alleged use of competitor’s corporate “persona” didn’t cause actionable confusion

SME Steel Contractors, Inc. v. Seismic Bracing Co., LLC, No.
2023-2426, 2025 WL 2057365 (Fed. Cir. Jul. 23, 2025)

Discussion
of previous district court opinion here.
Because a patent is involved, the
appeal on all issues goes to the Federal Circuit, but the Federal Circuit is
supposed to apply home circuit precedent to the non-patent claims. Once again
we see the powerful discontinuity between TM and false advertising claims produced
by the normal absence of any damage requirement in TM.

The parties compete in the design of buckling-restrained
braces (BRB), which are structural devices that help buildings withstand
seismic activity. SME sued Seismic for patent infringement, false advertising
and false association under the Lanham Act, unfair competition and certain
deceptive trade practices under Utah state law, and copyright infringement.
Seismic secured summary judgment, which the court of appeals affirms. Patent discussion
omitted.

The false advertising-related claims centered on
representations made by Seismic in a Design Manual that it sent to prospective clients.
Its 90 pages included the statements “Produce capacity of over 5000 BRBs per
year” and “These patented methods have now been tested and qualified for use on
projects in accordance with governing building codes (AISC 341).” The Design
Manual further included a report from the University of Utah, testing five of
Seismic’s BRBs and concluding that three of those BRBs satisfied AISC 341-10
requirements and two did not. SME argued that these statements were false and
that Seismic used SME’s “persona,” including proprietary technical drawings and
a similar logo, in the Design Manual. (It didn’t bring a conventional
infringement claim.) SME further alleged that it lost business to Seismic
because of these misrepresentations.

The copyright claims alleged that Seismic used several of
SME’s copyrighted technical drawings of BRB designs in the Design Manual. The
district court granted summary judgment to Seismic, concluding that SME had
“not presented sufficient evidence of a causal connection” between the alleged
copyright infringement and alleged profits; SME sought only disgorgement. (The
court of appeals could have pulled a Davis v. Gap move and remanded to
assess damages, but there doesn’t seem to be a licensing market here, making
that much less attractive.)

Even if there was Lanham Act standing, there was no genuine
issue of material fact on injury. No reasonable jury could find a causal
connection between misrepresentations by Seismic and SME’s injuries. SME only
showed that the Design Manual was sent to several potential customers and that
Seismic successfully bid on projects that involved those customers while SME also
(unsuccessfully) submitted competing bids on most of those projects. “SME Steel
did not present any evidence that the Design Manual—let alone the handful of
representations alleged to be misleading within this ninety-page
document—played any role in SME Steel’s loss of bids.”

SME argued that it was entitled to a presumption of injury
because the parties compete in a sparsely populated market. Under Tenth Circuit
law, where “the plaintiff and defendant are the only two significant
participants” in a two-player market, “injury may be presumed if the plaintiff
shows the defendant made literally false statements or made statements that
were literally true but were likely to mislead or confuse customers.” But the
two key alleged misrepresentations weren’t shown to be literally false.

“Produce capacity of over 5000 BRBs per year” on its face refers
to future capacity. SME argued that this was false because Seismic Bracing uses
third-party fabrication shops and did not have such a manufacturing capacity
itself. But “produce” can have multiple definitions and may be defined as “to
make available for public exhibition or dissemination: such as … to oversee
the making of.” Thus the claim was “ambiguous, precluding literal falsity.”

What about the “tested and qualified” claim given that two
of Seismic’s five tested BRBs failed testing? Again, the statement that Seismic’s
“patented methods have now been tested and qualified for use on projects in
accordance with governing building codes (AISC 341)” was ambiguous, “as the
statement could have referred to the BRBs that satisfied the testing
requirements, not all of Seismic’s BRBs.”

What about using intent to deceive to presume deception and
thus injury? Some Circuits have said so, but, even assuming that the Tenth
Circuit would agree, no reasonable jury could conclude that Seismic acted with
intent to deceive. Mere awareness of what factors a potential customer might
consider important in buying a BRB did not create a genuine dispute.

False association: The district court analysis here was
deeply confused. The Federal Circuit noted
that “it is not clear what the basis for SME Steel’s false association claim
is. SME Steel concedes that ‘this case does not involve a mark,’ but instead,
it appears to contend that it has a particular corporate persona, akin to an
individual celebrity, and Seismic Bracing appropriated that persona in its
Design Manual.” Nonetheless, the Federal Circuit proceeded to affirm the
district court’s likely confusion analysis rather than just saying no. It didn’t
mention the weirdest parts of that analysis flowing from the conceptual
mismatch, just holding that, “[g]iven the admitted care that customers will
exercise in reviewing materials related to the bids and selecting BRBs, as well
as the absence of evidence of actual confusion, we agree that no reasonable
jury could conclude that there was a likelihood of confusion.”

Copyright: SME didn’t show a causal connection between the
alleged infringement and any subsequent purchases of Seismic’s BRBs. To show
indirect profits, the copyright holder bears “the initial burden to show a
nexus between [the alleged] infringement and making of a profit,” and [t]hat
showing must go beyond speculation.” That didn’t happen.

from Blogger http://tushnet.blogspot.com/2025/07/alleged-use-of-competitors-corporate.html

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no initial interest confusion from a deactivated product page that list zero results

Alsa Refinish LLC v. The Home Depot, Inc., 2025 WL 2014281, No.
2:23-cv-09965-SVW (C.D. Cal. Mar. 18, 2025)

Previous
discussion
of related case by same plaintiff. The Home Depot “sells home
improvement products, including a wide assortment of paints and paint products,
at brick-and-motor locations and through its website.” It sells products,
including paint, from third parties.  

Alsa also sells paint and claimed to own trademarks in “Alsa,”
“Alsa Chrome Paint,” “Alsa Easy Chrome,” “Easy Chrome,” and “Alsa Refinish.” Between
2013 and 2019, Alsa sold its products on Home Depot website as a third-party
vendor, authorizing Home Depot to use its marks on the “landing pages” for Alsa’s
products. When the relationship ended, Home Depot deactivated all the landing
pages for Alsa’s products. Thus, a search on HomeDepot.com for “Alsa Easy
Chrome” wouldn’t return any products. But, for at least some time, someone
using Google or a similar third-party search engine who searched for “Home
Depot” plus the name of one of Alsa’s products, would get a result that
included the inactive landing pages. Clicking on those links would show results
like this:

Screenshot showing zero results for Alsa on Home Depot’s site

Alsa alleged that it “never intended to sell products
through Defendant’s website or stores” and that it “believes that Defendant has
never sold Plaintiff’s products on Defendant’s websites or stores.”

The court initially denied Home Depot’s motion to dismiss
because, “taking Plaintiff’s allegation that it never had a vendor relationship
with Defendant as true, Defendant’s use of Plaintiff’s mark in inactive product
pages could confuse consumers into thinking Defendant and Plaintiff had a past
affiliation.” (Why would that be actionable? Why would that cause harm
sufficient to trigger Article III standing? Ugh.)

Now, on summary judgment, the court found confusion
unlikely. Sleekcraft isn’t well suited for internet search results; this
isn’t exactly a pure internet search case, but it’s closer to that than to the Sleekcraft
inquiry into “whether two competing brands’ marks are sufficiently similar to
cause consumer confusion.” Thus, the court used the two-factor test outlined in
Multi Time Machine v. Amazon, which asks courts to consider: “(1)
Who is the relevant consumer; and (2) What would he reasonably believe based on
what he saw on the screen?”

The relevant reasonable consumer in this case is “a
reasonably prudent consumer accustomed to shopping online” who is of moderate
sophistication. This factor “weighs against a likelihood of confusion, but only
slightly.”

For (2):

A reasonable consumer viewing
Defendant’s inactive product landing pages would believe that Defendant does
not sell Plaintiff’s products. That is, after all, exactly what the webpage
says: “Sony, there are no products available online or in your local store.”
This is not confusing or deceptive, as it is true. Defendant no longer sells
Plaintiff’s products.

There were some context clues that “may” lead consumers to believe that Home Depot sold Alsa products in the past: (1) an option to refine search results to include “Alsa Refinish,” because “[s]tores like Defendant typically do not provide an option to refine search results by a given brand unless they actually sell products from that brand,” and (2) “that there even is a product page for Plaintiff’s products, albeit inactive, suggests that Defendant at one point sold those products.” The court relied on (2) to deny the motion to dismiss. (I note that, among other things, this is really more of a false advertising theory, since it’s clear that they don’t sell Alsa products now, which is why the truth of the past relationship matters.) However, the summary judgment record was uncontested: Alsa did sell products with Home Depot for six years.

Also, Alsa had no evidence of actual confusion. “Plaintiff
supplies several posts from online forums for vehicle enthusiasts discussing
whether Plaintiff’s products were available on Defendant’s website. But these
posts were made during the Vendor Period, when Defendant had Plaintiff’s
permission to use the Alsa Marks on its website.”

And there was no initial interest confusion:

Here, it may certainly be the case
that, after reaching the inactive landing product pages, consumers move on from
that page to Home Depot’s website overall, where they may purchase competing
products. But at most this is evidence of diversion, not confusion. There is no
reason to think that consumers would be confused as to the source of any of the
goods on Defendant’s webpage, as each product on Defendant’s page is clearly
labeled.

Because the false allegation that Alsa never sold on Home
Depot was the only reason that the court denied the motion to dismiss, the
court ordered its lawyers to show cause why they didn’t violate Rule 11.

from Blogger http://tushnet.blogspot.com/2025/07/no-initial-interest-confusion-from.html

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XL BBL and Petite BBL are generic for what you think they’re generic for

Andre P. Marshall, M.D. Inc. v. Squlpt Management, LLC, 2025
WL 2025000, No. 2:24-cv-01784-SB-AS (C.D. Cal. Jul. 14, 2025)

The interesting false advertising component of this case
doesn’t get resolved on summary judgment, but we do get a finding that XL BBL
and Petite BBL are generic terms for Brazilian butt lifts,” cosmetic surgical
procedures that enhance the size and shape of the buttocks by transferring fat
from other areas of the body, as applied to procedures that move more or less
fat than average. Defendants (SML) had a registered trademark for “XL BBL” for
medical procedures and applications for “Petite BBL” published for opposition
(plaintiff APM opposed). APM sought cancellation of the XL registration and
rejection of the Petite applications (now ok in the 9th Circuit) and
also asserted false advertising claims; defendants counterclaimed for
infringement.

Defendants claimed first use of Petite BBL in September 2020
and XL BBL in February 2021. The parties offer cosmetic surgery services in the
Los Angeles area. APM began using the term Petite BBL on Instagram in June
2019, before SML applied to register it as a mark. After the USPTO approved the
Petite BBL mark for publication, one defendant, “mistakenly believing the mark
had been registered,” sent cease and desist messages to APM’s owner requesting
that APM stop using “Petite BBL.” This suit followed.

The false advertising allegations were that defendants digitally
altered before-and-after photographs of patients in a way that misleads
consumers. Initially, defendants only produced one photo in discovery, arguing
that they hadn’t edited any others; later, after the court said that wasn’t
good enough, they produced over 86,000, in no particular order/unconnected with
any ads; this also wasn’t good enough. Plaintiffs got fees connected to this dispute.

Standing as to the XL BBL term: APM didn’t use it in its
business, so did the registration cause it to suffer an injury in fact? “In
declaratory judgment actions involving trademark infringement, a plaintiff has
standing if it demonstrates ‘a real and reasonable apprehension that [it] will
be subject to liability if [it] continues with [its] course of conduct.’” APM’s
owner offered a declaration that he had intended to and was ready to use the XL
BBL mark before the complaint was filed but “held back from using the term out
of fear of litigation.” This fear was reasonable given that SML (1) sent text
messages to APM requesting that it remove “Petite BBL” from its Instagram posts;
and (2) reported APM’s alleged infringement of the Petite BBL mark to Instagram
and requested that the account be permanently removed. “It is not unreasonable
to assume that using the ‘XL BBL’ mark would have prompted a similar
response—or even a stronger one, since SML had a registration for XL BBL,
unlike for Petite BBL.”

Merits: SML argued that the terms were suggestive. They were
not. A generic mark answers the question “What are you?” whereas a distinctive,
protectable mark answers the questions, “Who are you?” “Where do you come
from?” and “Who vouches for you?”

Registration is “prima facie evidence of the mark’s validity
and entitles the registrant to a strong presumption that the mark is
protectable.” APM met its burden of showing genericity of XL BBL, while SML
didn’t prove that the unregistered Petite BBL mark was protectable.

Starting with BBL, that term on its own was “undisputedly
generic” and indeed disclaimed by SML. “The only question is whether the use of
Petite and XL—common size descriptors—before BBL render the entire descriptions
nongeneric. APM has submitted extensive evidence, both predating and postdating
SML’s application, that the size descriptors do not have this effect.” The
court noted that, when a term is “born generic,” evidence from any time period
may be relevant, but even if evidence from after APM entered the market wasn’t
relevant, APM would still prevail.

The evidence included third party doctors describing their
uses, demonstrating “that consumers, medical professionals, and Defendants
themselves use Petite and XL BBL generically to describe the amount of fat
transferred.” Defendants’ own generic use showed that the terms weren’t
suggestive; they described Petite BBL as appropriate for women with a “smaller
frame” and a “20–33 BMI” and XL BBL as appropriate for women with a “medium or
full-figured frame” and a “28–35 BMI.” “Indeed, it takes no imagination to
understand that ‘Petite’ and ‘XL’ refer to the size of the fat transfer in a
BBL procedure.”

Defendants’ only rebuttal evidence was “conclusory testimony”
that the terms were suggestive.

Even if the terms were descriptive, there wasn’t a fact
issue on secondary meaning. There was no consumer testimony (direct evidence). Defendants’
evidence was that they spent $2.5 million in advertising Petite BBLs and
received $16.7 million in revenue for Petite BBLs and $4.6 million in revenue
for XL BBLs. That didn’t create a genuine factual dispute. “Merely citing to
advertising expenditures over a period of a few years—without providing any
detail about the marketing efforts or any evidence of whether they created an
association between the marks and their services—proves little. The same is
true for sales revenues.” No reasonable juror could find protectability.

False advertising:  APM
alleged that defendants altered the “after” photographs by removing scarring
from the surgical incision points and airbrushing cellulite and stretchmarks. APM
sought only injunctive relief. But it didn’t explain which specific ads had false
alterations. Collective treatment of the ads, under the circumstances, wasn’t
appropriate. E.g., “some of the before-and-after advertisements, for example,
specifically address scarring, while others do not.” So there’d be a trial.

 

from Blogger http://tushnet.blogspot.com/2025/07/xl-bbl-and-petite-bbl-are-generic-for.html

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AI voice cloning opinion narrows claims to ROP, rejecting TM and (most) copyright theories

Lehrman v. Lovo, Inc., — F.Supp.3d —-, 2025 WL 1902547,
24-CV-3770 (JPO) (S.D.N.Y. Jul. 10, 2025)

Plaintiffs alleged that Lovo misled them about its use of
their voices, using AI to synthesize and sell unauthorized “clones” of their
voices. They sued for violations of New York civil rights and consumer
protection laws, the Lanham Act, and the Copyright Act, along with common-law
contract, fraud, conversion, unjust enrichment, and unfair competition claims.
Lovo was partially successful on its motion to dismiss, but had to deal with
the NY ROP claims, as well as consumer protection and breach of contract
claims. I might not agree with every detail of the extensive opinion,
but this is a useful map of the issues. It’s also a reminder of the hazards of
not contracting properly with people you don’t employ.

Plaintiffs Lehrman and Sage are voice-over actors. Lovo
“sells a text-to-speech subscription service that allows its clients to
generate voice-over narrations at a fraction of the cost of the traditional
model.” It claims that its software, Genny, was “created using ‘1000s of
voices.’ ” Genny is allegedly capable of creating a voice “clone,” which
“refers to a virtual copy of a real person’s voice.” It advertised its voice
cloning service by emphasizing how similar its cloned voices are to the
originals from which they are derived. In one marketing video, Lovo stated,
“you will hear five speakers whose voices have been cloned to near perfection.
Their tone, accent, and even mannerisms are fully learned by our AI voice
system.” One of Lovo’s co-founders described a cloned voice as a replacement
for “a real human voice,” allowing users of Lovo’s platform to “make that voice
say anything that you want, even if that person has never actually said that
before in their life.”

Lovo advertises the commercial use of its platform to “Save
$$ and time on voiceovers.” Allegedly, “Lovo represents to its customers that
Lovo is granting full commercial rights for all content generated using its
platform to users who subscribe to any of its paid plans,” which cover “any
monetized, business-related uses such as videos, audio books, advertising,
promotion, web page blogging, [and] product integration.”

Lovo originally solicited Lehrman and Sage for the projects
relevant to this action on an online marketplace for freelance services called
Fiverr. A Lovo employee allegedly contacted Lehrman and hired him to “provide
voice recordings for ‘research purposes,’” assuring him that the company would
use the recordings for “research purposes only,” and that such research would
be only “internal” and “academic” in nature. Lehrman wrote back, asking for a
“guarantee that these scripts will not be used for anything other than your
specific research project,” to which the employee replied: “The scripts will
not be used for anything else ….” The employee further confirmed that the
script would not be “repurposed and used in a different order.” He was paid
$1,200 for his work.

Similarly, Sage asked what the proposed recordings would be
used for, and the Lovo rep (a principal) replied: “These are test scripts for
radio ads. They will not be disclosed externally, and will only be consumed
internally, so will not require rights of any sort.” Sage asked him to to
confirm that the recordings would not be used “in broadcast,” and he again
repeated the previous statement. Lovo paid Sage $400 for her work.

Both of them ultimately (after filing suit) registered their
scripted performances with the Copyright Office.

Plaintiffs allegedly first learned that their voices had
been used in unanticipated ways when they listened to an episode of the
Deadline Strike Talk podcast narrated in part by an artificial voice produced
by Lovo’s software. They alleged that the voice used in the podcast was
“identical to Mr. Lehrman’s voice.” Allegedly, “[n]umerous people who heard the
podcast,” including “friends” and “professional colleagues” “told Mr. Lehrman
or Ms. Sage” that the “voice on the podcast was virtually identical to Mr. Lehrman’s
voice,” and that “the cloned voice would undoubtedly be mistaken for Mr.
Lehrman’s actual voice.” They also alleged, with declaration support, that
professionals “experience[d] [in] discerning and conveying small differences in
voice tone, quality, timbre, and delivery” believe that “Lovo’s cloned voice is
a replica of Mr. Lehrman’s real voice.” Lehrman allegedly found that Lovo “had
been marketing [the clone of his voice] as part of its subscription service
under the stage name ‘Kyle Snow.’ ” The Kyle Snow voice was also in
advertisements on Lovo’s website and YouTube. For example, Lovo allegedly
advertised the Kyle Snow voice as “an ideal male voice generator … for all
kinds of content” due to his “upbeat tone and slightly faster talking speed.”

Sage also allegedly discovered that Lovo had created a clone
of her voice named “Sally Coleman” that was available to Lovo’s subscribers.
This was allegedly marketed using “side-by-side” comparisons of Sage’s original
audio recordings—the ones she provided via Fiverr—and the “cloned version of
her voice,” including in an investor pitch that was posted on YouTube. 

Plaintiffs brought individual claims and also sought to
represent a voice actor class and a consumer class of consumers who bought the
Lovo software and used the voices.

Breach of contract: Sufficiently pled.

Lanham Act false association: Failed for want of a mark that
was used as a mark. Plaintiffs didn’t argue that they could bring §43(a)(1)(A)
claims without a valid mark. Persona can be a “mark”—even for a noncelebrity.
But celebrity endorsement cases have involved “the unauthorized use of a
celebrity’s likeness on merchandise, implying that the celebrity approves of
the merchandise or is affiliated with the seller,” or “the explicit use of a
celebrity’s likeness in advertising or to promote goods or services.”

Plaintiffs alleged that “they are well-known and
sought-after voice actors whose voices are their recognizable calling cards,”
which was enough at this stage to make the use of their voices capable of
causing consumer confusion. The problem was that the allegations didn’t suggest
trademark use. “Because marks can take essentially any form, courts must
therefore be careful to ensure that they receive protection only when used as
contemplated by the statute—that is, as marks.” The court found celebrity
endorsement cases to be an “uneas[y]” fit with this principle, “as celebrities’
personas are also their products,” though at least for advertising cases the
service of endorsement seems like the trademark use. Citing Jennifer Rothman,
the court emphasized that “personal marks” are treated differently from other
marks—they’re harder to register, and the law “is highly skeptical of efforts
to restrict individuals from using their own identities in trade” and doesn’t
allow “transfer attributes of one’s identity—such as personal skill as an
artisan—when one transfers trademark rights in one’s name or likeness.” [My own
view is that the latter point isn’t really relevant—it’s just not possible to
do that; maybe that means that many name transfers are transfers in gross and
should fail, but that is straying pretty far from our concerns here.]

The key issue here was that this wasn’t a celebrity
endorsement case: the voices were themselves the products/services being sold.
“Plaintiffs here use their voices in ways that are clearly separable from their
identities and personalities. Their clients pay them to produce recordings of
themselves narrating scripts, which the clients then own and use to produce
content, as authorized by their contracts with Plaintiffs.” Thus, their voices
“serve dual functions as both ‘one of the most palpable ways identity is
manifested,’ and as ordinary services in the voice-over market.” Thus, even as
to the alleged false endorsement or “business affiliation” confusion,
plaintiffs’ voices were “protectable only to the extent that they function
primarily as source identifiers rather than as products themselves.” The court
analogized to trade dress product design claims, which are difficult because trademark
terminology “is unsuited for application to the product itself.”

Plaintiffs failed to show that their voices were protectable
marks. They didn’t plead secondary meaning or the relevant factors except for “a
few conclusory references to the recognizability of their voices” and the fact
that “Plaintiffs’ work has been sought out by large companies.” Regardless, “Plaintiffs
have not alleged that their voices are primarily significant as brands rather
than as services to which brands might be attached.” As the court noted, “even
extremely famous celebrities are barred from asserting Section 43(a)(1) claims
based on the use of their likenesses as products rather than as
source-identifying marks.” Product use was descriptive use, not trademark use.
An alternate rule would threaten a new voice actor “whose voice happens to
sound highly similar to either Lehrman’s or Sage’s,” especially given that
identicality isn’t required for likely confusion. The court also pointed out
that unregistered trademark rights can be assigned, with “unsettling”
consequences for voices:

To allow any artist, actor, or
other creative tradesperson to sue their doppelgangers for trademark
infringement, as Plaintiffs’ theory would allow, would “create[e] a cause of
action for, in effect, plagiarism,” and would be incompatible with the careful
ways that courts have circumscribed the Lanham Act to avoid unduly burdening
competition and free expression. [Citing Dastar.]

Lookalike cases involving ads involve “appropriating the
identity and the goodwill of the famous plaintiffs—that is, pretending to be
Woody Allen—rather than merely engaging in the same trade while happening to
look like the famous plaintiffs.” And, the court noted, Allen’s cases involved
use of identity in ads, not his lookalike’s presence as part of a good or
service. “To allow Plaintiffs to protect the downstream uses of their voices
merely because Plaintiffs originated them would disrupt the ‘carefully crafted
bargain’ struck by patent and copyright law and ‘misuse’ the Lanham Act to ‘to
reward [artisans] for their innovating in creating a particular [work or]
device.’”

What we’re seeing, post-JDI, is the further
development of a “use as a mark” doctrine to cabin trademark’s nearly unchecked
expansion, unfortunately mostly without discussion of the relevant
considerations and how they relate to the purposes of trademark law. That’s
present here, yay! It would be great for more courts to admit that this not an
entirely empirical assessment, or at least it’s only empirical at the
categorical level. (See also the pre-JDI Louboutin v. YSL case,
the standout entry in the “ipse dixit use as a mark” cases.) In addition, JDI’s
language about how even partial TM use is bad is, as has always been apparent,
complete nonsense (in the absence of a materiality requirement).

False advertising: Two theories here. First, plaintiffs
alleged that marketing their voices under the names “Kyle Snow” and “Sally
Coleman” was literally false. The court disagreed: “Plaintiffs point to
numerous examples of Lovo marketing the voices as what they truly are—synthetic
‘clones’ of real actors’ voices.” Also, Lovo falsely allegedly stated that the
cloned voices “came with all commercial rights.” But even if that’s true, “such
misrepresentations do not concern ‘the nature, characteristics, qualities, or
geographic origin’ of Plaintiffs’ cloned voices.” (Dastar.)

Second, plaintiffs alleged that Lovo “confus[ed] potential
customers … as to [Plaintiffs’] affiliation with Lovo and the ability to use
the Lovo service in place of traditional access to these actors,” and that Lovo
“misrepresent[ed] that [Plaintiffs] have partnered with Lovo.” Those were not
actionable as false advertising; they were repeats of the false affiliation
claim, and “Plaintiffs cannot avoid the requirement of a protectable mark by ‘disguis[ing]
a § 43(a)(1)(A) trademark infringement and unfair competition claim as a false
advertising § 43(a)(1)(B) claim.’”

In addition, plaintiffs failed to identify any false
implication or consumer confusion from Lovo’s advertising, “as opposed
to being confused by the similarity of the synthetic voices to Plaintiffs’
voices when heard in the wild. In fact, Plaintiffs actually allege that Lovo’s
advertising was clear on the lack of connection between Plaintiffs and Lovo’s
voice clones.”

Even if Lovo made misrepresentations, plaintiffs didn’t
plead actual injury. Where “the defendant and plaintiffs are competitors in the
same market,” materiality and injury usually blend together, but plaintiffs
didn’t allege that their losses were related to actionable false claims in
Lovo’s advertising. Instead, their losses were allegedly due to the existence
of Lovo’s product: “Put differently, Lovo’s services are more desirable to some
customers because they are cheaper and more accessible. While Plaintiffs might
have a different cause of action for such competitive harm, it does not sound
in Lanham Act false advertising.”

Copyright: Four claims, only one of which goes forward. The
court approved of the sequence (1) complaint filed without any copyright
claims, (2) registration secured, (3) complaint amended to add copyright claims
as consistent with Fourth Estate, and I think I agree, since (1) was far
from a sham complaint. The discovery rule applied for statute of limitations
purposes,

Contractual defenses couldn’t be resolved on a motion to
dismiss, even without taking into consideration the chat messages exchanged by
the parties. Turns out, Fiverr’s TOS provide special rules for “Voice Over
Gigs” “that are inconsistent with a transfer of unrestricted copyrights.”
Despite a general work for hire clause, the TOS stated that buyers of
voice-over recordings are only “purchasing basic rights, … allowing them to
use the work forever and for any purpose except for commercials, radio, television
and internet commercial spots.” Buyers need to purchase higher-tier packages of
either “Commercial Rights,” in order to “promote a product and/or service,” or
“Full Broadcast Rights,” in order to use the recordings “in radio, television
and internet commercials.” Lovo didn’t do that.

First, Sage successfully pled a direct infringement claim
based on Lovo’s use of her actual voice recording in an investor presentation,
pitches to investors, at a conference, and in Lovo’s external marketing
materials. (Although this is for later, the fair use defense for comparative
advertising is a distinct subset of copyright fair use cases where defendants
generally win. How else are they supposed to substantiate their claim of being
as good as a human?)

Both plaintiffs alleged direct infringement based on Lovo’s
use of their recordings to train the Genny AI model. These claims failed “for
lack of adequate explanation in the complaint.” They didn’t explain “what
training is or how it works, even at a very high level of generality. The Court
therefore cannot ascertain or reasonably infer which exclusive rights Lovo
allegedly infringed, or how.” But amendment was possible, including using
information-and-belief pleading. (On the other hand, it might be hard to plead
what was outside the scope of the license, even as modified by the chats.)

Copyright infringement by the AI outputs: Here there was
really no hope. Sound recording copyright only covers exact duplication of the
fixed sounds, which was not alleged here as even a possibility for Genny. And
we know that a voice isn’t copyrightable, since that’s what gives them their
valid ROP claims.

Contributory infringement: based on AI outputs, therefore
failed.

NY ROP: Although NY’s ROP is narrower than other states’,
and only covers uses in, essentially, advertising, there was enough here to
proceed. (Query how much of plaintiffs’ damage comes from the advertising and
not the underlying product; also, later on the incidental use
defense—advertising for a product that does not itself violate the ROP is
protected where the advertising actually relates to the product—may come into
play.)

The statute of limitations is one year, but the
republication exception can restart the limitations period, and applied here.
But are digital replicas even covered? Lovo argued that NY’s 2021 statutory
protection for digital replicas of deceased persons meant that expressio unius applied
to exclude that from the main ROP. But that reasoning ignored context. “Just
before the amendment was proposed, New York courts held that digital replicas
of living persons—at least ones with a visual component—were already covered by
the law. There is no indication in the text of Sections 50 and 50-f, or in the
legislative history, that the amendment was intended to overturn this
precedent, nor to exclude the possibility of a similar holding with respect to
audio-only voice clones.” The same could be true of voice. “If anything, the
Court views ‘voice’ as having a broader scope than a term like ‘picture,’
because it cannot plausibly be read to refer to any particular form of media or
representative device. While Section 51’s statutory ROP “is to be narrowly
read” in light of its legislative history, it is nonetheless “not to be obeyed
grudgingly by construing it narrowly and treating it as though it did not exist
for any purpose other than that embraced within the strict construction of its
words.”

As to the substance, plaintiffs sufficiently alleged
recognizability and Lovo itself allegedly represented that its creations are
“practically indistinguishable from the ‘real’ voice.” While “New York courts
have consistently dismissed Section 51 claims based on the use of a fictitious
name, even if the depiction at issue evokes some characteristics of the person
or the person is identifiable by reference to external sources,” “those cases
all involve a fictional character sharing certain discrete attributes or traits
with a Section 51 plaintiff, not the use of the plaintiff’s portrait or voice.”
“Lovo cannot escape liability merely because it appended fictitious names to
those appropriated voices. To hold otherwise would carve out a massive,
judicially created loophole in the statute with no textual or doctrinal basis.”

Plaintiffs also adequately alleged use in both advertising
and trade. “Advertising purposes has been defined as use in, or as part of, an
advertisement or solicitation for patronage of a particular product or service,
and trade purposes involves use which would draw trade to the firm,” although
the statute doesn’t reach newsworthy uses or matters of public interest. Lovo didn’t
raise a First Amendment, newsworthiness, or public interest defense.

The court is a little wobbly on whether the underlying
product itself counts as “trade” purposes, though my reading of the NY cases is
that it can’t (emphasis added to last sentence):

Whether or not the solicitation of
investors itself counts as an “advertisement,” the function of the “investor
presentation, which was later posted publicly online, is plausibly understood
as promoting Lovo’s underlying product. The same goes for the use of Lehrman’s
voice in tutorials and promotional articles posted online. Moreover, even if
the voices were not used in formal advertisements or solicitations, they were
clearly used for commercial purposes, and to draw trade to the firm. It is
plausible to infer that, by illustrating the value of the product and helping
show prospective customers how to use it, Lovo used its publicly posted
tutorials to increase the appeal of its software, acquire subscribers, and
retain subscribers it already had. Plaintiffs allege even that Lehrman’s
cloned voice was Lovo’s default product and one of its self-described “best”
voices.

NY GBL: Partially survives, raising an interesting Dastar
preemption issue. Section 349 prohibits “[d]eceptive acts or practices in
the conduct of any business, trade or commerce or in the furnishing of any
service” and Section 350 prohibits “[f]alse advertising in the conduct of any
business, trade or commerce or in the furnishing of any service.”  “To successfully assert a claim under either
section, ‘a plaintiff must allege that a defendant has engaged in (1)
consumer-oriented conduct that is (2) materially misleading and that (3)
plaintiff suffered injury as a result of the allegedly deceptive act or
practice.’ ”

Mostly, plaintiffs failed to identify material
misrepresentations to the public; they couldn’t rely on misrepresentations to
them because they were not acting as consumers in those transactions, and
Sections 349 and 350 do not reach such “narrow, private dispute[s].”

However, plaintiffs adequately alleged that Lovo materially misrepresented
the scope of the “commercial rights” that it promised to provide to its
subscribers, thereby making its offerings appear more attractive. Lovo’s
consumers thus “purchased … [but] did not receive a product with the full
value with unlimited usage rights, which would have been a product with
legitimately acquired and/or created voices.” Sections 349 and 350 aren’t
limited to “nature, characteristics, qualities, or geographic origin.”

Note: While statutory interpretation got us Dastar,
if it’s true that extending the Lanham Act to licensing claims would cause a
conflict with copyright law, it’s equally true that extending state law to
licensing claims would cause a conflict with copyright law, creating conflict
preemption. Cf. Jackson
v. Roberts
(finding preemption of a ROP claim). But the court says that
plaintiffs “could not bring a similar GBL claim based on alleged
misrepresentations about a copyright license, as such a claim would be
preempted by the Copyright Act.” I am not sure about the difference between
advertising “commercial rights” or “unrestricted use” and advertising
“properly licensed,” but ok.

“Lovo promised its subscribers that they could use Lovo’s
voice clones without legal restrictions. While Lovo was correct with respect to
federal copyright and trademark law, it was incorrect with respect to New York
law. Lovo’s consumers could, like Lovo itself, be liable under Sections 50 and
51 of the NYCRL.” [Again, the language here is open, but I would argue that the
only liability for customers would have to be for their own uses in
advertising/trade.]

Lovo’s conduct with respect to its subscribers was “consumer
oriented” in that it was “directed to consumers” and had “a broader impact on
consumers at large.” Although the mere unauthorized use of the plaintiffs’
images would not be “ ‘consumer-oriented in the sense that it potentially
affects similarly situated consumers,” reselling the voices to third-party
consumers for downstream use by those consumers was relevantly different.

And plaintiffs adequately alleged that they suffered injury
from Lovo’s misrepresentations in the form of diverted customers and lost
sales. “While it is true that Lovo offered its voice clones at lower prices
than the services of traditional voice actors, Lovo was able to poach
Plaintiffs’ customers only because it purported to offer products that its
subscribers could legally use—that is, because it engaged in misrepresentations
made unlawful by Sections 349 and 350.”

Fraud claims failed because (1) plaintiffs didn’t adequately
plead damages; although they alleged customer diversion/harm to brand value,
they didn’t quantify the “true value of the recordings they sold to Lovo, as
opposed to what Lovo paid,” which is the measure of fraud damages in NY, and
(2) their fraud claims merely restated their breach of contract claims, which
isn’t ok in NY “when the only fraud alleged is that the defendant was not
sincere when it promised to perform under the contract.”

Unjust enrichment, conversion, and common law unfair
competition claims were preempted by the New York Civil Rights law, which
preempts “all common law claims based on unauthorized use of name, image, or
personality, including unjust enrichment claims.” Relatedly, unfair competition
is like the failed Lanham Act claims (except also requires bad faith), and
there were no facts alleged “supporting an inference that Lovo acted with the
intent of generating confusion or coopting Plaintiffs’ reputations (as opposed
to the desirable characteristics of their voices).”

 

 

 

from Blogger http://tushnet.blogspot.com/2025/07/ai-voice-cloning-opinion-narrows-claims.html

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Amicus brief on CMI removal in Doe v. Github

 With Jennifer Urban, Erik Stallman, and Pam Samuelson, I’m happy to have worked on this amicus brief discussing the text, history, and structure of 1202.

from Blogger http://tushnet.blogspot.com/2025/07/amicus-brief-on-cmi-removal-in-doe-v.html

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even if it’s not a security, a stablecoin can trigger false advertising claims

Donovan v. GMO-Z.com Trust Company, Inc., — F.Supp.3d —-,
2025 WL 522503, No. 23 Civ. 8431 (AT) (S.D.N.Y. Feb. 17, 2025)

Plaintiffs sued GMO Trust, alleging that it violated federal
securities laws and NY state consumer protection laws in connection with the
“offer” of a digital asset known as “GYEN,” sold as a “stablecoin.” The court
found that GYEN wasn’t a security, but allowed the NY and California claims to
proceed.  (Claims against Coinbase have
been sent to arbitration.)

GMO Trust touted GYEN as a fiat-collateralized stablecoin—that
is, one unit of the stablecoin is backed by one unit of fiat currency, here the
Japanese yen. GMO Trust retains for itself any interest generated by the bank
accounts where it deposits customer collateral, and it may receive monetary
benefits from third-party exchanges as consideration for agreeing to list GYEN
on their platforms.

Its Whitepaper on its website touted GYEN as “a global
currency solution” that can “virtually eliminate [the] volatility” associated
with traditional digital assets such as Bitcoin “while still benefitting from
the advantages of digital assets, such as high transaction speeds matched with
low costs.” GMO Trust advertised and linked to various “partner” exchanges,
including Binance and Coinbase. It allegedly consistently maintained in its
promotional materials that purchasers could “always redeem 1 GYEN for 1 JPY …
directly with GMO Trust” and on any third-party exchanges that listed the
digital asset.

GYEN launched in March 2021, and there was a lot of price
movement. Plaintiffs bought at elevated prices and lost 90% or even 99% of their
purchase prices as the price of GYEN returned to its yen peg. For example, “GYEN
purchasers whose orders on Binance took time to fill, or who mistakenly bought
GYEN when the price on Binance was untethered from the value of JPY, lost as
much as 99 percent of their purchase value within hours.” Some of this occurred
when exchanges were restricting the ability of customers to trade GYEN in order
to deal with rapid fluctuations.

Whether GYEN was a “security” is outside my wheelhouse, so I’ll
just report the court’s top-line conclusion: no (specific to the stablecoin
context).

However, it was reasonably likely that there would still be
CAFA jurisdiction over the state law claims, to which the court turned:

Plaintiffs allege that GMO Trust
targeted consumers with statements and advertisements representing that GYEN
would always remain pegged to the value of a historically stable fiat currency;
omitted the risk that the asset’s value could become untethered from JPY on
certain of GMO Trust’s “partner” platforms; and continued to make such
representations and omissions even after the price of GYEN on Binance
temporarily untethered from the value of JPY in May 2021. Indeed, Plaintiffs
allege that GMO Trust not only omitted the risk that the price of GYEN could
become untethered on third-party platforms, but it affirmatively stated that
consumers would “always” be able to purchase GYEN at a one-to-one value with
JPY on GMO Trust’s “partner” exchanges.

They also sufficiently alleged that these statements were
objectively misleading, deceptive, and false because the value of GYEN in fact
could—and allegedly did—become untethered from the value of JPY on third-party
exchanges, and fluctuated over 200% against the dollar in one period. “Given
that GMO Trust held GYEN out to consumers as a ‘stable’ counterweight to the
extreme volatility of the digital asset market, and held itself out as a
regulated and licensed entity offering a product backed by fiat currency held
in FDIC-insured U.S. bank accounts and monitored by independent auditors, a
reasonable consumer, acting reasonably in the circumstances, could have been
misled or deceived by GMO Trust’s statements, acts, practices, omissions, and
advertisements.”

As to California law, the court declined to require plaintiffs
to meet Rule 9(b)’s heightened pleading standard, because the UCL’s “fraud”
prong is not the same as common law fraud—it has lower standards. Unfairness
claims also survived.

from Blogger http://tushnet.blogspot.com/2025/07/even-if-its-not-security-stablecoin-can.html

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California’s Made in the USA safe harbors aren’t preempted by federal law

McCoy v. McCormick & Co., 2025 WL 1918546, No.
1:25-cv-00231-JLT-SAB (E.D. Cal. Jul. 11, 2025) (R&R)

McCoy alleged that French’s mustard bottles were falsely
advertised with the claim “Crafted and Bottled in Springfield, MO, USA,”
appearing at times with “American flavor in a bottle,” because the product
contains foreign-made components. The magistrate recommended granting the
motion with leave to amend. Interesting dive into the “Made in the USA” waters.

Specifically, McCoy alleged that the primary substantive
ingredient is mustard seed, which is sourced primarily, if not exclusively,
from Canada. Some varieties, including French’s Yellow Mustard, allegedly contain
turmeric, another imported ingredient.

McCormick argued that California’s statutory safe harbors for
“Made in the U.S.A.” protected it against McCoy’s California
claims
(including state law claims). McCoy argued that California’s safe
harbor provisions are preempted by federal law—a conclusion rejected by the
court. But he also argued that he alleged that a substantial portion of McCormick’s
products exceeded California’s safe harbor levels.

The FTCA provides:

To the extent any person
introduces, delivers for introduction, sells, advertises, or offers for sale in
commerce a product with a ‘Made in the U.S.A.’ or ‘Made in America’ label, or
the equivalent thereof, in order to represent that such product was in whole or
substantial part of domestic origin, such label shall be consistent with
decisions and orders of the Federal Trade Commission issued pursuant to section
45 of this title.

The FTC’s resulting Rule states:

[I]t is an unfair or deceptive act
or practice…to label any product as Made in the United States6 unless the
final assembly or processing of the product occurs in the United States, all
significant processing that goes into the product occurs in the United States,
and all or virtually all ingredients or components of the product are made and
sourced in the United States.

16 C.F.R. § 323.2 (emphasis added).

California law also makes it unlawful to sell products as
“Made in U.S.A.,” or other similar words, if the product or “any article, unit,
or part thereof, has been entirely or substantially made, manufactured, or
produced outside of the United States.” However, under California law, a
product may be lawfully labeled as “Made in the U.S.A.” if no more than five
percent of the final wholesale value of the manufactured product is obtained
from outside the United States, or if no more than ten percent of the of the
final wholesale value of the manufactured product is obtained from outside the
United States and the manufacturer shows that it can neither produce the
foreign article, unit, or part within the United States nor obtain the foreign
article, unit, or part of the merchandise from a domestic source.

The FTC’s Rule provides that “this part shall not be
construed as superseding, altering, or affecting any other State
statute…relating to country-of-origin labeling requirements, except to the
extent that such statute…is inconsistent with the provisions of this part,
and then only to the extent of the inconsistency.” There is clearly not field
preemption, and the judge was not persuaded that California’s safe harbor
provisions were inconsistent with the FTC’s “all or virtually all” standard. The
disjunctive standard of “all or virtually all” “necessarily means the FTC
contemplates that a small amount of foreign content may be present to lawfully
label a product as Made in the U.S.A.” The FTC has expressly declined to adopt
a definition of “all or virtually all” because “adding further specificity also
increases the risk the rule would chill certain non-deceptive claims.” Instead,
it says that its rule requires a “de minimis, or negligible, amount of foreign
content.” There was certainly no rule that a product containing foreign
materials that make up less than 90-95% of a product’s wholesale value
qualifies as more than a “de minimis, or negligible, amount of foreign
content.” The legislative notes for the state safe harbor specifically
referenced the FTC’s Rule, and the FTC, while it declined to adopt percentage
thresholds because the “ ‘all or virtually all’ standard is better tailored to
prevent unqualified U.S.-origin claims that will mislead consumers in making
purchasing decisions,” it didn’t suggest that California’s safe harbors were,
in every instance, inconsistent with the “all or virtually all” standard. Nor
was it inherently inconsistent with the FTC Rule to rely on “final wholesale
value,” since the FTC considered that one of the often-relevant factors in
determining whether foreign content was de minimis.

Thus, there was neither express nor conflict preemption. And
McCoy failed to plead facts showing that his claims weren’t barred by the safe
harbor provisions, but the magistrate judge recommended that he should get a chance
to fix that. It wasn’t enough that mustard seed was the third ingredient by
weight, since that didn’t show final wholesale value in a product with six or
more ingredients.

 

from Blogger http://tushnet.blogspot.com/2025/07/californias-made-in-usa-safe-harbors.html

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New book chapter on advertising, TM, and antitrust

Misleading advertising as a matter of unfair competition law 

Graeme B Dinwoodie and Ansgar Ohly (eds),
Research Handbook on Unfair Competition and Passing Off (Edward Elgar,
forthcoming 2026)

Abstract

The prohibition of false and misleading advertising should
be the prototypical example of unfair competition law. False and
misleading advertising, after all, is generally held to be unequivocally
bad, even if punishing every instance would be more costly than it’s
worth. But most of modern unfair competition law, at least in the United
States, is focused on different things—more in the realm of trademark
law (and sometimes antitrust), and I think to its detriment. As
trademark’s scope has ballooned, and as the law has tolerated more and
more monopoly power, it has also tolerated more and more false
advertising. A rebalancing towards false advertising could strengthen
the field of unfair competition as a whole.

from Blogger http://tushnet.blogspot.com/2025/07/new-book-chapter-on-advertising-tm-and.html

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P&G’s brand extension ZzzQuil must face lawsuit alleging falsity of its “Non-Habit Forming” claim

Sneed v. Procter & Gamble
Company, — F.Supp.3d —-, 2025 WL 1017933, No. 23-cv-05443-JST (N.D. Cal.
Apr. 4, 2025)

This case is about a product
I recently noticed, “Nighttime Sleep Aid” products containing diphenhydramine
hydrochloride as ZzzQuil. Sneed alleged that the “Non-Habit Forming” claim on
the product was misleading, as diphenhydramine is in fact habit-forming/not
different from other sleep aids.

The court rejected P&G’s
preemption arguments, some of which were already rejected in an earlier opinion.
Briefly, that opinion looked at a FDA tentative final monograph finding “little
to no pharmacologic potential for abuse of the ingredients in OTC nighttime
sleep-aids,” and that “antihistamines like diphenhydramine ‘have generally been
regarded as having low abuse potential and no ability to create dependency.’”
But the same monograph specifically concluded that “[t]he term
‘non-habit-forming’ is misleading, undesirable and probably false because it is
very hard to prove that any product with psychotropic activity can be non-habit
forming; but more importantly, there is an insinuation that other OTC sleep-aid
products obviously are habit-forming.” Thus there was no preemption.

Here P&G also pointed to two
FDA approval letters where the FDA approved for marketing two cough syrups
containing diphenhydramine and their corresponding labels describing the
products as “non-habit forming.” But those were cough medicines for temporary
use, with less diphenhydramine present
per dose, and a sleep aid would foreseeably be used more regularly than cough medicine. That
label wasn’t “materially identical” to the one at bar. Nor did the FDA approval
for “non-habit forming” cough-medicine labels showed that it must have
“reversed its tentative view [on diphenhydramine being potentially habit
forming] as it evaluated additional studies.” Fundamentally, the court wasn’t
convinced that the claim here would challenge an approved label. There’s no federally
approved label for ZzzQuil as to the challenged statements, and “circumstantial
evidence surrounding the approval of a different drug with a different
dosage—even if containing the same main ingredient—does not pose the risk of
conflicting factual determinations about whether ZzzQuil specifically is habit
forming.”

The court had previously
found that Sneed failed to sufficiently allege that the product actually could
be habit-forming; the amended complaint remedied that deficiency by adding citations
to “a variety of scientific studies and articles,” including (1) a declaration
that discussed clinical case reports; (2) a 2008 study where the researchers
detected “a cocaine-like pattern of stimulation of [dopamine] transmission” in
rats after the rats were provided with intravenous doses of diphenhydramine;1
(3) a 2002 study finding that individuals rapidly developed tolerance to the
sedative effects of diphenhydramine when administered a 50 mg dose twice a day;
and (4) a 2021 study reporting a 63% increase in intentional diphenhydramine
exposures from 2005 to 2016, including a 230% rise in misuse among adults aged
55 and older.

P&G said that the sources
(1) do not focus on diphenhydramine specifically, (2) are based on anecdotes,
(3) involve the significant abuse of diphenhydramine rather than the use of the
drug as directed, or (4) involve studies that expose test subjects to
diphenhydramine at levels exceeding 50 mg per day. But none of that was enough
to make the claim implausible given the evidence alleged. As another court wrote:
“[t]he cited studies reference at least [the diphenhydramine] identified in the
complaint and purport to document their [tendency for misuse and potential
habit formation]. Discovery may expose that those studies contain vital flaws,
but it is enough for now that the studies do not plainly refute the allegations
in the complaint.”

from Blogger http://tushnet.blogspot.com/2025/07/p-brand-extension-zzzquil-must-face.html

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GIs can be indications of quality for purposes of applying failure-to-conform exclusion to advertising injury insurance policy

Allied World Nat’l Assur. Co. v. NHC, Inc., 2025 WL 1852789,
No. 22-00469 MWJS-WRP (D. Haw. Jul. 3, 2025)

Nice to see good old-fashioned legal reasoning in these
times.

In the underlying lawsuit, class plaintiffs alleged that MNS
falsely advertised coffee products labeled as “Kona” that contained little to
nothing of the real thing, thus capturing a price premium. MNS ultimately
settled the lawsuit for $12 million and sought indemnification from its umbrella
insurers. Interpreting the relevant policy’s advertising injury coverage, the
court found that an exclusion barred coverage and granted summary judgment for
the insurers.

The underlying lawsuit asserted Lanham Act violations. MNS
and other named retailers sought the dismissal of the Lanham Act false
advertising claim against them to the extent they had acted purely in their
role as retailers. The court granted that motion, reasoning that a false
advertising claim requires “a false statement of fact by the defendant in a
commercial advertisement about its own or another’s product.” Although the
court recognized that “[t]here is limited case law on this subject” and that
“the Ninth Circuit has not weighed in on this issue,” it concluded that
retailers are not liable for false advertising under the Lanham Act “because
they do not make a false statement simply b[y] displaying or selling a product
that was falsely labeled by another.” However, it cautioned that “[i]f, for
example, a retailer controls or participates in the creation of the offending
label or creates additional marketing materials for a product that amplify the
manufacturer’s misrepresentations, imposition of liability for false
advertising may be appropriate.”

As the case headed for trial, other defendants settled and
MNS’s supplier filed for bankruptcy. Plaintiffs alleged that MNS was an active
partner with that supplier: “MNS regularly collaborated with Mulvadi in
developing marketing materials for Mulvadi coffee … Mulvadi advertising
commonly featured MNS’s logo and slogan … [And] MNS’s 30(b)(6) deponent
agreed that the company’s internal emails ‘demonstrat[ed] MNS’s involvement
with Mulvadi and Mulvadi promotion.’ ” Then they settled.

The settled claims were defined as “any and all actions,
claims, demands, rights, suits, or causes of action, whether asserted or not
asserted, that arise from or relate to the allegations made or conduct
described in” the last operative underlying complaint, “including but not
limited to allegations related to the labeling, packaging, advertising,
promotion, branding, marketing, manufacturing, design, formulation,
distribution or sale of coffee labeled as ‘Kona,’ regardless of the statute,
regulation, common law legal theory, or other legal basis on which the
allegations may be asserted.”

Ultimately, Allied World alleged that it had no defense or
indemnity coverage obligation under its policies because the settlement
liability did not arise out of the “use of another’s advertising idea in
[MNS’s] Advertisement” or “infringement upon another’s copyright, trade dress
or slogan in [MNS’s] Advertisement.” In addition, it invoked the exclusion for advertising
injury arising “out of the failure of goods, products or services to conform
with any statement of quality or performance made in [MNS’s] Advertisement.”

The insured bears the burden of establishing that the
coverage provisions apply, while the insurer bears the burden of establishing
that an exclusion applies. Hawai‘i state law governed. Insurance policies “must
be construed liberally in favor of the insured and [any] ambiguities [must be]
resolved against the insurer.”

The settlement constituted a legal obligation, and it plainly
covered the Lanham Act false advertising claims. Indemnification does not
require a finding of liability or a finding that there would have been
liability. “If insurance coverage in the settlement context were to turn on a
prediction about whether a defendant would have been held liable if a case had
gone to trial, the very uncertainty of that prediction—which is presumably one
of the factors that would otherwise induce parties to settle—would encourage
them instead to trudge on with the litigation.” True, the Hawai‘i Supreme
Court’s has stated that an insurer’s indemnity obligation “depends upon the
true state of facts surrounding the loss or injury.” But that case did not
involve a settlement. “And in cases that do not involve settlements, it makes
logical sense to say that an insurance company must defend the insured if there
is a possibility of covered liability, but that it need only indemnify the
insured if there actually is covered liability.” Settlements are different— “it
is no longer a question of possible or potential liability.” Thus, to determine
whether the legal liability created by settlement “flows from a covered claim,
a court must inquire not into what has been or would have been resolved on the
merits, but what claims the settlement has legitimately and reasonably been
designed to cover.”

That doesn’t mean that insureds can insert frivolous or
legally barred claims into a settlement just to get coverage; the court predicted
that state law would agree that “an insurance company has the right to present
evidence that some or all of a total settlement amount should be allocated to
the settlement value of non-covered claims.” But there was no such argument
here.

Allied World did argue that there was no possible liability
for ad-related Lanham Act claims as a matter of law. But it didn’t show that
the advertising-related Lanham Act claims were frivolous or meritless. The
underlying plaintiffs made clear in their motion for summary judgment that
their view of the evidence was that MNS did not merely act as a retailer, but
also participated actively in its supplier’s advertising and marketing efforts.
Moreover, the retailer-only liability claims were still appealable at the time
of settlement, and the court acknowledged that there was no binding circuit
precedent on the issue. Finally, joint and several liability for advertising
conduct was still on the table at the time of settlement.

The court turned to the relevant part of the “Advertising
Injury” provision, which defined it as an “injury arising out of your business
… arising out of one or more of the following offenses”: (i) “the use of
another’s advertising idea in your Advertisement,” or (ii) “infringement upon
another’s copyright, trade dress or slogan in your Advertisement.” The policies
further define “Advertisement” as “a notice that is broadcast or published to
the general public or specific market segments about your goods, products or
services for the purpose of attracting customers or supporters,” including any
“material placed on the internet or on similar electronic means of
communication.” But “only that part of a web-site that is about your goods,
products or services for the purposes of attracting customers or supporters is
considered an Advertisement.”

The court rejected Allied World’s claim that the phrase
“another’s advertising idea” should be understood narrowly as a “process or
invention used to market one’s goods.” “[N]o reasonable layperson would
anticipate such a stingy construction of the phrase. Instead, an “advertising
idea” is better understood as, and construed in favor of the insured as being,
“any idea or concept related to the promotion of a product to the public.” This
is similar to the California interpretation of the term as covering the “manner
or means” of advertising goods and services.

Allied World also argued that the word “another’s” in the
phrase “another’s advertising idea” means that the injury must arise from the
use of an “advertising idea” that another person owns or in which they hold a
proprietary interest of some sort. But the Kona farmers, it argued, did not
hold any legal property right in that term.

But nothing in the language of
Allied World’s policies requires that the Kona farmers have the exclusive legal
right to use an advertising idea. Indeed, nothing in the language of the
policies requires them to have any legal right or property ownership at all in
the advertising idea. The possessive term in the phrase “another’s advertising
idea” is readily understood to refer to the factual question of whether another
person uses something, rather than the legal question of whether they own it. …That
broader meaning accords with how language is ordinarily used. For example, when
trying to find a place to sit in a coffee shop, one might ask “is this your
seat?” When doing so, one is not literally asking if that other person owns the
seat. … In a similar vein, one would naturally say that Kona farmers—who
advertise their coffee as “Kona” precisely to signal the high quality and
special characteristics of their product—have hit on “Kona” as their
advertising idea. They use it, and it is theirs in that significant sense. And
it is theirs even though they have no property right in it.

While “some concepts are simply too common or too widely
used to be considered anyone’s advertising idea,” this was not one of them.

Allied World also argued that the injury from the use of
another’s advertising idea must come from that idea’s use in “your”—the
insured’s—“Advertisement,” and that the underlying lawsuit plaintiffs did not
challenge any of MNS’s own advertisements. But the underlying plaintiffs argued
that the ads at issue were legally attributable to MNS.

The court did agree that “Kona” was not a “slogan,” as
relevant to the separate definition of “Advertising Injury” as also covering
injury from infringement on a copyright, trade dress, or slogan. The court
agrees that “Kona” is not a “slogan,” that is, a “distinctive cry, phrase, or
motto of any party, group, manufacturer, or person; catchword or catch phrase.”
“Whether labeling products as ‘Kona’ might qualify as trade dress is a more
difficult question.” But it didn’t matter because initial coverage was already
established.

What about the exclusions? There, MNS faltered. The
failure-to-conform exclusion provided that Allied World’s policy “does not
provide coverage” for any “Advertising Injury … arising out of the failure of
goods, products or services to conform with any statement of quality or
performance made in your Advertisement.” Although “exclusionary clauses are
interpreted narrowly against the insurer,” Allied World would meet even a
heightened standard for applying the exclusion.

When MNS settled claims that alleged MNS was making
statements about the quality of their coffee products when they labeled those
products as “Kona,” those claims amounted to a statement of quality for
purposes of the policy. The underlying lawsuit plainly alleged that Kona coffee
has a “distinctive flavor and aroma” resulting from its cultivation in the
“volcanic soil, the elevation, and the humidity” of the Kona District of
Hawai‘i island; that “Kona coffee is one of the rarest and most prized coffees
in the world” and that a vendor of same is “tell[ing] consumers that the coffee
has a distinctive flavor profile, and that the beans are of the highest
quality.” By selling commodity coffee that did not contain much, if any,
genuine Kona coffee, MNS allegedly sold a product that failed to conform with
that statement of quality. The underlying complaint alleged that defendants
damaged the goodwill and reputation of Kona coffee precisely because a
“consumer who tries that inferior product, thinking it is Kona coffee, will
conclude that Kona coffee is not worth a premium price” and “will be unwilling
to pay a premium price for Kona in the future.” The alleged injury to the Kona
coffee farmers “flowed directly and unambiguously from the alleged failure of
MNS’s coffee products to conform with the quality expected of Kona coffee.”

MNS argued that “Kona” was merely a statement about the
origin or source of the product, rather than a statement of quality. But the
cited out-of-circuit district court decisions simply found, “in their own
unique circumstances, that statements of source were predominantly about the
provenance of products, rather than their quality.” (Citing cases about Native American
origin claims and reasoning that “similar logic could be said to apply whenever
a product is labeled as ‘Buy American’ or ‘Buy Local.’”) Although previously
the court followed the logic of GIs, now it says: “When vendors label a wine as
‘Burgundy,’ they are not seeking to avail themselves of the peculiar interest
of customers in supporting a region in central France; they mean to say to the
customer that the wine will possess the features of a high-quality, and
therefore more expensive, strain of the product.” [I often talk in class about
casual empiricism in judicial reasoning; this is a good example.]

The underlying lawsuit didn’t just allege sales diversion,
or that customers had a peculiar interest in paying premium prices to support
Kona farmers. “Its allegations were that ‘Kona’ bespoke high quality, and by
selling a product that failed to meet that standard of quality, MNS …
undermined the premium market for Kona coffee by unfairly leading consumers to
conclude that genuine Kona coffee did not meet the quality standard.
Allegations of this nature are not predominantly about the source of a product;
they are about the statement of quality that a vendor makes when it calls its
coffee ‘Kona.’” [They are both?]

Nor need a statement use “express” representations about
quality or performance to be excluded. “While the court recognizes that
exclusions must be construed narrowly, it cannot adopt a construction at war
with the language of the exclusion. And nothing in the language of the
failure-to-conform exclusion would support an artificial ‘magic words’
approach.”

MNS argued that the underlying plaintiffs’ alleged injuries
would exist regardless of the coffee’s quality; at least some of that is true
because of the alleged driving down of prices for Kona-labeled coffee, but the
court concluded otherwise. “If MNS … had sold coffee that conformed to the
quality standards of Kona coffee—which, according to the allegations in the [underlying]
lawsuit, they could only have done by selling the real thing—there would have
been no injury at all.” Even if, at trial, the underlying plaintiffs wouldn’t
have been able to prove the higher quality of Kona coffee, MNS did not identify
anything in the record of the underlying lawsuit indicating that the plaintiffs
there had abandoned or lacked the ability to prove their allegations about the
superior quality of Kona coffee. Indeed, two expert reports in the underlying
lawsuit “affirm[ed] that the use of the term ‘Kona’ reflected a statement of
quality.” One specifically opined “on how the geographical location of
production of a product … is intended to signal quality,” and further noted
that the Kona coffee “has historically carried a reputation for high quality.”

from Blogger http://tushnet.blogspot.com/2025/07/gis-can-be-indications-of-quality-for.html

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