230 bars false advertising claim against antimalware provider

Enigma Software Group USA LLC v. Malwarebytes Inc., No.
5:17-cv-02915, 2017 WL 5153698 (N.D. Cal. Nov. 7, 2017)
Malwarebytes and Enigma compete in the anti-malware software
market.  When Malwarebytes’s software
detects an unwanted program, it displays a notification and asks the user if
she wants to remove the program from her computer. Enigma alleged that, in
2016, Malwarebytes started to misleadingly identify Enigma’s software as a
potential threat, in order to interfere with Enigma’s customer base and to
retaliate against Enigma for a separate lawsuit Enigma filed against a
Malwarebytes affiliate.  Enigma sued for
false advertising under state and federal law, as well as tortious
interference. The court found all claims barred by § 230(c)(2) of the
Communications Decency Act, specifically subsection (B): “No provider or user
of an interactive computer service shall be held liable on account of … any
action taken to enable or make available to information content providers or
others the technical means to restrict access to material [that the provider or
user considers to be obscene, lewd, lascivious, filthy, excessively violent,
harassing, or otherwise objectionable, whether or not such material is
constitutionally protected].”
Zango, Inc. v. Kaspersky, 568 F.3d 1169 (9th Cir. 2009),
indicated that “companies that provide filtering tools,” such as Kaspersky, are
eligible for immunity under § 230(c). It found that Kaspersky qualified as a
service provider, and “has ‘made available’ for its users the technical means
to restrict items that Kaspersky has defined as malware.” Thus, Kaspersky
qualified for immunity under § 230(c)(2)(B) “so long as the blocked items are
objectionable material under § 230(c)(2)(A).” Kaspersky properly classified
malware as “objectionable” material.
Enigma argued that Zango
was distinguishable because malware, as defined by Malwarebytes’s criteria, wasn’t
material that is “obscene, lewd, lascivious, filthy, excessively violent,
harassing, or otherwise objectionable” because it is “not remotely related to
the content categories enumerated.” Zango
did not address whether an anti-malware provider has discretion to decide what
is “objectionable” because that argument was waived.  However, Zango
clearly held that § 230(c)(2)(B) immunity applies to “a provider of computer
services that makes available software that filters or screens material that
the user or the provider deems objectionable.” Thus, Zango was factually indistinguishable.
Enigma then argued that Malwarebytes was entitled to §
230(c)(2)(B) immunity only if it acted in “good faith.” Subsection (A) protects
“any action voluntarily taken in good faith” to restrict access to
objectionable material, but subsection (B) has no good-faith requirement.  The court refused to imply one; Congress knew
how to put one in if it wanted, especially given that subsection (B) includes
an explicit reference to subsection (A) with respect to the types of material
to which immunity applies.
Finally, Enigma’s Lanham Act claim didn’t entitle it to use
the IP exclusion; a false advertising claim is not a trademark claim for §230
purposes.

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Ad intermediary lacks standing under Lexmark to challenge false ads

Congoo, LLC v. Revcontent LLC, 2017 WL 5076397, No. 16-401 (D.N.J.
Nov. 3, 2017)
A rare case discussing Lexmark’s
proximate cause requirement in some detail. Congoo operates an online ad
business as Adblade, an aggregator that serves as an intermediary between
advertisers and publisher websites that display native ads on their pages.  Revcontent competes with Adblade.  Advertisers pay aggregators a fee based on
the numbers of clicks on their ads. Publishers usually contract with the
aggregator who “pays the higher rate, higher guaranteed minimums, or greatest
revenue.” An aggregator may pay a publisher a fee calculated by multiplying a
negotiated display rate, CPM/cost per 1000 impressions of an of an ad, by the
number of times the aggregator’s advertising unit is displayed on the publisher’s
website. In the alternative, an aggregator may pay a publisher a percentage of
the revenue the aggregator received from advertisers for the display of the ads
on the publisher’s website.
Adblade alleged that it avoids business with advertisers using
false and deceptive ads, such as negative option membership charges or
undisclosed automatic enrollment in expensive membership programs.  This is an issue in direct response
advertising, “a subset of native advertising that seeks consumer action, e.g.,
an online purchase.” When a user clicks on a direct response ad, she navigates
to a “landing page” that endorses the good or service, followed by an “order
page” where she can buy. 
In 2015, Adblade allegedly discovered that Revcontent was
promising Adblade publishers deals with better economic terms through its “use[
] [of] false and misleading ads that obtain higher CPMs”; Revcontent allegedly also
assisted with the creation of such ads. 
Revcontent’s algorithm allegedly “automatically” displays “false and
misleading” advertisements on publishers’ websites because they “have the
highest CPM and revenue to be generated.” Adbeat, a well-known industry data
source, allegedly confirmed that the most popular advertisements in
Revcontent’s network were “false and misleading.” Its report stated that
Revcontent’s top mobile ads included those for diet pills, muscle pills, and
skin cream; Adblade provided hundreds of copies of such ads, and alleged that false
and misleading ads appeared on five top Revcontent publishers that previously
did business with Adblade. (Id. at ¶ 20.)
           
Lexmark requires
plaintiffs’ interests to “fall within the zone of interests protected by the
law invoked”:  “an injury to a commercial
interest in reputation or sales.” In addition, a plaintiff must demonstrate
that its alleged harm was proximately caused by the false advertising, though
“the intervening step of consumer deception” does not necessarily break the
chain of proximate causation. Economic or reputational injury “flowing directly
from the deception wrought by the defendant’s advertising … occurs when
deception of consumers causes them to withhold trade from the plaintiff.” By
contrast, “[t]hat showing is generally not made when the deception produced
injuries to a fellow commercial actor that in turn affect the plaintiff.”
For purposes of their motion for summary judgment, Revblade
didn’t contest that Congoo’s interests fell with in the zone of interests
protected by §43(a)(1)(A), or that there was a causal connection between
deceptive native ads and Congoo’s loss of publisher clients.  However, the court agreed that the
purportedly false advertising didn’t have a sufficiently close causal link to
Congoo’s alleged harm.
In Lexmark, the
connection between the actual competitors in the market and Static Control was
very close: because Static Control seemed to be the only relevant supplier,
every harm to the competitors was also inflicted on Static Control.  Here, however, there was a disconnect
“between the injury to the direct victim”—here, competitors of falsely
advertised goods—and Congoo’s own injuries as an indirect victim, “unlike the
injuries to companies supporting those competitors in the marketplace.” The
loss of publisher clients wasn’t “surely attributable” to injury to a
competitor, but could have “resulted from any number of [other] reasons.”
Congoo’s expert stated that false and misleading
advertisements deceive consumers into clicking on the advertisements and/or
making purchases, thereby “enabl[ing] the unscrupulous advertiser to make high
cost-per-click bids to an advertising aggregator, such as Revcontent, who in
turn offers higher rates to a publisher to obtain its business. … In addition,
native ads that are deceptive and misleading likely have higher click-through
rates that also translates into a greater revenue to the publishers.” But this
was a too-long chain of causation from higher sales/higher revenues to
Revcontent’s ability to pass on more money to publishers.
Congoo’s state common law unfair competition claim also
failed because standing wasn’t broader than under Lexmark. To the extent, however, that any allegations of fraudulent
representations didn’t relate to consumer products but instead to statements to
publishers, such claims survived.

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Competitor can’t challenge compliance w/certification standards

Board-Tech Electronic Co. v. Eaton Electric Holdings LCC, 2017
WL 4990659, No. 17-cv-5028 (S.D.N.Y. Oct. 31, 2017)
Board-Tech accused its competitor in the light switch
market, Eaton, of false advertising because, while Eaton was authorized to
apply the “UL” certification mark to certain products (as Board-Tech was),
those Eaton products allegedly didn’t comply with the requisite safety
standards. For the parties’ light switches, the prevailing standard is UL 20, required
by the National Electric Code for new buildings; the NEC is state or local law
in all 50 states, and even where its use is voluntary, consumers rely on UL 20
labeling for safety information; many retailers also require UL 20 labeling
before they’ll sell a switch.
The UL certification mark, “certifies that representative
samplings of the goods conform to the requirements” of Underwriters
Laboratory.  Authorization requires a
manufacturer to provide six sets of representative samples of switches they
want certified, which must then pass a series of tests.  The testing can’t guarantee that the products
actually sold comply with applicable safety requirements, merely that a
purportedly representative sample did. 
However, Board-Tech alleged (plausibly, to me) that consumers rely on
the certification mark or listing, and base their purchases on the belief that
every product containing a mark or that is listed actually complies with the
applicable written safety standards. According to UL, “it is the responsibility
of the manufacturer to ensure that all of the products it sells bearing the UL
mark actually comply with the standards tested for, not just the samples that
were tested.”
Board-Tech alleged that tested samples of UL 20-labeled
switches sold by Eaton from the 7500, 7600, and 7700 series, and that all eight
sets of six light swiches, 48 in total, failed the UL 20 standards.  However, the court dismissed the complaint
for failing to specify the precise products at issue from the relevant
series.  Board-Tech alleged that it had
sufficiently alleged testing of a sample, but the court disagreed, because
Board-Tech failed to specify what it had sampled.  Nor had it explained why it was plausible to
extrapolate from a few non-specific switches to entire product lines—more than
125 of them.  Failure to provide any
allegations as to which product(s) within a broader product line failed was
also necessary in order for defendants to investigate the claim and prepare a
defense. “If allowed to proceed in such a broad manner, plaintiff would no
doubt seek access to the internal design of competitive products as well as
highly sensitive technical data. Damages discovery would involve all of
defendants’ sales of this series of products.” 
The court wasn’t willing to let that happen without more specifics.
Separately, the court didn’t think Board-Tech could bring
claims based on failure to meet the UL’s standards when the UL certification
concededly existed.  “[P]laintiff’s claim
is that even if defendants are authorized to use the mark, they are deceiving
customers by using it.”  But Board-Tech
didn’t allege there had been post-certification changes to the product, or that
the UL had found Eaton non-compliant. 
The authorized use of the mark was not “capable of being a deceptive use.”  The mark was limited by the scope of its
registration, and it certified merely that (manufacturer-designated)
representative samples conformed to UL’s safety requirements.  [Do consumers know this?  Why would they?]  Board-Tech conceded that Eaton’s switches had
been through that process.  “[I]f
defendants are authorized to apply the mark (which plaintiff concedes they
are), then plaintiff is simply policing the mark. It is up to United
Laboratories to police the mark.” 
Board-Tech could only challenge UL’s policing by seeking to cancel the
mark for failure to police. 

The court was unwilling to allow a competitor to police the
use of a certification mark by a competitor, because “[p]rivate testing of a
product against standards could be used to commence a lawsuit that could expose
competitive design and information to precisely the entity that should not have
it. While there are many cases in which competitors are proper plaintiffs – and
do obtain discovery – one should not open the floodgates to such litigation
without careful consideration.” Comment: Compare to the cases finding that
claims requiring interpretation of FDA rules, or policing of compliance with
the “organic” standard, can’t be brought under the Lanham Act because the
enforcement of those rules has been delegated to an entity other than the
court.

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“look like new forever” might not be puffery in context of technological innovation claims

EP Henry Corp. v. Cambridge Pavers, Inc., 2017 WL 4948064, No.
17-1538  (D.N.J. Oct. 31, 2017)
Disclosure: I consulted on this case. 
EP Henry and Cambridge compete in the market for concrete
pavingstones. Cambridge made superiority such as “only Cambridge pavingstones
have ArmorTec – a unique process that guarantees the color will never fade,
backed by our fully transferable, lifetime guarantee.” Cambridge also claimed
that ArmorTec pavers would “always look like new,” they’d would “look like new
forever,” and that their color “will never fade.” EP Henry alleged that
consumers had told EP Henry distributors that they were misled, and that after
purchase they discovered that the pavingstones didn’t continue to look like new
and weren’t fade-proof.
The court ruled that, in context of additional claims about advanced
technology, phrases like “they’ll look like new forever” and “the color will
never fade” weren’t puffery as a matter of law, even though they would be
without additional context. “[C]ourts around the country regularly find that,
standing alone, language suggesting perpetuity or an indefinite period of time
constitutes non-actionable puffery,” but Cambridge’s ad campaign allegedly
touts its breakthrough technology, telling potential customers that ArmorTec is
a “unique process.”  It was “plausible
that a potential customer could reasonably come to the conclusion that
Cambridge is not puffing, but has actually found the ‘secret sauce’ to enable
pavingstones to ‘look like new forever’ or ensure that ‘the color will never
fade.’”
With that out of the way, the New Jersey Consumer Fraud Act
claim (if any) failed because the NJCFA only grants standing to consumers and
commercial competitors “who are acting as consumers” or who are involved in a
“consumer transaction,” but not to commercial competitors generally. Negligent
misrepresentation and common law fraud claims failed because EP Henry couldn’t
allege reasonable or justifiable reliance on the alleged misstatements. Though EP
Henry argued that it reformulated its advertising campaign in response to
Cambridge’s alleged misrepresentations, it didn’t allege that it relied upon or
believed Cambridge’s alleged misstatements in doing so. The common law unfair
practices claim wasn’t recognized by New Jersey, which limits common law unfair
competition to (1) the “passing off” of goods or services; (2) unprivileged
imitation; and (3) tortious interference.

The Lanham Act false advertising claim, however,
survived.  EP Henry didn’t allege “a
specific instance of a consumer choosing to purchase pavers from Cambridge over
EP Henry because of Cambridge’s false advertising statements,” but that wasn’t
required before discovery.  It
sufficiently pled that, as a direct competitor, it suffered harm to its
reputation and sales by losing customers as a result of Cambridge’s alleged
misstatements. Without evidence from third parties and discovery, however,
Cambridge could still be entitled to summary judgment.

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Consumers can’t recover for GM’s self-tarnishment

In re General Motors LLC Ignition Switch Litigation, —
F.Supp.3d —- 2017 WL 2839154, No. 14–MD–2543 (S.D.N.Y. Jun. 30, 2017)
This multidistrict litigation arose from the 2014 recall by
General Motors LLC (New GM) of General Motors (GM) vehicles that had been
manufactured with a defective ignition switch, which could cause moving stalls
and disable critical safety systems such as the airbag. After that recall, New
GM recalled millions of other vehicles, some for ignition switch-related
defects and some for other defects. The putative class plaintiffs sought
recovery on behalf of GM car owners and lessors, arguing that they were harmed
by, among other things, a drop in their vehicles’ value due to the ignition
switch defect and other defects.  While
brand owners can be protected against reputational injury, the court here holds
that a brand’s self-tarnishment provides its consumers no remedy. 
The lost brand value theory was “unprecedented and unsound.”
Brand owners don’t have to provide an indefinite guarantee of both “the
product’s resale value and the brand’s continuing good name.” It’s true that “labels
and brands have independent economic value,” but “it does not follow that a
consumer can recover if he or she buys a defect-free and functional product
that performs as expected, but the company’s actions somehow affect the value
of the company’s brand.” To do so might even over-deter manufacturers and
“diminish the resources available to plaintiffs who have been more directly
injured by the manufacturer’s products.”  
Plaintiffs attempted to amend their brand devaluation claims
to only those putative class members who have or had defective cars, but there
was no logical reason that only such people would have suffered from the brand
devaluation.  In addition, plaintiffs
pled facts from the work of a brand expert “about how the repeated recalls had
a negative impact on the brands and models that were recalled, about the
relationship of New GM to its sub-brands, about New GM’s brand architecture,
and … the primary variables that will inform the calculation of the spillover effect
of the ignition switch recalls to other recalled cars.”  These allegations merely provided a factual
basis for the proposition that “labels and brands have independent economic
value,” which the court accepted, while still rejecting the idea that consumers
purchase a guarantee of both “the product’s resale value and the brand’s
continuing good name.”
However, the court did allow certain claims to proceed,
including claims for the value of time lost to repairs, and some state law
claims if the relevant state allowed claims in the absence of a manifested
defect; did not require a special trust relationship between the parties for a
duty to disclose to arise; and/or permitted plaintiffs to plead both contract
claims and unjust enrichment claims. Most of plaintiffs’ consumer fraud,
fraudulent concealment, and breach of implied warranty claims survived, while
most of their unjust enrichment claims didn’t. 
As the court noted, “most state courts construe their consumer
protection statutes to permit recovery beyond actual damages, including
incidental and consequential damages,” which would generally permit lost time
claims.
Nonetheless, plaintiffs who bought their cars before July
10, 2009—the date on which New GM purchased most of the assets of Old GM as
part of the bankruptcy proceedings—couldn’t pursue claims for economic loss,
because the economic injury took place at the time of sale. New GM’s alleged
concealment of the ignition defect couldn’t cause economic injury to people who
bought before New GM came into existence. 
Likewise, plaintiffs who sold, traded in, or returned their vehicles
prior to New GM’s announcement of the recalls beginning in 2014 couldn’t pursue
such claims. Because they didn’t own any affected GM vehicles at the time of
the recall, they couldn’t suffer diminished value as the result of the market
correcting for the true value of the defective vehicles.  However, a plaintiff who bought her car after
New GM bought GM and sold it before the recall was announced could still plead
and prove damages in the form of out-of-pocket expenses and lost time, such as
a plaintiff who experienced shutoffs while driving and had to go to the service
shop often.

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Just in time for Halloween, a Reese’s question

Should Reese’s object to the following description of candy molds?

The “Reese’s Shape” version of the tartlet/candy mold
Nominative fair use?

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Initial decision in FTC 1-800 case finding that anti-keyword agreements violated antitrust law

Agreed-on limits on advertising, like agreed-on limits on other inputs, risk being a per se violation of the antitrust laws.  Here, a blanket ban, including a negative keyword requirement (so that someone bidding on “contacts” wouldn’t get ads run against “1-800-Contacts” based on broad matching), was not justified by fear of trademark infringement/confusing consumers.  The ALJ also notes that 1-800’s extensive evidence that people often can’t distinguish between organic and paid results has nothing to do with whether they can distinguish between results for 1-800 and results for its competitors.  Initial ruling here.  NB: I testified for the FTC, but the ALJ doesn’t rely on my testimony.

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