DC Court of Appeals revives greenwashing suit against Coca-Cola

Posted on August 30, 2024 by rtushnet

Earth Island Institute v. Coca-Cola Co., — A.3d —-, 2024
WL 3976560, No. 22-CV-0895 (D.C. Aug. 29, 2024)

Earth Island sued Coca-Cola under the D.C. Consumer
Protection Procedures Act, alleging that Coca-Cola engages in deceptive
marketing that “misleads consumers into thinking that its business is
environmentally sustainable, or at least that it is currently making serious
strides toward environmental sustainability.” In fact, Earth Island alleged, “the
sheer scale on which Coca-Cola relies on single-use plastics in its
packaging—and the scale on which it intends to continue using them—renders it
an environmental blight and a fundamentally unsustainable business.” Coca-Cola
touts its efforts to increase recyclability and use more recycled material, but
this allegedly hid “the reality that recycling is not a viable means of
mitigating the environmental harm that Coca-Cola inflicts via its mass
production of single-use plastics—less than ten percent of recyclable plastics
are in fact recycled in the United States.” Coca-Cola allegedly “represents
itself as working toward environmental sustainability, despite no serious
intention of doing the one thing that could actually achieve that goal:
severely scaling down its plastic production.”

The court first found that Earth Justice had standing under
DC law (the DC courts are not Article III federal courts). Despite the
patchwork of sources—Twitter, the Coca-Cola website, other places—from which
the complaint quoted, it was plausible that the general public targeted by the
ads, including in DC, received the basic message “that Coca-Cola is a company
that cares about, and is working meaningfully toward, environmental
sustainability” even if no one person saw all the ads.

Reversing the trial court, DC’s highest court held that this
greenwashing complaint stated a claim.

The most concrete statements outlined Coca-Cola’s goals: (1)
“Make 100% of our packaging recyclable globally by 2025. Use at least 50%
recycled material in our packaging by 2030” And (2) “Part of our sustainability
plan is to help collect and recycle a bottle or can for every one we sell
globally by 2030.” Vaguer statements were more in the vein: “Business and
sustainability are not separate stories for The Coca-Cola Company—but different
facets of the same story.” And Coca-Cola cosigned a statement from the American
Beverage Association: “Together, we’re committed to getting every bottle back.
… Our goal is for every bottle to become a new bottle, and not end up in
oceans, rivers, beaches and landfills. … This unprecedented commitment
includes … [p]artnering with [other organizations] to improve recycling
access, provide education to residents and modernize the recycling
infrastructure in communities across the country.”

Earth Island specifically alleged that Coca-Cola wasn’t taking
the steps necessary to meet its concrete benchmarks of (1) making 100% of its
packaging recyclable by 2025, (2) using 50% recycled material in its packaging
by 2030, and (3) recycling a bottle or can for every one it sells by 2030. And,
it argues, Coca-Cola has a “history of making sustainability promises and
failing to deliver on them,” which is “a history that is bound to repeat itself
given that none of Coca-Cola’s business plans or lobbying efforts would enable
it to actually achieve its alleged recycling goals.” Also, given low recycling
rates, even if Coca-Cola could hit the benchmark of making 100% of its
packaging recyclable by 2025, it would allegedly still be “push[ing]
ineffective ‘recycling’ as a viable tool to assuage their environmental
pollution.”

The trial court thought that the challenged statements were
merely aspirational/puffery.  But “even
aspirational statements can be actionable under the CPPA because they can
convey to reasonable consumers that a speaker is taking (or intends to take)
steps that at least have the potential of fulfilling those aspirations. Earth
Island alleges that Coca-Cola neither takes nor intends to take any such steps,
and if that is correct, then its representations could mislead reasonable
consumers.”

It was facially plausible that

(1) Coca-Cola is a fundamentally
unsustainable business because of its heavy reliance on single-use plastics
that it has no immediate intentions of eliminating or substantially reducing;
(2) Coca-Cola misleads consumers into thinking that it is serious about hitting
its specific sustainability goals, when its practices say otherwise; and (3)
Coca-Cola’s statements create the misimpression that recycling is a viable
method for substantially mitigating the harm its plastic products cause to the
environment, when it is not.

The court analogized to marketing “light” or “low tar”
cigarettes; marketing them as a healthier option was misleading when they didn’t
offer much if any benefit versus full tar and when they posed substantial
health dangers. Given how Coca-Cola promotes its “World Without Waste”
initiative and trumpets how it is “[s]caling sustainability solutions,” “a
reasonable consumer could plausibly think that its recycling efforts will put a
serious dent in its environmental impacts.” But Earth Island plausibly alleged
that it wouldn’t given low recycling rates of recyclable plastics. “That is,
when it promotes its recycling efforts, it omits the fact that those efforts
will not prevent the vast bulk of its plastic products from ending up as waste
or pollution, a deception that Earth Island alleges Coca-Cola very much
intends.” Likewise, it was plausible that “a reasonable consumer would think
Coca-Cola was taking the steps necessary to achieve its stated goals,” and it
allegedly was not.

Of course, this was all subject to proof:

We do not presume to know what
reasonable consumers understand a company to mean when it claims that it is
working to be “more sustainable” or the like. For all we know, reasonable
consumers would immediately dismiss that type of speech as vacuous corporate
jargon, not to be relied upon. But that is not obviously true; the concerted
efforts that companies like Coca-Cola make to cultivate an image of being
environmentally friendly strongly suggests that even their vague assurances
have a real impact on consumers. Further, even if reasonable consumers take
Coca-Cola’s statements to mean that it is taking substantial strides to improve
the environment, it is not at all obvious at this stage of the proceedings
whether Coca-Cola’s efforts on the ground align with those statements. But
those are questions of proof that cannot be settled at the motion to dismiss
stage.

So, puffery was still an issue, but it was an issue for the
factfinder.

The court rejected “more rigid approaches” to puffery, such
as that where a statement’s “truth or falsity … cannot be precisely
determined,” it is puffery. But the cited case that puffery includes “the
exaggerations reasonably to be expected of a seller as to the degree of quality
of his product, the truth or falsity of which cannot be precisely determined.” The
first part of that definition—reasonably expected exaggerations—was vital to
the second. “[B]usinesses cannot insulate themselves from suit simply by
avoiding concrete claims. Vague and ambiguous statements, incapable of being
strictly true or false, may yet be actionable as misrepresentations.” The court
here preferred defining puffery as (1) “general claim[s] of superiority … so
vague that [they] can be understood as nothing more than a mere expression of
opinion,” and (2) “exaggerated, blustering, and boasting statement[s],” quite
capable of being adjudged false, but “upon which no reasonable buyer would be
justified in relying.” “Red Bull gives you wings” can’t be taken literally, but
“might be actionable if it gave reasonable consumers the impression that Red
Bell provided significant benefits over a cup of coffee or caffeine pill, at
least if that were not the case.” In short, “statements that might be deemed
puffery if interpreted to mean one thing in one context, might very well be
actionable misrepresentations if taken to mean a different thing in a different
context. The doctrine is not conducive to hard-and-fast rules, and typically
raises a question for the factfinder.”

The court also rejected Bimbo Bakeries USA, Inc. v.
Sycamore, 29 F.4th 630 (10th Cir. 2022), which overturned a jury verdict
finding that a bakery engaged in false advertising when it billed baked goods
it sold in Utah as “local,” despite the fact that they were made exclusively
out-of-state, as far away as Alaska. The Bimbo Bakeries court concluded
that the word “local” was “an indeterminate and unverifiable adjective,” so it
was not any “description of fact,” because “the word local cannot be ‘adjudged
true or false in a way that admits of empirical verification.’ ” Of course “local”
has a range of meanings.

[I]t is just as obviously true that
some things fall outside that range of meanings, often depending on context. To
illustrate, here in the District, if somebody says they support the “local” NFL
team, you would most naturally think they are supporters of the Washington
Commanders, though they might also fairly be referring to the Baltimore Ravens,
given that Baltimore is less than forty miles away (i.e., there’s a range that
“local” might fairly apply to). But if they are in fact fans of the Los Angeles
Rams—a team that hails from more than two thousand miles from here (just as
some of the baked goods in Bimbo Bakeries came from Alaska, more than two
thousand miles away from Utah)—then they have undoubtedly deceived you.

The court here also specifically rejected Bimbo Bakeries’s
“hostility toward consumer survey evidence as one viable evidentiary tool for
discerning how reasonable consumers understand various advertisements.” The
court further noted that the Fifth Circuit’s analysis in Papa John’s
contradicted Bimbo Bakeries—Papa John’s held that even a claim as
vague and opinion-laced as “Better ingredients. Better Pizza.” could be
actionable “when coupled with a comparison to a competitor’s ingredients that
were not discernibly different.”

Nor was it dispositive that the statements were
aspirational. An aspirational statement can be reasonably “interpreted to be a
representation about the defendant’s present intent … to act as stated.” Mere
failure to achieve stated goals couldn’t support a misrepresentation claim, but
a showing that Coca-Cola never even intended to do anything that could achieve
them would.

Coca-Cola next argued that the statements at issue weren’t
about “goods and services” as required by the CPPA. But claims about plastic
packaging were very much about “goods and services,” defined broadly in the law
to include “any and all parts of the economic output of society, at any stage
or related … in the economic process.”

Finally, the statements could properly be considered in the
aggregate, although a litigant would not be allowed to “unfairly strip isolated
statements out of their context and then cobble them together to form an
unrepresentative tapestry of what has been conveyed.” Earth Island was
targeting only statements that Coca-Cola was still making today. Discovery and
trial could be reasonably tailored to those. Earth Island was not offering a “grab
bag” of statements nor arguing that they should be read out of context. “Businesses
can drive points home through repetition or supplementation, and where a
consumer sees Coca-Cola billing itself as sustainable in one ad on a Monday,
and then sees a different ad on Thursday with a similar message, the mere
repetition of a point can have a cumulative effect on a reasonable consumer.”
Maybe consumers wouldn’t have reacted that way, maybe not; “[i]t is plausible
enough that a consumer curious about Coca-Cola’s environmental impacts would
come across the variety of statements relied upon by Earth Island through some
casual Googling.”

The First Amendment didn’t bar the suit. Earth Island challenged
Coca-Cola’s commercial speech about its goods and services, although relief
would have to preserve its First Amendment rights.

from Blogger http://tushnet.blogspot.com/2024/08/dc-court-of-appeals-revives.html

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FTC lacks jurisdiction over nonprofits, even sham ones, court rules

Posted on August 30, 2024 by rtushnet

Federal Trade Commission v. Grand Canyon Education, Inc.,
— F.Supp.3d —-, 2024 WL 3825087, No. CV-23-02711-PHX-DWL (D. Ariz. Aug. 15,
2024)

The court here holds that the FTC lacks §5 jurisdiction over
a nonprofit, even if the nonprofit was in fact a sham diverting money to its
controller. I wonder if the FTC will appeal, or accept the court’s
baby-splitting of allowing it to sue the principal controller.

The FTC sued Grand Canyon Education, Inc.; Grand Canyon
University; and Mueller, GCU’s president and GCE’s CEO and chairman of the
board, for (1) making deceptive representations concerning GCU’s status as a
non-profit institution; (2) making deceptive representations concerning GCU’s
doctoral programs; (3) making both sets of deceptive representations in
connection with the telemarketing of educational services; (4) initiating
telemarketing calls to persons who requested that GCU not contact them; and (5)
initiating telemarketing calls to persons registered on the national
Do-Not-Call Registry.

Nonprofit allegations: In 2004, GCE—which became a publicly
traded company—purchased what is now GCU and began operating it as a for-profit
institution. In 2014, GCE chartered GCU as an Arizona nonprofit corporation.
Mueller has continuously been in charge since 2017. He received salary,
bonuses, and other compensation from both GCU and GCE. His compensation included
cash and stock incentives linked to GCE’s financial performance. Despite GCU’s
classification as a nonprofit, the FTC alleged that it “was, in fact, organized
by GCE and Defendant Mueller to advance GCE’s for-profit business and advance
Defendant Mueller’s interests as officer, chairman, director, stockholder and
promoter of investment in GCE” and therefore is “operated to carry on business
for its own profit or that of its members, within the meaning of Section 4 of
the FTC Act.”

In 2018, GCE transferred the trademarks, campus, and certain
assets and liabilities of the institution that GCE had operated as ‘Grand
Canyon University,’ to GCU in exchange for GCU agreeing to pay GCE more than
$870 million plus 6% annual interest.” A master services agreement “executed as
part of this transaction makes GCE the service provider for certain essential
GCU operations in exchange for a bundled fee that is equal to 60% of GCU’s
‘Adjusted Gross Revenue.’ ” GCE has since been the exclusive marketing provider
for GCU, responsible for communicating with prospective GCU students regarding
applications, program requirements, and financing options. GCE is also the
exclusive provider for GCU of student support services and counseling,
technology (including GCU’s platform for online education) and budget analysis
services. GCU isn’t permitted to contract with any third party for these
services. And GCE is the sole provider of GCU’s student records management,
curriculum services, accounting services, technology services, financial aid
services, human resources services, procurement, and faculty payroll and
training.”

The fees are allegedly not limited and not proportionate to
GCE’s costs: “GCE receives 60% of GCU’s revenue from tuition and fees from
students, including 60% of charitable contributions to GCU for payment of
student tuition and fees. … In addition, GCE does not provide services for
student housing, food services, operation of the GCU hotel conference center,
or athletic arena, but still receives 60% of the revenue from these operations.”
GCU has consistently generated profit for GCE, and is GCE’s most significant
source of revenue.

Nonetheless, defendants allegedly promoted GCU in
advertising and telemarketing as a private ‘nonprofit’ university and
disseminated digital and print advertising” suggesting that “GCU had gone ‘Back
to Non-Profit Roots’ and ‘transitioned back to a nonprofit institution.’ ” Mueller
said in 2018 that “the characterization of GCU as a non-profit educational
institution is a tremendous advantage. We can recruit in high schools that
would not let us in the past. We’re just 90 days into this, but we’re experiencing,
we believe, a tailwind already just because of how many students didn’t pick up
the phone because we were for-profit.” He made a similar statement in 2019
during a GCE earnings call attributing unexpectedly good new student online
growth to the non-profit advertising.

In 2019, the US Department of Education “rejected GCU’s
request that it be recognized as a nonprofit institution under the Higher
Education Act, and classified GCU as a for-profit participant in federal
education programs.” The DOE also ordered GCU to cease advertising “nonprofit”
status. Defendants mostly complied.  

Telemarketing: GCE has hundreds of sales reps who engage in
telemarketing GCU. It has initiated tens of millions of telemarketing calls on
behalf of GCU. It allegedly did not respect either individual do not call
requests or the National Do Not Call Registry, making more than a million calls
in defiance thereof.

Doctoral program: The FTC alleged that defendants marketed “‘accelerated’
programs that enable students to quickly complete their degree, including
quickly completing a dissertation.” Its materials allegedly described the GCU
programs as twenty course programs that require a total of 60 credits. For
example, an enrollment agreement for a “Doctor of Business Administration:
Marketing (Qualitative Research)” stated the program costs $702 per credit,
lists a “Total Program Tuition and Fees” of “$43,720” based on the 60 credits,
and also stated that “[p]rogram cost is estimated based on current tuition
rates and fees.” The FTC alleged that this was misleading:

GCU’s requirements for
dissertations include eight distinct levels of review that students must
complete from the initial prospectus to final approval. Throughout the
multi-level review process, GCU requires students to produce multiple drafts
with extensive revisions. After a student has completed two years of
coursework, GCU appoints one or more faculty members to supervise satisfaction
of the requirements. GCU often imposes these dissertation requirements in
courses after the three dissertation courses listed in the agreements and
requires any student satisfying these requirements to enroll in, and pay
additional tuition for, ‘continuation courses.’ … The number of continuation
courses and time required for doctoral students to advance through GCU’s
doctoral program depends, in substantial part, on services provided by GCU.
Students’ ability to satisfy GCU’s requirements may be, and has been, thwarted and
delayed by GCU’s actions or inaction, such as reassignment of faculty,
inconsistent demands during the dissertation review process, and delays caused
by the conduct of faculty appointed by GCU to various roles in the dissertation
review process.

In practice, the FTC alleged, GCU rarely awarded a doctoral
degree after 60 credits. The average number of courses GCU required for
graduates awarded degrees over 2019-2022 was 31—at a cost of over $10,000 to
each student. And, unsurprisingly, “[m]ost of the students that enroll in GCU
doctoral programs never receive the doctoral degree for which they enrolled.
Many of these students are thwarted because they cannot afford the additional
costs and time necessary to fulfill GCU’s requirements beyond the twenty
courses identified as required.” Any disclosures, the FTC alleged, were
insufficient.

The court initially rejected a constitutional challenge to
the FTC’s enforcement authority. The Supreme Court both explicitly upheld the
constitutionality of the FTC’s commission structure in Humphrey’s Executor v.
United States, 295 U.S. 602 (1935), and explicitly distinguished its more
recent holding on the President’s removal power as to single-head agencies
therefrom, Seila Law LLC v. CFPB, 591 U.S. 197 (2020). Unlike some other
district courts I could name, the court here thought those cases—along with
binding circuit precedent specifically upholding the FTC’s post-1935 expanded
enforcement powers as constitutional—meant that it wasn’t going to toss out those
enforcement powers. Pointedly, the court noted that even the Fifth Circuit has
yet to go so far. Illumina, Inc. v. FTC, 88 F.4th 1036 (5th Cir. 2023)
(“[A]lthough the FTC’s powers may have changed since Humphrey’s Executor was
decided, the question of whether the FTC’s authority has changed so
fundamentally as to render Humphrey’s Executor no longer binding is for the
Supreme Court, not us, to answer.”).

However, GCU’s argument that it wasn’t a “corporation” under
the FTC and the Telemarketing Sales Rule fared better.

The FTC has jurisdiction over “persons, partnerships, or
corporations.” As to that last, it only covers a company/trust/association that
is “organized to carry on business for its own profit or that of its members.”
The FTC responded that it sufficiently alleged that GCU was, in fact,
for-profit “because it was organized to, and does, benefit its for-profit
founder, GCE, and President, Defendant Mueller” and because “[a] genuine
nonprofit does not siphon its earnings to its founder, or the members of its board,
or their families, or anyone else fairly to be described as an insider.” 

The key question: was GCU “organized to carry on business
for its own profit or that of its members”? The FTC argued that the answer was
yes, because it was set up and operated for profit. But the court didn’t think
that was the same thing as “organized” for profit. After all, GCU, had a
nonprofit charter under state law, and its “articles of incorporation …
represent that it is organized and operated exclusively for charitable,
religious, and scientific purposes within the meaning of Section 501(c)(3) of
the Internal Revenue Code.”

Does the FTC’s authority depend on state corporation filings
or IRS status? In a footnote, the court acknowledged that several courts have
agreed with the FTC that it doesn’t, but the court here disagreed because
“organized” for profit is not the same as “operated” for profit. [Not a very
consumer-protection-friendly interpretation of the law.]

Congress has specified in other contexts (that is, the tax
law itself) that an entity should be treated as a nonprofit only if it was both
“organized” as a nonprofit and thereafter “operated” as a nonprofit. But it only
authorized the FTC to pursue claims against an entity that is “organized to
carry on business for its own profit or that of its members.” That at least
raised an inference that the certificate of incorporation did determine
the FTC’s authority.

Still, GCU was willing to rely on a narrower argument, which
was that the FTC didn’t make the necessary showing that GCU was in fact
organized to profit itself or its members. Mueller wasn’t actually a member of
GCU. The court didn’t accept the FTC’s theory that, if an ostensible nonprofit
entity is being operated to benefit “insiders,” “related … businesses,” or
“officers” that are not members, it qualifies as a company “organized to carry
on business for its own profit” within the meaning of the FTCA. But this theory
had never been adopted by a court and the court found that, while “debatable,”
the better plain-language meaning was that it wasn’t a viable theory. Congress
could have said that the law covered fake nonprofits; the tax code specifically
requires an evaluation of whether any “part of the net earnings” of an asserted
nonprofit charity “inures to the benefit of any private shareholder or
individual.” “Although there may be persuasive policy reasons why the FTC
should be allowed to pursue claims against nonprofits that operate for the benefit
of non-member insiders, related businesses, and officers, the Court must take
the statute as written.”

The statutory reference to the corporation’s “own” profit
couldn’t be extended to “insiders,” “related businesses,” or “officers.” [I’m
not sure there’s consistency in the greater law of agency, but I am pretty sure
that for some purposes, agency law is totally happy to make this attribution.]
That was “a seemingly unlimited list of third-party beneficiaries” and would
make “own” superfluous.

This result kicked out both §5 and TSR claims against GCU.

But there were still claims against Mueller. Mueller argued
that the “nonprofit” statements were truthful, because GCU was “organized as a
nonprofit under Arizona law and recognized by the IRS as a 501(c)(3) tax-exempt
entity.” The DOE’s disagreement, they argued, was not relevant or material, and
students couldn’t have been deceived before the DOE ordered defendants to stop
the ads.

The court allowed the claims to proceed. The FTC disputed
whether the IRS had found GCU to be a nonprofit at the time defendants marketed
it as one, and argued that the Arizona Corporation Commission and Higher
Learning Commission never made an actual finding that GCU qualified as a
nonprofit. “If, as the FTC seems to contend, Defendants made false
representations to the IRS to secure GCU’s nonprofit classification,” then
there wouldn’t be a binding government determination of status.

Additionally, FTCA liability turns on misleadingness to a
reasonable consumer. Whatever the legal niceties, whether “nonprofit”
advertising meant something other than the legal definition to students and was
deceptive needed factual development. Mueller’s own statements “easily
suffice[d]” to raise a plausible inference of materiality.

Doctoral degree misrepresentations: Mueller argued that
there was no deceptiveness because GCU tells students the doctoral programs
usually require additional coursework. All the representations referred to 20
courses/60 credits as a minimum, and they said a doctoral degree could
be completed in less than seven years, not that it typically is. The FTC
pointed out that the complaint identified a lot of 20 courses/60 credits
claims, including enrollment agreements listing “ ‘Total Program Credits 60,’
and ‘Total Tuition Program and Fees:’ followed by a dollar figure based on the
tuition and fees for twenty courses.” And it pointed out that disclaimers that
don’t work don’t stop deceptiveness. The court agreed that there was a factual
issue, despite some “non-actionable puffery” in the allegations related to an “accelerated
path” to a doctorate.

The court also noted that, although some of the challenged
representations appeared on GCU’s website and GCU was now out of the case, the
allegations that GCE prepared all marketing materials plausibly kept the
website in.

The court declined to require the TSR claims to meet the
heightened pleading requirement of Rule 9(b), although it noted that the
allegations were specific enough to do so. The FTC’s claims generally didn’t
require knowledge of falsity or intent to defraud.

Individual claims against Mueller: There were no allegations
in the complaint specific to his role in crafting GCE’s challenged
representations concerning GCU’s doctoral degree requirements or addressing his
knowledge of the alleged inaccuracy of those representations. Individual
monetary liability for a corporation’s violations of § 5 of the FTC Act
requires proof of both (1) authority to control the challenged representations
and (2) some degree of awareness of, or reckless disregard concerning, the
challenged representations. The FTC plausibly alleged (1) because he was GCE’s
CEO. And there were extensive allegations about Mueller’s role in structuring
the operations of GCU and GCE and overseeing the operations of both entities in
his roles as president (of GCU) and CEO and chairman of the board (of GCE). That
was sufficient to plausibly establish knowledge or recklessness for purposes of individual liability at the pleading stage.

In addition, “when the FTC seeks injunctive relief against
an individual based on corporate-entity violations, the only required showing
is that the individual participated directly in the violations or had authority
to control the entity.”

The same analysis applied to individual liability for TSR
violations.

from Blogger http://tushnet.blogspot.com/2024/08/ftc-lacks-jurisdiction-over-nonprofits.html

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Organic search results aren’t TM “use”

Posted on August 30, 2024 by rtushnet

Alsa Refinish LLC v. Walmart Inc., 2024 WL 3914512, No.
2:23-cv-08536-SVW-MAR (C.D. Cal. Jul. 31, 2024)

In 2024, people are still bringing keyword advertising
cases. Walmart wins summary judgment.

Alsa sells paint, including chrome paint, and claims
common-law rights in  “Alsa,” “Alsa
Chrome Paint,” “Alsa Easy Chrome,” “Easy Chrome,” “Mirrachrome,” and “Mirra
chrome.” Walmart offers an online marketplace on which it and third parties
sell products. There are no infringing products on Walmart.com. Thus, searching
Walmart’s website with Alsa’s claimed marks results in search listings that
aren’t related to Alsa.

Still, Alsa argued that Walmart was using its marks in
advertising in confusing ways. Walmart does pay for keyword ads. It does not
pay for organic search listings.  

Presumably because Walmart is a big seller, a search for the
term “easy chrome paint walmart” results in several sponsored links to products
on Walmart.com along with an organic link for a Walmart webpage named “Easy
Chrome Paint,” and a search for “walmart alsa easy chrome paint” results in a
Walmart webpage named “Alsa Easy Chrome.”

“easy chrome paint walmart” search with sponsored Walmart results and organic result

Google result for “walmart alsa easy chrome paint” showing organic Walmart result “Alsa Easy Chrome(256)”

But Alsa couldn’t identify any sponsored keyword ads that
used Alsa’s marks. Walmart did bid $0.45 for the phrase “Alsa Chrome Paint,”
but received zero impressions as a result. Alsa focused on organic search
results. Those organic results were

the same webpages one would arrive
at by navigating to Walmart.com and entering the alleged Marks (e.g., “Alsa
Easy Chrome”) into Walmart’s own search bar. This happens because when a term
is entered into the search bar on Walmart’s website, the URL (i.e., the web
address) for the Walmart search results page will often include the terms that
were searched. For example, when a user searches “Alsa Chrome Paint” on
Walmart.com, the URL for the search results page is listed as follows:
https://ift.tt/FRJYcZX. A Walmart search
results page such as this will periodically be “indexed” by Google so that the
page appears on Google’s own search results.

If a user clicks on the organic result, they will go to the
same page on Walmart.com that they would have gotten to by putting the same
phrase in the Walmart search bar.

 Under 9th
Circuit precedent, a court can conclude that summary judgment in a keyword case
is appropriate “without delving into any factors other than: (1) the type of
goods and the degree of care likely to be exercised by the purchaser; and (2)
the labeling and appearance of the products for sale and the surrounding
context on the screen displaying the results page.”

First, “[b]ecause Walmart does not pay search engines to
return organic search results or index webpages, it does not ‘use’ the marks in
connection with the sale or advertisement of goods.” The fact that Google
sometimes indexed search result pages on Walmart didn’t change that. “Plaintiff
does not show that the alleged Marks appear anywhere else on Walmart.com apart
from where they are inputted as search terms. Walmart’s website does not label
any of its products under the alleged Marks or contain any infringing products.
Ultimately, Plaintiff has pointed out no evidence that Walmart did anything to
appear on these unsponsored Google search results.”

As to “Alsa Chrome Paint,” there were no clicks, meaning no
infringement was possible.

As to Walmart-sponsored results to the query “easy chrome
paint Walmart,” the court agreed with Walmart that those links were not
triggered by use of “easy chrome,” but by the separate words “easy,” “chrome,”
and “paint.” (I would think “Walmart” probably also played some role in triggering Walmart-sponsored results.) This too did not constitute a “use” of Alsa’s putative mark. Even
assuming that it did, running sponsored ads in response to a Google search for
“easy chrome paint Walmart” didn’t cause likely confusion.

There was no source confusion because Walmart didn’t sell
any infringing products. There was also no initial interest confusion.
Plaintiff’s cheapest product was $59, and “chrome paint products appear to be
specialized or even ‘sophisticated’ items rather than everyday goods.” A
reasonably prudent consumer accustomed to shopping online would exercise
greater care. Moreover, each Walmart product in Google’s “sponsored” results was
clearly labeled with the name of the product along with a photograph, and with
the word “Walmart.” None of the sponsored products made any reference to the
phrase “Easy Chrome” or the other putative marks. And finally, the sponsored
results were “clearly distinguishable from objective search results.” Thus,
confusion was unlikely.

Dilution also failed for want of “use.”

from Blogger http://tushnet.blogspot.com/2024/08/organic-search-results-arent-tm-use.html

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6th Circuit applies JDI to political speech, but holds that disclaimers avoid confusion

Posted on August 30, 2024 by rtushnet

Libertarian National Committee, Inc. v. Saliba, No. 23-1856
(6th Cir. Aug. 28, 2024)

Dissenting members of the Libertarian Party of Michigan
maintain that they are the true Michigan affiliate. The Libertarian National
Committee sued and the district court enjoined them from using the Libertarian
Party mark. In an opinion that follows JDI in insisting that “use as a
mark” is the appropriate speech-protective line, the court of appeals mostly
affirms, though it vacates the injunction as to fundraising that uses a pop-up
disclaimer to inform donors of the substance of the dispute, which the court of
appeals finds avoids likely confusion. [This is probably best understood as a
normative version of “reasonable consumers wouldn’t be confused.”]

Defendants, even after the dispute began, kept identifying
themselves as the Libertarian Party of Michigan in connection with soliciting
donations, filing campaign finance paperwork, and promulgating platform
positions, endorsements, and commentary critical of the Chadderdon-chaired
group. The core holding: “[D]efendants’ use of the LNC’s mark to, among other
things, solicit party donations, fill out campaign finance paperwork, advertise
events, and espouse political platform positions and commentary falls within
the scope of the Lanham Act.” “Services” are broadly defined, and the Lanham
Act reaches noncommercial speech at least to the extent of covering uses as a
mark. Although prior cases protecting noncommercial/political actors have
sometimes reasoned that political positions etc. aren’t “services” within the
scope of the Act, they are better understood as in fact standing for the
principle that, for example, discussing and critiquing the trademark owner is
not a source-identifying use. 

For what it’s worth, this distinction roughly
tracks my
pre-JDI proposal to focus on whether reasonable citizens can tell who
is speaking when it comes to noncommercial speech, although my version
notably relies on traditional First Amendment tiers of scrutiny and—perhaps
foretelling coming Supreme Court moves—the court here does not. This is going
to create further doctrinal crinkles when trademark owners assert that noncommercial uses cause
sponsorship/affiliation confusion; one of the merits of tiers of scrutiny, which can concededly be replicated by other methods with which modern courts have less experience, is that they provide a framework for assessing the strength of the relevant interests and the fit between a particular imposition of liability and those interests.

“[I]n the narrow context where a defendant uses the
trademark as a source identifier, the Lanham Act does not offend the First
Amendment by imposing liability in the political arena.” The court is right to
say that the results of previous cases, if not their language/statutory
interpretation, are relatively consistent with the line it draws—if you agree
that none of the previously protected uses, including domain names like
taubmansucks.com, were “source-identifying” if they didn’t sell (competing?)
goods. But what this means is that now most of the speech-protective work will
be done in the “source-identifying” inquiry. This is easy with people calling
themselves the Libertarian Party, and has been relatively easy for courts
dealing with individual “articles” (how the court describes both Farah v.
Esquire Magazine, 736 F.3d 528 (D.C. Cir. 2013), and the Radiance Foundation
“National Association for the Abortion of Colored People” case). But
plaintiffs will adapt, and it might not stay easy for lots of representational
art.

Thus, without going into factor analysis, the court of
appeals found that most of the challenged uses were unauthorized and likely to
be confusing. However:

Defendants also used the LNC’s
trademark on their website to solicit donations. In connection with the
donation tab, defendants displayed one of two pop-up disclaimers notifying the
potential donor of the governance dispute, the LNC’s recognition of the Chadderdon-led
faction, and that any donations would be going solely to defendants. The
disclaimers also included hyperlinks to the Chadderdon-led affiliate’s website.
By clearly explaining the identity of the donation recipient, these disclaimers
ameliorated the confusion the Lanham Act seeks to prevent. The disclaimers also
resemble those we have previously found sufficient to eliminate a likelihood of
confusion. Accordingly, defendants’ use of the trademark in connection with
their online solicitation of donations, when accompanied by appropriate
disclaimers, does not create a sufficient likelihood of confusion as to the
recipient of the funds and thus cannot be the predicate for Lanham Act
liability.

Query: are defendants therefore entitled to a modification
of the injunction to allow them to apply the same disclaimers to other things
they do, like running the rest of the website or sending materials to
officials?

from Blogger http://tushnet.blogspot.com/2024/08/6th-circuit-applies-jdi-to-political.html

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unexplained “3x more cutting power” could be false advertising when comparator was unexpected

Posted on August 29, 2024 by rtushnet

Fiskars Finland OY AB v. Woodland Tools Inc., No. 22-cv-540-jdp,
2024 WL 3936444 (W.D. Wis. Aug. 26, 2024)

The parties compete in the hand-held gardening tool market. Most
of the claims failed on summary judgment, but part of Woodland’s claim against
Fiskars for false advertising, based on Fiskars’s statements about the cutting
power of its tools, and some of its statements that certain products were
designed in the United States, did create factual issues for trial. (Unsurprisingly,
this is a former employee case with many different claims, most of which I will
ignore, including design patent claims that fail because no reasonable jury
could find the protectable elements confusingly similar in light of the prior
art.)

Fiskars alleged that Woodland engaged in false advertising when
it described its Regular Duty Bypass Pruner as “designed in the USA” because Woodland
actually copied Fiskars’s version of the tool—which would mean that Woodland
did not design its tools at all. Fiskars presented no evidence of consumer
deception, and didn’t show literal falsity. “Woodand’s founders testified that
they designed at least some part of every Woodland product in the United
States, and Fiskars does not offer any evidence to contest that testimony.”

Woodland’s false advertising counterclaims focused on: (1)
statements that certain Fiskars products will cut three times easier or with up
to three times more power; (2) statements that its products are designed in the
United States; and (3) statements about certain Fiskars products having a
titanium blade coating.

Fiskars first argued that Woodland had no statutory right to
bring any false advertising claims prior to January 2022, because it could not
have suffered any injury from the alleged false advertising before its entry
into the market. But Lexmark didn’t preclude this claim. [Weird
misdescription of Lexmark follows, but I don’t think it bears on the correctness
of the ultimate conclusion.] There was no dispute here that Woodland was a
direct competitor “within the zone of interests protected by the statute” whose
alleged harm of delayed entry into the market has “a sufficiently close
connection to the conduct that statute prohibits” to satisfy the proximate
cause requirement for standing. Still, it was common sense that injury didn’t
occur before Woodland existed as a company, so it would have to show post-existence
evidence of harm to win. And that would also influence any disgorgement award. Still,
conduct before Woodland entered the market was relevant to the claim.

Fiskars advertises some of its products as having “up to 3x
more cutting power.” Woodland alleged that this statement and similar “2x” or
“3x” power-based claims were ambiguous and misleading to consumers because the
advertisements/packages didn’t identify what other tools Fiskars’s tools are
more powerful than. Ambiguity means consumer confusion evidence is required.
Woodland’s survey expert used a test stimulus with the advertised statement “up
to 3X more power,” along with a control statement that said, “more power than
non-geared tools.” The survey found that, compared to control, an additional
20.1 percent of respondents interpreted the phrase to mean that the advertised
tool has up to 3X more cutting power than earlier versions of Fiskars’s product
or other competitive products on the market. A reasonable jury could accept
this as evidence of deceptiveness. And a reasonable jury could generalize from
the one product he tested to the effects of similar phrases such as “cuts 3X
easier” and “3X more cutting power.”

Woodlands also challenged packaging stating that certain
products are “designed in the United States,” when those specific products
weren’t. Fiskars argued that the statements couldn’t be literally false because
the term “designed” is ambiguous.  

As to one product, Fiskars admitted it was designed in
Finland. And Fiskars didn’t identify multiple reasonable interpretations of “designed.”
In the context of manufacturing a product, design means to “decide upon the
look and functioning of (a building, garment, or other object), typically by
making a detailed drawing or it.” There were genuine disputes of fact on where
other products were designed, although not when the only piece of evidence of
non-US design was a utility patent listed on the package as covering the
product, whose inventors/assignee were all located in Finland. “But the
location of an inventor or assignee of a patent does not necessarily dictate
where the commercial embodiments of the patent are designed.”

Fiskars also advertises seven of its products as having a
titanium blade coating. Woodland’s blade coating testing showed that the
products at issue in this claim had less than seven percent titanium in the
coating. But the phrase “titanium blade coating” had more than one reasonable
interpretation. “It could plausibly mean either that the coating is made
entirely of titanium or that the coating contains some amount of titanium,
mixed with other compounds that make up the coating.” And Fiskars did satisfy
the second meaning. There was no evidence of consumer confusion.

from Blogger http://tushnet.blogspot.com/2024/08/unexplained-3x-more-cutting-power-could.html

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using results from one product to tout another isn’t passing off, but could be false advertising

Posted on August 29, 2024 by rtushnet

Ortho-Tain, Inc. v. Colorado Vivos Therapeutics, Inc., 2024
WL 3925408, No. 20 C 4301 (N.D. Ill. Aug. 23, 2024)

Ortho-Tain sued defendants (including a bunch of former
employees); I’ll focus only on the Lanham Act claims alleging that they falsely
took credit for favorable results achieved by Ortho-Tain’s orthodontic
appliance products used to treat various conditions such as sleep disordered
breathing. Basically, dentists working as paid presenters showcased case
studies of several pediatric patients who had achieved favorable results using
Ortho-Tain’s orthodontic appliances. Defendant Vivos sponsored similar
presentations, as well as a “parent webinar,” using the same exact case studies.
The slides displayed the name “Vivos” and the presenters attributed the
favorable results to Vivos’ products, not Ortho-Tain.

This could not be brought as a §43(a)(1)(A) claim because of
Dastar. There was neither forward nor reverse passing off of the devices
themselves, only of the results: “the connection between the favorable results
and appliances is an intangible idea or concept.” It wasn’t about the source of
the tangible good sold in the marketplace.

But (a)(1)(B) also exists! The presentations were plausibly “commercial
advertising or promotion” even if described as “seminars” and “continuing
education courses.” The Seventh Circuit has said that face to face
communication isn’t “commercial advertising or promotion” [though query whether
that makes any sense if there’s a repeated script]. It sufficed at the pleading
stage for Ortho-Tain to allege that the Vivos “course” was presented via online
broadcast and live to in-person attendees on at least 26 occasions; another
event was a multi-date online recorded presentation that thousands of medical
professionals registered for; and the parent webinar was made available online.

And Ortho-Tain plausibly alleged falsity, or at least
misleadingness. “If not explicit, the clear inference to be drawn by attendees
was that the case studies showed results achieved by Vivos’ products.” In
addition, and more controversially, Vivos statements about creating
“revolutionary technology” and the “first-ever hope for a lasting solution to
the problem of sleep apnea” were not “mere puffery.” “In the context of a
scientific field made of up highly educated individuals, it is reasonable to
infer at the pleading stage that ‘revolutionary’ and ‘first-ever’ carry
specific meanings as to the novel nature or method of the appliance being
described.”

from Blogger http://tushnet.blogspot.com/2024/08/using-results-from-one-product-to-tout.html

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Vizzy gets no kick from champagne, and that’s ok

Posted on August 29, 2024 by rtushnet

West v. Molson Coors Beverage Co. USA, No. 23-cv-7547 (BMC),
2024 WL 3718613 (E.D.N.Y. Aug. 7. 2024)

Plaintiffs alleged that Molson deceived consumers into
thinking that Vizzy contained champagne (used as a generic term throughout!)
when it didn’t. The court found the allegations implausible, using what may
become a popular framework recently distilled from the cases about how
reasonable consumers think. [This framework isn’t all that bad, but I do note
that it is not based on any qualitative or quantitative evidence about how
consumers actually think except insofar as a poll of chambers might be
qualitative evidence.]

Vizzy costs $17.99 per 12-can box and looks like this:

ingredients list with “alcohol”

First, for standing, plaintiffs didn’t need to allege a
price premium over a comparable product. “[C]onsumers suffer an injury in fact
when, in reliance on alleged misrepresentations, they buy a product that they
otherwise would not have purchased. I fail to see a meaningful distinction
between a price-premium injury and a but-for purchasing injury.”

Nonetheless, it was unreasonable to think Vizzy would have
champagne, based on five considerations: “(1) the presence or absence of
express representations, (2) context of the alleged misrepresentation, (3)
etymological analysis, (4) allegations about competitor products and (5)
consumer survey evidence.”

There were no express representations about champagne,
weighing against plausibility.

Etymology: a mimosa is a champagne drink, or at least a sparkling
wine drink.  Molson argued that the
phrase “hard seltzer” modified the word “mimosa,” which makes clear to
consumers that the beverage is not a mimosa at all.

But what is a hard seltzer? By long tradition, “hard”
connotes “alcoholic,” and “seltzer” means “sparkling water.” “The alcohol in a
generic hard seltzer could theoretically be any type of consumable alcohol,
including champagne. Although defendant’s proffered definitions do not identify
the types of alcohol commonly used in hard seltzer, other definitions specify
fermented cane sugar and malted barley – not champagne or any other type of
wine – as the usual suspects.” Overall, “mimosa” “strongly suggests” the
presence of champagne, and “hard seltzer” doesn’t exclude it. So etymology “slightly”
favored the plaintiffs.

“But the full context of the packaging, viewed through the
eyes of a reasonable consumer, sharply reduces any ambiguity caused by the
etymological association between mimosas and champagne.” The court rejected
plaintiffs’ argument that the tagline “Brunch Just Got Real” reinforced the
champagne connection.

This was basically a familiar issue: “whether a food or
beverage ought to include ingredients associated with its purported flavor, or
whether the presence of the flavor itself, regardless of its source, is
sufficient to make the description accurate.” We also need to know how
consumers think about new/unfamiliar products: product categories “act like
lenses, modifying how consumers see other aspects of those products and form
their reasonable expectations about them.”

True, many cases say that, on a motion to dismiss, “a
federal trial judge, with a background and experience unlike that of most
consumers, is hardly in a position to declare” what consumers know. But it is
proper to consider whether a statement would deceive a reasonable consumer,
which requires considering “what reasonable consumers know about the products
they purchase.” [This is usually resolved by saying that some situations
can be resolved as a matter of law, but not all.]

Reasonable consumers would read “mimosa hard seltzer” together,
and there were no allegations that hard seltzers ordinarily, or even
occasionally, contain champagne. “Because a champagne-based hard seltzer is not
the norm, a reasonable consumer would expect that if a hard seltzer had
champagne in it, the packaging would make that fact abundantly clear.” Any
ambiguity could be resolved by looking at the ingredient list, which makes no
reference to champagne, only to “alcohol.” “[G]iven plaintiffs’ allegation that
consumers actively seek out drinks with champagne, in addition to their failure
to allege hard seltzers are ordinarily (or ever) made with champagne, it would
be odd that Vizzy would have spiked its seltzer with champagne without making
that abundantly clear.” A reasonable consumer would have “serious doubts” after
reading the ingredients. Similarly, there were no pictures of mimosas,
champagne, or grapes anywhere on the packaging. “Vizzy’s direct references to
orange juice, juxtaposed against its lack of reference to champagne, should
make the confused consumer think again: if the product contained champagne, why
not say so?”

Molson argued two additional factors: Vizzy’s allegedly comparatively
low price and the location of purchase (stores prohibited by NY law from
selling beverages containing wine). The latter just didn’t work: “It is
unreasonable to assume that an ordinary consumer has a sufficiently intimate
familiarity with the New York Alcoholic Beverage Control Law to know that
bodegas and grocery stores cannot sell wine.” The former was more persuasive: “Although
it is possible that a seltzer made with a particularly inexpensive champagne
could sell at the same price point as those made with cheaper forms of alcohol
(approximately $1.50 per 12-ounce can), all else equal, a reasonable consumer
would assume that a champagne-based seltzer would sell at a price premium.”

The court also weighed the interest in innovation: “Lest we
stifle development and distribution of innovative forms of consumer products in
the name of avoiding consumer ‘deception,’ we have to give manufacturers
reasonable leeway in marketing their products without handcuffing them with
lawsuits.” This is a consideration that only fits into a normative conception
of the reasonable consumer, not an empirical one: manufacturers should be able
to push the definition of terms because that gets us cheaper goods. It has
nothing to do with whether people would be materially deceived. That doesn’t
mean it’s wrong, but courts that go back and forth between normative and
empirical concepts of what’s deceptive to a reasonable consumer become hard to
predict.

The court cautioned that it wasn’t endorsing trickery, but rather
“tastes like” marketing. “If the manufacturer’s advertising is wrong, and it
does not taste like what the label says it tastes like, then the consumer is
not going to buy it again and the product will fail. The market is a much more
efficient check on that kind of representation than lawsuits.” [GI proponents should
strongly object to this argument.]

 

from Blogger http://tushnet.blogspot.com/2024/08/vizzy-gets-no-kick-from-champagne-and.html

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9th Circuit orders district court to reconsider statutory damages award to NY class under NY law

Posted on August 28, 2024 by rtushnet

Montera v. Premier Nutrition Corporation, — F.4th —-, 2024
WL 3659589, No. 22-16375, 22-16622 (9th Cir. Aug. 6, 2024)

The key legal issue here arises from the quirk that NY bans
GBL §§ 349 and 350 class actions in state court, but they can be brought in
federal court. Premier sold Joint Juice for treating/preventing joint pain; a
jury found it liable to a consumer class for false advertising under NY law;
and the district court awarded statutory damages to the class, but cut them by
over 90%. The court of appeals affirms liability/class certification and remands
for recalculation based on an intervening appellate decision, as well as reversing
the grant of prejudgment interest—overall, seems like a win for Montera.

The evidence showed that Premier targeted Joint Juice ads to
people who suffer joint pain as a result of osteoarthritis. The packaging used
the Arthritis Foundation logo and name, and made claims such as “Use Daily for
Healthy, Flexible Joints” and “A full day’s supply of glucosamine combined with
chondroitin helps keep cartilage lubricated and flexible.” On liability,
“Montera introduced peer-reviewed, non-industry-funded studies finding that
Joint Juice’s key ingredients, glucosamine and chondroitin, have no effect on
joint function or pain; Premier maintained the product’s efficacy based on
industry-funded studies.” Premier was aware of the no-effect studies; in 2011,
the brand director for Joint Juice wrote, “there is no scientific evidence for
chondroitin at 200 mg.” When Premier considered running its own study, its
president wrote: “if poor—don’t publish.”

Montera’s expert testified that
92.5 percent of respondents to his study “believed that the product packaging
was communicating one or more of [the packaging’s claimed] joint health
benefits,” and 56% of respondents said that Joint Juice’s claimed joint health
benefits “were material to their purchase decisions.” Montera also introduced
Premier’s internal customer survey in which 96% of those surveyed said they
were managing chronic pain, 75% said they bought Joint Juice because they have
joint pain and thought the drink would help them, and 56% said they had been
diagnosed with arthritis. In Premier’s expert’s survey, 21.5% of respondents
said that information on Joint Juice’s packaging influenced their purchase
decisions, and 32.3% said they had generally heard about the benefits of
glucosamine.

GBL §§ 349 and 350 require courts to award the greater of
actual damages or statutory damages of $50 or $500, respectively. Montera
sought $550 per unit sold in statutory damages, totaling over $91 million. The
district court, though, thought that would violate due process and awarded
statutory damages of $50 per unit sold—the amount available under §
349—totaling roughly $8.3 million, along with roughly $4.5 million in
prejudgment interest.

The court of appeals rejected Premier’s argument that there
could be no misleadingness as a matter of law because it possessed substantiation
for its claims. But deceptiveness is a question of fact, and the jury
appropriately considered the studies introduced by both sides. This wasn’t a
case where the plaintiff’s interpretations were implausible or unrealistic.

The court of appeals also rejected Premier’s argument that it
was entitled to an instruction on safe harbors: Section 349 provides that “it
shall be a complete defense” to liability if a challenged practice is “subject
to and complies with the rules and regulations of” a federal regulatory agency.
Premier argued that it complied with the FDA’s supplement regulations, which
permit structure/function claims as long as those aren’t disease claims. But,
to comply with this regulation, “a manufacturer must notify the FDA within 30
days of first marketing a supplement that the product’s label includes a
qualifying claim, and certify that the claim is substantiated, among other
requirements.” Premier didn’t dispute that it failed to comply with the 30-day
notice—it began making the claims at issue in 2009 but didn’t notify the FDA
until 2012. There was no evidence that the FDA excused its failure to comply or
that the 2012 notification cured the earlier noncompliance. Thus, the district
court did not err by declining to instruct the jury on the safe harbor
provision.

Injury: The district court instructed the jury that the
class was “injured by purchasing Joint Juice if it was valueless for its
advertised purpose.” The jury found, by special verdict, that the class was
injured by purchasing Joint Juice, and it awarded damages equal to the total
amount spent on Joint Juice during the class period based on average purchase
price. It thus the jury declined to reduce the damages amount on account of
Joint Juice having any residual value for hydration/containing vitamin C apart
from its advertised purpose.

NY law does not require a price premium or a physical
injury. It requires only, as here, that class members didn’t get what they paid
for: they bought a product that was advertised to improve joint health but in
reality did not.  Indeed, “this case
arguably takes the price premium theory to its logical endpoint: the jury found
that Joint Juice was entirely ‘valueless for its advertised purpose,’ so the
entirety of the purchase price could be viewed as a price premium.” Adopting
Premier’s view would “immunize from liability the age-old deceptive tactics of
the ‘grifting snake oil salesman,’ which spurred the adoption of some of the
earliest consumer protection laws in this country.”

The court next rejected Premier’s argument that Montera did
not show that each one of the class members’ injuries were caused by the
statements on Joint Juice’s packaging. But that’s not the rule in NY. It is
emphatically the law that reliance isn’t required to show causation under GBL
§§ 349 and 350. New York uses “an objective definition of deceptive acts and
practices.” Liability “turns on what a reasonable consumer, not a particular
consumer, would do.” “Because the test is objective and turns upon the
reasonable consumer, reliance is not at issue, and the individual reason for
purchasing a product becomes irrelevant and subsumed under the reasonable
consumer standard, i.e., whether the deception could likely have misled
someone, and not, whether it in fact did.” As a result, “Rule 23(b)(3)’s
predominance requirement poses no barrier to class treatment of [§ 349] claims
because it’s unnecessary to make any individualized inquiry into what each
plaintiff knew and relied on in purchasing his or her [product].”

The court also rejected challenges to certain evidentiary
rulings at trial. Montera offered, among other things, “a list of Google
AdWords that Premier purchased to market Joint Juice, many of which related to
arthritis, and a television commercial featuring a celebrity recommending Joint
Juice to help joint stiffness.” Although not every NY purchaser would have seen
these, the evidence was not irrelevant; it was relevant to show the message
conveyed by the packaging, including that the packaging was meant to convey a
disease claim, not a structure/function claim. The trial court also properly
instructed the jury to limit its analysis to the packaging.

Likewise, it wasn’t improper to admit a letter Premier’s tax
advisor sent to the California Department of Resources Recovery and Recycling
in 2010. The letter argued that Joint Juice should not be subject to a
five-cent bottle deposit tax because it did not qualify as a “beverage” under
California law, but rather was a “medical supplement” and “over-the-counter
medication.” The letter also stated that “the only reason to purchase Joint
Juice® supplement is for the medicinal value of the glucosamine and chondroitin
it contains.” [On the one hand, ouch; on the other, this is glaringly obvious.]
Again, this was relevant to the structure/function versus disease claims
argument, and references to California law were not unduly confusing.

Likewise, Montera’s counsel’s arguments were not unduly
inflammatory. Suggesting that Premier was “prey[ing] on the vulnerable” was
allowed because counsel “is allowed to argue reasonable inferences based on the
evidence,” and counsel’s argument that “Joint Juice set out to target people
who suffer from arthritis” was consistent with the evidence of Premier’s
marketing strategy. Counsel’s argument that Premier used “paid hacks and
certified [q]uacks in the articles that they publish” was not “untethered from
the record; it was consistent with evidence about Premier relying on
industry-backed studies, evidence that some of the sponsoring companies refused
to release the underlying data for external review, and the note written by
Premier’s president not to publish the study Premier contemplated if it yielded
unfavorable results.” References to the company’s size/consumers banding
together were limited and not inappropriate as a response to defense counsel’s
suggestion that Premier was a small company.

Statutory damages: The relevant statutes aren’t explicit
about whether statutory damages are calculated on a per-person or per-violation
basis. The district court, looking at federal cases (remember, there can’t be
state cases on this), concluded that the statutory damages should be assessed on
a per-unit basis. The court reasoned that GBL §§ 349 and 350 create private
causes of action for persons “injured by reason of any violation” of either
statute. “In our view, the plainest reading of that phrase is that a cause of
action arises for each violation. Here, a class member suffered a violation
each time they purchased a unit of Joint Juice bearing a deceptive label,
whether packaged in a six-or thirty-pack, and New York law entitled them to
receive either actual or statutory damages for each violation.” The history and
consumer protection purpose of the statutes supported this reading, including
an increase from $50 to $500 for § 350 because “[c]urrent limits are too low to
be effective.”

The court noted that, given that class actions are not
allowed in state court, “the Legislature was surely aware that the statutes’
deterrent function would not be accomplished by aggregating statutory damages
across a large number of plaintiffs.” Individual filing fees were at least $400
when NY amended the law; using a per-person calculation would mean that “a
consumer deceived into making several purchases of the same low-cost item might
have to pay $400 in up-front filing fees to potentially recover $550 in
combined statutory damages under §§ 349 and 350. We are not persuaded that the
Legislature would have considered that such a meager incentive would accomplish
the Legislature’s express goal of deterring statutory violations.”

So, does a $91 million statutory damages award violate due
process? Wakefield v. ViSalus, Inc., 51 F.4th 1109 (9th Cir. 2022), concerned a
company that placed over 1.8 million robocalls in violation of the Telephone
Consumer Protection Act (TCPA). The TCPA’s statutory penalty is $500 “for each
[ ] violation.” The district court ordered the defendant to pay $925.2 million.
Instead of using the factors the Supreme Court has applied to common-law torts,
the 9th Circuit mandated the use of seven factors to decide “when an
award is extremely disproportionate to the offense and ‘obviously’ unreasonable”:
“1) the amount of award to each plaintiff, 2) the total award, 3) the nature
and persistence of the violations, 4) the extent of the defendant’s
culpability, 5) damage awards in similar cases, 6) the substantive or technical
nature of the violation, and 7) the circumstance of each case.” This was
intervening precedent because of how long 9th Circuit cases take. [The
underlying precedent is Lochner-era caselaw letting courts strike down
statutory damages as excessive as a matter of substantive due process. Judicial
supremacy over legislators strikes again, I guess. Compare how courts treat
this argument in copyright cases.]

The court thus remanded without expressing an opinion about
what would be unreasonable. The district court previously considered the NY
legislature’s goals in barring aggregate damages in class actions, and
concluded that such an intent supported reducing the total damages award. On
remand, it should also consider the legislature’s goals for deterrence and
compensation in enacting GBL §§ 349 and 350.

Prejudgment interest was unwarranted because the statutory
damages award wasn’t compensatory; it exceeded the jury’s actual damages award
of roughly $1.5 million, and thus awarding both statutory damages and
prejudgment interest would constitute a windfall.

from Blogger http://tushnet.blogspot.com/2024/08/9th-circuit-orders-district-court-to.html

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FDCA doesn’t preclude lawsuit based on allegedly false claims about compounding drugs

Posted on August 28, 2024 by rtushnet

Pacira Biosciences, Inc. v. Nephron Sterile Compounding
Center, LLC, No. 3:23-5552-CMC, 2024 WL 3656489 (D.S.C. Jul. 15, 2024)

Pacira, which sells non-opioid pain management products, including
Exparel, sued Nephron for false advertising. Exparel is “bupivacaine suspended
in multivesicular liposomes,” and is injected at a surgical site during or
shortly after surgery to manage and reduce post-surgical pain.

Nephron allegedly operates a compounding pharmacy that
compounds BKK, comprised of ketorolac, ketamine, and bupivacaine in a syringe
for combined use, and RKK, a compounded drug consisting of syringes of
ketorolac, ketamine, and ropivacaine for combined use.

Compounded drugs are not FDA-approved, but may be made and
sold under certain circumstances, including rules about outsourcing facilities,
which may not compound using bulk drug substances unless the bulk drug
substances are on a relevant FDA list of clinical need/shortage drugs.

Pacira alleged that the production of BKK and RKK was not covered
by the FDCA’s protection for compounded drugs because (1) BKK and RKK do not
appear on the FDA’s drug shortage list, and (2) the bulk drug substances from
which BKK and RKK are made do not appear on the FDA’s list of bulk drug
substances for which there is a clinical need. But, of course, the FDCA may not
be enforced by private parties, so Pacira turned to the Lanham Act.

Thus, Pacira alleged that defendants “have engaged in a
sustained campaign to promote their drug cocktail products as safe and
effective opioid alternatives through demonstrably false and misleading
advertisements – including blatantly false statements that their drugs are
safer and more effective than EXPAREL.” They also allegedly claimed or implied
that BKK and RKK compounds have been approved by the FDA and/or subjected to
clinical studies and trials.

Caption: Nephron is fully inspected and approved by the FDA!

Footer with FDA approved logo

Nephron argued that its website was not false: The allegedly
deceptive statements, a “Nephron is fully inspected and approved by the FDA!”
banner and “FDA APPROVED” logo at the foot of Nephron’s website appeared in the
same place on every page of Nephron’s website, including its landing page. It
argued that, in context, the banner and footer, which included other logos,
such as “MADE IN U.S.A.,” obviously referenced only Nephron, and Nephron is, in
fact, a registered 503B outsourcing facility both certified and regularly
inspected by the FDA. Anyway, it argued, implicit misrepresentations of FDA
approval weren’t actionable.

Pacira responded that (1) the FDA doesn’t approve facilities,
(2) the statements would be attributed to BKK and RKK’s FDA approval, (3)
customers looking for information on those specific products wouldn’t
necessarily peruse every page to see what repeats, and (4) “Made in the USA” is
the kind of statement that consumers would attribute to the products, not
the facilities, so the footer logos encouraged confusion rather than diminished
it.

Despite the plausibility of these arguments, the court
adopted the rule that “the law does not impute representations of government
approval … in the absence of explicit claims.”

example of product benefit claims for pain, complications, etc.

slide specifically claiming superiority to Exparel and identifying it as “competition”

Allegedly false claims to hospitals and providers in
presentation and other marketing materials about the efficacy, safety, and
superiority of BKK and RKK: First, it was plausible to attribute those to Nephron
because it hired the person who created the slide show and conducted the
presentations. He allegedly “not only developed advertisements and marketing
materials for BKK, but he also actively participated in sales pitches and other
promotional events nationwide to sell.” This was enough at the pleading stage
to impute his actions to Nephron. However, the same “implicit misrepresentation
of government approval” rule applied to FDA-approval-related claims. But Pacira
also alleged that claims of improved patient safety, satisfaction, recovery
time, outcomes, and patient experience were false and misleading. It also
alleged that Nephron’s superiority claims, including that BKK and RKK are more
“efficacious for long term analgesia” and “post operative pain” than Exparel
were literally false. At this stage, the allegations were sufficient as to the
safety, efficacy, etc. statements.

footer claiming that Nephron is a 503B outsourcing facility

503B outsourcing facility claim as part of Nephron logo

Somewhat puzzlingly to me, the court also allowed claims
based on the idea that the logo indicating Nephron is a 503B outsourcing
facility conveys the false impression that BKK and RKK products are produced by
a 503B-compliant facility. A facility isn’t compliant if it compounds drugs it
shouldn’t, and Pacira alleged that this was the case. “Nephron’s claim it is a
503B outsourcing facility, even if true, could falsely imply BKK and RKK
satisfy the requirements of § 353b, if, indeed, they do not.” Pacira also
alleged reasonable consumer reliance on the misrepresentation by alleging that,
“[o]n information and belief, healthcare providers and consumers have
reasonably relied on Defendants’ false and misleading statements when deciding
to purchase BKK or RKK instead of EXPAREL” and that if they’d known the truth,
they wouldn’t have bought the drugs.

What about “commercial advertising or promotion”? Nephron
objected that Pacira didn’t define the relevant market or allege to whom the
presentations were disseminated. First, the statements were commercial speech
promoting Pacira’s products that were provided to a relevant market –
healthcare providers. But were such “product overview” statements in presentations
just medical education? No; “it would strain credulity to find Nephron did not
intend to turn a profit convincing its target audience to purchase BKK and RKK.”

Pacira sufficiently alleged injury.

Were the Lanham Act claims precluded by the FDCA? Nephron
argued that it could only be found to be falsely advertising if the court
interpreted the FDCA and determined that it was violating the compounding
regulations, but that interpretation/determination is for the FDCA. [Side note:
does this argument work in an age of lack of deference to agencies? Especially
if the question is what conduct satisfies the legal standard set out in the law?
Without Chevron, is a decision really committed to the FDA, or to a
court? I think I just found an interesting student note topic.]

Pom Wonderful LLC v. Coca-Cola Co., 573 U.S. 102 (2014), provides
the governing law. [This isn’t really correct—Pom involved a deception
theory that didn’t rely on the FDA’s rules and Coca-Cola argued that its
compliance with FDA’s rules precluded the deception theory. Here, the deception
theory does rely on the FDA’s rules.] The court here relied on Pom’s
policy-based reasoning: The FDA is for health and safety, not primarily
consumer protection; the Lanham Act is primarily about consumer protection. The
FDA lacks expertise in assessing whether people are deceived. [Again, while I’m
substantively in sympathy with Pacira on the policy, that may be true—but the
FDA is the expert on whether compounding facilities are complying with
its rules, which is factual key to this specific theory of deception.] Thus,
while characterizing defendant’s conduct as “illegal,” “unlawful,” and posing
“significant risks to patient safety and health” in the complaint was “overzealous”
because it could “implicate the need for enforcement by the FDCA,” the gravamen
of Pacira’s allegations were falsity and misleadingness and resulting harm to
Pacira.

from Blogger http://tushnet.blogspot.com/2024/08/fdca-doesnt-preclude-lawsuit-based-on.html

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Lanham Act unclean hands defenses are hard to win

Posted on August 27, 2024 by rtushnet

World Nutrition Inc. v. Advanced Enzymes USA, No.
CV-19-00265-PHX-GMS, 2024 WL 3665360 (D. Ariz. Aug. 6, 2024)

The parties—here WNI and AST—sell enzyme supplements and sued
each other under the Lanham Act, and both prevailed on their affirmative claims
and got disgorgement. The claims generally related to enteric coating (that is,
its absence despite the parties’ representations), though WNI also falsely
advertised certain certifications. WNI got a permanent injunction. WNI’s award
of disgorged profits was larger than AST’s, so AST was ordered to pay WNI
$1,827,651.68.

What about unclean hands? This requires a defendant to show
by clear and convincing evidence (1) “that the plaintiff’s conduct is
inequitable,” and (2) “that the conduct relates to the subject matter of its
claims.” Of relevance to dueling false advertising claims: “Factual similarity
between the misconduct that forms the basis for an unclean hands defense and
the plaintiff’s allegations in the lawsuit is not sufficient.” The defense only
protects those who “have acted fairly and without fraud or deceit as to the
controversy in issue.” And, in the Lanham Act context, “fraudulent intent” is
required. Plus, unclean hands isn’t automatic even then; it depends on what
justice requires.

Given this high mountain, AST didn’t show that it was
protected by WNI’s unclean hands. AST falsely advertised with literally false
claims about enteric coating. WNI’s claims of a buffer-enteric coating
and manufacturing compliance were also literally false, but AST failed to show
that WNI’s products were not enterically coated. If AST had proved that WNI’s
claim its products had an enteric coating that was 100% effective was false,
the court would have reached a different result on this part of the inquiry,
and would rule that justice was best served by offsetting damages. “The fact
that AST ultimately owes WNI damages is a reflection of two things: (1) each
party’s ability to prove damages and (2) the fact that AST earned more profits
while misleading consumers.”

from Blogger http://tushnet.blogspot.com/2024/08/lanham-act-unclean-hands-defenses-are.html

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