meaningless numbers aren’t advertising

Posted on June 5, 2014 by rtushnet


MGM Resorts Intern. v. Pacific Pillows, LLC, 2014 WL 2434628, No. 2:13–CV–1404 (D. Nev. May 28, 2014)
Pacific Pillows lets consumers buy bedding products that are used in various hotels including several hotels owned by MGM. Its website allows people to “shop by hotel,” and (at least some) pillows are named after hotels that MGM owns.  MGM also sells pillows and bedding using MGM’s marks for its hotels.  MGM sued Pacific Pillows for trademark infringement, counterfeiting, false advertising, and unfair competition.  Pacific Pillows counterclaimed, to no avail.
The Sherman and Clayton Act claims were dismissed because there is no antitrust law left.  MGM’s allegedly false advertising on its pillow tags was also not actionable under the Lanham Act.  Pacific Pillows lacked a  “concrete and particularized” injury, because all it alleged was that MGM’s advertising created “significant confusion in the marketplace” and harmed Pacific Pillows, which was too vague and speculative.  Even with standing, the claim failed. The allegedly false advertising was an incorrect registry number on pillow tags, but a registry number isn’t a commercial advertisement.  “The incorrect registry number is simply a series of letters and numbers that means nothing to consumers. The number does not give typical consumers any information about the pillow, and it certainly does not influence customers to buy the pillow.”  Even if other parts of the tags (the logo) were advertising, that didn’t make the registry number a commercial ad.  Also, Pacific Pillows failed to plead that the registry number was likely to influence purchase decisions or cause injury to Pacific Pillows.
Separately, Pacific Pillows alleged that MGM falsely advertised a pillow named “Aria,” because “Aria” wasn’t the exclusive pillow used at the Aria hotel, and that a pillow similar to the “Aria” pillow is only used in a small number of rooms. Pacific Pillow also lacked standing to bring this claim.  Further, it didn’t allege a false statement of fact: it didn’t allege that MGM advertised that a customer who purchased “Aria” would get the same pillow that is found in every room at the Aria hotel. Since both sides agreed that a similar pillow is found in some rooms in the Aria hotel, there was no falsity.
Common-law unfair competition failed too, as did wrongful interference with contractual relations/prospective economic advantage.  Though MGM allegedly contacted Pacific Pillows suppliers, and thus did intentionally interfere with contractual relationships, Pacific Pillows didn’t successfully plead that this interference was improper.  MGM notified the suppliers that they were supplying a company that was allegedly infringing MGM’s marks.  Protection of its trademarks was legitimate.
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(pot)head of liability: Hershey’s sues marijuana candy producer

Posted on June 5, 2014 by rtushnet

Here’s the story.  I’ve been waiting for this for years, ever since a NYT story that included similar illustrations.  As with e-cigarettes, an unregulated field full of small players tends to have a lot of playing fast and loose with all laws.  Take this quote from the story: “‘I think it’s just a simple market strategy – mimicking brands that are pre-existing,’ said Vivian McPeak who is the Executive Director of Seattle Hempfest.” Still, is anyone really likely to be confused?

Reefer’s Cup and Reese’s

HT Patricia Williams/The Trademark Blog.

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unregistrable means unprotectable by sec. 43 as well

Posted on June 4, 2014 by rtushnet


Renna v. County of Union, N.J., 2014 WL 2435775, No. 2:11–3328 (D.N.J. May 29, 2014)
This is a well-written opinion whose legal conclusions are in part obvious but nice to have down in print and in part quite striking: I think for the first time, a court clearly rules that a mark specifically excluded from federal registration on policy grounds may not take advantage of §43(a) either.  If I were the attorney for Washington’s slur-named football team, I would be paying attention.
Renna, an outspoken critic of the County Board, produced a public access television show, the “Union County Citizen’s Forum.” The show displayed a graphic illustration depicting the Seal of the County of Union with a spotlight shining on it, symbolizing “the self-proclaimed mission of the show to shine a critical light on the workings of the Union County Board of Chosen Freeholders…. It would appear in the background as Renna read Board resolutions or interviewed guests on the air.” 
Screenshot of spotlight logo
A tidbit from the opinion:
This Seal, by the way, may be the only official County seal to depict a murder. The central illustration is an artist’s re-creation of the fatal shooting of Hannah Caldwell during the Revolutionary War. Hannah resided with her husband, “rebel pastor” James Caldwell, in the Connecticut Farms area of what today is Union Township. Her death in 1780, allegedly at the hands of a British soldier, was used to further galvanize public sentiment against England and its royalist sympathizers.
The County Attorney sent a C&D to the television station, warning it to stop displaying the seal and claiming trademark infringement.  “Whether the County has tried to bully a constituent is for the public to decide.” What it didn’t do was assert any legitimate rights. Declining to reach the First Amendment issues, the court found that Union County had no trademark rights in its seal, and Renna’s display in connection with her TV show did not infringe.  (If I were the County, I’d get out my checkbook for fees.  The Rutherford Institute represented Renna.)
The County’s C&D to the Township of Cranford, which operated the public access channel, said:
Re: Unauthorized usage of the seal of the County of Union Union County Citizens Forum
To Whom It May Concern:
It has come to the attention of the County of Union that your entity is using the Seal of the County of Union without proper authorization. The County of Union demands that your entity cease and desist use of the Seal of the County of Union in any way including, but not limited to, displaying it in the background of all television shows with exception of the prerecorded unedited meetings of the Board of Chosen Freeholders. Please be advised that the County Seal is also a pending trademark, therefore you are committing trademark infringement.
Renna discussed the letter with the TV station manager, who asked her not to use the Seal graphic.  Meanwhile, the USPTO refused the County’s pending trademark registration application, “because the applied-for mark consists of an insignia of a U.S. municipality.” 15 U.S.C. § 1052(b).
When Renna resumed taping (after an unrelated delay), she replaced the old logo with a new one, a spotlight shining on a photograph of the Union County Manager.   
Revised logo
This resulted in another request from the Cranford Township laywer to stop using that logo. Then the management requested that Renna sign an indemnification agreement, which made her nervous and caused her to seek legal counsel. 
Her counsel then sent a letter to the Union County Counsel who’d sent the C&D, pointing out that the County was wrong in a number of ways, with the consequence of chilling Renna’s First Amendment rights.  Counsel requested that the County withdraw its demands.  Instead, the County doubled down, claiming, “For your information, this Seal is in fact now trademarked.” The County maintained that the seal was “trademarked under Federal law”; that by state statute, the County was required to maintain a seal; that use by others was unauthorized; that State law “prohibits a third party, such as your client, from registering a mark that uses such an insignia”; and that there was “no impairment of your client’s first amendment right.” The County “simply is protecting its official seal, protected by trademark, from direct and unauthorized use.”
Meanwhile, the County failed to respond to the office action denying registration, and the registration was abandoned.  The County tried to revive its application, but of course revival would’ve been futile, and the application was again abandoned.
The court ruled that, given Section 2, 15 U.S.C. § 1052(b), the Seal was not a “valid and legally protectable mark.”  Section 2(b) provides an absolute bar to registration of matter that “[c]onsists of or comprises the flag or coat of arms or other insignia of the United States, or of any State or municipality, or of any foreign nation, or any simulation thereof.”
The County argued that this barred registration only by nongovernmental parties, not by the government body itself.  “The USPTO, however, correctly and authoritatively interpreted Section 1052(b) as an ‘absolute bar,’ one that ‘does not list any exceptions that would allow for countries, states or municipalities to register their own flags or insignia.’”  The Federal Circuit has agreed with the PTO.  In Re City of Houston, 731 F.3d 1326 (Fed. Cir. 2013).  While G-d  and the Supreme Court know that the fact that the Federal Circuit came to a conclusion doesn’t mean it’s right, the reasoning itself is sound. The Lanham Act must be read according to its terms, and not as a mandate to protect the public from “pirates and cheats” of all stripes. “And it would be particularly inappropriate to read a silent exception into section 2(b), because the surrounding provisions demonstrate that Congress knew how to express such an exception when it wanted to.”  
In a footnote, the court noted that it was bound by the statute’s words.  But it also defended the lack of any special exemption for government entities as consistent with the Lanham Act’s purpose.  “The registration bar was not enacted to protect official prerogatives or preserve official symbols from desecration. Rather, the bar represents a more general determination that state insignia are not appropriate subjects of trademark law at all. Trademark law concerns itself with goods and services in commerce.”  McCarthy explains the bar as based on the theory that government insignia shouldn’t be registered as symbols of origin for goods and services because such insignia “ought to be kept solely to signify the government and not to be sullied or debased by use as symbols of business and trade.” The court concluded that it could “easily imagine the absurdities that would arise from the trademark registration of flags and insignia, which are intended to be used by the citizenry.”
In its communications with Renna’s counsel, the County didn’t acknowledge the USPTO’s authoritative rejection, but instead claimed that the seal was “now trademarked under federal law,” which—given the earlier reference to a pending mark, which had to mean registration—“carried the misleading implication that some intervening event had solidified the trademark status of the Seal” when the opposite was true.  To that misleading implication, the county’s lawyer added another, claiming that New Jersey law barred third parties from registering insignia.  But the state statute didn’t say that—it said what the Lanham Act says, imposing a categorical bar.  The letter then added a “non sequitur”: “Indeed, N.J.S.A. 52:2–4 makes unauthorized use of the State seal a crime.”  While this is true, the state seal wasn’t at issue.  “It is hard to discern any purpose, other than general intimidation, for the citation of this criminal statute in an official communication to a citizen, even one represented by counsel.”  The stated basis for the C&D was illusory.
Okay, so what about § 43(a)?  The County argued that its seal was a protectable mark “because its letters and symbols signify only one thing: the County of Union and the services the County provides,” as well as being fanciful/inherently distinctive.  The doctrine says that the Lanham Act “protects unregistered marks to the same extent as registered marks because trademark rights emanate from use and not merely registration.”  Registration is not a prerequisite for protection—but validity is.  The court concluded that there was “a difference between a mark that happens to be unregistered, and one that cannot be registered as a matter of law” (emphasis added).
Section 2 was best interpreted as determining that certain marks “are inappropriate subjects for trademark protection.”  It followed that an unregistrable mark was not actionable under §43.  There are no cases finding unregistrable marks protected under §43, which made sense because of the broader purpose of §2 to distinguish “fit from unfit” subjects of trademark protection. Section 2’s bar is substantive, not a function of the registration process.
Two Pesossupported this result, using §2 standards to determine validity in a §43 case.  Though §43 is broader than §32, that doesn’t mean it applies to “a different kind or class of mark.”  Justice Stevens’ concurrence further elaborated that “§43(a) is properly understood to provide protection in accordance with the standards for registration in §2.”  Wal-Mart likewise applied §2 analysis about distinctiveness to a §43 case.  (Consider whether a deceptive mark could get §43 protection.  The court’s reasoning suggests that there’s a super-unclean hands defense whenever a plaintiff’s mark is itself confusing/deceptive.) 
This all made sense.  Consistency was an “independent virtue”: as McCarthy said, “What the law does not need is a separate set of different substantive trademark rules followed in § 43(a) cases…. A plethora of different rules and standards provides neither predictability nor consistency, both hallmarks of a rational and democratic legal system.”  Plus, the whole point of §43 was to provide unregistered marks with the same protection as registered marks.  “A mark should not earn extra protection because it is not registered. The Congressional scheme would be scrambled if Section 43(a) were used to protect marks that could never have received any protection as registered marks.”
Thus, Renna’s use could not violate any County trademark rights; there were none.
Independently, even assuming that the County had trademark rights, trademark law has a particular purpose, to which it should be confined: the use of a mark in connection with furnishing goods or services.  “Trademark law is not properly employed to stifle discussion. Microsoft Corporation could not use trademark law to enjoin a consumer from saying ‘I prefer Apple® to Microsoft®,’ nor could Apple do the reverse. Such comments simply have nothing to do with protecting a purchaser mistaking the source of goods.”  Use in the course of criticism is not infringement.  Even if the County considers Renna’s statements inaccurate, trademark law “protects only against mistaken purchasing decisions and not against confusion generally,” which must be corrected with counterspeech or, if appropriate, a libel claim.  This rule implements First Amendment values.  And if that’s true of the limits of trademark as applied to a private company, it is much more so with respect to a governmental body. 
But the court didn’t have to decide any First Amendment issue, though Renna’s arguments on this point were persuasive.  Renna’s use was clearly expressive and political, “entitled to the highest degree of constitutional protection.”  If the US couldn’t criminalize the desecration of the US flag, “an artful extension of trademark law” to quash political expression using a county seal would be “both unwarranted and Constitutionally risky.”  Not before the court was whether a state or municipality could enjoin deceptive misuse of official insignia, as opposed to expressive statements.  The county submitted no evidence that any viewer had been or was likely to be deceived by Renna’s logo.
Comment: And now we see the sub rosa encoding of a confusion analysis.  But I’d say this makes more sense than many such moves (*cough*Louboutin*cough*), since the relevant confusion in an official insignia case would be confusion about the source of authority.  The risk of deceptive use of insignia is not that people will buy a T-shirt from the wrong person; the risk is that they will obey or give money to someone believing that someone to be an official/have official sanction.  That’s just not a trademark concern, but it is reasonably addressed by laws against impersonation.
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a twist on substantiation claims in consumer protection cases

Posted on May 30, 2014 by rtushnet


In re Bayer Heathcare and Merial Ltd. Flea Control Prods., — F.3d —-, 2014 WL 2209024 (6thCir. May 29, 2014)
In this multidistrict litigation, the district court dismissed the claims after limited discovery, and the court of appeals affirmed. 
Defendants claimed that their flea control products dispersed over pets’ bodies via the skin/hair after being applied to one area.  To streamline the case, the district court framed it as turning on a single issue—whether these claims were substantiated.  Defendants had the initial burden of producing studies to substantiate the claims, and then plaintiffs would have to show that the studies were unreliable, inaccurate, or incomplete.  The plaintiffs agreed to this case management plan, but then sought discovery on additional issues.  The district court denied most of those request and granted summary judgment to defendants.
Defendants submitted several studies, including a peer-reviewed study which applied Bayer’s product on dogs, and tested dog hair and skin samples for distribution of the product’s active ingredient and a doctoral dissertation that topically applied Merial’s product on dogs, and tested dog hair samples for distribution of the product’s active ingredient.  Plaintiffs submitted their own studies.  The district court concluded that defendants had a good faith basis for their claims; the parties failed to reach settlement and defendants weren’t interested in commissioning a neutral study as the district court suggested.  The district court then allowed discovery into consumer complaints, on the theory that evidence that the companies had received a large volume of consumer complaints would call into question Bayer and Merial’s good faith reliance on their studies.  After that came the summary judgment ruling. 
The court of appeals first affirmed reliance on the case management plan, which treated the case as having only one dispositive issue, and its associated discovery limits, to which the plaintiffs agreed. “[A]lthough they gave up discovery and some of the claims in the case, they got something in return. They no longer shouldered the initial burden of disproving the defendants’ advertisements; the defendants instead shouldered the initial burden of substantiating them.”
Then the court of appeals agreed that defendants met their burden, and plaintiffs didn’t successfully refute their studies.  Plaintiffs argued that their studies showed the presence of the products in animals’ bloodstreams, “which when considered in isolation might suggest that the products spread internally rather than by translocation.”  But the study also detected active ingredients in the pets’ hair twenty-four hours after application. Plaintiffs’ study asserted that its protocol was superior to the protocol used in Bayer and Merial’s studies, but it did not attack the basis of Bayer and Merial’s studies.  At best, this was a conflict, but that didn’t meet plaintiffs’ burden of showing that defendants couldn’t rely on their own studies in their advertising.  More than mere assertion that defendants’ studies weren’t as good was required.  “By requiring the plaintiffs to submit studies that demonstrated why Bayer and Merial’s studies did not provide a good faith basis for their claims, the district court was able to avoid a ‘battle of the experts’ and the attendant costs, which was another objective of the case management plan.”
Plaintiffs argued that the truth of the claims was at issue, but “if veracity was the central issue in the case, one would expect the plaintiffs to bear the initial burden of showing that Bayer and Merial’s claims are false.” Instead, the central issue was whether the plaintiffs could cast doubt on Bayer and Merial’s good faith basis for their advertising claims through expert studies.  “The plaintiffs’ studies did not attack the basis of Bayer and Merial’s studies; they merely asserted an opposing conclusion.”   
Comment: I would think that expert analysis of the defendants’ studies, not (or not just) conflicting studies would be required; otherwise there is, as the court of appeals says, just a disagreement, not an explanation of which is better.  The court’s discussion of the plaintiffs’ burden suggests that this is true, even though some of its language could be read as requiring plaintiffs to submit studies of their own.  Since plaintiffs failed to show that Bayer and Merial’s studies were unreliable, inaccurate, or incomplete, summary judgment was appropriate.
The court of appeals also rejected the plaintiffs’ argument that the defendants’ studies were never subjected to Daubert analysis because this argument was raised for the first time on appeal.
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Regression analysis is a plaintiff’s best friend

Posted on May 29, 2014 by rtushnet


Werdebaugh v. Blue Diamond Growers, 2014 WL 2191901,  No. 12–CV–2724 (N.D. Cal. May 23, 2014)
I’m going to try, with probably limited success, to summarize results rather than reasoning for most of this consumer class action case in which certification of a California class was granted, and focus on the interesting damages model bits.  Werdebaugh sued Blue Diamond for listing the sweetener on its almond milk as “evaporated cane juice” instead of sugar, and using “All Natural” when in fact the products allegedly contained synthetic ingredients.
Werdebaugh had standing to bring his claims for damages, but not for injunctive relief.  His deposition testimony clearly showed that he wouldn’t have bought Blue Diamond almond milk had he known about the alleged misbranding, which sufficed.  He testified that he was unfamiliar with the product, but “the ‘all natural’ label stood out” to him. He “stood at the shelf and saw this packaging and picked it up, read the labels, and made the purchase,” and the “all natural” label was a substantial reason why.  Werdebaugh further testified that he was concerned about seeing “evaporated cane juice” on the ingredients list, but did not know that it is “the equivalent of table sugar.”
Blue Diamond argued that it was implausible for Werdebaugh to believe that the products didn’t contain added sugars, since the nutrition facts panel that the almond milk contained 20 grams of sugars, and anyway he didn’t know what “evaporated cane syrup” or “dried cane syrup” was either so his purchase decision wouldn’t be affected by using those terms either.  The court disagreed.  The ingredients wouldn’t necessarily have indicated the presence of added sugars; Werdebaugh testified that he thought the 20 grams of sugar in the product he purchased was not added sugar, but rather was “an actual squeezed element of an almond that naturally occurs.”  Though he testified that “dried cane syrup” wouldn’t have affected his purchase decision, that just showed that he didn’t know what it was.  He’d still introduced sufficient evidence of reliance on both statements.
Ascertainability: not a problem, especially limited to a California class.  The class was defined based on objective criteria, and that was enough.
Numerosity: but of course.
Commonality:  Blue Diamond argued that what’s material varies from consumer to consumer.  “The law is to the contrary…. Whether Blue Diamond’s label statements constitute material misrepresentations does not depend on the subjective motivations of individual purchasers, and the particular mix of motivations that compelled each class member to purchase the products in the first place is irrelevant.”  Blue Diamond also argued that the allegedly deceptive labeling statements were not specifically regulated and, therefore, were not material, since the only official guidance came from “non-binding FDA policy statements.” But at this stage, the only question was whether materiality was a common question.  Finally, Blue Diamond argued that “All Natural” had no common definition and thus was not susceptible to common proof.  But cases using that reasoning generally involved representations that differed for each class member, such as representations made by doctors prescribing drugs. Here, the alleged misrepresentations were the same to each calss member, so the objective inquiry into whether “a reasonable consumer would attach importance” to Blue Diamond’s label statements was a question common to the class.  And, unlike the Astianacase cited by Blue Diamond, where over 90 different products with different ingredients and different ad campaigns were challenged, Werdebaugh was only challenging seven products, all based on their inclusion of the same ingredient (potassium citrate).  Blue Diamond didn’t contend that differences in its products’ labels would cause prospective consumers to understand the representations differently.
Typicality: Blue Diamond objected to including products Werdebaugh didn’t buy—he only bought Blue Diamond Almond Breeze Shelf Stable Chocolate Almond Milk.  But every other product included in the class definition was an almond milk product, and each bore one or both of the same misbranded label statements. They were different flavors, but the legal theory was identical for all claims. That’s typicality.
Blue Diamond then argued that Werdebaugh’s claims were atypical because he didn’tread or review the back label, which contained two of three “All Natural” statements.  But Blue Diamond didn’t persuade the court that he needed to read and rely on all alleged misrepresentations; even if he didn’t read two repetitions of “All Natural,” “he read the third, and Defendant provides no reason to distinguish between the three statements.”  Reading it on the package once was enough for typicality.
Nor were defenses unique to Werdebaugh likely to become the focus, since under California consumer protection law “individual experience with a product is irrelevant” because “the injury under the UCL, FAL and CLRA is established by an objective test.” Regardless of his particular motivations for purchase, “he shares with the proposed class the same interests in determining whether Blue Diamond products were deceptively advertised and labeled.”
Adequacy: yep.
Predominance: not for a nationwide class per Mazza, but for a California class.
Blue Diamond then argued that there was no predominance because Werdebaugh hadn’t identified an appropriate damages model, an argument the court analyzed in detail.  An appropriate damages model under the Supreme Court’s recent Comcast ruling must measure only damages attributable to the defendant’s conduct.
Restitution was available under California consumer protection law to compensate the purchaser for the difference between a product as labeled and the product as received.  For this, Werdebaugh needed a damages methodology that could determine the price premium attributable to Blue Diamond’s use of the labeling statements “All Natural” and “Evaporated Cane Juice.” 
The court rejected a full refund model, because it was wrongly based on the assumption that consumers receive no benefit whatsoever from purchasing the accused products.  
Then, the court turned to Werdebaugh’s expert’s price premium model, which compared the price of the accused products to allegedly comparable products without the challenged statements and calculated the entire price difference as restitution.  The court also rejected this model. “[The expert] has no way of linking the price difference, if any, to the allegedly unlawful or deceptive label statements or controlling for other reasons why allegedly comparable products may have different prices.”  The comparison product (a Whole Foods house brand) itself included the objectionable ingredient potassium citrate; the label listed “organic evaporated cane juice” as an ingredient until 2013; and the alternative was currently priced the same as the challenged Blue Diamond version at Whole Foods stores in San Francisco and Palo Alto. Werdebaugh’s deposition testimony also indicated that consumers typically pay a premium simply by buying from Whole Foods, which the model didn’t account for.  The price premium model just calculated what the price difference was, without tying it to a legal theory; it didn’t account for factors that might lead consumers to prefer Blue Diamond over “other identical products.”  These factors could include “brand loyalty or quality differences between brand and generic products.”  (If they’re identical, why the brand loyalty?)
However, a regression model saved the day (or ruined it, if you’re Blue Diamond).  By controlling for commonly recognized factors associated with sales—“price of the product, prices of competing and complementary products, income, advertising, seasonality, and regional differences”—as well as by taking into account differences in sales of the products before and after the “All Natural”/“evaporated cane juice” labeling, a more precise measure of damages could be calculated.
Blue Diamond argued that this model would raise individual issues not subject to common proof because consumers experience price variation across “products, sales channels, retailers, geographic regions, and time.”  For example, “the price for the top selling shelfstable Blue Diamond almondmilk product in 2012 varies by 26% across sales channels, by 31% across the top three retailers, and by 40% across cities in California.” But that’s kind of what the regression controls for, and Blue Diamond didn’t explain how these differences would affect the measure of damages—“price changes within regions that correspond to the introduction and/or removal of the allegedly misleading label statements.”  Even if a carton costs $4 in San Francisco and $3 in Sacramento, that wouldn’t necessarily affect damages—the price might have risen by a constant amount or by a percentage, but either way it could be calculated classwide.  (This would also be easier with a class limited to California instead of nationwide.)  If Blue Diamond introduced evidence that the price increase attributable to the allegedly false labeling would be 20% in San Francisco and 2% in Sacramento, the model might well fail under Comcast, but Blue Diamond didn’t explain why that would happen.
Blue Diamond also argued that retail prices varied and that it didn’t set retail prices, and that using a weighted average price measure would undercompensate some consumers and overcompensate other, but that didn’t address the way the model purported to measure price changes from the allegedly false advertising.  The model controlled for regional differences.  Comcast doesn’t require calculations to be exact, only that a model supporting a damages case has to be consistent with the theory of liability, both at certification and at trial. Even with regional differences, the regression model was sufficiently precise under Comcast, and could control for non-liability-producing factors.
Blue Diamond said that the methodology was too vague, but at this stage what is needed is a workable model, not necessarily a model that actually works. “Comcast did not articulate any requirement that a damage calculation be performed at the class certification stage,” so the fact that the expert had yet to actually run the regressions and provide results, and would need discovery to do so, wasn’t necessarily fatal.  Blue Diamond couldn’t succeed by attacking the specific variables of the regression the expert posed, if the tool of regression analysis itself was appropriate, as it was.
Superiority: yep.
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publicizing a falsely obtained injunction can be false advertising

Posted on May 28, 2014 by rtushnet


Peek v. Whittaker, 2014 WL 2154965, No. 2:13–cv–O1188 (W.D. Pa. May 22, 2014)
The court sets the stage: “This case is the latest skirmish in the on-going battle between two carpet-cleaning rivals, and is the federal court spill-over of their hotly-contested Pennsylvania state court lawsuit.”  Extremelybriefly: Whittaker and his company sued Peek (et al.) in state court.  Peek’s coventurers were former Whittaker employees, and Whittaker initially obtained a preliminary injunction against Peek, which Whittaker then disseminated in the carpet-cleaning world.  When discovery had taken place, the state court dismissed trade secret claims against Peek as without foundation (and dismissed claims for violation of restrictive employment covenants because they had by then expired).
Among other things, Whittaker’s computer expert at the state-court PI hearing testified that Stephenson, one of the state-court defendants, had connected hard drives to Whittaker’s computer network that were capable of downloading all the information in Whittaker’s customer databases.  Plus, Whittaker argued that the state-court defendants were attempting to use chemical formulas for carpet-cleaning fluids, and the identity of the manufacturer of those fluids, which were trade secrets, as was the identity of Whittaker’s equipment manufacturer (with which the state-court defendants had discussions).  On this basis, the state court granted a PI on the grounds that the state-court defendants “engaged in a conspiracy to unlawfully utilize confidential information and trade secrets obtained while [state-court defendants] Stephenson and Offutt were employed by [Whittaker Co.] and use this information to the advantage of all defendants by engaging in a business competing with [Whittaker Co.].”  The PI was appealed and affirmed.
After substantial discovery, the same judge dismissed the state-court complaints, finding “no evidence that any defendant obtained a compilation of [Whittaker Co.’s] customers and customer data.” As it turned out, Whittaker admitted that Stephenson’s laptop didn’t have any access to the customer databases.  And those external drives contained nothing that could be “considered to be trade secret or confidential,” nor did anything else he took.  The identity of Whittaker’s fluid manufacturer was well known, not a trade secret, and the formula belonged to the manufacturer, not to Whittaker, which didn’t even know the formula.  With no evidence of any trade secret misappropriation, the complaints failed; the state-court judge observed that “the record presently before the [c]ourt is much different that [sic] the record upon which the [c]ourt relied in issuing its preliminary injunction.”
Peek (et al.) then sued in federal court, alleging that the initial state-court claims were knowingly false when made.  Peek also alleged that Whittaker sent copies of the PI as soon as it was issued to third-party carpet manufacturers and customers to persuade them not to do business with Peek, and successfully persuaded the fluid manufacturer not to sell to Peek’s company.
The court sustained plaintiffs’ Dragonetti Act (codified claim for abuse of process) and common-law abuse of process claims in part.  While there was probable cause to proceed on the anticompete clause in the relevant employment contracts—there was evidence that a former employee did seek to breach his agreement, and so the Dragonetti Act claim based on the lawsuit against him failed—that didn’t make all the state-law claims immune.  The other plaintiffs (Peek, never an employee, and the company Peek formed) could still proceed, since all of Whittaker’s claims against them were based on trade secret/misappropriation allegations.  And those were the ones that allegedly always lacked probable cause.  The complaint also sufficiently alleged an improper purpose, interference with plaintiffs’ ability to establish a competing business.  Because the legal analysis differed a bit with the common law abuse of process claim—the question was whether the legal process in question was used “primarily not exclusively to achieve a goal unauthorized by the procedure in question”—even the existence of probable cause wasn’t enough to defeat it, even as to the former employee.
Lanham Act false advertising: “While Plaintiffs’ claim may not be a textbook Lanham Act cause of action, the Court has not found, nor been presented with, any case law suggesting that Section 1125(a) contains any sort of prohibition or limitation that would preclude this false advertising claim.”  Plaintiffs alleged that defendants’ knowingly false statements about their own products—that they, and information about their origin and manufacture, were trade secrets that had been misappropriated—were the basis for the PI.  Defendants then publicized the PI, which included factual recitations based on these allegedly false statements, to customers and third party businesses.  Plaintiffs further alleged that this dissemination did in fact deceive recipients and influence their purchasing decisions.  Though Section 1125(a) does not have “boundless application,” this was plausibly “the type of unfair trade practice contemplated by the text of the statute.”   
Comments: (1) For once, I don’t see a Dastar problem, since the falsity wasn’t in the claim of origin but the claim of trade secrecy; even if you don’t think that’s a statement about the characteristics of defendants’ goods/services, it does seem to be a statement about plaintiffs’ commercial activities, also covered. (2) Interesting interactions here with the line of cases saying that “we sued X for patent infringement” isn’t generally actionable as false advertising.  By sticking so closely to abuse of process, plaintiffs seem to have avoided that caselaw.
State law unfair competition claims, which tracked the Restatement (Third) of Unfair Competition definition, also survived.  Here the Restatement does require statements about the actor’s own goods, services, or commercial activities, but the court considered this “nearly identical” to §43(a)(1)(B) anyway.
The fraud claim was dismissed because plaintiffs themselves didn’t receive the misrepresentations or rely on them.  Under Pennsylvania law, the plaintiff must be the one who detrimentally relied to bring a fraud claim.
The court ended by reiterating that it was taking the facts as alleged in the light most favorable to plaintiffs; all depends on factual development, which if history is any indication will be extensive.
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Green (yellow) marketing: nonprofit’s claims against Chiquita survive

Posted on May 28, 2014 by rtushnet


Water & Sanitation Health, Inc. v. Chiquita Brands Int’l, Inc., No. C14–10, 2014 WL 2154381 (W.D. Wash. May 22, 2014)
Chiquita buys millions of pounds of bananas per year, including from a company named COBIGUA in Guatemala.  Chiquita made a number of claims about its environmentally safe business practices, “including, among others, that it protects water sources by reforesting all affected natural watercourses, using solid waste traps at all packaging stations to keep rivers and streams clean, and planting cover crops in all drainage ditches of banana farms rather than allowing chemical weed control.”  Plaintiff WSH is a nonprofit dedicated to providing sustainable clean-water systems to people in impoverished villages around the world.  It avoids buying food from companies that destroy such clean-water systems. 
WSH alleged that it relied on Chiquita’s representations about its environmentally safe practice, then learned that the community in which COBIGUA produced Chiquita bananas had chemicals contaminating the drinking water from large scale, mono-culture banana production.
The court first dismissed WSH’s unjust enrichment claim, which requires the defendant to know or appreciate the benefit conferred on it by the plaintiff.  Though Chiquita allegedly received at least part of WSH’s purchase money, the court found that WSH didn’t plausibly allege that Chiquita had an appreciation or knowledge of the revenue from the purchase.
The other claims fared better.
A claim under Washington’s Consumer Protection Act requires (1) an unfair or deceptive act or practice, (2) occurring in trade or commerce, (3) that impacts the public interest, (4) that injures plaintiff in her business or property, and (5) causation.  Chiquita argued that WSH didn’t plausibly allege injury to business or property, but allegations that WSH relied on the advertising and wouldn’t have bought the bananas had it known the truth were sufficient.
Similarly, the breach of express warranty claim survived.  Chiquita argued that the complaint only speculated that the bananas WSH bought were grown in Guatemala.  But the claim wasn’t limited to the allegation that the bananas were produced in Guatemala.  Rather, WSH alleged that Chiquita advertised that it protected water sources in a number of ways across all its production.  WSH’s allegations of reliance and falsity with respect to a Guatemala site therefore plausibly alleged a claim for breach of express warranty.  So too with the negligent misrepresentation claim.
However, the claim for injunctive relief was dismissed, because WSH didn’t plausibly allege that legal remedies were inadequate.
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Ninth Circuit revives consumer claims against Sony

Posted on May 27, 2014 by rtushnet


In re Sony PS3 “Other OS” Litig., 551 Fed.Appx. 916, No. 11–18066 (9th Cir. Jan. 6, 2014) (belated; just showed up in Westclip)
The court of appeals partially reversed the dismissal of plaintiffs’ claims against Sony for disabling the ability of the PS3 to use other operating systems (enabling the machine to run as a computer) via a software update. There was no breach of express warranty, though promotional materials allegedly promised that this feature would be available for the advertised ten-year lifespan of the PS3.  The statements didn’t include those exact terms, and the ToS expressly informed consumers that updates and services “may cause some loss of functionality.”  The express one-year warranty applied instead, and the update came after a year.  Similarly, the claims for breach of the implied warranties of merchantability and fitness for a particular purpose were properly dismissed, as was the federal Magnuson-Moss Warranty Act claim.
However, some of the CLRA claims shouldn’t have been dismissed.  Plaintiffs alleged that Sony’s representations at the time of sale “mischaracterized the dual functionality of the PS3—and were likely to deceive members of the public—because Sony later restricted users to using either the Other OS feature or accessing the PSN [PlayStation Network] feature, but not both.”  Plaintiffs alleged that they reviewed Sony’s website, relevant internet articles, and the box label before buying, and that they relied on Sony’s representations. They also alleged damages because they paid more for the PS3 than they otherwise would.  This was enough.  The CLRA claim that required pleading fraud was properly dismissed because plaintiffs failed to allege the requisite intent; it wasn’t enough to plead that Sony believed that it could terminate the dual functionality when they didn’t allege that Sony planned to terminate the dual functionality at the time of sale.  CLRA claims based on unconscionability also failed.  Plaintiffs failed to allege any underlying “agreement” that promised them dual functionality for the lifespan of the PS3. 
Based on this result, FAL and UCL claims, including UCL unfairness claims, were also revived. For unfairness, plaintiffs sufficiently alleged that Sony caused them substantial injury by charging a premium for the PS3’s dual functionality and then discontinuing access to both the Other OS and PSN features. They also alleged that they could not have reasonably avoided this injury because they would have lost access to the PSN if they chose not to download the update which disabled the Other OS feature, and that there were no countervailing benefits to consumers or competition that outweigh the substantial injury to consumers.
CFAA claims and unjust enrichment claims were also properly kicked out (the software was voluntarily installed and there were adequate legal remedies available, respectively).
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"generic" claims may be governed by FDA standard regardless of regulatory status

Posted on May 27, 2014 by rtushnet


Mission Pharmacal Co. v. Virtus Pharmaceuticals, LLC, 2014 WL 2119237, No. 5:13–CA–176 (W.D. Tex. Apr. 28, 2014) (magistrate judge, report & recommendation adopted)
This started as a patent infringement suit and added false advertising; the opinion here denies summary judgment to the defendant.  Mission sells CitraNatal prescription prenatal supplements covered by a patent, while Virtus sells prenatal supplements under the name Natalvirt that allegedly infringed the patent.  The false advertising stemmed from Virtus’s representations that Natalvirt used the same ingredients in the same amounts as the Mission products; contained the same iron blend; and were “generic equivalents to and substitutes for” the Mission products while in fact they weren’t bioequivalent.  Mission alleged that Virtus “falsely told national pharmaceutical databases that” the Virtus products “use the ingredient ferrous gluconate and are therefore pharmaceutically equivalent.”  Mission further alleged that the Virtus products wouldn’t be generic, equivalent, or substituable for the Mission products “unless they have been demonstrated to deliver their active ingredients to patients at the same rate and in the same amount as” the Mission products.  But instead, Virtus used a ferrous gluconate “formulated to delay the absorption of the iron compound” instead of the rapid-release compound found in the Mission products.
Among the forms of relief sought was a notice in any ad or promotion that Virtus wasn’t equivalent to Mission and that the substitution of the products “may violate state law.”
More on the facts: Virtus designed around the Mission patent, which focused on combining slow-release with rapid-release ferrous gluconate.  The Virtus products “encapsulate” the ferrous gluconate they contain in “slow dissolving matrix,” and “use[ ] a ferrous gluconate formulated for a delayed release.”  The parties disagreed about whether this infringed the patent.  Virtus’ argument for noninfringement was basically that the ferrous gluconate in the Virtus products was encapsulated in a slow dissolving matrix and was formulated for delayed release, unlike the Mission products which contained a fast-dissolving ferrous gluconate.
Prescription prenatal vitamins aren’t subject to FDA premarket approval, and therefore aren’t listed in the Orange Book of drugs that can be sold as generic equivalents.  The parties disagreed over whether the products were otherwise regulated as drugs or as prescription dietary supplements.
Virtus argued that its labels weren’t literally false, because they accurately listed the ingredients and their amounts; that there was no requirement to label its ferrous gluconate as sustained release; that there was no substantiated pharmaceutical benefit from fast dissolution of ferrous gluconate even if Mission marketed it as such; that the labels didn’t represent that the products were equivalent; that any such representation wouldn’t be false because of the equivalence in active ingredients; and that there was no evidence that speed of dissolution was material or that consumers were deceived.
Mission argued that these prescription prenatal vitamins were subject to FDA drug regulations because they included folic acid and therefore had to meet FDA standards for claiming “equivalence,” which requires both pharmaceutical equivalence and bioequivalence.  (This seems to me to be the long way around. Even if they aren’t “drugs,” isn’t it likely that consumers’ ordinary standards for judging what is equivalent are set by reference to the usual standard, which happens to be supplied by the FDA?  Consumers really don’t know the drug/supplement distinction.) 
Also, Mission wasn’t challenging the labels.  It was challenging the marketing and promotion of the products as generics—not to doctors but to wholesale distributors and retail pharmacy chains to promote a pharmacist to fill a prescription written for a Mission product with a Virtus product instead, as a generic equivalent.  Virtus often sent its customers a form in which it describes its products as “generic” for Mission’s products.  Likewise, it submitted new product information forms to a database of prescription products indicating that its products were “generic” for Mission products.  It also used a “chart that lists its product, under a column heading “Virtus Name,” right next to Mission’s product, under a column heading “Brand Name.”  Thus, every sale of a Virtus product was substituting for a Mission product.
Virtus responded that “generic” and “brand” had different meanings in a commercial context.  It contended that it made clear to customers that its products weren’t Orange Book products but multivitamins.  It made other distinctions between supplements and drugs and argued that both parties were producing supplements.  As dietary supplements, it argued, the products didn’t need to be bioequivalent to be generic, because there was no proper market definition of “generic” in the supplement context.
A previous case, Healthpoint, Ltd. v. Stratus Pharms., Inc, 273 F. Supp. 2d 769 (W.D. Tex. 2001), held that drug makers using “generic” to describe nonapproved drugs still had to use the FDA’s definition of “generic.”  Healthpoint, Ltd. v. Ethex Corp., 273 F. Supp. 2d 817 (W.D. Tex. 2001), likewise concluded that whether one drug was “generic” for another was an issue committed to the FDA.  New definitions of terms of art such as bioequivalence would undercut national uniformity and would confuse the public.  Thus, the Ethexcourt enjoined ad language claiming that “neither brand nor generic papain-urea compounds are subject to FDA approval or rating,” because, in the context of other representations, “[t]he over-all effect [was] to create the misleading impression that Accuzyme is the ‘brand’ and Ethezyme is a ‘generic substitute for Accuzyme, when it has not been determined that Ethezyme is a ‘generic’ alternative to Accuzyme.”
The court fond that Virtus had failed to provide “any evidence, argument, or authority demonstrating the products fit any applicable definition of a dietary supplement, or countering Mission’s argument that the inclusion of a prescription-level amount of folic acid renders the products drugs,” or to show that products couldn’t be both dietary supplements and drugs.  (I wonder how Pom Wonderful might affect this case.  Is whether a product is a “drug” an issue the FDA alone should determine?)  Virtus also didn’t provide authority to support any other definition of “generic” as applied to the products at issue.  Nor could Virtus dispute literal falsity by arguing about materiality.  (The court considered Virtus’ arguments in the patent arm of the case to be inconsistent—if it wasn’t infringing because its iron was slowly dissolving, that seemed like a material fact-based difference relevant to whether it was misleading to claim that its products were “generic” for or “equivalent” to the Mission products.)   False or misleading claims of equivalency are actionable under the Lanham Act and common law. 
The court determined that Mission had produced evidence “raising a fact issue as to whether the retail pharmacist, filling a prescription for a Mission Product, the ‘brand name product,’ might dispense instead the corresponding Virtus Product, the ‘brand name equivalent,’ under the mistaken assumption the two have been determined to be ‘generic equivalents’ or that otherwise there is factual support for the claim of equivalency.”  Whether the products were in fact equivalent was a contested issue of fact.
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all confusion is actionable but some doesn’t count

Posted on May 27, 2014 by rtushnet


Yes, I know that’s contradictory, but it’s a result of expansive doctrine which courts then seek to cabin by finding reasons to disregard certain evidence–such as evidence here that people in a sophisticated business still made errors about which entitty they were dealing with.
Arrowpoint Capital Corp. v. Arrowpoint Asset Management, LLC, 2014 WL 2123572, No. 10–161 (D. Del. May 20, 2014)
Arrowpoint Capital sued AAM and a number of related Arrowpoint entities (using names like Arrowpoint Partners GP and Arrowpoint Fundamental Opportunity Fund), alleging trademark infringement through defendants’ use of the Arrowpoint name and logo. The court denied a preliminary injunction.
The plaintiff is a holding corporation; its subsidiaries Arrowood Indemnity Company and Arrowood Surplus Lines Insurance Company  provide insurance and related services under the trade name “Arrowpoint Capital.”  As part of its business, it manages assets derived from policy premiums, and alleged that its primary source of income is the investment of its reserves in fixed-income securities, enabling it to meet its financial obligations.  It also allegedly “provided investment management services to an unaffiliated insurer from March 4, 2007, until October 15, 2009,” and marketed its investment management services to other insurers and pension funds.  Plaintiff has registered ARROWPOINT CAPITAL and its design mark for insurance-related products and services.
Meanwhile, defendants provide investment-related services including individual investment management accounts and three separate private investment funds, commonly referred to as “hedge funds.” They manage over $1.5 billion in assets for “high net worth individuals, companies operating primarily for the benefit of wealthy individuals, family foundations, or trusts.”  Defendants allegedly selected their marks after doing a trademark search and having counsel review their availability.
Defendants’ logo
After plaintiff learned about defendants, it applied to register ARROWPOINT CAPITAL for “investment management services”; AAM opposed; and TTAB proceedings are currently suspended because of the pending litigation.
Defendants argued that plaintiff had no rights in investment management services, only insurance. But that’s a question of confusion.  Plaintiff’s rights in insurance related areas were presumptively valid, given the registration, and the marks were inherently distinctive.
Plaintiff argued that there were repeated instances of actual confusion by brokage personnel who handle fixed-income securities transactions.  Defendants disagreed and argued that the high level of consumer sophistication prevented any problem, and also that the alleged confusion was among suppliers, not consumers.  Sadly, the court rejected the defendants’ argument that the Lanham Act is about consumer protection and that the law does not protect against confusion generally.  Instead, the Act covers “the use of trademarks which are likely to cause confusion, mistake, or deception of any kind, not merely of purchasers nor simply as to source of origin.”
The court first found the parties’ logos not confusingly similar; the similarity was negligible.  Both had a chevron and a horizontal line, but the AC logo chevron was small and uses the chevron as part of the dominant feature, which was the phrase “Arrowpoint Capital.” By contrast, the AAM logo usesd a large chevron surrounded by parallel lines to create its dominant feature, prominently placed in the center of the mark. The full-color versions of the logos were even more distinct: the former was dominated by blue lettering and had a thin red accent line. The AAM logo had four distinct colors, drawing the viewer’s eye to the center of the mark.  But, of course, the word marks were much more similar, with “Arrowpoint” the dominant feature and first world; additional terms “asset management,” “partners,” “fundamental opportunity fund,” and “structured opportunity fund” changed the overall visual impact and sound of the marks, but conveyed a meaning somewhat similar to “capital.”  “But courts in this circuit have found that very similar marks are able to coexist in the financial services market, where consumers take greater care than many others, when the parties use their full names in ‘official’ communications.”  For the word marks, similarity slightly favored the plaintiff.
Strength of the mark: inherently distinctive/suggestive, but low commercial strength.  The plaintiff’s only support for marketplace strength was a claim that it spent about $390,000 promoting its marks. The court couldn’t determine whether that was sufficient to establish marketplace recognition for investment management services. (Defendants claimed to have spent almost double that amount for the same purpose.)  This factor was neutral.
Actual confusion: While actual confusion is highly probative of likely confusion, “isolated and idiosyncratic” confusion can be discounted, as can confusion resulting from “mere carelessness or accident.” Plaintiff argued that broker dealers had been misled.  Its evidence came from third-party inquiries about the relationship between the parties; misdirected trades; and incidents of mistaken identity, which inhibited the plaintiff’s ability to complete trades. 
For example, a Royal Bank of Scotland salesperson contacted the plaintiff regarding a large security purchase that the defendants had made using a different broker, and asked why the plaintiff had not engaged RBS for the transaction.  A Barclays Capital lawyer negotiating a security agreement for the plaintiff asked whether it was “a different entity from the arrowpoint that is being represented by [a different law firm].”  In connection with a securities agreement, Citigroup sent a request for general information regarding the plaintiff, and asked it to do the same exercise for two of the defendants’ entities.  JP Morgan misallocated the defendants’ trades to the plaintiff’s brokerage account three times, though the plaintiff rejected each trade before settlement, and the plaintiff’s representative testified that misallocated trades are not uncommon in the financial services industry.  Also, the plaintiff alleged that it had trouble acquiring certain securities/participating in a corporate bond offering because of confusion, but defendants argued that confusion wasn’t the cause of these difficulties and that there was ultimately no problem.
The court was skeptical about many of the alleged inquiries about the parties’ affiliation, because the testimony came from interested sources instead of the allegedly confused people.  And the court didn’t have enough evidence to distinguish confusion from mere carelessness, mistake, or clerical error on a broker’s part. There was also no evidence that three misdirected trades were significant, absent evidence about the total number of trades. The remaining incidents also didn’t convince the court that confusion was likely. This factor slightly favored the plaintiff.
Consumer care and sophistication strongly favored the defendants. Along with the large sums at issue and sophisticated consumers, the parties make individual, face-to-face presentations to potential investors, “which militates against a likelihood of confusion.”
The court couldn’t evaluate the length of time the mark was used without actual confusion, as the parties had conflicting evidence about the scope of defendants’ activities.
Defendants’ intent:  Defendants argued that “AAM selected its marks because arrowpoints had personal significance to [AAM’s founder] and to suggest a connection between digging for arrowpoints and the thorough manner in which AAM conducts the fundamental research on which it bases its investment management services.” Plus, defendants’ clearance included counsel’s review of a full U.S. availability trademark search report, “which indicated that the plaintiff was engaged in property and casualty insurance, not investment management or related services.” This favored defendants.
Channels of trade and advertising media: both parties promote their services through industry meetings, events, and direct presentations to prospective clients. But defendants target events of interest to hedge fund investors, family foundations, and endowments. Plaintiff doesn’t “because it is not a hedge fund.” “Further, the defendants rely on word-of-mouth referrals, which intuitively eliminate the possibility of confusion.” And the parties use direct client presentations incorporating their respective distinct logos. This factor strongly favored the defendants.
Similarity of target customers and the relationship of the goods in the minds of customers: The parties sought distinct groups of customers.  Plaintiff targeted customers “experiencing some sort of financial distress,” while the defendants pursued “high net worth individuals and institutional investors,” not distressed companies.  While insurance companies and pension funds are potential clients for both parties, those clients would retain the parties for different purposes—the plaintiff’s expertise is in fixed-income investments, while the defendants claim to “offer expertise across the capital spectrum.”  While some potential customers might overlap, there was still little likelihood of confusion because the parties offer “distinctly different investment management strategies to generally different classes of investors.”
Moreover, “any broker-dealer confusion is attributable to the similarity of the marks and the fungible nature of commonly traded securities” and shouldn’t be weighed again under the similarity of customers factor.  Broker-dealers offering fixed-income securities were selling the same things, no matter who was buying them; any weight given to their confusion was properly addressed under the actual confusion factor.
The balance of the factors tipped (no pun intended) in defendants’ favor.
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