Failure to disclose effect of compensation on opinion isn’t actionable under Lanham Act (but maybe in NY)

Posted on November 7, 2016 by rtushnet
Casper Sleep, Inc. v. Hales, No. 16-cv-03223, 2016 WL
6561386, — F.Supp.3d —- (S.D.N.Y. Oct. 20, 2016)
Casper is a mattress e-retailer. (Discussion
of a similar lawsuit it filed here.) Defendant Derek Hales is a specialist
reviewer who runs http://www.sleepopolis.com, where he writes reviews of and blogs
about mattresses, as well as a YouTube channel featuring video reviews and a
Twitter account where he interacts with people and promotes Sleepopolis.  Hales uses affiliate marketing and offers
coupon codes for some mattress companies to generate revenue.  Hales isn’t in an affiliate marketing
relationship with Casper.
Hales disclosed his affiliate
marketing relationship in at least three places on the Sleepopolis website: in
a text-box sidebar labeled “Referrals & Honest Reviews,” available in any
given mattress review; and in both the “Commitment to Integrity & Honesty”
and “Affiliate Links” subsections of his “Disclosures” page, accessible through
a hyperlink in the “Referrals & Honest Reviews” sidebar.
Casper alleged that these disclosures were false or
misleading “insofar as they make it seem like Hales’s reviews are unbiased,
when, in fact, his mattress endorsements are underwritten by the mattress
companies featured positively in his reviews.” In fact, Casper alleged that
Hales’s affiliate marketing relationships, or the absence thereof, influenced
his reviews to be positive for companies with whom he had a relationship and
negative for Casper. In head-to-head comparison reviews, Hales “inevitably
concludes that the non-Casper mattress is superior.”
The court found most of Casper’s allegations to be
non-actionable under the Lanham Act.
As for the mattress reviews, Casper alleged that these weren’t
really reviews but veiled ads. E.g., “I’m impressed. I’m sleeping as well as I
ever have. The Leesa mattress just feels incredible. So much so that a
life-long stomach sleeper is able to sleep comfortably on his back and side.”  In comparing Casper mattresses to those sold
by his affiliates, Hales said things such as: “After sleep testing each
mattress, I have come to the conclusion that Purple is the outright better
choice. The hyper-elastic polymer top layer in addition to the multiple layers
of polyurethane foam simply make a more supportive, cooler, and higher
performance mattress than the Casper.”  These are, on their face, statements of
opinion to which the Lanham Act doesn’t apply:
Hales’s opinions and comparisons
are not objectively verifiable, because if there is one true thing in this world,
it is that different people experience mattresses differently, and have
different preferences among mattresses. One man’s comfortable mattress is
another’s “princess and the pea” sleep experience. In my own house, to take an
example, one family member detests memory foam, while another will sleep on
nothing else. It is simply not possible to “objectify” a sleeper’s reaction to
a mattress in a way that transforms what is essentially opinion into an
objectively verifiable fact.
There was no exception to the “statements of opinion are not
actionable” rule for “statements of opinion that are influenced by factors such
as a financial relationship,” even for reviews structured as comparisons or
reviews containing facts.  (E.g., an
opinion that one mattress is “technically superior” is not changed to fact by
adding in the verifiable claim that the mattress had a “hyper-elastic polymer
top layer in addition to the multiple layers of polyurethane foam.”  Those claims are fact, but the resulting
claim that the mattress “feels more supportive and cool to me” is an opinion.) 
Moreover, the financial relationship between Hales and his
affiliates was disclosed.  There were
direct links to the websites of all the praised mattresses, but no direct links
to Casper.  The court understood Casper
to argue that Hales should be clearer about the influence money has on the
comfort of his sleep, but “as long as the consumer is told about the affiliation
and the financial reward that comes to Hales when a reader makes a purchase
after clicking Hales’s affiliate link, s/he is free to factor that into his/her
evaluation of the value of Hales’s reviews.” 
Parenthetically, the court noted that money might not even be
influencing Hales’s conclusions.
Separately, Casper alleged that Hales’s disclosures of his
affiliate marketing relationships were actionable because they failed to give
adequate notice about Hales’s financial interests. E.g., “If you use one of my
links and purchase a mattress or other product you should know that the respective
companies pay me a small referral fee. These referral bonuses help me continue
to create great content and pay for other expenses associated with the site.
Most of the products reviewed were given to me by the manufacturer. Visit my
full disclosures page for more information.”  The court found these disclosures to be “plain[]”
and present in several places on his site, “fully inform[ing]” consumers about
the payment.  “[E]ven if Hales’s
disclosures are somehow inadequate, a failure to disclose, by itself, is not
actionable under the Lanham Act.”  An
actionable omission only exists if it renders separate affirmative statements
of fact false or misleading.  The
allegedly inadequate disclosures were not separate statements of fact. 
Casper also alleged that the disclosures contained false statements
about the impact of Hales’s marketing relationships on his mattress reviews. The
court found these statements potentially false: “No review or content is
written, directed, or otherwise influenced by any manufacturer or sleep
company”; “No review or content is paid for by any manufacturer or sleep
company”; “No member of Sleepopolis is employed by any mattress or sleep
company”; and “Sleepopolis does not have any paid advertisements. Any links,
images, or promo codes you find on-site are there because they provide great
value for my readers.”  
By contrast, “All reviews you find on Sleepopolis are
genuine, honest, and based on my personal views of the product,” “All content
on Sleepopolis is 100% my own opinions and thoughts,” and “All companies pay
Sleepopolis nearly the same amount per referral and no company receives
preferential treatment because of these referrals” didn’t contain actionable
factual claims.  The first two statements
weren’t necessarily false or misleading, even assuming the content is
influenced by Hales’s commercial relationships. “The fact that Hales receives a
kickback does not make his thoughts any less his own.”  The final statement wasn’t literally false
because it didn’t say that Casper was one of the affiliates, and there was no
allegation that Sleepopolis linked to Casper’s website.  Anyway, Casper failed to plead plausibly that
this statement caused it injury: even if consumers believed that there was an
affiliate relationship, Casper didn’t explain how that damaged Casper’s
reputation or took away its business. Instead, Casper was complaining about the
bad reviews, but those reviews weren’t actionable.
NY General Business Law § 349: For the reasons given in Casper
Sleep, Inc. v. Mitcham, linked above, Casper’s claims based on affirmative acts
and omissions survived. “Casper also alleges injury and plausibly links Hales’s
deceptive or misleading acts to this injury: when Casper had an affiliate
marketing relationship with Hales, Hales gave Casper positive reviews, and when
Casper terminated the relationship, Hales gave Casper poor reviews.”

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Georgetown Law Launches New Institute for Technology Law and Policy

Posted on November 4, 2016 by rtushnet

From our website:

Building on its growing expertise in the field, Georgetown Law today announced the launch of the Georgetown Institute for Technology Law and Policy. The Institute will be led by Alexandra Reeve Givens, who most recently served as chief counsel for IP and Antitrust on the Senate Judiciary Committee, working for senior Democrat Senator Patrick Leahy (D-Vt)(L’64).
“As technology transforms the law, the economy, government, and every aspect of daily life, Georgetown Law is uniquely positioned to advance the conversation on technology law and public policy,” said Georgetown Law Dean William M. Treanor. “Leveraging our presence in Washington, D.C., and the deep expertise of our full-time and adjunct faculty, the Institute will provide an important forum for the thought leaders and lawmakers shaping technology policy today.”
The Institute will convene conferences and workshops on new and emerging technology issues and create opportunities for law students to gain deep exposure in the field. The Institute will soon begin a Technology Law & Policy Scholars program for students to gain immersive experience in technology policy. The Institute will also launch the Georgetown Technology Review this fall.
“Now is an essential time for nuanced, thoughtful conversation about how policymakers should respond to the opportunities and challenges created by new technologies,” said Givens. “I am thrilled to help lead this effort at Georgetown Law.”
The Institute is the latest of a number of recent Georgetown Law initiatives focused on the impact of technology. Georgetown’s Center on Privacy and Technology, launched in 2014, recently released a groundbreaking report on the use of facial recognition by law enforcement nationwide. The Communications and Technology clinic, part of Georgetown’s long-standing Institute for Public Representation, recently filed a complaint with the Federal Communications Commission relating to police use of a “stingray” device to intercept cell phone calls. Georgetown Law is also home to a stellar Center on National Security and the Law, sponsoring events related to technology and cybersecurity.
The new Institute for Technology Law and Policy will bolster Georgetown Law’s curricular offerings, which include more than 50 courses such as Coding for Lawyers, classes on cybersecurity and intellectual property, and a privacy law and technology practicum that pairs Georgetown Law students with engineering students from the Massachusetts Institute of Technology. Georgetown’s Iron Tech Lawyer Competition trains students to use technology as a tool to help users navigate the justice system or apply for legal aid. 
“Training lawyers who are proficient in technology law and policy has become a top priority of Georgetown Law,” Treanor said.
“Our students come to D.C. to get a front-row seat witnessing the highest levels of policymaking,” Givens said. “I look forward to sharing that experience with students in the fast-evolving world of technology policy.” 
In her role with the Senate Judiciary Committee, Givens advised Senator Leahy and developed legislative strategy on matters including patent reform, federal trade secrets legislation, net neutrality, First Amendment issues surrounding online speech, access to medicines, and oversight of mergers and antitrust policy. She previously served as a litigator at Cravath, Swaine & Moore in New York City. 
The Institute can be found online at: http://ift.tt/2f8udtG.
For more information, please contact mediarelations@law.georgetown.edu.

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Florida man held liable for false green coffee claims

Posted on November 4, 2016 by rtushnet
FTC v. NPB Advertising, Inc., No. 14-cv-1155, 2016 WL
6493923 (M.D. Fla. Nov. 2, 2016)
The FTC sued Nicholas Congleton and others under Section 5
of the FTC Act for engaging in false or deceptive advertising. Congleton
received an email from a dietary-supplement manufacturer touting the efficacy
of “green-coffee extract” as a weight-loss aid. 
The e-mail linked to a three-minute clip from the television show “Dr.
Oz,” describing a study that allegedly “showed women and men who took green-coffee
extract lost an astounding amount of fat and weight, 17 pounds in 22 weeks by
doing absolutely nothing extra….” After watching the clip and searching the
Internet, Congleton, with co-defendants, founded a green-coffee extract
business.
The FTC showed that defendants made false efficacy claims, unsubstantiated
claims, and false establishment claims that were materially misleading.  Moreover, defendants prominently showed
testimonials on their website without disclosing the material fact that the
people shown were compensated for their testimonials. 
Defendants also published dailyconsumeralert.org, which had
a masthead for Women’s Health Journal, a navigation banner with several health-
or fitness-related categories, and the text “AS SEEN ON” next to the logos of
CBS, ABC, MSNBC, and CNN (“creating a false impression that these networks
reported favorably on Pure Green Coffee”). 
The court found that a viewer would see these as characteristic of a
bona fide news outlet. “The presence of the word ‘Advertorial’ in small font at
the top of the page fails to alter the overall impression.”  An article purportedly written by a Women’s
Health Journal columnist claimed to report on an objective test of the product’s
efficacy.  (Sample text: “[W]e here at
Consumer Lifestyles were a little skeptical of this Green Coffee Bean Extract.
Even after pouring through mountains of research. While I had an educated
opinion, I still had no personal proof that the Green Coffee Bean was worth the
time….”)  The court found that a
reasonable consumer would be materially misled by the website, even though
Congleton admitted that he and a co-defendant admitted that they just copied
the article from another website. 
Congleton was individually liable for the corporate
defendants’ false advertising.  The
standard first required the FTC to show that the corporations operated as a
“common enterprise,” which can happin if the structure, organization, and
pattern of a business venture reveal a “maze” of integrated corporate entities.  Here, the corporations operated under common
control, commingled funds, shared advertising, and retained the same employees,
so the standard was satisfied.
The FTC also had to show that Congleton knew of the
enterprise’s deceptive act and participated directly in, or had authority to
control, the act. Knowledge can include reckless indifference to the falsity of
the misrepresentation, even in the absence of intent to defraud.  That was present here: Congleton admited that
he knew the efficacy claims lacked a scientific basis. (E.g., “I don’t know
that there is a basis for [the claim of losing twenty pounds in four weeks.]”)  At a minimum, Congleton showed reckless
indifference to the truth or falsity of the claims. Although he based the
efficacy claims on the Dr. Oz. segment and the study reported therein, he said,
“I’m not a medical doctor. I don’t know exactly that I understood everything
that’s being said in here,” deferred blindly to Dr. Oz’s “expertise,” and
admittedly copyied unverified claims from competitors’ ads or websites.  This was not good faith. Congleton
participated directly in the deceptive advertising practices by running the ad
program, and he also controlled the business.
Congleton claimed First Amendment protection, but there is
no protection for false commercial statements of fact; here the claims were
specific, objective, and falsifiable.  “Because
Congleton knowingly misrepresented Pure Green Coffee’s efficacy, the First
Amendment offers Congleton no protection from civil liability.”  [Actually, even lack of knowledge doesn’t
defeat liability for misleading commercial speech.]  The FTC didn’t need to show that consumers
were actually misled, only that his representations were likely to mislead a reasonable
consumer.  An old DC Circuit case (Bork,
J.) says that the FTC should introduce “empirical evidence of consumer
perception” for an implied claim, but the claims here were both express and
facially false, and even for an implied claim, no survey data is required.
Congleton challenged the constitutionality of the FTC’s
presumption of materiality for express claims. Nope.
The court granted a permanent injunction against Congleton:
Because Congleton conducted a
deceptive advertising campaign for years, because Congleton knew of the
advertisements’ falsity, because Congleton failed to immediately discontinue
the deceptive advertising after learning of the FTC’s demand, because another
violation could seriously harm a consumer, because Congleton appears proficient
in internet-advertising techniques, and because the barriers to entry in the
dietary-supplement industry are low, the FTC proves a cognizable danger of a
prospective violation. A permanent injunction that bars Congleton from
conducting the same variety of deceptive advertising he undertook at Pure Green
Coffee is warranted.

Congleton was required to disgorge a bit over $29,000,000,
calculated by subtracting from the defendants’ $30 million in gross receipts customer
refunds and disgorgements by other defendants. Congleton argued that profit,
rather than net revenue, was the proper measure of disgorgement, but net revenue
appropriately measures a defendant’s unjust gain under section 13(b).  Congleton’s brother also had to disgorge
title to a property held in his name, but bought with money from a Pure Green
Coffee bank account; the brother was an appropriate relief defendant who had no
legitimate claim to defendants’ “ill-gotten” proceeds. 

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230 provides protection against liability, not immediately appealable immunity from suit

Posted on November 2, 2016 by rtushnet
General Steel Domestic Sales, L.L.C. v. Chumley, No. 15-1293
(10th Cir. Nov. 1, 2016)
Defendants (Armstrong Steel) appealed from the district
court’s denial of CDA §230 immunity for a number of General Steel’s false
advertising claims.  Armstrong ran an
online ad campaign that included twenty posts summarizing, quoting, and
referencing lawsuits involving General Steel. While the district court found
that Armstrong Steel was entitled to immunity for three posts because those
posts simply contained links to content created by third parties, it found that
Armstrong created and developed the content of the remaining seventeen posts
and the internet search ads leading to Armstrong’s pages; the district court
found that the defendants developed the content by selectively quoting and
summarizing court documents in a deceptive way, and that CDA immunity didn’t
apply to the Lanham Act.
The court of appeals refused to allow Armstrong Steel to
appeal the §230 ruling before final judgment. 
The denial of §230 immunity would be appealable as a collateral order if
(as relevant here) it would be unreviewable on appeal from a final judgment,
which would only be true if §230 provides immunity from suit, not just immunity
from liability.  This requires “an explicit
statutory or constitutional guarantee that trial will not occur,” but the CDA doesn’t
have language clearly indicating such a guarantee.  Section 230(e)(3) states: “No cause of action
may be brought and no liability may be imposed under any State or local law
that is inconsistent with this section.” But “reading the text in its entirety
reveals that 47 U.S.C. § 230(e)(3) is merely a preemption provision.”

Armstrong Steel argued that construing §230 as a bar against
suit would further congressional intent, but the statute simply doesn’t say
that. Furthermore, immunity from suit is a benefit typically reserved for
governmental officials, in the absence of a close connection to government or a
historical basis for providing immunity to that type of private entity, neither
of which were present here.

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Reading List: The Ethics of Visual Legal Rhetoric

Posted on November 2, 2016 by rtushnet

Michael D. Murray, The Ethics of Visual Legal Rhetoric, 13 Legal Comm. & Rhetoric: JALWD 107 (2016).  Highly recommended!

Abstract:

This Article discusses the application of visual rhetorical techniques in legal writing and the ethical questions that are raised regarding the use of these techniques. It is likely that visual rhetoric will be used in brief writing and general legal communications at an increasing rate because the research and scholarship of a wide range of disciplines — law and popular culture, cognitive studies and brain science, data visualization studies, and modern argument theory in rhetoric — indicate the communicative power of visual techniques. This fact coincides with the development of technology in the production of legal documents, and technology in the reading and reception of legal documents, that allow judges and attorneys to access full-color graphics, embedded video, and multimedia content, and follow hyperlinks in the normal course of reading legal briefs and memoranda.

The recognition in the literature that visual rhetoric is rapid, efficient, constructive, and persuasive reveals the potential of visual rhetorical devices to serve as topics and tropes in legal discourse to construct meaning and to inform and persuade legal audiences. The visual rhetorical topics and tropes inspire inventive thinking about the law that constructs meaning, for the author and the audience. For many members of the legal writing discourse community — judges, practitioners, government agencies, and academics — the modes of persuasion of visual rhetoric can construct meaning and improve the persuasiveness of legal discourse generally in content, arrangement, and style.

Attorneys should fulfill their professional responsibility to use the best practices to represent the interests of their clients in law practice. However, the cautions of scholars as to the dangerous power of visuals to deceive or to overpower more deliberative forms of rational thought and analysis are not lightly to be dismissed. The speed and power of visuals is seductive. Visual topics and tropes are subject to abuse, and must be used ethically and with careful regard to their propriety as a tool to create meaning and inspire imagination, and not used as a tool of deception or obfuscation within the rhetorical situation at hand. I conclude that visual rhetorical devices are a proper form of legal rhetoric if they are used to construct knowledge and understanding of the meaning and message of the communication and do not mislead or prejudice the audience’s reception or understanding of the communication.

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Disparaging an unauthorized reseller could violate the Lanham Act

Posted on October 31, 2016 by rtushnet
Dentsply Int’l Inc. v. Dental Brands for Less LLC, No. 15
Civ. 8775, 2016 WL 6310777 (S.D.N.Y. Oct. 27, 2016)
Dentsply sued Dental Brands over Dental Brands’ resale of
Dentsply’s dental products without Dentsply’s authorization. Dental Brands buys
Dentsply’s products overseas, where they’re sold at 20-65% below the prices in
the US, and then resells them domestically.  Dental Brands counterclaimed for antitrust and
false advertising violations. Along with filing suit against unauthorized
resellers, Dentsply allegedly falsely claimed that Dental Brands’ products (1) were
“materially different” and “inferior” to Dentsply’s products sold by its
authorized distributors, (2) have been “mishandled” and (3) present an
“immediate safety and health risk to their patients and puts dentists at risk
of liability to patients.”
The court dismissed the antitrust claims because Dental Brands
lacked antitrust standing, but the false advertising counterclaim survived.  The counterclaim alleged that Dental Brands
“stores and ships” the Dentsply’s products “following the same directions” that
Dentsply provides to its authorized distributors; that Dental Brands “does not
sell dental product less than twelve months before its expiration date”; and that
the Dentsply products Dental Brands offers are not any different in quality,
composition or formulation from the Dentsply products sold by authorized
distributors. Thus, Dental Brands plausibly alleged false advertising.
However, New York commercial disparagement and defamation
claims were dismissed.  Disparagement and
defamation are different claims, and “New York courts have taken a relatively
strict approach” such that if “the statements concern products or services at
all, it is rare for a court to find that a claim for commercial defamation
lies.” The issue here was only product disparagement.  That matters because “injury is conclusively
presumed” for defamation, but a plaintiff alleging product disparagement must
plead and ultimately prove “malice and special damages.” New York law that
special damages be pled with more than round dollar amounts; this “particularity
requirement is strictly applied.” 
Dental Brands didn’t plead special damages.  Dental Brands invoked the Restatement
(Second) of Torts, arguing that it could use a “lost sales” theory of special
damages because it could show “with reasonable certainty” that a “[w]idely disseminated”
misrepresentation caused “serious and genuine pecuniary loss by affecting the
conduct of a number of persons whom the plaintiff is unable to identify and so
depriving him of a market that he would otherwise have found.” But New York
hasn’t adopted this theory, and even if it applied, a plaintiff must do more
than estimate damages.

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Study’s co-author disclaiming its use creates material issue on falsity

Posted on October 31, 2016 by rtushnet
Ferring Pharmaceuticals, Inc. v. Braintree Laboratories,
Inc., 2016 WL 6275156, No. 13-12553 (D. Mass. Oct. 25, 2016)
Previous
opinion discussed here. The parties compete in the market for products used
for bowel preparation before colonoscopies. Ferring alleged false advertising
in violation of federal and state law and dilution of its mark, Prepopik.
Braintree counterclaimed for false advertising and unfair trade practices.  The court denied summary judgment on the false
advertising claims.
First: In addition to Prepopik, Ferring produces a
chemically-identical treatment called “Pico-Salax” which is sold in other
countries. After the FDA approved Prepopik, Ferring issued a press release
stating that “Ferring has a long history in the international gastroenterology
market, where PREPOPIK is available in Canada (marketed under the name
PICO-SALAX).”  However, there are several
differences: Pico-Salax is OTC, while Prepopik is prescription; the
instructions direct users to consume different amounts of fluid; and Prepopik
is only approved for adult colonoscopy preparation, whereas Pico-Salax is
approved for children and adults in preparation for x-rays, surgeries and
colonoscopies.  The Canadian government
published an article about Pico-Salax in January, 2013, in the Canadian Adverse
Reaction Newsletter, stating that “The diarrhea produced by [Pico-Salax] can
lead to dehydration and loss of electrolytes, particularly sodium which may
result in hyponatremia and convulsions …. As of June 30, 2012, Health Canada
received 11 reports of convulsions suspected of being associated with
Pico-Salax.”
The court found that there was a genuine issue of material
fact about whether Braintree’s use of the Canadian Newsletter to raise safety
concerns was literally false or misleading because the letter concerned a
different treatment and didn’t indicate that Pico-Salax was dangerous.  (There was conflicting evidence about whether
the letter was used to “highlight potential safety concerns” or to support
misleading claims that Prepopik was “deadly” and “kills people.”)  Braintree pointed out that Ferring’s own
statements equated Prepopik and Pico-Salax, but the court found conflicting
evidence about whether the two were equivalent.
Braintree also distributed an FDA-approved comparison
detailer, “What’s NOT New About Prepopik?” It listed the formula, the
acceptability of use for patients with severely reduced renal function and the
effect of antibiotics on efficacy. The flyer also compared the price of
Prepopik with other treatments, including Braintree’s.  Ferring argued that efficacy percentages
associated with the detailer were unreliable establishment claims, but only
found two instances of percentage claims: 1) a handwritten annotation on a
flyer that stated percentages and 2) a sales log entry did the same. These were
inadequate to show “commercial advertising or promotion” of percentage
claims.  Ferring didn’t claim literal
falsity for the detailer itself, but rather omission of material information as
to Suprep’s safety and lack of fair balance. 
Ferring argued that Braintree’s own study showed that the detailer was
misleading about safety, but this was contested.
Ferring also challenged an ad, “Clean Freak,” which claimed
that Braintree’s product “achieved ‘excellent’ bowel cleansing in patients
based on investigator grading … Significantly more patients had ‘excellent’
preps with SUPREP Bowel Prep Kit compared to MoviPrep[.]”  Braintree won summary judgment because
Ferring wasn’t within the protected zone of interests.  The ad compared Suprep to a third party’s
treatment.  Though Braintree employees
referred to the ad in five instances in sales conversations that also addressed
Prepopik’s efficacy, those were insufficient to show “any financial or
reputational harm as a direct result of Braintree’s advertising.” Thus, Ferring
lacked standing; and independently, five isolated instances weren’t commercial
advertising or promotion.
State dilution: MGL, Chapter 110H provides a claim for “[l]ikelihood
of injury to business reputation or of dilution of the distinctive quality of a
mark ….” This requires the plaintiff to show distinctiveness and that “the
defendant’s use of a similar mark creates a possibility of dilution.” The court
doesn’t explicitly disavow its earlier weird trademark argument; in fact, it
rejects the dilution claim on a ground that doesn’t deal with the total
senselessness of the claim.  Ferring
argued that Braintree diluted its trademark “by comparing Prepopik to another
Ferring product, Pico-Salax.”  Of course,
this can’t possibly be “the defendant’s use of a similar mark” as required for
Massachusetts dilution, but the court instead granted summary judgment because
Ferring itself equated the two products, and even combined their names on its
website. 

The court also denied summary judgment on Braintree’s unclean hands defense
because Ferring’s own equation of the two products, allegedly false claim of
superior cleansing efficacy, and alleged off-label promotion created a genuine
issue of material fact about whether the equitable relations of the parties
were affected by Ferring’s own misconduct.
Braintree’s counterclaims fared basically the same.
Braintree challenged Ferring’s statement that Prepopik has the “lowest volume
of active ingredient.” There was a genuine issue about literal falsity—a fact
finder could interpret this claim as involving a comparison to the entire
market of bowel preparation treatments, including tablets which have a lower
volume than Prepopik. Moreover, emails from Ferring employees, internal Ferring
documents and Ferring’s own expert all acknowledged that additional hydration was
needed, including hydration with liquids containing electrolytes, in order for
Prepopik to work effectively. Thus, a fact finder could find the claim to be
literally false.  This was also material
because it was an essential characteristic and because Ferring “aggressively
marketed Prepopik as being low volume.”

Likewise, summary judgment was denied on Braintree’s
challenge to Ferring’s “Superior Cleansing Efficacy” claim because the study on
which Ferring based the claim might or might not be reliable, based on a
declaration from one of the study’s co-authors that said that the study and the
article he co-authored about it “do not reliably support a marketing claim of
Prepopik’s superior cleansing ….”

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Direct, secondary liability under Lanham Act for statements targeted at foreign markets

Posted on October 31, 2016 by rtushnet
Operation Technology, Inc. v. Cyme International T & D
Inc., No. SACV 14-00999,  2016 WL 6246806
(C.D. Cal. Mar. 31, 2016)
Plaintiff (ETAP) alleged that defendants (CYME, IPET-CO, and
Amir Aslani) violated the Lanham Act via pseudononymous, disparaging remarks
made about its software.  The question
here was whether a reasonable jury could find that CYME caused a false
statement to enter interstate commerce. 
ETAP argued for direct and vicarious liability, and the court found a
genuine issue of triable fact.
Direct liability: ETAP’s evidence was that the campaign of
disparaging communications against ETAP began, or expanded, during the Summer
of 2013. Just before the relevant communications were sent to two customers, CYME
employees received in their inbox, from the alleged originator of the
disparaging communications, “what appear to be prior draft versions.” Aslani
sent one to a CYME regional technical manager with the text, “I will be there
in 20 min. just have a look at attached files. 20 hours working results of
evaluating ETAP.” There was no “direct evidence” that CYME employees responded
to these emails with encouragement, or edits, though there was evidence that
CYME employees reviewed, edited, or contributed to other marketing materials
from Aslani, which was relevant circumstantial evidence that CYME oversaw his
communications.  “[T]he timing of the
emails, and the lack of record evidence of Aslani being immediately reprimanded
for these materials, permits the reasonable and justifiable inference in ETAP’s
favor that at least one of the three CYME employees who received these
communications had a role in shaping them.”
The then-director of CYME testified that he investigated the
source of these emails, and asked Aslani whether he was behind the email and told
him that “we don’t run a business like that.” However, the director only emailed
his direct employees to tell them to “make sure that these things doesn’t [sic]
go out of our office,” actually removing Aslani from an email chain when giving
this warning. Aslani also remained CYME’s sole authorized retailer for his
region for at least the subsequent eighteen months. A reasonable jury could
therefore find that CYME employees were participants in the initiation of
Aslani’s purported campaign of disparaging communication, making CYME directly
liable.
Vicarious liability: ETAP presented sufficient evidence for
a jury to find that Aslani was an agent of CYME for purposes of Lanham Act
liability. The labels used by the purported agent and principal aren’t
dispositive.  There was a material issue
on agency because (1) Aslani and CYME agreed to make Aslani the sole authorized
sales representative for the area he worked in; (2) CYME retained certain
controls over the scope of Aslani’s work as the sales representative; and (3)
Aslani was largely insulated from the risk of purchasing CYME’s software
without a resale customer.  Even if
Aslani was an agent, he wouldn’t necessarily create Lanham Act liability for
CYME for conduct that was not authorized and was outside of the scope of
Aslani’s authority to act on behalf of CYME.
A reasonable jury could find that CYME ratified Aslani’s
conduct, because CYME was on notice of the likelihood that Aslani was behind
the initial disparaging comments and similar disparaging comments made in subsequent
months. A CYME representative accepted Aslani’s denials of responsibility “without
significant further inquiry,” even though two CYME employees guessed that he
was behind the communications. “[B]ecause Aslani suffered no repercussions for
his behavior, … a reasonable inference is that he would have considered his
activities authorized by CYME.”  Moreover,
the parties’ agreement restricted Aslani’s conduct, and communication between them
was frequent. “A jury could reasonably find that Aslani was in a much closer,
more tightly controlled relationship than a simple reseller of software.” There
was no evidence that Aslani considered his own acts unauthorized. 
CYME also argued that the case involved an impermissible
extraterritorial application of the Lanham Act. 
However, the disparaging communications took place, at least in part,
within interstate commerce.  A US
customer of ETAP received a disparaging email from a CYME Sales Manager for
North America as part of CYME’s efforts to solicit that customer’s business.  Although it was retracted, the Lanham Act
could be applied “when there is evidence showing a CYME employee affirmatively
steered a disparaging communication into the United States, an act of interstate
commerce.”
Further, the Lanham Act could be applied based on the
foreign acts alone. The Ninth Circuit’s test: “[F]irst, there must be some
effect on American foreign commerce; second, the effect must be sufficiently
great to present a cognizable injury to plaintiffs under the federal statute;
and third, the interests of and links to American foreign commerce must be
sufficiently strong in relation to those of other nations to justify an
assertion of extraterritorial authority.”  First, ETAP is an American company that sells
to customers in the U.S. and abroad, and ETAP showed a genuine factual issue on
harm.

The final factor required balancing multiple factors.  (1) The degree of conflict with foreign law
or policy: there was no evidence that applying the Lanham Act would cause any
conflict. (2) The nationality or allegiance of the parties and the locations or
principal places of business of any corporations involved: ETAP is US-based and
CYME is a Canadian based subsidiary of a multinational company that has
operational headquarters in the US, making it related to a company with “substantial
ties” to the US. (3) The extent to which an order by a U.S. court can be
expected to achieve compliance with the Lanham Act: the court could order CYME
to stop and to remove the incentive for disparaging communications. (4) The
relative significance of effects on the United States as compared with those
elsewhere: ETAP felt the effects in the US, thoug there was little other
evidence of the disparaging communications entering the US market. (5) The
extent to which there is an explicit purpose to harm or affect U.S. commerce:
none shown; the apparent purpose was to affect competition in the Middle East, where
Aslani was directly competing.  (6) The
foreseeability of such effect: “the disparaging communications were put into
the stream of international communication channels” and “received by entities
as far apart as Australia and Bulgaria.” Other disparaging communications were
posted to YouTube, viewable worldwide. (7) The relative importance to the
violations charged of conduct that occurred within the United States as
compared with conduct abroad: only one communication occurred within the US,
and didn’t affed the potential customer’s decision before it was retracted.  Balancing the factors, the found that
extraterritorial application of the Lanham Act was appropriate.

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Inapplicable studies and lost market share equal literal falsity and irreparable harm

Posted on October 31, 2016 by rtushnet
OrthoAccel Technologies, Inc. v. Propel Orthodontics, LLC,
No. 4:16-CV-350, 2016 WL 6248711 (E.D. Tex. Oct. 26, 2016)
OrthoAccel is a medical device company that makes dental
appliances, including the AcceleDent, a hands-free dental device that uses
gentle vibrations to accelerate tooth movement when used with orthodontic
treatment. It has two main functional components: (1) a “Mouthpiece” and (2) an
“Activator,” a small extraoral component that generates a vibrational force when
the patient lightly bites down on it to accelerate tooth movement during
orthodontic treatment.  It received
510(k) clearance in 2011, which requires a showing that the device is as safe
and effective as a legally marketed device that is not subject to premarket
approval.  In 2013, OrthoAccel launched
its second-generation product, the Aura, which was cleared for use with braces
and in 2016 for use with clear aligners.
Propel is an OrthoAccel competitor.  It released the VPro5, which costs
significantly less than the Aura.  Propel
markets the Vpro5 through its sales force, promoting it as a quicker, cheaper
alternative to the Aura that offers “5 Clinical Benefits”: (1) more efficient
aligner seating, (2) relieves orthodontic pain, (3) accelerates tooth movement,
(4) fast tracks retention, and (5) stimulates bone growth and remodeling.
OrthoAccel argued that the burden of avoiding a finding of
falsity should shift to Propel under Novartis v. Johnson & Johnson-Merck
Consumer Pharm. Co., 290 F.3d 578 (3d Cir. 2002), because its claims were “completely
unsubstantiated.”  But the Fifth Circuit
hasn’t adopted this rule, and anyway Propel’s claims weren’t “completely”
unsubstantiated.
However, the court did find several Propel claims to be
literally false.  For example, a document
for the sales force said that, “We have many research studies that show the
benefits of high frequency vibration. Let me detail some of them with you.” Another
claim was that there are “significant clinical findings that support the
VPro5’s ability to increase bone formation and accelerate tooth movement.” But
no such studies existed. Propel also claimed that the frequency of the VPro5’s
vibration was clinically optimal, also completely unsubstantiated.  OrthoAccel also showed falsity by disproving
Propel’s establishment claims; the literature and studies on which Propel
relied weren’t reliable enough to support its claims, mainly because they didn’t
test the VPro5 or just offered hypotheses. 
One article summarized a single patient’s positive experience with the
VPro5, but that didn’t support the “Clinical Benefits” claims.
OrthoAccel also showed actual deception, though it didn’t
need to because of the literal falsity, by showing that dentists’ websites had
copied the 5 Clinical Benefits to tout the devices.  One doctor’s declaration also indicated that
he “would expect the VPro5 to have scientific support, similar to AcceleDent.”  Materiality was a given.  OrthoAccel also showed injury: a sharp
decline in sales following the launch of the VPro5.
Irreparable injury:  “It
is well established that loss of market share due to false advertising
constitutes irreparable harm.”  (Quoting
a case involving “a competitive industry where consumers are brand loyal”
without discussing whether that’s true of orthodontic devices.)  While OrthoAccel’s annual operating plan and
actual revenues varied by 7% in 2014 and 2% in 2015, the variance measured 57% after
the launch of the VPro5.  Thus,
OrthoAccel showed irreparable harm. 
“Propel can still claim that the VPro5 aids in aligner
seating. It will only enjoin Propel from disseminating claims of the VPro5’s 5 Clinical
Benefits, which are false and misleading.”

Propel argued that OrthoAccel had unclean hands, based on
statements made by OrthoAccel that allegedly misrepresented Propel’s FDA
status. Without explaining its reasoning, the court found these arguments
preempted, but regardless, such statements weren’t enough to “shock[s] the
moral sensibilities of the judge, or…[be] offensive to the dictates of
natural justice.” 

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Republication of online articles was commercial speech and not protected by CDA

Posted on October 26, 2016 by rtushnet
Western Sugar Coop. v. Archer-Daniels-Midland Co., 2015 WL
12683192, No. CV 11-3473 (C.D. Cal. Aug. 21, 2015)
More belated blogging. 
The sugar industry and the corn refining industry accused each other of
falsely advertising  high-fructose corn
syrup (HFCS).  Plaintiffs were manufacturers,
trade groups, and associations active in the sugar industry; defendants ditto
for the corn and HFCS industry. Plaintiffs alleged three types of false and/or
misleading representations about HFCS in the Campaign: (1) use of the term
“corn sugar;” (2) statements that HFCS is a “natural” product; and (3)
representations that “sugar is sugar” and that “your body can’t tell the
difference” between sugar and HFCS. The counterclaim alleged that plaintiff Sugar
Association falsely represented that HFCS causes obesity, cancer, and cirrhosis
of the liver, among other things, when in fact, HFCS and sugar are
nutritionally equivalent.
The court found that, even if defendants’ statements that HFCS
is “natural” were in accordance with policies and guidance promulgated by the FDA,
that didn’t preclude a Lanham Act falsity/misleadingness claim under Pom Wonderful.  There were genuine issues of material fact on
falsity as to the claims and counterclaim.
Plaintiffs argued that they were entitled to a presumption
of injury because this was a false comparative advertising case.  By contrast, recovery of damages in a false non-comparative
advertising case requires “actual evidence of some injury resulting from the
deception is an essential element of the plaintiff’s case.”  Defendants argued that the challenged campaign
didn’t directly compare HFCS to any particular sugar product or brand.  However, the campaign directly compared defendants’
sweetener product, HFCS, to plaintiffs’ competing sweetener product, sugar.  According to defendants’ own evidence, the
creative messaging strategy was to “directly compare HFCS and sugar.”  From 2008 to 2011, key campaign messages
included that HFCS is “nutritionally the same as sugar,” and the “facts prove
there is no difference between HFCS and other sugars.”  This was not a case where defendants merely
emphasized the positive aspects of their own products; they specifically
claimed that HFCS was equivalent to and the same as sugar.  The aim was to stop consumers from switching
from using HFCS to using sugar, and thereby to stop plaintiffs from gaining
market share.  “Thus, while the instant
case is not a typical comparative false advertising case in that it does not
involve comparisons between name-brand products, the Court finds that the
presumption of causation and injury applies because the products are in
head-to-head competition and Defendants’ Campaign directly targets Plaintiffs’
competing product.”
The court also addressed defendants’ argument that the Noerr-Pennington doctrine precluded
liability for First Amendment-protected petitioning conduct, which can include
“concerted efforts to influence … government [ ] through direct lobbying,
publicity campaigns, and other traditional avenues of political expression,” as
well as litigation. Private petitioning conduct “incidental to a valid effort
to influence government action” can’t be the foundation of liability.  Defendant CRA filed a “Citizens Petition”
with the FDA on September 14, 2010, seeking to allow food and beverage
manufacturers the option of using the name “corn sugar” to identify HFCS on
ingredient labels, and the court found that certain challenged materials were
incidental to the Citizens Petition and protected under Noerr-Pennington.  By
contrast, statements challenged in the counterclaim weren’t “incidental to
valid efforts to influence” the FDA or the prosecution of the instant lawsuit.
Counterclaim defendant SAI argued that its reposting and
dissemination of articles wasn’t actionable commercial advertising or promotion
under the Lanham Act.  The counterclaim
challenged, inter alia, statements in articles authored by non-parties, Dr. John
McElligott and Linda Bonvie: “Dr. John McElligott weighs in on the high
fructose corn syrup debate in Land Line Magazine,” and Bonvie’s blog post, “The
Corn Processors ‘get their way’ with UCLA, or do they?” SAI republished the articles
on its website and distributed them in its electronic monthly newsletter, “The
Sugar Packet.”  (Cute!)  SAI argued that reposting didn’t transform otherwise
protected, non-commercial articles into “commercial speech” because SAI didn’t
alter or incorporate the articles into traditional advertising, or distribute
them to targeted potential customers, with a commercial motive.
The articles, as noted, were available on SAI’s website, and
the Sugar Packet was distributed to approximately 3,500 recipients, including
approximately 1,750 individual consumers and members of the media. “SAI had a
clear economic motive for distributing the Articles—to promote the consumption
(and thereby sales) of sugar.” The Sugar Packet itself stated, in the same
issue that disseminated the McElligott article, that  SAI is “on a mission to educate consumers and
promote the consumption of sugar through sound scientific principles.”  Citing Gordon
& Breach, the court concluded that SAI’s republication promoted its own
business and was commercial in nature.

SAI also raised a CDA defense.  Under Batzel v. Smith, 333 F.3d 1018, 1032
(9th Cir. 2003), the question of whether SAI was an “interactive computer
service” for these purposes is whether under the circumstances, “a reasonable
person … would conclude that the information was sent [to them] for internet
publication.”  The court found that SAI
hadn’t shown that its website or electronic distribution service qualified as a
“provider[ ] or user[ ] of an interactive computer service” within the meaning
of the CDA.  Moreover, “[i]f information
is provided to [SAI] in a capacity unrelated to [its] function as a provider or
user of interactive computer services, then there is no reason to protect [it]
with the special statutory immunity.” SAI showed that it obtained permission to
republish the articles.  That was not evidence that SAI “passively
displayed Articles from third parties who actively provided them to SAI in its
capacity as a user or provider of interactive computer services.”  Thus, SAI wasn’t entitled to CDA immunity.

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