Fraud claim by NY AG against Donald Trump revived on appeal

People ex rel. Schneiderman v. Trump Entrepreneur Initiative
LLC, — N.Y.S.3d —-, 2016 WL 783216, 2016 N.Y. Slip Op. 01430 (Sup. Ct. Mar.
1, 2016)
 
Snarky political note: It doesn’t appear that Trump could object to this ruling on the grounds that the judges were “Hispanic.”  (Looking forward to learning more about that recusal argument: Your Honor, my client is too biased to be judged by you.)
 
The AG sued Donald Trump individually and “several business
entities bearing his name.”  Trump, with others,
incorporated Trump University LLC in 2004; “Trump University purported, by way
of seminars and mentoring programs, to instruct small business owners and
individual entrepreneurs in real estate investing.”  In 2005, the NY State Department of Education
notified Trump and Trump University that they were violating the New York
Education Law by using the word “University” when it was not actually chartered
as one, and by operating without a license to offer student instruction or
training in New York State. Trump University would not be subject to the
license requirement if it had no physical presence in New York State, moved the
business organization outside of New York, and ceased running live programs in
the State. Trump University thus told the state that it would merge its operation
into a new Delaware LLC, and would stop holding live programs in New York State.
 
The AG alleged that Trump University failed to do as it
promised.  New York learned in 2009 through
newspaper advertisements and a student complaint to the AG that Trump
University was continuing to provide live programming and instruction in New
York.  In 2010, the Department of
Education sent Trump University another demand letter; Trump University finally
filed a certificate of amendment to its Articles of Organization, formally
changing its name to TEI.  But TEI still
lacked a license to operate, and the State sent another letter, at which point
TEI informed it that TEI had ceased to operate.
 
In 2013, the AG sued for injunctive relief, restitution,
disgorgement, damages, and civil penalties for conduct between 2005 and 2011, when
respondents allegedly operated an unlicensed, illegal educational institution.
In addition, respondents allegedly intentionally misled more than 5,000
students nationwide, including over 600 New York residents, into paying as much
as $35,000 each to participate in live seminars and mentor programs that the
students thought were part of a licensed university.  The ads represented that real estate experts “handpicked
by Trump himself” would teach successful strategies for real estate investing,
including quotes attributed to Trump such as “I can turn anyone into a
successful real estate investor, including you” and “In just 90 minutes, my
hand-picked instructors will share my techniques, which took my entire career
to develop …. Then just copy exactly what I’ve done and get rich.” At the free
seminars urging further investment, instructors played a video featuring Donald
Trump telling prospective students, “We’re going to have professors that are
absolutely terrific—terrific people, terrific brains, successful, the best” and
noted that they were “all people that are handpicked by me.”
 
In fact, according to the AG, Trump did not handpick the
instructors, participate in the creation of the content, or review any
curricula; “indeed, only one of the live event speakers for Trump University
had even ever met Donald Trump.”  But
people still relied on these claims.  In
an affidavit submitted to the Attorney General, one student stated that he “had
some trust in the program because it was run by Donald Trump” and was “led to
believe that … based on Trump’s marketing materials, the course professors
had been handpicked by Donald Trump.” The AG alleged that the instructors had
been inadequately vetted and in fact had little or no experience in real estate
investing, instead having prior work experience such as food service management
and graphic design.  Moreover, the “free”
seminars were merely extended ads attempting to induce students to enroll in
increasingly expensive seminars.  While
speakers represented that an initial three-day $1,495 seminar would teach
students all they needed to know to be successful real estate investors, “the
instructors at those three-day seminars then engaged in a ‘bait and switch,’
telling students that they needed to attend yet another seminar for an
additional $5,000 in order to learn more about particular lenders.” They also
urged students to sign up for “Trump mentorship packages, which ranged anywhere
from $10,000 to $35,000” and supposedly provided “the only way to succeed in
real estate investment.”
 
While not involved in selecting instructors or determining
content, Donald Trump was allegedly significantly involved with the operation
and overall business strategy, including “attending frequent meetings” with another
key individual to “discuss Trump University operations.” Trump’s photographs
and signature appeared on all of Trump University’s advertising; “Trump
personally reviewed and approved all the ads that were in the newspapers.”
 
The AG brought claims for fraud under Executive Law § 63(12);
fraudulent and deceptive practices under General Business Law § 349; false
advertising under GBL § 350; violating Education Law § 224 by calling the
business “Trump University” when it was not, in fact, chartered as a university;
violating Education Law § 5000 et seq. by operating an unlicensed school that
did not meet State standards; and violating 16 CFR § 429, which, in connection
with a contract of sale, obliges a seller to include the buyer’s right to
cancel the transaction within three days.
 
The trial court dismissed the Education Law § 224 claim in
its entirety, and held that the AG was bound by a three-year statute of
limitations on all the statutory claims in the petition. But the court also
held that the Attorney General’s general fraud claims were viable and subject
to the six-year statute of limitations governing fraud actions.  Then the court granted dismissal of the fraud
claim under Executive Law § 63(12) (as opposed to the common law fraud),
stating that the statute does not provide a standalone cause of action for
fraud, and dismissed the claim for violation of 16 CFR § 429. The court denied
the AG’s request for a summary determination of liability, except for the claim
for violation of Education Law §§ 5001–5010.
 
This appeal followed. 
Executive Law § 63(12) states, in relevant part:
 
Whenever any person shall engage in
repeated fraudulent or illegal acts or otherwise demonstrate persistent fraud
or illegality in the carrying on, conducting or transaction of business, the
attorney general may apply, in the name of the people of the state of New York,
to the supreme court of the state of New York, on notice of five days, for an
order enjoining the continuance of such business activity or of any fraudulent
or illegal acts [and] directing restitution and damages … and the court may award
the relief applied for or so much thereof as it may deem proper.
 
“Fraud” is defined as “any device, scheme or artifice to
defraud and any deception, misrepresentation, concealment, suppression, false
pretense, false promise or unconscionable contractual provisions.” Fraud under
§ 63(12) may be established without proof of scienter or reliance, making it
different from common-law fraud.  The
Supreme Court thus concluded that the trial court erred in dismissing that
claim, because it can be brought as its own cause of action.  That fraud claim was subject to New York’s
residual six-year statute of limitations, though material issues of fact
precluded summary judgment in the AG’s favor. 
The court also affirmed the dismissal of seven affirmative defenses, and
commented that the court should have considered allegations relating to
post-May 2010 conduct (after the second letter).

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Hidden connections between doctors and the drugs they promote

The violations of the FTC Endorsement Guidelines seem very clear in the stories recounted by this Boston Globe investigation.  H/T ST.

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Transformative work of the day, Chris Christie edition

How many references can you spot in this Washington Post column?  Until I got to the last line of the column, I had a different title for this post, but Alexandra Petri got there before me.

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Open access-related jobs at Yale

Via Amy Kapcyzinski:

We are starting a new initiative here at Yale to do legal work and research to help improve access to clinical trial data.  

We need to hire a stellar young attorney (ideally with at least 5 years of experience) who can help us map out a legal strategy around these issues.  The person will get to work closely with faculty and students here, and Dave Schulz (a great First Amendment lawyer), and the position pays well ($100 – $130k) and has three years of guaranteed funding.

Job and project description is here:
http://ift.tt/1T6ntgn

There are also fellow positions that would be great avenues for young JDs who are interested in open access and transparency issues, or regulatory issues, from a policy or academic bent!

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On the importance of knowing your genre

I haven’t written about the Sherrilyn
Kenyon v. Cassandra Clare lawsuit over Darkhunters v. Shadowhunters
, though
I did read the complaint.  I didn’t find
the copyright claims to make it past assertions of similarity in ideas, though
trademark is often trickier these days. 
As a geek, however, I was interested to see that one piece of
evidence for infringement was both parties’ use of a particular runic symbol (Darkhunters and  Shadowhunters)—in part because, in what I’m sure was complete coincidence, that
very symbol is now playing a key role on this season of Sleepy Hollow.  This
recap
says it’s also used in Twin
Peaks
(and by the Nazis, so there’s one segue taken care of).  Pretty good evidence that it’s a mystical
trope!

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When are lost sales consequential damages?

BPI Sports, LLC v. Labdoor, Inc., 2016 WL 739652, No.
15-62212 (S.D. Fla. Feb. 25, 2016)
 
BPI makes supplements, including “Best BCAA,” which contains
branched chain amino acids (BCAAs) in multi-chain peptide form, rather than
isolated, free-form BCAAs. LabDoor’s website purports to rank and grade
supplements after detailed chemical analysis by an “FDA-registered” lab,
including Best BCAA.  The lab apparently
is Avomeen Analytical Services, co-founded by LabDoor’s CEO in 2010. BPI
alleged that research, clinical trials, or human studies “are more appropriate
methods of testing the safety and efficacy of the supplements being tested and
compared.” Nonetheless, LabDoor created a list of the best BCAA supplements,
and Best BCAA got a grade of “D.” BPI alleged that LabDoor’s analysis failed to
account for the nutritional value of the multi-chain peptides, compared to the
individual BCAAs in other supplements.  “In
an interesting twist, LabDoor sells the product it ranks and grades as number
one.”
 
BPI sued for false advertising under the Lanham Act,
violation of Florida’s Deceptive and Unfair Trade Practices Act (FDUTPA), and
tortious interference.  In a
demonstration of the value of Lanham Act claims in overcoming traditional
barriers, the court grants LabDoor’s motion to dismiss the FDUTPA and tortious
interference, with leave to amend.
 
Claims of tortious interference with BPI’s relations with
its “targeted consumer base” were speculative and insufficient.  Existing customers would be readily
identifiable, but any reference to them in the complaint was vague and really
about “hypothetical consumers generally.”
 
FDUTPA: Florida amended its law in 2001, changing references
to “consumer[s]” to “persons” who suffered losses as a result of a violation of
the law.  Federal courts are split on
whether non-consumers can now sue; the court agreed with the majority (and one
state court that considered the issue). 
Given the statutory requirement that FDUTPA be construed liberally, the
shift in language allowed non-consumer plaintiffs.  BPI also sufficiently alleged causation,
since the Eleventh Circuit has held that FDUTPA doesn’t require proof of actual
reliance but only likely consumer deception.
 
However, BPI failed to plead actual damages
sufficiently.  Generally, actual damages
are the difference in market value between what was promised and what was delivered.  Of course that doesn’t make sense here.  BPI alleged diverted sales and lost goodwill,
which the court deemed to be consequential damages, which don’t count as actual
damages.  That … really doesn’t make much
sense.  If you’re going to expand FDUTPA
to cover competitors, then actual damage to them must by definition be measured
differently than the damage suffered by a deceived consumer.  Otherwise, there’s no point.  They’re both harmed by false advertising, but
their harms are different, as Lexmark
made clear in the Lanham Act context.  “Consequential”
is a way of expressing a limit on tracing harm, so that if I was defrauded when
I bought a car, the lost profits from my inability to make work appointments in
my unreliable car would not ordinarily be recoverable damages. By contrast, the
honest dealer’s direct damage is the sale she would have made to me but for the
fraud. That lost sale should not be
excluded as “consequential” even if my own lost sales should be. But, because
BPI didn’t plead that LabDoor’s conduct “affected the market value of BPI’s
product,” (which would, given the causal mechanism, still be “consequential” by
the court’s reasoning) the court dismissed the FDUTPA claim.

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Ingredient supplier has standing to challenge supplement claims

Obesity Research Institute, LLC v. Fiber Research
International, LLC, 2016 WL 739796,  No.
15-cv-00595 (S.D. Cal. Feb. 25, 2016)
 
Fiber Research alleged that Obesity Research made claims for
its weight loss product, Lipozene, touting clinical testing supporting the role
of “Propol glucomannan” in promoting weight loss, but that Lipozene didn’t
contain any Propol glucomannan or any substantially equivalent glucomannan.  In particular, Fiber Research alleged that
Obesity Research claimed that Lipozene was “clinically proven,” when, in fact,
the clinical studies it relied on used Propol. Further, Obesity Research
allegedly falsely claimed that at least one of the clinical studies was
“sponsored by [Obesity Research]” and that it falsely referred to one of the
clinical studies of Propol as a “Lipozene Clinical Study.”   Finally, Fiber Research alleged that Obesity
Research falsely stated on its label that there were “[n]o known allergens in
this product” when, in fact, there were enough sulfites in Lipozene to warrant
a warning.  Fiber Research is the
exclusive licensee for Propol in the US.
 
Under Lexmark,
Fiber Research had standing to challenge the advertising. It alleged an injury
to a commercial interest in reputation or sales and proximate cause based on
Obesity Research’s alleged passing off of an inferior product as Propol.  Obesity Research argued that it wasn’t in
direct competition because Propol is only sold to manufacturers as an
ingredient, while Obesity Research sells directly to consumers. But there’s no
direct competition requirement after Lexmark.
 
As for Fiber Research’s California UCL and FAL claims,
standing requires lost money or property, which can include “lost sales,
revenue, market share, and asset value.” Ineligibility for restitution is not a
basis for denying standing under either the UCL or FAL, though Fiber Research
couldn’t argue that it was injured indirectly as an assignee; it had to rely on
injuries has suffered directly as the exclusive seller of Propol in the United
States.
 
Failure to state a claim: The court characterized this as
both a false designation of origin and a false advertising claim, using the likely
confusion multifactor test as a useful framework even though some of the
factors weren’t helpful.  Fiber Research
alleged sufficient similarity between Propol and Lipozene to state a claim for
false designation of origin, especially given that purchasers can’t determine
for themselves the actual ingredients. 
Likewise, Fiber Research sufficiently alleged false advertising.  It identified the particular studies to which
Obesity Research allegedly referred in its advertising, and alleged that those
were Propol studies.  The UCL/FAL claims
survived for much the same reasons, though not the UCL unfairness claim because
Fiber Research didn’t allege antitrust-like injury.

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Cardozo Law Advertising Conference Panel 2: Native Advertising

Moderator
Felix Wu | Professor and Faculty Director, Cardozo Data Law
Initiative, Benjamin N. Cardozo School of Law
 
Panelists: Shelly Paioff | Deputy General Counsel & Head
of Legal, US, Taboola: Taboola is a content recommendation platform—publishers like
NBC, Microsoft, USA Today—widget at bottom of article pages with links to
third-party content from publishers/advertisers.  “From around the web” or “other content you
make like.”  Never thought of ourselves
as native advertisers, but content discovery platform; we’ve opened up a native
platform, which to us means mid-article or section-front or home-page placement:
ads/content integrated w/in the webpage, within the flow of what the user is
already reading.  Others may define
custom content as native advertising—done to create brand awareness, as
w/Netflix sponsored article on NYT to promote Orange is the New Black.
 
Rick Kurnit | Partner, Frankfurt Kurnit Klein & Selz, PC:
Debate over definition was whether or not the curation aspect is a problem.
Everyone accepts that influence over content is a concern.  The issue with the Taboola case in NAD was
whether merely influencing curation of content, financing content, distributing
reprints is also advertising.  That’s
where we are today w/a huge problem facing the media. NYT created the Food
section to create an environment for advertising—is that native advertising?
Influence over curation exists—that’s over the top.
 
Po Yi | Partner, Venable LLP: brands are content marketing—creating
or distributing it to target a particular audience; may be no reference or
relationship to their product. May be cause-related.  Not necessarily native
advertising/advertising at all.  Shouldn’t
think of native advertising interchangeably with content marketing.
 
Kurnit: Whether the First Amendment permits the government
to permit curation raises question under Sorrell
and the campaign finance rules—if I just want to finance another speaker, is
that something the FTC can regulate?  FTC
did say they were going to regulate whether or not consumers choose to interact
w/content; whether the action of a brand affects the decision/content regarding
the advertising, not just the product/brand. 
Thus, how can you communicate to readers the difference between brand
voice and content influenced by brand v. brand’s decision to provide
information that has nothing to do w/product or service. FTC is still wrestling
with that despite the guidelines. 
 
Fireside chat: FTC indicated they aren’t particularly
interested in going after items that don’t speak to product, service, brand or
competitor.  FTC embraced disclosures.  FTC wants disclosure to be the focal point of
the ad, and the marketing people don’t have a warm fuzzy feeling about giving
that space to legal.  Not just whether
the consumer gives it greater credence but also whether the consumer would have
chosen not to interact with it if they’d known it was from a brand/company—want
a skull and crossbones.  This is in a
state of flux; FTC asks whether the consumer would be surprised to find out the
truth. Media wants to create a context in which their users understand the
differences between brand voice and something that a brand supports or wants as
a context for its ads.
 
One prior industry practice: “Sponsored” content as curated
versus “sponsor” content as a label to indicate brand voice—that’s silly to
assume people will distinguish those. 
FTC doesn’t like “promoted by” either unless it’s restricted to where
advertiser had no influence.  Still,
expanding materiality to cover consumer’s choices regarding advertising, not
choices about purchases—that is a big content-based regulation that goes beyond
protecting consumers against material deception in purchase decisions,
overstepping.
 
Wu: what’s wrong with not fooling consumers into thinking it’s
an ad?
 
Kurnit: as long as an ad is a material claim about a product
or service, yes, but not if it’s just corporate speech.
 
Yi: Also: what are you promoting?  If P&G is promoting a diaper v. if it’s
the content created by P&G that you’re promoting.  Which does the FTC care about?  If you paid someone to distribute content,
you have to say that you paid to distribute content.  That’s the FTC’s core focus.
 
Ellen P. Goodman | Professor, Rutgers University Law School:
The guidelines say if it’s obvious the speaker is P&G, the consumer won’t
be confused.  Also if the speaker isn’t
making product claims, she reads the guidelines to say, disclosure won’t be
required. True that FTC is going further on consumer confusion.  But that’s not reaching so far as to cover
all kinds of branded content.
 
Yi: but it’s how you deliver the branded content.
Brand-created content; using paid media rather than organic to distribute that—the
FTC wants readers to know that brand paid money to distribute the content, not
because the content itself is advertising but b/c you are paying someone to
distribute the content.
 
Kurnit: in a perfect world, when consumers read disclaimers,
that’d be nice. FTC failed to take into account that it’s next to impossible to
make the distinction with “this is content with complete integrity, from the
NYT, and you can trust it to the extent you trust the NYT, and I am simply
making it available to you.”  If we put “ad”
on the top of everything, how does that help the consumer?  Mashable/Buzzfeed could label everything ads.
 
Yi: that would be misleading in itself.  Distinguish what’s in the content from the
brands behind it; how much the brand is behind it is the question. What
terminology will satisfy the FTC?  I don’t
want my clients to use “advertising” on everything.
 
Kurnit: everything I publish is “advertising” because it
enhances my brand. Should I have to disclose all my ulterior motives?  Disclose before a click?
 
Paioff: makes you have to worry about releases, SAG issues—wouldn’t
want to get those for certain content.
 
Kurnit: using Mary Engle’s name in my article = right of
publicity problem?
 
Wu: is the point to actually inform consumers?  Do they even care?
 
Jeremy Sheff | Professor of Law, St. John’s University and
Director, St. John’s Intellectual Property Law Center: It’s not clear that we
should care.  Why would it be important? B/c
that affects whether consumers choose to interact w/it and the
weight/credibility they give it.  Not
clear that this empirical claim is true. Are consumers more skeptical of “sponsored”
content?  There is some question—evidence
is mixed. We tend not to be good at monitoring the sources of our beliefs; we
think we’re better than we are; we’re heterogeneous in our capacity.  [I think that makes the case for
pre-interaction disclosure stronger.  If
we have sourcing difficulties, then choosing not to interact with claims that
might be misleading is our best way to protect ourselves, which is why I skip
ads.]  Disclosures are just a bad way of
dealing with this in many cases.  In
certain contexts, disclosures make things worse, as w/dietary supplements.  May not help v. false advertising law
generally—if the claims are true and you believe them, that’s good. If it’s
false and you believe it, that’s bad, but already actionable.

We need a deeper theory of autonomy, given that all our exposures
affect/influence us.  What we want for
ourselves to be protected from, at least w/o our knowledge.
 
Kurnit: 2 levels of protection. Concern w/truth, integrity
of content—if a brand wants to redistribute content, it makes the content its
own; it’s responsible for ensuring it has substantiation.  That’s the key consumer interest—being misled
about truth of claim.  Problem I have is
when FTC says we also have to provide them with info so they can choose whether
to interact w/ad: prevents exposure to truthful speech just b/c it’s
annoying.  [But isn’t the consumer making
the choice, not the gov’t, in the “prevention”? 
Gov’t can regulate time, place and manner so as to preserve privacy/consumer
choice about interaction in many circumstances.]  YouTube video created by monkey isn’t more “useful”
to consumer than an ad created by a major advertiser.  Made it impossible for media to create the
user experience they want: Taboola needs 3 disclosures: ad from Taboola;
publisher is advertiser; third party wanted you to read this article. All this
communicates it’s all bad and people walk away. That doesn’t protect the truth.
 
Goodman: you’re assuming these warning signs are effective
and turn people off; Sheff assumes the alternative.
 
Kurnit: Do I really need to be warned about “it’s an ad, don’t
read it”?  Wouldn’t I much rather know it’s
good content?  Do I really care how much
someone paid for the ecosystem?  [Suppose
someone runs an ad that says “this is a public service announcement” that makes
factual claims about fruit juice and soda and how they contribute to obesity,
but it’s actually a seller of bottled water. 
Do you think that’s a problem?]
 
Sheff: sometimes it’s reasonable for people to care about
source.  Question is how we want to
engage with one another in our interactions.
 
Wu: Imagine that a brand distributes some form of content
and says “this is not an ad, this is not being distributed by any commercial
speaker and hasn’t been influenced by any brand owner.”  But the content has been paid for and
influenced by the advertiser. Should that be permissible?  [This is another version of my question; my
question involves both truth and competition.]
 
Yi: Wrong question. Creative community: they don’t really
care about being told to disclose. 
Marketers: they’re willing to disclose. It’s the how that matters to
them more. They don’t want to create something that somehow makes what they do
inauthentic or impedes the message. 
[Well, the lie Wu discusses would un-impede the message, right?]  They want a way to disclose that doesn’t
interfere with the message.  Seamless,
organic, but transparent.  Your example
will never fly b/c it’s too many words and not creative enough.
 
Wu: but the point is that it’s a blatant lie, but only about
source and creation of content.  Assume
the content is truthful, but there are blatant lies about source.
 
Kurnit: if it’s material to purchasing decision, if it
enhances the credibility of a claim about the product or service, it’s
deceptive and illegal. But if the content has nothing to do with the product or
service, no problem. We don’t have a perfect world; content is always
influenced by editor’s decision to not piss off an advertiser. Editor has
curated publication to attract the kind of advertisers they want to have.  Those editorial decisions are not “pure”;
there are no editors free from publishers. Even Consumer Reports
advertises.  Notion of purity in curation
will make it impossible to provide protection against deception, which is a
materially false claim.  It would be nice
to get informed consent before we read anything.
 
[Part of the problem is that this model is algorithmic; some
of these articles will be
product-relevant, and you can’t easily label only those in the algorithm.]
 
Goodman: has been mission creep; there’s a long history of
requiring disclosure—for example, lower postal prices for newspapers that wasn’t
available to pure ads. Their concern wasn’t just with the truth of a product ad
or promotion but broader concerns w/ a right to know who’s talking to you.
Similar to our concerns about dark money. It’s not b/c we think that people
would make decisions differently if they knew, but b/c we think transparency is
important and that the consumers aren’t necessarily the direct consumers but
citizens who want to know what’s going on. FTC is now the only entity standing
with jurisdiction over the digital world. 
It’s going beyond consumer protection to deal w/these other concerns.
 
Paioff: a lot of concerns are addressed in the endorsement
guidelines already; additional disclosure shouldn’t be required in native ad
guidelines. That’s where the confusion is. 
American Express runs a forum for interesting content targeted at small
businesses; NAD said they had to disclose its sponsorship: American Express
Open Forum instead of Open Forum.  [Why would
they resist that?]
 
Yi: FTC thinks that brand as publisher should be treated
differently than traditional publisher.  But
Red Bull TV isn’t all about Red Bull.
 
Kurnit: huge problem for media trying to create a
context/format that’s a good user experience. The word “ad” is a complete
negative.  That’s why my clients have
done everything in their power to try to not use that word; it interferes
w/that communication.  Has embraced NAD’s
notion that when a brand creates content, that should be avoided.
 
Wu: if the FTC decides that people do care about source and
want to know, and that it’s material to them to know where the money flows, can
it decide that?
 
Kurnit: No, it’s a content-based regulation that isn’t the
less restrictive alternative to protect the consumer interest in not being
deceived or misled in a purchasing decision. 
Interest in not clicking on something without informed consent b/c it
might be an ad [is less strong]—if it’s a NYT link, do I need Tabooleh’s name
on it?
 
Wu: but it’s about greater credence.  Under that standard, should the FTC be able
to decide that the answer is yes in all circumstances? 
 
Kurnit: old law—you could disclose before purchase. You just
needed, before purchase/call to action, that they knew clearly what the source
was.
[different version of Wu’s question: the item appears in
your feed: this is not an ad, so you should click on it.  Ok?]
 
Goodman: but the reason for the change is the new world of
mobile, disaggregated content, where disclosures are often separated.  Harder to know who’s talking to you in your
feed.  Trying to tackle that new environment.  Once they’ve decided it’s material to
consumers—I think they’ve gone too far, but it’s not unconstitutional. They’re
overreaching b/c much of this isn’t trade regulation.  This goes more to our discourse
environment.  All editors may be
influenced as Kurnit says; FCC said that consideration was different than
wanting to suck up to your advertisers, and those institutions developed codes
of ethics.  Everyone wants to disclose
some things here, all industry organizations largely in agreement; it’s mostly
the “how.”
 
Yi: It’s also the “when.” 
FTC went pretty far on the when.
 
Sheff: consistent w/ psychology research—how and when matter
more than whether, and can be outcome-determinative on materiality.  Something other than materiality is driving
this.
 
Yi: telling people ahead of time what they might be clicking
on is treating the content itself like the ad. The FTC is giving credence to
people’s limited time; if you want to distribute content, consumer has right to
know what it is before they view.
 
Kurnit: and that’s my problem, b/c Scalia wouldn’t have
wanted to read a NYT story.
 
Goodman: but he’d want to know it was NYT.
 
Kurnit: but the FTC won’t protect him from that, only from non-media
advertisers.  There’s additional
regulation on those who sell products, which is a content based regulation.
[Put like that, it’s not a content based regulation, it’s a behavior based
regulation, which makes it not speech based at all.  Your promotional speech doesn’t trigger the
regulation, and in fact we’re completely content-indifferent (according to this
discussion of the FTC); the fact that you sell a nonexpressive product is what
triggers the regulation.] You have to label your content as a skull and
crossbones.  [Wow, advertisers must
really hate themselves: they sell poison.]
 
Wu: Note that under that reasoning all commercial speech
regulation is content based.
 
Kurnit: we’re all fine with having a disclosure when a brand
pays an influencer to tweet about it; that goes to credence.
 
Sheff: some evidence suggests that disclosure in advance of
placement doesn’t work, only disclosure afterwards.
 
Yi: FTC is asking for both/in the content.
 
Wu: Bait and switch?
 
Kurnit: It’s only illegal when the consumer relies to
detriment on the deception.  The
difference is: clicking on a link—is that the same as a door-opener?  [Yes?] 
Unless it makes it hard to click back, that’s not the same thing.  In a perfect world that would be great, but
they’re asking for too much.
 
Paioff: No problem with disclosing when the content really
is an ad. You should disclose who the advertiser is. But when it’s not used as
an ad, why do you need to disclose the source? By virtue of calling it
advertising, you’re assuming the issue.
 

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Advertising law at Cardozo

Cardozo Law Conference: New Impressions of Advertising Law
 
Panel 1: False Advertising (herein of Pom Wonderful v. FTC)
Moderator: Brett Frischmann | Professor and Director,
Cardozo Intellectual Property & Information Law Program, Benjamin N.
Cardozo School of Law
 
Panelists: Jen Lavie | Partner, Manatt, Phelps &
Phillips, LLP
 
2003-2010 ads touting medical studies that allegedly showed
that daily consumption of their products could treat or reduce the risk of
diseases such as prostate cancer and erectile dysfunction. Eventually, the FTC
sued.  Pom spent $34 million on these
studies, but the evidence wasn’t good. E.g.: Prostate cancer: patients who used
concentrated juice had already been treated for prostate cancer or had prostate
removed, so hard to say prevention of prostate cancer came from juice.  For erectile dysfunction, Pom used a measure
that the industry doesn’t accept as reliable. 
Artery thickness: sample size too small.
 
On appeal, Pom scored a small victory: one randomized
clinical trial (RCT) was enough in some cases, not the 2-RCT remedy imposed by
the FTC for disease claims.
 
Jeffrey A. Greenbaum | Managing Partner, Frankfurt Kurnit
Klein & Selz, PC: Pom is a “best of” case—so many issues on disclosure,
substantiation, standard of review.  Issue
at FTC: approach to its own guidance. 
Connection between Pom and
native advertising.  Pom is about the FTC’s announcement of a new rule, functionally.
2-study requirement when making a disease claim.  FTC also came out with a native advertising
policy statement, also announcing a new rule in effect, about where to put
disclosures in native advertising. Just as Pom
was very specific about substantiation, native advertising guide is very
specific about the type of disclosures you need, and even where in needs to
be.  FTC adjudication/enforcement
statements are issuing new rules, but they aren’t really rules b/c FTC lacks
real rulemaking authority—has to go through torturous proceeding basically
impossible to issue effective rules.
 
Aren’t we sort of acting as if the FTC is making rules?  Ad lawyers responded to Pom as if it were a new rule. 
How else are we interpret FTC taking a position in a particular
enforcement action or guide? This question for advertisers is very significant,
b/c of FTC’s interpretation of §5.  They
have to do this if they can’t make real rules—adjudications, settlements,
guidance are their only ways to communicate in persuasive ways.  Remarkably few enforcement policy statements
over the last 40 years; interesting to consider what was so important about
native advertising to justify one.  But
also industry guides, consumer guides—w/o the traditional protections for
rulemaking—notice and comment, openness.
 
One of the things we saw in the Pom case is that the court gives the FTC tremendous deference in
findings of fact and interpretations of law. 
Courts are deferring to how the FTC interprets the rules [as
applications of §5].  The law is very
simple: prohibition on unfair/deceptive acts or practices. It makes sense given
this breadth that you want information about specific practices. But when the
FTC makes up rules, like where native advertising should be disclosed, what’s
the appropriate level of deference?
 
What’s the impact on advertisers? The chilling effect is a
real concern. The FTC takes very aggressive positions on what’s potentially
deceptive when it’s not at all clear there’d be a real violation of §5. Trying
to avoid being on FTC’s radar, you don’t just have to worry about §5, you have
to worry about what the FTC thinks is unfair/deceptive even though Congress/a
court hadn’t decided.  FTC is taking a
more restrictive position than really required under §5.
 
Shouldn’t the FTC have real rulemaking authority?  Should Congress look again at the FTC’s
authority?
 
FTC’s 2-study requirement is clearly wrong.  A claim is either true or false. All that §5
prohibits is unfair/deceptive.  Question:
whether the claims are false/whether they had sufficient substantiation. FTC
standing in shoes of scientists and demanding 2 studies every time was
wrong.  FTC was trying to prevent
mistakes.  Pom had lots of studies and
2-study requirement wouldn’t have solved the problem.  Fencing-in relief might have justified a
2-study requirement—to prevent problems with this particular advertiser in the
future.  We see the FTC pushing the
boundaries of §5, and advertisers don’t have an effective remedy to challenge that.  People have to be more conservative, afraid
that until a company has a big enough budget they can’t fight.
 
I love the FTC! Do a good job, but preventing more speech
than they need to.
 
Rebecca Tushnet | Professor, Georgetown University Law
Center  
 
Benefit of being an
academic: I get to take as unrealistic a position as I like, at least for
purposes of argument.  Then again, given
current political events, maybe unrealistic and extreme positions are no longer
the sole province of academics.  Two topics
today: (1) the role of disclaimers and (2) the role of constitutional scrutiny
of scientific factfinding more generally.
 
The DC Circuit has
shown indifference to whether disclaimers actually work when it mandates that
regulators use them.  In Pearson v. Shalala, for example, the DC
Circuit decided that a disclaimer requiring more than college level reading
comprehension was appropriate instead of a ban on a statement misleadingly
indicating that selenium had been shown to reduce cancer risks.  The FDA tested these disclaimers; not only
did they fail; they backfired—people exposed to them had increased confidence that the FDA had reviewed and agreed with the
main cancer claim.  Reality-based
decisionmaking would lead to substantially less elaborate disclaimers; more
readiness to uphold bans or FDA-specified wording.  However, reality-based decisionmaking plus
rigorous First Amendment scrutiny would be a double-edged sword.  While courts should hesitate to hypothesize
that a disclaimer can substitute for a regulatory prohibition by avoiding
deception, that also means that regulators’ choice of disclaimers instead of a
ban should be dubious.  Regulators often
compromise on requiring a disclaimer instead of banning an activity
outright.  But disclaimers may rarely be
a worthy compromise—mostly they impose a burden without doing too much good,
though there are important exceptions. The privileged status of disclaimers
represents a hope that we can have our cake and eat it too, and if we’re
demanding lots more evidence in other aspects of commercial speech regulation
it seems odd not to do it here too. 
 
The question of
whether all FTC remedies are now subject to Central
Hudson
-style assessment of whether they’re minimally restrictive.  Two sub-issues: first, generally, are
regulators entitled to any deference on factfinding?  The Pom
Wonderful
court reasoned that even the FDA sometimes allows a claim based
on less than two randomized controlled trials, and hypothesized that there
might be one really amazing RCT that everyone agreed was conclusive, so the
theoretical existence of that RCT invalidated the FTC’s 2-RCT requirement.  Does that mean that the FDA’s general 2 RCT requirement is
constitutionally invalid for the same reasons, rebuttably unconstitutional, or
unconstitutional if and only if the evidence supports an exception to the usual
rule?  All of these possibilities represent
substantial incursions on FDA authority and should be deeply troubling,
especially if it’s the court and not the FDA that decides how strong the
evidence is in the absence of 2 RCTs, or whether the RCTs were in fact
conducted in a proper way.  Like the FTC,
the FDA does make individualized determinations about whether a given drug is
safe and effective.  Once you constitutionalize
an issue, factfinding itself receives constitutional scrutiny.  (And it’s worth noting that the DC Circuit
has already revealed its innumeracy in Pearson
v. Shalala
, when it ruled that the existence of one positive trial and a
number of negative trials meant that it wasn’t true to say that the positive
claim was unsupported by the evidence—the whole
point of having a concept of a p-value to indicate statistical significance

is that you expect false positives if
you run a sufficient number of trials.)
 
Second, with respect
to remedies specifically: Historically, once regulators found that an
advertiser violated the law, that violation provided justification for future
prophylactic measures.  The DC Circuit’s
opinion gave weight to Pom’s repeated, extensive violation of the law and
demonstrated intent to keep on with its practices to any extent it could only
in allowing the imposition of a RCT requirement for all disease claims, as if
that requirement wouldn’t have been justified for disease claims in the absence
of persistent deceptive conduct. 
Why?  In the RICO case against
tobacco companies, the same court of appeals found that the companies’ repeated
violations of the law justified some mandatory disclosures, but they’ve
likewise been allowed to litigate every word—literally!—and so years after the
primary liability finding they have yet to make the corrective disclosures ordered
by the district court.
 
Conclusion: The
First Amendment is strong medicine.  Greenbaum
and I are probably a lot closer than we sound on policy questions; I just don’t
want them constitutionalized.  I often
hear the representatives of mainstream businesses, the kinds that hire the
lawyers represented on this panel, say that all they want is reasonable
freedom, that of course they wouldn’t abuse it because they are responsible
businesses.  While the record of large established
businesses speaks for itself, I think that’s ultimately beside the point.  The First Amendment doesn’t follow the
contours that “respectable” businesses are willing to accept; marginal
businesses will take advantage of these rules, because that’s what the First
Amendment is for—protecting marginal
speakers.  That’s why the lack of constitutional
protection for false and misleading commercial speech, plus freedom for administrative
agencies with competence in the relevant field to make factual determinations
of what is false and misleading, is so important to preserve the regulatory
state against a reimposition of Lochner.
 
Ashima A. Dayal | Partner, Davis & Gilbert LLP: Pearson and Pom: the FTC’s conclusion that the use of one or two adjectives
doesn’t alter the net impression: “promising,” “initial,” “preliminary.”  Court says those can’t cure the impression
made by the ad, especially when the chosen adjectives provide a positive
spin.  Effectively, said in dictum that
if there’d been a disclaimer like “evidence in support of this claim is
inconclusive” that would have been a safe harbor.  Even if that language is good: We’re saying “drink
Pom and you won’t get cancer,” but in a footnote we say “this evidence is no
good.”  That makes no sense. How can you
make a claim in the body copy and then disclaim its import?  It’s a contradiction, not a cure.
 
What is the difference between a claim “evidence in support
of this claim is inconclusive” and “these studies are promising”?  These are not different.  Body copy is at least more likely to be
seen.  This is terrible advice—encouraging
use of disclaimers rather than body copy. 
Why is the court writing this copy? 
They’re not good at it.
 
Bayer case, dietary supplement: FTC’s position on 2 RCTs
again rejected for a dietary supplement case. 
Supplements are regulated differently than drugs.  Bayer says you don’t need 2 RCTs for making a
supplement claim; not good to impose that on a food product.  One of the justifications the FTC gave was
that this was a repeat offender. 
Punitive: these decisions/effective rulemaking has some stare decisis
effect.  Similar to SEC/IRS letter
rulings—we read these and advise our clients. 
 
Lavie: disclaimers should be qualifications for the main
claim, not contradiction.
 
Q: what’s the role of disclaimers?
 
Lavie: advertiser is responsible for all reasonable
interpretations.  Disclaimer should help,
not contradict.
 
Dayal: lots of functions, but not reject/rebut plausible and intended interpretations.
 
Greenbaum: I thought disclaimer issue in Pom was interesting—but the court asked
for an effective disclaimer.  We hear something different from courts and
FTC.  If we take a step back and ask:
what is the right standard?  Clear &
conspicuous, says FTC—seen, read, and understood in context. Disclaimer
standard doesn’t match up w/general standard, which is reasonable
consumer.  FTC says: Consumer might
glance at headline & turn the page—but that’s not reasonable consumer.
 
Dayal: Effective has to mean clear & conspicuous.  “Studies show drinking 8 ounces of Pom can
treat, prevent, or reduce the risk of …” 
Then at the bottom: “evidence is inconclusive.”  That’s a rebuttal.  Can’t imagine how putting it in 12 point type
would help. 
 
RT: Effective disclaimer: is a great idea; now we have to
convince the courts that they can’t just eyeball or imagine an effective
disclaimer.  On supplements being
regulated differently than drugs: wait a year or so!  On §5: FTC understands it still has to prove
a violation of §5; if it did have rulemaking authority, and announced the native
advertising guidance as a rule, should the DC Circuit uphold it under the
APA?  Deference would in theory be
required.
 
Q: How is/should we draw the line between RCT-required
claims and non-RCT-required claims? Is this a scientific question? A marketing
question?  Legal?  Who
should decide? 
 
Dayal: The FTC doesn’t take enough of a practical approach.
If I’m drinking a juice, I have a different expectation than a drug I got from
a doctor or OTC.  It’s appropriate to
evaluate the claims being made requiring less proof.
 
Lavie: distortion of market as between Pom and orange juice.
 
Dayal: is that consumer protection?
 
Lavie: yes!  Money is
consumer protection too.
 
Greenbaum: The FTC would say they don’t make policy.  Their role is §5.  FTC prohibits a number of claims, like
biodegradability, where consumers are more likely than not to throw it away in
a place that it won’t biodegrade.  Better
to prevent deception by consumers who think it will biodegrade in a landfill
than to encourage biodegradability claims.
 
RT: scientific and marketing/linguistic/psychological
question: truth and perception.  Supplements
v. pharmaceuticals: people have no idea about the regulatory difference and
think the FDA has approved it all!  Food:
we don’t really know.  Food claims could
be just as convincing as supplement claims; we need to know more about
that.  They can distort the market, directing
people away from doctors/other treatments.
 
Q: most people don’t take out the little insert to read any
kind of warnings on pharmaceuticals. But if you watch a TV ad, you get mixed
messages.
 
RT: FDA required Seasonale to do corrective ads; sometimes
disclaimers do serve the function of saying “this is complicated/important; you
need to think hard about this” even if they aren’t comprehended in specific.
 
Dayal: note that other countries don’t allow TV ads for
drugs. There’s only so much you can do in 15 seconds; you can give a heads-up.
 
Jeremy Sheff: Most of the largest advertisers in spending
are DTC ads.  Fact of disclosure might
trigger a consumer reaction, but not necessarily one we like—the DSHEA
disclosures may make supplement ads more convincing/trustworthy. 
 
Greenbaum: the problem is that the FTC has research showing
they’re so ineffective—50 years of FTC cases, never found one where a
disclaimer worked.  FTC endorsement
guides tested print ads—tested with a “results not typical” that was big; even
those still aren’t all that effective. 
You can’t make consumers read stuff, but is that the advertiser’s
fault?  [RT: Yes.]
 
Q: Aren’t the constitutional standards for commercial speech
relatively low as for other speech?  [Yes
if false and misleading, no if not—that
makes the question of who sets the false/misleading line and what standard of
review is applied to their factual finding of misleadingness incredibly
important.]
 
Q: Vitamin-type products often have certifications,
self-certifications—how does the law deal with those?
 
Q: compare SEC’s standards for forward-looking statements
w/the FTC’s standards.
 
Q: is the court separating above the line/below the line
honesty?
 
Q: if the FTC is really aiming to protect consumers, the 1-
or 2- study question misses the point if they’re sponsored by the companies.
Can we standardize the studies?
 
Dayal: double-blind should be theoretically indifferent to
sponsorship.  Pom has an interesting discussion about cherry-picking
evidence.  Defer to what scientists think
is accurate/reliable.

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8th Circuit finds copyright preemption of publicity claim

Dryer v. National Football League, No. 14-3428 (8th Cir.
Feb. 26, 2016)
 
I blogged
about the district court ruling
and wrote an
amicus brief in the appeal
; now the 8th Circuit affirms the
rejection of football players’ right of publicity and Lanham Act claims based
on clips in which they appeared in films by NFL Films.  The films depicted “significant games,
seasons, and players in the NFL’s history” via compilations of game footage and
interviews with players, coaches, and other individuals involved in the game.  NFL Films sells copies to consumers and
licenses performance rights to distributors, as well as broadcasting some films
on its own TV network and website.  The
appellants appeared in game footage and interviews in the films; they didn’t
challenge that NFL Films had consent to use the interviews, but based their
claims on appearances in the game footage.
 
On the right of publicity claim, the court of appeals
affirmed the district court’s copyright preemption holding.  Appellants argued that their performances in
football games were part of their identities rather than “fixed” works eligible
for copyright protection.  Nope—copyright
specifically includes fixed recordings of live sports performances.  NFL Films had permission to record those live
performances, and had valid copyrights to its footage.  Thus, the right of publicity claims were
based on a work within the subject matter of copyright.
 
The remaining §301 question was whether there was any “extra
element” to save the claims.  The purpose
of copyright is to “suppl[y] the economic incentive to create and disseminate
ideas.” The purposes of the right of publicity are “the desire to provide
incentives to encourage a person’s productive activities and to protect
consumers from misleading advertising.” Because of the state’s consumer
protection interests, a right of publicity claim based on use of a copyrighted
work in an ad could have purposes unrelated to copyright’s aims (I like that “could”—there
are cases in which no consumer protection purpose would be implicated, even in
an ad).  But for noncommercial uses, such
a claim “seeks to subordinate the copyright holder’s right to exploit the value
of that work to the plaintiff’s interest in controlling the work’s
dissemination” and thus attempts to claim “exclusive rights within the general
scope of copyright,” triggering preemption.
 
Appellants argued that the films were commercial speech because
they were ads for “NFL-branded football,” a specific product that the films
promote for the NFL’s economic benefit. 
But the films didn’t propose a commercial transaction; they didn’t refer
to the NFL as a specific product but rather as part of historical events; and
the consumer demand for the films demonstrated that they existed as “products”
in their own right. “[T]he NFL’s economic motivations alone cannot convert
these productions into commercial speech.”
 
On the Lanham Act claims for false endorsement, the court of
appeals for some reason applied the §43(a)(1)(B) literal falsity/implicit
falsity distinction while identifying the claims as being based on §43(a)(1)(A).  It further noted circuit precedent that evidence
that some consumers “misunderstood” a statement is insufficient to overcome
summary judgment where the statement is not objectively “misleading [or]
false.”  Appellants relied on “survey
evidence showing that a statistically significant number of survey participants
concluded upon viewing the films that the depicted players endorsed the NFL.”  But there was no evidence that the films
included misleading statements about the players’ current relationship with the
NFL.  There was no evidence of literal
falsity, and no evidence that the films “implicitly convey a false impression,
are misleading in context, or [are] likely to deceive consumers.”  (Um, other than the surveys, which is why you
need Rogers under current trademark
law; this is screwy logic for the right result, and maybe it’s better to frame
it this way because it may provide a basis for a broader attack on the
laughably broad concepts of false endorsement that other courts have accepted.)  The films showed only their actual
performances in past NFL games. “Although the films as a whole may portray the
NFL in a positive light, nothing in the films implies that the appellants share
that perspective,” especially not the clips of their game performances. Thus,
the false endorsement claim failed as a matter of law.

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