Flea market case on secondary (and tertiary) liability for counterfeiting

Posted on April 13, 2017 by rtushnet
Luxottica Gp., S.P.A. v. Greenbriar Marketplace II, LLC, —
F.Supp.3d —-, 2016 WL 5859023, No. 15-cv-01382 (N.D. Ga. Sept. 30, 2016)
Luxottica sought to hold Greenbriar and Albert Ashkouti
liable for contributory trademark infringement based on sales of counterfeit
goods by some vendors at the Greenbriar Discount Mall, including “knock-off”
Ray-Ban and Oakley sunglasses (Luxottica brands).  In December 2013, DHS and the Atlanta PD
raided the mall and adjacent Greenbriar Strip Plaza and seized thousands of
counterfeit products, including counterfeit Ray-Ban and Oakley merchandise.
Luxottica’s investigators observed sales of fake Ray-Bans and Oakleys and were
able to purchase several pairs of counterfeit sunglasses on multiple undercover
trips to the flea market from October, 2014 to April, 2015. Luxottica sent a C&D
letter about this addressed to the “Owner/Manager” of the “Greenbrier Strip
Plaza Warehouse” in January 2015.
Liability for contributory infringement depends upon whether
the alleged contributing defendant “intended to participate” in the
infringement or “actually knew about” the infringement. “The extent and nature
of the violations being committed may be relevant in making this determination.”
 The defendant also needs to have “actively
and materially furthered the unlawful conduct,” which can include “bad faith
refusal to exercise a clear contractual power to halt the infringing
activities.”  Corporate officers can be
held personally liable for contributory trademark infringement if they “actively
participated as a moving force in the decision to engage in the infringing
acts, or otherwise caused the infringement as a whole to occur.”
For purposes of this motion, defendants didn’t dispute knowledge
of the alleged widespread sale of counterfeit merchandise at the discount
mall/flea market and focused on their control over operations.
Greenbriar Marketplace is the owner of the real property on
which the Discount Mall is located. Greenbriar Marketplace leases the anchor
store space and the adjoining parking lot areas to defendant 2925 Properties,
LLC, for the operation of the Greenbriar Discount Mall (flea market).
Greenbriar Marketplace’s only income is rent from tenants of the shopping
center, including 2925 Properties. 
Greenbriar Marketplace has two owners: Tabas Two, LLLP and
Kimberly Swindall. 2925 Properties sublets spaces to vendor/tenants in the flea
market. Kimberly Swindall is also the sole member/owner of 2925 Properties:

organization chart

2925 Properties also owns and operates an adjacent property
and shopping center, as outlined on the map:
The utility of photos in opinions

Defendant Albert Ashkouti owns 67% of Tabas Holdings, which
in turn owns 1% (and is the general partner) of Tabas Two. Ashkouti is also a
limited partner of Tabas Two, and “a member of the general partner of
Greenbriar Marketplace’s majority member.” He’s listed with the Georgia
Secretary of State’s office as the “registered agent” and identified himself as
a “member/manager” for Greenbriar Marketplace, although he in fact is not
personally a “member” of the LLC:
Ashkouti chart

Kimberly Swindall was aware of the December 2013, law
enforcement raid on the Greenbriar Discount Mall and adjacent Greenbriar Strip
Plaza and acknowledged the seizure of counterfeit merchandise at both shopping
centers. That raid “was not the first run-in with counterfeiting by Greenbriar
and 2925 Properties, nor was it their last.” Swindall’s efforts to combat the
prevalent sale of counterfeit merchandise at the flea market were “unsuccessful
in ridding the flea market of all counterfeit sales.”  Greenbriar Marketplace, as landlord, has
certain rights if its tenant 2925 Properties doesn’t comply with the lease
terms, including the right to terminate the lease; the lease requires 2925
Properties to obey the law.  The lease
also barred the sale of alcohol, obscene, erotic or pornographic materials.
Greenbriar Marketplace argued that its tenant was solely
responsible for the use of the property and that it had no right of control
over tenants under the lease.  But
liability for contributory trademark infringement can attach to a landlord who
continues to lease space to a tenant whom it knows or has reason to know is
engaging in trademark infringement even without direct control over the
infringing conduct. Swindall’s dual status as half-owner of Greenbriar
Marketplace—the property owner and landlord—and as sole owner of 2925
Properties which operates the flea market was also highly relevant, as was her
general awareness of the widespread counterfeiting problem at the flea
market.  A reasonable jury could find
that Swindall could have acted on behalf of Greenbriar Marketplace but refused
to do so, or it could conclude that she took reasonable efforts to flush out
infringing sales of counterfeit merchandise at the flea market.
Ashkouti was not individually liable for contributory
infringement. “Mr. Ashkouti’s savvy business structuring of his family’s
investment companies was clearly done to avoid opening him up to personal
liability for his financial real estate dealings.”  The record showed that he maintained an active
management role in Greenbriar Marketplace, and was its agent.  He dealt with the money and never went inside
the shopping center, instead employing his own property management company to
manage it. “For all practical purposes, Mr. Ashkouti delegated all issues
involving the flea market and complaints regarding counterfeiting to Patrick
and Kimberly Swindall.” Whenever he received complaints, “he wrote a responsive
letter to the complainant, referred the matter to the Swindalls, and relied on
them to deal with it.” He met with representatives of Homeland Security once
and “complained that the department was harassing him, trying to put him out of
business, and that he didn’t have any rights over the flea market vendors that
the department had failed to arrest or take any other action against.”

The lease agreement didn’t give Ashkouti the personal right
to take action against 2925 Properties. Although he gave “evasive and conflicting
deposition testimony,” that wasn’t enough to show sufficent involvement.  He could potentially have exercised control
over 2925 Properties, which might be a contributory infringer.  “But control over a contributory infringer in
this way (not the actual infringer)—without evidence of more extensive
intermingling of Ashkouti and Greenbriar with 2925 Properties’
management/direction of the flea market …—does not provide an adequate basis
for Ashkouti’s individual liability.” A reasonable jury couldn’t find that he
oversaw, facilitated, or “actively participated as a moving force in
contributing to the flea market’s operation.”

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Law360 article on my ICE suit by Bill Donahue

Posted on April 13, 2017 by rtushnet

Read it here.

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No evidence of harm means no disgorgement in false advertising case

Posted on April 11, 2017 by rtushnet
MB Imports, Inc. v. T&M Imports, LLC, No. 10-3445, 2016
WL 8674609 (D.N.J. Dec. 23, 2016)
MB Imports imported and sold Sicilia brand lemon and lime
juice products, and sold them to Safeway from 2001-2003; for many years, they were
the only squeezable lemon and lime juices sold in Safeway’s produce department.
Safeway discontinued Sicilia in favor of Tantillo juices offered by T&M after
a 2009 meeting in which Safeway’s representatives didn’t recall receiving a
proposed label for the juices. “Safeway representatives stated that Safeway was interested
in selling the Tantillo juices because of the name-brand recognition, price,
and Defendants’ willingness to engage in product promotions (and not due to any
representations about the product’s quality, country of origin, or anything
relating to their labels).”
The front label of Tantillo’s lemon juice stated “Product of
Italy,” “Sicilian Lemon Juice,” “Not from Concentrate,” and “All Natural.” The
back label listed ingredients, including “Lemon Juice (99.97%)” and “Potassium
Metabisulfites (Antioxidant E224).” The lime juice was similar. Laboratory
tests commissioned by MB indicated that Tantillo lemon juice contained added
water, added non-fruit citric acid, and were not dervived from lemons of
Italian or Sicilian descent, and MB concluded that the lime juice could not be
“Sicilian” because there was no commercial lime juice exportation from Italy.  Despite getting this report, Safeway continued
to sell the juices.
After a bit of litigation, MB was left with Lanham Act and
coordinate New Jersey Unfair Competition Statute claims, with “disputed issues
of fact regarding whether a consumer would consider the alleged
misrepresentations material to his or her purchase; whether the current lemon
juice label and previous lime juice labels still being used in advertising are
false or misleading;” and “whether, if false and misleading, the
representations at issue are material to consumers.”
Here, the court found that defendants were entitled to summary
judgment on MB’s request for disgorgement. The Third Circuit has provided six
non-exhaustive factors to evaluate whether disgorgement is appropriate: “(1)
whether the defendant had the intent to confuse or deceive, (2) whether sales
have been diverted, (3) the adequacy of other remedies, (4) any unreasonable
delay by the plaintiff in asserting his rights, (5) the public interest in
making the misconduct unprofitable, and (6) whether it is a case of palming
off.”
Previously, the court found that “no reasonable factfinder
could find that Safeway relied on Defendants’ alleged misrepresentations in
deciding to sell Tantillo lemon and lime juice products.”  Moreover, MB failed to show that the false
advertising caused MB any harm.  Without “at
least some evidence of harm,” no award of profits or damages was appropriate.  For damages purposes, the court wouldn’t presume
that any of defendants’ sales would have gone to MB but-for the false
advertisement.

The court declined to address the appropriateness of
attorneys’ fees at this stage. An award of attorney’s fees doesn’t require
intentionally false advertising, or the existence of damages.  The court could potentially find culpable
conduct if defendants were still using their original ad on the internet, and
other claims related to be litigated. It was too early to decide that this wasn’t
an exceptional case.

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false advertising dispute based on study in medical journal should proceed, judge recommends

Posted on April 11, 2017 by rtushnet
Theodosakis v. Clegg, 2017 WL 1294529, No. CV-14-02445 (D.
Ariz. Jan. 30, 2017) (magistrate judge)
Theodosakis and Supplement Testing Institute sued defendants
for defamation, commercial disparagement, tortious interference with business
expectancy, false advertising and unfair competition under the Lanham Act, and
violation of Arizona’s Consumer Fraud Act, based on their alleged participation
in a study and the subsequent report that was published in New England Journal
of Medicine, that plaintiffs claimed contained false and misleading statements.
STI sells glucosamine and chondroitin dietary supplements,
including Avosoy Complete. Theodosakis wrote “The Arthritis Cure” (1997), which
allegedly first reported that osteoarthritis could be successfully treated
through a nine-step treatment program that included two supplements,
glucosamine and chondroitin. This was a best-seller and Theodosakis wrote a
follow-up. Sales of the supplements allegedly “skyrocketed,” including STI’s.  In 1998, NIAMS, the arthritis division of the
National Institute of Health, commissioned a grant to perform human clinical
research specifically on the supplements, the GAIT Glucosamine/Chondroitin
Intervention Trial.  GAIT included the
use of an active comparator, celecoxib (Celebrex).
The NEJM published the study results, with defendants as the
lead authors. “The Report stated that Celebrex® passed the two primary
outcomes, and that glucosamine and chondroitin, alone and in combination, were
not significantly better than a placebo in reducing knee pain from osteoarthritis
and do not effectively reduce knee pain from osteoarthritis.” This allegedly
soured millions on the supplements, and “[a]s a direct result of publication of
the Study and Report, Plaintiff Dr. Theodosakis’ consulting contracts with
Rexall and Pharmavite were not renewed.” 
The complaint alleged that “[i]f the active comparator [in a
study] underperforms as compared to the bulk of its prior studies, there is a
high probability that the effects of treatment groups will be understated and
could lead to a false-negative result.” 
It further alleged that they’d been told that the raw data showed that
celecoxib actually failed the two primary outcomes, though they didn’t have
access to the raw data.  When the report
was published, Dr. Clegg and Dr. Sawitzke were allegedly financially involved
with commercial entities that were in direct market competition with the supplements,
including plaintiffs’ products.
Dr. Clegg and Dr. Sawitzke argued that they had Eleventh
Amendment immunity as members of the faculty of the University of Utah School
of Medicine and employees of the University of Utah.  Plaintiffs filed a motion to amend the complaint
to clarify that they were suing Dr. Clegg and Dr. Sawitzke in their individual
capacities only, and defendants didn’t show that the relief sought would come
from the state coffers, interfere with the public administration, or compel the
State of Utah to act or restrain from acting. 
Thus, defendants failed to meet their burden to show that the complaint
should be dismissed on this ground.
Defamation: Defendants argued that “[a]side from
acknowledging [Dr. Theodosakis] as a participating investigator and member of
the GAIT study steering committee, the report does not mention Dr.
Theodosakis.” Also, the “reported findings concern[ed] glucosamine and
chondroitin, generic compounds naturally made in humans.”  A corporation, like STI, “has no personal
reputation and may be libeled only by imputation about its financial soundness
or business ethics.” The statements at issue didn’t implicate STI, so it didn’t
state a claim. 
Defamatory statements “must be published in such a manner
that they reasonably relate to specific individuals.” Dr. Theodosakis had the
burden of showing that the publication was “of and concerning” him.  Statements in the report included: “The
dietary supplements of glucosamine and chondroitin sulfate have been advocated,
especially in the lay media, as safe and effective options for the management
of symptoms of osteoarthritis.”   The
report also said, “Studies have demonstrated substantial variation between the
content listed on the labels of these products and the actual content. Because
our study was conducted under pharmaceutical rather than dietary-supplement
regulations, agents identical to the ones we used may not be commercially
available.”
Given that “[t]he popular press … published numerous
articles …” not only about Dr. Theodosakis’ book, but also about the
supplements as well, “any alleged defamation occurred with regard to a group.”
“When a group of persons are defamed, the statements must reasonably relate to
a certain individual member or members…. If the group is so large, or the
statements so indefinite, that the objects of the defamatory statements cannot
readily be ascertained, the statements are not actionable.”  However, the complaint plausibly alleged that
Theodosakis was uniquely identified with the supplements because he “publicly
and on a nationwide scale staked his reputation on his position that
glucosamine and chondroitin play a major role in treating osteoarthritis.”
Commercial disparagement:  The report was clear that the glucosamine and
chondroitin utilized for the Study was conducted under pharmaceutical
regulations, so they wouldn’t be identical to readily available supplements. Even
though it questioned the effectiveness of the supplements specifically used in
the study, the allegations weren’t enough to reasonably conclude that the
statements concerned plaintiffs’ products in particular.
Defendants claimed qualified privilege under the First
Amendment as to the remaining defamation claims. The judge agreed that a report
in NEJM, published for educational purposes, qualified for the common interest
privilege given that “ ‘scholarly activity generally fits within the common
interest privilege.’ ”  Thus, plaintiffs
had to allege abuse of privilege by showing either excessive publication or
actual malice.  Plaintiffs alleged that
the raw data didn’t support the published findings, and that the doctors were
financially involved with Celebrex’s maker. 
These reasonably supported the inference of abuse of the privilege with
actual malice.  Also, plaintiffs were
prepared to allege extensive republication of the claims “in interviews,
journals and magazines,” including in a prepared statement from Dr. Clegg concerning
the GAIT Study.
Tortious interference:  There was no factual basis alleged to plausibly
support the claim that defendants were aware of plaintiffs’ alleged business
relationships.
False advertising: A scientific article published in the
NEJM isn’t commercial speech and thus can’t be commercial advertising or
promotion.  The article didn’t advocate
the purchase of one particular product over another.  Drs. Clegg and Sawitzke’s alleged financial
interest in Celebrex’s manufacturer as well as an interest in other competitors
of glucosamine and chondroitin didn’t change anything; they were only two of
more than twenty authors. The publication’s purpose was to assess the efficacy
of glucosamine and chondroitin for the treatment of osteoarthritis of the knee,
“not as a means to sell Celebrex.”
However, plaintiffs argue that defendants’ republication of
the statements allowed Lanham Act liability, since courts have distinguished
between the defendant’s initial publication of the article and its continued
distribution of reprints or republication. But plaintiffs didn’t specifically
allege any particular secondary publication or other means; that wasn’t enough.  They wanted to amend the complaint to add
allegations about “interviews, journals and magazines,” Dr. Clegg’s prepared
statement, and Dr. Sawitzke’s article published in Arthritis & Rheumatism
2008.” I would have said that none of those were commercial advertising or
promotion, for the exact same reasons—Gordon
& Breach and similar cases allowing republication claims to continue
involved a change in form, when the republication was used as part of a sales pitch.  But the court found that, once defendants
were no longer two of twenty authors and each allegedly had a financial
interest in Celebrex, making statements “arguably aimed at the medical field,
who makes treatment decisions, and the general public touting the Study’s
results in favor of Celebrex” were enough to state a claim under the Lanham
Act, justifying leave to amend.

The Arizona Consumer Fraud Act claim was dismissed because
only consumers can sue under it. 

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lack of substantiation isn’t actionable, but claims of 100% satisfaction are

Posted on April 11, 2017 by rtushnet
Moorer v. Stemgenex Medical Group, Inc., 2017 WL 1281882, No.
16-cv-02816 (S.D. Cal. Apr. 6, 2017)
Plaintiffs brought the usual California claims (plus RICO
and California’s Health and Safety Code section 24170, et seq., (Human
Experimentation) (!), and Financial Elder Abuse), based on allegedly false
advertising of “stem cell treatments” to consumers who are often “sick or
disabled, suffering from incurable diseases and a dearth of hope.” Defendants
allegedly falsely represented to consumers that “100% of its prior consumers
are satisfied with its service.”
The court first found that claims based on lack of
substantiation weren’t sustainable. 
Plaintiffs undamentally alleged omission of the material information
that no data or reasonable basis supported the efficacy of the stem cell
treatments. “False-advertising claims based on a lack of substantiation, rather
than provable falsehood, are not cognizable under the California
consumer-protection laws.”  The closest
the plaintiffs got to alleging falsity was “the generally accepted scientific
consensus is that there is no treatment for degenerative diseases, or any
disease, with a person’s own adult adipose stem cells, that has been proven ‘effective’
at any level.” But is that true because the treatment has been “tested and
disproven, or rather, is it because no study regarding its efficacy has been
conducted yet, and thus, scientific literature is devoid of a conclusion?”  Plaintiffs didn’t plead the existence of any
scientific study that purported to prove that the stem cell procedure didn’t
work.
However, claims about misrepresentation of patient
satisfaction ratings survived. Defendants represented that their patient
satisfaction ratings were monitored and updated on a monthly basis, but
plaintiffs alleged that the publicized ratings remained at 100% even after
complaints from customers.
However, the claim for financial elder abuse failed to
satisfy Rule 9(b).  Also, “an elder
prospective customer viewing the website on his or her own volition is not
enough to constitute ‘undue influence,’” one of the elements.  Plaintiffs also argued that defendants engaged
in human experimentation without informed consent because defendants referred to
their treatments as “studies” and claimed to be a “pioneer in research.” To
qualify as a “medical experiment,” the use of a device must be “in the practice
or research of medicine in a manner not reasonably related to maintaining or
improving the health of the subject or otherwise directly benefiting the
subject.” Thus, the stem cell treatments fell outside the ambit of “pure
research.”  The innovative nature of the
treatment didn’t rise to the level of requiring informed consent.  [This seems like a pretty big loophole.  What about malpractice?]


The RICO claim failed because it was a RICO claim, but with leave to amend. 

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Reed invalidates highway sign distance and permit regulations

Posted on April 10, 2017 by rtushnet
Thomas v. Schroer, 2017 WL 1208672, No. 13-cv-02987 (W.D.
Tenn. Mar. 31, 2017)
Reed may or may
not work a sea change in First Amendment law generally, but it has definitely
worked a sign change.
The Tennessee Department of Transportation (TDOT)
promulgates and enforces regulation of billboards and outdoor advertising signs
under Tennessee’s Billboard Regulation and Control Act of 1972 and under the
Federal Highway Beautification Act of 1965. 
Regulated billboards and signs under the Billboard Act are subject to
location and/or permit and tag restrictions, e.g., they may not be “within six
hundred sixty feet (660′) of the nearest edge of the right-of-way and visible
from the main traveled way of the interstate or primary highway systems …
without first obtaining from the commissioner a permit and tag.” Some signs,
however, are exempted if they relate to the sale/lease of property on which
they’re located or if they advertise activities conducted on the property on
which they are located—these are known as on-premise signs.  Because, to qualify as an on-premise sign,
one must compare the content of the sign to the activities on the premises, the
court found the restriction content-based, and because it regulated all signs
rather than just commercial signs, it had to survive strict scrutiny, which it
did not.
The court commented that commercial sign regulations are
subject to intermediate scrutiny, not to Reed’s
strict scrutiny, but here the regulation affected both kinds of speech. 
Justice Alito described an off-premises/on-premises
distinction as content neutral in his concurrence in Reed, but the court here found that would only be true if a
regulation defined an on-premises sign “as any sign within [x] feet of a
building,” rather than also considering the relationship between the content
and the building’s use.  [The Reed dissents, too, pointed out that a
number of the examples were content-based if you define content-based without
any reference at all to the reasons we might want to protect speech against
government regulation. Even if you do that, it seems plausible that no lawful
content is barred by this regulation, depending on the use of the building.] 
First, the state’s interests were not compelling. The state
identified interests in preventing the proliferation of billboards, improving (1)
aesthetics and (2) traffic safety. These are substantial or significant
interests, but not compelling interests. 
Nor were they properly related to the speech-based distinctions made by
the regulation—the distinction between on-premises-related content and other
messages.  One of the defendant’s
witnesses testified that signs with more content and signs outside the driver’s
field of vision may create greater distractions, i.e. “I would know the golden
arches for McDonald’s or BP for gasoline, I know that that facility sits at the
bottom of that sign; and it’s a very quick glance and back to the road.”  So that’s an interesting claim about the
shorthand function of trademarks, but the court found it unrelated to
off-premises/on-premises distinctions.
In fact, the court reasoned, the on-premises/off-premises
distinction could interfere with the state’s interests, because “a small sign
with muted colors that says “Knowledge is Power” off of 1-40 would require a
permit and tag, and compliance with the six-hundred-sixty (660)- foot
restriction. Conversely, a large sign with loud colors that states ‘This
property is for sale. Right here. This one. The one this sign is on. Look at
this sign. Look at this property,’ would require no permit or tag, and could be
placed closer to another sign and the roadway.”
Even assuming the state’s interests were compelling, the law
wasn’t narrowly tailored. The state argued that “[o]n- premise signs enhance
safety by helping drivers locate relevant businesses and activities”; “[t]he
impact on aesthetics [by on-premises signs] is minimal because the signs are
already integrated with the current land use”; “[o]n-premise signs are
inherently self-regulating … [because] [o]wners of businesses do not want to
spend valuable real estate putting up a number of signs—that space is better utilized
for the business itself;” and off-premises signs are distracting.  But the state didn’t show that on-premises
signs were less distracting than off-premises signs, or that they had less
impact on aesthetics. “[T]he State’s conclusory assertion that business owners
do not want to put up numerous signs is speculative and lacks evidentiary
support. The assertion would certainly not be true for many firework vendors.”   
The law was also overinclusive because it regulated
off-premises signs that were not highly distracting, and underinclusive because
it didn’t regulate distracting on-premises signs.  The law was also not the least restrictive
means to further the state’s interests.
First, the state could limit its regulation to only
commercial speech; similar regulations have been upheld after Reed. 
While a non-commercial/commercial distinction might be less effective
than the current regulation, it wouldn’t be ineffective.  Second, size restrictions might be a
content-neutral alternative furthering the traffic safety interest.  [Really? 
What is a “sign”?  How do you make
that determination content-neutral?] 
Spacing requirements could also work, if they also allowed business
owners to erect additional signs within a certain distance of a building.  An ordinance that exempted only signs that
complied with the Manual on Uniform Traffic Control Devices might also be
constitutional.
An alternative regulation might also “require all signs,
regardless of content, to be a particular size, use a particular font (or a set
of fonts), be limited to a particular colors, face a particular direction, or
stand at a particular height, etc.” [Note that this might face federal
preemption issues given federal protections for the display of registered
trademarks.]
Anyway, bye-bye sign regulation.

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Court finds materiality of color questionable

Posted on April 10, 2017 by rtushnet
Spruce Environmental Technologies, Inc. v. Festa Radon
Technologies, Co., No. 15-11521, — F. Supp. 3d —-, 2017 WL 1246327 (D.
Mass. Apr. 3, 2017)
The parties compete in the radon extraction business. Spruce
claimed that Festa falsely advertised its radon extraction fans in violation of
the Lanham Act; the Massachusetts Consumer Protection Act, M.G.L. ch. 93A; M.G.L.
c. 266, § 91 prohibiting false/unfair ads; and the common law of commercial disparagement.
Festa counterclaimed similarly. Spruce filed a motion for partial summary judgment,
which was denied.
Previously, the court enjoined Festa from using inaccurate
photos of Spruce’s fans and representing that Festa fans have Energy Star and
Home Ventilating Institute (HVI) certifications, and enjoined Spruce from
claiming that its fans were Energy Star certified. 
Spruce argued that it was entitled to summary judgment on
its claim that Festa’s promotions violated the Lanham Act and Chapter 93A
because they include a photo of a bright yellow Spruce fan when the fans are
actually a different shade of yellow or greyish-brown, which is material
because color is an inherent quality and because one of its potential customers
suggested in an email that color would affect his purchase decision.  But there were genuine issues of material
fact about whether the photo properly represented the fans; there was evidence
that the photo wasn’t manipulated and thus might not be literally false, and
the fans did become more yellow over time. 
Also, the email was hearsay and there was no other evidence of
materiality.  “[I]t is unclear whether
consumers would find that the difference between the bright yellow in the
advertisement and the yellow tint that admittedly develops is an inherent
quality.” Also, since the fan was supposed to remove radon, not to be
decorative, color might never be an inherent quality.  Injury was also a matter for factfinding.
Likewise for Festa’s Energy Star rating, which Festa
conceded was expired at the time of the ads. Spruce didn’t show that it was
injured, and there was an unclean hands problem as well; Spruce also made
literally false statements that two models were Energy Star rated.  Similarly, Festa allegedly falsely advertised
using photos that included HVI certification labels even though that
certification had expired. Festa responded that the small labels in the stock
photos were indecipherable and there was no evidence that consumers were
materially misled; the court agreed that there were genuine factual issues.

Similar factual issues precluded summary judgment on Festa’s
counterclaim.

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Causation failure dooms Lanham Act claim in bioengineered corn case

Posted on April 10, 2017 by rtushnet
In re: Syngenta AG MIR 162 Corn Litig., MDL No. 2591, 2017
WL 1250791 (D. Kan. Apr. 5, 2017)
Plaintiffs asserted various claims against Syngenta relating
to Syngenta’s commercialization of the corn seed products Viptera and Duracade,
containing a genetic trait known as MIR 162, when China, a key export market,
didn’t approve that corn. Plaintiffs alleged that Syngenta’s acts caused corn
containing MIR 162 to be commingled throughout the corn supply in the United
States; that China therefore rejected imports of all corn from the US, causing
corn prices to drop; and that plaintiffs (who didn’t use Syngenta corn) were
harmed by that market effect. The court previously certified a nationwide
Lanham Act class and state-wide classes for claims under the law of Arkansas,
Illinois, Iowa, Kansas, Missouri, Nebraska, Ohio, and South Dakota. Here,
Syngenta got rid of all Lanham Act claims, as well as any claim of negligence
in which liability was based on any alleged misrepresentation, a voluntary
undertaking, a failure to warn, or a duty to recall.  The negligence analysis contains a lot that
seems quite interesting, but I’ll focus on the Lanham Act claims.
An August 17, 2011, letter to all Syngenta purchasers stated
that Syngenta expected import approval from China for Viptera in late March
2012.  The court found that plaintiffs
couldn’t prove injury causation. To show causation, they’d have to show both
that farmers read and were influenced by the letter and that the impact of the
letter was great enough to cause the embargo that allegedly caused the price
drop in this country. Of the more than 100 farmers deposed in this MDL and the
related Minnesota litigation, only one testified that he had seen the letter,
and none testified that he purchased Viptera or Duracade because of that
letter. There was no other survey or expert evidence.  By the time of the letter, Syngenta had been
selling Viptera for many months and planting for the 2011 season had been
completed. “[T]here was already more than enough corn containing MIR 162 in the
system to cause the alleged trade disruption.” 
This justified summary judgment for Syngenta on the Lanham Act claims.
Syngenta also won summary judgment on the negligence claims
to the extent they were based on alleged misrepresentations made in Syngenta’s
deregulation petition or in the course of a lawsuit suit against another market
participant.  Plaintiffs argued that they
weren’t asserting any negligent misrepresentation claims, but that the alleged
misrepresentations were part of the totality of Syngenta’s conduct regarding
the commercialization of Viptera that was allegedly unreasonable; the
applicable standard of care allegedly included transparency in communications.  The court disagreed.  “The law sets forth certain requirements for
liability based on negligence with respect to representations, and plaintiffs
may not circumvent those requirements by basing an ordinary negligence claim on
alleged misrepresentations,” even when additional negligent conduct was also
alleged.  However, failure to warn might
be part of the negligence claim.

Among the other rulings on negligence, the court rejected
Syngenta’s attempt to compare the fault of the Chinese government in causing
plaintiffs’ harm, which creates interesting questions about judging foreign
governments’ conduct in domestic disputes.

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LiveJournal’s missteps threaten its DMCA protection

Posted on April 10, 2017 by rtushnet
Mavrix Photographs, LLC v. LiveJournal Inc., No. 14-56596
(9th Cir. April 7, 2017)
Initial note: What the court here describes as LJ’s business
model is in reality limited to its treatment of ONTD, the most popular
community on LJ.  Most other LJ
communities, not to mention its individual journals, operate very
differently.  Query whether subsequent
treatment will understand this important fact when dealing with the reversal of
summary judgment in LJ’s favor on its 512 defense.
Mavrix sued LJ for infringement of twenty photos.  Users submitted the photos, but “a team of
volunteer moderators led by a LiveJournal employee reviewed and approved them.”  Whether the acts of the moderators could be
attributed to LJ was a disputed question of material fact under the common law
of agency, which applies to DMCA analysis of whether material was “posted at
the direction of the user.” [At the outset, I don’t get this—the analysis on
knowledge etc. makes somewhat more sense, but they’re still user-submitted
photos whether or not the moderators screen them.] The court of appeals also
vacated the district court’s order denying discovery of the moderators’
identities.
LJ “allows users to create and run thematic ‘communities’ in
which they post and comment on content related to the theme.”  There are three unpaid administrator roles:
“moderators” review posts submitted by users to ensure compliance with the
rules; “maintainers” review and delete posts and have the authority to remove
moderators and users from the community; one “owner” per community can also
remove maintainers.  Oh No They Didn’t!
(ONTD) is a popular LJ community focused on celebrity news.
ONTD’s rules instructed users to “[i]nclude the article and
picture(s) in your post, do not simply refer us off to another site for the
goods.” Another rule: “Keep it recent. We don’t need a post in 2010 about Britney
Spears shaving her head.” ONTD’s rules included a list of sources from which
users should not copy, which were sources that informally requested that ONTD
stop posting allegedly infringing material. ONTD also automatically blocked all
material from one source that sent ONTD a C&D. Moderators reviewed proposed
submissions and publicly posted about one-third of them. The substantive
requirement for approval was new and exciting celebrity news, though they were
also supposed to screen out copyright infringement, pornography, and
harassment.
Like other LJ communities, ONTD used to be exclusively
volunteer, without LJ involvement in day-to-day operation of the site. But it
hit 52 million page views per month in 2010 and attracted LiveJournal’s
attention. “By a significant margin, ONTD is LiveJournal’s most popular
community and is the only community with a ‘household name.’” Thus, LJ
determined to exercise more control over ONTD so that it could generate ad
revenue from it. LJ hired a then active moderator, Brendan Delzer, to serve as
the community’s full time “primary leader” with the intent to “take over” ONTD,
grow the site, and run ads on it. Delzer instructed ONTD moderators on the
content they should approve and selects and removes moderators on the basis of
their performance, as well as performing moderator work of his own. Delzer was
paid and expected to work full time, while the other moderators are “free to
leave and go and volunteer their time in any way they see fit.”
ONTD posted the allegedly infringing photographs in seven
separate posts between 2010 and 2014. Some of the photos contained either a
generic watermark or a specific watermark featuring Mavrix’s website
“Mavrixonline.com.” Delzer did not recall personally approving the seven posts,
and LJ has no technological means to determine which moderator approved any
given post. Mavrix didn’t send DMCA notices, but when it sued, LJ removed the
posts.

The district court held that users’ submission of the posts was key to make
them “at the direction of the user.”  The
court of appeals disagreed, holding that §512(a) dealt with submission, while §
512(c) “focuses on the service provider’s role in publicly posting infringing
material on its site.  Contrary to the
district court’s view, posting rather than submission is the critical inquiry.”  This is … an interesting reading of the
DMCA.  §512(a) is about
transmission.  If §512(c)’s “hosting”
means “publicly posting,” then what happens if an ISP enables private storage? 
Anyhow, the common law of agency could make LJ responsible
for the moderators’ acts; the DMCA incorporates the common law of agency. To
the extent that BWP Media USA, Inc. v. Clarity Dig. Grp., LLC, 820 F.3d 1175
(10th Cir. 2016), contradicted this holding by suggesting that ISP employees
could be “users” under the DMCA, the court of appeals disagreed.
So, were the moderators LJ’s agents?  Agency requires actual or apparent authority
to act on behalf of the principal as well as the principal’s right to control
the actions of the agent.  There was
evidence that LJ gave its ONTD moderators explicit and varying levels of
authority to screen posts. [Note again that the court is writing as if
moderators were this deeply embedded in LJ’s business model throughout LJ’s
operations; in fact, I can make myself a moderator of a LJ community I create
with no scrutiny/direction at all other than LJ’s general TOS.  This discussion is about ONTD, not LJ as a
whole.]  Though they were “volunteers,” “the
moderators performed a vital function in LiveJournal’s business model. There is
evidence in the record that LiveJournal gave moderators express directions
about their screening functions, including criteria for accepting or rejecting
posts.”  There were genuine issues on
actual authority. So too with apparent authority. LJ users “may have reasonably
believed that the moderators had authority to act for LiveJournal”; for
example, one user whose post was removed pursuant to a DMCA notice complained
to LiveJournal “I’m sure my entry does not violate any sort of copyright law. .
. . I followed [ONTD’s] formatting standards and the moderators checked and
approved my post.”
Agency also depends on the level of control a principal has
over the agent, and there was evidence that LJ “maintains significant control
over ONTD and its moderators.”  Delzer supervised
moderators and selected and removed moderators on the basis of their
performance.  He also exercised control
over the moderators’ work schedule. “For example, he added a moderator from
Europe so that there would be a moderator who could work while other moderators
slept.” Moderators’ screening criteria derived from rules ratified by LJ—LJ
ratified them when one LJ employee discussed changing the rules with Delzer and
declined to do so.
However, ONTD moderators “are free to leave and go and
volunteer their time in any way they see fit.” The moderators can alos reject
submissions for reasons other than those provided by the rules, which called
into question LJ’s level of control. 
Thus, reasonable jurors could find agency, but might not be compelled to
do so.
If the moderators were LJ’s agents, the factfinder would
still have to assess whether Mavrix’s photos were posted at the direction of
the users in light of the moderators’ role in screening and posting. Activities
“narrowly directed” towards enhancing the accessibility of the posts wouldn’t
change the user-provided nature of the posts. Accessibility-enhancing
activities “include automatic processes, for example, to reformat posts or
perform some technological change” as well as “[s]ome manual service provider activities
that screen for infringement or other harmful material like pornography.”  This follows from § 512(m) of the DMCA, which
provides that no liability will arise from “a service provider monitoring its
service or affirmatively seeking facts indicating infringing activity.”  What are the edges of accessibility-enhancing
intervention?  When YouTube manually
selected videos for front page syndication on the basis of substance, the
district court on remand held that only those processes “without manual
intervention” satisfied § 512(c).  The
Fourth Circuit has approved a real estate website’s “cursory” manual screening
to determine whether photographs indeed depicted real estate.  This would be an issue for the fact-finder.
The ONTD moderators posted only about one-third of
submissions: only those posts relevant to new and exciting celebrity gossip. Betraying
a bit of a prejudgment, the court of appeals said that the question was whether
“their extensive, manual, and substantive activities went beyond the automatic
and limited manual activities we have approved as accessibility-enhancing.”
The court also addressed LJ’s actual and red flag knowledge of
the specific infringements alleged. 
Failure to use a DMCA notice “is powerful, but not conclusive, towards
showing that a service provider lacked actual knowledge.” Delzer didn’t
remember approving the posts, but Mavrix didn’t have the opportunity to depose
the moderators to determine their subjective knowledge [assuming they were
agents, which I guess we are now]. “On remand, the fact finder should determine
whether LiveJournal, through its agents, had actual knowledge of the infringing
nature of the posts.”  Even without
actual knowledge, red flag knowledge arises when a service provider is “aware
of facts that would have made the specific infringement ‘objectively’ obvious
to a reasonable person.” Watermarks were relevant even if Delzer didn’t know
that Mavrix had a website: “The existence of a watermark, and particularly this
watermark with a company name, is relevant to the knowledge inquiry…. [T]he
fact finder should assess if it would be objectively obvious to a reasonable
person that material bearing a generic watermark or a watermark referring to a
service provider’s website was infringing.”
In addition, LJ would have to show that it did not
financially benefit from infringements that it had the right and ability to
control. LJ’s general practices would be relevant, not its conduct with respect
to the specific infringements, since “right and ability to control” involves
“something more than the ability to remove or block access to materials posted
on a service provider’s website.” Something more can be present when the ISP
exercises “high levels of control over activities of users,” such as when it
“prescreens sites, gives them extensive advice, prohibits the proliferation of
identical sites,” provides “detailed instructions regard[ing] issues of layout,
appearance, and content,” and ensures “that celebrity images do not
oversaturate the content.”
The court of appeals rejected the district court’s
conclusion that LJ lacked “something more,” and sent it to the factfinder,
because:
LiveJournal’s rules instruct users
on the substance and infringement of their posts. The moderators screen for
content and other guidelines such as infringement. Nearly two-thirds of
submitted posts are rejected, including on substantive grounds. ONTD maintains
a list of sources that have complained about infringement from which users
should not submit posts. LiveJournal went so far as to use a tool to automatically
block any posts from one source.
LJ also needed to show that it did not derive a financial
benefit from infringement that it had the right and ability to control. “The
financial benefit need not be substantial or a large proportion of the service
provider’s revenue.”  The presence of a
vast amount of infringing material supported an inference of such a financial
benefit, where the service provider “promoted advertising by pointing to
infringing activity” and “attracted primarily visitors who were seeking to
engage in infringing activity, as that is mostly what occurred on [the service
provider’s] sites.” Here, LJ derived ad revenue based on the number of views
ONTD receives. Mavrix presented evidence showing that approximately 84% of
posts on ONTD contain infringing material, although LJ disagreed; again, this
was for the factfinder.

Also, on remand, whether the moderators were agents should
inform the district court’s analysis of whether Mavrix’s need for discovery
outweighed the moderators’ interest in anonymous internet speech. “Given the importance
of the agency analysis to the ultimate outcome of the case, and the importance
of discovering the moderators’ roles to that agency analysis, the district
court should also consider alternative means by which Mavrix could formally
notify or serve the moderators with process requesting that they appear for
their deposition at a date and time certain.”

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California Supreme Court finds waiver of statutory remedies unenforceable even as part of arbitration

Posted on April 10, 2017 by rtushnet
McGill v. Citibank, N.A., No. S224086, 2017 WL 1279700 (Cal.
Apr. 6, 2017)
Statutory remedies available for a violation of the CLRA, UCL,
and FAL include public injunctive relief: injunctive relief that has “the
primary purpose and effect of prohibiting unlawful acts that threaten future
injury to the general public.” Here, the California Supreme Court holds that a
purported waiver in a predispute arbitration agreement that waives the right to
seek this statutory remedy in any forum was contrary to California public
policy, which was not preempted by the FAA. 
McGill sued Citibank based on its credit protector plan and its handling
of a claim under that plan when she lost her job. The trial court ordered her
to arbitrate everything but her claims for public injunctive relief, and the
court of appeals reversed on the injunctive relief based on Concepcion.  The agreement stated that any claims must be
made on an “individual (non-class, non-representative) basis,” and the parties
agreed that the agreement prevented her from seeking any public injunctive
relief in any forum.
The CLRA expressly declares that “[a]ny waiver by a
consumer” of the CLRA’s provisions “is contrary to public policy and shall be
unenforceable and void.” Under the UCL, the primary form of relief is an
injunction, whether prohibitory or restitutionary.  The FAL also allows injunctive relief.  Previously, the California Supreme Court distinguished
between private injunctive relief — i.e., relief that primarily “resolve[s] a
private dispute” between the parties and “rectif[ies] individual wrongs” and
that benefits the public, if at all, only incidentally — and public injunctive
relief — i.e., relief that “by and large” benefits the general public and that
benefits the plaintiff, “if at all,” only “incidental[ly]” and/or as “a member
of the general public.” An injunction under the CLRA against a defendant’s
deceptive methods, acts, and practices “generally benefit[s]” the public
“directly by the elimination of deceptive practices” and “will … not benefit”
the plaintiff “directly,” because the plaintiff has “already been injured,
allegedly, by such practices and [is] aware of them.” A CLRA plaintiff’s
private benefit, if any, is “incidental to the general public benefit of
enjoining such a practice.” So too with the UCL and the FAL.
Because of the parties’ agreement that the arbitration
provision “elected … to exclude public injunctive relief from arbitration,” as
well as barring non-arbitration relief, the question was whether the waiver of
McGill’s right to seek public injunctive relief in any forum was valid.  It was not.
The court also held that Proposition 64 didn’t eliminate the
ability of private plaintiffs to seek public injunctive relief.  Once a plaintiff has standing under Proposition
64, which McGill did because she lost money or property as a result of the
alleged violations, she could continue to seek all authorized forms of relief,
including the standard UCL remedy of an injunction.
Civil Code section 3513 provides: “Any one may waive the
advantage of a law intended solely for his benefit. But a law established for a
public reason cannot be contravened by a private agreement.” By definition, the
public injunctive relief available under the UCL, the CLRA, and the false
advertising law is primarily “for the benefit of the general public.” Waiver in
a predispute arbitration agreement “would seriously compromise the public
purposes the statutes were intended to serve.”  
Nor is this rule preempted by the FAA.  Citibank argued that the FAA required
enforcement of the arbitration provision “as written, regardless of what it
says or implies about claims seeking public injunctive relief.” But the FAA
only requires courts to “place arbitration agreements on an equal footing with
other contracts [citation] and [to] enforce them according to their terms.” The
FAA’s “saving clause” “permits arbitration agreements to be declared
unenforceable ‘upon such grounds as exist at law or in equity for the revocation
of any contract.’ ” Concepcion explained
that Congress’s “purpose” in enacting the FAA “was to make arbitration
agreements as enforceable as other contracts, but not more so.”  Thus, arbitration agreements may not be
invalidated “by defenses that apply only to arbitration or that derive their
meaning from the fact that an agreement to arbitrate is at issue.”
The defense at issue here — “a law established for a public
reason cannot be contravened by a private agreement”— was a generally
applicable contract defense, not a defense that applies only to arbitration or
that derived its meaning from the fact that an agreement to arbitrate was at
issue.  The Supreme Court previously said
that, “[b]y agreeing to arbitrate a statutory claim, a party does not forgo the
substantive rights afforded by the statute; it only submits to their resolution
in an arbitral, rather than a judicial, forum.” The FAA thus does not require
enforcement of a provision in an arbitration agreement that “forbid[s] the
assertion of certain statutory rights” or that “eliminates … [the] right to
pursue [a] statutory remedy.”  Citibank
argued that those statements only applied to forfeiture of federal statutory
rights; the California Supreme Court disagreed. Under the FAA’s savings clause,
“ ‘[s]tate law’ … is applicable to determine which contracts are binding …
and enforceable under” the FAA, “ ‘if that law arose to govern issues
concerning the validity, revocability, and enforceability of contracts
generally.’ ”
Concepcion found the
FAA preempts even a “generally applicable” state law contract defense if that
defense (1) is “applied in a fashion that disfavors arbitration”, or (2)
“interferes with fundamental attributes of arbitration”, such as “ ‘lower
costs, greater efficiency and speed, and the ability to choose expert
adjudicators to resolve specialized disputes.’ ” Concepcion found that requiring a class arbitration procedure, the
rule (1) “sacrifices” arbitration’s “informality”, (2) “makes the process
slower, more costly, and more likely to generate procedural morass than final
judgment”, (3) “requires procedural formality”, and (4) “greatly increases
risks to defendants.”  Citibank argued
that there was little practical difference between “broad-based public
injunctions and … class-wide relief” since neither were necessary to protect
individual rights but just to help nonparties.
To the contrary, public injunctions were substantive
statutory remedies made available to individuals, not procedural devices like
the class action.  The Supreme Court has distinguished
between the “ ‘waiver of a party’s right to pursue statutory remedies’ ” — such
as “a provision in an arbitration agreement forbidding the assertion of certain
statutory rights” — and the waiver of a “procedural path to the vindication of
every claim” — such as a provision forbidding class action arbitration.  Nor would invalidation of the waiver interfere
with any of arbitration’s attributes.  The
FAA “does not … prevent parties who … agree to arbitrate from excluding
certain claims from the scope of their arbitration agreement.” The parties
elected to exclude public injunctive relief from arbitration, and requests for
such relief need not be arbitrated contrary to the parties’ agreement.  A stay of proceedings as to any inarbitrable
claims was also appropriate until arbitration of any arbitrable claims was
concluded. The Supreme Court has accepted “ ‘piecemeal’ litigation” of claims
the parties have agreed to arbitrate and claims they have not agreed to
arbitrate.”

So, was the rest of the provision enforceable?  The different versions of the agreement
Citibank provided contradicted each other—the 2001 version preserved the rest
of the agreement if portions were invalidated, but the 2005 Notice and the 2007
account agreement explicitly stated that the rest of the agreement wouldn’t
survive if any portion were deemed invalid or unenforceable.  This was an issue for remand.

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