Film on fandom’s future influcing copyright and politics

Posted on May 9, 2014 by rtushnet


PBS Digital discusses the Future of Fandoms, with mentions of yours truly, including my recent article for a festschrift for Henry Jenkins, and the Organization for Transformative Works.  Worth watching just for the fan art on screen.
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record-free consumer class action certified as ascertainable

Posted on May 8, 2014 by rtushnet


McCrary v. Elations Co., LLC, 2014 WL 1779243, No. EDCV 13–00242 (C.D. Cal. Jan. 13, 2014)
The court certified a class alleging the usual California statutory claims against a supplement called Elations, whose label claimed a “clinically-proven combination” and/or “clinically-proven formula.”
The court rejected a challenge to ascertainability on the ground that self-identification was insufficient to satisfy due process and it didn’t have any records identifying the consumers of its OTC product.  Defendant’s argument would destroy the consumer class action.  The class definition was enough to make it administratively feasible to determine membership; because the alleged misrepresentations were on the label, there was no concern about defining the class to include people who weren’t exposed to the misrepresentation (though see below).  Elations’ concern for its due process rights to challenge a putative member’s membership was misguided.  
Carrera v. Bayer Corp., 727 F.3d 300 (3d Cir. 2013), is not the law of the Ninth Circuit. It was enough that the class definition describes “a set of common characteristics sufficient to allow” a prospective plaintiff to “identify himself or herself as having a right to recover based on the description.”  To the extent Elations had individualized defenses, it was free to try them against individual claimants. 
The potential for false claims didn’t invalidate the objective criteria used to determine inclusion. Elations pointed to one former plaintiff who testified that he purchased Elations, but after further questioning at deposition, it was revealed he purchased another product.  Elations argued that class members may not remember whether they purchased Elations, and that the joint supplement market was crowded, a further source of confusion for potential class members. But sufficient notice could cure confusion, and Elations’ records could identify the retailers who sold its product, so that could help.  Plus, Elations’ marketing director explained that many of the competing supplements were sold in pill form, unlike Elations, or in flavored versions Elations didn’t have.  Thus, “proper notice regarding the form of the product and its characteristics may help reduce consumer confusion regarding class membership.”
Elations also argued that there was no precise time period when all class members would’ve bought the product with the “clinically-proven” labels. The challenged language was on the Elations label from January 28, 2009 through August 26, 2010, but Elations did not recall or re-label existing products once the label change was made.  This justified limiting the class period according to the two-year shelf life listed on the label, but not rejecting the class entirely.
Numerosity (like adequacy) was unchallenged.
Commonality is satisfied by “the existence of shared legal issues with divergent factual predicates” or a “common core of salient facts coupled with disparate legal remedies within the class.”  Here, the common legal issues were whether the claims on Elations’ packaging that it contains a “clinically-proven combination” and/or a “clinically-proven formula” were material and false.  By definition, class members were exposed to these labeling claims, creating a “common core of salient facts.”
Elations contested typicality, which requires a representative plaintiff’s claims to be “reasonably co-extensive with those of absent class members.”  Elations argued that plaintiff’s medical history of taking Vicodin created a unique defense because it may have interfered with Elations’ effectiveness in improving his joints.  Not so, since his theory was false advertising—he bought the product/paid more than he would have because of the allegedly false claims.  Also, typicality focuses on the defendant’s conduct and the plaintiff’s legal theory, not the plaintiff’s injury.  In addition, Elations’ defense was not atypical of defenses available against other class members, “as it is likely many other Elations’ users took other medications and/or suffer from other illnesses.”
The court did agree that customers who bought Elations online had to be excluded from the proposed class, because they might not have seen the label/shrinkwrap on which the clinically proven claim was made.  “Even if the websites offering Elations presented similar clinical proof claims in their marketing or description of the product, this would be insufficient because Plaintiff did not view any claims made on the website, nor did he purchase the product online.”  (This seems to contradict the general statement about typicality—his claim need not be identical.)
Turning to Rule 23(b)(3), Elations argued that unnamed class members might lack standing, and that the court would have to make individual determinations of which consumers actually viewed the clinically proven claim; of materiality; and of whether consumers actually believed the product was ineffective and caused them damage.  However, the class definition presupposed exposure to the clinical proof claims. And “a presumption of exposure is inferred where, as here, the alleged misrepresentations were on the outside of the packaging of every unit for an extended period.” Mazza was distinguishable, given the limited scope of the advertising at issue there and given that Mazza concerned an allegedly misleading omission instead of an explicit statement about effectiveness.  “Defendant does not argue, nor could it, that its clinical proof claims were of limited scope, since it placed them on the packaging of every unit of Elations sold over an 18–month period.”
As for standing, it exists if at least one named plaintiff meets the requirements of the law, which was the case here. Moreover, “at the class certification stage Plaintiff need not prove that the clinical proof claims were material to all consumers of Elations or that they relied on those claims.” Materiality raises at least an inference of reliance where material misrepresentations were made to the entire class.  Materiality is an objective test of likely deception; thus, reliance didn’t require individualized determination.
Elations argued that the court couldn’t infer reliance because “many consumers purchase Elations based on the recommendation of a doctor or friend or for reasons other than the information printed on the label.”  But Elations’ own consumer survey showed that over 75 percent of Elations purchasers believed that “proven levels” of the active ingredients were worth paying for. Plus, the falsity here went to the product’s efficacy, “the heart of a customer’s purchasing decision. Defendant cannot reasonably argue that a putative class member would purchase a product that does not work, regardless of who recommended it.” This was enough to infer reliance at this stage.
In addition, the claim that some putative class members were happy with Elations and thus were uninjured failed. Consumer protection claims don’t depend on class members’ subjective state of mind, but whether they bought a product bearing the alleged material misrepresentations. Likewise, the court rejected Elations’ argument that consumers might interpret “clinically proven” in various ways.  Whether this was deceptive was a jury question, and “clinically proven formula” had a “clearly ascertainable meaning,” “namely that identifiable sources substantiate the claims of effectiveness, and thus [was] not subject to boundless interpretations.”  As a result, common questions predominated.
The court also found that plaintiffs might be able to provide a workable damages model, even though they weren’t entitled to a full refund because they might have obtained some benefit from the product. At this stage, they didn’t have to identify a comparable “clinically proven” product by which to measure damages.  (Shouldn’t they instead have to identify a comparable non-clinically proven product to show the price difference?)   The amount of damages, even if it required individual calculation, didn’t defeat certification since none of the sought-after remedies would require an award of damages unique to any particular class member.
The class action mechanism was superior because there weren’t alternatives, given the low value of individual claims. Thus, the class was certified as limited.
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Another exercise shoe settlement

Posted on May 8, 2014 by rtushnet


Vibram settles false advertising case over claims that its “foot gloves” could strengthen foot muscles and reduce injuries, which seems to be the opposite of the truth, at least according to Deadspin.
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intent to abandon isn’t enough for abandonment, 9th Circuit rules

Posted on May 7, 2014 by rtushnet


Wells Fargo & Co. v. ABD Ins. & Financial Services, Inc., — F.3d —, 2014 WL 806385 (9th Cir. Mar. 3, 2014) (don’t know how I missed this in March, but catching up now)
Opinion below denying a preliminary injunction on Wells Fargo’s trademark infringement claim on abandonment grounds, reversed here.  Wells Fargo sued ABD (New ABD) for trademark infringement and false advertising.  Wells Fargo bought Former ABD in 2007, leading hundreds of Former ABD employees to join Wells Fargo; Wells Fargo changed Former ABD’s name to Wells Fargo Insurance Services.  However, Wells Fargo continued to display the Former ABD mark on customer presentations and solicitations, to maintain the abdi.com website and metatags, and to accept customer payments made to ABD. Members of Former ABD left Wells Fargo in 2009, then launched New ABD in 2012, using the same name, when they learned that Wells Fargo had not renewed the registration of the Former ABD mark.
The court of appeals held that the district court erred in its legal analysis and thus abused its discretion on likelihood of success on the merits.  First, the district court erred in failing to consider the false advertising claim separately, concluding that it was derivative of the trademark infringement claim.  But “the two claims are distinct and require the application of separate tests.”  There are five elements of a false advertising claim, but only two (ownership and likely confusion) for a trademark infringement claim. Though the court of appeals didn’t say more, one could tease out the idea that false advertising can deal with certain claims that should be channeled out of trademark law—not just comparative advertising, but also claims based on material confusion caused by someone picking up abandoned marks.
However, the court of appeals also found that the district court abused its discretion by misapplying the law in its abandonment analysis “when it considered evidence of prospective intent to abandon the mark to determine whether Wells Fargo’s uses were bona fide and in the ordinary course of business.”  Abandonment requires discontinuance plus intent not to resume use.  Even a single instance of use, made in good faith, defeats a claim of abandonment.  Unless the use is actually terminated, the intent not to resume use prong of abandonment is irrelevant—prospective intent to abandon is meaningless.
The district court therefore erred when it reasoned that Wells Fargo’s continued uses of the ABD mark were not bona fide and in the ordinary course of trade because such uses were “residual … or in the context of a historical background” given Wells Fargo’s rebranding efforts.  The consideration of Wells Fargo’s intent to rebrand ABD wrongly relied on prospective intent to abandon.  Plus, the district court misconstrued what could count as a “bona fide use in the ordinary course of trade,” which depends on the totality of the circumstances.  Even a declining business can continue to benefit from goodwill until its use ends.  Uses in customer presentations and solicitations “demonstrate[d] Wells Fargo’s business calculation that it could continue to benefit from the goodwill and mark recognition associated with ABD.”  Thus, Wells Fargo continued bona fide use and did not abandon the mark.
The court of appeals continued by cautioning against weighing lack of evidence of actual confusion decisively against a plaintiff at the preliminary injunction stage.  “ [A]t that point parties rarely have amassed significant evidence of actual confusion.”  Further, Wells Fargo could raise a false affiliation claim on remand.  (What this means is unclear, but probably irrelevant given the abandonment holding.)
Finally, giving a pro-plaintiff spin to Herb Reed, the court of appeals directed the district court to revisit the issue of irreparable harm, quoting only that case’s statement that “[e]vidence of loss of control over business reputation and damage to goodwill could constitute irreparable harm.”
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Lifetime piling up: Aspen and new anti-first sale business models

Posted on May 7, 2014 by rtushnet


When I teach property, I generally don’t teach much IP because I’ve found I get frustrated with the necessary quickness of any coverage.  But they’ve come for my casebook, and so I must respond.  Aspen is making the next edition of Dukeminier, Krier et al. into a tied deal, purporting to provide a physical copy that must be returned at the end of the semester (thus trying to defeat first sale, even though this type of servitude isn’t historically allowed for chattels and I disagree with the apparent idea that this is an enforceable condition) while providing “lifetime” access to an electronic version. 
Paul Levy suggests a boycott is in order.  I agree that I’m not about to require my students to pay this money for a book they won’t be able to resell plus non-credible “lifetime” access. The internet is littered with the corpses of websites that were supposed to give you access to your paid-for, DRMed content forever, including websites backed by some very big names.  I’m pretty lazy and don’t like to switch casebooks, but I guess I have to if this policy persists.  Law school is expensive; so is giving up the first sale doctrine.
James Grimmelmann has also started a Change.org petition against this policy.
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Color and price aren’t actionable representations about product

Posted on May 2, 2014 by rtushnet


Boris v. Wal-Mart Stores, Inc., No. CV 13–7090 2014 WL 1477404 (C.D. Cal. Apr. 9, 2014)
Plaintiffs sued Wal-Mart for deceptively marketing Equate Migraine and Equate Extra Strength Headache Relief (Equate ES).  Both allegedly have the exact same active ingredients in the same amounts, but Wal-Mart charges 2-3x more for Equate Migraine than for Equate ES, and Equate Migraine has a red background while Equate ES has a green background.  Plaintiffs alleged that the different prices and backgrounds deceived consumers into thinking that Equate Migraine was better—stronger and more effective—than Equate ES.  WalMart’s website also lists all three active ingredients for Equate Migraine, but lists only one active ingredient for Equate ES.
Plaintiffs sued, alleging California, New Jersey, and New York consumer protection claims.  The court refused to treat price and color as conveyors of meaning, contrary to what marketers know to be true (there are many examples of research on consumers usingprice as a quality signal, regardless of whether it is a good or true signal—not for nothing is there a cliché “you get what you pay for”).
Plaintiffs failed to identify affirmative misrepresentations, omissions, or failure to comply with FDA rules. Instead, the argument was that the increased price and the use of red on the Equate Migraine package deceived consumers into thinking it was more effective than Equate ES.  To plaintiffs, “no reasonable consumer would pay more than $9 for Equate Migraine when he or she could pay less than $3 for Equate ES unless he or she believed Equate Migraine was more effective than Equate ES.”  The court noted the res ipsa loquitur appeal of the claims.  But “a consumer’s assumptions about a product are not the benchmark for establishing liability under any of the consumer protection statutes Plaintiffs rely on; rather, all of these statutes require some act, statement, or omission by the defendant.” 
Comment: The assumptions don’t come out of nowhere!  There’s nothing inherent in them—they’re created by Wal-Mart’s choices of contrasts—which is to say Wal-Mart’s “acts,” or you could even reasonably call them “statements” insofar as they are communicative. Compare Amestoy, 92 F.3d 67 (2nd Cir. 1996), the blue dot case where the state decreed what a blue dot would mean. The meaning isn’t inherent, but the Second Circuit had no trouble understanding that consumers would put the blue dot together with the sign displayed in the store. That a contrast is made nonverbally makes it no less of a contrast; color is a standard way of distinguishing varieties/strengths of products (take a look at the tampon aisle sometime), even setting the confirming price signal aside.
But the court disagreed.  Color and price aren’t statements or representations. “[T]he price is simply the amount at which the merchant offers to sell the product, and the color of the packaging is a color, not a statement about the product.”  (I’ll believe that when consumers don’t expect pink-packaged foods to contain fruity flavors and green-packaged ones to be citrus or mint.)  Plaintiffs argued that Wal-Mart v. Samara supported them, because color can acquire secondary meaning (actually that’s Qualitex, but no matter)—which means that it can communicate something other than “the product is this color.”  The court said “Wal–Mart has no bearing on the consumer false advertising claims in issue here.” Nor did Miller v. Ghirardelli Chocolate Co., 2013 WL 1402682 (N.D. Cal. Apr.5, 2013), which involved allegedly false claims of white chocolate content, since the word “chocolate” was involved there.
Rather, the court concluded, “[i]nsofar as the color red on a product’s package communicates anything, its message is necessarily subjective and speculative. A merchant’s liability cannot be premised solely on a consumer’s assumptions about a product based on a product’s price and the color of its packaging.”  You know, like you can’t look for extrinsic evidence to figure out what a wordmeans in context, either.  The packages had the active ingredients and dosages on them, and plaintiffs could’ve figured out the truth by simply comparing them.
The UCL unfairness claim then failed because it wasn’t tethered to any specific constitutional, statutory, or regulatory provision, and thus was too inchoate.  A test based on the test used for UCL unfairness claims between competitors was the appropriate guide because “‘[a]n undefined standard of what is ‘unfair’ fails to give businesses adequate guidelines as to what conduct may be challenged and thus enjoined and may sanction arbitrary or unpredictable decisions about what is fair or unfair,’ regardless of whether the unfairness claim is asserted by a competitor or by a consumer.” 
Price setting is up to merchants, absent legislative regulation. “Taken to its logical conclusion, Plaintiffs’ claim requires the judiciary to make pricing decisions, such as ruling that pharmacologically identical drugs must be the same price or may have only a limited price differential, or imposing liability for differential pricing on a necessarily unpredictable case-by-case basis.” (Wal-Mart offered an explanation for the price difference based on different FDA approval processes applicable to each medication, which was beyond the scope of the pleadings and unnecessary.)  Even stating that result shows it’s untenable; price regulation “is a political question beyond the judiciary’s authority.”  So is the fairness of a product’s color.  (Deceptive pricing isn’t!)

For the same reasons, the NY and NJ claims also failed.
While the dismissal of the price/color claims were with prejudice, dismissal of claims based on the website description differential was with leave to amend.  The website allegedly falsely listed Equate ES as having only one active ingredient, acetaminophen 250 mg, while listing three active ingredients for Equate Migraine (acetaminophen 250 mg, plus aspirin 250mg, and caffeine 65 mg).” Nothing in the current complaint was enough to allege that this independently violated the law; the only plaintiff who claimed to represent an online purchaser class didn’t specify when he viewed or relied on the Wal-Mart website to buy Equate Migraine.  Because Wal-Mart’s website changes over time, Wal-Mart was entitled to know when he saw the website and whether he viewed the pages listing the active ingredients.
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7-year ad campaign triggers Tobacco II’s reliance rules

Posted on May 1, 2014 by rtushnet


Dodson v. Tempur–Sealy International, Inc., No. 13–cv–04984, 2014 WL 1493676 (N.D. Apr. 16, 2014)
Plaintiffs brought twenty-four claims under the laws of eleven states.  The alleged misrepresentations were that Tempur products are “formaldehyde free;” are “free of harmful VOCs [volatile organic compounds];” are “allergen resistant” or “hypoallergenic;” are “completely safe;” are “harmless;” and have only a “slight odor” that will “dissipate in a few days.” In addition, Tempur-pedic allegedly knowingly omitted the fact that numerous health agencies list formaldehyde as a “known human carcinogen;” that VOCs “can be and are often allergenic;” and that it has received many “customer complaints … claiming Tempur-pedic’s products were causing them allergic reactions ….” Essentially, the allegations arise out of the undisclosed presence of formaldehyde and VOCs contained in or emitted from Tempur products. According to plaintiffs, “reliable testing of Tempur-pedic products reveals that formaldehyde and other potentially harmful VOCs, that can trigger allergy and asthma symptoms, are present in Tempur-pedic products and in the chemicals off-gassing from Tempur-pedic products.”
A California safe harbor provision relating to “environmentally friendly” claims was irrelevant, since those weren’t the claims at issue.
The court found that the complaint stated a claim under the CLRA for failure to disclose. Though there was no fiduciary relationship with the plaintiffs, plaintiffs plausibly alleged that defendants had exclusive knowledge of material facts not known to them—the actual chemical contents of the products (as well as the volume and content of customer complaints), which plaintiffs weren’t in a position to know about, especially given that defendants attributed the products’ odor to the “manufacturing process.” Separately, plaintiffs plausibly alleged active concealment of the contents of the products because ads and promotional materials specifically attributed the products’ strange odor to a “manufacturing process” and explicitly represented that Tempur material is “free of harmful VOCs such as formaldehyde and CFC—harsh chemicals that can trigger allergies and asthma.”
Also, plaintiffs plausibly pled materiality: they wouldn’t have bought/would’ve paid less had they known the truth.  This was enough to create a reasonable inference that defendants had a duty to disclose the true chemical contents of the products and the possible ramifications of their presence.  The pleadings also satisfied rule 9(b).
Defendants argued that plaintiffs didn’t adequately allege reliance because they didn’t each allege they viewed the ads at issue.  Under In re Tobacco II, this was a close case, since the “exception” for pleading reliance on specific misrepresentations in the context of a long-term ad campaigns is “narrow.”  (Reliance must still be pled, so this isn’t really an exception.)  Still, plaintiffs sufficiently pled reliance, given allegations that the misrepresentations were extensive—“appearing within in-store brochures, on Tempur-pedic’s website, and on its official Facebook page,” and made since at least 2007.
The UCL claim survived because plaintiffs successfully pled unlawfulness (and fraudulence), not just under the CLRA and FAL, but also under California Civil Code sections 1709–11, which makes it unlawful to “willfully deceive [ ] another with intent to induce him to alter his position to his injury or risk” and states that “[o]ne who practices a deceit with intent to defraud the public … is deemed to have intended to defraud every individual in that class, who is actually misled by the deceit.” In addition, plaintiffs stated a UCL unfairness claim, because they alleged that the harm to consumers (triggering allergies etc.) outweighed the utility of the conduct.
Given the similarities between California law and the law of other states, the motion to dismiss non-California claims was also denied.
Further, the court rejected defendants’ arguments based on statutes of limitations.  The discovery rule and the doctrine of fraudulent concealment tolled the applicable California statutes of limitations for purposes of the motion to dismiss. Given defendants’ exclusive knowledge, plaintiffs plausibly alleged that they couldn’t have been expected to know the true chemical contents at the time of purchase, and that they didn’t have a reasonable opportunity to discover the alleged wrongdoing until scientific testing occurred in 2012 and 2013, within the 3-year limitations period.  The court reached the same result under New York law,  which recognizes equitable tolling.
Finally and inevitably, defendants challenged standing.  But not only did plaintiffs allege that these products could and did cause physical harm, the allegation that plaintiffs spent money that they wouldn’t have spent because of defendants’ conduct was “a quintessential injury-in-fact.”
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claims about conduct’s legality don’t violate Lanham Act

Posted on May 1, 2014 by rtushnet


Ameritox, Ltd. v. Millennium Laboratories, Inc., No. 11–cv–775, 2014 WL 1456347 (M.D. Fla. Apr. 14, 2014)
Previously, there have been several opinions in this false advertising case between competitors in the urine testing market.  Here, Millennium won summary judgment on some parts of the case.
Ameritox alleged a number of misrepresentations by Millennium, starting with billing letters for doctors to give to patients stating a policy (1) not to collect the difference between the amount Millennium billed for its services and the amount the patients’ insurance companies agreed to pay, and (2) not to require patients to pay deductible or co-pays. Ameritox alleged that these were deceptive as to those who weren’t required to pay anything anyway (or who only had a $1 copayment).  This was an illusory benefit as to them, and also Ameritox alleged that waiving these payments was illegal under federal and some state law, so Millennium gained business by falsely representing that these actions were proper.
Second, Millennium allegedly created a press release advocating for higher Medicare reimbursement rates for doctors performing drug screening, falsely representing that Millennium had no vested interest in advocating for this change and gaining credibility for its supposed altruism. 
Millennium also allegedly engaged in various misrepresentations about billing, deceptively representing that its billing scheme was proper, when it wrongly encouraged doctors to bill multiple times or multiple ways for the same procedures.  Relatedly, it allegedly encouraged doctors to send samples to Millennium for more expensive testing than that performed in the doctor’s office.
Finally, Millennium allegedly falsely stated and implied that giving doctors free or below-market-priced products and services (testing cups, assistance for obtaining certain waivers necessary to conduct drug testing, and chemical analyzers) was legal.  The free testing cups could only be used to collect samples and then send them to Millennium, not for billable testing.  Millennium’s cup agreements enabled it to convert accounts from Ameritox.  Similarly, assistance in obtaining waivers was supposedly $50 in order to avoid antikickback laws, but Millennium didn’t actually charge the fee until this lawsuit was filed; this also helped Millennium get accounts.
The court agreed that statements about the legality of the cup agreements couldn’t found a Lanham Act claim, because no court or agency had held them illegal. Laypersons’ purported interpretations of statutes and rules are opinion, not fact, in the absence of a clear and unambiguous judicial or agency holding.  There was no clear case law on the cups, only an inquiry letter from a Florida agency that didn’t result in any action.  (However, to the extent that the conduct of giving the cups amounted to unfair competition because it was illegal, Ameritox could continue to pursue this state law claim.)
As to the below-market chemical analyzers, Millennium argued that it didn’t offer them.  Ameritox presented evidence that Millennium sought out the third-party vendors, negotiated preferential pricing for Millennium customers, and would benefit from the transactions, so summary judgment was denied. The court also rejected Millennium’s “commercial advertising or promotion” argument on this topic, since there was evidence that Millennium sales reps told doctors about the offer and told them that it was legal.
As for the representations about billing, the parties didn’t sufficiently identify the specific representations at issue or show how they were proper or improper.  Ameritox provided evidence that Millennium’s sales representatives would tell customers: (1) how the customers and Millennium could both bill for testing the same urine specimen; and (2) how the customers could bill multiple units.  But the court was still unclear on the specifics or the propriety of these practices. (I take it this uncertainty includes whether there was a definitive court or agency statement about the practices.) Summary judgment denied.
The court also found that Millennium’s marketing of assistance for obtaining waivers wasn’t improper, because it advertised that it charged $50.  Thus, it didn’t falsely advertise the legality of its assistance.  But the conduct of not collecting the fee might still be unfair competition.
Millennium argued that Ameritox couldn’t show injury entitling it to damages, but the court ruled that both damage to Ameritox and disgorgement of Millennium’s profits might be available. Because “marketplace damages and actual confusion are notoriously difficult and expensive to prove,” courts routinely presume that literally false ads deceive consumers.  And many courts presume that willfully deceptive, comparative advertisements cause financial injury to the targeted party. But none of the challenged representations here were comparative ads, so there was no presumption of causation.
Ameritox mostly pointed to evidence of harm from the cup agreements, which weren’t the proper basis for a Lanham Act claim, as well as evidence of missed financial projections.  But “change in the parties’ sales positions without a showing that the change was caused by a specific advertising representation is not sufficient evidence of causation.”  Ameritox’s analysis of customers’ proffered reasons for switching to Millennium was hearsay. Given the presence of an expert report, which was under challenge, the court deferred ruling on damages.
In order to obtain disgorgement, Ameritox wouldn’t need to show actual damages.  Disgorgement is appropriate where (1) the defendant’s conduct was willful and deliberate, (2) the defendant was unjustly enriched, or (3) it is necessary to deter future conduct. When a profits award is appropriate, the plaintiff must establish only defendant’s sales of the product at issue; “the defendant bears the burden of showing all costs and deductions, including any portion of sales that was not due to the allegedly false advertising.”  The statutory text requires the plaintiff to prove sales only, not “sales due to the false advertising” or “sales due to the violative conduct.”
This may seem like a windfall, but defendants can avoid it by apportioning their profits, and if they can’t, as violators of the Lanham Act they may fairly suffer the consequences of their own failure to do so.  Also, Ameritox would still have to prove causation, and prove sales of the falsely advertised products.  Whether Ameritox could prove causation, as noted above, wasn’t yet decided.
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Disparagement creates Lanham Act standing post-Lexmark

Posted on May 1, 2014 by rtushnet


First Mariner Bank v. Resolution Law Group, P.C., 2014 WL 1652550, No. MJG–12–1133 (D. Md. Apr. 22, 2014)
FMB sued RLG for false advertising, unfair competition, and defamation, based on ads send to FMB customers.  The ads stated “that RLG was investigating First Mariner, suggested (at minimum) that First Mariner was engaging in illegal and improper banking practices, and indicated that some banks were in settlement negotiations with government agencies.”  They also said that the government would seek money damages and favorable mortgage modifications, and urged recipients to contact RLG. FMB contended that these claims were false, and that RLG was engaged in a “mass joinder mortgage reduction scam,” seeking to scare recipients into “engaging RLG (and paying a retainer) for non-existent mortgage reduction services and representation in a scam-lawsuit which RLG has no bona fide basis for filing.”
During 16 months of discovery, the magistrate judge found (echoing earlier findings), defendants engaged in “repeated and ongoing discovery misconduct,” including spoliation of a computer and cellphone that were the only identified sources of records pertaining to whether RLG ever intended to pursue or was capable of pursuing “a bona fide lawsuit on behalf of the recipients of the mailers it distributed.”  Given the extent of the misconduct, the waste of judicial resources, and the expense and delay to FMB, the magistrate recommended judgment by default as to liability on all counts of the amended complaint as “necessary to uphold the integrity of the judicial process and squarely within the Court’s discretion.”
Defendants argued that FMB lacked standing to bring its federal and state false advertising/unfair competition claims, which would preclude entry of default judgment. The district judge already ruled that under Maryland law, a plaintiff need not be in competition with the defendant to have standing to pursue an unfair competition claim.
As for the Lanham Act, Lexmark changed the ground rules.  Despite Justice Scalia’s unhappiness with the term, the magistrate still called the concept at issue “standing,” since what else are you going to call it?  As the magistrate explained, “(1) the statutory cause of action only extends to plaintiffs whose interests fall within the ‘zone of interests’ protected by the Act; and (2) the statutory cause of action is limited to plaintiffs whose injuries are ‘proximately caused’ by violations of the Act.”  The zone of interests prong requires a plaintiff to allege an injury to a “commercial interest in reputation or sales,” and proximate cause ordinarily requires “economic or reputational injury flowing directly from the deception wrought by the defendant’s advertising,” particularly when “deception of consumers causes them to withhold trade from the plaintiff.”
The claim here “fits snugly within the Lexmark framework.”  FMB alleged that it lost sales, market share, and damage to reputation because of defendants’ false advertising and disparagement.
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court certifies nationwide damages class for homeopathic products

Posted on May 1, 2014 by rtushnet


Forcellati v. Hyland’s, Inc., No. CV 12–1983, 2014 WL 1410264 (C.D. Cal. Apr. 9, 2014)
Plaintiff sued for violation of New Jersey, California, and Missouri consumer protection laws (and breach of warranty), alleging that defendants misrepresented that their homeopathic products provide fast, safe, and effective relief from cold and flu symptoms, while in fact the products are “nothing more than sweetened, flavored water with … highly diluted concentrations of the products’ so-called ‘active ingredients.’”
The court first found that California law could apply to everyone, given that defendants are headquartered in the state.  The burden was on defendants to defeat the presumption that California law applied, and they didn’t.  They needed to show a true conflict and that foreign states’ interests were stronger than California’s. Citing to other cases where defendants met that burden was insufficient.  Though they did identify differences in the various states’ consumer protection statutes and requirements for proving breach of warranty, they didn’t show that these differences were material.  Nor was quoting Mazza’s broad statement that “each of the 50 states has an interest in setting the balance between protecting its consumers and setting limits on when businesses may be sued for the purchase of their products” enough to show a true conflict on these facts, or any impairment of other states’ interests by the application of California law.  “[W]hile California recognizes that ‘a jurisdiction ordinarily has the predominant interest in regulating conduct that occurs within its borders,’ in a false advertising case the state from which the misrepresentation was disseminated often has the predominant interest.”  The economic injury occurred at the point of purchase, but that doesn’t mean that the predominant interest for choice of law purposes is in the state at the point of purchase.
On to class certification.  Ascertainability: While some courts have found that low-dollar purchases unlikely to leave records result in unascertainability, this court was having none of it.  Ascertainability means that the class can be defined by objective criteria, and if the class definition allows prospective plaintiffs to determine whether they’re class members.  Whether people bought the products at issue within a defined timeframe was objective, and that was enough. 
Neither class members nor defendants would have records of purchase.  Relying primarily on Carrera v. Bayer Corp., 727 F.3d 300 (3d Cir. 2013), defendants argued that class certification would be inappropriate because self-identification of a class deprived them of due process rights to challenge individual members’ claims; prevented finality because class members could later assert that fraudulent claims diluted their recovery; and made the class action an inferior mechanism because of the challenges of confirming class membership.  Given that facilitating small claims is “[t]he policy at the very core of the class action mechanism,” the court declined to follow Carrera.
First, defendants had no due process interest in how damages are distributed.  Their interest in not paying excess damages would only be implicated if aggregate liability couldn’t be reliably determined, or if they were entitled to unclaimed portions of the judgment.  Neither of these situations were present. Defendants’ aggregate liability was tied to a concrete, objective set of facts—total sales—“that will remain the same no matter how many claims are submitted.” Plus, unclaimed funds would likely be distributed under cy pres standards, given the relevant statutes’ deterrence goals. 
Second, class members would be bound by a final judgment.  Carrera said that fraudulent or inaccurate claims could lead to class members arguing that the named plaintiff wasn’t an adequate representative.  Initially, dilution of a class member’s recovery was highly unlikely as a practical matter, even assuming that inaccurate/fraudulent claims would inevitably fail to be screened out.  “The reality is the number of class members who actually file claims is relatively low.” As a result, it was almost inevitable that “any fraudulent or inaccurate claimants would merely be standing in the stead of legitimate ones, and no material dilution would occur.” Further, even if dilution might occur, there was no precedent justifying a fear that this would preclude a final judgment binding class members.  Defendants couldn’t identify a single case where a class member even challenged adequacy on the grounds that the named plaintiff “proceeded with the understanding that absent class members may get less than full relief.” In fact, “broad collateral review of the adequacy of representation (or the other due process requirements for binding absent class members) is not available.”  Adequate representation is protected by the certifying court, not by collateral review.  In addition, even if collateral review were available, there would be no basis for finding inadequacy in this case, since adequacy requires only vigorous prosecution and the absence of an insurmountable conflict of interest.  “To the extent that fraudulent and inaccurate claims might reduce true class members’ recovery, Plaintiffs’ recovery would be diluted to the same extent. They therefore share absent class members’ interest in screening out potential bad claims.”  Plaintiffs proposed a fraud analysis during the claims administration process to deal with this concern.
Third, “[t]he due process touchstone of adequacy and fairness of representation must be judged in light of” the alternatives to class treatment. The alternative here was nothing. “[A] diluted recovery is surely preferable to absent class members’ only realistic alternative: no recovery at all.”
Confirming class membership wasn’t overly burdensome and didn’t render the class action an inferior method.  “Generally, potential manageability problems during the damages phase of a class action do not defeat certification.”  Given the proposed claims administration screening, the court was confident that there weren’t overwhelming manageability hurdles, and the court retained flexibility to deal with problems if they did develop.  Though there was no “surefire” way to confirm each and every claimed purchase, this just didn’t affect defendants’ bottom line, and shouldn’t inure to their benefit.  Other 9th Circuit district court cases finding to the contrary involved an unknown number of total class members, and/or “class definitions based on imprecise, non-objective, or complex criteria such that people could not easily determine whether or not they were members.”  But generally in the 9thCircuit, “classes that are objectively defined by the purchase of a low-cost product during a prescribed timeframe are routinely certified.”
Numerosity was uncontested.
Commonality was easy: all the plaintiffs’ claims had the same fundamental premise, which was that defendants misrepresented their products as safely and effectively treating flu and cold symptoms when the products in fact had no medicinal value.  “If Plaintiffs can prove that homeopathy is a ‘pseudoscience,’ as they claim, and that Defendants’ products therefore uniformly do not perform as advertised, then the putative class will be entitled to relief under Plaintiffs’ warranty and false advertising claims.”  The court therefore rejected defendants’ arguments that (i) each product used different ingredients and treated different symptoms; (ii) whether the labels were misleading couldn’t be established on a classwide basis; and (iii) some consumers were satisfied with the products.  The efficacy of homeopathy would generate common answers to (i).  As to (ii), misleadingness is a classwide inquiry.   “It is simply a matter of common sense that consumers who purchased Defendants’ products did so in reliance on Defendants’ claims that the products provided effective relief from cold and flu symptoms.”  Finally, the argument that satisfied customers weren’t harmed or entitled to restitution was meritless.  Plaintiffs alleged that the products were placebos. Advertising is false if effectiveness arises solely as a result of the placebo effect.
Likewise, given the argument that homeopathy is uniformly ineffective, the extent to which plaintiffs’ children differed from average children was irrelevant to typicality, as was which particular products absent class members purchased.
On to 23(b)(3).  Predominance: yes, for reasons given above. Given the allegation of complete bunkum, “the products’ unique ingredients are relatively unimportant and do not threaten to predominate.”  Likewise, “that a large number of factors may have gone into each consumer’s decision to purchase Defendants’ products is immaterial here given the objective materiality of the alleged misrepresentations.” No one would buy a product that doesn’t work.
Superiority: Defendants’ refund program for dissatisfied consumers didn’t defeat superiority.  The plain language of Rule 23 directs courts to consider other available methods of adjudication, not refund programs.  You can’t disregard that text just because you think you have a better idea.
However, plaintiffs lacked Article III standing to seek injunctive relief, since they weren’t going to repurchase the products at issue. Even if this severely undermines the efficacy of California’s consumer protection laws, Article III still requires that result.
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