Lost sales as irreparable harm

Posted on May 1, 2017 by rtushnet
Epson America, Inc. v. USA111, Inc., No. 17-cv-00129, 2017
WL 1484400 (D.S.C. Apr. 26, 2017)
Let’s admit it: the case law is a mess on this.  Epson sued its competitor, d/b/a iRULU, for falsely advertising
its portable consumer projectors, specifically its BL20 model. The court
granted a preliminary injunction.  Quality and price for these projectors are “largely
determined based on the resolution and brightness of the projector,” the latter
of which is measured in lumens and which is important to consumers. iRULU sells
about 30 different models, with advertised lumen ratings between 800 to 2800
lumens.  The BL20 was advertised on
Amazon and other online retailers as having 2600 lumens and was designated as
an Amazon “Best Seller” in the Fall of 2016.
Epson commissioned an independent technology consulting
company to test the BL20 projector, and the results showed lumen output of
approximately 80 lumens instead of the 2600 advertised.  iRULU argued that it reasonably relied on test
reports from Chinese labs showing a “luminous flux” of “3714.568 lm” on one
test and “3869.0 lm” on the other, but it didn’t provide other evidence or show
that those tests were accurate.  It
ceased advertising its BL20 projector as having 2600 lumens, at least on some
websites, but didn’t  provide a lumen
rating.  The court found that Epson
showed falsity.
Epson also showed injury due to loss of sales and market
share: iRULU’s market share was 24% since it entered the market, and Epson’s
loss in sales was estimated at approximately $16 million.  iRULU argued that no injunction was necessary
because it removed the offending ads, but Epson still showed irreparable harm. iRULU’s
claims of 2600 lumens were still present on some websites, including iRULU’s
own website, even after iRULU represented to the court that the claims had been
removed. Also, the BL20 still comes up when searching for “2600 lumen
projector,” “apparently as a result of prior advertisements or customer
comments.” Thus, cessation of the challenged conduct didn’t stop irreparable
injury.
iRULU also argued that Epson’s loss of projector sales could
be compensated by money damages if proven at trial, and therefore an injunction
is not appropriate. But injunctive relief is allowed even if money damages are
available, if a remedy at law is inadequate. Epson showed a decline in sales;
the court was not persuaded that iRULU wasn’t responsible for at least part of
that decline.  Also, money damages would
not prevent iRULU from “infecting the marketplace with the same or similar
claims in different advertisements in the future,” so there was irreparable
harm.


The court granted a preliminary injunction requiring iRULU to cease false
advertisements of inflated lumen ratings, and ordering it to provide a lumen
rating of either “undetermined” or Epson’s independent test result of 80 lumens
on all advertising. However, the court didn’t require corrective notices to be
sent to consumers at this point in the case. 
iRULU could also arrange for court-approved testing, whose results could
be used in ads once a validated lumen rating was produced.

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split panel upholds Berkeley cell disclosure law

Posted on May 1, 2017 by rtushnet
CTIA-The Wireless Ass’n v. City of Berkeley, No. 16-15141
(9th Cir. Apr. 21, 2017)
A City of Berkeley ordinance requires cell phone retailers
to inform prospective cell phone purchasers that carrying a cell phone in
certain ways may cause them to exceed FCC guidelines for exposure to
radio-frequency radiation. The court of appeals affirmed the denial of a
preliminary injunction both on First Amendment and preemption grounds (which I
will not mention further)
Berkeley passed an ordinance requiring cell phone retailers
to disclose information to prospective cell phone purchasers about the federal
government’s radio-frequency radiation exposure guidelines relevant to cell
phone use. Since cell phones are no longer commonly carried in a holster or
belt clip, but closer to the body, humans are exposed to more RF radiation from
them than they would be if they were carried away from the body or used with
hands-free devices, which is inconsistent with the FCC’s safety recommendations
(also disclosed in cellphone manuals).  The
city found that consumers aren’t generally aware of those safety
recommendations.  The city found that the
existing disclosures/warnings “are often buried in fine print, are not written
in easily understood language, or are accessible only by looking for the
information on the device itself.”
One sentence of the initial disclosure said: “The potential
risk is greater for children.” The district court held that this sentence was
preempted, and Berkeley re-passed the ordinance without that sentence. Now,
cellphone retailers have to provide a notice indicating that Berkeley required
the statement that:
To assure safety, the Federal
Government requires that cell phones meet radio- frequency (RF) exposure
guidelines. If you carry or use your phone in a pants or shirt pocket or tucked
into a bra when the phone is ON and connected to a wireless network, you may
exceed the federal guidelines for exposure to RF radiation. Refer to the
instructions in your phone or user manual for information about how to use your
phone safely.
The disclosure must be either on a prominently displayed
poster no less than 8½ by 11 inches with no smaller than 28-point font, or on a
handout no less than 5 by 8 inches with no smaller than 18-point font, with the
city’s logo. A retailer may include additional information on the poster or
handout “if it is clear that the additional information is not part of the compelled
disclosure.”
The court of appeals began by pointing out that this
disclosure is a summary form of a disclosure already compelled by the FCC, but
CTIA didn’t sue the FCC.  Under Zauderer, “the government may compel
truthful disclosure in commercial speech as long as the compelled disclosure is
‘reasonably related’ to a substantial governmental interest,” whether or not
the compelled speech is directed at preventing consumer deception.  Preventing deception is one substantial
interest, but “any governmental interest will suffice so long as it is substantial”
rather than trivial—the interest must be more than the satisfaction of mere
“consumer curiosity.”
“Given that the purpose of the compelled disclosure is to
provide accurate factual information to the consumer, we agree that any
compelled disclosure must be ‘purely factual.’” But Zauderer’s reference to “uncontroversial”
disclosures referred to the factual accuracy of the compelled disclosure, “not to
its subjective impact on the audience.” The disclosure in Zauderer might have caused controversy, “for example by
discouraging customers from hiring lawyers who offered contingency-fee
arrangements because they feared ‘hidden costs’ or by harming the reputation of
the lawyers who offered such fee arrangements,” but that didn’t make it
invalid.
The court of appeals found that protecting the health and
safety of consumers is a substantial governmental interest.The FCC’s limits on
RF radiation exposure furthered the interest of protecting the health and
safety of cellphone users, both by setting low limits (with really large safety
margins) and by compelling disclosures that would allow users to avoid
exceeding those limits. Berkeley’s ordinance furthered that same interest,
given that the evidence showed that most consumers were unaware of the FCC’s
advice.
CTIA argued that RF radiation from cellphones hadn’t been
proven dangerous to consumers.
But this is beside the point. The
fact that RF radiation from cell phones had not been proven dangerous was well
known to the FCC in 1996 when it adopted SAR limits to RF radiation; was well
known in 2013 when it refused to exclude cell phones from its rule adopting SAR
limits; and was well known in 2015 when it required cell phone manufacturers to
tell consumers how to avoid exceeding SAR limits. After extensive consultation
with federal agencies with expertise about the health effects of
radio-frequency radiation, the FCC decided, despite the lack of proof of
dangerousness, that the best policy was to adopt SAR limits with a large margin
of safety.
The court wasn’t going to disagree with the conclusions of the
agency and the city that this compelled disclosure was “reasonably related” to
protection of the health and safety of consumers.

The disclosure was also purely factual. The majority broke down the disclosure
and found that each statement was true:
(1)        “To
assure safety, the Federal Government requires that cell phones meet
radio-frequency (RF) exposure guidelines.”
(2)       
“If you carry or use your cell phone in a pants or shirt pocket or tucked into
a bra when the phone is ON and connected to a wireless network, you may exceed
the federal guidelines for exposure to RF radiation.”
(3)        “Refer
to the instructions in your phone or user manual for information about how to
use your phone safely.” (This was an instruction that implied truthfully that
information about safe use could be found in a manual.)
Some literally true statements can still be misleading, and
CTIA argued that this disclosure was, by requiring “an inflammatory warning
about unfounded safety risks” that suggested that the federal limit was the
line between safe and unsafe exposure, and that used “the inflammatory term
‘radiation,’ which is fraught with negative associations, in order to stoke
consumer anxiety.”
That wasn’t how the majority read the text; telling
consumers that cellphones are required to meet federal “RF exposure guidelines”
in order “[t]o assure safety” “assures consumers that the cell phones they are
about to buy or lease meet federally imposed safety guidelines.”  The second sentence, telling consumers what
to do to avoid exceeding federal guidelines, wasn’t reassuring, but neither was
it inflammatory: it contained information that the FCC wants consumers to know
for their safety. The phrase “RF radiation” is precisely the phrase the FCC has
used from the beginning, as well as the technically correct term.  A cellphone retailer who’s concerned about
implications can add a further statement; there was no evidence that any had
found this desirable, or that cellphone sales had decreased in Berkeley.
Thus, there was no likely success on the merits. The public
interest also weighed against CTIA, in that the public interest favors “the
robust and free flow of accurate information,” and “requiring disclosure of
truthful information promotes that goal.”
Judge Friedland dissented in part, arguing that the
disclosure was indeed misleading because, “[t]aken as a whole, the most natural
reading of the disclosure warns that carrying a cell phone in one’s pocket is
unsafe,” and Berkeley didn’t show that was true.  The repeated references to safety plainly
conveyed that something unsafe was at issue, and specifically implied that carrying
a phone “in a pants or shirt pocket or tucked into a bra” wasn’t safe. Existing
FCC guidelines “make clear that they are designed to incorporate a many-fold
safety factor, such that exposure to radiation in excess of the guideline level
is considered by the FCC to be safe.”
Also, even if the statement was truthful, the dissent
wouldn’t apply Zauderer when the government’s
aim was something other than to prevent an ad from being misleading.
The dissent ended with a caution about “false, misleading,
or unsubstantiated product warnings”:

Psychological and other social
science research suggests that overuse may cause people to pay less attention
to warnings generally: “[A]s the number of warnings grows and the prevalence of
warnings about low level risks increases, people will increasingly ignore or
disregard them.” Relatedly, “[w]arnings about very minor risks or risks that
are extremely remote have raised concerns about negative effects on the believability
and credibility of warnings. . . . In essence, such warnings represent apparent
false alarms as they appear to be ‘crying wolf.’” If Berkeley wants consumers
to listen to its warnings, it should stay quiet until it is prepared to present
evidence of a wolf.

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“tests prove X” claim can’t be falsified by showing not-X, court (wrongly) rules

Posted on May 1, 2017 by rtushnet
Dyson, Inc. v. SharkNinja Operating LLC, No. 14-cv-09442
(N.D. Ill. Apr. 26, 2017)
Dyson and Shark compete in the market for vacuum cleaners. When
Shark began running an infomercial for its competing vacuum in September 2014,
Dyson’s margin on its DC65 vacuum fell from $300 per vacuum to less than $100
per vacuum. The September 2014 infomercial claimed “more suction and deep
cleans carpets better than Dyson’s best vacuum,” with a super, “Shark NV650 v.
Dyson DC65 based on ASTM F558 measured at the hose and ASTM F608 embedded
dirt.” There were also similar print ads and short TV ads. The packaging and, at
some point, Shark’s website also made similar claims.
The CEO said, in the infomercial: “I have the independent
lab tests to back it up. We asked independent testing facilities to conduct the
one and only industry-recognized test of carpet cleaning, and we went head to
head with Dyson’s best. Both vacuums were tested on four of the most commonly
owned carpet types in America. And when all was said and done, the independent
lab tests proved without question that our new Shark Rotator Powered Lift-Away
deep cleans carpets better than Dyson’s best $600 vacuum.” The super read,
“Independent LAB TESTS PROVE . . . Dramatization footage of ASTM F608 embedded
dirt (NV650 in carpet/low pile mode) Shark NV650 vs. Dyson DC65.” In October
2014, a revised infomercial said similar things until the statements were
removed in August 2015.
The general principles that come out of this: Dyson argued that
Shark’s advertisements referencing “independent” tests were false, because the
tests were performed by Intertek, an entity that was not independent of Shark
because Shark paid it $1 million per year for various tests. The court evaluated
falsity by what “a linguistically competent” person would think independent
means “according to ordinary usage.” That would mean “free from outside
control” and “not beholden to.” Dyson didn’t submit sufficient evidence to go
to a jury. “[T]he mere fact that a customer pays for a service does not mean
the service provider is controlled by the customer. In considering
independence, the issue is not whether Intertek is paid but whether Shark is
such an important customer as to make up a material portion of Intertek’s
business.” Dyson didn’t put forth evidence on this question. Contacts between
Intertek and Shark, including an Intertek employee’s email to Shark about a
Dyson ad and discussions about the proper settings to test the vacuums, didn’t
show that Shark controlled Intertek clearly enough to avoid a jury. Thus, Dyson
couldn’t get summary judgment on its claim.
The court rejected Dyson’s claim based on the ad statement
that Shark’s vacuum deep cleaned carpets better than “Dyson’s best” vacuum. Though
a new vacuum called the Ball Multi-Floor supposedly became Dyson’s “best” in
April 2015, Dyson didn’t provide evidence of its bestness, and in any event Shark
always disclosed via an asterisk the Dyson model on which it was basing its
comparison, not the Ball Multi-Floor. “[T]he court will not ignore the portion
of Shark’s ad that explicitly states that DC65 is the Dyson vacuum to which
Shark was referring.” Summary judgment for Shark.
Dyson argued that Shark had no independent tests to prove
the superiority of its vacuum from July 8 to August 12, 2014, because Shark did
not receive the final report establishing that its vacuum was superior until the
latter date. The court agreed that Dyson had shown falsity: Dyson’s packages
made the superiority claim, and Shark didn’t show that an earlier version of
the report supported its claim. Hark argued that the information on the
packaging could not have affected the purchasing decision of customers because,
at that time, the vacuums were available for sale only on the website, so
customers would not have seen the claim on the box until after they had made
the purchase decision. “A reasonable jury could conclude that a statement on a
box that the customer could not see until after he purchased the vacuum was not
material to the purchase decision.” (Dyson made the same argument about stale
claims of its own on Dyson packages sold through its website.)
As to the “tests prove” claims, Dyson argued that even if it
failed to show that Shark’s test is invalid, Dyson could still win by putting
forth its own tests showing that Shark was no better than the Dyson. Shark
rejoined that the only way to prove a claim that “tests prove x” was false was
by showing the tests do not prove x. If Dyson were right, its claims would
survive summary judgment. The Seventh Circuit rule is the standard one: “If the
challenged advertisement makes implicit or explicit references to tests, the
plaintiff may satisfy its burden by showing that those tests do not prove the
proposition; otherwise, the plaintiff must offer affirmative proof that the
advertisement is false.”
Surprisingly to me, the court agreed with Shark. “[A] claim
that the ‘test proves x’ is literally false only if the test does not (reliably)
prove x.” Shark’s valid independent tests supported its statements. “That Dyson
conducted other tests that reached a different conclusion does not make Shark’s
statements about its tests false.”
RT: What if VW advertised that emission tests proved its cars
met emissions standards? Wouldn’t we say that those tests didn’t “prove” X,
which could be falsified by other evidence? In my opinion, there are two claims
here—the tests prove claim, which adds credibility to X on its own, and X. I
have always understood that the statement “tests prove X” claims both that
tests prove X and that X is, in fact, true; otherwise why would the tests be
relevant? Separately, this result seems problematic from a pure statistical
perspective. Suppose Shark had a valid test
that showed superiority at the 95% confidence level, but Dyson had 19 valid
tests that showed no superiority at the 95% confidence level. A 95% confidence
level suggests that the test will only be wrong one out of twenty times; with
that evidence, a jury should be able to conclude that Shark’s test, though
valid, did not “prove” Shark’s claim.
Nonetheless, the court granted Shark’s motion for summary
judgment as to claims where this was the key argument.

Shark argued that Dyson had unclean hands due to Dyson’s
continued use of the phrase “Twice the Suction” to describe its vacuums after
that claim became stale. But this conduct didn’t arise out of the same
transaction from which this case arises, so summary judgment for Dyson on this
defense was merited. Also, “[t]he conduct about which Shark complains in its
affirmative defense is conduct the parties are already fighting about in
another lawsuit. To apply the unclean hands doctrine here (or there) would
leave the alleged wrongs without remedy.” 

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US companies can be enjoined from false advertising in China

Posted on May 1, 2017 by rtushnet
Primo Broodstock, Inc. v. American Mariculture, Inc., No.
17-cv-9, 2017 WL 1502714 (M.D. Fla. Apr. 27, 2017)
Primo is a Texas corporation that breeds and sells “highly
disease-resistant” shrimp from the Ecuadorian litopenaeus vannamei strain.
Defendant Robin Pearl has an extensive background in shrimp farming and is the
co-founder of defendants AMI and API. 
AMI supplies fresh and frozen shrimp, which is produced at AMI’s large
shrimp farming facility in Florida, while API is AMI’s wholly-owned subsidiary.  (I mention the geographic origins because the
alleged false advertising here took place in China and was aimed at Chinese
customers, but the court doesn’t explicitly discuss why it is applying Florida
law and the Lanham Act to this conduct.)
In 2015, Primo and AMI agreed “to use a defined portion of
AMI grow-out capacity to produce broodstock for Primo for sale to third
parties.” AMI agreed to grow young, post-larval shrimp – supplied by Primo – to
large adult size at the AMI facility, and AMI would then either sell the live
adult shrimp back to Primo at fixed prices based on the animal’s weight, or
“harvest” (kill) the animals to sell as fresh or frozen dead shrimp, with the
proceeds belonging exclusively to AMI. The agreement barred AMI from selling or
transferring any live Primo Shrimp to others without Primo’s permission. The
business arrangement quickly soured, among other things because defendants
claimed that Primo was not repurchasing the live adult shrimp, causing
defendants to incur significant costs to maintain the large animals.  A year after the agreement began, defendants
threatened to harvest all live Primo shrimp of a certain size that Primo did
not buy back within ten days. Primo filed suit in state court seeking to block this
“shrimp-ocide.” The parties resolved the dispute out of court by giving Primo a
few months to remove all its live shrimp from the AMI facility; Primo
ultimately left about 46,000 live adult shrimp at the facility, which it could
not afford to repurchase, as well as 650,000 shrimp that were too young to buy
back.
The court refused to grant a preliminary injunction based on
Primo’s trade secret claim (which asserted, among other things, that the shrimp
themselves were Primo’s “intellectual property”).  But it did grant a preliminary injunction
based on unfair competition/false advertising under state and federal law.
Plaintiffs alleged a “scheme to obfuscate the market in
China – and ultimately the world – regarding the genuineness of Plaintiff’s
proprietary shrimp broodstock.” Rather than clarify that the breeders they
supply to Chinese companies are merely hybrids derived from pure Primo stock, defendants
claimed that the live shrimp they sell are “the real Primo.” While defendants
agreed “that the use of [the Primo] name is improper,” they asserted that the
name was being used by their Chinese customers, over whom they had no direct
control.  They didn’t “necessarily
oppose” an injunction preventing use of the “Primo” name and claimed to have
already requested their distributors “cease using the name ‘Primo’ in any
capacity while marketing [Defendants’] products.”
Plaintiff pointed to evidence including a translated article
from a Chinese trade magazine titled “API: Who is the real ‘Primo?’ This
question is left to the Chinese farmer to answer.” This article was also posted
on the website of a company named Primo (China) Broodstock Co. It featured a Q
& A with Mr. Pearl, who discussed the history of API’s shrimp and stated
that API “selected Primo (China) Broodstock Co., Ltd. to be [API’s] official
recognized partner” in China.  Primo
(China) claimed to be “the officially designated partner [ ] of high-resistance
‘Primo’ shrimp breeding by API in China” and “welcome[s] the customers who are
confident and full of intention about the ‘Primo’ to join us to make the shrimp
better together.”
Primo also introduced a transcription of video recordings
taken at a November 3, 2016 “Primo shrimp” sales presentation held in China
before approximately 55 to 60 people, where Charles Tuan, a former defendant
here, introduced Mr. Pearl, and then a Mr. Huang from Primo (China) spoke. Mr.
Tuan asked: “If it’s the real Primo, then why need change the name? …[A]ll
breeder sources are written in black and white on the paper and establish for
you that these are the real Primo.” He also said that “the breeder source of
Haimao” – which the court thought was a reference to Primo – “is fake.”  Pearl thanked his “agents who are helping
[API] promote Primo Broodstock here in China” and then discussed the failed
business relationship between Primo and AMI. He claimed that Primo had removed
only one family of broodstock from AMI’s facility, leaving defendants with “the
full bank of genetics at [their] farm.” Mr. Pearl also said that defendants were
“spending a lot of time and a lot of money taking the Primo APE animal[ ] …to
the next level.”  (APE means all
pathogens exposed, that is, proven hardy.) During his speech, Mr. Huang
asserted that “Primo does not have breeder shrimp” and discusses how he set up
a new company – Primo China – “for purposes of importing the Primo shrimp” to
China.
The third document was  a brochure allegedly given to those who
attended the presentation, which states that “Primo abandoned over 650,000
animals and all its genetic material” at the AMI Facility. Other evidence was
similar.
Defendants argued that their statements were “entirely
truthful” and that they “studiously avoided giving any impression of
association with Primo” and had “no direct control over [Mr. Huang],” who
“formed his company prior to any affiliation with… Defendants.”
The court found that Primo showed a substantial likelihood
of success on the merits.  The statement
that API possessed Primo’s “full genetic bank” was likely false, since Primo
presented evidence that it never provided defendants with breeders from more
than six of Primo’s family lines, out of twenty-four families. Defendants’ own
DNA genetic analysis showed only fourteen different groups of animals. Also, at
least in China – “the world’s largest shrimp farming country” – using the name
“Primo” in connection with shrimp provided goodwill.  API chose to work with Mr. Huang after he had
already formed a company called “Primo China,” and allowed Mr. Pearl to attend
events designed to tout the “realness” of the “Primo” shrimp API shipped.
Failure to grant an injunction would likely result in
continued – and irreparable – harm to Primo’s reputation and goodwill, “at
least in China.” “[T]he public has an interest in ensuring that American businesses
compete fairly with each other, both at home and abroad, and refrain from
engaging in trade practices that confuse and deceive consumers.”


Thus, defendants were enjoined from referring to their shrimp as “Primo”
anything, including “Primo shrimp,” “Primo animals,” “Primo breeders,” or
“Primo broodstock”; stating that their shrimp were created by breeding a male
shrimp and a female shrimp from the same Primo family line; stating that they
had Primo’s “genetic bank” or “full genetic bank” or that Primo left or
abandoned its “genetic bank” or “full genetic bank” at the AMI facility; and
appearing at any Primo China or Dingda (another similar Chinese company)
promotional event.  They were not, however,
enjoined from stating that certain of their animals were derived from pure
Primo stock, whose genetic makeup was unknown to defendants at the time. “Indeed,
to fail to mention Primo at all could constitute grounds for a ‘reverse passing
off’ claim under the Lanham Act,” citing Dastar
(even though API would be the physical source of the shrimp, sigh). 

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Internet surveys are admissible (but may raise IRB concerns)

Posted on April 26, 2017 by rtushnet

Bimbo Bakeries USA, Inc. v. Sycamore, No. 13-cv-00749, 2017 WL 1377991 (D. Utah Mar. 2, 2017)

Bimbo charged that defendants misappropriated its trade secret for making Grandma Sycamore’s Home-Maid bread, and infringed on its trade dress related to the packaging of its bread. Here, the court resolved challenges to experts, as relevant here in favor of admission.

Defendant U.S. Bakery sought to exclude the expert testimony of Dr. Glenn L. Christensen; the court found him qualified to testify to quantitative surveys, of which he had prepared three. He conducted his surveys over the Internet using pre-screened panels of respondents provided by a third-party vendor, using digital images of the parties’ respective products. The court held that the internet was a proper method for conducting surveys, despite defendant’s argument that they didn’t effectively recreate the consumer experience of buying bread and screened out responses from those who buy bread, but who do not use the internet.  Defendant didn’t cite authority holding internet surveys unreliable. It was true that most consumers don’t buy bread online, so online surveys might not the best way to simulate the bread buying experience. But defendant merely speculated that the results might be different if the surveys were conducted in person or among people who buy bread but don’t use the internet.  Where the overall look of the product was at issue, online surveys could be relevant; other arguments could be addressed to the jury.  “To prove that a survey technique is unreliable the party must do more than speculate that there may have been a better way of completing the survey.”

The surveys also chose a representative enough sample for the jury to weigh them.  The survey looked for respondents in Utah and southern Idaho, the area Bimbo’s trade dress allegedly had secondary meaning, so that was okay. Using online panels was okay; defendant failed to explain how people who participate in surveys on a regular basis may skew the results. Screening out people who completed the survey on a smartphone was also okay because of the smaller screen size shrinking the visual stimuli.

Defendant also challenged the survey questions, arguing that the survey showed respondents the trade dress of Grandma Sycamore’s bread with the words “Grandma Sycamore’s removed,” but didn’t remove the unique spelling of the words “HomeMaid” from the image, thus making the package identifiable by means other than the trade dress.  But defendants didn’t explain how that made the results unreliable, though the jury could weigh it.  Defendant also challenged two surveys because only respondents who answered the questions in a particular way were asked follow-up questions, and that the surveyor also would repeat the respondents’ answer back to the respondent when asking them to substantiate their answer, which increased the likelihood of confirmation bias. Furthermore, Dr. Christensen screened out respondents who completed the surveys too quickly. None of these were fatal; defendant didn’t show how the questions rendered the underlying method unreliable, since the questions themselves were open-ended and not leading. Defendant also didn’t show that screening of results of those who answered too quickly had a disparate impact on those respondents who answered a particular way; if it did so, then exclusion of the survey might have been proper.

Finally, defendant argued that failure to ask whether the respondents would have bought the bread if it wasn’t made locally made the survey unreliable.  Defendant used the tagline “Fresh. Local. Quality.” Dr. Christensen attempted to test whether these advertisements created a false or misleading impression that these were local products and whether this impression was material to whether the respondent purchased bread. But he didn’t ask “Would you have bought the bread if it wasn’t made locally?”  That didn’t make the preceding questions unreliable.
The court also refused to exclude defendant’s survey expert Himanshu Mishra, offered in rebuttal to Dr. Christensen’s surveys.  It didn’t matter that he didn’t conduct surveys of his own.  “Rebuttal experts need not produce extrinsic evidence to be able to testify to perceived surveying flaws…. Dr. Mishra’s testimony is more speculative and theoretical than Dr. Christensen’s actual surveys because Dr. Mishra did not produce surveys of his own. But the rule does not require the exclusion of expert testimony that lacks one hundred percent certainty.”

Also, Bimbo argued that Dr. Mishra shouldn’t be allowed to testify that Dr. Christensen’s failure to secure Institutional Review Board approval prior to conducting his surveys violates the law.  The court held that neither party had adequately briefed the law on the issue.  “If lack of approval does not violate the law then Dr. Mishra cannot testify that it does.”

My final expert note: defendant offered Larry Soter as an expert in the “baking industry”to testify that Bimbo’s ingredients that are used to manufacture Grandma Sycamore’s Home Maid Bread didn’t constitute trade secrets.  Bimbo argued that it would be improper for Mr. Soter to testify that each individual element didn’t comprise a trade secret because the alleged trade secret is the combination of all the steps and ingredients. “[A] trade secret can exist in a combination of characteristics and components, each of which, by itself, is in the public domain, but the unified process, design and operation of which, in unique combination, affords a competitive advantage and is a protectable secret.” However, this rule does not mean that analyzing the individual processes is irrelevant. Finding that some of the components are secret may aid the fact finder in determining whether the combination of the individual processes is a trade secret, and it may be relevant to know how common the individual components of the claimed trade secret are.  Mr. Soter wouldn’t be allowed to claim that the combination of individually publicly known components was not protectable because such a statement would be informing the jury of the wrong legal standard, but there was no indication he would so testify.

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4th Cir. affirms dismissal where P didn’t allege specific lost consumers or quantify lost sales

Posted on April 26, 2017 by rtushnet
Wall & Associates, Inc. v. Better Business Bureau of
Central Virginia, Inc., — Fed.Appx. —-, 2017 WL 1437215, No. 16-1819 (4th
Cir. Apr. 24, 2017)
The court of appeals affirmed the dismissal of Wall’s complaint
for false advertising based on statements by the BBB.  Lexmark
requires a plaintiff to show not only false or misleading advertising but also
that such statements caused it actual damages. 
Wall didn’t properly allege causation. 
The false advertising alleged in the complaint was that the BBB falsely
advertised and promoted a system for assigning letter grade ratings to
businesses as “national, uniform, unbiased, and objective” when in reality the
system was implemented based on “subjective, biased, and personal criteria.” Wall
alleged that it was damaged by receiving received a letter grade rating
resulting from “subjective, biased, and arbitrary decisions” when consumers
believed that it had been subjected to a review process that is “national,
uniform, unbiased, and objective” in nature.
Wall’s complaint, however, does not
identify a single consumer who withheld or cancelled business with it or
pointed to a particular quantum of diverted sales or loss of goodwill and
reputation resulting directly from reliance on any false or misleading
representations by Defendants of the letter grade rating system as objective
and unbiased. Given the absence of such fact allegations, Wall did not
adequately allege the necessary proximate cause between its alleged injury and
Defendants’ allegedly violative conduct.

Does that mean that every plaintiff should identify consumers
or allege quantified losses, or will more general allegations suffice when the
harm is more direct/the advertising claim being challenged is more central to
the decision?

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My IP collection widens

Posted on April 25, 2017 by rtushnet

Today: Lardashe jeans–it’s quite possible they’d even fit me:

Jordache Enters. v. Hogg Wyld (10th Cir. 1987)

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Reading list: empirical evidence about FTC’s substantiation standard

Posted on April 24, 2017 by rtushnet
Sungho Cho &Yongjae Kim, Empirical Rationalization of
Prior Substantiation Doctrine: Federal Trade Commission v. Reebok &
Sketchers, 29 Loy. Consumer L. Rev. 55 (2016) (not apparently available online—update
that website, Loyola Consumer Law Review!)
ABSTRACT

Companies frequently make efficacy claims in advertisements
to introduce new products featuring innovative technology. When such claims are
supported by information obtained from scientific research or expert
testimonials, they are subject to the doctrine of prior substantiation. Under
the doctrine, an advertisement claim based on seemingly credible authorities
must be substantiated by a reasonable basis before it is released to the
general public. Otherwise, the advertisement will be in violation of Section
5(a) of the Federal Trade Commission Act that prohibits “unfair or deceptive
acts affecting commerce.” This study investigates the rationale of the legal
rule in light of consumer behavior theories. While the doctrine has been
normatively rationalized, it has not been empirically examined. Given the
paucity of relevant research, this study will test consumer attitudes and
cognitive reactions toward different types of advertisement messages, such as,
one with establishment claims and the other without such cognitive contents.
The study administered real advertising video clips used by Reebok and
Sketchers, disputed in two settled cases where the Federal Trade Commission
alleged that the defendants failed to satisfy the legal standard of the
substantiation rule. The findings of this study support the rationale of the
rule on the ground that the Reebok advertisement clip delivering expressive
establishment claims about its product efficacy would likely have more of an
immediate impact on consumers’ purchasing intention than Sketchers’ ad without
such cognitive information. Implications and future research along with limitations
are also discussed.

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TM/(c) questions of the day

Posted on April 24, 2017 by rtushnet

Which, if any, raise any TM or copyright concerns?

matchboxes with book covers

“phone app sticky notes”

Scented erasers with possibly recognizable trade dresses

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Dastar bars TM claim based on unlicensed copying of footage

Posted on April 24, 2017 by rtushnet
Fioranelli v. CBS Broadcasting Inc., No. 15-CV-952, 2017 WL
1400119, — F. Supp. 3d – (S.D.N.Y.  Jan.
19, 2017)
Fioranelli, a photojournalist who was one of four reporters
allowed to enter the World Trade Center site on September 11, 2001, sued for
copyright infringement and related claims. 
In 2014, he registered copyrights on both his own commercially available
documentary of the events, as well as raw footage of the photographs he took
that day.  In 2002, he settled a previous
lawsuit with CBS and granted a limited, nonexclusive license to CBS to use his
work “in all regularly-scheduled and breaking news programming and all news
magazine programs … and in the advertising, publicity and promotions therefor,
produced by CBS owned television stations and CBS News.”  In 2005-2006, allegedly in violation of the
License Agreement, CBS allegedly sublicensed some or all of the 9/11 Material
to at least fifteen companies.
The court first found that Fioranelli stated a claim for
copyright infringement, not just breach of a license agreement, given that the
acts alleged went outside the license. “[I]f ‘a license is limited in scope and
the licensee acts outside the scope, the licensor can bring an action for
copyright infringement.’ ”  The
allegations here were “wholly outside the scope of the License Agreement.” Inducement
claims against many of the defendants were, however, dismissed for want of
specifics.
The court also got rid of Fioranelli’s Lanham Act and
state-law claims on Dastar and
preemption grounds.  Fioranelli argued
that he was allowed to bring a Lanham Act claim “to address the activity of
Defendants that directly affected his business and not just his copyright
rights,” that he had a registration and the plaintiff in Dastar didn’t, and that he produced a tangible good—his footage—not
just an idea.
Dastar applies to
copyrighted and public domain material alike. 
The allegations that “CBS has engaged in false designation of origin and
false descriptions of fact regarding Plaintiff and his work” and that the other
defendants “individually published [the 9/11 Material] as part of their own
media products,” and thereby “have caused or are likely to cause confusion, to
cause mistake, or to deceive as to the origin of Plaintiff’s Work among the
public” stated “the exact type of claim that the holding in Dastar prohibits.”
Consumers who viewed the 9/11 Material as part of
defendants’ programs were “not falsely informed about the origins of the
[material] because [Defendants] did in fact produce” it. Just like the creator
of the footage in Dastar, Fioranelli
was the originator, not the “producer of tangible goods” protected by the
Lanham Act.

The state-law claims fared similarly. The only extra element Fioranelli could
identify was that his claims were based on “damage to his business,” but he
didn’t explain how the alleged damage to his business was the result of
anything other than defendants’ unauthorized copying.

Because the infringing acts alleged commenced before
Fioranelli secured copyright registrations, he was not entitled to statutory
damages or attorney’s fees (though the court declined to address at this time
the argument that the court’s inherent supervisory power allowed it to award
attorney’s fees regardless). 

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