Rebecca Tushnet

Native American Arts lacks standing to sue under IACA

Posted on June 12, 2015 by rtushnet

Native American Arts, Inc. v. Peter Stone Co., 2015 WL
3561439, — F. Supp. 3d –, No. 08 C 3908 (N.D. Ill. June 9, 2015) (magistrate
judge)

NAA sued Stone under the Indian Arts and Crafts Act (IACA),
which forbids selling merchandise “in a manner that falsely suggests it is
Indian produced, an Indian product, or the product of a particular Indian or
Indian tribe or Indian arts and crafts organization.” The Act authorizes suit
by an aggrieved Indian, Indian tribe, or Indian arts and crafts organization,
seeking $5000 in estimated damages and (initially) over $14 million in
statutory damages, based on the Stone’s allegedly unlawful gross sales of
$26,000 in goods over a two year period. The judge found that NAA lacked
Article III standing.

NAA is owned by Matthew and Mary Mullen, enrolled members of
the Ho–Chunk Nation. NAA sells Indian craft items and has a store in Tinley
Park, Illinois, and also sells using catchyourdreams.com, which mainly features
Navajo products. NAA has been in business for nearly 20 years, and Mr. Mullen
testified to $1.25 million in revenue from the sale of Native American arts and
crafts, though there was no evidence submitted that NAA maintained web
presence. Its gross receipts, using Mr.
Mullen’s testimony, were less than $70,000 a year and its profits couldn’t be
too great, probably not over $30,000 per year, so that its statutory damages
demand (raised to $36 million) represented over two centuries of gross
revenues, or 500 years of profits.

Stone sold jewelry designed by Wendy Whiteman, which she
called the “Wolfwalker” Collection. Stone advertised these items on its website
as “Authentic Native American Jewelry,” “Native American Jewelry,” “Native
American Designs,” or “Genuine Indian Handmade.” It wasn’t clear whether Wendy Whiteman
qualified as an Indian—a member of an Indian Tribe or certified as an Indian
artisan by an Indian Tribe—under the IACA. At her deposition, Whiteman claimed
that her “spiritual roots are Native American.” The court thought that didn’t
mean she wasn’t an “Indian”; apparently the deposition never asked her more. She wasn’t an enrolled member of a tribe, but
IACA doesn’t require “enrollment.”
Whiteman told Stone that she could provide “an authentic or a line of
Native American jewelry created by a Native American.” In four years of sales, Stone sold nearly
$28,000 of Wolfwalker jewelry, less than 3/10 of one percent of Stone’s sales,
which were nearly $10 million, mainly for Celtic and New Age designs.

Stone was a wholesaler; less than 2% of its sales were to
end users. It had little or no presence
in Illinois; less than 4% of its customers were in Illinois. Though Stone had a
website, the internet accounted for
less than 1% of its sales during the relevant period. Mullen claimed that two Stone customers were
NAA’s competitors: Buffalo Gal Home Gallery in Frankfort, Illinois, and
Sanctuary Traders in Tinley Park. But there was no evidence that any of Stone’s
sales to these two businesses were of Wolfwalker items.

At this point, the court commented that NAA was a frequent
filer, filing at least 125 IACA cases, most of which “seem to be short-lived
and dismissed pursuant to settlement.” “In the context of one of these cases,
the Tribal Court of the Ho–Chunk Nation commented that NAA was ‘mainly
concerned with monetary gains,’ was ‘utilizing the [IACA] without any
research,’ and that ‘dollar amounts of $1,000 per day and $2,000,000 [were]
preposterous and frivolous.’” But then, “there is nothing inherently wrong with
a zealous private attorney general.” And given the total lack of enforcement in
the first 60 years of the statute’s existence, “if any statute ever needed a
boost in terms of enforcement, it’s the IACA.” That’s why Congress amended the
law in 2000 to allow Indian Arts and Crafts Organizations to sue. Still, “NAA is not an actual attorney
general, and it still must prove it has Article III standing to sue.”

NAA met the first hurdle of being an Indian Arts and Crafts
Organization under the IACA. Marketing Indian arts and crafts need not be the
primary purpose of an Indian Arts and Crafts Organization for it to qualify as
such under the Act, “consistent with the text and purpose of the Act, which are
to promote … commercialism and economic development.”

However, Article III standing requires an “injury in fact”
fairly traceable to the challenged action of the defendant and redressable by a
favorable decision. This the NAA could not prove. It alleged, but did not provide evidence for,
lost goodwill due to consumer mistrust, diminution in value of genuine
designations of Native American origin, and misappropriation of its investment
in genuine Native American products. Mr.
Mullen had “nothing more than a belief that companies like Stone hurt Indian
arts and crafts organizations like NAA.” He had no evidence of lost sales, only
the “common sense” hypothesis that Stone diverted sales from companies like
NAA. But diverting sales from a company
“like” NAA was insufficient. Mr. Mullen
couldn’t say whether NAA lost any sales. Nor could Mr. Mullen show that Stone’s
activity forced NAA to lower its prices. He said that the need to lower prices
to compete with non-authentic goods was “an ongoing problem for many, many
years….” But Stone’s activities “were not ongoing for many, many years.”

NAA argued that it had standing because Congress enacted a
statute making it a violation to pass off non-authentic Indian arts and crafts
as authentic: the invasion of legal rights creates standing. “But the ‘injury in fact’ test requires more
than an injury to a cognizable interest. It requires that the party seeking
review be himself among the injured.” On this record, NAA wasn’t. A fair housing tester who’s denied housing
has been denied a right, whether she wanted to exercise it or not, by conduct
easily traceable to the discriminatory entity.
NAA, by contrast, had no evidence it suffered any injury traceable to
Stone. Though nominal damages or intangible
economic injury can confer Article III standing, “there still must be a
concrete, personal injury in fact that is fairly traceable to the defendant.”

NAA argued that it suffered reputational injury, citing Lexmark. But Lexmark held that “a plaintiff suing under § 1125(a) ordinarily
must show economic or reputational injury flowing directly from the deception
wrought by the defendant’s advertising; and that that occurs when deception of
consumers causes them to withhold trade from the plaintiff.” NAA hadn’t shown
that: there was no evidence of any withheld trade. Stone had only two customers
that NAA even claimed as competitors, and there was no evidence that they ever
had any Wolfwalker products, even though NAA could easily have found out in
discovery whether there had been such sales. Nor had NAA shown any evidence of a
“Lanham Act-style reputational injury.”

If the court accepted NAA’s theory of standing, “some 6
million people and entities would have standing to sue Stone—resulting in the
very multiplicity of suits that the injury-in-fact requirement seeks to prevent.”

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Court certifies class against JCPenney for allegedly false “sales”

Posted on June 12, 2015 by rtushnet

Spann v. J.C. Penney Corp., 2015 WL 3478038, No. CV 12–0215
(C.D. Cal. May 18, 2015)

Spann sued JCP, bringing the usual California claims, for
allegedly “falsely advertising ‘original’ prices, ‘sale’ prices and
corresponding price discounts for its private branded and exclusive branded
apparel and accessories.” In 2011, allegedly in reliance on JCP’s pricing
schemes, Spann bought over $200 in private branded and exclusive branded
apparel and accessories. JCP advertised
price comparisons on plastic placards above or below each product offered for
sale, and one column showed what was represented to be the “original” price for
each product, while the next column showed the “sale” price of each item.”

Spann believed she was able to pay significantly less than
what certain products were worth and normally sell for in the retail
marketplace, and was thus allegedly induced to purchase ten different items,
all of which were offered at prices significantly lower than their stated
original prices. For example, three blouses had labels representing them to
have original prices of $30.00 and discounts of $12.01, “leaving a purchase
price or [supposed] ‘deal’ at $17.99.” Spann’s receipt contained the same
misrepresentations. However, the
purported “original” prices were false, as the prevailing retail price for
these blouses during the three months immediately prior to her purcase was no
more than $17.99.

JCP allegedly discontinued, then returned to, these pricing
practices, marking up the prices of many of its private and exclusive branded
apparel and accessories, well above the interim “fair and square” prices and “well
above the prevailing market price for such items, without any good faith
intention of selling such items … at those higher prices.”

The court first addressed JCP’s challenges to Spann’s
damages expert Brian Bergmark, the Managing Director and one of the founders of
Torrey Partners, an economic and accounting services firm. JCP argued that Bergmark’s
identification of the prevailing market price for the items plaintiff purchased
as the “most commonly occurring (or [p]revalent) actual sales price by item
using JCPenney’s in-store data” was unreasonable and unsupportable, and that he
couldn’t calculate the prevailing market price for each item solely by
reference to sales prices at JCP stores.
Given the court’s conclusion (below) on the meaning of “prevailing
market price,” Bergmark’s analysis of JCP’s sales data was reasonable and
supportable. “JCPenney’s large volume of sales data for its own products is
undoubtedly a reasonable and supportable method by which to determine the
prevailing market price of products that are available only in its stores.”

JCP also objected that Bergmark wrongly equated the
prevailing price to be the modal price, as opposed to the mean or some other
metric, based on his (inappropriate) interpretation of the relevant California
law. That doesn’t go to commonality. Whether one uses modal or mean price, the
method of calculation (comparing purchase prices to prevailing market prices)
won’t change. JCP didn’t propose an
alternative measure that would render the calculation an inherently
individualized one. “Without any indication that this measure impacts class
certification, this is not a dispute that must be resolved at this time.”

On to rule 23(a): numerosity was easy, of course; also
typicality and adequacy. Commonality
included a number of questions, including falsity/misleadingness, likelihood of
deceiving a reasonable consumer, materiality, how to calculate prevailing
market price, JCP’s bona fide intent to sell at non-sale prices, and
damages. The claims of all prospective
class members involved the same alleged misrepresentations related to items
with common characteristics.

JCP argued that the price of each item said nothing about
the price of other items, but that ignored Spann’s claim of a false advertising
scheme consistent across JCP’s private branded and exclusive branded apparel
and accessories. Spann submitted evidence supporting this claim—for a number of
quarters, no items were offered at
regular price. “If defendant can prove
that its price-comparison advertising scheme did not generate false price
comparisons that deceived consumers, then it should welcome class
certification.” Either way, it would get
a common answer.

On to Rule 23(b)(3) and predominance. Spann planned to use JCP’s internal pricing
guidelines, which were allegedly deceptive because one required that an
‘original’ price be the price ‘at which 5–10% of the item’s total initial
shipment will be sold,’”and another requires a “14–day ‘landing period’ during
which a new item would be offered at a regular price before being marked down.”
At the same time, however, the guidelines “allowed discounts, such as ‘Buy one Get
one at 50% [or more] Off” (BOGO) during the landing period. Spann intended to
show that, as a result, “few, if any, items were ever truly offered or sold at
the ‘regular’ price.” Allegedly, JCP’s “price pacing flow charts” showed that “only
thirteen of the thousand-plus items [offered during four fiscal quarters during
the Class Period] were ever offered at the advertised regular price; and those
were for a total of only 17 days and coupled with a BOGO discount.” Given that
each division met or exceeded its profit margin target at the planned sale
price, Swann argued, JCP didn’t expect to sell products at the higher “regular”
price. The evidence would allegedly show that only .2% of products sold at the
regular price, while 98.7% of JCP’s revenues came from products offered at a
discount of 30% or more. As a result, the
so-called regular prices were not the prevailing market price for any of the items
during any 90 day period.

UCL liability doesn’t require individualized proof of
deception, reliance, and injury, as long as members of the public are likely to
be deceived by the defendant’s conduct. A jury could determine from Swann’s
evidence that JCP’s pricing scheme was pervasive and that JCP was or should
have been aware that it was deceptive.
She could also rely on empirical data demonstrating that false price
comparisons deceive consumers and influence their purchasing decisions. Common questions also predominated under the
FAL and CLRA, which would trigger the UCL’s unlawfulness prong. Unlawfulness also covered a claim under the
FTCA. The court looked to the FTC guides
on former price comparisons: “[i]f the former price is the actual, bona fide
price at which the article was offered to the public on a regular basis for a
reasonably substantial period of time, it provides a legitimate basis for the
advertising of a price comparison.” A former price may be fictitious or not
bona fide, if “an artificial … inflated price was established for the purpose
of enabling the subsequent offer of a large reduction[.]” JCP’s argument that each claim had to be
proven on an individual basis again ignored plaintiff’s theory of the case: a
systematic and pervasive unlawful price comparison policy. “Evidence of such a
policy or scheme is common to all putative class members and predominates over
any individual facts or questions.”

Likewise, predominance often occurs in CLRA cases because
“causation, on a classwide basis, may be established by materiality, meaning
that if the trial court finds that material misrepresentations have been made
to the entire class, an inference of reliance arises as to the class.” Defendant’s
deceptive conduct and the question of materiality predominated over
individualized questions of reliance. In
Amgen, the Supreme Court affirmed
certification of a securities fraud case where a failure of proof on
materiality would end the case; so too here, where there might be no individual
questions at all, given the plaintiff’s intent to “rely on empirical data
demonstrating that false price comparisons deceive consumers and influence
their purchasing decisions.”

The court reached a similar result under the FAL. The FAL has a specific provision about statements
as to former price: “[n]o price shall be advertised as a former price of any
advertised thing, unless the alleged former price was the prevailing market
price … within three months next immediately preceding the publication of the
advertisement[.]” JCP argued that, to show “prevailing market price,” Spann
would have to show the price offered by other retailers in the geographic area,
which would vary by consumer and by item, defeating predominance.

The language of the FAL didn’t make clear what the “market”
was in a case involving private and exclusive branded items sold by only one
retailer. The court found previous cases
distinguishable on their facts. The 1984
Report of the Attorney General’s Committee on Sale and Comparative Price
Advertising offered an example that the court found analogous to the present
claims:

[A] furniture dealer runs [an]
advertisement which offers a couch which he claims was formerly selling for
$100 but is now selling for $50. Unless the price which he advertises as the
former price actually coincides with the “prevailing market price” of the couch
within the next preceding three months … the advertisement is again false and
deceptive, and the vendor is within the prohibitions of section 17500.

Although this example didn’t define “prevailing market
price,” the AG Opinion states that the price should be the “prevailing market
price” of the couch, as opposed to an earlier example that required comparison
with “similar mattresses” where the seller used the term “retail price” to
explain its comparison. If the proper analysis of “prevailing market price” always
required consideration of similar items from other retailers, there’d be no
distinction between the prevailing market price of “the couch” versus “similar
couches.” Still, the AG Opinion didn’t directly answer the question either.

The court turned to principles of statutory construction, which in California
start with legislative intent, which itself is first determined by the words of
the statute. Intent prevails over
letter, and the letter of the law will be read to conform to the spirit of the
act if possible. The court found that
the law’s clarification of “prevailing market price” as “wholesale if the offer
is at wholesale [and] retail if the offer is at retail” evinced a legislative
intent “that courts consider the specific offer at issue, such that the
relevant ‘market’ is tailored to fit the actual circumstances of the sale.” Ultimately, the court had to identify the
item’s proper market. (See Mark Lemley
& Mark McKenna on defining
markets in IP.) “In many
circumstances, local sales prices for a particular item, in all stores offering
it for sale, is an appropriate basis for the calculation of prevailing market
price.” The AG Opinion’s reference to
finding the price of “similar mattresses” didn’t define similarity, and that
could depend on the circumstances:

If, for example, the price of a
queen Sealy® pillow top mattress were at issue, it might make sense to look to
the local stores that sell such mattresses to determine the prevailing market
price. If, however, the item at issue was a Sleep Number® mattress, which are
only sold at Sleep Number® stores, considering the price of “similar mattresses
… in the open local market” will simply require examining the prices offered
at local Sleep Number® stores.

Here, JCP’s “private and exclusive branded items of apparel
[and] accessories,” including East Fifth, Worthington, and Liz Claiborne, were
only sold at JCP stores. Thus, the market for these items consisted of
defendant’s stores. JCP’s 81 California stores sold thousands of the individual
items at issue; the large volume of sales data was an appropriate basis upon
which to determine their prevailing market prices.

The court found this result especially appropriate given
JCP’s assertions on its price tags. JCP
argued that, under California regulations, the terms “regular” and “original” were
references to “former price,” as defined in the law. A “former price” is
properly advertised only when it is the prevailing market price and it has been
offered at that price for the preceding 90 days. JCP claimed that, when it used “regular” and
“original,” it was referring to its previous prices and expressly invoking the
statutory scheme, so that a $30 “regular” or “original” price listed on a price
tag communicated both that defendant’s actual former price was $30, and that
the prevailing market price was $30. “If that is so, then either of the
following must be true: (1) defendant already took other retailers’ prices for
similar items into account when it determined its own original price and a
back-end comparison is unnecessary; or (2) defendant recognizes that the market
for these items consists only of its own stores.”

Using JCP’s prices to determine prevailing market price, it
was clear that common questions predominated on the FAL claim. Bergmark had
already analyzed JCP’s sales data and found that defendant’s advertised
“original” price was not the prevailing market price for the 90–day period
preceding plaintiff’s purchases. He further determined that “none of the
subject items ever sold at their Regular price on the internet.” And the
analysis he performed for Spann’s purchased items “could easily be performed
for each and every item in the class description … if similar sales data
regarding those products is provided.” JCP didn’t explain what analyzing
individual ads could possibly show that would be relevant. Nor was the specific price provision in the
FAL a safe harbor; even if JCP didn’t violate the law specific to advertising
“regular” and “original” prices, it could still violate the UCL, the CLRA, and
the more general provision of the FAL against false advertising.

JCP then argued that common issues didn’t predominate as to
remedies. To satisfy predominance,
plaintiff needed to present a damages model consistent with her liability case.
She proposed three alternative measures: (1) complete restitution; (2)
restitution based on the “transaction value” promised by JCP, that is, the
discount that each class member would have received had JCP offered a discount
from the actual regular price; or (3)
restitution based on JCP’s profits. JCP
argued that none of these were proper measures of restitution. However, the
court found them to be consistent with her liability case. As to (1) and (3),
plaintiff presented evidence that every dollar she spent resulted from JCP’s
false advertising. As for (2), she presented evidence that the amount she
thought she was saving was a factor in her buying decisions. Thus, her
restitution theories were linked to her liability theories. While JCP argued that
complete restitution was an inappropriate class action remedy, the cited cases
were TILA and loan cases, not consumer protection cases. There was no need to measure the value of the
benefit plaintiff received because she’d just have to return the products she
purchased. Moreover, even if the value
received by class members should be deducted from the purchase price,
individual calculation of damages doesn’t defeat class certification.

Then, class adjudication was superior to individual adjudications,
of course.

Even if Spann wasn’t entitled to restitution, a
liability-only class could still be certified. Victims of false price
comparison schemes have been injured even if there is “no difference in value
between the product as labeled and the product as it actually is.” Comcast didn’t change the availability
of bifurcation. Regardless, class
certification was granted.

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Native American Arts lacks standing to sue under IACA

Posted on June 12, 2015 by rtushnet

Native American Arts, Inc. v. Peter Stone Co., 2015 WL 3561439, — F. Supp. 3d –, No. 08 C 3908 (N.D. Ill. June 9, 2015) (magistrate judge)

NAA sued Stone under the Indian Arts and Crafts Act (IACA), which forbids selling merchandise “in a manner that falsely suggests it is Indian produced, an Indian product, or the product of a particular Indian or Indian tribe or Indian arts and crafts organization.” The Act authorizes suit by an aggrieved Indian, Indian tribe, or Indian arts and crafts organization, seeking $5000 in estimated damages and (initially) over $14 million in statutory damages, based on the Stone’s allegedly unlawful gross sales of $26,000 in goods over a two year period. The judge found that NAA lacked Article III standing.

NAA is owned by Matthew and Mary Mullen, enrolled members of the Ho–Chunk Nation. NAA sells Indian craft items and has a store in Tinley Park, Illinois, and also sells using catchyourdreams.com, which mainly features Navajo products. NAA has been in business for nearly 20 years, and Mr. Mullen testified to $1.25 million in revenue from the sale of Native American arts and crafts, though there was no evidence submitted that NAA maintained web presence. Its gross receipts, using Mr. Mullen’s testimony, were less than $70,000 a year and its profits couldn’t be too great, probably not over $30,000 per year, so that its statutory damages demand (raised to $36 million) represented over two centuries of gross revenues, or 500 years of profits.

Stone sold jewelry designed by Wendy Whiteman, which she called the “Wolfwalker” Collection. Stone advertised these items on its website as “Authentic Native American Jewelry,” “Native American Jewelry,” “Native American Designs,” or “Genuine Indian Handmade.” It wasn’t clear whether Wendy Whiteman qualified as an Indian—a member of an Indian Tribe or certified as an Indian artisan by an Indian Tribe—under the IACA. At her deposition, Whiteman claimed that her “spiritual roots are Native American.” The court thought that didn’t mean she wasn’t an “Indian”; apparently the deposition never asked her more. She wasn’t an enrolled member of a tribe, but IACA doesn’t require “enrollment.” Whiteman told Stone that she could provide “an authentic or a line of Native American jewelry created by a Native American.” In four years of sales, Stone sold nearly $28,000 of Wolfwalker jewelry, less than 3/10 of one percent of Stone’s sales, which were nearly $10 million, mainly for Celtic and New Age designs.

Stone was a wholesaler; less than 2% of its sales were to end users. It had little or no presence in Illinois; less than 4% of its customers were in Illinois. Though Stone had a website, the internet accounted for less than 1% of its sales during the relevant period. Mullen claimed that two Stone customers were NAA’s competitors: Buffalo Gal Home Gallery in Frankfort, Illinois, and Sanctuary Traders in Tinley Park. But there was no evidence that any of Stone’s sales to these two businesses were of Wolfwalker items.

At this point, the court commented that NAA was a frequent filer, filing at least 125 IACA cases, most of which “seem to be short-lived and dismissed pursuant to settlement.” “In the context of one of these cases, the Tribal Court of the Ho–Chunk Nation commented that NAA was ‘mainly concerned with monetary gains,’ was ‘utilizing the [IACA] without any research,’ and that ‘dollar amounts of $1,000 per day and $2,000,000 [were] preposterous and frivolous.’” But then, “there is nothing inherently wrong with a zealous private attorney general.” And given the total lack of enforcement in the first 60 years of the statute’s existence, “if any statute ever needed a boost in terms of enforcement, it’s the IACA.” That’s why Congress amended the law in 2000 to allow Indian Arts and Crafts Organizations to sue. Still, “NAA is not an actual attorney general, and it still must prove it has Article III standing to sue.”

NAA met the first hurdle of being an Indian Arts and Crafts Organization under the IACA. Marketing Indian arts and crafts need not be the primary purpose of an Indian Arts and Crafts Organization for it to qualify as such under the Act, “consistent with the text and purpose of the Act, which are to promote … commercialism and economic development.”

However, Article III standing requires an “injury in fact” fairly traceable to the challenged action of the defendant and redressable by a favorable decision. This the NAA could not prove. It alleged, but did not provide evidence for, lost goodwill due to consumer mistrust, diminution in value of genuine designations of Native American origin, and misappropriation of its investment in genuine Native American products. Mr. Mullen had “nothing more than a belief that companies like Stone hurt Indian arts and crafts organizations like NAA.” He had no evidence of lost sales, only the “common sense” hypothesis that Stone diverted sales from companies like NAA. But diverting sales from a company “like” NAA was insufficient. Mr. Mullen couldn’t say whether NAA lost any sales. Nor could Mr. Mullen show that Stone’s activity forced NAA to lower its prices. He said that the need to lower prices to compete with non-authentic goods was “an ongoing problem for many, many years….” But Stone’s activities “were not ongoing for many, many years.”

NAA argued that it had standing because Congress enacted a statute making it a violation to pass off non-authentic Indian arts and crafts as authentic: the invasion of legal rights creates standing. “But the ‘injury in fact’ test requires more than an injury to a cognizable interest. It requires that the party seeking review be himself among the injured.” On this record, NAA wasn’t. A fair housing tester who’s denied housing has been denied a right, whether she wanted to exercise it or not, by conduct easily traceable to the discriminatory entity. NAA, by contrast, had no evidence it suffered any injury traceable to Stone. Though nominal damages or intangible economic injury can confer Article III standing, “there still must be a concrete, personal injury in fact that is fairly traceable to the defendant.”

NAA argued that it suffered reputational injury, citing Lexmark. But Lexmark held that “a plaintiff suing under § 1125(a) ordinarily must show economic or reputational injury flowing directly from the deception wrought by the defendant’s advertising; and that that occurs when deception of consumers causes them to withhold trade from the plaintiff.” NAA hadn’t shown that: there was no evidence of any withheld trade. Stone had only two customers that NAA even claimed as competitors, and there was no evidence that they ever had any Wolfwalker products, even though NAA could easily have found out in discovery whether there had been such sales. Nor had NAA shown any evidence of a “Lanham Act-style reputational injury.”

If the court accepted NAA’s theory of standing, “some 6 million people and entities would have standing to sue Stone—resulting in the very multiplicity of suits that the injury-in-fact requirement seeks to prevent.”

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Court certifies class against JCPenney for allegedly false "sales"

Posted on June 12, 2015 by rtushnet

Spann v. J.C. Penney Corp., 2015 WL 3478038, No. CV 12–0215 (C.D. Cal. May 18, 2015)

Spann sued JCP, bringing the usual California claims, for allegedly “falsely advertising ‘original’ prices, ‘sale’ prices and corresponding price discounts for its private branded and exclusive branded apparel and accessories.” In 2011, allegedly in reliance on JCP’s pricing schemes, Spann bought over $200 in private branded and exclusive branded apparel and accessories. JCP advertised price comparisons on plastic placards above or below each product offered for sale, and one column showed what was represented to be the “original” price for each product, while the next column showed the “sale” price of each item.”

Spann believed she was able to pay significantly less than what certain products were worth and normally sell for in the retail marketplace, and was thus allegedly induced to purchase ten different items, all of which were offered at prices significantly lower than their stated original prices. For example, three blouses had labels representing them to have original prices of $30.00 and discounts of $12.01, “leaving a purchase price or [supposed] ‘deal’ at $17.99.” Spann’s receipt contained the same misrepresentations. However, the purported “original” prices were false, as the prevailing retail price for these blouses during the three months immediately prior to her purcase was no more than $17.99.

JCP allegedly discontinued, then returned to, these pricing practices, marking up the prices of many of its private and exclusive branded apparel and accessories, well above the interim “fair and square” prices and “well above the prevailing market price for such items, without any good faith intention of selling such items … at those higher prices.”

The court first addressed JCP’s challenges to Spann’s damages expert Brian Bergmark, the Managing Director and one of the founders of Torrey Partners, an economic and accounting services firm. JCP argued that Bergmark’s identification of the prevailing market price for the items plaintiff purchased as the “most commonly occurring (or [p]revalent) actual sales price by item using JCPenney’s in-store data” was unreasonable and unsupportable, and that he couldn’t calculate the prevailing market price for each item solely by reference to sales prices at JCP stores. Given the court’s conclusion (below) on the meaning of “prevailing market price,” Bergmark’s analysis of JCP’s sales data was reasonable and supportable. “JCPenney’s large volume of sales data for its own products is undoubtedly a reasonable and supportable method by which to determine the prevailing market price of products that are available only in its stores.”

JCP also objected that Bergmark wrongly equated the prevailing price to be the modal price, as opposed to the mean or some other metric, based on his (inappropriate) interpretation of the relevant California law. That doesn’t go to commonality. Whether one uses modal or mean price, the method of calculation (comparing purchase prices to prevailing market prices) won’t change. JCP didn’t propose an alternative measure that would render the calculation an inherently individualized one. “Without any indication that this measure impacts class certification, this is not a dispute that must be resolved at this time.”

On to rule 23(a): numerosity was easy, of course; also typicality and adequacy. Commonality included a number of questions, including falsity/misleadingness, likelihood of deceiving a reasonable consumer, materiality, how to calculate prevailing market price, JCP’s bona fide intent to sell at non-sale prices, and damages. The claims of all prospective class members involved the same alleged misrepresentations related to items with common characteristics.

JCP argued that the price of each item said nothing about the price of other items, but that ignored Spann’s claim of a false advertising scheme consistent across JCP’s private branded and exclusive branded apparel and accessories. Spann submitted evidence supporting this claim—for a number of quarters, no items were offered at regular price. “If defendant can prove that its price-comparison advertising scheme did not generate false price comparisons that deceived consumers, then it should welcome class certification.” Either way, it would get a common answer.

On to Rule 23(b)(3) and predominance. Spann planned to use JCP’s internal pricing guidelines, which were allegedly deceptive because one required that an ‘original’ price be the price ‘at which 5–10% of the item’s total initial shipment will be sold,’”and another requires a “14–day ‘landing period’ during which a new item would be offered at a regular price before being marked down.” At the same time, however, the guidelines “allowed discounts, such as ‘Buy one Get one at 50% [or more] Off” (BOGO) during the landing period. Spann intended to show that, as a result, “few, if any, items were ever truly offered or sold at the ‘regular’ price.” Allegedly, JCP’s “price pacing flow charts” showed that “only thirteen of the thousand-plus items [offered during four fiscal quarters during the Class Period] were ever offered at the advertised regular price; and those were for a total of only 17 days and coupled with a BOGO discount.” Given that each division met or exceeded its profit margin target at the planned sale price, Swann argued, JCP didn’t expect to sell products at the higher “regular” price. The evidence would allegedly show that only .2% of products sold at the regular price, while 98.7% of JCP’s revenues came from products offered at a discount of 30% or more. As a result, the so-called regular prices were not the prevailing market price for any of the items during any 90 day period.

UCL liability doesn’t require individualized proof of deception, reliance, and injury, as long as members of the public are likely to be deceived by the defendant’s conduct. A jury could determine from Swann’s evidence that JCP’s pricing scheme was pervasive and that JCP was or should have been aware that it was deceptive. She could also rely on empirical data demonstrating that false price comparisons deceive consumers and influence their purchasing decisions. Common questions also predominated under the FAL and CLRA, which would trigger the UCL’s unlawfulness prong. Unlawfulness also covered a claim under the FTCA. The court looked to the FTC guides on former price comparisons: “[i]f the former price is the actual, bona fide price at which the article was offered to the public on a regular basis for a reasonably substantial period of time, it provides a legitimate basis for the advertising of a price comparison.” A former price may be fictitious or not bona fide, if “an artificial … inflated price was established for the purpose of enabling the subsequent offer of a large reduction[.]” JCP’s argument that each claim had to be proven on an individual basis again ignored plaintiff’s theory of the case: a systematic and pervasive unlawful price comparison policy. “Evidence of such a policy or scheme is common to all putative class members and predominates over any individual facts or questions.”

Likewise, predominance often occurs in CLRA cases because “causation, on a classwide basis, may be established by materiality, meaning that if the trial court finds that material misrepresentations have been made to the entire class, an inference of reliance arises as to the class.” Defendant’s deceptive conduct and the question of materiality predominated over individualized questions of reliance. In Amgen, the Supreme Court affirmed certification of a securities fraud case where a failure of proof on materiality would end the case; so too here, where there might be no individual questions at all, given the plaintiff’s intent to “rely on empirical data demonstrating that false price comparisons deceive consumers and influence their purchasing decisions.”

The court reached a similar result under the FAL. The FAL has a specific provision about statements as to former price: “[n]o price shall be advertised as a former price of any advertised thing, unless the alleged former price was the prevailing market price … within three months next immediately preceding the publication of the advertisement[.]” JCP argued that, to show “prevailing market price,” Spann would have to show the price offered by other retailers in the geographic area, which would vary by consumer and by item, defeating predominance.

The language of the FAL didn’t make clear what the “market” was in a case involving private and exclusive branded items sold by only one retailer. The court found previous cases distinguishable on their facts. The 1984 Report of the Attorney General’s Committee on Sale and Comparative Price Advertising offered an example that the court found analogous to the present claims:

[A] furniture dealer runs [an] advertisement which offers a couch which he claims was formerly selling for $100 but is now selling for $50. Unless the price which he advertises as the former price actually coincides with the “prevailing market price” of the couch within the next preceding three months … the advertisement is again false and deceptive, and the vendor is within the prohibitions of section 17500.

Although this example didn’t define “prevailing market price,” the AG Opinion states that the price should be the “prevailing market price” of the couch, as opposed to an earlier example that required comparison with “similar mattresses” where the seller used the term “retail price” to explain its comparison. If the proper analysis of “prevailing market price” always required consideration of similar items from other retailers, there’d be no distinction between the prevailing market price of “the couch” versus “similar couches.” Still, the AG Opinion didn’t directly answer the question either.

The court turned to principles of statutory construction, which in California start with legislative intent, which itself is first determined by the words of the statute. Intent prevails over letter, and the letter of the law will be read to conform to the spirit of the act if possible. The court found that the law’s clarification of “prevailing market price” as “wholesale if the offer is at wholesale [and] retail if the offer is at retail” evinced a legislative intent “that courts consider the specific offer at issue, such that the relevant ‘market’ is tailored to fit the actual circumstances of the sale.” Ultimately, the court had to identify the item’s proper market. (See Mark Lemley & Mark McKenna on defining markets in IP.) “In many circumstances, local sales prices for a particular item, in all stores offering it for sale, is an appropriate basis for the calculation of prevailing market price.” The AG Opinion’s reference to finding the price of “similar mattresses” didn’t define similarity, and that could depend on the circumstances:

If, for example, the price of a queen Sealy® pillow top mattress were at issue, it might make sense to look to the local stores that sell such mattresses to determine the prevailing market price. If, however, the item at issue was a Sleep Number® mattress, which are only sold at Sleep Number® stores, considering the price of “similar mattresses … in the open local market” will simply require examining the prices offered at local Sleep Number® stores.

Here, JCP’s “private and exclusive branded items of apparel [and] accessories,” including East Fifth, Worthington, and Liz Claiborne, were only sold at JCP stores. Thus, the market for these items consisted of defendant’s stores. JCP’s 81 California stores sold thousands of the individual items at issue; the large volume of sales data was an appropriate basis upon which to determine their prevailing market prices.

The court found this result especially appropriate given JCP’s assertions on its price tags. JCP argued that, under California regulations, the terms “regular” and “original” were references to “former price,” as defined in the law. A “former price” is properly advertised only when it is the prevailing market price and it has been offered at that price for the preceding 90 days. JCP claimed that, when it used “regular” and “original,” it was referring to its previous prices and expressly invoking the statutory scheme, so that a $30 “regular” or “original” price listed on a price tag communicated both that defendant’s actual former price was $30, and that the prevailing market price was $30. “If that is so, then either of the following must be true: (1) defendant already took other retailers’ prices for similar items into account when it determined its own original price and a back-end comparison is unnecessary; or (2) defendant recognizes that the market for these items consists only of its own stores.”

Using JCP’s prices to determine prevailing market price, it was clear that common questions predominated on the FAL claim. Bergmark had already analyzed JCP’s sales data and found that defendant’s advertised “original” price was not the prevailing market price for the 90–day period preceding plaintiff’s purchases. He further determined that “none of the subject items ever sold at their Regular price on the internet.” And the analysis he performed for Spann’s purchased items “could easily be performed for each and every item in the class description … if similar sales data regarding those products is provided.” JCP didn’t explain what analyzing individual ads could possibly show that would be relevant. Nor was the specific price provision in the FAL a safe harbor; even if JCP didn’t violate the law specific to advertising “regular” and “original” prices, it could still violate the UCL, the CLRA, and the more general provision of the FAL against false advertising.

JCP then argued that common issues didn’t predominate as to remedies. To satisfy predominance, plaintiff needed to present a damages model consistent with her liability case. She proposed three alternative measures: (1) complete restitution; (2) restitution based on the “transaction value” promised by JCP, that is, the discount that each class member would have received had JCP offered a discount from the actual regular price; or (3) restitution based on JCP’s profits. JCP argued that none of these were proper measures of restitution. However, the court found them to be consistent with her liability case. As to (1) and (3), plaintiff presented evidence that every dollar she spent resulted from JCP’s false advertising. As for (2), she presented evidence that the amount she thought she was saving was a factor in her buying decisions. Thus, her restitution theories were linked to her liability theories. While JCP argued that complete restitution was an inappropriate class action remedy, the cited cases were TILA and loan cases, not consumer protection cases. There was no need to measure the value of the benefit plaintiff received because she’d just have to return the products she purchased. Moreover, even if the value received by class members should be deducted from the purchase price, individual calculation of damages doesn’t defeat class certification.

Then, class adjudication was superior to individual adjudications, of course.

Even if Spann wasn’t entitled to restitution, a liability-only class could still be certified. Victims of false price comparison schemes have been injured even if there is “no difference in value between the product as labeled and the product as it actually is.” Comcast didn’t change the availability of bifurcation. Regardless, class certification was granted.

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Who’s honoring me now? (Public Knowledge)

Posted on June 11, 2015 by rtushnet

I’m delighted to announce that Public Knowledge is giving me one of its 12th Annual IP3 Awards.

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Who’s honoring me now? (Public Knowledge)

Posted on June 11, 2015 by rtushnet

I’m delighted to announce that Public Knowledge is giving me one of its 12th Annual IP3 Awards.

Posted in Uncategorized | Leave a comment

Student athletes lose another right of publicity claim

Posted on June 11, 2015 by rtushnet

Marshall v. ESPN Inc., No. 14-01945 (M.D. Tenn. Jun. 4,
2015)

Current and former student athletes who played NCAA football
or basketball sued college conferences, networks, and licensors for violating
their rights of publicity and foreclosing them from the market for their rights
of publicity. To participate in NCAA
sports, athletes have to sign a form allowing the NCAA to use their names and
pictures to promote NCAA events, activities or programs. And they don’t have much choice about NCAA,
since there’s no comparable alternative and the NFL and NBA don’t let players
enter directly from high school. To play competitively, student athletes have
to get a scholarship and sign over their rights. The NCAA and defendants make billions, and
the student athletes get essentially nothing, though each has a fair market
value of over $1 million (not including scholarship).

Plaintiffs thus alleged that defendants violated their
Tennessee statutory and common law rights of publicity, the Sherman Act, and
the Lanham Act, and were unjustly enriched. The Sherman Act claims failed
because you can’t win an antitrust case without a signed affidavit from that
monocle guy from Monopoly, so no more about them.

Tennessee loves property rights, and “property includes all
rights that have value.” Because a celebrity’s right of publicity is valuable,
it is property. State ex rel Elvis
Presley v. Crowell, 733 S.W.2d 89, 96-97 (Tenn. Ct. App. 1987). (Somewhere,
legal realists are weeping.) There is
both common-law and statutory protection; the Tennessee Personal Rights
Protection Act (TPRPA) “was intended to ‘create an inheritable property right
for those people who use their names or likenesses in a commercial manner, such
as an entertainer or sports figure – someone who uses his or her name for
endorsement purposes.’”

The court found that the statute supplanted the common-law
right (at least in its coverage of publicity rights of athletes in sports
broadcasts). Two courts in Tennessee had
found the statutory and common-law rights to be co-extensive, and no Tennessee
court had recognized a right to publicity in sports broadcasts. Moreover, when
there’s a conflict between the common law and a statute, the statute must
prevail. The TPRPA specifically defined the
right of publicity as it relates to sports broadcast, which had not been
litigated before its enactment.

Even if the common-law right wasn’t coextensive with the
statute, and even if the specific statutory definition didn’t control, the
plaintiffs’ allegations still didn’t set forth a plausible claim for relief.
There was no relevant authority for the proposition that participants in
sporting events have a right to publicity under the common law. The other
jurisdictions to decide the issue have almost all found against such a right,
except for In re NCAA Student Athlete Name and Likeness Litig., 37 F. Supp. 3d
1126 (N.D. Cal. 2014). But the only value of that case here was to say in dicta
that there might be such a right in Minnesota, a conclusion thrown into doubt
by subsequent developments in Dryer
finding no such right under the laws of Minnesota, New York, New Jersey,
California, or Texas law.

So, onto the language of the TPRPA:

Any person who knowingly uses or
infringes upon the use of another individual’s name, photograph, or likeness in
any medium, in any manner directed to any person other than such individual, as
an item of commerce for purposes of advertising products, merchandise, goods,
or services . . . without such individual’s prior consent, or, in the case of a
minor, the prior consent of such minor’s parent or legal guardian . . . shall
be liable to a civil action.

“Likeness” is defined as “the use of an image of an
individual for commercial purposes.” Further, the law says that “[i]t is deemed a
fair use and no violation of an individual’s rights shall be found, for
purposes of this part, if the use of a name, photograph, or likeness is in
connection with any news, public affairs, or sports broadcast or account.” “Thus,
the TPRPA clearly confers no right of publicity in sports broadcast, or with
respect to any advertisement if the advertisement is in connection with such a
broadcast.”

Plaintiffs argued that the sports broadcast provision didn’t
immunize defendants because they used plaintiffs’ images to advertise unrelated
products, but they didn’t plead any specific facts supporting that claim.
Plaintiffs relied on Zacchini v. Scripps-Howard Broad. Co., 433, U.S. 562
(1977), and Wisconsin Interscholastic Athl. Ass’n v. Gannett Co., Inc., 658
F.3d 614 (7th Cir. 2011), to support their right of publicity claims. They
argued that there was a key distinction between reporting about sports events
and broadcasting entire events. There
was no doubt that those cases drew that distinction, but “stating that the
First Amendment does not guarantee unlimited broadcast rights does not mean
that it correspondingly establishes a right to publicity by the athletic
participants when entire games are broadcast.”

Also, Zacchini was both a performer and the producer of his
one-man show, so protecting his act was consistent with incentive theory. “It
is a mistake, the Court believes, to read Zacchini
as supporting a right of publicity by anyone who performs in an event produced
by someone else.” Likewise, Wisconsin
Interscholastic involved a high school athletic association’s challenge to
the streaming of a tournament game by news organizations, and the Seventh
Circuit affirmed the association’s
right to enter into exclusive contracts for broadcasting entire games, noting
that “tournament games are a performance product of [the association] which it
has a right to control.” Plaintiffs were the players, but the networks were the
producers and the games were their
products.

Finally, plaintiffs argued that the sports broadcast
exception, interpreted this way, had a disparate impact on them, as
African-American students. While this is
a very interesting argument and consistent with critiques of various other IP
rules, such as copyright’s idea/expression distinction, its treatment of
musical style, and its authorship rules, the court dismissed it for failure to
allege, among other things, any racially discriminatory purpose. Nor was there
any alleged impact on a fundamental right, since “[t]he ability to profit from
a right of publicity simply does [not] rise to the level of a fundamental right,”
unlike the right to privacy.

The Lanham Act false endorsement claims failed too. First,
“[t]he Lanham Act is constitutional because it only regulates commercial
speech, which is entitled to reduced protections under the First Amendment.” And
broadcasting sports events doesn’t propose a commercial transaction.

Second, plaintiffs failed to adequately allege likelihood of
confusion. “They merely allege that they played in games that were shown on
television, and that advertisements appeared in the broadcast of the games.” At the hearing, plaintiffs’ counsel played a
video clip from a tournament basketball game that showed a player preparing to
shoot a free-throw, while an advertisement for an upcoming TV program appeared
on the bottom of screen. (I wonder if
this required circumvention to create!) “[I]t
is simply implausible to conclude that the shooter or those along the key were
in any way endorsing the upcoming program, any more than Tennessee Titans
players, their opponents, or spectators endorse Louisiana-Pacific building
products (or, indeed, any of the host of other products displayed on the
scoreboard) when games are played at LP field, even though such advertisements
may be captured in the background during the game.” All the broadcasts showed was players playing
their sport.

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Posted in Uncategorized | Tagged right of publicity, Student athletes lose another right of publicity claim commercial speech, trademark | Leave a comment

Student athletes lose another right of publicity claim

Posted on June 11, 2015 by rtushnet

Marshall v. ESPN Inc., No. 14-01945 (M.D. Tenn. Jun. 4, 2015)

Current and former student athletes who played NCAA football or basketball sued college conferences, networks, and licensors for violating their rights of publicity and foreclosing them from the market for their rights of publicity. To participate in NCAA sports, athletes have to sign a form allowing the NCAA to use their names and pictures to promote NCAA events, activities or programs. And they don’t have much choice about NCAA, since there’s no comparable alternative and the NFL and NBA don’t let players enter directly from high school. To play competitively, student athletes have to get a scholarship and sign over their rights. The NCAA and defendants make billions, and the student athletes get essentially nothing, though each has a fair market value of over $1 million (not including scholarship).

Plaintiffs thus alleged that defendants violated their Tennessee statutory and common law rights of publicity, the Sherman Act, and the Lanham Act, and were unjustly enriched. The Sherman Act claims failed because you can’t win an antitrust case without a signed affidavit from that monocle guy from Monopoly, so no more about them.

Tennessee loves property rights, and “property includes all rights that have value.” Because a celebrity’s right of publicity is valuable, it is property. State ex rel Elvis Presley v. Crowell, 733 S.W.2d 89, 96-97 (Tenn. Ct. App. 1987). (Somewhere, legal realists are weeping.) There is both common-law and statutory protection; the Tennessee Personal Rights Protection Act (TPRPA) “was intended to ‘create an inheritable property right for those people who use their names or likenesses in a commercial manner, such as an entertainer or sports figure – someone who uses his or her name for endorsement purposes.’”

The court found that the statute supplanted the common-law right (at least in its coverage of publicity rights of athletes in sports broadcasts). Two courts in Tennessee had found the statutory and common-law rights to be co-extensive, and no Tennessee court had recognized a right to publicity in sports broadcasts. Moreover, when there’s a conflict between the common law and a statute, the statute must prevail. The TPRPA specifically defined the right of publicity as it relates to sports broadcast, which had not been litigated before its enactment.

Even if the common-law right wasn’t coextensive with the statute, and even if the specific statutory definition didn’t control, the plaintiffs’ allegations still didn’t set forth a plausible claim for relief. There was no relevant authority for the proposition that participants in sporting events have a right to publicity under the common law. The other jurisdictions to decide the issue have almost all found against such a right, except for In re NCAA Student Athlete Name and Likeness Litig., 37 F. Supp. 3d 1126 (N.D. Cal. 2014). But the only value of that case here was to say in dicta that there might be such a right in Minnesota, a conclusion thrown into doubt by subsequent developments in Dryerfinding no such right under the laws of Minnesota, New York, New Jersey, California, or Texas law.

So, onto the language of the TPRPA:

Any person who knowingly uses or infringes upon the use of another individual’s name, photograph, or likeness in any medium, in any manner directed to any person other than such individual, as an item of commerce for purposes of advertising products, merchandise, goods, or services . . . without such individual’s prior consent, or, in the case of a minor, the prior consent of such minor’s parent or legal guardian . . . shall be liable to a civil action.

“Likeness” is defined as “the use of an image of an individual for commercial purposes.” Further, the law says that “[i]t is deemed a fair use and no violation of an individual’s rights shall be found, for purposes of this part, if the use of a name, photograph, or likeness is in connection with any news, public affairs, or sports broadcast or account.” “Thus, the TPRPA clearly confers no right of publicity in sports broadcast, or with respect to any advertisement if the advertisement is in connection with such a broadcast.”

Plaintiffs argued that the sports broadcast provision didn’t immunize defendants because they used plaintiffs’ images to advertise unrelated products, but they didn’t plead any specific facts supporting that claim. Plaintiffs relied on Zacchini v. Scripps-Howard Broad. Co., 433, U.S. 562 (1977), and Wisconsin Interscholastic Athl. Ass’n v. Gannett Co., Inc., 658 F.3d 614 (7th Cir. 2011), to support their right of publicity claims. They argued that there was a key distinction between reporting about sports events and broadcasting entire events. There was no doubt that those cases drew that distinction, but “stating that the First Amendment does not guarantee unlimited broadcast rights does not mean that it correspondingly establishes a right to publicity by the athletic participants when entire games are broadcast.”

Also, Zacchini was both a performer and the producer of his one-man show, so protecting his act was consistent with incentive theory. “It is a mistake, the Court believes, to read Zacchinias supporting a right of publicity by anyone who performs in an event produced by someone else.” Likewise, Wisconsin Interscholastic involved a high school athletic association’s challenge to the streaming of a tournament game by news organizations, and the Seventh Circuit affirmed the association’s right to enter into exclusive contracts for broadcasting entire games, noting that “tournament games are a performance product of [the association] which it has a right to control.” Plaintiffs were the players, but the networks were the producers and the games were theirproducts.

Finally, plaintiffs argued that the sports broadcast exception, interpreted this way, had a disparate impact on them, as African-American students. While this is a very interesting argument and consistent with critiques of various other IP rules, such as copyright’s idea/expression distinction, its treatment of musical style, and its authorship rules, the court dismissed it for failure to allege, among other things, any racially discriminatory purpose. Nor was there any alleged impact on a fundamental right, since “[t]he ability to profit from a right of publicity simply does [not] rise to the level of a fundamental right,” unlike the right to privacy.

The Lanham Act false endorsement claims failed too. First, “[t]he Lanham Act is constitutional because it only regulates commercial speech, which is entitled to reduced protections under the First Amendment.” And broadcasting sports events doesn’t propose a commercial transaction.

Second, plaintiffs failed to adequately allege likelihood of confusion. “They merely allege that they played in games that were shown on television, and that advertisements appeared in the broadcast of the games.” At the hearing, plaintiffs’ counsel played a video clip from a tournament basketball game that showed a player preparing to shoot a free-throw, while an advertisement for an upcoming TV program appeared on the bottom of screen. (I wonder if this required circumvention to create!) “[I]t is simply implausible to conclude that the shooter or those along the key were in any way endorsing the upcoming program, any more than Tennessee Titans players, their opponents, or spectators endorse Louisiana-Pacific building products (or, indeed, any of the host of other products displayed on the scoreboard) when games are played at LP field, even though such advertisements may be captured in the background during the game.” All the broadcasts showed was players playing their sport.

Posted in commercial speech, right of publicity, trademark | Leave a comment

violation of labeling law is presumptively material and deceptive

Posted on June 11, 2015 by rtushnet

Brown v. Hain Celestial Group, Inc., 2015 WL 3398415, No.
11-cv-03082 (N.D. Cal. May 26, 2015) (magistrate judge)

Plaintiffs sued Hain for selling cosmetics whose front
labels used the word “organic,” but that did not contain at least 70% organic ingredients
as required by the California Organic Products Act (COPA), resulting in CLRA
and UCL claims; the court certified two classes corresponding to two Hain
product lines. Here, the plaintiffs sought and received summary judgment on
five issues of California law.

It was undisputed that, before reformulation/relabeling, at
least some Hain cosmetics were labeled and sold as “organic” without meeting
COPA’s organic-content requirement. The
parties didn’t agree on which products were “cosmetics” under COPA, or which
specific products fell short of COPA’s 70% minimum. Here, though, the
plaintiffs weren’t seeking to establish that any specific product violated
COPA, but rather to establish the relevant law in the abstract. The court found this to be an acceptable use
of Rule 56, which is designed to streamline cases for trial, although it has
obvious implications for Hain’s tactical position.

COPA provides that “[c]osmetic products sold, labeled, or
represented as organic or made with organic ingredients shall contain[] at
least 70 percent organically produced ingredients.” Plaintiffs asked the court to hold that selling
any product that used a variant of the word “organic” on the label but had less
than 70% organically produced ingredients violated COPA. Hain responded that
the court should defer to a February 2013 “notice of resolution” from the
California Department of Public Health (CDPH). This notice came at the end of
an agency inquiry, which included several hundred pages of documents from Hain,
including a chart showing that Hain would be discontinuing all but two of its
Jason products (one of the relevant product lines). Hain also described or sent the CDPH samples
of revised Avalon Organics and Jason labels, now conforming to the organic
content standards and not at issue in this case. The new Jason labels no longer
carried their old “Pure, Natural, and Organic” tagline. The CDPH’s letter
acknowledged the changes, suggested that these products did not use the word
“organic” so as to trigger COPA, and stated that the CDPH “consider[ed] the
matter resolved.”

This letter didn’t bar the plaintiffs’ claims. The CDPH
inquiry was ex parte and too informal to have a preclusive effect, “amounting
only to the agency’s decision not to further investigate.” The agency had no
comparative interpretive advantage over the courts, since “[t]his case presents
a question of straightforward statutory interpretation in plain English.” To
the contrary, “[g]iven that the court’s workaday job consists largely of reading
and applying statutes, it probably has the interpretive advantage over the
CDPH.” Plus, there was no reason to think that the CDPH was probably correct
(which would help justify deference). “Reading
COPA’s very comprehensible language, it would seem that the CDPH baldly erred
if it held that a product labeled ‘organic’ but having less than 70% organic
ingredients does not trigger COPA.”

Then, the court held that COPA violations were “unlawful”
for purposes of triggering the unlawfulness prong of the UCL.

Next, the court turned to presumptions of materiality,
deception, and reliance, framing the question as whether the plaintiffs could
prove most of their case through presumptions and inferences. Answer: yes. The basic theory:

The California legislature in
passing COPA determined that mislabeled organic products are “material” to the
ordinary consumer….This legislative determination of materiality compels the
further conclusion that, as a matter of law, the label was “likely to deceive”
the ordinary (read: reasonable) consumer. Finally, California law holds that,
if a CLRA plaintiff proves that a misrepresentation was “material,” then absent
class members need not prove that they actually relied on the
misrepresentation. The law will infer that they did.

If you put together the UCL standing cases, primarily Hinojos
v. Kohl’s Corp., 718 F.3d 1098 (9th Cir. 2013), and Kwikset
Corp. v. Superior Court, 51 Cal.4th 310 (2011), and class certification
cases discussing the UCL and CLRA, Stearns
v. Ticketmaster Corp., 655 F.3d 1013 (9th Cir. 2011), and In re
Tobacco II Cases, 46 Cal.4th 298 (2009), that is indeed the result you get. “[B]y enacting COPA, the California
legislature has determined that organic-content representations are material,” which
then indicates that, as a matter of law, violations of COPA are “likely to
deceive reasonable consumers.”

As a
matter of law, “using the word ‘organic’ on a product label will likely lead reasonable
consumers to believe that the product in fact is organic (which, in California,
is legislatively defined to mean containing at least 70% organic ingredients).
That would seem to be exactly the point of labeling something ‘organic.’” If
the product is mislabeled, the consumer has been misled, which is to say
deceived. As Stearns reasoned, “One might even say that, in effect, California
has created what amounts to a conclusive presumption that when a defendant puts
out tainted bait and a person sees it and bites, the defendant has caused an
injury; restitution is the remedy.” Named
class representatives in UCL cases must still show “additional factors as to
[themselves], such as injury in fact and causation.” But absent members need
not.

These classwide presumptions of materiality and likely
deception would be more troubling if the remedies allowed individually defined
recoveries and denied Hain the ability to show that a specific transaction
wasn’t influenced by “organic.” But the UCL isn’t based on individual recovery;
its focus is the defendant’s conduct and its limited remedies are injunctive
relief and restitution. “Given this orientation, it is less troubling to say
that the California legislature has deemed certain conduct material and that
the courts must presume — even, as Stearns
suggests, conclusively presume — that that conduct is ‘likely to deceive’
ordinary consumers.”

The court rejected Hain’s arguments that other district court cases had refused
to follow this line of reasoning. These
cases all differed from the one before the court, mainly though not entirely
because here there was a specific legislative definition of “organic.”

Finally, the court ruled, material misrepresentations create
a “classwide” presumption of reliance under the CLRA. However, this inference
is not conclusive, so Hain could show lack of reliance in individual transactions. But otherwise, materiality was no different
as between the UCL and the CLRA. “The root materiality determination comes not
from the UCL but from the underlying substantive statute: COPA.”

Hain argued that the court’s holding turned a basic COPA
violation into a series of runaway inferences, carrying the plaintiffs too far
towards proving their case, at least in the abstract. Kwikset, Hinojos, Stearns, and Tobacco II, Hain argued, weren’t summary judgment cases, and didn’t
deal with the merits of UCL claims. Although the result here was “striking,” it
was supported by the case law, given the “specific legislative determination”
of COPA that “organic” claims are materially false if a product does not meet
the 70% mark and the “defendant-focused orientation” of the UCL. “[T]he strength and clarity of what these
cases say about the substance of UCL claims make it practically impossible to
wall these off as mere ‘pleadings cases.’” Plus, plaintiffs’ motions here were
abstract and thus not distinct from the pleadings cases. Plaintiffs will eventually have to prove the
COPA violation as well as named plaintiffs’ reliance. But despite how striking the result was, this
court wasn’t going to put itself at loggerheads with the Ninth Circuit (Stearns) or the California
legislature.

Anyway, food labeling cases vary a lot, so this holding was
more limited than it might first appear.
“The details of, and differences between, mislabeling cases can impede
easy translation of all but the most basic legal rules from one case to the
next.” Here, the court addressed only
the situation before it: the legislature barred a specific word unless products
met a specific definition. Analogous cases “should not be too numerous.”

Finally, the chain of presumptions was not so troubling as
all that:

It embodies something like strict
liability. If you mislabel a product and violate COPA, then the law will deem
the offending representation material, and will assume that it deceived (UCL)
and was relied upon by (CLRA) those who bought the product. Statutory remedies
will follow. That remains striking but is not unprecedented.

Maybe this result was deliberate, or maybe it was “the
inadvertent confluence of different strands of somewhat related law.” Either
way, the court wasn’t free to ignore precedent.

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Posted in Uncategorized | Tagged class actions, consumer protection, false advertising, violation of labeling law is presumptively material and deceptive california | Leave a comment

violation of labeling law is presumptively material and deceptive

Posted on June 11, 2015 by rtushnet

Brown v. Hain Celestial Group, Inc., 2015 WL 3398415, No. 11-cv-03082 (N.D. Cal. May 26, 2015) (magistrate judge)

Plaintiffs sued Hain for selling cosmetics whose front labels used the word “organic,” but that did not contain at least 70% organic ingredients as required by the California Organic Products Act (COPA), resulting in CLRA and UCL claims; the court certified two classes corresponding to two Hain product lines. Here, the plaintiffs sought and received summary judgment on five issues of California law.

It was undisputed that, before reformulation/relabeling, at least some Hain cosmetics were labeled and sold as “organic” without meeting COPA’s organic-content requirement. The parties didn’t agree on which products were “cosmetics” under COPA, or which specific products fell short of COPA’s 70% minimum. Here, though, the plaintiffs weren’t seeking to establish that any specific product violated COPA, but rather to establish the relevant law in the abstract. The court found this to be an acceptable use of Rule 56, which is designed to streamline cases for trial, although it has obvious implications for Hain’s tactical position.

COPA provides that “[c]osmetic products sold, labeled, or represented as organic or made with organic ingredients shall contain[] at least 70 percent organically produced ingredients.” Plaintiffs asked the court to hold that selling any product that used a variant of the word “organic” on the label but had less than 70% organically produced ingredients violated COPA. Hain responded that the court should defer to a February 2013 “notice of resolution” from the California Department of Public Health (CDPH). This notice came at the end of an agency inquiry, which included several hundred pages of documents from Hain, including a chart showing that Hain would be discontinuing all but two of its Jason products (one of the relevant product lines). Hain also described or sent the CDPH samples of revised Avalon Organics and Jason labels, now conforming to the organic content standards and not at issue in this case. The new Jason labels no longer carried their old “Pure, Natural, and Organic” tagline. The CDPH’s letter acknowledged the changes, suggested that these products did not use the word “organic” so as to trigger COPA, and stated that the CDPH “consider[ed] the matter resolved.”

This letter didn’t bar the plaintiffs’ claims. The CDPH inquiry was ex parte and too informal to have a preclusive effect, “amounting only to the agency’s decision not to further investigate.” The agency had no comparative interpretive advantage over the courts, since “[t]his case presents a question of straightforward statutory interpretation in plain English.” To the contrary, “[g]iven that the court’s workaday job consists largely of reading and applying statutes, it probably has the interpretive advantage over the CDPH.” Plus, there was no reason to think that the CDPH was probably correct (which would help justify deference). “Reading COPA’s very comprehensible language, it would seem that the CDPH baldly erred if it held that a product labeled ‘organic’ but having less than 70% organic ingredients does not trigger COPA.”

Then, the court held that COPA violations were “unlawful” for purposes of triggering the unlawfulness prong of the UCL.

Next, the court turned to presumptions of materiality, deception, and reliance, framing the question as whether the plaintiffs could prove most of their case through presumptions and inferences. Answer: yes. The basic theory:

The California legislature in passing COPA determined that mislabeled organic products are “material” to the ordinary consumer….This legislative determination of materiality compels the further conclusion that, as a matter of law, the label was “likely to deceive” the ordinary (read: reasonable) consumer. Finally, California law holds that, if a CLRA plaintiff proves that a misrepresentation was “material,” then absent class members need not prove that they actually relied on the misrepresentation. The law will infer that they did.

If you put together the UCL standing cases, primarily Hinojos v. Kohl’s Corp., 718 F.3d 1098 (9th Cir. 2013), and Kwikset Corp. v. Superior Court, 51 Cal.4th 310 (2011), and class certification cases discussing the UCL and CLRA, Stearns v. Ticketmaster Corp., 655 F.3d 1013 (9th Cir. 2011), and In re Tobacco II Cases, 46 Cal.4th 298 (2009), that is indeed the result you get. “[B]y enacting COPA, the California legislature has determined that organic-content representations are material,” which then indicates that, as a matter of law, violations of COPA are “likely to deceive reasonable consumers.”

As a matter of law, “using the word ‘organic’ on a product label will likely lead reasonable consumers to believe that the product in fact is organic (which, in California, is legislatively defined to mean containing at least 70% organic ingredients). That would seem to be exactly the point of labeling something ‘organic.’” If the product is mislabeled, the consumer has been misled, which is to say deceived. As Stearns reasoned, “One might even say that, in effect, California has created what amounts to a conclusive presumption that when a defendant puts out tainted bait and a person sees it and bites, the defendant has caused an injury; restitution is the remedy.” Named class representatives in UCL cases must still show “additional factors as to [themselves], such as injury in fact and causation.” But absent members need not.

These classwide presumptions of materiality and likely deception would be more troubling if the remedies allowed individually defined recoveries and denied Hain the ability to show that a specific transaction wasn’t influenced by “organic.” But the UCL isn’t based on individual recovery; its focus is the defendant’s conduct and its limited remedies are injunctive relief and restitution. “Given this orientation, it is less troubling to say that the California legislature has deemed certain conduct material and that the courts must presume — even, as Stearnssuggests, conclusively presume — that that conduct is ‘likely to deceive’ ordinary consumers.”

The court rejected Hain’s arguments that other district court cases had refused to follow this line of reasoning. These cases all differed from the one before the court, mainly though not entirely because here there was a specific legislative definition of “organic.”

Finally, the court ruled, material misrepresentations create a “classwide” presumption of reliance under the CLRA. However, this inference is not conclusive, so Hain could show lack of reliance in individual transactions. But otherwise, materiality was no different as between the UCL and the CLRA. “The root materiality determination comes not from the UCL but from the underlying substantive statute: COPA.”

Hain argued that the court’s holding turned a basic COPA violation into a series of runaway inferences, carrying the plaintiffs too far towards proving their case, at least in the abstract. Kwikset, Hinojos, Stearns, and Tobacco II, Hain argued, weren’t summary judgment cases, and didn’t deal with the merits of UCL claims. Although the result here was “striking,” it was supported by the case law, given the “specific legislative determination” of COPA that “organic” claims are materially false if a product does not meet the 70% mark and the “defendant-focused orientation” of the UCL. “[T]he strength and clarity of what these cases say about the substance of UCL claims make it practically impossible to wall these off as mere ‘pleadings cases.’” Plus, plaintiffs’ motions here were abstract and thus not distinct from the pleadings cases. Plaintiffs will eventually have to prove the COPA violation as well as named plaintiffs’ reliance. But despite how striking the result was, this court wasn’t going to put itself at loggerheads with the Ninth Circuit (Stearns) or the California legislature.

Anyway, food labeling cases vary a lot, so this holding was more limited than it might first appear. “The details of, and differences between, mislabeling cases can impede easy translation of all but the most basic legal rules from one case to the next.” Here, the court addressed only the situation before it: the legislature barred a specific word unless products met a specific definition. Analogous cases “should not be too numerous.”

Finally, the chain of presumptions was not so troubling as all that:

It embodies something like strict liability. If you mislabel a product and violate COPA, then the law will deem the offending representation material, and will assume that it deceived (UCL) and was relied upon by (CLRA) those who bought the product. Statutory remedies will follow. That remains striking but is not unprecedented.

Maybe this result was deliberate, or maybe it was “the inadvertent confluence of different strands of somewhat related law.” Either way, the court wasn’t free to ignore precedent.

Posted in california, class actions, consumer protection, http://schemas.google.com/blogger/2008/kind#post | Leave a comment

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Rebecca Tushnet

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violation of labeling law is presumptively material and deceptive

violation of labeling law is presumptively material and deceptive

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