit status isn’t categorically determinative.  “Where a non-profit organization has a direct
economic stake in the provision of its product or service, and structures its
message in the hopes of realizing an economic gain rather than merely informing
the public or pursuing its ideological views, it may reasonably be viewed as
economically motivated.”  Given the
targeting of retailers considering or recently switched to Handsome Brooks
eggs, and given the comparative touting of HFAC-certified eggs, the court found
that HFAC had an economic motivation despite its status as a nonprofit.
HFAC argued that its email didn’t specifically promote HFAC-certified
eggs, but merely urged retailers to purchase any eggs that were humane, rather
than Handsome Brook’s allegedly inhumane eggs. But the email “implicitly
compared its licensees to the licensees of any other humane certification, and
touted HFAC-certified eggs over all other eggs, including eggs certified by
other organizations.”  Given this, “HFAC’s
message was placed in a commercial context and fixated on the provision of
services rather than advocacy of its ideological commitments.”  Its message “focused, not on ideological or
moral concerns, but on economic and legal ones—‘this in turn protects you.’” Indeed,
“HFAC’s message fits neatly into the type of promotional, commercial activity
an identical for-profit organization would engage in.”  Thus, the email could be distinguished from a
nonprofit’s charity auction or ancillary sales of paraphernalia, like hats or
t-shirts or pens.  In such contexts, a
reasonable audience “would recognize that the context was meant to celebrate,
promote, and spread [the nonprofit’s] ideological mission.”
The email, however, “also in part disseminates noncommercial
speech: its warning to retailers about Handsome Brook’s allegedly fraudulent
labeling.” But this message wasn’t “inextricably intertwined” with HFAC’s
promotion of its license, and so the email was correctly treated as commercial
speech.  [Note the conceptual weirdness
of this reasoning: the speech that the court specifically calls out as
noncommercial is also the speech that was false, and for which HFAC was held
strictly liable because the email as a whole was commercial speech.  Why do this slicing?  The same motive/focus on competing services
reasoning absolutely applies to the warning, making it pure commercial speech
under the court of appeals’ own reasoning. 
Just because the same words could, in another context, be noncommercial
speech doesn’t change that; the same words in HFAC’s self-promotion could also
be noncommercial speech in another context.]
Under “inextricably intertwined” analysis, nonprofit
solicitation for charitable donations is noncommercial speech, wholly protected
by the First Amendment, even though it solicits money. Such solicitations are
intertwined with informative/persuasive speech, and without solicitations, the
flow of such speech might stop. Anyway, a nonprofit isn’t primarily concerned
with providing information about the characteristics and costs of goods and
services.  But “[n]o law of man or of
nature makes it impossible” to warn the public of misleading labeling without
promoting one’s own products, so the “commercial proposition” in HFAC’s email wasn’t
“inextricably intertwined” with its noncommercial message, making the email as
a whole commercial speech despite its mixed messages.
Finally, dissemination to thirty-six retailers, including
some of the largest supermarket companies in the nation, was sufficient. “[A]
‘cold-send’ to anonymous recipients is not needed for a dissemination to be
considered advertising.”
HFAC also argued that its statements weren’t false or
misleading, because it had in fact received a complaint about Handsome Brook’s
eggs from another producer’s employee, justifying the statement: “Based upon a
whistleblower complaint we recently conducted a traceability inspection of a
packing plant that packs Certified Humane® eggs and also packs Handsome
Brook[’s ] eggs.”  But that didn’t
matter, because HFAC never conducted an audit “based on” the complaint it
received. In fact, HFAC wasn’t Handsome Brook’s licenser, so it couldn’t do any
inspection.
Irreparable harm: in extraordinary circumstances, were
monetary damages are unavailable or unquantifiable, they can constitute
irreparable harm.  The district court
found that the email caused two retailers to remove Handsome Brook eggs from
their shelves and a third retailer to indefinitely suspend plans to sell
Handsome Brook eggs. In addition, the email strained client relationships and
led to continued discussion.  Under these
circumstances, finding irreparable harm wasn’t abuse of discretion. “The
business’s reputation continues to be tarnished as questions about the
reliability of its labeling continue to circulate. And even if the monetary
damages from Handsome Brook’s lost profits were quantifiable, they would likely
be unattainable at judgment; Handsome Brook estimated that its monthly loss of
revenue could number in the hundreds of thousands, and HFAC is a non-profit
organization that likely cannot pay the damages Handsome Brook would be due.”

HFAC argued that the injunction was an unconstitutional
prior restraint on its speech and mandated an unconstitutional compelled
disclosure. Commercial speech isn’t subject to prior restraint doctrine, and compelled
speech is more likely to be constitutionally permissible in the context of
commercial speech. Thus, “disclosure requirements aimed at misleading
commercial speech need only survive rational basis scrutiny, by being
‘reasonably related to the State’s interest in preventing deception of
consumers.’ ”  A retraction email
satisfied that standard, mitigating the harm of the first message.  It also served the public interest in
truthful information.

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Tag-along state UDAP claim leads to $18.5 million fee shift against unsuccessful plaintiff

Posted on August 21, 2017 by rtushnet
Procaps S.A. v. Patheon Inc., No. 12-24356-CIV, 2017 WL
3536917 (S.D. Fla. Aug. 17, 2017)
This case stands as a stark reminder that adding a state-law
deceptive trade practices claim to a federal claim can have serious
consequences—the only reason to do it as a plaintiff is if you think the
substantive standards will vary (certainly possible, depending on the state) or the
remedies will vary (likewise).  But where
that’s true, consider whether the fee-shifting standards will also vary.  In Florida, they do.
Here, Procaps is ordered to pay about $18.5 million in
attorneys’ fees and costs after losing “a full-throttle lawsuit which has
generated 1165 docket entries and an appeal (including oral argument) since it
was first filed in mid-December 2012.” 
Procaps’ main claim was a federal antitrust claim, but it brought a
coordinate Florida Deceptive and Unfair Trade Practices Act claim.  The federal antitrust statute authorizes an
award to a prevailing plaintiff but not to a prevailing defendant, but that
turns out not to matter even though the FDUTPA claim was a “tag-along” claim, “based
mostly (though not entirely) on the same circumstances at issue in its federal
Sherman Act antitrust claim.”
Under FDUTPA, a “prevailing defendant” is permitted to
recover its attorney’s fees and costs from a non-prevailing plaintiff after the
exhaustion of all appeals; the court has to consult a non-exhaustive list of
discretionary factors:
(1) the scope and history of the
litigation; (2) the opposing party’s ability to satisfy the award; (3) whether
an award would deter others from acting in similar circumstances; (4) the
merits of the respective positions, including the degree of [Procaps’]
culpability or bad faith; (5) whether the claim brought was not in subjective
bad faith but was frivolous, unreasonable, or groundless; (6) whether the
defense raised a defense mainly to frustrate or stall; and (7) whether the
claim brought was to resolve a significant legal question under FDUTPA law.
I’ll let the judge summarize the scope and history: “Nothing
was easy in this case. Nothing. Basically, the parties fought about anything
and everything.” Further descriptors: “difficult,” “problematic,” “stressful,”
“grueling,” “especially unpleasant and nasty.”  Procaps could pay.  On appeal, the Eleventh Circuit characterized
its theory as “intrinsically hopeless,” so that supported a fee award.  Procaps and its counsel, “at a minimum, … made
this case far more difficult than it had to be, and … this caused Patheon to
incur additional attorney’s fees and costs.” Frivolousness isn’t a requirement,
and courts award fees under FDUTPA to defendants who prevail on summary
judgment on a FDUTPA claim after a plaintiff initially gets past a motion to
dismiss.  Though the court declined to
find the claim frivolous, its antitrust theory was “either unreasonable or
approaching the level of being unreasonable,” because it needed and could not
show concerted action.
In terms of deterrence, the court considered that Procaps
apparently brought its antitrust claim because it was a limited exception to
the parties’ arbitration agreement “and because it wanted to use the threat of
treble damages to pressure Patheon into paying a hefty settlement.” Because of
the weakness of the antitrust claim, a fee award wouldn’t deter legitimate
antitrust claims brought by private attorneys general, but it would be good to
deter a putative plaintiff from bringing an “intrinsically hopeless” antitrust
claim.  The remaining factors were
neutral, and the court declined to follow a few federal district court cases
holding that FDUTPA fees shouldn’t be awarded when the FDUTPA claim is a
tag-along to a separate federal claim.
In fact, Florida state caselaw indicates that the prevailing
party should get the benefit of overlapping claims; fees can’t be deducted for
work unless it was clearly unrelated to the FDUTPA claim.  “[I]t is Procaps’ burden to establish that
the attorney’s fees and costs incurred by Patheon were clearly not related to
the FDUTPA claim, which was largely based on the same antitrust theory as the
antitrust count.” Thus, “the time Patheon spent defending the Sherman Act claim
was time spent defending the FDUTPA claim.” 
And that’s $18.5 million.
The court emphasized that not every party who prevails on a
FDUTPA claim would be entitled to fees; if “some” of the factors had gone in
Procaps’ favor, the result could well have been different. But the factors
“strongly” favored a fee award.

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Bad dilution claims are so common that they aren’t “exceptional” for fee-shifting, court rules

Posted on August 21, 2017 by rtushnet
Parks, LLC v. Tyson Foods, Inc., 2017 WL 3534993, No. 15-cv-00946
(E.D. Pa. Aug. 17, 2017)
Tyson sought attorneys’ fees in this Lanham Act case after
its summary judgment victory was affirmed by the Third Circuit. The court found
that this was not an exceptional case meriting an award of fees, despite the
novelty of Parks’ main legal theories.
There was an unusual degree of discovery trouble in the case,
but not because of “wasteful procedural maneuvers” or “dilatory tactics.” Instead,
the parties just didn’t seem to understand each other’s claims or to work
collaboratively at discovery; this didn’t mean that one side litigated the case
in an unreasonable manner.
Tyson argued that all three of Parks’ Lanham Act theories—false
advertising, false association, and trademark dilution—were frivolous, but the
court disagreed. The primary claims were for false advertising and false
association. The first theory was that Tyson’s use of the name “Park’s Finest”
was false, or at least misleading, because it conveyed to consumers that Tyson
was selling Parks’s finest product. From early on, the evident problem was that
this seemed to simply duplicate the false association claim.  But that didn’t weigh against a fee award,
because “at the time Parks brought the claim, there was little case
law—particularly in this circuit—addressing the dividing line between claims of
false advertising and claims of false association.”  On appeal, the Third Circuit also noted that
this case offered an opportunity to “clarify” what it had never before directly
held about that line.  “Given the state
of the governing law at the time this case was filed, Parks’s decision to
attempt a claim under the banner of false advertising was not ‘unreasonable.’”
Anyway, the collapse of theory one into theory two (false
association) meant that the merits were the same as to both, and the false
association claim was not so “exceptionally meritless” as to warrant fee
shifting. But really, this case was about failed proof: the Parks name “once
enjoyed widespread recognition” as a result of an ad campaign that was at one
time “ubiquitous and long-running,” so much so that the appellate judges
recalled it at oral argument.  That
recognition, it appeared, no longer existed, but this past glory “differentiates
this case from the mine-run of frivolous trademark infringement suits brought
by plaintiffs who seek to prevent others from infringing on marks that do not
and have never had the sort of recognition in the marketplace that would
entitle them to protection.” The similarity of the parties’ marks and goods
also made the suit potentially meritorious. 
“Even now, Tyson perhaps does not appreciate how close it may have come
to a different result in this case.… A properly-designed survey (and perhaps a
bit more modesty in the geographic area Parks sought to protect) might have
changed the course of this case.”
As for Parks’s claim for trademark dilution, which was
voluntarily withdrawn at summary judgment, it “had little chance of success
from the start,” but a fee award isn’t about how great the disparity was
between the parties’ positions—it’s about whether the present case “stands out
from others.”  And dilution claims are
commonly “tacked on to claims for trademark infringement or false association,”
despite the rarity of true fame; as a result, “the vast majority of attempted
dilution claims not only fail, but had very little chance of ever succeeding.”  Fees could be available for some non-meritorious dilution claims,
but in light of the Parks name’s former strength, “the company’s attempt to
characterize its mark as ‘famous’ is not so different from numerous other
plaintiffs that have tried the same thing, despite having hardly any chance of
being considered alongside that pantheon of truly famous marks.” [Urgh.]

Parks’s motivation, though not dispositive, also seemed
legitimate to the court: Parks “genuinely viewed Tyson’s use of the name
‘Park’s Finest’ as an existential threat—a potential final blow to the
once-prominent company, inflicted by a competitor that, by revenue, is
approximately four thousand times its size.” Parks’ good faith was relevant,
and also weighed against a fee shift.

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reading list: Willis on remedies for consumer fraud

Posted on August 21, 2017 by rtushnet
Lauren E. Willis, Performance-Based Remedies: Ordering Firms
to Eradicate Their Own Fraud,
80 Law and Contemporary Problems 7-41 (2017)
Abstract
In resolving cases of unfair, abusive,
and deceptive acts and practices, consumer protection enforcement agencies
often prospectively dictate—in great detail—the design of defendants’
marketing, websites, disclosures, sales processes, and products. However,
advances in technology and analytics increasingly allow defendants to comply
meticulously with these precise requirements while simultaneously continuing to
deceive and injure consumers.
By trying to micromanage
defendants’ conduct, enforcement agencies fail to protect consumers, squander
precious enforcement resources, and create pointless compliance work for
defendants. Defendants themselves are in the best position to ascertain how to
cure the confusion and ill consequences they have wrought and they should bear
ultimate responsibility for doing so.
To effectuate this, this article
introduces two new performance-based remedies to consumer law enforcement: (1)
confusion prohibitions and (2) consequences prohibitions. These injunctive
remedies order defendants to eliminate the confusion and ill consequences
induced by defendants’ fraud. To comply with these prohibitions, defendants
would be required to reduce the confusion and ill consequences they inflicted
on their customers to prescribed levels within a prescribed time period. Defendants
would bear the costs of demonstrating, through independent third-party audits,
their compliance.

Recommended!

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Comparative advertising using P’s logo is nominative fair use

Posted on August 18, 2017 by rtushnet
SolarEdge Technologies Inc. v. Enphase Energy, Inc., 2017 WL
3453378 17-cv-04047 (N.D. Cal. Aug. 11, 2017)
SolarEdge sued Enphase, a competitor in the business of
selling electronic components for solar panels (aka PV modules), for false
advertising and trademark infringement. 
SolarEdge’s primary products are components involved in the
“optimization of energy generated from solar panels.”  PV modules convert solar energy to direct
current, which then must be converted to alternating current to be delivered
through the power grid.  An “inverter” performs
this conversion. Traditionally, competitors in the industry have used multiple
solar panels connected to one or a small number of centralized inverters.
SolarEdge’s “power optimizers” are attached to each individual solar panel and
then connected to a simplified centralized inverter to aid in a more efficient
conversion from DC to AC. This practice is referred to as “module-level power
electronics” (MLPEs). Enphase instead uses “microinverter” technology, which
attaches a “small inverter at each solar panel,” also an MLPE.
MLPEs can come in two varieties: an embedded MLPE is
installed into the solar panel before it leaves the factory, thereby reducing
the time required to install a PV system at an end user’s location.  Non-embedded MLPEs are installed on-site.  SolarEdge alleged that it produced embedded
power optimizers, but that it was still known “primarily for its non-embedded
optimizers, as embedded technology is still not widely used in the PV
industry.”
Enphase announced that it would be offering an embedded
version of its microinverters, the Enphase AC Module. Its ad campaign included
a video, “Enphase Energized AC Module vs. String+Optimizers,”  purporting “to depict a time-compressed video
comparison between the installation times for PV systems using comparable
SolarEdge and Enphase products.” On Enphase’s website, the video appeared with
the text “Stop wasting time installing optimizers—When compared to optimizers,
the Enphase AC Module cuts rooftop installation time in half. See for
yourself.” The video also featured a testimonial from an installer attesting to
the ease of installing an AC Module panel as compared to a non-embedded
SolarEdge power optimizer. The video ended displaying the conclusion that the
“Enphase Energized AC Module cuts installation time in half.” SolarEdge alleged
that the comparison was false because it tested the AC Module against SolarEdge’s
non-embedded optimizer, rather than the embedded version. The video also included
SolarEdge’s stylized logo, displayed throughout the video.
This motion for preliminary injunction hinged on whether the
claims at issue were literally false, given that the heading and the
introductory page of the video purports to compare the AC Module against
“string+optimizers” generally, and implied that SolarEdge didn’t produce an
embedded version. Enphase argued that the marketing campaign was directed at
experienced installers, who would immediately recognize the specifics of the
comparison; also, other statements on the website, such as “Stop wasting time
installing optimizers,” indicated no literal falsity because that statement
wouldn’t make sense if Enphase were comparing its embedded technology against
embedded optimizers. Also, nothing in the video suggested that Enphase is the
only producer of embedded MLPE technology. 
On this record, the court did not find likely success on the merits.
Trademark infringement: The court applied nominative fair
use and (rightly) found in favor of Enphase, despite the use of SolarEdge’s
stylized logo.  Under Ninth Circuit
precedent (to the extent it can be discerned), if a nominative use fails to
satisfy all three factors, “the district court may order defendants to modify
their use of the mark so that all three factors are satisfied,” but “it may not
enjoin nominative use of the mark altogether.”  In a useful reformulation, the court here
said: “while satisfying all the factors necessarily negates trademark
infringement liability, the failure to satisfy one of the factors does not
establish liability in and of itself.”  So NFU is only a replacement for the
multifactor test if the defendant succeeds; this is an important clarification
of Judge Kozinski’s muddling of the issue in Tabari.
This ues in a comparative ad satisfied all three factors,
and regardless SolarEdge didn’t make any arguments about how confusion over
sponsorship or endorsement by SolarEdge.

The court briefly addressed irreparable harm as well.  SolarEdge argued that it would suffer lost
sales if Enphase if the ad could be shown at an upcoming trade show, one of the
largest in the industry.  It also argued
that Enphase was unlikely to be able to pay damages here, given that it had
faced significant financial difficulties of late.  The court found “only a bare, threshold
showing” on irreparable harm—statements from a senior executive could be
evidence of irreparable harm, but the record lacked data supporting her
conclusions. Also, Enphase’s modification of the ads to clarify that the
comparison was to non-embedded, standalone optimizer systems minimized the
likelihood of irreparable harm, as did the court’s adoption of a fast schedule
for further proceedings on the case.

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taking customer list as conversion; false claims of official investigation as false advertising

Posted on August 18, 2017 by rtushnet
Yeti Enters. Inc. v. Tang, 2017 WL 3478484, No. 13-cv-01203
(D. Or. Aug. 14, 2017)
This is a tangled story that illustrates how false
advertising claims can arise from failed business agreements.  Plaintiff NPK sued Nicholas Jackson and
Jessica Lilga for conspiring with Jim Heagle to eliminate NPK from the
distribution market for frequency-water products.  NPK contracted with Yeti to market and
distribute Yeti’s product known as frequency water, which appears to be sold as
a better way of preventing plant mildew/mold than regular water.  NPK created three plant washes, Mighty Wash,
Power Wash, and PM Wash, all of which contained and were marketed as containing
frequency water.
Jackson is a part owner of NPK, though his relationship with
NPK was bad for a while.  Lilga initially
took over Jackson’s responsibilities as VP of sales when Jackson was
incarcerated, though that relationship was also difficult and ended after three
weeks.  As Jackson continued to negotiate
his exit from NPK, he sent Heagle a draft copy of a proposed NPK ad that
depicted a new series of products: “They’ve been lying to you. I mean, sitting
there telling you they weren’t going to do other products. They already did….
They’ve got their whole nutrient line….” Heagle moved to terminate Yeti’s
distribution agreement with NPK; the termination letter said that the “last
straw” was the draft ad.  Yeti and NPK
worked out an agreement for continued supply for a year, in exchange for which NPK
would turn over to Yeti certain frequency-water-related trademarks that NPK had
registered in its name.  This agreement
didn’t work out; the parties sued each other in state court.  NPK also sued Jackson in state court; Jackson
countersued.
By this time, NPK’s distribution agreement with Yeti had ended
and NPK had relaunched its product line without Yeti’s frequency water. Jackson
began working with Left Coast, a former distributor of NPK’s products, to
launch a competitive product line using Yeti’s frequency water. Jackson
promised to supply Left Coast with a list of 1300 Sunlight stores; Sunlight was
a major NPK customer.  Left Coast then
sent emails to NPK’s customers stating that it had “decided to discontinue
distributing products from NPK industries” because NPK’s new plant-wash line,
which no longer contained frequency water, was susceptible to molding.  It also stated that Left Coast would now
“provide the original frequency altered formulations and will be marketing
under the trade names Mega Wash, White Wash, and Freq Wash….” The emails,
plus the new Left Coast product line, halved NPK’s sales, which had already
been halved earlier in the year due to the loss of Yeti’s frequency-water
products.  
In this litigation, NPK sued Jackson for fraudulent
misrepresentation, violations of the Lanham Act, common law trade libel,
conversion, and breach of the parties’ nondisclosure agreement.
Fraudulent misrepresentation requires showing, by clear and
convincing evidence: (1) a material misrepresentation that was (2) false, (3)
made with knowledge of its falsity or with ignorance of its truth, (4) with the
intention that it be acted upon by the party claiming fraud, and (4) that the
acting party in fact justifiably relied on the material misrepresentation, (5)
suffering an injury as a result. Typically, “mere silence is not fraud,” but
“[w]here the law imposes a duty on one party to disclose all material facts known
to him and not known to the other, silence or concealment in violation of this
duty with intent to deceive will amount to fraud….” NPK argued that Jackson
“had a special relationship with [NPK] which included the duty to disclose to
[NPK] all information which could damage its business,” including his
assistance in bringing competitive products to the market and assistance in
cutting NPK out of the plant-wash distribution market.
The court disagreed. 
Members of an LLC who aren’t managers, as Jackson wasn’t once he was
incarcerated, owe no duty to disclose information that could damage its
business.  As for fraudulent
misrepresentation through active concealment, the evidence didn’t show active
concealment—“Jackson repeatedly attempted to leave NPK and made his intentions
to do so quite clear.” His failure to disclose private business negotiations was
distinct from active concealment, which requires the fraudster to take steps
that eliminate an opportunity to discover the truth, leading the victim to rely
on the falsity.
Lanham Act claim: Jackson allegedly told NPK’s customers that
NPK’s plant-wash products were susceptible to molding; that their products no
longer contained frequency water; that frequency-water products would no longer
be distributed by NPK; that Lest Coast and other wholesalers discontinued
distribution of NPK’s products; and that Yeti was releasing a “new and improved
product line….” Further, Jackson allegedly aided in distributing e-mails
falsely claiming NPK was being investigated and going to be shut down by the
EPA, IRS, DEQ, and other agencies.
NPK easily showed harm from these statements, and the court
was convinced that Jackson participated in their distribution.  However, NPK could only show falsity for two
statements.  (That conclusion would seem
to require a re-evaluation of the harm question—can NPK show harm flowing from
the false statements specifically?)  It
was true that NPK’s products no longer contained Yeti’s frequency water at the
time the statement was made; it was true that Left Coast and others
discontinued distribution of NPK’s products; it was true that Yeti was
releasing a new-and-improved product line.
The statements that NPK was being investigated by the EPA,
IRS, DEQ, and other agencies were not literally false—NPK’s witness testified that
NPK was being investigated, though its position was that Jackson and Left Coast
had prompted their investigations by providing false information.  However, the statements “were likely to, and
in fact did, mislead or confuse consumers, as these statements implied the
agencies were going to shut down the company.” The “susceptible to molding” claim
was also rebutted at trial, and thus proved false.  These statements were also material: molding would
indicate that the products didn’t work as intended, and false statements that
NPK would be shut down for regulatory noncompliance “certainly raised the
presumption that its products or business was operating improperly or outside
the law.”  Thus, NPK proved a Lanham Act
violation.
Common law trade libel: the court found that NPK didn’t prove
that Jackson made or aided in the distribution of the two false statements
maliciously or with knowledge that they were false. In fact, he appears to have
believed his own claims (drunk his own frequency water?) that molding would be
a risk without frequency water.  This belief
also meant he didn’t act with malice.  Though
he did “demonstrate a complete disdain for NPK,” that contempt isn’t malice.  The same was true for statements involving
agency investigations into NPK.
Jackson was also liable for conversion for getting Lilga to download
NPK’s customer database. The court doesn’t address tangible/intangible property
as the subject of conversion, instead holding that Jackson’s “exercise of
control over [the property] constituted a serious interference because it
severely impacted the economic value of the database.” But NPK didn’t provide an
accurate assessment of the market value of any of the information converted.  However, “if the property has no market value
at the time and place of conversion, either because of its limited product, or
because it is of such a nature that there can be no general demand for it, and
it is more particularly value to the owner than any one else, then it may be
estimated with reference to its value to him.” As secret information, the database
could be evaluated in this way.  (I
believe that some states wouldn’t allow trade secret liability standards to be
circumvented in this way, though it sounds as if this information might well
have constituted a trade secret as well.) 
The customer database, while valuable, was only part of the results of
NPK’s marketing campaign and couldn’t represent the entire value of NPK’s
goodwill, which included other elements such as name recognition. Still, its
customer relationships were “clearly an integral part of the value of its
goodwill.” Thus, the court would factor the conversion into the damages award.
NPK also argued that Jackson breached the parties’
nondisclosure agreement by distributing the customer lists.  There was no question that he breached the
express terms of the contract by disclosing NPK’s database of customer lists
and by disclosing a proposed ad.  Jackson
didn’t show that NPK failed to substantially perform any part of the its side
of the agreement. And NPK suffered ascertainable damages that were foreseeable
by the parties at the time they entered into this agreement, so Jackson was
also liable for this breach.
Civil conspiracy and aiding and abetting: because NPK didn’t
show any other torts beyond conversion and violation of the Lanham Act, and
because Jackson was already liable for those, he couldn’t be independently liable
on those claims.

Damages: “[I]f the plaintiff proves with the requisite
degree of certainty that the defendant’s violative actions have resulted in
damage, the actual amount of damages need not be proved with exact certainty.”  That was the case here.  “NPK went from sales of $3 million in 2012
and a profit of around $125,000 to virtually no revenues and strictly losses in
the years since.” Likewise, NPK could recover for lost goodwill, even though
“such damages are not capable of exact ascertainment.”  The court found damages of a little under
$166,000. However, the end of Yeti’s distribution agreement was also
responsible for NPK’s lost goodwill, and so the court cut the damages in half,
for which Jackson’s liability was partly shared with Lilga.  

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Barton Beebe & Jeanne Fromer’s submission to PTO on streamlined cancellation proceedings

Posted on August 16, 2017 by rtushnet

Supporting the proposal, they summarize their evidence of overcrowding on the register.  Read it here.

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Traveling pictures: trademark/publicity rights questions, bonus torts

Posted on August 16, 2017 by rtushnet

Yellowstone proper had very little in the way of obvious TM issues, interestingly enough.  Other things I have encountered:

For the torts folks; note especially the guy in the background blithely walking away from the dissolving child

“Nothing in life is absolute except vodka”–a drinking tour of Yellowstone

John Wayne endorsement?

Yes, Pink Cadillacs is a registered trademark for candy; a separate registration for pastry also exists, owned by someone else

Wondering about these Kits candies

Parody soda candy

parody candy cigarettes

paging the Marlboro man?

Bogarts restaurant: right of publicity problem?

This vase is patterned in little plastic closers, which are subject to various patent & TM claims

Amazing Spider-Moose

Fast & Furious

Star Wars parodies, also Bat-Moose below

I didn’t get a picture of the moose covered in rainbow dreadlocks a la Bob Marley.

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