allegedly false generic claims not actionable, but contributory liability possible

Posted on March 20, 2017 by rtushnet
Concordia Pharm. Inc., S.À.R.L. v. Winder Laboratories, LLC,
16-CV-00004 (N.D. Ga. Mar. 15, 2017)
Concordia makes Donnatal to treat irritable bowel syndrome
and acute enterocolitis.  (There’s
related litigation that ended
badly for the defendant there.) 
Concordia’s predecessor had conditional approval for ANDAs for Donnatal
tablets and elixir, which had become necessary when the FDA was required to
retrospectively evaluate previously approved drugs.  Concordia alleged that it was the only
company legally permitted to market PBA (phenobarbital and belladonna alkaloid)
products. 
Winder makes generic drugs; Steven Pressman owns
Winder.  In 2013, Winder began plans to
manufacture a generic version of Donnatal to be marketed by a third party,
Method, under the name Me-PB-Hyos. After Me-PB-Hyos was listed on several drug
databases, Concordia sued in the Western District of Virginia.  Defendants here were dismissed from that litigation
for lack of jurisdiction, and they subsequently took steps to begin production
and marketing of a generic version on their own.  In 2016, Winder listed B-Donna and Phenohytro
pharmaceutical products with the FDA and subscription pharmaceutical drug
databases, including Medi-Span and First DataBank.  B-Donna was removed from the FDA website but
remains listed with the drug databases.  Health
care professionals, insurers, payers, and pharmaceutical manufacturers use the
drug databases to determine whether generic substitutes are available for brand
named products. Pharmaceutically equivalent products are “linked” in the drug databases.
The B-Donna and Phenohytro products were submitted with labels and package
inserts indicating that they contained the same active ingredients, in the same
amounts, and in the same dosage forms as Donnatal products, and were thus
linked. The labels and package inserts also indicated that the B-Donna and
Phenohytro products had been reviewed and classified by the FDA.
The court declined to be bound by the false advertising
reasoning in Concordia Pharmaceuticals, Inc. v. Method Pharmaceuticals, LLC,
2016 WL 1271082, No. 3:14CV00016 (W.D. Va. Mar. 29, 2016).  As to the claim of literal falsity in claims
about FDA review and classification, those were precluded by the FDCA.  Concordia’s theory of liability was that
statements that B-Donna and Phenohytro were reviewed and classified by the FDA
and that Phenohytro was indicated for certain uses were false.  Their falsity depended on the meaning of the
word “drug” in an FDA regulation. That is, once a “Drug Efficacy Study
Implementation notice on a prescription drug” has been published in the Federal
Register, the FDA requires all labeling to include “an appropriate
qualification of all claims evaluated as other than ‘effective.’”  Donnatal includes such language in its
packaging and inserts because of a 1975 DESI notice classifying Barbidonna (the
former name) tablets and elixir as “possibly effective.”  If “drug” means “specific producer’s product,”
then a similar claim for B-Donna and Phenohytro would be false.  But if “drug” means “specific combination of
active ingredients in particular strengths and dosage amounts,” as defendants
contended (which seems more plausible at first glance), it would be true.  The FDA hasn’t set forth its interpretation
of “drug” in this context, and the court declined to interpret the FDCA/the
DESI notice without letting the FDA weigh in first. 
Pom Wonderful
didn’t prevent this result.  There,
falsity could be determined independent of FDA regulations. Here, finding
defendants’ statements to be false would require an interpretation in the first
instance of FDA regulations under the FDCA.
Second: Concordia alleged that defendants falsely claimed
that B-Donna and Phenohytro were FDA-approved and substitutable for Donnatal,
including by listing them in the drug databases in such a way as to produce
linkage with Donnatal. The “FDA-approved” claims were precluded, as above. For
the rest, the court did not accept that including the active ingredients, their
strengths, and their dosages in the promotion materials provided to the drug databases
constituted false or misleading advertisements. 
The argument was that the databases took accurate information and improperly
linked the parties’ products; this wasn’t enough.
Contributory false advertising: This theory is recognized in
the Eleventh Circuit.  (Important note:
the court didn’t discuss “commercial advertising or promotion.”  If the databases aren’t engaging in
“commercial advertising or promotion” of their own products when they
distribute the information, how can they be violating the Lanham Act to create
a primary violation allowing for secondary liability?  If the answer is that the database providers
are engaged in commercial advertising because of the promotional interests of
the data-submitters, that seems a bit
worrisome for any reporter who reports out positive promotional information
from a commercial source.  If drug
databases aren’t engaged in
commercial advertising or promotion when they distribute the linkage
information, though, then plaintiffs will have to find some tort that isn’t
limited to commercial advertising or promotion to challenge any resulting
falsehood.  If I were defendants, I’d
seek some clarity on this—and maybe an amicus from the drug databases, which
stand here accused of primary liability for violating the Lanham Act even if
un-sued at present.)
Anyway, once direct liability is established, the plaintiff
has to allege that the defendant contributed to the conduct by acting with “the
necessary state of mind—in other words that it intended to participate in or
actually knew about the false advertising.” In addition, the plaintiff has
allege that the defendants “actively and materially furthered the unlawful
conduct—either by inducing it, causing it, or in some other way working to
bring it about.”  The court found that
this had been properly alleged, since the result of the database’s linkage was
the misleading implication that defendants’ products were “FDA-approved
‘generic’ products that are therapeutically equivalent or A-rated to and/or
substitutable” for Donnatal.  Literal
truth can still be misleading. 
The court rejected defendants’ preclusion argument, which
was that the FDA requires them to include the active ingredients, their strengths,
and their amounts in the advertising material sent to the drug databases.  FDA requirements/authorizations aren’t a
ceiling on the regulation of drug labeling, since “Congress intended the Lanham
Act and the FDCA to complement each other . . . .”
Trademark infringement: Defendants argued that there was no
use in commerce, and that any likelihood of confusion was prevented by the
indication on the Medi-Span listing that B-Donna is labeled by Winder.  But use in commerce is broad enough to cover
listing on the databases without any sale. 
And Concordia properly alleged likely confusion at the motion to dismiss
stage.  Donnatal was at least suggestive,
and not used by other parties, making it strong.  (But the part of the marks that overlaps,
donna, has to be at most descriptive of belladonna derivatives.)  Concordia also alleged sufficient similarity
between the marks (the court didn’t break that down further) and the
products/sales channels, as well as an intent “to exploit the reputation and
success of DONNATAL.”
As to labeling Winder as the supplier, that wasn’t enough at
the motion to dismiss stage.
The common-law unfair competition claim was preempted
because it was equivalent to the precluded direct false advertising claim
above. The Georgia Uniform Deceptive Trade Practices Act was analogous to §
43(a), so the trademark-related claims survived and not the false advertising
claims.
Unjust enrichment: The “essential elements of the claim are
that (1) a benefit has been conferred, (2) compensation has not been given for
receipt of the benefit, and (3) the failure to so compensate would be
unjust.”  Concordia alleged sufficient
facts to state a claim: “Defendant gained a benefit by copying Plaintiff’s
DONNATAL labels for use with B-Donna and Phenohytro, thus saving Defendant the
time and resources needed to create its own.” 
[There is simply no way this is not preempted by §301 of the Copyright
Act.  Courts have held time and again
that unjust enrichment claims are preempted when they’re based on copying of
this sort.]
Additionally, Concordia alleged that being linked in the
databases consituted unjust enrichment. 
[If they’d been FDA-approved generics for a non-grandfathered drug,
would it constitute unjust enrichment? 
If not, why not?  This gets to the
difficulty we often have in defining “unjust” enrichment or “unfair”
competition as distinct from fair free riding.]

Tortious interference: Concordia failed to plead more than
the conclusory allegation that, “[u]pon information and belief, Defendants’
wrongful and intentional conduct has caused third parties to discontinue or
fail to enter into anticipated relationships with Plaintiff.” This wasn’t
enough

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allegedly false generic claims not actionable, but contributory liability possible

Posted on March 20, 2017 by rtushnet
Concordia Pharm. Inc., S.À.R.L. v. Winder Laboratories, LLC,
16-CV-00004 (N.D. Ga. Mar. 15, 2017)
Concordia makes Donnatal to treat irritable bowel syndrome
and acute enterocolitis.  (There’s
related litigation that ended
badly for the defendant there.) 
Concordia’s predecessor had conditional approval for ANDAs for Donnatal
tablets and elixir, which had become necessary when the FDA was required to
retrospectively evaluate previously approved drugs.  Concordia alleged that it was the only
company legally permitted to market PBA (phenobarbital and belladonna alkaloid)
products. 
Winder makes generic drugs; Steven Pressman owns
Winder.  In 2013, Winder began plans to
manufacture a generic version of Donnatal to be marketed by a third party,
Method, under the name Me-PB-Hyos. After Me-PB-Hyos was listed on several drug
databases, Concordia sued in the Western District of Virginia.  Defendants here were dismissed from that litigation
for lack of jurisdiction, and they subsequently took steps to begin production
and marketing of a generic version on their own.  In 2016, Winder listed B-Donna and Phenohytro
pharmaceutical products with the FDA and subscription pharmaceutical drug
databases, including Medi-Span and First DataBank.  B-Donna was removed from the FDA website but
remains listed with the drug databases.  Health
care professionals, insurers, payers, and pharmaceutical manufacturers use the
drug databases to determine whether generic substitutes are available for brand
named products. Pharmaceutically equivalent products are “linked” in the drug databases.
The B-Donna and Phenohytro products were submitted with labels and package
inserts indicating that they contained the same active ingredients, in the same
amounts, and in the same dosage forms as Donnatal products, and were thus
linked. The labels and package inserts also indicated that the B-Donna and
Phenohytro products had been reviewed and classified by the FDA.
The court declined to be bound by the false advertising
reasoning in Concordia Pharmaceuticals, Inc. v. Method Pharmaceuticals, LLC,
2016 WL 1271082, No. 3:14CV00016 (W.D. Va. Mar. 29, 2016).  As to the claim of literal falsity in claims
about FDA review and classification, those were precluded by the FDCA.  Concordia’s theory of liability was that
statements that B-Donna and Phenohytro were reviewed and classified by the FDA
and that Phenohytro was indicated for certain uses were false.  Their falsity depended on the meaning of the
word “drug” in an FDA regulation. That is, once a “Drug Efficacy Study
Implementation notice on a prescription drug” has been published in the Federal
Register, the FDA requires all labeling to include “an appropriate
qualification of all claims evaluated as other than ‘effective.’”  Donnatal includes such language in its
packaging and inserts because of a 1975 DESI notice classifying Barbidonna (the
former name) tablets and elixir as “possibly effective.”  If “drug” means “specific producer’s product,”
then a similar claim for B-Donna and Phenohytro would be false.  But if “drug” means “specific combination of
active ingredients in particular strengths and dosage amounts,” as defendants
contended (which seems more plausible at first glance), it would be true.  The FDA hasn’t set forth its interpretation
of “drug” in this context, and the court declined to interpret the FDCA/the
DESI notice without letting the FDA weigh in first. 
Pom Wonderful
didn’t prevent this result.  There,
falsity could be determined independent of FDA regulations. Here, finding
defendants’ statements to be false would require an interpretation in the first
instance of FDA regulations under the FDCA.
Second: Concordia alleged that defendants falsely claimed
that B-Donna and Phenohytro were FDA-approved and substitutable for Donnatal,
including by listing them in the drug databases in such a way as to produce
linkage with Donnatal. The “FDA-approved” claims were precluded, as above. For
the rest, the court did not accept that including the active ingredients, their
strengths, and their dosages in the promotion materials provided to the drug databases
constituted false or misleading advertisements. 
The argument was that the databases took accurate information and improperly
linked the parties’ products; this wasn’t enough.
Contributory false advertising: This theory is recognized in
the Eleventh Circuit.  (Important note:
the court didn’t discuss “commercial advertising or promotion.”  If the databases aren’t engaging in
“commercial advertising or promotion” of their own products when they
distribute the information, how can they be violating the Lanham Act to create
a primary violation allowing for secondary liability?  If the answer is that the database providers
are engaged in commercial advertising because of the promotional interests of
the data-submitters, that seems a bit
worrisome for any reporter who reports out positive promotional information
from a commercial source.  If drug
databases aren’t engaged in
commercial advertising or promotion when they distribute the linkage
information, though, then plaintiffs will have to find some tort that isn’t
limited to commercial advertising or promotion to challenge any resulting
falsehood.  If I were defendants, I’d
seek some clarity on this—and maybe an amicus from the drug databases, which
stand here accused of primary liability for violating the Lanham Act even if
un-sued at present.)
Anyway, once direct liability is established, the plaintiff
has to allege that the defendant contributed to the conduct by acting with “the
necessary state of mind—in other words that it intended to participate in or
actually knew about the false advertising.” In addition, the plaintiff has
allege that the defendants “actively and materially furthered the unlawful
conduct—either by inducing it, causing it, or in some other way working to
bring it about.”  The court found that
this had been properly alleged, since the result of the database’s linkage was
the misleading implication that defendants’ products were “FDA-approved
‘generic’ products that are therapeutically equivalent or A-rated to and/or
substitutable” for Donnatal.  Literal
truth can still be misleading. 
The court rejected defendants’ preclusion argument, which
was that the FDA requires them to include the active ingredients, their strengths,
and their amounts in the advertising material sent to the drug databases.  FDA requirements/authorizations aren’t a
ceiling on the regulation of drug labeling, since “Congress intended the Lanham
Act and the FDCA to complement each other . . . .”
Trademark infringement: Defendants argued that there was no
use in commerce, and that any likelihood of confusion was prevented by the
indication on the Medi-Span listing that B-Donna is labeled by Winder.  But use in commerce is broad enough to cover
listing on the databases without any sale. 
And Concordia properly alleged likely confusion at the motion to dismiss
stage.  Donnatal was at least suggestive,
and not used by other parties, making it strong.  (But the part of the marks that overlaps,
donna, has to be at most descriptive of belladonna derivatives.)  Concordia also alleged sufficient similarity
between the marks (the court didn’t break that down further) and the
products/sales channels, as well as an intent “to exploit the reputation and
success of DONNATAL.”
As to labeling Winder as the supplier, that wasn’t enough at
the motion to dismiss stage.
The common-law unfair competition claim was preempted
because it was equivalent to the precluded direct false advertising claim
above. The Georgia Uniform Deceptive Trade Practices Act was analogous to §
43(a), so the trademark-related claims survived and not the false advertising
claims.
Unjust enrichment: The “essential elements of the claim are
that (1) a benefit has been conferred, (2) compensation has not been given for
receipt of the benefit, and (3) the failure to so compensate would be
unjust.”  Concordia alleged sufficient
facts to state a claim: “Defendant gained a benefit by copying Plaintiff’s
DONNATAL labels for use with B-Donna and Phenohytro, thus saving Defendant the
time and resources needed to create its own.” 
[There is simply no way this is not preempted by §301 of the Copyright
Act.  Courts have held time and again
that unjust enrichment claims are preempted when they’re based on copying of
this sort.]
Additionally, Concordia alleged that being linked in the
databases consituted unjust enrichment. 
[If they’d been FDA-approved generics for a non-grandfathered drug,
would it constitute unjust enrichment? 
If not, why not?  This gets to the
difficulty we often have in defining “unjust” enrichment or “unfair”
competition as distinct from fair free riding.]

Tortious interference: Concordia failed to plead more than
the conclusory allegation that, “[u]pon information and belief, Defendants’
wrongful and intentional conduct has caused third parties to discontinue or
fail to enter into anticipated relationships with Plaintiff.” This wasn’t
enough

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Bud Light Lime-a-Rita not deceptive despite not being so light after all

Posted on March 20, 2017 by rtushnet
Cruz v. Anheuser-Busch Cos., LLC, No. 15-56021, —
Fed.Appx. —-, 2017 WL 1019084 (9th Cir. Mar. 16, 2017)
Cruz sued Anheuser-Busch for the usual California claims,
alleging that the labels on cartons containing cans of “Rita” malt beverages,
including Lime-a-Rita, are misleading by using the word “Light,” because the
products contain considerably more calories and carbohydrates per ounce than
other Budweiser products.  The majority
found that no reasonable consumer would be deceived into thinking that “Bud
Light Lime Lime-a-Rita,” which the label calls a “Margarita With a Twist,” is a
low-calorie, low-carbohydrate beverage or that it contains fewer calories or
carbohydrates than a regular beer. It is was clear from the label that the
beverage wasn’t a normal beer: the label calls it a “Margarita With a Twist,” and
pictures a bright green drink, served over ice, in a margarita glass.
The majority concluded that a reasonable consumer might
compare “Bud Light Lime Lime-a-Rita” either to (a) a hypothetical product
“Budweiser Lime-a-Rita,” made with Budweiser instead of with Bud Light, or (b)
a tequila margarita. The hypothetical Bud product would contain more calories
and carbohydrates than the Bud Light Lime-a-Rita, while a tequila margarita
typically contains at least as many calories and carbohydrates as a “Bud Light
Lime Lime-a-Rita.”  

Judge Christen dissented, reasoning that a reasonable
consumer would naturally compare Bud Light Lime Lime-a-Rita with Bud Light
Lime. But Bud Light Lime has far fewer calories and carbohydrates. Judge
Christen didn’t think a reasonable consumer would hypothesize a nonexistent
beverage or compare a malt beverage to tequila. 
Thus, she would have found that reasonable consumers could be misled by
the “light” label.

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Keyword ad case based on failure to disclose connections fails

Posted on March 20, 2017 by rtushnet
Novation Ventures, LLC v. J.G. Wentworth Co., LLC, 2016 WL
6821110,  No. CV 15-00954 BRO (C.D. Cal.
Feb. 1, 2016)
Novation factors structured settlements: it buys the right
to receive scheduled future payments from settlement recipients who do not wish
to or cannot wait years for their annuitized payments; it has a market share of
no more than 7%. Its competitor J.G. Wentworth is, along with its subsidiaries,
“by far the largest participant in the factoring of structured settlements,” with
a market share of about 75%.  In 2011,
J.G. Wentworth bought its largest competitor, Peach Holdings, and they own and
control the “Olive Branch Funding” brand.  Given regulatory barriers to entry, there are
only a handful of companies competing in the business.
Novation alleged antitrust and Lanham Act claims based on
the idea that J.G. Wentworth “advertises and presents itself to the public
using (at least) three distinct brand names (JG Wentworth, Olive Branch
Funding, and Peachtree)” without advising consumers that those brands are “all
controlled and coordinated by the brands’ common owner and manager: The JG
Wentworth Company.” This, Novation alleged, served to “systematically corrupt
and frustrate [the] competitive bidding process.” Novation alleged that
comparison shopping was a key determinant of the price sellers received, and
that sellers typically used search engines to do this.
Novation alleged that the top three paid search listings
have “strategic importance,” because “most people ‘click through’ on slots one
through three of search results only.” 
Further, Novation alleged that most sellers get no more than two bids;
relatively few seek three or four. 
(Given the sums of money at stake, it’s interesting that the search is
so limited—each negotiation with a potential provider takes time and effort,
and that short-term cost seems to outweigh the possible long-term benefits,
which are probably unclear at the outset to the consumers.)
In addition, Novation alleged that defendants violated
Google’s internal policies against “double-serving” ads, that is, buying more
than one search result to be shown in response to any given query.  Consumers allegedly believed that they were
getting distinct results, “especially if each APPEARS to be different by virtue
of common visual cues and labels such as trademarked name, brand, phone number,
and logo.”  By coordinating their brands’
bidding, defendants allegedly “consistently grab two and often three of the top
three search listing results on many of the keywords used by consumers
searching for structured settlement buyers.” This behavior “crowds out
competitors and/or drives up the cost of being in second or third position in
any given search ranking, making it more difficult and expensive for Novation
to be found by potential customers looking for genuinely competing offers.”
The court held that Novation failed to allege antitrust
injury because they didn’t allege how the deceptive conduct prevented consumers from clicking on the
third link, e.g., the “http://ift.tt/2nszbIu” to Annuity that showed in
several exhibits; Novation brought no claims against Annuity.  Since consumers were free to choose whether
to click on an ad, and could also use whatever search terms they wanted, there
was no harm to consumer choice, especially since Novation could use TV ads or
radio to compete.  And other competitors
could and did bid for the top ad positions.
Novation also failed to state a false advertising claim.
There were no literal falsehoods; the only falsity came if a consumer searched
“who competes with Peachtree Financial” or “who competes with JG Wentworth.” The
real argument was that when three ads were displayed for ‘JG Wentworth’ and
‘Peachtree Financial’ and ‘Olive Branch Funding,’ reasonable consumers would
believe that these were separate companies competing to provide the service
advertised.  Though likely confusion is
often a question of fact, it isn’t always so. 
In the keyword advertising context, it turns on what the consumer saw on
the screen and reasonably believed.  The
court found that the ads were clearly labeled as ads and didn’t explicitly
describe the others as competitors.  Even
if reasonable consumers would be aware of Google’s internal advertising policy
(the court’s recitation suggests a hint of skepticism about that), there was no
plausible likelihood of deception “where the relevant reasonable consumer would
exercise a heightened degree of care and precision, where the purchase price of
the transactions range from $5,000 to $1,000,000 (or more),” and the consumer
might even have an advisor.  No
reasonable factfinder could find likely confusion.
Novation Ventures, LLC v. J.G. Wentworth Co., LLC, 2015 WL
12765467,  No. CV 15-00954 (C.D. Cal. Sept.
21, 2015)
Earlier version of the complaint, also dismissed.  Defendants’ failure to disclose common
ownership wasn’t a false statement; simple failure to disclose doesn’t violate
the Lanham Act because not saying anything “is neither ‘false’ nor a
‘representation.’ ”  Nor was it plausible
that the ads were misleading.  Toyota v. Tabari held that internet
consumers “fully expect to find some sites that aren’t what they imagine based
on a glance at the domain name or search engine summary…. [C]onsumers don’t
form any firm expectations … until they’ve seen the landing page—if then.
This is sensible agnosticism, not consumer confusion.” The “ad” label made
deception even less plausible.

Nor did the allegations support a trademark infringement
claim.  Novation argued that defendants’
use of their own marks “ ‘caused confusion,’ ‘mistake,’ and has ‘deceived’
thousands of persons … ‘as to the affiliation, connection, or association’ of
JG Wentworth with ‘Olive Branch Funding’ and ‘Peachtree Financial.’ ”  But that wasn’t a trademark infringement
claim.  Novation suggested that
defendants infringed Novation’s marks by using keyword meta tags.  However, there was no allegation that
defendants’ ads or links “incorporate plaintiff’s marks in any way discernable
to internet users and potential customers.” Thus, no reasonable factfinder
could find a likelihood of confusion here. 

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Blast from the past: another keyword ad case where TM won’t work

Posted on March 17, 2017 by rtushnet
Int’l Payment Servs., LLC v. Cardpaymentoptions.com, Inc.,
NO. 2:14-cv-02604, 2015 WL 12656280 (C.D. Cal. Jun. 5, 2015)
Old decision, popped up in Westclip.  Plaintiff has a registration for ELITEPAY
GLOBAL for its merchant payment solutions equipment, services and training
business in the credit card processing industry.  CardPaymentOptions.com doesn’t provide credit
card processing services, but does get paid for running ads from processors.  CPO has a review page using IPS’s logo under
the heading “ElitePay Global Review.” The review is written by the website
owner; it rated IPS with a “C-” grade or 1.875 out of 5 stars, and there were
also more than 40 negative comments or reviews about IPS’s services (hello section 230), as well as
links other credit card service processors. 
In addition, CPO bought keyword ads for “ElitePay Global.”
Although summary judgment is usually disfavored in trademark
cases, nominative fair use can allow it. 
IPS’s services weren’t readily identifiable without use of the mark, and
there was no substitute for it in defendants’ AdWords campaign. Nor was the use
more than necessary, even though the mark was used over 50 times on CPO’s
webpage.  CPO was talking about IPS; such
referential uses are exactly what the nominative fair use doctrine is designed
to allow.  As for the AdWords campaign,
there was no evidence that defendants’ link regularly appeared above IPS’s
website in search results, meaning there was no genuine issue about whether the
use was more than necessary.
Finally, there was no suggestion of sponsorship or
endorsement, given the bad grade and associated negative comments and reviews.
The court rejected IPS’s argument that “there is no such thing as bad
publicity.” Likewise, the use of the mark in AdWords and CPO’s webpage path
(http://ift.tt/2mR48DI), didn’t
actively claim affiliation with or sponsorship by IPS. The Ninth Circuit has held
that “[o]utside the special case of trademark.com, or domains that actively
claim affiliation with the trademark holder, consumers don’t form any firm
expectations about the sponsorship of a website until they’ve seen the landing
page,” and that “[s]o long as the site as a whole does not suggest sponsorship
or endorsement by the trademark holder, … momentary uncertainty does not
preclude a finding of nominative fair use.”

Some false advertising-related state law claims survived,
but the court declined to exercise supplemental jurisdiction over them.

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All in the game: misleading tennis racquet endorsements don’t support class certification

Posted on March 17, 2017 by rtushnet
Ono v. Head Racquet Sports USA, Inc., No. CV 13–4222, 2016
WL 6647949 (C.D. Cal. Mar. 8, 2016)|
Ono sued Head for deceiving the public “into believing that
top-ranked professional tennis players actually used [Tour–Line Racquets]
during competition,” bringing the usual California claims. Although  he failed, the allegations—which seem to be
substantially uncontested by Head—are of the kind that often draw FTC scrutiny,
and the FTC doesn’t have the same problems that putative class representatives
do.  The FTC does
not like misleading endorsements, and Head would be well advised to read
the extensive guidance it has offered on the topic, particularly about the
endorser’s actual use of the endorsed product.
A press release issued by Head in April 2013, for example,
stated that “[Andy] Murray was winning a thrilling match with his HEAD YouTek
IG Radical,” that Richard Gasquet was “playing with his HEAD YouTek IG
Extreme,” that Tommy Haas was using the HEAD YouTek IG Prestige, and it also
mentioned “Maria Sharapova, who swings her new HEAD YouTek Graphene
Instinct[.]”Another release from 2011 stated that Novak Djokovic “changed to
his new YouTek IG Speed MP at the start of the season” and “Maria Sharapova
showed tremendous performances with her brand-new YouTek IG Instinct MP[.]” Ono
alleged that “professional tennis players whom Head pays to endorse specific
models actually play with different tennis rackets—custom-made rackets that are
not available to the general public or older models that have been discontinued
or are sold at steep discounts—but which have been painted to look like the
latest models that Head sells to the general public[.]”
The court found commonality, but not predominance. Head
argued that most of its ads didn’t claim that an athlete used a specific
racket.  The court commented that most of
Ono’s claims about Head’s ads were supported by the record, which included more
than 60 pages of press releases claiming that various professional athletes use
specific Tour–Line Racquets in their professional matches. When the Senior
Category Manager for Head’s tennis division was asked why Head did that, he answered “it’s always been that way.” Head
provides lists to retailers that include “the player and the racquet that they
are endorsing or playing with,” even if they weren’t playing with it in professional
matches, and even without any knowledge of whether a player is or isn’t using
it. Head’s president testified that players’ custom raquets are painted to look
like standard Tour-Lines sold to the public, and,. in response to a question
about whether that was “dishonest,” he simply said, “it’s inaccurate.”
Further, there was evidence that Head decisionmakers “knew
that certain customers care a lot about what racquets their tennis idols use,
and the evidence suggests that Head intended to maintain the ‘inaccuracy’
described in the preceding paragraph.” One 2009 employee email discussed Andy
Murray’s use of a racquet with a different number of strings than the racquet
Head claimed he used: “[i]t just makes it look like he is really not using the
racquet we say he is and when this starts getting around on the message boards,
it will not help our cause…. [P]eople like to have the same racquet
(especially he [sic] techy-geeks) and we are making it impossible.” Another
employee email: “[o]ne of our concerns, of course, is that now those serious
players that want to play with what our pros play with will doubt they get the
chance to play the actual Djokovic racquet.” A manager: “I am aware that
players do not play with the retail version and I have no problem with that but
we should have tried to make this as invisible to the public as we could,
especially on a new series.”  Cf.
Endorsement Guidelines, § 255.1(c) (“When the advertisement represents that the
endorser uses the endorsed product, the endorser must have been a bona fide
user of it at the time the endorsement was given. Additionally, the advertiser
may continue to run the advertisement only so long as it has good reason to
believe that the endorser remains a bona fide user of the product.”).
Head’s target market for the Tour-Line could, in its own
words, be described as “die-hard tennis freak[s]…. They play competitively 5 to
7 times a week and follow the game religiously. They know what’s going on and
who’s who in the international Tennis scene and … are mainly influenced by
their player idols, coaches and other players at their age and level of play.”
Head’s key argument was that its ads were varied and
diverse, and “[m]ost do not include the allegedly false claim at the heart of
this dispute—that a professional athlete used a specific racket in competition
play.” Much of the advertising featuring professional endorsements “explain[s]
the type of player each racket line or model is designed for and/or encourages
consumers to visit the website to choose a racket best suited for their needs.”
E.g., “The new YouTek IG Speed is specially designed for the needs of players
like Novak Djokovic. It offers a stiffer feel for hard hitters with a long,
fast swing style.”  The ads didn’t say
which specific variant a player is using, or that they’re using a variant
available to the public.  Also, Head
argued that the reach of its marketing efforts was relatively limited. “Between
2009 and 2013, it placed print ads in two publications circulated to tennis
teaching professionals, four tennis publications circulated to consumers …, and
some tennis tournament programs; banner advertisements on tennis-focused
websites; television advertisements on the subscription-only Tennis Channel;
and press releases on its own website, the majority of which have been viewed
59 to 118 times or less in the United States.”
Even if the ads didn’t claim that an athlete used a
particular racket in competition, a jury could find that the ads were
nonetheless misleading “because reasonable consumers would understand them to
mean that professional tennis players are using racquets that Head makes available
to the general public.”  Minimal ad
exposure also didn’t defeat commonality, which was a question of whether the
advertising itself was materially misleading. 
Head’s survey witness Hal Poret also conducted a survey in which only
six percent of respondents answered “both that endorsement of a racket by a
professional tennis player would be a factor in their decision and that they
believe[d] from [a sample] ad[vertisement] that Andy Murray plays with the
identical version of the racket sold to the public.” Of those who called
endorsement an important factor, only
1.5% believed that Andy Murray used the racquet in question.  Still, variations in what class members might
have believed or desired didn’t defeat the “relatively minimal showing required
to establish commonality,” especially given that some elements of the
California claims can be satisfied “without individualized proof of deception,
reliance, and injury.”
Still, the case foundered on predominance, for the reasons
largely given above.  Likely deception
isn’t automatically a classwide question.  Ono failed to show that it was reasonable to
assume that all, or even most, of class members were exposed to the allegedly
deceptive ads, “and thus the question of exposure would have to be resolved on
an individual rather than classwide basis.”  Even if Head’s target super-fans were more
likely to be exposed than other people, the class definition wasn’t just
super-fans.
Even painting racquets used in pro tournaments didn’t
necessarily expose consumers to the deceptive practices.  There was no evidence that Tour’s customers
generally watch tennis tournaments, or that they’d notice or be able to
determine the model used by a pro on TV or even live. There was no evidence of
an extensive decades-long campaign that might be used to infer exposure.
Nor was it reasonable to find that materiality and thus
reliance could be litigated with common evidence.  While Head may have targeted its marketing at
a segment of the population, there was no evidence that the target consumers
were the actual consumers. “It would therefore be inappropriate for the court
to presume that Head’s knowing that ‘tennis freaks’ would likely regard
celebrity use of racquets as important is the same as Head’s knowing or having
reason to know that purchasers of Tour–Line Racquets are similarly influenced.”
[This strikes me as wrong: the reason that we infer deception from intent to
deceive is that the fact that the seller thinks its representation will help
sell its products is good evidence that it will do so; sellers who tout only
unappealing features rarely last.]  Ono
responded to Head’s survey evidence only by arguing that “those consumers who
have purchased or are likely to purchase a tennis racket” in the price range of
Tour–Line Racquets weren’t “representative of Head’s target Tour Consumer,” but
the court already rejected Ono’s reliance on the target consumer.

In addition, “[e]valuating materiality using common evidence
would be particularly challenging in this case due to the different
representations regarding different racquets by different celebrity tennis
players. While some press releases say outright that a certain professional
player plays with a particular Tour–Line Racquet model, other advertisements
merely link a player with a particular racquet silo [sub-brand], or describe a
particular player’s style of play.”  Each
would require separate deception analysis. 
Also, the extent of deceptiveness varied—some pro players used racquets
very similar to the models available at retail, and others used custom frames
that differed more significantly. 
Although Ono contested whether these sub-brands were designed for
players like the respective endorser, that was a different misleadingness
argument than the one about whether the endorser actually used the racquet.

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Slingbox’s addition of ads wasn’t deceptive

Posted on March 17, 2017 by rtushnet
In re Sling Media Slingbox Advertising Litig., 202 F. Supp. 3d
352 (S.D.N.Y. 2016)
Plaintiffs sued Sling under California law, and in the
alternative under the consumer-protection laws of forty-seven other
jurisdictions, including under New York General Business Law § 349, based on
Sling’s addition of ads to its Slingbox service allowing consumers to watch
their home TVs from internet-connected devices. In late 2014, for the first
time, Sling began adding its own ads “after product startup,” as well as
“alongside streamed … content.” Plaintiffs were unhappy and sued for
deceptive failure to disclose that ads would be added.
Although the EULA said the agreement was governed by
California law, that didn’t give Slingbox purchasers outside of California the
right to bring California consumer-protection claims. New York plaintiffs had
to proceed under GBL § 349.  This
requires the plaintiff to show a consumer-oriented act or practice that is
deceptive or materially misleading, as well as injury.  There were no affirmative misstatements
alleged. Omissions are actionable “where the business alone possesses material
information that is relevant to the consumer and fails to provide this
information.” But plaintiffs failed to plead facts sufficient to make it
plausible that Sling possessed knowledge of a plan to disseminate advertising
at the time they purchased their Slingboxes.

Nor did the complaint sufficiently allege materiality.
According to the complaint, consumers buy Slingboxes to: (1) watch live or
recorded programming that they have already purchased from a cable or satellite
provider; (2) on another device; (3) anywhere in the world.  The complaint didn’t allege facts about the
Sling ads—how often they show up, can they be skipped or otherwise avoided,
etc. The complaint didn’t even allege that, at the time of purchase, plaintiffs
knew they were getting an ad-free experience. 
Finally, there were no allegations of actual injury, and adding ads “may
be beneficial, detrimental or of no consequence based on consumers’ personal
tastes, likes, or dislikes.”  Plaintiffs
argued they wouldn’t have bought the Slingboxes or would have paid less for
them if they’d known the truth, but that isn’t enough under New York law.  Small v. Lorillard Tobacco Co., Inc., 94
N.Y.2d 43, 56, 698 N.Y.S.2d 615, 720 N.E.2d 892 (1999) (stating consumers who
buy a product that they would not have purchased absent deceptive conduct,
without more, have not suffered injury).

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failure to caption music/songs doesn’t make “close captioned” label misleading

Posted on March 16, 2017 by rtushnet
Anthony v. Buena Vista Home Entertainment Inc., 2016 WL
6836950, No. 2:15–cv–09593 (C.D. Cal. Sept. 28, 2016)
Plaintiffs, who are deaf or hard of hearing, alleged that
defendants sold (1) DVDs enclosed in packaging with language advertising the
DVDs as subtitled, (2) movies advertised as captioned, and (3) movies or TV
shows advertised as subtitled via online streaming services. However, the
movies and TV shows were in fact not fully subtitled, specifically lacking
subtitles for music and song lyrics, which are often used to explain the
premise or theme of a movie or TV show, and can sometimes be crucial to
developing a plot (e.g., musicals). They brought the usual California claims as
well as a claim for violation of California’s Unrah Civil Rights Act.  The court found that plaintiffs failed to
allege that reasonable consumers would be deceived; “whether such content
should include subtitled song lyrics is quite distinct from whether consumers
expect it to.”  Plaintiffs might have
hoped that industry practice would change, but plaintiffs even alelged that
“the practice of not subtitling song/music lyrics is frustratingly widespread,”
and they each purchased or rented “numerous DVDs” in which the content
“including music lyrics, was not subtitled or captioned.”
Plaintiffs argued that they were a particularly susceptible
audience, and therefore the ads had to be measured by the impact they’d have on
members of that audience instead of by the effect on reasonable consumers. But
such a standard applies “to audiences who are known to be particularly
susceptible to advertising, such as small children, not vulnerable audiences in
general.” Plaintiffs didn’t explain why they would be more susceptible to
persuasive advertising than any other reasonable consumers.
For the same reasons, plaintiffs failed to adequately allege
reliance.  Also, plaintiffs alleged that they
didn’t have any choices about whom to buy from, since only defendants produced
captioned versions of their movies or shows. 
“In effect, the Plaintiffs are conceding that they would buy or rent the
products even without full captioning and subtitling, as there are no better alternatives
available to them.”
Also, and worryingly in a broader sense, the court found
that plaintiffs’ warranty claims failed because they didn’t allege either a “sale”
or a “consumer good” as required by the Beverly–Song Act. The claims involved
the video content of the DVDs, streaming services, or live movies, and the
court concluded that it was this content that would have to be “sold” to be
subjected to the act. But title to the content remained in the copyright owner;
“[t]he consumer may purchase title to the physical DVD, but only purchases a
license to view the expressive content.” 
Thus, there was a sale as to the physical DVD, but not as to the DVD
content. The same analysis meant there was no “consumer good” at issue.
The Unruh Act claims failed for want of alleged intentional
discrimination.
The court also found that California’s anti-SLAPP law
applied, given that captioning of videos is protected speech.  Plaintiffs argued that they were challenging
the advertising, not the absence of captions as such. But the “principal
thrust” of the warranty and Unruh Act claims was “clearly the captions and
subtitles themselves, not the labeling on the box,” since the warranty claims
were based on allegations that the movies and shows didn’t meet the particular
needs of the deaf and hard of hearing community because they weren’t fully
subtitled. “Such claims stem from the captions themselves, as changing the
labeling would not ensure that the movies and shows met the needs of the
Plaintiffs as stated in the Complaint.”  Nor
would a labelling change provide plaintiffs with the relief they sought under
the Unruh Act.
Although the argument that the false advertising claims
involved purely commercial speech rather than protected content carried more
weight, it still failed, because the ads were acts “in furtherance of the
Defendants’ right of free speech and are in connection with a public issue.”  The commercial speech exemption to the
anti-SLAPP law doesn’t apply to actions against “any person or entity based
upon the creation, dissemination, exhibition, advertisement, or other similar
promotion of any dramatic, literary, musical, political, or artistic work,
including, but not limited to, a motion picture or television program….”  

Because plaintiffs’ claims were legally insufficient and
unsubstantiated, the court granted defendants’ motion to strike under the
anti-SLAPP law.

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Not with a bang but with a fastener

Posted on March 15, 2017 by rtushnet
B&B Hardware, Inc. v. Hargis Indus., Inc., — F. Supp. 3d
—-, 2017 WL 957548 (E.D. Ark. Feb. 16, 2016)
I mentioned this development a while back, but it’s now
getting into the federal reporter, which is good so that people don’t
misunderstand what ultimately happened. 
As for background, “[s]uffice it to say that the twenty-plus year
dispute ended in another jury verdict and judgment for defendant Hargis
Industries,” and the court here rejected B&B’s various arguments for
extending the agony.
A jury found for B&B and against Hargis on B&B’s
claims for federal trademark infringement, false designation of origin, and
unfair competition. The jury found for Hargis on B&B’s claim of unfair
competition under California law, and for Hargis on its counterclaims for false
advertising and false designation. The jury also found that Hargis’s
infringement was not willful, and that B&B engaged in fraud on the PTO to
obtain incontestability status. The court then granted judgment for Hargis
given the fraud finding.
For the fraud on the PTO claim, the jury was required to
find (1) a material misrepresentation or the failure to disclose material
information (2) made with the intent to deceive.  The court explained:
Hargis’s position at trial was that
Larry Bogatz, B&B’s president, misled the PTO – and thus committed fraud –
by signing a declaration in support of his incontestability petition. That
declaration required Bogatz to declare that B&B had not received a final
decision on the merits adverse to its claim of ownership of the trademark that
affected its right to register that mark. Of course, B&B cannot reasonably
dispute that Bogatz’s declaration was false: the 2000 jury verdict found
B&B’s mark to be merely descriptive and devoid of secondary meaning which,
under the law, means the mark could not be registered.
B&B argued that the TTAB knew about the 2000 verdict and
thus couldn’t have been misled by Bogatz’s statement, and that Bogatz had no
intent to deceive because he was acting on counsel’s advice. True, the TTAB
referred to the 2000 verdict in its correspondence, but that’s a different
office, and the PTO doesn’t engage in substantive examination of an incontestability
affidavit.  There was no reason to think
that the PTO considered the 2000 verdict and still awarded
incontestability.  (Implicitly, since it’s
the courts that are supposed to engage in substantive review, it’s the court of
appeals that screwed this one up when it held that B&B’s incontestability
meant it was no longer bound by the 2000 verdict by failing to determine
whether B&B had actually
qualified for incontestability, rather than simply filing an affidavit correct
in form.)
As for reliance on counsel, the jury was free to reject
Bogatz’s testimony about his intent and reliance on counsel, especially given
that the jury was permitted to draw a reasonable inference of intent “considering
the timing of the declaration occurring mere weeks before filing a new lawsuit,
the witnesses’ testimony about their interactions in the past, and Bogatz’s
admitted knowledge of the 2000 jury’s findings.”
B&B also argued that the jury’s verdict was inconsistent
in finding for B&B on the trademark infringement and false designation of
origin claim, and against B&B on the unfair competition claim under
California law. But the verdict wasn’t inconsistent given the extra element of
damage to B&B under California law. Relatedly, the jury’s finding that none
of Hargis’s profits were attributable to Hargis’s infringement was fine.  Under the instructions, the jury’s starting
point was Hargis’s total profit; then, the jury could deduct all or a part of
profit “attributable to factors other than use of the trademark.” “ Hargis
presented testimony from several of its customers to explain that the
customers’ motivation for purchasing Hargis products was not connected with the
Sealtite name – thus, not connected with the allegedly infringing trademark –
but rather other characteristics such as customer service experience and
quality of product.”
B&B then argued that collateral estoppel didn’t bar the
action, as the court ruled after the jury’s fraud on the PTO finding.  In 2000, a jury found that B&B’s mark was
descriptive without secondary meaning, and there was no need to proceed to a
confusion analysis.  When B&B filed
the instant lawsuit, it alleged new circumstances—the incontestability.  “[E]ssentially, B&B is given a ‘pass’ on
the first element – the element that doomed its prior case – and allows a jury
to consider the second.” 
Incontestability was the “significant intervening factual change” that
rendered collateral estoppel inappropriate. But fraud on the PTO removed the
benefits of incontestability, downgrading the mark to “the same status it had
when the jury rendered its verdict in 2000,” meaning that there was no more
reason to give B&B its second bite at the apple.
B&B argued that the TTAB did not apply issue preclusion
in its own proceedings, so the court shouldn’t here. The court didn’t see the
point of that argument, especially since the court proceedings were about the
first element of an infringement case, protectability, whereas the TTAB rulings
were about confusion. Nor was B&B entitled to disgorgement of Hargis’s
profits, even if we assumed that it won its infringement claims.  B&B couldn’t show that the jury was wrong
to find Hargis’s infringement to be not willful—Hargis obviously had notice of
the registration, but that is not necessarily enough, especially given “the
ongoing litigation repeatedly finding no infringement and the fact that the two
companies engaged in different markets.” 
And disgorgement is discretionary, not mandatory; also, it depends on
unjust enrichment/compensation theories rather than on a penal justification,
and the evidence that B&B didn’t lose sales from infringement was therefore
relevant.

Judgment for Hargis on its counterclaims was also
appropriate.  “[I]t is clear the jury
accepted Hargis’s argument that B&B copied photos, text, or size and weight
charts from Hargis’s website and posted them to B&B’s website as B&B’s
fasteners.” Hargis then suffered injury when it had to engage experts and fight
B&B’s activity. 

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Seen around town

Posted on March 13, 2017 by rtushnet

Sufficient alteration + disclaimer to avoid trouble for this former BP franchisee?

“This is not BP Gas,” above covered-over BP star
Krackjack biscuits–any trouble from Cracker Jack if you import these from India?  Does it matter that other versions of the package present them as Krack Jack, two words?

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