counting chickens: should disgorgement be harder for false advertising than for TM?

Certified Neutraceuticals Inc. v. Clorox Co., 2021 WL
4460806, No. 18-cv-0744 W (KSC) (S.D. Cal. Sept. 29, 2021)

The Clorox defendants sell dietary supplements using the raw
materials provided by Certified’s competitor, Avicenna. Certified alleged
Lanham Act false advertising based on allegations that the Clorox defendants
and Avicenna engaged in a scheme to falsely advertise the source of chicken
collagen used in dietary supplements sold to retail consumers. Clorox allegedly
labeled their Collagen2 Joint Complex product as containing “Chicken Sternum
Collagen Type II,” but the collagen in the product is allegedly not pure
sternal collagen, but rather collagen produced by Avicenna using chicken
carcasses of inferior quality which are much more inexpensive to produce. (I am
left wondering desperately what makes chicken sternal collagen better than
other chicken collagen; Google suggests that it is the most human-collagen-like
part of the chicken, at least according to purveyors of same.)

In a prior case between Avicenna and Certified, a different
judge granted summary judgment in Avicenna’s favor on Certified’s Lanham Act
claim because “Certified brought its claims with unclean hands by engaging in
the same improper conduct for which it faulted Avicenna—publishing false
statements about a product being ‘patented’ without a patent.” But that didn’t
relate to the subject matter of this claim.

Literal falsity: The evidence showed that CJC does in fact
contain sternal chicken collagen; Avicenna claims that its process produces 90
percent sternum cartilage. “Independent testing of Avicenna’s collagen backs
this up, showing batches purchased from Avicenna contained sternal chicken
collagen in substantially similar amounts to Certified’s product. It is
therefore literally true for the Clorox Defendants and Avicenna to advertise
their products as containing sternal chicken collagen.” But Certified argued
that defendants were advertising their producst as 100% sternal chicken
cartilage. Avicenna has advertised its product as “Avian (Chicken) Sternum
Cartilage” and “Chicken (Avian) Full Frame Sternum Cartilage.” There was a
triable issue on the first product name, which was a single ingredient: it
could necessarily imply that 100% of the product was that ingredient. “By
advertising its purportedly single-ingredient product as chicken sternal
collagen, Avicenna appears to be representing that the entire product is
chicken sternal collagen.” However, the second name wasn’t literally false
because it was “an accurate depiction of Avicenna’s manufacturing process:
deriving chicken sternum collagen from the full frame of a chicken.”

Also, the Clorox defendants did not advertise their product
as comprised of only a single ingredient. They advertised that CJC contains
2,400 mg of sternal collagen among other ingredients. There was no actual
evidence that CJC did not in fact contain 2,400 mg of sternal chicken collagen.

Misleadingness: There was no evidence of likely consumer
deception. Certified’s only survey was “not representative of a population that
actually consumes the product,” but instead surveyed rheumatologists. There was
no evidence that rheumatologists actually influence buyers of the product. And
the rheumatologists reviewed the supplement label on Clorox’s product, not
Avicenna’s. “Avicenna has produced declarations of its customers stating
Avicenna never represented its product as 100% sternum and that customers
understood that it was not.”

Injury: Certified alleged monetary damages in the form of
lost customers, reduced profits, additional advertising costs, and lost market
share. It offered a list of lost customers and evidence that its profits declined
and Advertising and Promotion expenses increased over disputed time periods. However,
the list was overstated (it was just a list of past customers), and five customers
Certified purported to have lost to Avicenna testified that they did not
purchase Avicenna’s product based on the alleged misrepresentation. Certified
argued that it was nonetheless entitled to damages on an unjust enrichment
theory. The court disagreed because the advertising at issue wasn’t
comparative, and so proof of past injury or causation was required. Certified’s
evidence showed sales increased over the relevant period, though profits
decreased because of a large increase in the cost of sales. “[I]t is not
reasonable for the Court to assume the significant unaccounted for increase in
the cost of sales, which could be attributed to the cost of goods sold among
other things, is a direct result of Defendants’ product labeling.” Thus,
Certified failed to show damages.

What about disgorgement? “15 U.S.C. § 1117(a) and Lindy
[the key 9th Circuit precedent] both address damages in false
comparative advertising cases, where a defendant violates ‘any right of the
registrant of a mark registered in the Patent and Trademark Office.’” As a
reminder, §1117(a) specifically also says “a violation under section 1125(a)”
immediately after the quoted words. Romag should therefore be as good
law for false advertising under §1125(a)(1)(B) as for trademark, but I’m not
super surprised that courts are still intoning “trademark” as if that were
somehow a sufficient distinction.

The court granted summary judgment on damages, but didn’t
preclude injunctive relief: “[A] competitor need not prove injury when suing to
enjoin conduct that violates section 43(a).” [Is this still true after TransUnion?]

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Juxtaposition doesn’t necessarily mean one claim bleeds into another

Engram v. GSK Consumer Healthcare Holdings (US) Inc., 2021
WL 4502439, No. 19-CV-2886(EK)(PK) (E.D.N.Y. Sept. 30, 2021)

GSK sells “2 in 1 Lipcare” Chapstick: it provides moisturization
and sun protection … but the former lasts longer than the latter. Engram
alleged that this was misleading; the court disagreed and dismissed the
complaint under NY GBL §§ 349 and 350 (and unjust enrichment).

The front of the package and the front of the tube both
contain a circle, bisected horizontally. In the top half of the circle is the
phrase “8 HOUR MOISTURE,” written in white letters against a blue background.
In the bottom half, in blue letters on a white and gray background, is the
phrase “SPF 15.”

 

Could the proximity of these claims lead a reasonable
consumer to conflate them and think that they’d get 8 hours of SPF 15
protection? The court thought not. The back tells users to “apply liberally 15
minutes before sun exposure”; “reapply at least every 2 hours”; and “use a
water resistant sunscreen if swimming or sweating.” The amended complaint
alleged that a third-party survey showed that “259 of [respondents] (64.4%)
believed that the Product provided 8 hours of sun protection based on the
packaging.” But the respondents were shown a picture of the front of the
Chapstick tube, but not the full package — including the reverse of the
package, where the direction to “reapply at least every 2 hours” appears.

Context is key, but some context matters more than others:

Where the front of a package makes
a bold and blatant misstatement about a key element of a product, there is
little chance that clarification or context on the reverse of the package will
suffice to overcome a deception claim (especially at the motion-to-dismiss
stage). But when the front of the package is better characterized as ambiguous
than misleading, courts looking at the alleged misrepresentations in their full
context and are more likely to grant a motion to dismiss.

There’s a spectrum of claims from absolutely true, to
ambiguous, to misleading, to outright false, and this case was at most
ambiguous. “From the front of the package itself, it is plain that the
Defendant is emphasizing the moisturizing properties of the product.”  But the package made no durational claim about
the SPF protection on the front at all. The back of the package put any
ambiguity to rest. “[I]t is not too much to expect a reasonable consumer to
review the directions on an SPF product for information on how often to reapply
it — particularly where, as here, a similar set of directions is present on all
sunscreen products pursuant to FDA regulations.” It was also relevant to the
court that the tube and packaging “both provide limited space on which to
advertise the product and publish the required Directions…. [T]he Defendant’s
ability to separate the moisture and SPF claims is limited by the amount of
packaging real estate available. This limit makes the presence of a clear
disclaimer on the reverse all the more salient.”

The survey didn’t help because “the key question was phrased
so as to put respondents in an untenable position.” It asked: “Viewing the
packaging above, how many of hours of SPF 15 sun protection do you think the
product provides?” But respondents only saw the front of the package, “which
does not contain any answer to the question posed.” Respondents were thus differently
situated from the “reasonable consumer.”

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disparagement campaign in niche jewelry market could violate Lanham Act

Roberto Coin, Inc. v. Goldstein, No. 18-CV-4045(EK)(ST), 2021
WL 4502470 (E.D.N.Y. Sept. 30, 2021)

Defendants Goldstein and his company Kings Stone supplied
plaintiff RCI with a gemstone they called “black jade.” “After RCI stopped
sourcing black jade from Kings Stone and found a new supplier, Goldstein
contacted a number of stores selling RCI jewelry and disparaged RCI’s stones.
Both sides now claim the other is liable for false advertising, among other
claims.” For example, Goldstein allegedly told one of RCI’s customers that
RCI’s stones were to real black jade as cubic zirconia is to diamond. Defendants
also allegedly infringed RCI’s trademarks by using photographs of Roberto Coin
jewelry and RCI’s logo in Kings Stone’s advertising after RCI terminated the
relationship. Kings Stone counterclaimed that RCI made false claims about (a)
the gemological content of the stones from its new supplier and (b) whether
those stones had been “certified” by a laboratory. The counterclaims/third
party claims were dismissed for failure to prosecute and the results on the
plaintiff’s claims were mixed.

When things were going well, Kings Stone provided RCI with
an analysis prepared by the National Gem Testing Center — a gemstone testing
laboratory based in China — stating that the mineral content of its stones was
“black amphibole jade.” About eighteen months after the parties split up, RCI
discovered that the Defendants were using photographs of RCI jewelry alongside
RCI’s logo, as well as the name “Roberto Coin,” on Kings Stone’s Instagram feed.
Instagram ultimately removed the posts. Goldsein also sent marketing materials
incorporating RCI images to various vendors, including in a PowerPoint
presentation. He stated that he believed RCI “knew about” and “was okay” with
this.

Goldstein solicited Borsheims, a jewelry retailer that sold
RCI products (including the Roberto Coin “Black Jade” collection), touting Kings
Stone’s black jade as “exclusively certified by the china NGTC and the
prestigious US based AGL as Black jade.” Borsheims wasn’t interested.

Goldstein emailed Borsheims again, this time pretending to
be a customer looking for a “gift for a jade connoisseur.” He expressed
interest in a specific Roberto Coin product and asked Borsheims to provide him
with “a gem certificate that verifies its authenticity as genuine black jade.” Borsheims’
employee wrote back to say that she had contacted RCI, and that “while they do
not have official certificates of authenticity for their jade gemstones, they
provided me with the attached card detailing the certification of the jade
along with further details.” The “attached card” said: “The most fascinating
black amphibole jade, 100% natural identified and certified by China’s National
Gemstone Testing Center (NGTC) is the protagonist of the homonymous ‘Black
Jade’ collection.” Goldstein responded that the product

does not come with any
certification as to its authenticity that the black jade is genuine. If there
is no certification available, then legally you cannot claim or advertise that
it is black jade, no less then [sic] claiming a cubic zirconia being a real
diamond …. My black jade comes with full certification by 3 major Gemological
Labs. When dealing with my certified black jade stones you are assured of the
highest quality and no reputational risk to your company by selling non
certifiable black jade. The real black jade jewelry companies are doing great
with our line with sales exceeding the best projections.

A followup email from Goldstein said that “[w]e have asked
Roberto Coin directly numerous times for confirmation of the black jade
authenticity and we have not received any response.” He then threatened Borsheims
with “filing for class action status on this matter to protect [his] business
and the consumers being misled by false advertising.” He said that Borsheims
needed to “take remedial action otherwise we will include your company in this
[action] since we have legally notified you…. And yes even borsheims has to
be held accountable.” Afterwards, Borsheims told RCI it was “removing the black
jade” offerings from Borsheims’ website.

Goldstein also contacted other RCI retailers (Macy’s, Neiman
Marcus, and Saks Fifth Avenue) seeking confirmation that RCI’s black jade was
certified.  He told Saks’s parent
corporation that RCI’s black jade was “not … authenticated or certified as
advertised,” and had similar exchanges with Macy’s and Neiman Marcus. He
emailed them to say he would be filing a lawsuit against RCI: “I am part of a
group of gemstone dealers selling genuine and certified black jade, that are in
the process of filing a class action lawsuit against Roberto coin for selling
non authenticated black jade.” He said he was letting the retailers know about
his lawsuit as a “courtesy” so that they could “take remedial action … and
remove any questionable product that cannot be authenticated.” At his
deposition, Goldstein acknowledged approaching “every customer that was
advertising the black jade.”  He
testified about the steps he took to identify every RCI retailer and that it
was a “huge amount of communication.”  (He
also emailed “basically industry wide” announcing his counterclaims in this
case, reaching “various jewelry-industry players: newsletters and magazines,
trade associations, and additional retailers” and analogizing the situation to an
earlier scandal about gem misclassification; there was a bribery aspect to that
situation but he testified that he wasn’t aware of the bribery part.)

Macy’s and Saks Fifth Avenue also stopped selling the Black
Jade collection. Saks, Borsheims and Bloomingdales alone returned jewelry
valued at more than $380,000 from the Black Jade collection. “At least one
jewelry retailer apparently understood Goldstein to be challenging the
authenticity of the gemstones in RCI’s Black Jade collection, as opposed to
merely questioning whether RCI had obtained an authentication from a
laboratory.”

RCI’s position was that there is no industry-wide
“certification” for the “authenticity” of black jade, because “black jade” is
not a scientific category. Instead, it contended that “jade” is generally used
in the industry to describe two different but related minerals, nephrite and
jadeite, and that the term “black jade” cannot constitute false advertising. It
did, however, obtain certifications from various gemological labs, including one
certifying that RCI’s gemstones were comprised of “Natural Amphibole Material”;
another certifying “amphibole and other minerals”; an NGTC certification certifying
“Black Amphibole Jade”; and another certifying “Black Nephrite Jade.” However,
RCI obtained the latter two certifications — including the one from NGTC —
after it emailed the card promoting its stones as “[t]he most fascinating black
amphibole jade …. 100% natural identified and certified by China’s National
Gemstone Testing Center (NGTC)” — to Saks and Borsheims.  

Lanham Act false advertising: RCI alleged two overlapping
subcategories, (1) claims that RCI’s black jade was fake or inauthentic (e.g.,
Goldstein’s emails to Borsheims discussing the impact that the sale of “Fake
black jade” has on Goldstein’s business, making a cubic zirconia/diamond comparison,
and calling his company one of “the real black jade jewelry companies”) and (2)
statements that RCI’s stones lacked some form of certification or
authentication.

Falsity: RCI showed sufficient evidence of literal falsity
of (1) to continue, but (2) was murkier. The “not authenticated” statements
weren’t literally false, “as RCI did not (at the time) possess a certification
expressly confirming that its stones were ‘black jade.’” But given RCI’s
evidence that there is no established mineralogical category for “black jade,” a
jury could find implied falsity, especially since one retailer seemed to
understand the statement as questioning whether the stones were “somehow
counterfeit.” A falsity finding would be premature, since a factfinder should address
implied falsity and the parties continued to dispute which stones RCI submitted
to obtain its certifications. “The existing record does not definitively rule
out the possibility that RCI commingled stones from Goldstein and its
subsequent supplier, or definitively establish the provenance of the stones RCI
submitted for evaluation.”

Goldstein also made legal claims in his emails, e.g., “[i]f
there is no certification available, then legally you cannot claim or advertise
that it is black jade.” This wasn’t itself actionable, because “a layman’s
statements about the illegality of another party’s conduct do not violate the
Lanham Act absent a ‘clear and unambiguous ruling from a court or agency of
competent jurisdiction’ that the conduct is lawful.” However, a jury could
consider them “to the extent they imply (as a factual matter) that RCI was
misleading its retailers or other customers about the content of its stones.”

Commercial advertising or promotion: Since the statements to
retailers weren’t identical, the court had to decide whether to consider them
individually or in the aggregate when assessing the breadth of dissemination. “Goldstein’s
statements should be aggregated when assessing the breadth of dissemination,
because they were made during a compressed time period (approximately three
weeks in April 2018) and concerned similar subject matter (the authenticity and
authentication of RCI’s black jade).”  A
jury could reasonably conclude that they constituted a single “campaign.” Once
that was done, the dissemination was sufficiently broad to qualify as
advertising or promotion. The court noted, that, “[o]n the one hand, the global
market for fine jewelry is perhaps enormous.”  But “the market for name-brand, artistically
produced luxury jewels is surely a discrete subset of that industry.” RCI’s
evidence showed that the five prominent department stores that Goldstein
emailed accounted for “over 23% of RCI’s gross profits on sales from the black
jade collection” in themselves. “[O]n this record, a reasonable jury could
conclude that the relevant market is confined to higher-end jewelers like
Neiman Marcus, rather than every seller of precious stones in the world,” and
that Goldstein communicated with a sufficiently large proportion of that market—a
“huge” amount of communication in his own words.

Trademark infringement: Goldstein admitted that he posted photographs
of RCI’s jewelry on Kings Stone’s Instagram feed.  RCI’s logo — the letters “RC” with a diamond
shape beside them—was superimposed. He used these materials to promote Kings
Stone’s black-jade business, and used his PowerPoint similarly. Goldstein
argued that he had oral authorization as part of the deal to supply black jade
to RCI. (Nominative fair use would be relevant outside the Second Circuit,
though use of the logo would definitely pose a problem.) He argued that he’d
provided a discount on stones in exchange for this authorization and that such
a deal was a “common industry practice.”

The court was unconvinced: “[I]t strains credulity to think
that the parties agreed on the duration of the trademark license —
specifically, that it would exist in perpetuity — without any corresponding
agreement on the period of time for which RCI and its affiliates would purchase
stones from Goldstein (a period that, in the end, lasted only about a year).”
But more importantly, the Statute of Frauds prevented reliance on such
permission, irrespective of credibility. What he had in writing—purchase orders
memorializing a “discount price” from Kings Stone and an email from Roberto
Coin stating that the “RC brand will bring you lots of credibility in the
market”—wasn’t enough to set out the material terms of an agreement. Thus, RCI
won summary judgment on its infringement claims.

However, the court would let a jury resolve the question of
damages, including willfulness.

Defamation/trade disparagement:  There was sufficient evidence for a jury to
find special damages, based on lost customers and revenue. Otherwise, factual
questions remained, as with the Lanham Act false advertising claim. Tortious
interference: same. Specifically as to the lawsuit threats: “[A] lawsuit or the
threat of a lawsuit is wrongful [for purposes of a tortious interference claim]
if the actor has no belief in the merit of the litigation.” “It is also
wrongful if the actor, having some belief in the merit of the suit,
nevertheless institutes or threatens to institute the litigation in bad faith,
intending only to harass the third parties and not to bring his claim to
definitive adjudication.”

GBL Section 349:  The alleged
conduct was not consumer-oriented, even it wasn’t a “garden-variety” dispute
between competitors. There was no specific evidence that the “public interest
[wa]s harmed” by defendants’ actions.

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Mexican origin claims revitalized by survey

Govea v. Gruma Corp., 2021 WL 4518457, No. CV 20-8585-MWF
(JCx) (C.D. Cal. Aug. 18, 2021)

Previous
discussion
. The amended complaint fares better: the tortilla packages at
issue plausibly misrepresented Mexican origin. Plaintiffs added allegations that
“[u]n pedacito de México” translates to “a piece from Mexico,” in addition to
“a piece of Mexico.” And they alleged a consumer survey that showed 401
participants the following image: 

It then asked: “Based on the label of the product, where do
you believe the product is made?” 70.1% of participants answered Mexico. Gruma argued
that the survey was unreliable because it failed to use open-ended questions
and controls and failed to consider whether the participants actually zoomed in
on the label or read any of its text. “Even if Gruma is correct that the Survey
suffers from certain flaws, the Survey at least demonstrates that it would not
be ‘impossible for the plaintiff to prove that a reasonable consumer was likely
to be deceived.’” Thus, dismissal at this stage was unwarranted. As with another
recent case, Rodriguez v. Olé Mexican Foods Inc., 2021 WL 1731604, No. EDCV
20-2324 JGB (SPx) (C.D. Cal. Apr. 22, 2021), the packaging “evokes the spirit
of Mexico, which … may also mislead a reasonable consumer about the Tortillas’
geographic origin.”

Plaintiffs had standing to seek injunctive relief because
they desired to buy the tortillas in the future, but were currently unable to
rely on the packaging.  

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Disney’s Toy Story 4 daredevil not legally risky

K & K Prods., Inc. v. Walt Disney Studios Motion
Pictures, No. 2:20-CV-1753 JCM (NJK) (D. Nev. Sept. 23, 2021)

Evel Knievel was a famous motorcycle daredevil with an
“iconic wardrobe: a white jumpsuit embellished only by star-spangled red,
white, and blue patriotic insignia with a matching white cape and helmet and a
motorcycle adorned by red, white, and blue colors.” “In 1973, Ideal Toys
released the Evel Knievel Stunt Cycle, a toy which features a doll of Evel
Knievel in his signature…jumpsuit and matching helmet.” The toy came with a red
“energizer”, which wound up the toy to be released. K&K claimed rights
relating to Evel Knievel, including trademarks, copyrights for audio/visual
works, right to publicity, existing licenses, contracts, and common law rights.

image from complaint
EK toy and comparison to EK

EK Daredevil Stunt Set
70s TV ad (I love that the plaintiffs grabbed it off social media)

Toy Story 4 featured a new character, Duke Caboom, who rides a Canadian-flag-colored motorcycle and dresses in a white jumpsuit, helmet, and cape with Canadian insignia. His insecurities are revealed by a flashback to a 70s era scene where a child is playing with his Duke Caboom doll while watching the commercial advertisement for the “Duke Caboom Stunt Cycle.” The toy could not perform as advertised in the commercial. In his final stunt, Duke Caboom tries to jump 40 feet across an amusement park and through lights fabricated to look like a ring of fire. He fails. Disney promoted Toy Story 4 with materials featuring Duke Caboom and also sold Duke Caboom Merchandise, including a Duke Caboom doll in a white jumpsuit with a cape and belt buckle adorned by a red Canadian insignia, a matching helmet and motorcycle, and a red “launcher.” 

traumatic flashback

toy with launcher; other toy images below

“Toy Story 4 actors, directors, and producers referenced the Evel Knievel inspiration for Duke Caboom in six separate interviews.” Consumers and critics likewise noted the similarities.

side by side comparisons

K&K’s false endorsement/false description, trade dress infringement, trademark dilution, and state law claims including right of publicity claims all failed on a motion to dismiss. Rogers applies to the Lanham Act and coordinate state law claims, and this isn’t a difficult Rogers case. K&K simply failed to plead facts indicating that Toy Story 4 wasn’t an expressive work, or that associated merchandise wasn’t sufficiently attached to the “host” expressive work. “It is … well-established that advertising and the sale or licensing of consumer goods related to an expressive work like a film are incorporated into the same Rogers test analysis.”

Obviously, “the alleged allusion to Mr. Knievel bears substantial artistic relevance to the creative work.”  K&K argued that Duke Caboom wasn’t artistically relevant to the film because it does not add “any original material element” to Toy Story 4 and is used “solely to import Evel Knievel…into the film.” That’s not a way around Rogers. “The court is not willing to make the unreasonable inference on the facts that the Duke Caboom’s appearance is simply a gratuitous showing of an Evel Knievel-esque motorcycle stuntman.”

Nor was there any explicit falsity that would confuse consumers into thinking that the “celebrity is somehow behind the [the film] or that [he] sponsors the product.” The “nature of [Disney’s] behavior” and not “the impact of the use” on consumers was the key, even if there had been consumer confusion evidence. The court unnecessarily points out that the toy has “a different name, appearance, and backstory from Evel Knievel.” More to the point, the use of a mark alone is not enough to satisfy this prong of the Rogers test, otherwise “it would render Rogers a nullity.” Even if Disney’s use of Evel Knievel was “blithe,” it was nonactionable without explicit misleadingness.

ROP: The Nevada ROP statute specifically exempts uses that are an “attempt to portray, imitate, simulate, or impersonate a person in a… film” and uses “in connection with an advertisement or commercial announcement for a use permitted by this subsection.” As for the toys, the court predicted that Nevada would imitate California, as it has done in similar situations before, and adopt a transformative use defense. This could be resolved on a motion to dismiss, especially since ROP laws implicate broad free speech interests and “a speedy resolution is desirable because protracted litigation may chill the exercise of First Amendment rights.” Here, Evel Knievel was one of the raw materials for the work, not the “sum and substance” of the work; the work was primarily Disney’s own expression; Disney provided the marketability and economic value of the work because it’s Disney and people already like Disney; and Toy Story 4 wasn’t just a mere exploitation of the fame of through a conventional portrait, superseding the artist’s skill and talent. In California terms, this was more Kirby (video game with a reporter from outer space character who looked like a real singer) than Comedy III (conventional charcoal portrait).

As in Kirby, Duke Caboom was “reminiscent” of Evel Knievel, but not a literal depiction. Unlike the sports videogame cases “where the video game avatars looked the exact same outside of their name and hometown, Duke Caboom is not a carbon copy of Evel Knievel minus a few details.” 

Distortions of a celebrity figure “are not, from the celebrity fan’s viewpoint, good substitutes for conventional depictions of the celebrity and therefore do not generally threaten markets for celebrity memorabilia that the right of publicity is designed to protect.”

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non-toxic plausibly means nonharmful, but harmfulness still needs adequate pleading

Rivera v. S.C. Johnson & Son, Inc., 2021 WL 4392300, No.
20-CV-3588 (RA) (S.D.N.Y. Sept. 24, 2021)

Plaintiffs alleged that S.C. Johnson’s labeling of its
Windex cleaning products as “Non-Toxic” was misleading in violation of NY’s GBL
because those products contain ingredients that may be harmful to humans, pets,
or the environment. The court rejected many of S.C. Johnson’s arguments but
ultimately found that plaintiffs failed to allege that the products were
harmful.

Plaintiffs alleged that the NAD had found that “the term
‘non-toxic’ as used by the Products signifies to reasonable consumers” that
those Products will not cause “harm,” meaning “various types of temporary
physical illness, such as vomiting, rash, and gastrointestinal upset.” The
allegedly harmful ingredients include “acetic acid, alkylbenzene sulfonate,
ammonium hydroxide, benzyl benzoate, fragrance components, isopropanolamine,
lactic acid, lauramine oxide, propylene glycol, sodium hydroxide, sodium
petroleum sulfonate, sodium xylene sulfronate, [and] 2-(hexyloxy)-ethanol.” They
alleged that the ingredients were capable of causing certain harmful effects at
their “in-use concentrations,” which weren’t disclosed on the products, so the
allegations were based on information and belief.

Plaintiffs plausibly alleged that a reasonable consumer
might share their understanding of the meaning of “non-toxic.”  S.C. Johnson argued that no reasonable
consumer would believe that that “a non-toxic label implies that a product
[neither] (1) pose[s] any risk of harm to humans, animals, or the environment,
[nor] (2) contain[s] potentially harmful and toxic compounds.” “Although the
Court finds that argument appealing from a common-sense perspective, it cannot
determine as a matter of law that no reasonable consumer would share
Plaintiffs’ understanding of the word toxic.” Plaintiffs’ allegations weren’t
implausible or inconsistent with dictionary definitions; even the dictionary
preferred by S.C. Johnson offered an alternative definition of “toxic” as
“extremely harsh, malicious, or harmful.” “Perhaps that is why, as alleged in
the Complaint, the Environmental Protection Agency has cautioned ‘that
marketers will rarely, if ever, be able to adequately qualify and substantiate
[ ] a claim of “non-toxic” in a manner that will be clearly understood by
consumers.’” The NAD’s holding also “undercuts the Company’s characterization
of Plaintiffs’ definition as implausible. Indeed, the independent
substantiation of a reasonable consumer’s understanding of ‘non-toxic’ helps
nudge the claims ‘across the line from conceivable to plausible.’” 

However, plaintiffs failed to allege that the products were
toxic by their own definition. “The parties appear to agree that a product
could fairly be described as non-toxic as a whole if it ‘contain[s] a toxic
substance [but only] at a level that is not harmful to humans or the
environment.’” But plaintiffs “essentially acknowledge that they do not know
the actual concentrations of the ingredients,” and don’t explain how they came
to have their beliefs about the in-use concentrations.  Though S.C. Johnson doesn’t disclose
concentrations/percentages, and though Twiqbal doesn’t prevent
information/belief pleading when facts are peculiarly within the possession and
control of the defendant, plaintiffs had additional options.

First, even if the precise specifications were secret, “information
about the effect of those ingredients in their current concentrations is not.”
These widely-sold products could have generated publicly available evidence of
harm to “people …, common pets, or the environment,” and plaintiffs didn’t
cite their own experiences or even internet reviews. Second, they could have
tested the products. Plaintiffs need not always provide an expert to conduct
sophisticated chemical analysis before bringing suit. “But the fact that the
Products can be purchased at stores as ubiquitous as Target and tested suggests
that basic facts about their chemical composition is not something exclusively
in the control of Defendant. At the very least, the Complaint could contain
allegations as to why such testing would not have been possible here—it does
not.” And finally, consultation with experts in the field might have been able
to provide “even minimal support” for their bald assertion that “the
ingredients’ likely concentrations or percentages by weight” are sufficient to
cause harm.

The court did find that plaintiffs’ price premium theory
sufficed to allege harm, but that they lacked standing to seek injunctive
relief. It was not enough to allege they’d buy in the future only “if assured
[they] did not contain components which were toxic and had the harsh physical
and environmental effects they did.” However, they did have standing to
challenge non-toxic labels on products they didn’t buy because they were sufficiently
similar to those products that they did purchase and because the “deceptive
non-toxic marketing is identical on each product.” The products need not be
nearly identical; rather, the claims about falsity have to raise a “set of
concerns [that are] nearly identical.” That was so.

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NY can still seek disgorgement even if FTC can’t

Federal Trade Comm’n v. Vyera Pharms., LLC, 2021 WL 4392481,
No. 20cv00706 (DLC) (S.D.N.Y. Sept. 24, 2021)

Featuring Martin Shkreli as a defendant! The FTC, with NY
and a number of other states, sued Vyera for violating the antitrust laws in
the market for the pharmaceutical Daraprim, which treats the potentially fatal
infection toxoplasmosis. In a reminder that satire is dead and that no cartoon
villains can match reality, the day after acquiring the rights to Daraprim,
Vyera raised the price from $17.50 per tablet to $750 per tablet; defendants
also allegedly schemed to block lower-cost generic drug competition.

The locus of the bad conduct was NY; seven states sued in
their parens patriae capacity, that is, they asserted a quasi-sovereign
interest “in the health and well-being — both physical and economic — of its
residents in general.”  They sought
injunctive relief and disgorgement of nationwide profits. The FTC can no longer
seek disgorgement, but the states sought to do so both under the Sherman Act
and under their respective state laws.

Vyera argued that the states lacked parens patriae standing
to obtain equitable monetary relief, including disgorgement, on behalf of those
who weren’t citizens of their States. Regardless of whether the other states
did, NY could do so because the alleged violations stemmed “from decisions made
and contracts executed in New York.”  The
Attorney General can seek relief on behalf of out-of-state residents injured by
the wrongdoing, furthering “New York’s vital interest in securing an honest
marketplace,” which is threatened when a defendant uses “a New York business”
to engage in its scheme. Thus, disgorgement of net profits attributable to all
US sales was potentially available. This was not a penalty, because the states
indicated that, should they prevail, they’d undertake to distribute the
disgorged profits to all victims wherever they were. And overlapping awards
could be avoided by courts sitting in equity (which is how you get
disgorgement).

Vyera argued that NY had no parens patriae interest in other
states’ citizens. But parens patriae is about standing, not about the scope of
a disgorgement remedy.

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Bad reviews as evidence of actual knowledge of defects

Partida v. Tristar Prods., Inc., 2021 WL 4352374, No. EDCV
20-436 JGB (KKx) (C.D. Cal. Aug. 5, 2021)

This is a putative consumer class action about pans
advertised as non-stick that allegedly weren’t (and also weren’t copper as
advertised). It was allegedly false to advertise “Cerami-Tech Non-Stick
Technology” so that “[n]othing sticks to the surface and cleanup is a breeze”
and that the pans were “Chip-resistant, Heat resistant,” and didn’t require
fats or oils to be nonstick. The pans allegedly lost their non-stick
performance within days or months of purchase. Tristar argued that its statements
that the pans were “durable and last a ‘lifetime’ ” were “nonactionable
puffery.” But even statements that “might be innocuous ‘puffery’ or mere
statement of opinion standing alone may be actionable as an integral part of a
representation of material fact when used to emphasize and induce reliance upon
such a representation.” This was a question of fact.

Plaintiffs also sufficiently alleged Tristar’s actual
knowledge of the alleged defects at the time of purchase, which the court found
required for their specific UCL, CLRA, and FAL claims. Although vague
allegations about consumer complaints may not suffice to allege awareness, the
complaint here listed “dozens” of complaints, including when and where they were
posted, and alleged that that 70% and 86% of consumer [reviews] on third-party
websites were negative. “Plaintiffs further allege that experts reported that
the Pans were not copper cookware, as advertised.” That was sufficient to
allege that Tristar was on notice: “when a significant percentage of product
reviews identify a problem, then the company that sells that product can
reasonably be deemed on notice of the issue, even if only a subset of consumers
chooses to leave a review.”

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Ice Cube’s case against Robinhood melts again

Jackson v. Robinhood Markets, Inc., No. 21-cv-02304-LB (N.D.
Cal. Sept. 20, 2021)

Previously,
the court dismissed Ice Cube’s ROP and false endorsement claims for lack of
standing
because pleading an appearance in a financial newsletter does not
suffice to plead endorsement. (Is that lack of Article III standing? Before TransUnion
I would probably have said no, but after TransUnion I’m no longer so
sure.

Still used in Robinhood’s newsletter, captioned Correct yourself before you wreck yourself

Jackson repled Lanham Act claims only, and the court found
that he hadn’t fixed the deficiencies in the complaint. Robinhood’s article described
a market correction for tech stocks and paraphrased a line from one of his
songs, “Check yo self before you wreck yo self,” as “Correct yourself before
you wreck yourself,” illustrated with a picture from a movie in which Ice Cube
appeared.

The amended complaint cites
congressional testimony and SEC filings to illustrate that [the newsletter] Robinhood
Snacks is a commercial product that entices new users to sign up for the app
and offers digestible educational content that also satisfies certain financial
regulatory requirements. It adds allegations about its demographics and the
appeal of celebrities like Ice Cube (and its celebrity endorsers Jay-Z, Nas,
and Snoop Dog) to support the point that using Ice Cube’s picture and phrase created
consumer confusion and suggested Ice Cube’s endorsement of its products.

However, this still failed to plead injury in fact “Robinhood’s
use of Ice Cube’s image and phrase does not suggest Ice Cube’s endorsement of
Robinhood’s product.” (The court doesn’t say it this way, but: there are many “commercial
products” that consist of “noncommercial speech,” such as Naomi Novik’s new
novel The Last Graduate which I am very excited to buy! Implicit in the reasoning
is that a celebrity appearance in noncommercial speech is not itself enough to
suggest endorsement.)

If unauthorized use of Ice Cube’s image suggested
endorsement, that would constitute injury in fact. “But the image and phrase
are not an endorsement: they illustrate a point in the newsletter about a
market correction in tech stocks.” The case law requires more “more than
alleged unauthorized use” to

plead implied endorsement. Again, the court doesn’t say as
much, but the cited cases involved conventional ads for a separate product
(White v. Samsung, the Waits case, etc.), or appearance on product labels (Monk
v. N. Coast Brewing Co. Inc., No. 17-cv-05015-HSG, 2018 WL 646679) (N.D. Cal.
Jan. 31, 2018).

I still think this is about substantive failure, not Article
III standing, but clearly we’re in a period of standing transition.

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grudge litigation over warranties with no harm leads to fee award

Grundman v. Tranik Enters., Inc., 2021 WL 565813, 2d Civil
No. B297024 (Cal. Ct. App. Feb. 16, 2021)

“This appeal concerns the sale of four luxury watches and a
buyer who suffered no cognizable injury. The watches work and there was nothing
wrong with the internet sales of these watches.” How’s this going to go?

The watches were sold without the manufacturer’s express
warranty but the seller, AuthenticWatches.com, provided its own warranty. Grundman
sued under the CLRA, the federal Magnuson-Moss Consumer Warranty Act,
California’s Grey Market Goods Act, and its Song-Beverly Consumer Warranty Act.
The complaint alleged that Tranik posted watch manufacturer trademarks and
logos on AuthenticWatches.com but did not disclose the watches were not
eligible for authorized service from the manufacturer. After granting summary
judgment (and judgment on the pleadings for the Grey Market Goods claim), the
trial court awarded Tranik over $177,000 in attorney’s fees, finding that Grundman
brought the action in bad faith on behalf of her husband Fulda, who had a “blood
feud” with Tranik.

The feud included Fulda’s purchase of
AuthenticWatches.online as an internet domain; filing of a  trademark application for AuthenticWatches.com;
and creation of an Amazon.com storefront using the name “AuthenticWatches.com”
advertising watches with a link to AuthenticWatches.online. Unsurprisingly,
that triggered a federal lawsuit.

Ultimately, Grundman bought four watches, and demanded a
refund as soon as they were delivered because they didn’t come with a
manufacturer’s warranty even though AuthenticWatches.com provided its own
warranty. Fulda was deposed and stated that he spent “close to a million
dollars on legal fees” in his vendetta against Tranik, which started when he
had to pay a $150 shipping fee as part of their very first watch dispute in
2013.

“The Grey Market Goods Act requires that trademarked goods
imported by someone other than the manufacturer’s authorized United States
distributor without a warranty valid in the United States be sold with a
conspicuous disclosure.” There’s no standalone cause of action; instead, the
remedy is to sue under the UCL or CLRA. Judgment on the pleadings was
appropriate because this claim duplicated the CLRA claim.

CLRA: Grundman didn’t show reliance—or harm causation. She
testified that she didn’t read or recall reading the AuthenticWatches.com
disclosures, but bought the watches to help Fulda’s vendetta. The watches were
in good working order and she didn’t return them. There was thus no reliance or
cognizable injury. The court pointed out that the site’s “Authenticity and
Service Guarantee” disclosed that: “ ‘We are not, nor are we affiliated with
authorized dealers of any of the timepiece manufacturers advertised.’ ” It
further disclosed that “ ‘AuthenticWatches.com does not sell products in
accordance to manufacturer suggested retail pricing, therefore, the warranty of
merchantability provided is directly through AuthenticWatches.com.’ ” Though
she claimed the watches were counterfeit, she testified that she did not know
whether they were. “Missing here is the deceptive sales representation,
reliance on that representation, and economic damage.” She argued that the
watches were worth less without a manufacturer’s warranty, but there was no evidence
of that, not even an appraisal.

Appellant did not present the
watches for repair or refund, and for good reason. Fulda had the watches
tested, found no timekeeping defects, and wore one of the watches to his
deposition. Fulda said the watch keeps good time and that he wears it regularly
because it is one of his favorite watches.

(He also said: “[m]oney is no object. I want to make as big
a mess of this as possible.”) Yeah, I would probably have awarded fees too.

“To sue for a Song Beverly Warranty Act violation, appellant
must present the watch for repair.” She didn’t. That also got rid of the MMWA
claim.

 

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