Fraudulent concealment allegations preserve Lanham Act claim

Posted on April 9, 2015 by rtushnet
In re Honey Transshipping Litigation, No. 13–cv–2905, 2015 WL 1539034 (N.D. Ill. Mar. 31, 2015)
 
The class plaintiffs sued for violations of the Lanham Act and RICO; I’m just discussing claims against defendant Honey Solutions. The claims came from an alleged conspiracy by importers and suppliers to “transship” Chinese honey with false labels through intermediate countries into the United States. “The falsified labels enabled the importers to deceive U.S. Customs officials into believing that the honey did not originate from China. As a result, the importers were able to circumvent the anti-dumping duties that the United States government had imposed on Chinese-produced honey.”  The Chinese honey allegedly contained prohibited antibiotics and other harmful contaminants.  The mislabeled, cheaper Chinese honey could be sold at lower prices than competitors’ honey.  The scheme allegedly drove the prices of US honey lower, undermining the plaintiffs’ competitiveness and causing lost sales and market share.
 
Honey Solutions was an industrial honey supplier. In June 2011, an undercover law enforcement agent became director of procurement at Honey Solutions as part of an ongoing investigation into the illicit importation of Chinese honey, resulting in criminal charges. Honey Solutions entered into a deferred prosecution agreement with the United States government and admitted to (a) purchasing Chinese-origin honey, (b) processing and selling adulterated honey, and (c) defrauding its downstream customers.
 
Plaintiffs’ RICO claims were dismissed because they were RICO claims.
 
Honey Solutions argued that the Lanham Act claims didn’t meet Rule 9(b)’s pleading standards.  But plaintiffs “more than adequately pled the Honey Solutions defendants’ role in the fraudulent transshipping scheme.” They identified the Chinese shell companies from whom the Honey Solutions defendants purchased the illicit honey, and incorporate the admissions that Honey Solutions and Murphy–the Director of Sales at Honey Solutions–made in their agreements with U.S. prosecutors.The Honey Solutions defendants benefitted from the importing defendants’ deception of U.S. Customs officials and repeated the origin misrepresentations to potential buyers.
 
Honey Solutions also alleged that a Lanham Act claim couldn’t be predicated on avoidance of customs duties, but that wasn’t the source of the claim.  It was the misleading labels and ads directed at purchasers that constituted the violation, not the also-deceptive customs forms.
 
Next, Honey Solutions argued that the claims were untimely, based on a laches period (erroneously shorthanded as a limitations period here) of 3 years that plaintiffs didn’t contest.  Plaintiffs alleged that the conspiracy caused them harm since 2001, but filed in 2013. Honey Solutions argued that plaintiffs knew or should have known of their injury when their sales began to decline as the price of honey fell, which undisputedly occurred more than three years ago.  Plaintiffs responded that fraudulent concealment tolled the limitations period, and the court at this point credited their allegations of deliberate steps taken to hide the fraud by using falsified documents, including “bills of lading, invoices, packing lists, country of origin certificates, and other papers.” “The class plaintiffs did not have access to any of these documents and could not have known of the Honey Solutions defendants’ involvement in the transshipping operation until February 2013, when the U.S. government brought charges against Honey Solutions and Murphy.” Those charges triggered the laches period, and plaintiffs sued a month later.
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Fraudulent concealment allegations preserve Lanham Act claim

Posted on April 9, 2015 by rtushnet
In re Honey Transshipping Litigation, No. 13–cv–2905, 2015 WL 1539034 (N.D. Ill. Mar. 31, 2015)
 
The class plaintiffs sued for violations of the Lanham Act and RICO; I’m just discussing claims against defendant Honey Solutions. The claims came from an alleged conspiracy by importers and suppliers to “transship” Chinese honey with false labels through intermediate countries into the United States. “The falsified labels enabled the importers to deceive U.S. Customs officials into believing that the honey did not originate from China. As a result, the importers were able to circumvent the anti-dumping duties that the United States government had imposed on Chinese-produced honey.”  The Chinese honey allegedly contained prohibited antibiotics and other harmful contaminants.  The mislabeled, cheaper Chinese honey could be sold at lower prices than competitors’ honey.  The scheme allegedly drove the prices of US honey lower, undermining the plaintiffs’ competitiveness and causing lost sales and market share.
 
Honey Solutions was an industrial honey supplier. In June 2011, an undercover law enforcement agent became director of procurement at Honey Solutions as part of an ongoing investigation into the illicit importation of Chinese honey, resulting in criminal charges. Honey Solutions entered into a deferred prosecution agreement with the United States government and admitted to (a) purchasing Chinese-origin honey, (b) processing and selling adulterated honey, and (c) defrauding its downstream customers.
 
Plaintiffs’ RICO claims were dismissed because they were RICO claims.
 
Honey Solutions argued that the Lanham Act claims didn’t meet Rule 9(b)’s pleading standards.  But plaintiffs “more than adequately pled the Honey Solutions defendants’ role in the fraudulent transshipping scheme.” They identified the Chinese shell companies from whom the Honey Solutions defendants purchased the illicit honey, and incorporate the admissions that Honey Solutions and Murphy–the Director of Sales at Honey Solutions–made in their agreements with U.S. prosecutors.The Honey Solutions defendants benefitted from the importing defendants’ deception of U.S. Customs officials and repeated the origin misrepresentations to potential buyers.
 
Honey Solutions also alleged that a Lanham Act claim couldn’t be predicated on avoidance of customs duties, but that wasn’t the source of the claim.  It was the misleading labels and ads directed at purchasers that constituted the violation, not the also-deceptive customs forms.
 
Next, Honey Solutions argued that the claims were untimely, based on a laches period (erroneously shorthanded as a limitations period here) of 3 years that plaintiffs didn’t contest.  Plaintiffs alleged that the conspiracy caused them harm since 2001, but filed in 2013. Honey Solutions argued that plaintiffs knew or should have known of their injury when their sales began to decline as the price of honey fell, which undisputedly occurred more than three years ago.  Plaintiffs responded that fraudulent concealment tolled the limitations period, and the court at this point credited their allegations of deliberate steps taken to hide the fraud by using falsified documents, including “bills of lading, invoices, packing lists, country of origin certificates, and other papers.” “The class plaintiffs did not have access to any of these documents and could not have known of the Honey Solutions defendants’ involvement in the transshipping operation until February 2013, when the U.S. government brought charges against Honey Solutions and Murphy.” Those charges triggered the laches period, and plaintiffs sued a month later.
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Restitution available for false discounts even if goods were ok

Posted on April 9, 2015 by rtushnet
Spann v. J.C. Penney Corp., 2015 WL 1526559, No. SA CV 12–0215 (C.D. Cal. Mar. 23, 2015)
 
Spann brought the usual claims against JCP based on purchases she made shopping the sale racks. She believed that she was getting sale items.  Her receipt listed ten items, each with a price; then each price was followed by a line of “Total Discounts,” a negative number; then came a “Discounted Price,” the price minus the “Total Discounts.” At the bottom, the receipt said, “Your Total Savings Today: 135.10.” She testified that she wouldn’t have bought the items at the same prices if she hadn’t believed they were on sale. The size of the sale/discount mattered to her.  She alleged that the price comparisons listed were false.  Spann testified that she “would like to visit” defendant’s stores again but does not “feel like [she] can trust [JCPenney.]” “If the Court issues an injunction ordering [JCPenney] to comply with California’s comparative price advertising law, [she] would likely shop at [JCPenney] again in the near future.”
 
The court first rejected JCP’s argument that Spann wasn’t entitled to restitution, which “under [the UCL, FAL, and CLRA] must be of a measurable amount to restore to the plaintiff what has been acquired by violations of the statutes, and that measurable amount must be supported by evidence.”  JCP argued that restitution must account for benefits received in the transaction.  But the cited case, In re Google Adwords Litigation, 2012 WL 28068 (N.D.Cal. 2012), articulated a rule specifically limited to its “parties and facts,” and was contrary to the weight of California authority anyway.  The difference between what the plaintiff paid and the value of what the plaintiff received can be a measure of restitution, but it’s not the only one. The advantage realized by the defendant can be another.
 
The court accepted, at this stage, three possible alternatives for calculation restitution: (1) “complete restitution, measured by the full purchase price paid”; (2) “restitution based on the false ‘transaction value’ promised by JCPenney”; or (3) “restitution measured by the net profits that JCPenney received from sales of its products based on deceptive price comparisons[.]” Recission with complete restititution could be an appropriate remedy.  Another case involving an unfair practice of adding an insurance premium to the price of purchased vehicles increased the cost of cars sold by approximately $30; in that case, full restitution for all money paid for the cars was inappropriate.  But the statutory objective is to “restor[e] to the victims sums acquired through [defendant’s] unfair practices,” and Spann testified that every dollar she spent was as a result of JCP’s alleged false advertising, which would make a full refund proper.
 
Or, restitution could be calculated using the difference between the amount that plaintiff actually paid to defendant and the amount that plaintiff would have paid had defendant “advertised a truthful discount from the real ‘regular’ price as required by statute.”  JCP argued this was an unwarranted award of expectations (rather than a real interest).  But that conflated the measurement with the nature of Spann’s interest in the money she wanted restored.  JCP accepted Spann’s money in exchange for clothing; her interest in that money was not merely an expectation interest. 
 
JCP also argued that the discount approach didn’t make sense, because then a customer who bought a blouse for its original price of $40 would suffer no injury, but if JCP discounted it by 33%, customers who bought at 26.67% would be harmed.  The bigger the markdown/the lower the price, the more the customer would be “harmed.”  The court found that JCP deliberately ignored the “crux” of the case:
 
[P]laintiff alleges that defendant’s discounts were false, and that customers did not actually save any money at all. What plaintiff proposes, therefore, is “the more you think you save, the more you are harmed.” Or, as plaintiff puts it, “the bigger the lie, the more restitution JCPenney should owe.” The amount plaintiff thought she was saving was a factor in her purchase decisions.
 
Plus, Spann’s expert explained that, at least for some purchases, she paid more than the prevailing market price. She could argue that payment of the “transaction value,” if measurable and supported by evidence, would restore sums acquired through JCP’s unfair pricing practices.
 
Finally, JCP’s net profits from transacting with Spann was a possible alternative.  Disgorgement can be restitutionary or non-restitutionary; only the latter form was unavailable to Spann.
 
JCP also argued that the CLRA claims based on “[a]dvertising goods or services with intent not to sell them as advertised,” and “[m]aking false or misleading statements of fact concerning reasons for, existence of, or amounts of price reductions” sounded in fraud. A fraud plaintiff is “entitled to recover the difference between the actual value of that with which [she] parted and the actual value of that which [she] received,” but JCP argued that there was no evidence of such a difference here.  There were material questions of fact on that, as noted above (evidence that she paid more than the prevailing price).  JCP argued that Spann’s expert failed to account for coupons and discounts, but that just created a fact question.
 
JCP argued that Spann lacked standing to seek injunctive relief because there was no threat of future injury.  The court disagreed (and here, the injury “I don’t know whether this discount is real” really does seem capable of recurring, as opposed to someone who once didn’t know what high fructose corn syrup was). “When determining what constitutes the same type of relief or the same kind of injury, [courts] must be careful not to employ too narrow or technical an approach … [and] must reject the temptation to parse too finely[.]” Armstrong v. Davis, 275 F.3d 849 (9th Cir. 2001), abrogated on other grounds by Johnson v. California, 543 U.S. 499 (2005). Accordingly, “[w]hen a named plaintiff asserts injuries that have been inflicted upon a class of plaintiffs, [courts] may consider those injuries in the context of the harm asserted by the class as a whole, to determine whether a credible threat that the named plaintiff’s injury will recur has been established.”  So here.
 
Although the alleged scheme temporarily stopped in 2012, Spann alleged that JCP has, since 2013, “experimented with a variety of pricing practices, including a return to false comparative price advertising.” It was undisputed that JCP “restore[d] initial markups … to support the return to a promotional department strategy and that means initially marking up its goods to sufficient levels to protect margins when the discount or sale is applied.”  And there was a fact issue about whether Spann planned to return to JCP—she had returned there and bought an item since she sued. Her knowledge of the false advertising wasn’t enough to keep her from having standing; otherwise federal courts wouldn’t be able to enjoin false advertising. Plus, JCP acknowledged “that its repeated adjustments to its pricing strategies may create confusion among customers,” which might create a threat of future harm.
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Restitution available for false discounts even if goods were ok

Posted on April 9, 2015 by rtushnet
Spann v. J.C. Penney Corp., 2015 WL 1526559, No. SA CV 12–0215 (C.D. Cal. Mar. 23, 2015)
 
Spann brought the usual claims against JCP based on purchases she made shopping the sale racks. She believed that she was getting sale items.  Her receipt listed ten items, each with a price; then each price was followed by a line of “Total Discounts,” a negative number; then came a “Discounted Price,” the price minus the “Total Discounts.” At the bottom, the receipt said, “Your Total Savings Today: 135.10.” She testified that she wouldn’t have bought the items at the same prices if she hadn’t believed they were on sale. The size of the sale/discount mattered to her.  She alleged that the price comparisons listed were false.  Spann testified that she “would like to visit” defendant’s stores again but does not “feel like [she] can trust [JCPenney.]” “If the Court issues an injunction ordering [JCPenney] to comply with California’s comparative price advertising law, [she] would likely shop at [JCPenney] again in the near future.”
 
The court first rejected JCP’s argument that Spann wasn’t entitled to restitution, which “under [the UCL, FAL, and CLRA] must be of a measurable amount to restore to the plaintiff what has been acquired by violations of the statutes, and that measurable amount must be supported by evidence.”  JCP argued that restitution must account for benefits received in the transaction.  But the cited case, In re Google Adwords Litigation, 2012 WL 28068 (N.D.Cal. 2012), articulated a rule specifically limited to its “parties and facts,” and was contrary to the weight of California authority anyway.  The difference between what the plaintiff paid and the value of what the plaintiff received can be a measure of restitution, but it’s not the only one. The advantage realized by the defendant can be another.
 
The court accepted, at this stage, three possible alternatives for calculation restitution: (1) “complete restitution, measured by the full purchase price paid”; (2) “restitution based on the false ‘transaction value’ promised by JCPenney”; or (3) “restitution measured by the net profits that JCPenney received from sales of its products based on deceptive price comparisons[.]” Recission with complete restititution could be an appropriate remedy.  Another case involving an unfair practice of adding an insurance premium to the price of purchased vehicles increased the cost of cars sold by approximately $30; in that case, full restitution for all money paid for the cars was inappropriate.  But the statutory objective is to “restor[e] to the victims sums acquired through [defendant’s] unfair practices,” and Spann testified that every dollar she spent was as a result of JCP’s alleged false advertising, which would make a full refund proper.
 
Or, restitution could be calculated using the difference between the amount that plaintiff actually paid to defendant and the amount that plaintiff would have paid had defendant “advertised a truthful discount from the real ‘regular’ price as required by statute.”  JCP argued this was an unwarranted award of expectations (rather than a real interest).  But that conflated the measurement with the nature of Spann’s interest in the money she wanted restored.  JCP accepted Spann’s money in exchange for clothing; her interest in that money was not merely an expectation interest. 
 
JCP also argued that the discount approach didn’t make sense, because then a customer who bought a blouse for its original price of $40 would suffer no injury, but if JCP discounted it by 33%, customers who bought at 26.67% would be harmed.  The bigger the markdown/the lower the price, the more the customer would be “harmed.”  The court found that JCP deliberately ignored the “crux” of the case:
 
[P]laintiff alleges that defendant’s discounts were false, and that customers did not actually save any money at all. What plaintiff proposes, therefore, is “the more you think you save, the more you are harmed.” Or, as plaintiff puts it, “the bigger the lie, the more restitution JCPenney should owe.” The amount plaintiff thought she was saving was a factor in her purchase decisions.
 
Plus, Spann’s expert explained that, at least for some purchases, she paid more than the prevailing market price. She could argue that payment of the “transaction value,” if measurable and supported by evidence, would restore sums acquired through JCP’s unfair pricing practices.
 
Finally, JCP’s net profits from transacting with Spann was a possible alternative.  Disgorgement can be restitutionary or non-restitutionary; only the latter form was unavailable to Spann.
 
JCP also argued that the CLRA claims based on “[a]dvertising goods or services with intent not to sell them as advertised,” and “[m]aking false or misleading statements of fact concerning reasons for, existence of, or amounts of price reductions” sounded in fraud. A fraud plaintiff is “entitled to recover the difference between the actual value of that with which [she] parted and the actual value of that which [she] received,” but JCP argued that there was no evidence of such a difference here.  There were material questions of fact on that, as noted above (evidence that she paid more than the prevailing price).  JCP argued that Spann’s expert failed to account for coupons and discounts, but that just created a fact question.
 
JCP argued that Spann lacked standing to seek injunctive relief because there was no threat of future injury.  The court disagreed (and here, the injury “I don’t know whether this discount is real” really does seem capable of recurring, as opposed to someone who once didn’t know what high fructose corn syrup was). “When determining what constitutes the same type of relief or the same kind of injury, [courts] must be careful not to employ too narrow or technical an approach … [and] must reject the temptation to parse too finely[.]” Armstrong v. Davis, 275 F.3d 849 (9th Cir. 2001), abrogated on other grounds by Johnson v. California, 543 U.S. 499 (2005). Accordingly, “[w]hen a named plaintiff asserts injuries that have been inflicted upon a class of plaintiffs, [courts] may consider those injuries in the context of the harm asserted by the class as a whole, to determine whether a credible threat that the named plaintiff’s injury will recur has been established.”  So here.
 
Although the alleged scheme temporarily stopped in 2012, Spann alleged that JCP has, since 2013, “experimented with a variety of pricing practices, including a return to false comparative price advertising.” It was undisputed that JCP “restore[d] initial markups … to support the return to a promotional department strategy and that means initially marking up its goods to sufficient levels to protect margins when the discount or sale is applied.”  And there was a fact issue about whether Spann planned to return to JCP—she had returned there and bought an item since she sued. Her knowledge of the false advertising wasn’t enough to keep her from having standing; otherwise federal courts wouldn’t be able to enjoin false advertising. Plus, JCP acknowledged “that its repeated adjustments to its pricing strategies may create confusion among customers,” which might create a threat of future harm.
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using a UDRP statute against foreclosure follies

Posted on April 8, 2015 by rtushnet
PLS Investments, LLC v. Ocwen Loan Servicing, LLC, 2015 WL 1505663, No. 5:14CV139 (W.D.N.C. Apr. 1, 2015)
 
PLS alleged that Ocwen and the other defendants erroneously and falsely listed its property as a foreclosure property twice—the second time after being placed on notice that PLS was never a borrower from any of them and that its lot was not, in fact, subject to foreclosure. In 2008, it bought a three-acre parcel from a couple, the Jordans. The Jordans owned two smaller adjacent lots, with their own recorded deeds and ID numbers (lots A and B).  They defaulted on the loan securing lots A and B, and the notice of foreclosure sale referenced their ID numbers.  Foreclosure reports verified the ultimate sale.
 
After that foreclosure sale, “Defendants HSBC and Ocwen caused a Notice of Eviction to be posted by the Ashe County Sheriff’s Department upon the Plaintiff’s home located on the Plaintiff’s property.” They also “listed the Plaintiff’s property for sale as a foreclosure sale,” with an agent who advertised it “at a value substantially less than its actual fair market value on numerous foreclosure websites,” using pictures of the exterior and interior of the home.
 
Yet PLS never borrowed any money from the defendants or executed any deed of trust.  PLS notified defendants of the problem, and they removed the ads from the internet.  About ten months later, the at best incompetent defendants again advertised the lot for sale on numerous foreclosure websites, again with pictures of the home, allegedly falsely stating that it “was for sale and was a foreclosure” and “could be purchased for figures ranging from approximately $350,000 to $600,000,” well below its fair market value (over $1.2 million, allegedly).  As a result, PLS received lowball offers, and the lot continued to be listed for sale at the time the complaint was filed, which allegedly reduced the fair market value of the property.
 
PLS alleged that the second foreclosure listing was “malicious, willful, wanton, and in reckless disregard of the rights and interests of the Plaintiff ….”  PLS sued for negligence, gross negligence, and unfair and deceptive trade practices.  PLS argued that defendants owed a duty to them “to use reasonable care in determining which property they held a valid security interest in” and breached that duty of care in multiple ways.  Defendants removed the case from state court on diversity grounds, and moved to dismiss the gross negligence and unfair/deceptive trade practices claims.
 
Defendants argued that, at most, they were just negligent, because of a “scrivener’s error and mutual mistake of the Jordans and Freemont Investment and Loan,” because that “the parcel identification number and legal description for the [PLS Lot] were omitted from the Deed of Trust.” According to defendants, the defaulted-on note pledged all of the property originally owned by the Jordans (the PLS lot, and Jordan Lots A and B), but the Deed of Trust, which expressly referenced the street address for the PLS Lot, inadvertently omitted the parcel identification number and legal description for the PLS Lot.  Ocwen was the servicer and defendant HSBC acquired the loan, unaware of the scrivener’s error and in the belief that the deed of trust secured the PLS lot. Thus, it believed that it purchased the PLS lot along with the two vacant lots.
 
In North Carolina, gross negligence is as “wanton conduct done with conscious or reckless disregard for the rights and safety of others.” Wantonness includes acts done “needlessly, manifesting a reckless indifference to the rights of others.” There’s a big difference between ordinary negligence and gross negligence—the latter requires intentional wrongdoing, though not maliciousness or willfulness.  Wantonness requires “conscious disregard” of the interests of others.  Defendants argued that there was no allegation that they intentionally or purposely sought to lower the PLS lot’s value.  Certainly, there was no allegation of animus or an attempt to gain by the second ad.  But the second ad allowed an inference of, at least, conscious or reckless disregard for PLS’s rights.  “The fact remains that Defendants repeated the mistake after learning of the error within the Deed of Trust and after learning that the Jordans conveyed the PLS Lot prior to the initiation of the foreclosure proceeding.” 
 
The court did comment that given the assignment to HSBC by the (now defunct) lender Fremont and the “role” of Ocwen as well as of a substitute trustee in the foreclosure, PLS might be “hard-pressed to establish ‘conscious or reckless disregard’ as opposed to a failure to exercise ordinary care by Defendants (or any specific Defendant).”  So basically, the banks may have made the situation so incoherent that they couldn’t possibly be grossly negligent as to any particular mistake.  This is why litigation can’t substitute for regulation, but if we’re not going to have regulation, punitive damages don’t seem unwarranted.
 
As for North Carolina’s Unfair and Deceptive Trade Practices Act, that requires (1) an unfair or deceptive act or practice; (2) in or affecting commerce; (3) injuring the plaintiff.  On the complaint’s allegations, defendants’ notice of eviction, actual notice of the problem and continued advertising of a foreclosure sale could satisfy the statute. “While there appears to be no doubt that the Defendants’ original error was inadvertent, further development of the record through discovery should show (i) whether Defendants took appropriate cautionary steps, if any, to protect Plaintiff after curing the first ‘false’ foreclosure sale listing/eviction notice; (ii) what led Defendants to make the same mistake less than a year later.”
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court declines to dismiss hashtag infringement claim

Posted on April 8, 2015 by rtushnet
Fraternity Collection, LLC v. Fargnoli, 2015 WL 1486375, No. 3:13–CV–664 (S.D. Miss. Mar. 31, 2015)
 
Fraternity Collection designs and sells shirt, including the “Pocket Shirt,” a custom article of clothing in which customers pick a particular style of shirt and then select one of almost 200 designs to be the shirt pocket.  Fraternity Collection collaborated with Elise Fargnoli, a clothing designer who runs the “Francesca Joy” brand, to design two new series of Pocket Shirts: one called “Francesca Joy” and another containing sorority themes (using unlicensed sorority images). Fraternity Collection thought it would be the exclusive seller of these designs; the first line was sold beginning in 2012, while the second was only ever designed.  In 2013, Fraternity Collection learned that Fargnoli was selling her Francesca Joy designs to a competitor, despite promised exclusivity. While their business relationship was ongoing, Fraternity Collection got a license to sell products containing fraternity and sorority logos and hired a graphic artist to design sorority-themed Pocket Shirts. In June 2013, Fraternity Collection stopped doing business with Fargnoli and claimed to have paid her all her royalties.
 

By September 2013, Fargnoli returned to selling her clothing at Fraternity Collection’s competitor, Fashion Greek (finding these items sent me to a side of Tumblr I’d never seen). She used the terms “#fratcollection” and “#fraternitycollection” in her social media accounts to promote those designs.  She also sent Fraternity Collection a cease and desist letter demanding that it stop selling the Francesca Joy line of Pocket Shirts and Fraternity Collection’s new sorority-themed Pocket Shirts. Fraternity Collection responded with its own demand that Fargnoli stop implying a relationship with Fraternity Collection on social media. “Among other things, Fargnoli is mad about Fraternity Collection advertisements which contain the Francesca Joy line of Pocket Shirts, while Fraternity Collection is mad that Fargnoli’s ‘Francesca Joy’ Facebook page contains an album of models wearing Fraternity Collection merchandise.”
 
Fraternity Collection sued for a declaratory judgment that its advertisements can contain Fargnoli-designed Pocket Shirts since they were properly licensed at the time of their manufacture and are no longer for sale and that its own sorority-themed Pocket Shirts are not a knockoff of Fargnoli’s sorority-themed Pocket Shirts. Further, it sought damages for Fargnoli’s allegedly infringing use of the terms “#fratcollection” and “#fraternitycollection” on social media.
 
Fargnoli counterclaimed, alleging that Fraternity Collection’s advertising of the Francesca Joy line and use of its own sorority-themed designs on Pocket Shirts constituted reverse passing off, false advertising, false designation of origin, unfair competition, trademark infringement, copyright infringement, breach of contract, intentional interference with existing business relations, and breach of the covenant of good faith and fair dealing, as well as vicarious copyright infringement by Fraternity’s resellers.  (One gets the sense that the district court was not enthused about this hairball, and really, this does seem to be a failure on both sides to walk away tall.)
 
Fargnoli argued that the Lanham Act allegations failed to state a claim for false advertising, but it did.  “The Court accepts for present purposes the notion that hashtagging a competitor’s name or product in social media posts could, in certain circumstances, deceive consumers.”  General factual allegations of injury can suffice on a motion to dismiss. This also preserved state-law trademark infringement claims.
 
Meanwhile, the court did dismiss Fargnoli’s claims for reverse passing off, false advertising, false designation of origin, unfair competition, and trademark infringement, all of which relied on Fraternity Collection’s failure to attribute Fargnoli’s incorporated pocket designs to her.  Dastarcontrolled: Fargnoli did not produce the tangible goods offered for sale, and thus the Lanham Act didn’t permit her to sue Fraternity Collection for not attributing its incorporated designs to her. “Fraternity Collection’s descriptions were not false and did not cause consumer confusion because it was the producer of the goods in question.”  Moreover, she could not reframe a mere authorship claim as a §43(a)(1)(B) claim, because authorship isn’t a covered “nature, characteristic, or quality” under those sections. 
 
And here’s a wrinkle I’ve long wondered about, raised but not very well addressed: Fraternity Collection argued that this also required dismissal of equivalent state law claims. Fargnoli disagreed, but had no authority for her disagreement, so the court went ahead and dismissed the state law claims too.  For “authorship” claims in particular, copyright preemption (as informed by Dastar) seems to dictate this result, but why would the state courts necessarily change other aspects of their law as interpretations of the meaning of “origin” in the federal statute changed?
 
Copyright: Fraternity Collection argued that the copyright claims failed in part because she had no attribution right, the shirts were useful articles, and there could be no vicarious/contributory infringement under first sale.  To summarize, Fargnoli argued that Fraternity Collection made unauthorized reproductions, distributions, and public displays of her original designs, and that its sorority designs were unauthorized reproductions, derivative works, distributions, and public displays; she further alleged vicarious and contributory liability for ads from Fraternity Collection’s marketing and sales partners containing her original works and Fraternity Collection’s sorority line.
 
There’s no right of attribution in the Copyright Act, but that didn’t matter.  As for useful articles, 17 U.S.C. §113(c) provides that
 
In the case of a work lawfully reproduced in useful articles that have been offered for sale or other distribution to the public, copyright does not include any right to prevent the making, distribution, or display of pictures or photographs of such articles in connection with advertisements or commentaries related to the distribution or display of such articles, or in connection with news reports.
 
And here the court just struck out, conflating whether the designs here are separable and thus copyrightable (obviously yes) with whether §113(c)’s limits, which are only necessary once there is a separable copyrightable work embedded in the useful article, would apply (also obviously yes!).  The court observed that separabilitycan be a fact-intensive endeavor, and thus determined that the issue should wait until evidence has been gathered. But absolutely no evidence is required here as to the Francesca Joy designs: Fargnoli pled that the infringing acts were reproduction, distribution, and display of the copyrighted works as they were embodied in the clothing.  The whole point of §113(c) is to allow people dealing with lawfully made copies embodied in useful articles to take and use pictures of those useful articles, necessarily including the copyrighted work.  The claims about the allegedly infringing derivative work sorority designs do require more evidence, but not the Francesca Joy designs.
 
Also, the vicarious and contributory infringement claims were too fact-specific for a motion to dismiss. The breach of contract/duty of good faith and fair dealing claims also survived, but not intentional interference. There was no allegation about how Fraternity Collection interfered with other business relationships; questions about exclusivity would be dealt with in other counts.  Fargnoli’s complaints about “theft” of her intellectual property were copyright claims.
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Is nominative fair use an affirmative defense in the 9th Circuit?

Posted on April 8, 2015 by rtushnet
Zest IP Holdings, LLC v. Implant Direct Mfg. LLC, No. 10cv541, 2015 WL 1510755 (S.D. Cal. Feb. 3, 2015)
 
As usual, I’m ignoring the patent parts of this patent/trademark/false advertising case.  Zest alleged that Implant Direct sold the “GoDirect” dental attachment product and the GoDirect Prosthetic System (“GPS”) in violation of Zest’s patents and falsely and unfairly used the ZEST® and LOCATOR® trademarks when marketing them. Zest and Implant Direct used to have a distributorship relationship, giving Implant Direct a nonexclusive right to sell Zest’s products.  Implant Direct then designed its GoDirect implant, copying the geometry of the Locator “abutment attachment surface”—the top part of the implant.  Implant Direct marketed the GoDirect implant as “compatible” with Zest’s Locator® attachment system: as usable in conjunction with Zest’s Locator® liner and cap, which are the other parts of the system. Litigation resulted.
 
Zest succeeded in its motion for spoliation and discovery abuse sanctions based on failure to implement a litigation hold, which will merit an adverse jury instruction at trial.
 
Implant Direct’s successor in interest IDSI argued that the trademark claims were barred by nominative fair use.  Under New Kids, we ask whether (1) the product was “readily identifiable” without use of the mark; (2) defendant used more of the mark than necessary; or (3) defendant falsely suggested he was sponsored or endorsed by the trademark holder. “If the nominative use does not satisfy all the New Kids factors, the district court may order defendants to modify their use of the mark so that all three factors are satisfied; it may not enjoin nominative use of the mark altogether.”
 
However, the court held that IDSI forfeited affirmative defenses that weren’t pled, and that nominative fair use was an unpled affirmative defense.  (This strikes me as obviously wrong.  The Ninth Circuit has been very, very clear that nominative fair use substitutes for the ordinary confusion test in cases in which its application is appropriate (D is using the mark to identify P’s goods/services).  I can’t see how it’s the defendant’s burden to plead which confusion test applies, when it is always the plaintiff’s burden to show confusion.  In copyright, would we require the defendant to plead that abstraction/filtration/comparison or the more discerning observer test applies in order to take advantage of those tests, assuming they were appropriate under circuit precedent?)  Thus, summary judgment on Zest’s trademark claims was denied. 
 
This seems to raise a real practical problem: how is one to instruct a jury to evaluate the trademark claims? Even courts that don’t use New Kids recognize that the standard multifactor test doesn’t work well when the defendant’s use identifies the plaintiff.  Similarity of marks and similarity of goods/services will not have the ordinary effect they have if the defendant was using the mark to identify its own goods/services.  I guess the ultimate lesson is: don’t aggravate the district court until it refuses to listen to your good arguments as well as your bad ones.
 
IDSI also argued that the false designation of origin/false advertising claims were subject to Rule 9(b), and the court agreed, but found the heightened pleading requirements satisfied. The following allegation pled the who, what, when, where, and how:
 
Implant Direct is using the ZEST and LOCATOR trademarks in a prominent manner in connection with the “GoDirect” product such that consumers are likely to be confused into believing that the “GoDirect” product is authorized, endorsed or sponsored by Zest. (A printout of this advertisement from the Implant Direct website is attached hereto as Exhibit H). Further, the words “Featuring ZEST LOCATOR Compatible Platform” are also likely to cause confusion, deception or mistake because the “GoDirect” product is not in fact “compatible” with the Zest LOCATOR attachment system, but is instead a copy of one or more of the components of the Zest LOCATOR attachment system. Furthermore, the use of the same words “Featuring Zest LOCATOR Compatible Platform” in describing the “Go Direct” and the Zest Locator is likely to cause confusion, deception or mistake among consumers.
 
(I’m tempted to describe the favorable treatment given to false association compared to false advertising in 9(b) jurisprudence as literally “special pleading,” but what jumps out at me more is that the contention that the IDSI implant isn’t “compatible” because it’s a “copy” makes the overall falsity claim laughable.  In what sense would a consumer ever expect that “compatible” didn’t include the possibility “it’s exactly the same, which is why it fits”?  In what way could this distinction ever be material?)  See above re: good/bad arguments.
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former founder’s overclaiming not enough for likely success on false association

Posted on April 8, 2015 by rtushnet
Infogroup, Inc. v. DatabaseLLC, — F.Supp.3d —-, 2015 WL 1499066, No. 8:14–CV–49 (D. Neb. Mar. 30, 2015)
 
The parties compete in the market for databases about consumers and businesses.  Individual defendants are all former employees of Infogroup, including Vinod Gupta, the founder of Infogroup and a former officer and shareholder. “Gupta founded DatabaseUSA after leaving Infogroup, and there is no love lost between them.”  Infogroup’s claims generally covered: (1) DatabaseUSA’s alleged acquisition of information from Infogroup’s proprietary database, (2) alleged false advertising regarding the extent to which DatabaseUSA’s information is “verified,” and (3) alleged false representations suggesting to potential customers that there is a corporate relationship between DatabaseUSA’s products and Infogroup.
 
Infogroup puts false “seed data” into its listings with fake combinations of name, address, and telephone number. In June 2013, Infogroup found its November 2011 seed data in DatabaseUSA’s products, and sued on the theory that the individual defendants had provided DatabaseUSA with misappropriated data.  However, some of Infogroup’s data is available through search services such as Google; its business database is available through a reference service provided to libraries; and it sells data sets to customers, though licensed customers are prohibited by licensing agreements from providing that data to DatabaseUSA. Moreover, third parties have been able to “scrape” database information from publicly-accessible sources and bundle it for resale; information from at least some of Infogroup’s seed files has turned up in other competitors’ data and on public search engines.  Infogroup also cast doubt on whether any of the individual defendants could’ve gotten the data at issue—three of the five were terminated before the November 2011 seed data was inserte, while another wasn’t hired by DatabaseUSA until after the June 2013 audit that discovered the seed data. None of them “(with the presumable exception of Gupta, who was out the door by 2008)” had the necessary access to Infogroup’s database to have “perpetrated a heist.”  None of that was conclusive proof of lack of involvement—there might have been further shenanigans, carried out by a traitor working with DatabaseUSA while employed by Infogroup or a person who exceeded authorized access. But there wasn’t evidence of any of that. “[I]t is certain that information from Infogroup’s proprietary database ended up in DatabaseUSA’s hands, and it is wholly uncertain how that happened.”
 
Separately, Infogroup argued that DatabaseUSA falsely represented its database entries as “verified” and “Triple-Verified.”  Infogroup uses “verified” when an Infogroup employee has confirmed that the information is accurate and current, while DatabaseUSA’s definition of “verified” was far less clear.  DatabaseUSA promotes its “verification process” as involving “original sources,” telephone verification, and Internet research. DatabaseUSA displayed some of Infogroup’s seed files as “verified” records. Infogroup’s argument was simple: “how could DatabaseUSA have ‘verified’ a fictitious entry?” Infogroup identified other inaccuracies in supposedly-“verified” entries in DatabaseUSA’s data.
 
However, DatabaseUSA argued that even the seed files contained some real information, such as a fictional business at a real address with a working phone number. Moreover, even “verified” listings will sometimes be incorrect because of day-to-day changes.  DatabaseUSA presented evidence of the process it used to verify the accuracy of its listings.
 
The final category of claims involved allegations that DatabaseUSA was making misleading statements about its relationship with Infogroup.  For example, a DatabaseUSA press release said that an employee had “spent eight years at InfoGroup, a similar reference company that shares the same Founder, Vin Gupta.”  There were multiple other references to Gupta as founder of Infogroup. DatabaseUSA also used AdWords and related programs to display ads when consumers searched for Infogroup marks.  One DatabaseUSA site posted a letter from Bill Clinton to Gupta, sent in 1998 and addressed to Gupta as the “Chairman and Chief Executive Officer” of infoUSA. DatabaseUSA ads described DatabaseUSA as “Serving the Database Industry Since 1972” or “Creators of the Finest Databases Since 1972,” while in fact Infogroupwas founded in 1972; DatabaseUSA was founded in 2009.  In addition, a 60 Minutes segment excerpted on a DatabaseUSA site and in ads showed Gupta, then CEO of infoUSA, describing the detailed data that infoUSA had compiled.  The clips played by DatabaseUSA didn’t identify the company, but its ads made repeated claims to the effect that its databases are “so good, they were featured on ‘60 Minutes.’”
 
As evidence of consumer confusion, Infogroup pointed to several incidents: one ad sent to an Infogroup customer caused the recipient to contact Infogroup asking if Infogroup and DatabaseUSA were the same company. Two consumers called Infogroup asking about an advertising special that was being offered by infofree.com, a DatabaseUSA site.  A customer question posted at infofree.com’s customer support portal asked, “You are not part of Sales Genie are you?” An agent replied, “Yes, that is correct. Vin Gupta was the founder of InfoUSA (Sales Genie), but sold it and is not the CEO of infofree.com which is a separate company.”  An Infogroup customer sent an email to an Infogroup account executive asking for a copy of a particular invoice, but when the account executive replied that no such invoice existed, the customer replied, “You are info free correct?” In a telephone call from a consumer to Infogroup, the consumer said that he had been told (by whom is unclear) that “the Database USA company was the one that has been around forever.” Another customer had been exchanging emails with a DatabaseUSA sales manager for several months regarding a purchase. When an email wasn’t replied to for a couple of days, the customer emailed an Infogroup employee he had apparently also been in contact with to ask about it, implying that he believed the two worked for the same company, though the DatabaseUSA sales manager promptly replied to the second email and explained that the two worked at separate companies.
 
First, the court found that Infogroup hadn’t shown likely success on the merits sufficient to get a preliminary injunction, due in part to Infogroup’s failure to show harm, much less irreparable harm.  As for the trade secret claim, Infogroup didn’t want DatabaseUSA to scrub its database of the existing seed files, but to refrain from obtaining its data going forward using webscraping. It wasn’t clear to the court that the identified conduct actually violated the Nebraska Trade Secrets Act, in that it wasn’t clear that the information at issue was a trade secret or that this conduct constituted misappropriation.
 
Second, on the false advertising claim, the court ran through the usual rules, pausing to note that it thought that materiality could not be presumed from literal falsity. “There is a difference between whether a consumer is likely to be deceived by a falsehood, and whether that deception makes a difference to the consumer. … [T]here is good reason to presume that a literally false statement has a tendency to deceive. That does not mean the deception made a difference, so there is no basis to also relieve the plaintiff of the materiality element of its prima facie case.”
 
First, the court found that “verified” wasn’t shown to be literally false, since DatabaseUSA produced substantially uncontested evidence that it did have a verification process.  Infogroup’s theory that DatabaseUSA’s process wasn’t good enough to warrant use of “verified,” or that DatabaseUSA described records as “verified” that haven’t been through its verification process, but the context indicated that there was no implication of perfect accuracy. One representative ad touted its “95% Accurate, Triple–Verified Database….” Thus, Infogroup’s limited evidence of inaccuracy didn’t do enough to prove that DatabaseUSA’s data wasn’t generally “verified.”
 
At worst, DatabaseUSA’s claims were puffery. “Whether a database entry is ‘verified’ is not (as the parties’ disagreements here demonstrate) a specific, measurable attribute.” Plus, the parties primarily marketed to other sales professionals, who were unlikely to be confused.  “No reasonable buyer of such services would expect verification to be foolproof.”
 
And even if the “verified” claim was misleading, there was no evidence that anyone was misled. There was no consumer reaction evidence or evidence of intentional deception.  Furthermore, Infogroup didn’t show injury from the “verified” claim.  Under Lexmark, this might even deprive it of standing. Without harm, there could of course be no irreparable harm.
 
Infogroup’s final claim for a preliminary injunction rested on its allegations that DatabaseUSA falsely described the relationship between the companies.  The court first analyzed this as a false association claim.  “[T]he degree of similarity is not a relevant criterion, because only Infogroup’s marks are at issue—Infogroup’s theory is that DatabaseUSA is using Infogroup’s marks in a manner that could confuse the public.” Thus, the facts didn’t fit neatly into the multifactor test; courts evaluating similar situations have used nominative fair use.  The court mistakenly treated the Ninth Circuit’s New Kidstest as being restated by the Third Circuit’s Century 21 test: “In other words, the defendant’s conduct or language must reflect the true and accurate relationship between plaintiff and defendant’s products or services.” Though the Eighth Circuit hasn’t formally adopted the test, “the broad parameters of the doctrine are consistent.”
 
Here, Gupta’s identification as being the founder of Infogroup and its associated entities was accurate. He was entitled to accurately describe his experience in the industry. Likewise, he was entitled to display the genuine letter from President Clinton, clearly dated 1998.  “The obvious purpose of publicizing it is to suggest that Gupta is an important person, not that he is still associated with Infogroup. It happened, and Gupta is entitled to say so.”
 
The court cautioned that “some of Gupta’s descriptions come very close to the line,” but they were sufficiently accurate to avoid a preliminary injunction, especially what Infogroup sought: a ban on any marketing materials “to the effect that Gupta founded InfoUSA, or any Infogroup company.”  Gupta should “strongly consider avoiding the word ‘proprietor,’ as opposed to ‘founder,’ and may want to think about confining himself to relatively unambiguous phrases such as ‘founder and former CEO.’ The fact that Infogroup’s motion for preliminary injunction is denied does not mean this case is over.”
 
Infogroup also failed to show sufficient actual confusion.  Its confusion evidence was “anecdotal at best,” and the best evidence of confusion tied to any of Gupta’s representations was the letter that led an Infogroup customer to call Infogroup and ask about the mailing. But the precise nature of the customer’s inquiry wasn’t reflected in the record, and the fact that the customer called to ask “indicates a distinction in the mind of the questioner, rather than confusion.”  
 
The court found the other evidence “to be de minimis and to show inattentiveness on the part of the caller or sender rather than actual confusion.” The businesses were similar, “and the prefixes ‘info-’ and ‘data-’ have similar connotations and can only be conjoined in so many ways.” The court somewhat acidly concluded:
 
To be candid, it would be surprising if someone hadn’t confused them at some point, particularly when at least some customers apparently use both businesses. Ask enough people and you could probably find someone who thought infofree.com and Infowars.com were somehow associated.
 
As for the keyword ads, nope.  “Although the use of such targeted advertising can be misused, it is generally understood that such tactics can be deployed consistently with the Lanham Act.” The ads at issue didn’t use Infogroup’s marks, and were either separated from search results or plainly labeled as sponsored ads.  Eric Goldman will be pleased to note that the court is quite brisk and matter-of-fact in dealing with this argument, supporting the idea that this kind of liability has been mostly put to rest.
 
As for the “60 Minutes” references and the “since 1972” claim, they didn’t make direct reference to Infogroup and thus couldn’t support a false association claim.  They could maybe be false ads, but Infogroup didn’t ask for an injunction on that ground. “That said, there’s an argument to be made that they’re misleading, so DatabaseUSA would be well advised to knock it off.”  (Yep, except I’d say “literally false” rather than “misleading.”)
 
Infogroup argued that implying a connection between the parties also constitued false advertising.  (Why anyone would subject themselves to the more stringent standards courts have made up for §43(a)(1)(B) over the relaxed requirements for §43(a)(1)(A) if they had a choice is a mystery to me.)  “But, although the factors are phrased differently, the Court’s reasoning with respect to Infogroup’s false association theory is equally dispositive of its false advertising theory.” Lack of likely confusion translates to lack of a tendency to deceive, and without evidence of confusion there was also no persuasive evidence of injury.
 
The court then rejected Infogroup’s motion to dismiss two of DatabaseUSA’s counterclaims, tortious interference and unjust enrichment. Infogroup argued that DatabaseUSA failed to identify any prospective customers who reviewed Infogroup’s allegedly false statements and declined to do business with DatabaseUSA.  DatabaseUSA did plead that agents of Infogroup left false reviews on DatabaseUSA’s Web sites for the purpose of harming its reputation. Many courts wouldn’t find that enough without identifying particular lost consumers who were reasonably likely to transact with DatabaseUSA, but this court did find the allegations sufficient because the case is at the pleading stage.
 
Likewise, Nebraska’s concept of unjust enrichment was flexible enough to cover situations in which the defendant’s wrongful gain wasn’t previously possessed by the plaintiff. Under the Restatement (Third), followed by Nebraska, “[a] person who obtains a benefit by conscious interference with a claimant’s legally protected interests (or in consequence of such interference by another) is liable in restitution as necessary to prevent unjust enrichment” and thus DatabaseUSA adequately stated a claim under Nebraska law.
 
Final note: The parties submitted a lot of their stuff under seal, and the court relied on it. Given the strong presumption of public access, the court determined to provisionally restrict access and then lift it on April 3 in the absence of a persuasive objection; none apparently having been received, the opinion was then released.
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I talk about defamation law

Posted on April 7, 2015 by rtushnet

With a bit of background for a story on Rolling Stone’s UVa story (where recklessness may play a key role), and separately for a story on ALEC’s somewhat surprising threats that calling it a climate denialist is defamatory.

 
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Transformative use of the day, fair use for me but not for thee edition

Posted on April 6, 2015 by rtushnet

At this link, the Graphic Artists Guild shares news about its opposition to fair use and to “piracy,” … and a remix video demonstrating what Hollywood thinks about graphic designers, taking clips from multiple movies and shows to make its points.  Particularly nice in juxtaposition with this article, for which the pull quote is “Degen summarized the importance of copyright to creative professionals as, ‘If you create it, you own it. If someone wants to use what you own, there needs to be a discussion.’”   Unless, of course, they’re portraying graphic designers.

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