Peter Jaszi lecture and festschrift upcoming at AU WCL, Nov. 17 and 18

Posted on October 11, 2016 by rtushnet

Link to Lecture
Link to Festschrift Event

I’ll be participating in the latter.

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Trademark pun of the day

Posted on October 11, 2016 by rtushnet

Seen at the local coffee shop.  “A Tribe Called FloydFest” coffee.  Apparently it was a theme at this year’s FloydFest in Virginia.

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Straightforward deference to FTC substantiation rules dooms gray hair treatment

Posted on October 7, 2016 by rtushnet
Federal Trade Commission v. COORGA Nutraceuticals Corp., —
F.Supp.3d —- , 2016 WL 4472994, No. 15-CV-0072 (D. Wyo. Aug. 15, 2016)
The FTC sued COORGA over its claims that its Grey Defence product
reversed/prevented gray hair and that there was scientific proof of this.  Defendant Coore, COORGA’s principal, is a
soi-disant “applied scientist” with degrees in economics and no post-secondary
chemistry or biology courses.  He developed
the Grey Defence formula over a 9-month period by conducting “comparative
scientific research” of various journal articles, studies related to Vitiligo
(a disease that causes the loss of skin color), and various “therapeutic
compounds.”  He also spoke with
scientists about their laboratory work unrelated to Grey Defence specifically
and tested the product on himself (“seeing re-pigmentation of some of my own
hair follicles after 3 months in the range of around 3%”).
From 2011 to June 10, 2016, COORGA had $433,848.93 in gross
sales to U.S. consumers, of which it refunded $29,608.26.  Coore intends to sell a new product, Grey
Defence Xtreme 3.0, as soon as this case concludes, and defendants have
developed other products, including brain JOLT! (to “boost working memory”),
TumorDefence (to cure cancer), FatBLOKKER! (now known as mealBUDDYZ!), Endura,
and Sodhalose-C (to fight neurogenerative diseases). These products have
likewise been developed through Coore’s own “research and review of journal
articles and discussions with ingredient suppliers without consulting any medical
professionals or scientists.”
Um, no.  Anyway, the
case provides a straightforward review of the standards for substantiating
efficacy and establishment claims; where the products are health-based, any
efficacy claim may functionally be an establishment claim.  Substantiation requires a “reasonable basis,”
and reasonability is assessed considering “the type of product,” “the type of
claim,” “the benefit of a truthful claim,” “the ease of developing
substantiation for the claim,” “the consequences of a false claim,” and “the
amount of substantiation experts in the field would consider reasonable.” If an
establishment claim “states a specific type of substantiation,” however, the
“advertiser must possess the specific substantiation claimed.” And if an ad
conveys a non-specific establishment claim—e.g., “medically proven”—the
advertiser “must possess evidence sufficient to satisfy the relevant scientific
community of the claim’s truth.”
“For both efficacy and non-specific establishment claims,
then, like those at issue in this case, it is appropriate to consider the
amount of substantiation required by the relevant scientific community in
determining whether the advertiser’s claim is false, misleading, or
unsubstantiated.”  The FTC submitted the
testimony of Dr. George Cotsarelis, a Doctor of Medicine and Professor of
Dermatology at the University of Pennsylvania School of Medicine and Director
of the Hair and Scalp Clinic at the University of Pennsylvania Health System.  He opined that substantiation for claims about
reversing or preventing the formation of gray hair would require at least one
well-designed, randomized, placebo-controlled, and double-blinded human
clinical trial. Coore’s testimony to the contrary was inadmissible because he
wasn’t and couldn’t be qualified as an expert. “Simply reading articles over a
nine-month period does not impart the knowledge, skills, experience, training,
or education one needs to competently interpret and evaluate scientific journal
articles, opine on what constitutes scientific proof, and weigh the evidence
related to the cause or prevention of gray hair.”
So, the efficacy and establishment claims were
unsubstantiated.  Coore’s research could
be “potentially useful in generating hypotheses for future studies,” but they
weren’t enough for these claims, nor was feedback from 20 Grey Defence users
out of 100 contacted.  Defendants argued
that they only claimed to rely on their own “observational study,” so they did
possess the level of substantiation they claimed.  But defendants actually went beyond that:
they claimed that their product was “based upon a foundation of scientific
evidence,” using phrases such as “scientifically shown.”
The court found injunctive relief proper, both for consumer
redress (in an amount to be determined) and to prevent future violations of the
law.  Given Coore’s further marketing
plans, there was a cognizable danger of recurring violations.  The court noted that injunctive relief under
the FTCA can “fence in” offenders by enjoining more than the specific misconduct
previously engaged in, as long as there is “a reasonable relation to the unlawful
practices found to exist,” but sought further input from the parties on the
scope of the injunction.
Coore was also personally liable for consumer redress.  He actually knew about the material
misrepresentations, or was at a minimum recklessly indifferent to the truth or
falsity of the misrepresentations:

Coore was intimately involved with
Grey Defence’s development and advertising, yet chose not to consult any
medical professional to evaluate his purported substantiation or conduct any
well-designed clinical trial to investigate Grey Defence’s efficacy. Instead,
he arrogantly relied on his own internet research, knowledge from high school
biology and chemistry classes, a test on himself, and conversations with
researchers who did not actually evaluate Grey Defence’s efficacy. This type of
evidence constitutes reckless indifference. 

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membership in swingers club not (yet) disclosed in Lanham Act case

Posted on October 5, 2016 by rtushnet
Edmondson v. Velvet Lifestyles, LLC, No. 15-24442-CIV, 2016
WL 5682591 (S.D. Fla. Oct. 3, 2016)
I don’t get to blog discovery disputes often; that this one is unresolved is frustrating, but the court asks useful questions.  “May Plaintiffs pursuing a false advertising Lanham Act
claim obtain in discovery the member list and email distribution list from a ‘unique’
and ‘private’ clothing-optional swingers’ club for ‘men and women who enjoy nudity
and sexual activity’ and who are directed to practice ‘safer sex’ at the club …?”  Maybe!
Plaintiffs are 32 professional models who alleged that
defendants “pirated and altered their images to advertise their swinger’s club
business interests on websites and social media accounts,” and put their
images/altered images “next to, or in very close proximity to, photos of
explicit, hardcore pornography which are too obscene and offensive to include
as exhibits to a publicly-filed complaint.” 
Plaintiffs sought information about defendants’ membership and email
distribution lists.  Defendants sought a
protective order, arguing that their members’ associational rights and their
own trade secrets would be threatened by disclosure.  The court sought more information before
ruling.
The parties disagreed about whether inquiries using the lists
would provide useful or even vital information. 
Ordinarily, you could survey likely swinger club customers, rather than
existing customers, though a large enough sample might be hard to get even with
an internet survey.  However, plaintiffs
sought “relevant sociographic and demographic evidence” from the lists so that
a representative sample could be constructed. They also argued that courts
routinely permit discovery of customer lists for these purposes; they sought to
reach out to customers via targeted email to see if they were confused;
customers who didn’t want to testify could seek protective orders. They also
offered to sign a confidentiality agreement to prevent misuse of the
information.
The court considered their request less pressing because it
furthered “a private agenda, not public-type goals” such as a criminal
investigation.
The judge was also uncertain about the strength of defendants’
asserted interests.  The club at issue
did have a strict confidentiality agreement, but half of the club’s members
were “not shy” about their association with the club; some club members “voluntarily
chose to self-disclose their affiliation and membership by being prominently
featured on the Club’s website.”  Nor did
the club promise its members confidentiality—it just made them promise
confidentiality to each other.
Was this information even within the permissible scope of
discovery? The rules allow discovery of “any nonprivileged matter that is
relevant to any party’s claim or defense and proportional to the needs of the
case, considering the importance of the issues at stake in the action, the
amount in controversy, the parties’ relative access to relevant information,
the parties’ resources, the importance of the discovery in resolving the
issues, and whether the burden or expense of the proposed discovery outweighs
its likely benefit. Information within this scope of discovery need not be
admissible in evidence to be discoverable.”  Proportionality requires an assessment of the marginal
utility of the discovery sought, and thus is highly related to relevance.  Since actual confusion is powerful evidence
of likely confusion, I would have thought that the baseline marginal utility
was pretty high.
So, would the requested lists be important in determining
damages (etc.) for the Lanham Act claim? 
Mere speculation as to the information’s utility won’t suffice.  The judge hearing the case initially
dismissed the Lanham Act claim sua sponte, though she offered them the opportunity
to refile.  They did, but they were thus
on notice that their claim was dubious, so the court also considered “whether
the requested discovery would be relevant if the sole claim is subject to
significant challenge.”
In theory, using targeted email surveys based on the list would
be a good idea, but the judge was dubious about the practical utility
thereof.  Respondents would be providing “relevant
demographic and sociographic characteristics” “in response to unsolicited
emails from a large law firm representing Plaintiffs who filed a lawsuit
against the club they attend to pursue their unusual, arguably-provocative,
lifestyle.”  But, the court asked, why would
anyone respond?
If the poll recipients understand
that they are not obligated to respond and further realize that responding
might cause them to be served with a deposition subpoena, then would they
likely complete and return the survey? What percentage response rate would an
expert need to receive to reach any meaningful conclusion about customer
confusion? Would members be likely to even remember whether they saw a
photograph of a model on a website before attending the Club? Would receiving a
simple online poll request generate anxiety or concern among the club members
or email recipients?
To proceed, plaintiffs would have to provide more
information, but defendants would have to disclose the number of members, the
number of people on its email marketing list, and other details about the list.  Plaintiffs, if they wished to proceed, would
have to provide more details from a survey expert showing that a survey would be
likely to work in this context.

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misbranding is still a thing despite First Amendment, court rules

Posted on October 4, 2016 by rtushnet
United States v. Vascular Solutions, Inc., No. SA-14-CR-926,
— F.Supp.3d —-, 2016 WL 5475999 (W.D. Tex. Jan. 27, 2016)
Defendants sell a medical device which permanently closes varicose
veins using a laser, allowing healthier veins to move blood.  The device is approved for treatment of
superficial veins only, not perferator veins. 
The government indicted defendants for misbranding: they failed to
provide the FDA with required notification of a new intended use, and the
devices’ labeling lacked adequate directions for that new intended use.
Defendants argued that the government’s case threatened the
First Amendment.  The court (Royce
Lamberth, which means that the government was treading lightly indeed!)
disagreed, in part because the government limited its claims.  Under Wisconsin
v. Mitchell, “[t]he First Amendment … does not prohibit the evidentiary
use of speech to establish the elements of a crime or to prove motive or
intent.”
Misbranding requires that the device have an “intended use”
other than that approved by the FDA.  The
regulations say that “intended use” means
the objective intent of the persons
legally responsible for the labeling of devices. The intent is determined by
such persons’ expressions or may be shown by the circumstances surrounding the
distribution of the article. … [I[f a manufacturer knows, or has knowledge of
facts that would give him notice that a device introduced into interstate
commerce by him is to be used for conditions, purposes, or uses other than the
ones for which he offers it, he is required to provide adequate labeling for
such a device which accords with such other uses to which the article is to be
put.
The government represented that it didn’t plan “to use
promotional speech to doctors to prove the intended use of the devices for
perforator vein ablation,” and will instead rely on conduct alone. “Should the
government change its plan and decide to use promotional speech to prove
intended use, or should the Court become concerned that the government is
indeed pursuing a theory that the FDCA prohibits even truthful non-misleading
off-label promotion, the Court will address this issue at that time.” 
The government did plan to rely on statements to doctors to
prove the conspiracy charge because a lawful act may serve as the “overt act”
in furtherance of a conspiracy. The speech might be truthful, but it could
still serve as an act taken to effect the object of the conspiracy without
violating the First Amendment.  Moreover,
a jury instruction could make clear that speech about off-label use is not
misleading merely because the FDA has not approved that off-label use or
reviewed or approved the speech.
Defendants also wanted the court to hold that “to prove that
a communication was actually misleading, the government must prove that the
communication misled a substantial subset of its intended audience.” This is
the Lanham Act standard, not the FDCA standard, and there’s no indication in
the case law that this is the First Amendment floor for misleadingness.

Defendants also moved to exclude any evidence of their
subjective intent.  However, the
governing law requires manufacturers to provide appropriate labeling “if the
manufacturer has reason to believe that its medical device might be used for
purposes different from the purposes for which the device is approved.”  That makes their knowledge and subjective intent
relevant.  Moreover, statements need not
be published to the marketplace to show objective intent, as long as they
manifest “oral or written statements.” A hypothetical manufacturer “who learns
over the phone from a customer-physician that the physician is ordering a
device approved for use A but intends to use it for use B, and must now
consider whether he can legally fill the order … would face no peril from such
a rule because he made no oral or written statement from which objective intent
could be proven.”

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Insert scatological pun here: cities’ lawsuit over flushable wipes mostly continues

Posted on October 4, 2016 by rtushnet
City of Wyoming v. Procter & Gamble Co., 2016 WL
5496321, No. 15-2101 (D. Minn. Sept. 28, 2016)
“Hygienic wipes labeled and sold as ‘flushable’ have caused
and are continuing to cause increased costs and property damage to the
governmental entities that operate sewer systems and water treatment
facilities.” Municipalities in Minnesota and Wisconsin sued over the costs and
property damage they say they have suffered due to false advertising of “flushable”
wipes. The court allowed some of their claims to proceed.
Plaintiffs alleged that each defendant represents that its
respective wipes are “flushable.” Some, like Cottonelle, made additional claims
such as “Sewer and Septic Safe” and “break up like toilet paper after flushing.”
Defendant Tufco allegedly made “flushable” wipes for private label
customers.  Plaintiffs alleged that
approximately 25% of their sewer clogs could be attributed to flushable wipes
clogging pipes.  Further, they alleged
that defendants were members of the Association of Nonwoven Fabrics Industry (INDA),
a trade association that created “Guidelines for Assessing the Flushability of
Disposable Nonwoven Products.” Defendants, through their membership in INDA,
allegedly “manipulated [INDA’s] test standards and guidelines making them
weaker to guarantee [Defendants’] products could be marketed as ‘flushable’
under the INDA guidelines.”

Standing: defendants argued that plaintiffs didn’t detail
exactly how defendants caused their injuries.  
It was enough for the municipalities to explicitly make allegations that
they are injured by wipes marketed as flushable, that defendants each produce
and sell these “flushable” wipes, and that it is “Defendants’ continued sale
and promotion of wipes as ‘flushable’ and ‘sewer and septic safe’ ” that has
caused and is causing Plaintiffs’ injury.” The court here distinguished Wallace
v. ConAgra Foods, Inc., 747 F.3d 1025 (8th Cir. 2014), in which plaintiffs
alleged that not all Hebrew National hot dogs were 100% kosher, as ConAgra had
advertised. The Eighth Circuit found that because plaintiffs had not alleged
that they themselves had actually purchased or consumed any defective
non-kosher hot dogs, plaintiffs had not pleaded an injury for standing
purposes.  But, unlike Wallace, this wasn’t a manufacturing
defect case.  The municipalities weren’t
arguing that some poorly-made subset of flushable wipes was responsible for
their injuries, but that falsely advertising an entire class of wipes as
flushable harmed them.  The Wallace plaintiffs “never claimed to
have actually come into contact with the offending non-kosher hot dogs, while
Plaintiffs here have repeatedly alleged that not-actually-flushable ‘flushable’
wipes are clogging their water treatment facilities.”  Defendants’ manipulation of INDA also
plausibly caused the municipalities an injury.
Nor was it fatal that clogs can be traced to numerous
different causes.  “A plaintiff is not
deprived of standing merely because he or she alleges a defendant’s actions
were a contributing cause instead of the lone cause of the plaintiff’s injury.”
Article III standing is not proximate causation.  Flushable wipes allegedly caused one in four
clogs, which was enough for standing. 
Plus, the municipalities plausibly alleged a risk of future harm, which
couldn’t be accompanied with a perfectly detailed causal chain. The court did
find that plaintiffs couldn’t proceed with a Declaratory Judgment Act claim
because it wasn’t a real claim.
But more importantly, breach of warranty and consumer
protection claims survived. Breach of warranty: In Minnesota, “where a
third-party suffers property damage from a product, that person may constitute
a third-party beneficiary even if the party never used, purchased, or otherwise
acquired the product,” and that was properly alleged here.  Defendants argued that plaintiffs’ claims
were time-barred by the four-year statute of limitations, since the wipes have
been on the market since at least 2008. 
But the warranty at issue here, that the wipes are actually flushable,
“extends to future performance of the goods” – the flushing of the wipe. The cause
of action does not accrue until the date “the breach is or should have been
discovered,” which is no earlier than the date the consumer flushes the wipe
down the toilet. Thus there was no time bar “for at least a great portion of
the wipes that are allegedly clogging and will clog Plaintiffs’ sewer
systems.”  Nor was there a failure to
provide pre-suit notice, as required by Minnesota law.
Express warranty: Minnesota, adopting the UCC, takes the
position that: “In actual practice, affirmations of fact made by the seller
about the goods during a bargain are regarded as part of the description of
those goods; hence no particular reliance on such statements need be shown in
order to weave them into the fabric of the agreement.” The wipes say
“flushable”; this affirmation of fact was woven into the fabric of the
agreement.
Implied warranty of merchantability: Defendants argued that
a reasonable person might think a wipe was “flushable” as long as it passed
through their toilet’s piping.  But the municipalities properly alleged that
the defendants described their wipes as safe not just for toilets, but also for
wastewater treatment facilities. “A reasonable person would undoubtedly expect
that a product represented to be safe for sewer systems actually be safe for
sewer systems – not just for the consumer’s own piping.”  However, the court dismissed claims based on
the implied warranty of fitness for a particular purpose.
Minnesota consumer protection statutes: the municipalities
weren’t purchasers, but the state law doesn’t require them to be.  Grp. Health Plan, Inc. v. Phillip Morris Inc.,
621 N.W.2d 2 (Minn. 2001) (“[T]o state a claim that any of the substantive
[consumer protection] statutes has been violated, the plaintiff need only plead
that the defendant engaged in conduct prohibited by the statutes and that the
plaintiff was damaged thereby.”)  Nor did
Minnesota’s deceptive trade practices statute require competition between the
parties.  Lexmark was persuasive, but not state law, “and cannot overcome the
text of Minnesota’s statute: Plaintiffs ‘need not prove competition’ in Minnesota.
Minn. Stat. § 325D.44, subd. 2.”
The Wisconsin Tort Reform Act didn’t defeat these claims
either.  The legislature was trying to
bar plaintiffs from recovering “even when a plaintiff could identify only a
class of products, made and sold by a class of companies, as the source of the
plaintiff’s injury.” The plaintiff in a product liability case must therefore “prove
that the defendant is associated with ‘the specific product alleged to have
caused the claimant’s injury or harm.’”  There were no cases interpreting the statute.
Nonetheless, the court declined to dismiss most of the
claims. First, the Tort Reform Act was a burden of proof rule, not a pleading
rule.  Under Twiqbal, plaintiffs’ complaint satisfied the Act’s requirements;
they alleged injury by the specific wipes produced by these defendants. The
municipalities also alleged that they could determine which wipes were in which
particular plaintiff’s wastewater treatment facilities. “[I]t is a close
question whether it is plausible that each and every specific product is
causing each and every plaintiff harm – but when examined on a product by
product basis, it is plausible that each product has been sold to customers in
the vicinity of Plaintiffs’ sewer systems and has entered their piping and caused
them the harm that they allege to have taken place.”
Plaintiffs also pled a public nuisance claim.  In Wisconsin, a public nuisance is “a
condition or activity which substantially or unduly interferes with the use of
a public place or with the activities of an entire community.” The allegations
that defendants’ products were drastically increasing the cost of water
treatment facilities, and that these facilities were used to clean the water
for the public health, were sufficient. Defendants’ main argument was that they
weren’t responsible for the literal clogs, but rather the allegedly inadequate
or false warnings that indirectly led to the clogs.  But Wisconsin didn’t require direct
causation, only that the defendant (1) had “either actual or constructive”
notice of the alleged public nuisance, and (2) failed to “abate” the public
nuisance causing the plaintiff’s injury.  Representing that wipes were flushable could
be a covered nuisance “activity.”

Tufco brought a separate motion to dismiss. Because it makes
wipes for private label customers and is “apparently not a consumer-facing
company,” tracking Tufco’s responsibility was more difficult. Still, plaintiffs
did allege that Tufco “clearly advertises ‘flushable’ wipes for its consumers”
on its website, and it was more than plausible to suggest that this claim
mattered to private label customers. 
However, for Wisconsin claims, the Tort Reform Act required more.  Plaintiffs needed to allege that Tufco made
wipes for a specific company, and that those wipes caused them harm.

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Lumps in materiality survey fail to justify its exclusion

Posted on October 3, 2016 by rtushnet
Select Comfort Corp. v. Tempur Sealy Int’l, Inc., No.
13-2451, 2016 WL 5496340 (D. Minn. Sept. 28, 2016)
The court resolves various motions surrounding expert
testimony in this false advertising case about the effects of certain
comparative claims on Select Comfort Sleep Number mattress sales.  The claims were made mostly through the flyer
below, though also allegedly through statements from salespeople, the latter including
that Sleep Number beds develop mold and that defendant Mattress Firm chose to
stop selling Sleep Number due to quality issues.
flyer

In 2013, the Court granted a TRO enjoining Mattress Firm
from making various representations to consumers regarding Select Comfort and
its products, but lots of issues remain.
For one thing, the court allowed testimony about calculation
of profits to stay in, because disgorgement may be an available remedy even
though the court previously granted summary judgment against Select Comfort on
the issue of willfulness.  Whether
disgorgement is available without willfulness is an issue of law reserved for
later.  However, the court excluded
testimony about Tempur-Pedic’s total profits from sales of products other than
Tempur-Choice, the subject of the comparative ads at issue:
Tempur-Choice is the only
Tempur-Pedic product with the same feature as the Sleep Number bed—the ability
to separately adjust mattress firmness on either side of the bed.
Tempur-Pedic’s other mattress lines (not air-adjustable) vary greatly to the
extent that they offer different features and sell at different prices. An
accounting of profits under the Lanham Act is intended to award profits on
sales that are attributable to infringing conduct. While under a disgorgement
model Plaintiff must only prove Tempur-Pedic’s sales, those sales must be of the
allegedly falsely advertised products.
The court also excluded a lost profits calculation based on
comparing Select Comfort’s sales at stores near defendant Mattress Firm stores
versus sales at stores not near Mattress Firm stores.  Because the expert didn’t distinguish between
Mattress Firm stores where the salespeople made the statements at issue as part
of an organized campaign of disparagement from Mattress Firm stores where there
was no evidence of such statements, the damages model was inappropriate
bootstrapping: it assumed liability to prove liability.  Nor did the model appropriately account for
other differences between stores, such as the amount of local advertising
Select Comfort invested in.
Hal Poret conducted a survey for Select Comfort.  One group was used to test the materiality of
three statements Mattress Firm sales representatives made with regard to Sleep
Number beds; another group was questioned about the flyer or a control version
of the flyer that didn’t use “hammocking” imagery or claim that Select Comfort
used “commodity foam.”  The flyer groups
were asked what they understood the flyer to communicate, such as a comparison
between Tempur-Choice and Sleep Number beds. The survey used open-ended
questions about what the flyer communicated, then questions about specific
sections of the flyers such as as “commodity memory foam” and the “hammocking”
imagery. Respondents were then shown the flyer and asked about specific parts,
with the specific parts marked with a red box, e.g., “What, if anything, does
this phrase (with a red box around it) communicate to you about SLEEP NUMBER
beds?” and followups about why the statement was negative or positive
(depending on the respondent’s answer) and whether it would affect their
purchase intentions.
 

survey flyer with check marks
Poret concluded, based on the closed-ended question, 44% of
the test group respondents understood the phrase “commodity foam” to
communicate something negative, and 31% of the test group respondents answered
that the phrase “commodity” memory foam would make them less likely to purchase
a Sleep Number bed. In the closed-ended question, 27.5% of the Test Group
respondents answered that that Sleep Number beds allow hammocking, and 55%
answered that this section of the ad would negatively impact their likelihood
of purchasing a Sleep Number bed.  

Poret also tested statements allegedly made by Mattress Firm sales associates
that: (1) the store stopped selling Sleep Number beds because too many
customers returned them; (2) the store stopped selling Sleep Number beds
because too many customers had problems with them; and (3) Sleep Number beds
develop mold.  Poret also asked about
additional statements aimed at being “control statements.”  Poret concluded that the test statements were
“highly material” because high percentages said that the test statements would
influence their decisions.  Respondents
also said that the control statements would influence their decisions to
various degrees, averaging 14%, which he counted as the relevant noise.  Even after subtracting 14% from the test
question results, he concluded that the results still “strongly indicate[d]”
that the statements or substantially similar statements were material.
Defendants challenged the survey for having an overinclusive
sample population: any individual who purchased any memory foam or adjustable
air/memory foam mattress in the past two years, or who planned to purchase any
memory foam or adjustable air/memory foam mattress in the next two years. Poret
did not limit his sample population to those who purchased or planned to
purchase mattresses within the relevant price range, and didn’t control for
current owners of the parties’ products.  Further, defendants argued the survey didn’t
approximate actual market conditions because of the other information consumers
would have encountered in the marketplace and because it forced them to pay
attention to and understand the challenged claims, which might not have
otherwise happened, especially since Poret circled the challenged claims with
red boxes (which has a negative connotation). 
The court found that none of these criticisms merited excluding the
survey, especially given the presence of a control group.
Mattress Firm also challenged Poret’s use of specific
statements to test materiality, arguing that its salespeople didn’t say those
exact things.  “Mattress Firm can
question Poret about his choice of test statements and a jury can decide how
much, if any, weight to afford the survey based on that, and other factors.”  Defendants’ own experts could also criticize
Poret for not including other factors that might influence mattress purchases.
A defendant expert witness on polyurethanes, however, didn’t
have relevant expertise to testify on the meaning of “commodity foam” to
consumers:

Here, there is no evidence that
Defendants consulted any expert to determine the meaning of “commodity” before
creating their advertisement, and it appears that Fogg’s testimony on this
point is being offered as an after-the-fact explanation for a marketing
decision. Fogg is a polyurethane expert, not a marketing expert, and he has no
particular qualification that would allow him to opine on how a consumer would
perceive the meaning of the advertisement. 

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Migration of false/misleading divide into consumer protection claims continues in infant formula class action

Posted on October 3, 2016 by rtushnet
Hasemann v. Gerber Prods. Co., 2016 WL 5477595, No. 15-CV-2995
(E.D.N.Y. Sept. 28, 2016)
In this putative class action, the plaintiffs alleged that Gerber’s
advertising and marketing misrepresented that its Good Start infant formula
reduces the risk that infants will develop allergies, and also misrepresented
that the Infant Formula was the first and only infant formula that the FDA
endorsed to reduce the risk of infants developing allergies.
In 2009, Gerber asked the FDA to approve a qualified health
claim that “emerging clinical research shows that, in healthy infants with
family history of allergy, feeding a 100% Whey-Protein Partially Hydrolyzed
infant formula instead of a formula containing intact cow’s milk proteins may
reduce the risk of developing the most common allergic disease of infancy —
atopic dermatitis — throughout the 1st year of life and up to 3 years of age.”  The FDA found that this claim was misleading,
but proposed four alternative qualified health claims, including a qualifying
statement: “Partially hydrolyzed formulas should not be fed to infants who are
allergic to milk or to infants with existing milk allergy symptoms. If you
suspect your baby is already allergic to milk, or if your baby is on a special
formula for the treatment of allergy, your baby’s care and feeding choices
should be under a doctor’s supervision.”
The statements plaintiffs challenged were: “1st & only
routine formula to reduce the risk of developing allergies,” “the first and
only formula brand made from 100% whey protein hydrolyzed, and that meets the
criteria for a FDA Qualified Health Claim for atopic dermatitis,” and similar
claims.  Plaintiffs alleged two
misrepresentations: (1) that the formula reduced allergy risk, and (2) that the
formula met the criteria for an FDA qualified health claim for atopic
dermatitis. Plaintiffs alleged that several scientific studies have concluded
that partially hydrolyzed whey protein does not lower the risk that infants
will develop allergies.  Further, they
alleged that Gerber’s actual statements weren’t one of the four qualified
health claims that the FDA approved and, in addition, didn’t include the
required qualifying statement.
The FDA sent a warning letter to Gerber about the formula’s
advertising, noting that it found the labeling misleading and that it had
“previously considered and denied” the statement on the label that it was the
“1st & only routine formula to reduce risk of developing allergies.” Consistent
with the FDA’s four proposed qualified health claims, Defendant’s labeling and
website both stated that there was “limited evidence” that partially hydrolyzed
whey protein can reduce the risk of infants developing atopic dermatitis, but the
warning letter concluded that by failing to include the qualifying statement
required by the FDA, Gerber failed to provide “essential information necessary
to ensure the safety of consumers,” and so the labeling was misleading.  The FTC sued Gerber, alleging that the two
claims at issue here were false, misleading, and, for (1), unsubstantiated.
The court first declined to wait for the FTC under the
primary jurisdiction doctrine.  Plaintiffs’
false advertising claims didn’t involve technical considerations within the
particular expertise of either the FDA or the FTC.   There was no need to wait for an
investigation to conclude, because the FTC had already sued.
However, plaintiffs lacked Article III standing to seek
injunctive relief because they didn’t allege any intent to buy the formula in
the future.  (Hey, with respect to
formula in particular, why isn’t this “capable of repetition, yet evading
review,” given its close connection to infant development and the fact that all
consumers will age out of the product fairly quickly?  If there was standing in Roe v. Wade, it would
seem also justified here.)
The court then ruled that, given state precedent, Wisconsin
Deceptive Trade Practices Act § 100.18, which “generally prohibits false,
deceptive, or misleading representations or statements of fact in public
advertisements or sales announcements,” didn’t cover food, but only “real
estate, merchandise, securities, service or employment”; an intermediate state
court previously held that “merchandise” doesn’t mean “food” here because a
different section of the law specifically mentions food and doesn’t provide for
a private right of action.
However, § 100.20(2)(a) authorizes the Wisconsin Department
of Agriculture, Trade and Consumer Protection “to ‘issue general orders
forbidding methods of competition in business or trade practices in business
which are determined by the department to be unfair.’ ” “Section 100.20 also
authorizes a private right of action,” permitting “[a]ny person suffering
pecuniary loss because of a violation by any other person of any order issued
under this section [to] sue for damages ….” And, pursuant to this authority,
the department has issued a general order requiring food sold in Wisconsin to
be labeled in compliance with FDA rules. 
Here, the FDA has found that the labeling at issue was misleading.
Gerber argued that the FDA had closed its investigation,
making the warning letter irrelevant. 
Gerber relied on a 2015 letter stating that the FDA has completed “an
evaluation” of Defendant’s “corrective actions in response to [the FDA Warning
Letter]” and that it “appears that [Defendant] addressed the violations
contained in [the FDA Warning Letter].”  The court wouldn’t consider this letter on a
motion to dismiss.
Gerber also argued that plaintiffs were bringing a mere lack
of substantiation claim, not a misleadingness/falsity claim, which they
couldn’t do as private plaintiffs. Gerber contended that its qualified health
claim wasn’t literally false because the FDA determined that its
representations regarding atopic dermatitis were “generally consistent” with
the qualified health claims proposed by the FDA, and that the FDA found that
there was some scientific support for its qualified health claim.  But plaintiffs were claiming misleadingness,
not literal falsity, because of the absence of the qualifying statement
required by the FDA.
Plaintiffs also alleged that the allergy risk reduction
claim was false because the FDA determined in 2006 that there was no scientific
evidence to support the claim and because a 2011 scientific study contradicted
Gerber’s claim. That was sufficient to allege falsity.
Likewise, the misleadingness of the FDA endorsement claim
was sufficiently alleged, which was enough under Florida law—but it wasn’t
enough for Wisconsin law, which the court found to require literal falsity.
(This seems like an extreme overreading of Wisconsin law’s reference to
“falsity” to me—a falsehood can be express or implied, and Wisconsin doesn’t
explicitly limit its coverage to “explicitly false” claims, nor is there a good
policy reason for it to have chosen to do so.) 
Gerber also invoked the awful In re GNC Corp. case, where the Fourth Circuit held that “in order to
state a false advertising claim on a theory that representations have been
proven to be false, plaintiffs must allege that all reasonable experts in the
field agree that the representations are false.” The court here distinguished GNC because, in GNC, “there was some credible scientific evidence supporting the
allegedly deceptive representations,” but plaintiffs alleged that there was no
credible scientific evidence supporting Gerber’s allergy risk reduction claim.
“[F]actual disputes about whether the scientific evidence actually disproves
the qualifying health claim, or whether there is mere scientific debate
regarding the qualifying health claim, cannot be resolved by the Court on a
motion to dismiss.” Anyway, whether there was some scientific support was
relevant to explicit falsity, but not to misleadingness.
Finally, this was not a lack of substantiation claim.  “Under Florida law, a claim that a
representation is false or misleading because it has been disproven or
contradicted by scientific evidence is not a lack-of-substantiation claim.”  Plaintiffs alleged that Gerber’s qualified
health claim was misleading without the qualifying statement, and that the
allergy risk reduction claim was literally false because it was contradicted by
all of the credible scientific evidence: that was more than lack of
substantiation.
Plaintiffs also properly alleged causation under Florida’s
Deceptive & Unfair Trade Practices Act, which didn’t require actual reliance
but only that an objective reasonable person would have been deceived.  For other Florida and Wisconsin claims,
plaintiffs needed to allege justifiable reliance, which they did—reliance is
unreasonable if they had notice of facts which would have told them the truth,
but that didn’t appear from the pleadings.

Plaintiffs’ price premium theory also sufficiently alleged
damages.  Plaintiffs don’t have to plead
the price of comparable products to allege that they paid more than the product
was worth. 

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Failure to disclose expiration date when existence of expiration is disclosed isn’t misleading

Posted on October 3, 2016 by rtushnet
Cline v. TouchTunes Music Corp., 2016 WL 5478432, No. 14
Civ. 4744 (S.D.N.Y. Sept. 29, 2016)
A couple of general points from this state law class action
over a music service: GBL Section 349 makes unlawful “[d]eceptive acts or
practices in the conduct of any business, trade or commerce or in the
furnishing of any service in this state,”
and GBL Section 350 has similar wording for false advertising.  Neither named plaintiff resided in New York
or alleged that she accessed TouchTunes’ services or used a TouchTunes jukebox
in New York. 
The New York Court of Appeals has held that the transaction
in which consumer is deceived must occur in New York for these provisions to
apply. But the court’s analysis didn’t turn on residency “because the statute
neither was intended to police out-of-state transactions by New York companies
nor to bar out-of-state plaintiffs with claims based on New York transactions.”  The Second Circuit has subsequently focused
on where the relevant transaction took place, since there’s no per se bar on
out-of-state plaintiffs.
For app and credit card users, TouchTunes processes customer
payments in New York, where it’s based. Plaintiffs also alleged that TouchTunes’
music servers were in New York. The TouchTunes Terms of Use Agreement provides
that “any dispute between [the user] and TouchTunes will be governed by the law
of the State of New York” and that those disputes must be brought in New York
state or federal courts.  It was a fair
inference that the users’ music selections were transmitted electronically to
TouchTunes’ New York servers. Thus, the court would consider New York claims
based on use of the TouchTunes App and the purchase of credits at jukeboxes by
use of credit cards, but not to cash users of TouchTunes jukeboxes.  For cash users, “the ultimate recipient of
their out-of-state payments, a governing law-choice of forum provision in a
“click-wrap” agreement on out-of-state electronic jukeboxes, and the location
of TouchTunes’ servers” weren’t enough to justify the application of New York
law.
Under §349, plaintiffs brought claims of three separate
misleading acts: that (1) App users were not refunded for unplayed songs even
though TouchTunes has the technical capability to do so, (2) TouchTunes failed
to disclose that venue owners were able to skip paid-for songs and that the
Terms of Use were misleading as to this fact, and (3) TouchTunes misled App
users by failing to disclose the expiration dates of credits purchased through
the App.
(1) failed because a refusal to refund credits wasn’t in and
of itself misleading; plaintiffs didn’t allege facts to suggest that they
reasonably expected such a refund, and TouchTunes Terms of Use stated that
refunds wouldn’t be issued for unplayed songs “under any circumstances.” That
might be distasteful, but it wasn’t deceptive or misleading.
(2), however, was a legitimate claim.  Although the complaint alleged that
plaintiffs witnessed bartenders or managers at TouchTunes-equipped venues skip
songs in the TouchTunes queue, that fact doesn’t mean that a reasonable consumer
would be well aware that their songs might be skipped. The Terms of Use
disclosed generally that songs may not play and that consumers will not receive
a refund “under any circumstances.”  But
that disclosure didn’t indicate that venue owners could deliberately skip songs,
instead stating that songs might not play due to “factors, including the
inherent unreliability of the Internet” or the “inaccessibility or technical
failure of my TouchTunes.” This language could plausibly have led reasonable
consumers to believe that the only reason songs wouldn’t play was because of
technical failures beyond any party’s volitional control.

(3) also failed because the Terms of Use didn’t say or
suggest anything about the expiration time period was, just that expired
credits wouldn’t be usable.  “Where
customers were made aware of the fact that credits will expire but were given
no indication of the length of the expiration period, they cannot claim to have
been misled.”

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Failure to reevaluate at summary judgment leads to fee award in false advertising case

Posted on October 3, 2016 by rtushnet
Design Resources, Inc. v. Leather Indus., 2016 WL 5477611,
No. 10CV157 (M.D.N.C. Sept. 29, 2016)
After defendants Leather Industries (LIA) and Ashley
Furniture prevailed
in this false advertising case, they sought a fee award.  The Fourth Circuit applies the Octane Fitness standard in Lanham Act
cases: exceptional cases deserving fee awards are those “ ‘that stand[ ] out
from others with respect to the substantive strength of a party’s litigating
position (considering both the governing law and the facts of the case) or the
unreasonable manner in which the case was litigated.’ ” More specifically,
courts consider whether
(1) there is an unusual discrepancy
in the merits of the positions taken by the parties, based on the
non-prevailing party’s position as either frivolous or objectively
unreasonable, (2) the non-prevailing party has litigated the case in an
unreasonable manner; or (3) there is otherwise the need in particular
circumstances to advance considerations of compensation and deterrence.
Something less than bad faith is required; “[r]elevant
considerations include[ing] economic coercion, groundless arguments, and
failure to cite controlling law.”
Here, DRI argued that its claims survived early motions and
were only dismissed at summary judgment, and thus weren’t frivolous or
objectively unreasonable.  LIA argued
that DRI should have known that it couldn’t prevail with the evidence gathered
during discovery.  Ashley pointed out
that, on appeal, the Fourth Circuit described DRI’s literal falsity by
necessary implication claim as “confounding,” requiring the court to accept
that the ad meant the opposite of what it said. 
DRI responded that it failed to prevail because it didn’t show
misleadingness, but that didn’t make its claim groundless.  However, “the Lanham Act provides for an
award of attorneys’ fees when the conduct of the litigation becomes
unreasonable over time.” A plaintiff is thus “obligated to continually assess
the strength of its claim throughout the litigation.”
The court found that the case began as an objectively
reasonsble claim; DRI could have thought it was a target of Ashley’s ad against
suppliers “using leather scraps that are misrepresented as leather.”  However, discovery failed to show literal
falsity or misleadingness.  DRI’s own
evidence didn’t show any consumer confusion, and that changed the context of
the case.  Thus, fees should be awarded “as
a result of Plaintiff’s failure to continually assess the substantive strength
of its litigation position, particularly by the conclusion of discovery.”
Defendants also argued that DRI litigated the case in a
needlessly aggressive way.  However, “conduct
triggering relief must go beyond an aggressive litigation strategy.”  But deterrence goals supported a fee award:
litigants should know not to pursue their claims “when the claim has fallen
apart following discovery due to a lack of supporting evidence.”

Thus, the court awarded fees of $274,036 to Ashley and
$250,676 to LIA on the Lanham Act claims, and commented that it would have
reached the same result under North Carolina law (for the coordinate state law
claims).

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