Settlement class can’t stand where settlement notice gave mistaken info

Posted on July 22, 2016 by rtushnet
Duran v. Obesity Research Institute, LLC, No. D067917, 2016
WL 3913205 (Cal. Ct. App. Jun. 23, 2016)
Duran sued ORI and Wal-Mart for allegedly falsely
advertising the weight loss benefits of Lipozene and MetaboUp. The court
approved a claims-made settlement providing that class members submitting a
claim without proof of purchase would receive $15, and those submitting
receipt(s) would receive one refund of double the unit price paid. (A
claims-made settlement isn’t a fixed fund but depends on the number of claims
submitted; “[s]uch settlements may promise far more than they deliver because
the claiming rate is notoriously low.”) The settlement also provided that ORI
would cease making certain advertising claims, and that defendants wouldn’t
oppose a motion seeking $100,000 in attorney fees to class counsel.  The class is estimated at between 400,000 and
600,000 consumers.  In total, 895 claims
were submitted, in the total amount of $31,800, or 0.179% of the class
(assuming 500,000 class members)—about six cents per class member.  Objectors appealed, and the court ruled that
the notice, which was emailed to consumers who bought online directly from ORA
and also appeared in USA Today, was
insufficient.
The notice here depended on the settlement website.  The email, which went to 237,334 class
members, didn’t include the terms, but just told recipients to click on a link
to the settlement website.  The USA Today notice explained the method of
calculating settlement payments and generally described the injunctive relief,
but also referred readers to the settlement Web site “[f]or additional
information on submitting a claim ….“ The settlement Web site said that
submitting a valid claim form was the only way to get a cash payment.  But the downloadable claim form, integral to
the settlement, was wrong.  Instead of
stating that class members who submitted receipts would get one refund of
double the purchase price, it said they’d get a refund of all products bought
during the class period, resulting in overvaluing or undervaluing claims.
The online claim form also misstated the product involved—it
referred to Hydroxycut products, not involved here—and the scope of the release
involved in taking the settlement (the trial court had rejected a release of
unknown claims, but the claim form included it).  These issues weren’t raised in the trial
court, even by objectors, but class counsel and defendants argued that the
settlement was fine and a remand was necessary only to decide the “details and
logistics“ of giving corrected class notice. 
The court disagreed.  “The judgment
must be reversed because the class notice failed in its fundamental purpose—to
apprise class members of the terms of the proposed settlement.”
The court found that the problems its independent review of
the claim form revealed weren’t waived.  The
relevant facts were undisputed and couldn’t have been changed by presenting
addditional evidence.  And the trial
court couldn’t have cured the error at the final approval hearing because the claims
process was over.  Further, “[t]he
court’s responsibility to protect absent class members” justified an exception
to waiver or forfeiture.
Defendants and class counsel argued that, even though the
notice was bad, the finding that the settlement was reasonable, fair, and
adequate should be left untouched.  But the
adequacy of class notice of settlement was too intertwined with the
reasonableness of the settlement to accept that argument, since, among other
things, “the amount offered in settlement“ and “the reaction of the class
members to the proposed settlement” are relevant to the court’s assessment.
As for notice to class members, “process which is a mere
gesture is not due process. The means employed must be such as one desirous of
actually informing the absentee might reasonably adopt to accomplish it.”  ORI sent notice by email to its direct
website customers.  Objectors argued that
Wal-Mart.com purchasers could have been given email notice too, and that the
parties should have subpoenaed records from other retailers, such as Amazon,
CVS, and Walgreens, to obtain addresses of other class members.  Wal-Mart argued that it couldn’t get
addresses for those who purchased from its online store because the entity
operating Wal-Mart.com—Wal-Mart.com USA, LLC—wasn’t the entity Duran sued,
which was Wal-Mart Stores, Inc.  ORI’s
attorney filed a declaration stating he “reached out“ to “several retailers“ to
obtain customer contact information, but was told that “obtaining such
information is illegal, unavailable or improper.”
“On remand, class counsel and defendants will have to provide
a better foundation to support a ruling that direct notice need not be given.”  Among other things, the fact that the brick
and mortar store was owned by one entity, and the online store by another, didn’t
by itself establish the requested information wasn’t reasonably obtainable.  What’s required is “a notice plan that one
would implement if one genuinely wanted to inform someone, all relevant factors
considered.”  It wasn’t enough to say,
vaguely, that counsel “reached out to several retailers.”  Direct notice might not be required for
online purchasers other than those who used ORI’s website, but the court needed
more information.
Objectors also submitted a declaration from a media expert asserting
the USA Today notice reached only approximately 1.06% of class members. She
used “industry-standard research data” about “demographic, lifestyle, product
usage and exposure,” using data for audiences targeted with a definition of
“Meal/Dietary/Weight Loss Supplements Used For Weight Loss in Last 6 Months.”  There was no evidence disputing her opinion
or even evidence that Lipozene was advertised in USA Today.  ORI didn’t
explain how a settlement class member who didn’t receive e-mail notice and who didn’t
read the notice in USA Today would even know to look for a Lipozene settlement
Web site.  The idea of using publications
targeting class members needed to be explored.
As for injunctive relief, the settlement required ORI to
change its advertising and some other business practices.  Among other things, ORI agreed to add a
disclaimer regarding Lipozene’s effectiveness, including links to studies about
Glucomannan, an ingredient contained in Lipozene. It would also add, “For best
results, use in conjunction with reasonable diet and exercise.“ ORI also agreed
to end its pay-per-click Internet advertising, increase its return policy from
30 to 45 days to claim a refund, and use “best efforts“ to “eliminate all
testimonials created prior to January 1, 2010.”
Objectors argued that the injunctive relief was illusory; on
this record, the court of appeals agreed. 
Adding language about how “study participants” had been helped by
Lipozene wasn’t helpful in correcting the allegedly false claims.  Nor was changing that  Lipozene has “effectively helped millions of
people”  to Lipozene has “effectively
helped countless people.”  There was no
evidence that the extra 15 days in the return period offered any material
benefit to consumers.  As for the
diet/exercise statement, ORI was already working under a stipulated judgment
with the FTC prohibiting ORI from representing that Lipozene or MetaboUp
products “[c]auses rapid or substantial weight loss without the need to reduce
caloric intake or increase physical activity.” Requiring ORI to obey an
existing judgment didn’t add value.

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IP Professors’ Amicus in Star Athletica v. Varsity Brands

Posted on July 22, 2016 by rtushnet

Filed today: Mark McKenna, Chris Sprigman, Mark Lemley, Tyler Ochoa, Betsy Rosenblatt, Pam Samuelson, Kathy Strandburg, and I submitted a brief in this copyright separability case, arguing that conceptual separability is simply a coda to physical separability, dealing with situations in which physical separation couldn’t be accomplished without destroying the useful article–regardless, there must be something other than the design of the article itself that can be identified as a protectable work.  The existence of design patent also sheds important light on the limited role Congress intended copyright to play for useful articles.

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Don’t send a TM to do a (c)’s job: 7th Circuit rules in Slep-Tone case

Posted on July 22, 2016 by rtushnet
Mark McKenna organized an amicus
brief in this case, which was not cited by the court but advocated a
position similar to that adopted by the panel.
Phoenix Entertainment Partners, LLC v. Rumsey, No. 15-2844
(7th Cir. July 21, 2016)
Slep-Tone and its successor in interest Phoenix argued that
defendants, a pub and its owner, infringed Slep-Tone’s trademarks by passing
off unauthorized digital copies of Slep-Tone karaoke files as genuine Slep-Tone
tracks. The court of appeals concluded that Slep-Tone hadn’t “plausibly alleged
that the defendants’ conduct results in consumer confusion as to the source of
any tangible good sold in the marketplace.”
Slep-Tone is a serial litigant that distributed karaoke
accompaniment tracks under the trademark “Sound Choice.” The audio component of
the track is a re-recorded version of a popular song that omits the lead
vocals, while the graphic component displays the lyrics to the song as well as
a variety of visual cues (including color coding and various icons) that are
synchronized with the music. Slep-Tone alleged that it had a distinctive trade
dress in the typeface, style, and visual arrangement of Slep-Tone tracks, along
with the entry cues for singers (a series of vanishing rectangles) and the
Sound Choice mark is typically shown with the song lyrics.  According to Slep-Tone, its trade dress was “sufficiently
recognizable to karaoke customers to enable them to distinguish a track
produced by Slep-Tone and a track produced by a competitor even if the Sound
Choice mark itself were not displayed.” 
However, Slep-Tone didn’t own any relevant copyrights.
Slep-Tone sold physical media such as disks to customers,
but karaoke customers now prefer to use hard drives with hundreds or thousands
of accompaniment tracks to cut down on the time and effort of loading a new
disk.  Media-shifting is necessary to
accomplish this for Slep-Tone tracks.  In
2009, Slep-Tone adopted a media-shifting policy that permitted customers to
copy tracks, under specific conditions including paying for each copy and
providing notice to Slep-Tone. “It should come as no surprise that not all
operators comply with Slep-Tone’s media-shifting policy,” allegedly depriving
it of revenue.  The Basket Case, and its
principal Rumsey, allegedly had one or more hard drives containing copies of
Sound Choice tracks made in violation of Slep-Tone’s media shifting policy.
Slep-Tone’s theory of confusion was that, when unauthorized
copies were played at the pub, pub customers would see Slep-Tone’s Sound Choice
mark and trade dress “and believe they are seeing and hearing a legitimate,
authentic Slep-Tone track, when in fact they are seeing an unauthorized copy.”  This was fundamentally flawed because
Slep-Tone’s allegations didn’t plausibly suggest that confusion was likely
among Basket Case customers “as to the source of any tangible good containing
the karaoke tracks they are seeing and hearing.” Dastar makes clear that it’s “consumer confusion about the source
of a tangible good that a defendant sells in the marketplace” that matters for
purposes of trademark infringement.  But
defendants don’t sell any relevant tangible good; they just play unauthorized
copies:
What pub patrons see and hear is
the intangible content of the karaoke tracks. They will see SlepTone’s trademark
and trade dress and believe, rightly, that Slep-Tone is the source of that
intangible content. But patrons will neither see nor care about the physical
medium from which the karaoke tracks are played; consequently, any confusion is
not about the source of the tangible good containing the karaoke tracks.
Slep-Tone argued that an unauthorized copy of a Sound Choice
track was a new good that would look and sound like a genuine Sound Choice
track; in addition, customers might mistakenly believed that Slep-Tone “sponsored
or otherwise approved the defendants’ services and commercial activities.”  
The parties don’t compete in the market for karaoke tracks,
but Slep-Tone argued that Basket Case’s failure to pay gave it a competitive
advantage as against compliant karaoke establishments.  If legitimate operators were discouraged from
paying for genuine Slep-Tone tracks, Slep-Tone could lose sales.  Plus, Slep-Tone argued that “unauthorized
copying may result in inferior knock-offs that will injure its reputation for
quality karaoke tracks.” 
This chain of causation was indirect, but the court accepted
it, noting however that it was important that unauthorized copying of the
karaoke tracks (not the trademark or trade dress as such) was the core of the
injury-producing conduct.  These tracks
were copyrightable works, and copying a creative work is ordinarily a matter of
copyright law.
There was therefore a mismatch between Slep-Tone’s problem
(unauthorized copying) and the legal right it invoked.  The court noted that one oddity of
Slep-Tone’s theory is that a legitimate customer would also make a “new good” according to Slep-Tone’s theory when it
loaded a Slep-Tone track onto a hard drive, as it was allowed to do.  The only thing distinguishing the
legitimate from the illegitimate copy was authorization to make the copy—and
that’s really about copyright.  Copyright’s
limited term is one reason it’s important to distinguish copyright and
trademark; trademark could allow a perpetual monopoly if applied to creative
works.
But how to draw the line? 
The court noted that, “where, as here, the protected mark (including the
trade dress) is embedded in the good’s creative content, such that the mark is
invariably displayed along with the content, it can be particularly difficult
to decide whether the unauthorized copying of the good presents a claim of trademark
infringement or one of copyright infringement.” 
However, Dastar made clear
that trademark couldn’t be used to assert what’s “really” a copyright
claim.  Dastar wasn’t directly controlling, because this case didn’t
involve reverse passing off, but it was helpful.  Dastar
specifically rejected a broader understanding of the “origin of goods” “for
communicative products that consumers will value more for the intellectual and
creative content they convey than for their physical form.” Karaoke tracks were
such a product. 
Thus, the court’s job was, first, to identify the “tangible
product sold in the marketplace” at issue here, and second, to ask whether the
confusion alleged would be about who produced the good, or whether it would
really be about the source of the creative content in the good.  Only the former would be actionable under the
Lanham Act.
The court accepted that a digital file could
count as a tangible good for these purposes. 
However, defendants didn’t sell these files.  They allegedly played unauthorized copies to
patrons, encouraging alcohol and food sales. 
“[W]hat the pub patrons see is the performance of the creative work
contained on the copies: they hear the musical accompaniment and they see the
corresponding lyrics and graphics.”  They
didn’t encounter the physical good in question, even if they might be aware
that such a file exists; from their perspectives, it wouldn’t matter whether
the track came from a disk, a hard drive, or from streaming video.
True, the Sound Choice mark and trade dress would be
displayed, and patrons might assume that they were seeing “a genuine, authorized
Slep-Tone product when in fact it is a bootleg copy.”  But here’s the relevance of the second part
of the inquiry: what (if anything) is the patron confused about at that
point? 
On seeing the Sound Choice mark, a
patron may believe that she is seeing and hearing content that was created by
Slep-Tone. And she is. But what Dastar
makes clear is that a consumer’s confusion must be confusion as to the source
of the tangible good sold in the marketplace. A consumer of karaoke services
like a patron of The Basket Case never sees a disc that is wrapped in Slep-Tone
or Sound Choice packaging. He never sees a website offering downloads of Sound
Choice tracks.… Any confusion, in short, is not about the source of the
tangible good sold in the marketplace, as Dastar requires.
Nor did the embedding of the Sound Choice mark in the
creative content of the track allow Slep-Tone to plausibly allege that
consumers would likely be confused about its endorsement of the pub.  “The producers of communicative goods often
embed their marks not only on the packaging of the good but in its content.”  Films have studio marks in their credits, and
yet, when the copyright expires, “it is not a trademark violation simply to display
the work without first deleting the mark that was inserted into its content.” For example, when a Universal film enters the public domain,
“[s]o long as Universal’s mark is not overtly used to market the performance,
there is no risk that a theater patron might think that Universal is sponsoring
or endorsing the performance.”  Others
are free to make and sell copies of the film without permission and without
deleting Universal’s mark from the credits. 
The court of appeals then cited nominative fair use cases—which actually
supports a broader point, which is that Universal’s mark could be “overtly
used” to market the performance as long as it was a truthful description of the original source of the creative content.
In the case at bar, there was no allegation that Basket Case
promoted itself as offering Sound Choice karaoke products, so there was “no
reason to believe that its patrons will think that Slep-Tone is sponsoring the
performance of the copied karaoke tracks.” Likewise, because patrons saw only
the creative content of the tracks rather than the particular medium from which
the tracks are played, there was no reason to think that they believed that the
digital file was itself produced or approved by Slep-Tone.

The court then addressed Slep-Tone’s concern about degraded
quality. Not only did Slep-Tone fail to allege that defendants’ copies were
noticeably inferior in the perception of patrons (something that’s presumably
against defendants’ own interests), but that concern still didn’t involve a
tangible good in the marketplace. 
Defendants—or the people from whom they got their hard drives—might have
committed a wrongful act, but not one that was actionable as trademark
infringement.

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court grants motion to dismiss on nominative fair use grounds

Posted on July 21, 2016 by rtushnet
Beachbody, LLC v. Universal Nutrients, No. 16-02015, 2016 WL
3912014 (C.D. Cal. July 18, 2016)
Beachbody sued Universal and Wal-Mart for using its “shakeology”
mark on product packaging and purchase receipts. The court granted defendants’
motion to dismiss—apparently the standard is higher when you sue Wal-Mart.

Trademark infringement: the court found nominative fair use on the allegations
of the complaint.  First, Beachbody
alleged that its “shakeology” meal replacement shakes had a unique blend of
ingredients that weren’t comparable to the ingredients in defendants’
OmniHealth shakes, and that its shakes were widely recognizable. However, the court
found that Beachbody didn’t plead facts showing that consumers would readily
identify Beachbody’s shakes without the use of “shakeology,” making the use
necessary to identify Beachbody. 

Second, Beachbody alleged that defendants’ use of the term
was almost identical to Beachbody’s.  But
defendants said they didn’t use the same logo, font, or coloring scheme, and
the court found that Beachbody didn’t plead facts showing that defendants used
more of the mark than reasonably necessary to identify Beachbody.
Third, Beachbody alleged that the phrase “compare to the
ingredients in shakeology” on the OmniHealth packaging would confuse consumers
about Beachbody’s endorsement of the OmniHealth meal replacement shakes.  I would have called this “implausible,” but
the court said that Beachbody didn’t provide evidence of actual association,
and noted that the back of the OmniHealth boxes “clearly stated” the lack of
association.  Moreover, Beachbody’s shakes
are only sold on its own website, and they are sold for much more than defendants’
product.  Therefore, Beachbody didn’t
sufficiently allege likely confusion about affiliation.
The use on the receipts was different (and I would have
advised against this)—allegedly, receipts for purchases of the OmniHealth
shakes say only “shakeology” as the product description.  But the court found that Beachbody didn’t
allege any facts to show that consumers would likely associate the products based
on the receipts.  Absent sufficient
allegations to defeat the nominative fair use defense, the trademark
infringement claim had to be dismissed.
Related claims such as contributory infringement and
state-law unfair competition also failed, for the same reasons.
False advertising: “compare to the ingredients of
shakeology” allegedly falsely suggested to consumers that the ingredients in OmniHealth
shakes were comparable or similar to those in Plaintiff’s shakes. “Compare to
…” statements can convey a specific message and thus can be falsifiable.  However, such a claim of implicit falsity
requires extrinsic evidence of consumer deception, and Beachbody didn’t plead any.
 “Simply making the conclusory statement
that Defendants’ ingredients are incomparable to Plaintiff’s proprietary blend
of ingredients does not establish a plausible claim for false advertising.”  (So it has to have a survey in hand to sue?) 
Nor did the use of “shakeology” on Wal-Mart receipts
constitute false advertising, because the use of the name on the receipt “would
not be a significant factor in a consumer’s purchasing decision,” and therefore
wouldn’t be an advertisement. 
[Hunh?  This is under-reasoned; it
first sounds like materiality (which is bold on a motion to dismiss).  The argument that a receipt isn’t “commercial
advertising or promotion” is reasonable, but given that meal-replacement shakes
are probably supposed to be purchased multiple times, a receipt might serve as
a kind of ad for the next purchase.  The
real problem is that this is really a trademark claim; the alleged falsity is
about the source of what the consumer bought, and if anything a receipt that
said “shakeology” would probably make it harder for the consumer to figure out that
she can only get OmniHealth shakes at Wal-Mart.]

Commercial disparagement/trade libel failed too: Beachbody
didn’t plead facts that if believed, could prove any special pecuniary damages
from the Wal-Mart receipts. 

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Standard competitive bluster can be used as evidence of bad faith

Posted on July 14, 2016 by rtushnet
Hillman Group, Inc. v. Minute Key Inc., 2016 WL 3654437,  No.13-cv-00707 (S.D. Ohio Jul. 8, 2016)
Hillman makes duplicate keys, sold in at mass merchants,
home centers, automotive parts retailers, franchise and independent hardware
stores, grocery/drug chains, parcel shipping outlets, etc.  Key duplication has traditionally been
manual; a human identifies the proper blank key that fits the one the customer
hands over, then cuts the duplicate. 
Hillman has 60% of that market.
Self-service, automatic key duplication is a new trend.
Kiosks allow retailers to devote fewer employees, less inventory, and less
floor space to the process. Minute Key patented such a kiosk and sought to
displace Hillman and its FastKey kiosk. 
Minute Key placed 19 kiosks in Walmart stores across the country, then
in 2012 signed a Walmart contract for a national rollout of 1000-1600
kiosks.  The rollout was delayed, and
Minute Key found that it would have to compete against Hillman in a 100-store
head to head pilot.  Minute Key believed
that Hillman’s “very good relationship” with Walmart’s Tire Lube Express (TLE)
team was at the root of the decision to extend the pilot and, in turn, delay
Minute Key’s national rollout, which “practically put minuteKEY out of
business.”
A Minute Key board member and investor, as part of
discussions about the Walmart pilot, asked if its patent applications could be
used to create “some FUD” about Hillman with Walmart.  In late 2012, Hillman won the pilot, with 900
stores going to Hillman and 300 to Minute Key. 
A Minute Key principal responded, “in every retailer where we have gone
head to head with fastkey @ Lowes, Menards, Meijer, Orchard Supply Hardware;
our machine has won in every category; revenue, reliability, customer
experience and accuracy. Is there anything we can do here to improve our
position?”  (Etc.)  Discussions with Walmart revealed that
Hillman succeeded in stores that also used Hillman’s transponder key program in
their auto departments.  Another Minute
Key person questioned whether it was time for Minute Key to consider
“how/whether to use our patents to play offense.” There was further discussion
of the patents, the threat they might pose to Hillman, and when the “patent
card” should be played.
And there were some of the usual insider comments, which are
almost inevitable; generally just bluster; and yet can be made to look
bad.  E.g., “Fuck Hillman, they don’t
know they are messing with a pirate.”/ “Ha…love it. Always need a competitor
and we will whack them in time,” to which another responded, “Need to whack
them now!”
The Walmart employee responsible for the Walmart decision
then took a job at Hillman; his replacement looked at the trial and concluded
that, based on revenue per square foot, downtime, returns, and customer experience,
Minute Key, rather than Hillman, should have won:
In terms of profit per square foot,
[Minute Key] was 25 percent more per machine per store. The customer experience
was a little over a minute compared to between a little over three minutes. The
downtime was a fracture [sic] of what the Hillman machine was. And the returns
was [sic] significantly less, which all factor into customer experience.
Based on this, he started talking with Minute Key about
rolling out at 1000 more stores, though Walmart had a three-year commitment to
Hillman. 
In September 2013, Minute Key emailed Walmart that it would
be sending Hillman a patent infringement notice when its patent was
issued.  The email continued:
Our investment is only protected by
our intellectual property, and thus we have no choice but to enforce our
intellectual property against anyone who attempts to misappropriate it, such as
by infringing our patent rights. The patent to be issued next Tuesday is only
the tip of the iceberg of our intellectual property, and there are many more on
the way.… It is flattering to be imitated by others, but it also is evidence of
the significance of the contribution that MinuteKey’s technology has made to
the industry, and our technology must be protected.
Walmart responded by deciding to give all kiosks at new
stores/stores that requested kiosks to Minute Key, while Hillman would continue
to install in its approved locations. 
Walmart also requested a claim chart indicating which claims Minute Key
alleged Hillman to be infringing.
Hillman sued for a declaration of noninfringement; Minute
Key then provided Hillman with a covenant not to sue and argued that no case or
controversy existed.  Hillman then sought
to amend its complaint to add federal and state false advertising claims.
Courts have decided that, in cases involving statements
about patent infringement, Lanham Act plaintiffs have to show bad faith in
order to “give effect both to the rights of patentees as protected by the
patent laws under ordinary circumstances, and to the salutary purposes of the
Lanham Act to promote fair competition in the marketplace.”   The court found genuine issues of material
fact precluding summary judgment.
First, Minute Key argued that its statements were opinion,
not fact. In context, they were claims of fact, clearly declaring that Hillman
was a patent infringer, and a jury could readily conclude that Walmart
understood these as statements of fact. 
Walmart’s counsel responded by asking Minute Key for a claim chart and
Hillman to acknowledge its indemnification obligation; then Walmart suspended
the deployment of key kiosks based on the patent claim.
Were the statements “commercial advertising or promotion”?  The relevant customer base as the market for
self-service kiosks, not key duplication equipment generally. Hillman argued
that Minute Key only seriously tried to get Walmart’s business (though why this
should matter is unclear, since the key is distribution in the market, whatever
that is, not how many entities in that market the defendant targeted).  Whether the market at issue was limited to
Walmart was a factual question for the jury.
Bad faith: Minute Key argued that there could only be bad
faith if its patent infringement claim was “objectively baseless.”  But Minute Key’s representation in marketing
that its machine was fully automatic, while Hillman’s was not, could be taken
into account in determining this, as well as the board member’s speculation
about using patents to create “FUD” and “quips from its CEO such as ‘Fuck
Hillman, they don’t know they are messing with a pirate’ and ‘Need to whack
them now!’ and ‘Thinking about raising the patent card.’”

There were also questions of fact about damage to Hillman;
though Hillman wasn’t guaranteed any extra stores, Walmart decided to use
Minute Key for new stores/requests the day after Minute Key confirmed that it
would be issuing a patent infringement notice to Hillman; before that, Hillman
was the vendor of choice.  There was a
dispute about whether Walmart offered, as a custom though not a contractual
obligation, a “right of first refusal” to existing vendors for future business.  There was also a factual question about
whether a delay in the already-promised kiosk rollout was due to the
infringement claims, or whether the Hillman kiosks were still in production and
then blocked by Walmart’s blackout period from mid-October to mid-January
during which no vendor is allowed to place any kiosk.

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Primary jurisdiction doesn’t defeat supplement false advertising claim

Posted on July 13, 2016 by rtushnet
Nutrition Distribution LLC v. Custom Nutraceuticals LLC, No.
CV-16-00173, 2016 WL 3654277 (D. Ariz. Jul. 8, 2016)
The parties compete in the nutritional supplement market; defendant
Custom sells Ostarine, a selective androgen receptor modulator (“SARM”) with
effects similar to those of anabolic steroids.
Lanham Act claim: Distribution alleged that Custom labeled Ostarine
products as “not for human consumption,” while simultaneously representing that
Ostarine was a body-building drug and an “[e]asy to dose oral SARM.” Also,
Custom allegedly failed to disclose that the World Anti-Doping Agency and the
U.S. Anti-Doping Agency have banned the use of SARMs, while targeting
competitive athletes.  Moreover, Custom
allegedly represented that Ostarine has few side effects, when medical evidence
suggests that it has potentially serious side effects.
Custom argued that the court should abstain from deciding
these issues based on the primary jurisdiction doctrine. The court
disagreed.  “The Court need not consult
the FDA to determine whether it is false and misleading to label a product as ‘not
for human consumption’ while touting the benefits of such consumption.”  Likewise, the materiality of the omission of
the anti-doping agencies’ bans might not even implicate the FDA’s regulatory
scheme; the FDCA doesn’t even prohibit all omissions that might be material to
a consumer, but only those that are material “with respect to consequences
which may result from the use of the article”:
Even assuming the FDA could require
Defendants to disclose that their product has been banned by major sports
agencies, the issue is not one that implicates the agency’s technical and
policy expertise. Indeed, Plaintiff may have a superior understanding of how
consumers of body building products would react to this information.
Not even the statements about side effects were beyond the
court’s scope.  Though the FDA has primary
jurisdiction to regulate statements about the side effects of drugs, Custom
denied that Ostarine was a drug. “Having denied the FDA’s authority to regulate
Ostarine as a drug, Defendants cannot invoke the same authority to avoid a suit
under the Lanham Act.”  Though the FDA has
the authority to determine whether Ostarine is safe enough to be sold in
interstate commerce, this case was about whether Ostarine was as safe as Custom
claimed, which didn’t require the court to opine on the technical and policy
questions committed to the FDA.

RICO: no.

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Volunteer moderator plausibly alleged to be agent of ISP for 230 purposes

Posted on July 13, 2016 by rtushnet
Enigma Software Gp. USA LLC v. Bleeping Computer LLC, 16 CV
57 (S.D.N.Y. Jul. 8, 2016)
Eric Goldman probably won’t like this decision holding that
a volunteer moderator may be treated as the ISP’s agent when the ISP gives
enough status to him or her; I’m less bothered by the §230 ruling (except for
the legal error, which the court may have a chance to correct later).
SpyHunter, an “adaptive malware detection and removal tool,”
is plaintiff ESG’s flagship anti-malware product. Consumers can download a free
scanning version of SpyHunter through a link on ESG’s website. Consumers can
also buy a license to the full version of SpyHunter. That version includes the
scanner, as well as tools to remove malware and other security protection
tools.
Bleeping operates a website that offers information, advice,
and resources about computer technology and security, and one of its focuses is
anti-malware software. Bleeping gets commissions from designated “Affiliate”
software companies for promoting their products on its website.  In the Bleeping forums, “staff members” “generate
and control [the] content” posted. Bleeping has “Advisors,” whom Bleeping holds
out as experts who “can be trusted to give correct and understandable answers
to [users’] questions.” Above Advisors in the hierarchy are “Global
Moderators,” who enjoy “special powers” to enforce rules governing the Forums,
e.g., by “closing” discussions, editing the content of users’ posts, and
suspending the posting privileges of users who violate the rules. Lawrence
Abrams, Bleeping’s owner, is the overall “Admin” of the Forums.
Whenever an Advisor, Global Moderator, or Admin posts in
Bleeping’s Forums, “Bleeping clearly identifies that the post has been made by
[a Bleeping staff member]. Because Bleeping touts its staff as experts who can
be “trust[ed] to provide correct, unbiased and truthful advice,” users
allegedly rely on their advice when making purchasing decisions regarding
anti-malware products. But Bleeping instead allegedly directs users to
affiliates in order to promote its own financial interest, and also made false
claims about ESG and SpyHunter  Bleeping also
allegedly routinely removes links posted by users that endorse ESG’s products.
ESG allged that Quietman7, a Bleeping Advisor and one of only
three Global Moderators, was a chief spokesperson for Bleeping’s “smear
campaign” against ESG. In particular, Quietman7 accused ESG of deceptive
advertising; labeled SpyHunter a “dubious” and “ineffective” program that
generates false positives; and claimed that SpyHunter was a “rogue” product
that was properly classified as malware. Quietman7 advised users to remove
SpyHunter and replace it with a more “trustworthy” alternative—“invariably an
Affiliate product, such as Malwarebytes Anti-Malware, for which he supplied an
Affiliate Link.”  Users were allegedly
influenced by this, saying things like “I’m convinced. Will buy a more
trustworthy product when [SpyHunter] expires.”
First, the court held that, because §230 excludes IP claims,
the Lanham Act false advertising claim wasn’t subject to §230.  The court cited two cases: Gucci Am., Inc. v.
Hall & Assocs., 135 F. Supp. 2d 409, 413 (S.D.N.Y. 2001) (as you can
probably guess from the plaintiff, this is a trademark infringement case); see
also Ford Motor Co. v. GreatDomains.com, Inc., No. 00 Civ, 71544 (DT), 2001 WL
1176319, at *1 (E.D. Mich. Sept. 25, 2001) (same). “On the basis of the
statutory text, the Court, therefore, holds that the CDA does not bar ESG’s
Lanham Act claim.” [Aaaagh!  Ahem, let me
try again.  False advertising is not IP,
even if trademark infringement is; §43(a), like 2/3 of Gaul, is divided into
two parts. Or, in other words, it’s not plausible to define the interest ESG is trying to protect as an interest in its intellectual property, rather than one in its reputation.]
Second, the court held that ESG sufficiently alleged that
Bleeping was the provider of the problematic content because, on the facts
pled, Quietman7 was acting as Bleeping’s agent when he posted them. Under New
York law, an express agency is created through (1) “the principal’s
manifestation of intent to grant authority to the agent,” (2) “agreement by the
agent,” and (3) the principal’s “control over key aspects of the undertaking.”  Implied agency can also occur where the
principal’s conduct, “reasonably interpreted, causes [ ] third [parties] to
believe that the principal consents to have the act done on his behalf by the
person purporting to act for him.”
Bleeping publicly designated Quietman7 as a “Global
Moderator” and “Advisor”—the second and third highest “staff member” positions
within the Bleeping member group hierarchy. Quietman7 since signed his posts as
“Bleepin’ Janitor” and “The BC Staff.” Bleeping staff members are allegedly
directed to promote affiliates’ products and discourage use of non-affiliates’
products, and are allegedly promoted as reliable sources of information.
They’re authorized to enforce forum rules and suspend posting privileges for
rule violations. This was enough to support the conclusion that Quietman was
acting as Bleeping’s agent, at least its implied agent, when he posted the
challenged content. 
Interestingly, the court cited two copyright cases in
support of its finding of a plausible claim. 
Court’s parentheticals: Capitol Records, LLC v. Vimeo, LLC, 972 F. Supp.
2d 500, 518–19 (S.D.N.Y. 2013) (triable issue of fact existed as to
whether  employee-uploaders were acting as
website’s agents, where uploaders served as “editorial voice” for website and
website posted “staff badge” next to uploaders’ names on their posts); Columbia
Pictures Indus., Inc. v. Fung, No. 06 Civ. 5578 (SVW), 2009 WL 6355911, at *13
n.21 (C.D. Cal. Dec. 21, 2009) (websites liable for moderators’ infringements,
despite lack of evidence of actual authority, where “websites’ act of
designating them as ‘moderators’ and providing them with specific forum-related
powers [could] lead[] a ‘third party reasonably [to] believe[ ] the
[moderators] ha[d] authority to act on behalf of the [website]”) (internal
quotation marks and citation omitted). 
Although other cases find that “moderator” status, without more, does
not render a website operator liable for a moderator’s conduct (as these cases
apparently do), ESG’s claim of agency wasn’t just about Quietman7’s designation
as a “moderator.” He was designated a “staff member,” had special authority as
an Advisor and Global Moderator, and was held out as an expert. Bleeping’s cases
involved either moderators who had limited powers or didn’t themselves author
the offending posts.
Nor did Quietman7’s volunteer status prevent him from being
an agent. “New York courts have repeatedly held volunteers to be agents where the
common law requirements for agency were met.”
After that, the court held that the claims weren’t
time-barred; some posts occurred within the 1-year statute of limitations for
defamation, and there was also an issue about republication because Quietman7
included links to older posts, with additional commentary, in new posts. And
courts in the Second Circuit generally borrow the six-year fraud statute of
limitations for Lanham Act claims.
Then, the court found that ESG stated a claim for
defamation. Of possible interest, the court found that various statements about
the allegedly scammy nature of ESG’s product were potentially falsifiable
factual statements:
Viewed holistically, the “overall
thrust” of Quietman7’s thematically similar and mutually reinforcing statements
is that ESG is engaged in a deliberate and fraudulent scam in which it is
peddling a product which is the precise opposite of what it purports to be: The
challenged statements “reasonably imply” that ESG has intentionally designed SpyHunter,
in its “free scanner” mode, to generate false positives so as to induce
customers to buy a license for the full version to eliminate ostensible
malware.… Such allegations … could reasonably be understood as assertions of
objectively verifiable facts.
In isolation, words used in Quietman7’s posts such as
“scam,” “rogue,” “dubious,” and “ineffective” “would likely be too imprecise to
be capable of being proven true or false.” But, in context, they became more
concrete and reasonably precise.  Nor did
the statement that SpyHunter was “previously listed as a rogue product” avoid a
claim that SpyHunter was a rogue product. 
The context made a clear implication that the underlying practices that gave
rise to that earlier classification persisted, because Quietman7’s said that
“some users have reported [ESG] still engage[s] in deceptive advertising.” And
his statement that SpyHunter was not currently targeted for removal by other
security programs was followed by an allegation that “security vendors which
have tried [to target it] in the past have received threats of legal action for
attempting to do so or agreed to legal settlements as a result of litigation
brought forth by Enigma Software.” “High rate of false positives” could also be
verified or falsified by comparing SpyHunter’s rate with those  of competing products. “That an accusation is
‘somewhat . . . vague and difficult to prove’ does  not mean that it is not objectively
verifiable.”
Moreover, the forum pages made the alleged statements more plausibly
“anchored in fact.”  Bleeping allegedly
held out the pages as tightlyregulated by its member groups, and assured users
that its “expert” staff members “can be trusted to give correct and
understandable answers to [Bleeping’s] members’ questions.” Quietman7 himself
allegedly wrote: “Folks come to Bleeping Computer for advice, recommendations
and other assistance. We provide that  based
on our experience and expertise so they can make an informed decision.”  “The manner of Quietman7’s written  presentation—one using footnotes and
citations—conveyed further that his advice was based on  an ‘investigation’ of verifiable facts.”
Thus, the court distinguished these cases from others
involving online forums that were presumed to be places for exaggerated and
nonfactual speech.
On the allegations of the complaint, the court declined to
find that ESG was a limited-purpose public figure, and considered allegations
about its reputation for litigiousness irrelevant because Bleeding didn’t
identify a public controversy related to the litigation.
The alleged statements, if false, would constitute libel per
se because they imputed “some form of  fraud
or misconduct or a general unfitness, incapacity, or inability to perform one’s
duties.”  However, ESG didn’t state a
claim for trade libel or commercial disparagement; the claim was duplicative of
the defamation per se claim, and also failed to allege special damages.
Finally, ESG stated a claim under the Lanham Act.  The key issue here was “commercial  advertising or promotion,” and the key
question was whether the statements at issue were “part of an organized
campaign to penetrate the relevant market.”
Commercial speech: Quietman7’s posts were commercial speech.
 “In nearly all of them, Quietman7, after
lambasting ESG’s SpyHunter, recommends that the  reader ‘remove [that] program and replace it with
a trustworthy alternative,’ such as  Malwarebytes
Anti-Malware and other Affiliate products.” 
By promoting affiliate products, these posts were unmistakably ads, and
went even further by providing purchase links. 
Bleeping had an economic incentive to do this.
Further, the complaint sufficiently alleged that Quietman7’s
posts were part of “an organized campaign by Bleeping to penetrate the market
for anti-malware products” by repeating or linking to negative reviews of
SpyHunter “any time a new forum topic mention[ed] or inquir[ed] about ESG,” not
to mention removing pro-ESG posts by users.  “Reactive disparagement” could be sufficient
if it reached enough potential consumers. 
Given that Bleeping advertises itself as a “premier destination” for
computer users seeking information about computer technology and
recommendations regarding malware removal, and that the posts could be viewed by
the “[more than] 3.5 million unique visitors [that visit Bleeping’s website
each] month,” that was enough.
No competition between the parties was required after Lexmark, and anyway, if it were
required, the court held that the affiliate relationship with ESG’s competitors
sufficed. 


As for injury, the complaint alleged that Bleeping’s members often didn’t know
the basics underlying computer issues, and relied on Bleeping’s
representations, a fact that Bleeping touted. 
“After disparaging ESG and SpyHunter4, Quietman7 trumpeted that ‘[s]ince
we [Bleeping] do not recommend this program [SpyHunter], I doubt that  any of our members use it.’” 

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Discoverable falsity is immaterial to sophisticated consumers

Posted on July 12, 2016 by rtushnet
Reed Const. Data Inc. v. McGraw-Hill Companies, Inc., 638
Fed.Appx. 43 (10th Cir. 2016)

Allegedly false claims about the quality of construction
project data offered by these competitors were, even if false, not material to
consumers, because the consumers were sophisticated.  “Discovery revealed only one customer who
arguably relied upon McGraw–Hill’s advertising in deciding between Reed and
McGraw–Hill, while numerous other customers testified that they discounted the
companies’ representations as to their own products and conducted independent
evaluations.”  Even though McGraw-Hill’s
marketing professionals “professed great enthusiasm for the advertising
campaign at issue, the evidence from consumers makes clear that the market of
sophisticated consumers relying largely on face-to-face sales was unmoved.”  Thus, no reasonable jury could have found
materiality.

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Pom and circumstance: Pom Wonderful wins against Pur Pom

Posted on July 11, 2016 by rtushnet
Pom Wonderful LLC v. Hubbard, No. 13-06917, 2016 WL 3621281
(C.D. Cal. Jun. 29, 2016)
Disclosure: I consulted with Pom on an earlier iteration of
this litigation, though I have not been involved subsequently.  Even when courts in the Ninth Circuit get
outcomes right, their reasoning is often head-scratching, and this case is no
exception.
Pom sued Hubbard and his company for trademark infringement over
its PUR Pǒm flavored beberages.  The district
court initially denied Pom’s motion for a preliminary injunction; the court of
appeals reversed, but the
district court again denied a preliminary injunction given the high standard
set by Herb Reed.  Now we’re at summary judgment, where Hubbard
counterclaimed for cancellation of Pom’s marks on various grounds.  Pom won summary judgment; Hubbard lost. The court included lots of pictures, which is great!
The parties’ products are sold in single serve containers in
the refrigerated sections of supermarkets, at a retail price of $1.99 for POM
Wonderful pomegranate juice and $2.00 for PUR Pǒm.

The parties’ marks as used

Hubbard argued that Pom abandoned its standard character
mark by only ever using a version with a heart in the place of the “o” in Pom,
which it separately registered as a stylized mark. The court held that use of
the stylized mark also constituted use of the standard character mark, and thus
there was no abandonment.  The parties
appear to think that abandonment is important because a standard character mark
affords a registrant “a broader scope of coverage” compared to a stylized mark
(citing McCarthy), even though that doesn’t actually affect the infringement
analysis.  The court cites a number of
registration proceedings/rulings about the significance of a standard character
mark in the registration process, as
well as the Ninth Circuit’s statement in this case, that the “‘POM’ standard
character mark is extremely broad, covering the word in all types of
depictions.” Pom Wonderful LLC v. Hubbard, 775 F.3d 1118, 1125 (9th Cir. 2014).  But then it went on to ignore that in the
infringement analysis, focusing on the similarity between the mark Pom uses and
the mark Hubbard uses.
 

Pom’s stylized mark
If the specimen of use shows a display of the standard
characters “in a distinctive manner that changes the meaning or overall
commercial impression of the mark,” then the standard character mark can’t
stand.  The PTO allows a stylized version
to be separately registered if “the word [that forms the standard character
mark] itself creates a commercial impression separate and apart from the
designs in the letters.” The TMEP says: “If a mark remains the same in essence
and is recognizable regardless of the form or manner of display that is
presented, displaying the mark in standard character format affords a quick and
efficient way of showing the essence of the mark.”
The TTAB allowed a standard character registration for
OROWEAT with the specimen shown below, because the word “creates a commercial
impression separate and apart from the merely ancillary design with which it is
associated.”

The same with SPECTRAMET, even though the specimen depicted
a stylized “C” consisting of “an arrow within an arrow in contrasting shades,
in which the outer arrow is dark and surrounding the inner arrow in white.” 

Given this precedent, the court thought the result here was
clearly mandated, because “POM” created a distinct commercial impression; the
stylized lettering “does not alter the pronunciation or perception of the word;
the standard character mark is both aurally and visually indistinguishable from
the mark bearing a heart-shaped ‘O.’”
The TTAB’s contrary decision about the version of FOSSIL
shown below was very different: the rights conferred by the standard character
mark “FOSSIL” did not cover use of the mark coupled with additional words
inside an oval.

The court then granted Pom summary judgment on Hubbard’s
argument that the term “pom” was generic for pomegranates.  Hubbard submitted one Pom Wonderful
advertisement and evidence of third-party use of the term “pom,” but the court
found this failed to create a triable issue of fact, given Hubbard’s burden of
proof.  Pom’s own generic use of the term
was not repeated and consistent; it was one ad from 2002 that said, “The POM
stands for pomegranate.” This single, isolated incident was insufficient.
As for third-party use, Hubbard testified in a declaration
that he googled  “pom flavor,” which
yielded 52,000 pages of results. He searched the first ten pages and located
numerous generic uses in which third parties referenced “pom” as shorthand for
pomegranate. Pom has also opposed 32 third-party applications with the USPTO to
register trademarks containing the word “pom” as a component of the mark.
The Google search didn’t show anything about whether the
term was generic when Hubbard’s product entered the market, in 2013, which was
the relevant date for determining genericity. 
Also, Hubbard’s URL list dump was unexplained and unanalyzed.  “It is impossible to determine solely from a
series of hyperlinks whether competitors are actually using the term ‘pom’ as a
proxy for pomegranate or whether these third-party references simply use ‘pom’
in a descriptive manner to designate the pomegranate flavor of their products.”  Hubbard also didn’t explain the relevance of
the 32 trademark applications, some of which clearly made no reference to
pomegranate, such as “Pom Poms” for cookies in the shape of pom poms.
This “anemic” showing didn’t create a triable issue of fact on
genericness.
The parties’ beverage containers

Pom’s trademark infringement claim: The court,
unfortunately, found that “Pom” was suggestive because it “requires consumers
to exercise some imagination to ascertain the nature of Pom Wonderful’s
products.”  At this point, I guess I have
to say this is not the test outside the 9th Circuit.  Everywhere else does it right: you don’t
ascertain conceptual distinctiveness without considering the goods or
services.  Is “pomegranate” inherently
distinctive?  Well, that depends on what it’s for!  I might have to use imagination to guess that
it was for computers, but not for beverages.
This error has limited consequence here because (a) the
court considered suggestive marks “presumptively weak” and (b) Pom showed
marketplace strength through ad expenditures and other evidence.
Similarities in the marks “abound[ed].”  The letters were the same; both had style
variations on the “o,” a heart and a diacritical; they both used uniform casing
(all caps and all lower case); they were both in white print on a dark maroon
background.  Sound and meaning were also
similar/semantically identical.  There
were differences in sizes, fonts, and capitalization, as well as the emphasis
given to the marks; the Pur product used a smaller “Pǒm” mark near the bottom
of the can.  But overall the similarities
made this factor weigh in Pom’s favor.
The goods were closely related, the marketing channels
overlap (both were even at Albertson’s stores at one point), the degree of
consumer care was low, and the remaining factors weren’t important under the
circumstances—intent is minimally important, and no evidence of actual
confusion is required. Five of the Sleekcraft
factors “overwhelmingly” weighed in favor of Pom, and the only one that weighed
in favor of Hubbard was intent.
The court then rejected Hubbard’s descriptive fair use
defense.  The court first ruled that “pom”
didn’t have a descriptive meaning, which seems really inconsistent with its
treatment of the Google search results above, not to mention the classification
of “pom” as suggestive; the court thought that, because “pom” didn’t have a
dictionary definition, it couldn’t be used descriptively, “as it carries no
inherent meaning or significance beyond its function as a registered trademark.”
Even if it could be used descriptively, the court (either
failing to notice KP Permanent or,
perhaps more realistically, doing what courts in the 9th Circuit do
when confronted with KP Permanent)
held that, in the Ninth Circuit, descriptive fair use is unavailable when there’s
a likelihood of confusion.

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Questionable branding

Posted on July 11, 2016 by rtushnet

Not exactly on topic, but funny: Trader Joe’s often uses some signals about what national brands one can compare its house products to. Here, while Cheerios and Spaghettios are hard to confuse, the result is two different kinds of Joe’s O’s, which could produce pretty funny results if people aren’t paying attention.  Self-dilution for Joe’s O’s?

Joe’s O’s
Joe’s O’s compared to Cheerios
Also Joe’s O’s (compare to Spaghettios)

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