mandatory disclosure doesn’t have to correct deception

Posted on April 2, 2014 by rtushnet

American Meat Institute v. United States Department of Agriculture, No. 13-5281 (D.C. Cir. Mar. 28, 2014)

The court rejects challenges to meat labeling rules that demonstrate once again that commercial speech regulation and the post-Lochner settlement are inextricably linked. Here, the Department of Agriculture’s Agricultural Marketing Service adopted a rule implementing Congress’s requirement of country of origin labeling (COOL) for meat. Under the relevant statute, a US label is reserved for animals exclusively born, raised, and slaughtered in the US, while animals from multiple countries have to be labeled with their countries of origin.  The rule requires retailers of “muscle cuts” (meat other than ground meat) to list the countries of origin in which the source animals were born, raised, and slaughtered, distinguishing among those acts where required. The previous rule merely required the phrase “Product of” followed by a list of the countries of origin, and allowed commingling (in which cuts from animals of different origins, but processed on the same day, could all bear identical labels).  Canada and Mexico filed a WTO complaint against the previous rule, and a panel found against the US, apparently based on “an objection to the relative imprecision of the information required by the 2009 rule.”

Under the new rule, acceptable labels (assuming the truth of the statements) are “Born, Raised, and Slaughtered in the United States,” “Born in X, Raised and Slaughtered in the United States,” “Born and Raised in X, Slaughtered in the United States,” etc.  There’s no longer an exception for commingling.  The court of appeals first affirmed the district court’s ruling that the regulation didn’t unlawfully ban commingling.  The rule doesn’t ban any element of the production process; it just requires accurate labeling.  Under current practices, meat packers can’t provide accurate labels if they are engaged in commingled production.  The necessary changes may be costly, but that doesn’t “force segregation” as the plaintiff complained, “except in the sense that compliance with any regulation may induce changes in unregulated production techniques that a profit-seeking producer would not otherwise make.”  Here, the objection isn’t a First Amendment objection—it’s more in the nature of substantive due process.

The court turned to the First Amendment argument.  First, the plaintiff argued that Central Hudson ought to apply, not Zauderer, because this wasn’t an anti-deception regulation.  The court held that the disclosure was “purely factual and non-controversial,” and, unlike the challengers in United States v. United Foods, Inc., 533 U.S. 405 (2001), or R.J. Reynolds Tobacco Co. v. FDA, 696 F.3d 1205, 1212, 1216-17 (D.C. Cir. 2012), the plaintiff didn’t object to the content of the mandatory message.  It objected to the term “slaughtered,” but retailers are allowed to substitute the euphemism “harvested.”  (Harrumph.  The court recognizes that this is a euphemism; slaughtered is the factual and noncontroversial term—the animals’ lives are deliberately ended in a systematic way.  Producers may fear that consumers will be squeamished if reminded in any way that their meal once had a face, but that just shows how misguided the idea that disclosures should be “noncontroversial” is.  It’s a manipulable and ultimately meaningless standard.)

The plaintiff relied on International Dairy Foods Association v. Amestoy, 92 F.3d 67 (2d Cir. 1996), which invalidated a Vermont law requiring dairy manufacturers to put a blue dot on milk products from cows treated with recombinant Bovine Somatotropin (rBST), which the FDA had found to have no significant effect on the milk.  The government disagreed with Amestoy(yes!) but also distinguished it since the dot might have been seen by consumers “as a concession that the treatment might affect the quality of the milk.”  And here we get some lovely casual empiricism based on the court’s guesses about what consumers are like:

Although the government later seeks to justify the COOL requirements as possibly reassuring consumers who are anxious about potentially lax foreign practices, it seems a good deal less likely that consumers would draw negative hints from COOL information than from the required declarations about use of rBST. Reference to an apparently novel additive on milk cartons might well lead to an inference that the additive might have a dangerous effect, whereas the appearance of countries of origin on packages of meat seems susceptible to quite benign inferences, including simply that the retailers take pride in identifying the source of their products.   

So, without agreeing or disagreeing with Amestoy, the court found it distinguishable. 

Under Zauderer, a commercial speaker has only a minimal First Amendment interest in not providing purely factual information with which it does not disagree, as long as disclosure is reasonably related to the state’s interest in preventing deception.  Plaintiff argued that this meant that non-deception-related interests weren’t subject to relaxed Zauderer scrutiny, but rather to Central Hudson. But the court found that Zauderer extended to factual disclosures that did something other than correcting deception.  Other circuits have similarly extended it to, for example, “government interests in telling buyers that mercury-containing light bulbs do contain mercury and may not be disposed of until steps have been taken to ‘ensure that [the mercury] does not become part of solid waste or wastewater,’ and in alerting health benefit providers of the background decisions made by pharmacy benefit managers in their sales to the providers.”  Zauderer’s characterization of the speaker’s minimal interest in avoiding disclosure was “inherently applicable beyond the problem of deception.” To the extent that previous DC Circuit decisions seemed to say otherwise, they didn’t because they didn’t involve purely factual and uncontroversial information, though the panel suggested that the court go en banc to provide a clear ruling on the issue.

So what are the government’s interest in COOL?  Plaintiff argued that, as in Amestoy, disclosure was just a matter of consumers’ curiousity.  But the court found non-frivolous values advanced by the disclosure: “Obviously it enables a consumer to apply patriotic or protectionist criteria in the choice of meat. And it enables one who believes that United States practices and regulation are better at assuring food safety than those of other countries, or indeed the reverse, to act on that premise.” These interests weren’t so trivial or misguided as to fall below the threshold that would sustain a minimal intrusion on commercial speakers’ First Amendment interests.

Without likely success on the merits, the rule couldn’t be enjoined.  “There is, moreover, a public interest factor that we did not consider in our constitutional analysis, that of allowing the United States’s effort to comply with the WTO ruling to take effect. We are clearly in a poor position to assess the effects of any noncompliance.”  (But does this really matter? If the First Amendment barred the law had Congress adopted it on its own, could WTO compliance change the calculus?)
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It’s an ex-competitor: plaintiff whose service shuffled off this mortal coil lacks standing

Posted on April 1, 2014 by rtushnet

Think Computer Corp. v. Dwolla, Inc., No. 13–CV–02054, 2014 WL 1266213 (N.D. Cal. Mar. 24, 2014)

Think is a money service business (MSB) and developer of a mobile payment system platform called FaceCash, launched in April 2010.  Defendants were money transmitters (MSB defendants) and venture capital funds and individual investors (investor defendants). MSB defendants included Airbnb, ActBlue, Facebook, Square, and Stanford.  Think alleged that the MSB defendants hold and transmit funds on behalf of third parties and were its direct competitors.  Think alleged that they operated without required money transmitter licenses in violation of a California law that became effective in mid-2011 and that imposed various capital and other requirements on money transmitters. The investor defendants allegedly helped/directed the MSB defendants. 

Think didn’t acquire the necessary license and voluntarily stopped running FaceCash when the California law went into effect.  Think had no paying customers for payment services. It alleged violations of California Unfair Competition law, the Lanham Act, and unjust enrichment. The court only analyzed the federal claim, finding no Article III standing (this may be a misnomer, though the result seems foreordained to be the same under Lexmark).

Under now-probably-superseded 9th Circuit precedent, Lanham Act standing requires “(1) a commercial injury based upon a misrepresentation about a product; and (2) that the injury is ‘competitive,’ or harmful to the plaintiff’s ability to compete with the defendant.” This requires some kind of competition for the same dollars from the same consumer group.  Think shut down FaceCash, so it can’t have had diverted sales after the California law went into effect.  Plus, to the extent Think alleged that statements in certain defendants’ terms of service before mid-2011 were deceptive, Think didn’t allege that Think suffered commercial injury as a result. Once Think voluntarily shut down FaceCash, it couldn’t show that it competed or suffered commercial injury, so the complaint had to be dismissed.

A bit of a wrinkle: the UCL “unlawful” claims were based on both state and federal law. But the Ninth Circuit has held that, “where there is no federal private right of action, federal courts may not entertain a claim that depends on the presence of federal question jurisdiction under 28 U.S.C. § 1331.”  The alleged federal violations concerned laws criminalizing unlicensed money transmission businesses and mandating record-keeping, neither of which created a federal private right of action. As a result, the state law claims didn’t involve substantial questions of federal law, and the court declined to exercise supplemental jurisdiction.
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Knockout (fruit) punch: Pom class decertified

Posted on April 1, 2014 by rtushnet

In re Pom Wonderful LLC Marketing and Sales Practices Litigation, No. ML 10–02199, 2014 WL 1225184 (C.D. Cal. Mar. 25, 2014)

In what defendants doubtless hope is a winning trend, the court decertified a class on the ground that it’s impossible to prove that you bought a low-value general consumer product, which means that there will be no more consumer class actions for such products (the very products for which the class action mechanism is the only direct relief imaginable) and only competitors and government regulators will be able to take action against falsehoods used to sell such products. 

Plaintiffs brought the usual California claims against Pom’s marketing of its juice products, as challenged by the FTC.  The court initially certified a damages class of all buyers from Oct. 2005 to Sept. 2010.  Pom argued that Comcast Corp. v. Behrend, 133 S. Ct. 1426 (2013), changed the analysis.  In Comcast, the Court emphasized that certification requirements, especially predominance, require “rigorous analysis” that will often overlap with the merits.  It concluded that the Comcastplaintiffs’ damages model didn’t show a valid methodology suitable to class treatment, and that this prevented predominance.  The court didn’t adopt the very broad reading of Comcast urged by Pom (that the damages model must not only prove classwide damages but distinguish the injured from the uninjured and calculate the amount of individual damages).  But, applying rigorous analysis, “plaintiffs must be able to show that their damages stemmed from the defendant’s actions that created the legal liability.”

The model here fell short.  Plaintiffs’ expert used two alternatives. The first was the “Full Refund” model, assuming that consumers wouldn’t have bought Pom juices if not for the misrepresentations, resulting in a total of $450 million in spending during the class period. The court agreed that the Full Refund model was invalid because it didn’t account for any value consumers received, at least in the form of hydration, vitamins, and minerals, even if they didn’t receive health benefits.  Restitution is an available remedy, but it has to measure the difference between the value of what the plaintiff paid and what she received. Plaintiffs argued that if consumers wouldn’t have bought the juices absent the misrepresentations, a full refund would be appropriate, but that’s not how restitution is calculated. Thus, the Full Refund model couldn’t accurately measure classwide damages.

The alternative was a Price Premium model, looking for the premium over other refrigerated juices allowed by the alleged misrepresentations.  This yielded damages of about $290 million.  This model depended on a fraud on the market theory, analogizing from securities law.  “Frauds on the market are only possible in efficient markets, where the price of (in most cases) a stock is determined by openly disseminated information about a business.”  Fraud on the market affects price regardless of whether a particular investor is exposed to the misrepresentation. Plaintiffs argued that a presumption of reliance would show the existence of fraud on the market, causing damage to every consumer regardless of purchase motivation or satisfaction with the product because of the across-the-board higher price. 

The court held that the facts alleged here could support a presumption of reliance for liability purposes. But that didn’t make the damages model adequate.  A plaintiff alleging fraud on the market must show that the relevant market is efficient, but there wasn’t evidence that the market for Pom’s high-end refrigerated juice products operated efficiently.

Plaintiffs appear to suggest that, given a presumption of reliance, materiality of a misrepresentation is a substitute for market efficiency. This reasoning has some superficial appeal, as universal reliance upon a material fact might have some ultimate effect on demand and prices. If information had no effect on demand, the argument goes, it would not be material in the first instance. Efficiency, however, is not demonstrated simply by any change in price, but rather, in large part, by a change in price that has some empirically demonstrable relationship to a piece of information. In an inefficient market, in contrast, some information is not reflected in the price of an item. In such a market, even a material misrepresentation might not necessarily have any effect on prices. Absent such traceable market-wide influence, and where, as here, consumers buy a product for myriad reasons, damages resulting from the alleged misrepresentations will not possibly be uniform or amenable to class proof.

In a footnote, the court rejected the relevance of cy pres/fluid recovery; that’s a means of paying damages, not of determining the amount of damages.

Even if fraud on the market was relevant to consumer fraud claims, plaintiffs would still have to show “that their damages stemmed from the defendant’s actions that created the legal liability”: that the misrepresentations caused plaintiffs to pay a price premium.  “Without any survey or other evidence of what consumers’ behavior might otherwise have been, and after excluding a series of products for various reasons of varying persuasive power, the Price Premium model uses an average of refrigerated orange, grape, apple, and grapefruit juice prices as a benchmark.”  While the price premium might be caused by something, and health benefits could be logical, there was no survey addressing consumer motivations.  The court saw no basis to believe that fully informed consumers would choose these juices instead.  (After Pom’s FTC loss, was there any price change as the market absorbed—or didn’t absorb—the information? What’s the relevance of the fact that Pom vigorously contends even today that the FTC is wrong?) Without evidence of “the critical question why that price difference existed, or to what extent it was a result of Pom’s actions,” the expert’s reasoning was insufficient.  He couldn’t just assume that not a single consumer would still have chosen Pom over other juices if not for the deceptive ads. The court commented, though, that matters would be different for different products: “Single use products, such as, for example, an expensive pill claiming to cure baldness, likely require less rigorous methodologies and models than do consumables such as Defendant’s juices, which consumers presumably purchase for a wide variety of reasons.”  (Why expensive?  What’s expense got to do with single use?)

Separately, the court found the class not ascertainable.  Ascertainability rests on a number of factors, including the price of the product, the range of potential or intended uses of a product, and the availability of purchase records. “In situations where purported class members purchase an inexpensive product for a variety of reasons, and are unlikely to retain receipts or other transaction records, class actions may present such daunting administrative challenges that class treatment is not feasible.” So here.  Based on the volume sold, every adult is a potential class member—realistically, 10-15 million people, who probably purchased for a variety of reasons without keeping records, and the bottles/labels themselves didn’t contain the alleged misrepresentations.  “Here, at the close of discovery and despite Plaintiffs’ best efforts, there is no way to reliably determine who purchased Defendant’s products or when they did so.”
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The PTO for children

Posted on April 1, 2014 by rtushnet

I recently attended an event at which the PTO had a children’s booth.  Highlights from the Oct. 2012 Trademark Activity Book we received:

The PTO has Kleenex and Band-Aid’s back against the threat of genericity.

The PTO is not worried about self-dilution the way Sara Stadler is.  (See Sara K. Stadler, The Wages of Ubiquity in Trademark Law.)
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TM issues, you get what you pay for edition

Posted on April 1, 2014 by rtushnet

Marty Schwimmer reports on the Orthodox Jewish Congregations’ lawsuit against Urban Tortilla for the latter’s new U-in-a-circle logo. Schwimmer continues that Urban Tortilla paid $299 for its logo, from a contest among designers.  (See also: continuing immiseration of many creative workers.)  Did Urban Tortilla do a trademark search?  How much in savings was un-saved from this lawsuit?

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tuna surprise: undisclosed slack fill was plausibly misleading

Posted on March 31, 2014 by rtushnet

Hendricks v. StarKist Co., No. 13–cv–729, 2014 WL 1244770 (N.D. Cal. Mar. 25, 2014)

Hendricks brought the usual California claims against Starkist alleging that its canned tuna products were underfilled (anywhere from 1.1% to 17.3% less tuna than there was supposed to be), as confirmed by independent lab testing using the weighing methodology and standard of fill set forth in the referenced federal regulations. The FDA has the power to promulgate regulations establishing reasonable standards of container fill for any food, and the FDA has done so for canned tuna.  Filling a container in a manner that is misleading is considered “misbranding.”

Starkist argued preemption. The claims weren’t expressly preempted because they relied on FDA standards.  And they weren’t impliedly preempted because Hendricks wasn’t suing to enforce the FDCA directly (he can’t); he was suing to enforce identical state law, threading the “narrow” gap allowed. Pom Wonderful doesn’t change that; it was limited to the Lanham Act.  Though Starkist argued that it and other tuna manufacturers had petitioned the FDA to change the standard of fill, that wasn’t relevant to whether the claims here were preempted.

Starkist also argued that the claims should be dismissed/stayed based on primary jurisdiction.  “Given that the applicable FDA standard here is clear, detailed, and long-standing, the Court sees no reason to stay or dismiss the complaint pending any resolution of the issue before the FDA.” Though canned tuna manufacturers filed a citizen’s petition requesting that the FDA amend or suspend the regulation, the FDA hasn’t done anything.  “Unless and until there is some indication beyond mere speculation that the FDA may change the regulation, the Court sees no need to defer under the primary jurisdiction doctrine.”

Deception: StarKist argued that the FDA standard of fill didn’t require any information be communicated to consumers or that the products be labeled in any particular way. Starkist isn’t required to, and doesn’t, include pressed weight on the can, but rather says “NET WT 5 OZ (142g)” and “Serv[ing] Size: 2oz drained (56g—about 1/4 cup); Servings about 2.” Hendricks didn’t allege that these were false or how they misled him.  But that missed the point of the allegations: he alleged that the cans contained less tuna than would be expected from a 5-ounce can.  The reasons the feds regulate fill is so that tiny amounts don’t get misleadingly placed in large containers.  If fill is substandard, the label has to say so.  Starkist argued that injury wasn’t plausible; the court disagreed.

As a result, various warranty and consumer protection claims survived, though the unjust enrichment claim was dismissed as duplicative. Fraud was sufficiently pled with particularity, given the allegations above.

Starkist also sought to dismiss claims based on products Hendricks didn’t buy. He bought Chunk Light Tuna in Water, but not Solid White Albacore Tuna in Water, Solid White Albacore Tuna in Vegetable Oil, and Chunk Light Tuna in Vegetable Oil.  Whether these products should be included depends on whether common misrepresentations were the crux of his case and whether there was sufficient similarity between purchased and unpurchased products.  Starkist argued that solid tuna was governed by different pressed weight standards from the product Hendricks bought. The court disagreed that this mattered—there was sufficient similarity, given that he alleged the same misrepresentation as to all four varieties.
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"I wouldn’t have bought it if I’d known" is enough for standing, 9th Circuit says again

Posted on March 31, 2014 by rtushnet

Galope v. Deutsche Bank National Trust Co., No. 12–56892, 2014 WL 1244279 (9th Cir. Mar. 27, 2014)

The court of appeals reversed a grant of summary judgment in favor of Deutsche Bank and other defendants.  Galope adequately alleged that she had standing to sue on her LIBOR-based consumer protection and related claims: she alleged that she wouldn’t have taken her loan had she known of defendants’ manipulation of LIBOR.  Her cognizable injury occurred when she bought the loan, not when she paid manipulation-affected interest.  The sale of her house was rescinded, but that didn’t moot her claims for damages.  (Certain defendants apparently sold her house in violation of the automatic stay in bankruptcy; Galope sufficiently alleged a violation of the covenant of good faith and fair dealing because there was sufficient evidence to support a reasonable inference that they had notice of the automatic stay when they executed the trustee’s sale of the home.)

Judge Nguyen dissented in part on standing grounds.  Galope didn’t allege loss from deceptive conduct because her payments were never affected—“she paid a fixed interest rate and defaulted before the allegedly manipulated LIBOR rate went into effect on her loan; she then was granted a loan modification with a (lower) fixed interest rate that likewise was unrelated to the LIBOR rate and defaulted again.”  She might have alleged but-for causation, but she didn’t allege loss from the manipulation, so her injury was too attenuated for Article III standing.
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promotion of expensive device for off-label uses not shown likely to deceive

Posted on March 31, 2014 by rtushnet

Zeltiq Aesthetics, Inc. v. BTL Industries, Inc., No. 13–cv–05473, 2014 WL 1245222 (N.D. Cal. Mar. 25, 2014) (magistrate judge)

Zeltiq sued defendants for allegedly falsely advertising that a BTL medical device was FDA approved for fat reduction and body contouring.  The court denied a preliminary injunction.

Class I and II medical devices don’t need premarket approval, only premarket notification to the FDA.  If the FDA deems a Class II device to be “substantially equivalent” to a preexisting cleared device, it can be marketed without further regulatory scrutiny.

Zeltiq sells a medical device known as CoolSculpting, which is intended to cause fat cell elimination without causing scar tissue or damage to the skin, nerves or surrounding tissue. It’s been FDA-cleared for cold-assisted lipolysis of the flank and the abdomen.  Zeltiq alleged that it obtained clearance by submitting clinical studies and other data, because clearance of a device for treatment of body fat lends instant and substantial credibility.  As a result, CoolSculpting allegedly became the leading noninvasive fat reduction medical device, with huge sales jumps in a year.

BTL submitted a notice of intent to market the BTL Elite, asking for FDA clearance to market the device for applying heat to body tissues for pain relief, treating muscle spasm, increasing range of motion for joints, and increasing blood flow to tissues.  The FDA cleared the BTL Elite for these uses. Zeltiq alleged that BTL was unlawfully marketing a device called the Vanquish—the BTL Elite by another name—for fat reduction and body contouring. Both parties sell to doctors, not patients.

Zeltiq alleged that BTL didn’t promote Vanquish at all for treating muscle aches and spasms, but instead touted it for fat reduction while touting it as “FDA-cleared,” attempting to mislead doctors into believing that Vanquish was FDA-approved for fat reduction.

BTL didn’t dispute that it promoted Vanquish for fat reduction, an admittedly off-label use, nor that it only intended to do so (and not for muscle aches).  Its trademark registration describes Vanquish as a “[b]ody treatment device using heating and cooling for fat cell reduction.”  However, defendants argued that they’d stopped promoting Vanquish in the US for off-label use, and that they never represented that Vanquish had FDA clearance for fat reduction/body contouring.

Judge for yourself: in October 2013, as a sponsor of the annual meeting for the American Society for Dermatologic Surgery, BTL invited doctors to a private demonstration by stating: “Join us for a private demonstration of a newly FDA cleared technology … The only complete solution for non-invasive body shaping.”  Unless what comes between the dots is a discussion of the clearance for ache treatment (which BTL admitted wasn’t promoted) and clarification of what the FDA clearance was for, this is classic implicature; any linguistically competent English speaker should’ve taken away the implication that the clearance was for fat reduction. 

BTL also promoted fat reduction to end consumers, e.g., the technology “is proven to destroy fat cells.”  In addition, BTL allegedly recruited doctors to promote Vanquish to patients, and BTL didn’t dispute its involvement with vanquishfat.com (though it did dispute its involvement with other sources that promoted Vanquish to consumers for fat reduction). On that website, a doctor stated that he had “heard about a new, fat zipping device that’s about to receive FDA approval,” and the same doctor created a “Vanquish Fat” Facebook page and claimed that “Vanquish Melts Fat With No Pain.”

Also, BTL argued that in 2014, it hadn’t done anything in the US to promote Vanquish for fat reduction.  In rebuttal, Zeltiq submitted evidence that BTL planned to exhibit at two shows in February and April, displaying the Vanquish device “obscurely described as delivering ‘sub-cutaneous heating for body treatment based on induced apoptosis using a contract-free operator-monitored clinical approach.”

BTL has both a US website and a non-US website, bltvanquish.com and bltvanquish.com/en/vanquish.html respectively.  (Um, that looks an awful lot like one website.)  BTL argued that it only controlled the content of the US website, and the content of the non-US website was controlled overseas by a related company and directed at a worldwide audience. Only the non-US website presently promotes Vanquish for fat reduction explicitly, though the US site allegedly used to do so by showing a video from a Texas doctor who said it “shrinks fat cells,” and quoting a number of other U.S. doctors extolling its fat reduction benefits.   

BTL modified the US website after this lawsuit was filed, and BTL said that it sought out help for training about its marketing obligations.  Now, the US website describes Vanquish as “a revolutionary selective radiofrequency system” that “delivers a non-invasive solution with unparalleled efficacy” and “is the first and only non-invasive body treatment finally integrating all the most desired features.” The website states that “Vanquish is FDA cleared for deep tissue heating.”  Fine print describes its specific intended FDA-cleared indications.  (Wow, that really has the feeling of code.  How the heck would a consumer know what Vanquish was for? And why would you only describe what it was really for in fine print, unless you expected that consumers would already have something in mind, or would click around until they found real information, perhaps on the non-US part of the site?)  The website also said that it was for US medical professionals only, and wasn’t cleared for treating adipose tissue (fat).

Zeltiq argued that despite the purported two-site solution, the non-US website was actually intended to promote to the US.  For example, BTL sent invitations to doctors to attend open houses, and only listed the address for the non-United States website on the invitation.  “Moreover, until recently, the largest and boldest text on the United States website was a link in the middle of the page that stated, ‘Go to Non-US Website.’”  In fact, the US website contained hardly any information—most of it is quoted above.  The non-US site promotes Vanquish for fat reduction, including a page that links to magazine articles and videos quoting United States doctors who promote Vanquish for fat reduction.  The “international” website also used to include a page for seminars for doctors, listing five conferences in the US.  A version listing conferences in 2014 showed conferences planned both inside and outside the US.

A new US-targeted website, which BTL denied any control over, promoted Vanquish for fat removal, including links to two video clips—allegedly the same clips that were deleted from BTL’s original website.  In one, a doctor appears on Fox News. When he’s asked whether Vanquish is safe, he responds:

This is exceptionally safe. The FDA basically is there to provide safety, it is not so much there to provide efficacy. So when they do these FDA approval studies, the number one, two and three thing they are looking at is safety, and this is exceptionally safe. They—even in the animal models, they looked at every part of the animal to ensure that there was no damage to anything other than the fat.

Zeltiq, understandably, argued that this was misleading, suggesting that the FDA approved Vanquish for the purpose for which it was being promoted.  (Query: after Lexmark, can Zeltiq sue individual doctors making claims about Vanquish?)

But what do doctors think? Both sides submitted declarations from doctors. Zeltiq’s declarant said that doctors make off-label uses, but that they generally only develop after doctors have experience with a new device for its approved use, and that information about a new device is generally scant.  She concluded that when a manufacturer promotes a new device in the early stages after device is launched, physicians would presume that the new device has been approved by the FDA for the promoted use.   BTL submitted declarations from two other doctors.  One noted that both parties’ devices cost approximately $80,000 to $90,000, and both said that before they bought the Vanquish device they were made aware of the scope and limits of FDA clearance.

BTL argued preemption.  The court found this a serious question, but better dealt with on a full record.  For one thing, the core claim—a false or misleading representation of clearance for fat reduction—wasn’t preempted regardless. Also, since BTL didn’t dispute that it promoted Vanquish for a non-FDA-cleared use, interpretation of FDA rules wouldn’t be required to decide the false advertising claim.

However, the court concluded, Zeltiq didn’t show literal falsity.  Instead, the “newly FDA cleared technology” invitation wasn’t literally false because Vanquish was FDA cleared, even if not for body shaping.  (Ugh.  That’s sophistry, which is the point of having a doctrine of falsity by necessary implication.)  Nor does the current website contain literal falsity. Zeltiq argued falsity by necessary implication, but the court didn’t buy it, stating without further explanation that none of the identified statements necessarily implied FDA clearance for fat reduction.  Half-truths aren’t literally false.

Zeltiq did show that BTL’s promotions were potentially misleading, and its use of FDA clearance as a selling point in promotional materials was evidence of materiality. But Zeltiq didn’t show that any doctors had been fooled. “At best, Zeltiq’s evidence shows that physicians in general presume the Vanquish device is FDA cleared for fat reduction because it was marketed for that use in the early stages after its launch.” This evidence was too general—it didn’t show that actual purchasers believed the Vanquish was FDA cleared.  BTL’s evidence suggested that “at least one group of physicians decides to purchase such an expensive medical device only after fully evaluating the device’s efficacy and safety for patients and understanding the official FDA clearances.” 

In light of the device’s high cost and limitation to doctor-purchasers, Zeltiq wasn’t likely to prove deception. Still, there were serious questions going to the merits.

Zeltiq brought a serpate claim under the California UCL’s “unlawful” prong.  While the UCL prohibits the sale of an uncleared device, the Vanquish was cleared, and the statute wasn’t use-specific. Zeltiq also argued that the Vanquish was misbranded because its labeling fails to include “adequate directions for use” in fat reduction procedures. “In light of the fact the FDCA regulations require instructions to be catered to ‘the purposes for which [the device] is intended,; Zeltiq raises an interesting argument.”  But the “labeling” was the targeted source of misbranding, and the operator’s manual included instructions detailing the FDA-cleared uses and providing directions for such uses.  Zeltiq didn’t convince the court that misbranding can come from overall promotional practices, though it did raise serious questions going to the merits.

But the balance of hardships didn’t tip sharply in Zeltiq’s favor.  Zeltiq could suffer without an injunction, losing its unique place in the market.  But BTL would endure hardship from an injunction, which as Zeltiq proposed would require delinking the US and non-US websites and providing written notification to every doctor who bought the Vanquish that it’s not FDA-cleared for fat reduction. Zeltiq also wanted to bar BTL from selling Vanquish for non-cleared uses, but doctors have the right to make off-label uses.

Also, Zeltiq didn’t show irreparable injury. Though lost market share can be irreparable harm, Zeltiq didn’t show actual lost market share. Zeltiq argued that it could show likely irreparable injury by showing that the parties competed and that there was a logical causal connection between the false advertising and its own sales position.  But the court thought that this wasn’t enough in light of Winter, which held that a showing of irreparable injury is always required.  “Merely showing that the parties are competitors and that there is a logical connection between the false advertising and the plaintiff’s sales may be sufficient to show a possibility of irreparable harm, but is insufficient to show a likelihood of irreparable harm without additional evidence.”  (Again, I wonder when if ever this kind of reasoning will hit trademark.)
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Must false advertising claims always be pled with particularity?

Posted on March 31, 2014 by rtushnet

LT Int’l Ltd. v. Shuffle Master, Inc., 2014 WL 1248270, No. 2:12–cv–1216 (D. Nev. March 26, 2014)

Here, the court disapproved a five-page complaint, finding that the false advertising and related claims sounded in fraud but didn’t satisfy Rule 9(b), and dismissed with leave to amend. LT sells gaming products, including an electronic interface that allows gamblers at a casino table to simultaneously place bets at other tables.  LT’s direct competitor Shuffle Master allegedly disparaged LT’s products and services.

The court found that LT was bringing a Lanham Act false advertising claim.  While neither fraud nor mistake is an element of a Lanham Act false advertising claim, and thus it doesn’t inherently trigger Rule 9(b), in the 9th Circuit Rule 9(b) is triggered when the complaint uses the language of fraudulent conduct.  (Why? This has never been adequately explained to me.)  So once a complaint uses the word “misrepresentation,” that’s a species of fraud. Only the fraudulent conduct allegations have to satisfy Rule 9(b), and if they’re inadequate they should be stripped.  Comment: See, this is what’s really weird to me about how this principle is applied (well, this and why trademark plaintiffs never run into this problem).  The difference between “intentionally false” and “unintentionally false” is intent, right?  And intent and knowledge may be averred generally even under Rule 9(b), correct?  So why does alleging intent convert a claim based purely on falsity—where intent isn’t required to prevail under the statute—to a claim sounding in fraud?  What am I missing?

Anyway, the fraud-based allegations were conclusory, referring to “an international campaign of disparagement,” claiming “misrepresentations regarding Plaintiff’s business and products, including Plaintiff’s LT Game Live Multi–Table System, at international trade shows, including at the G2E gaming trade show in May, 2012 in Macau, and directly and indirectly to Plaintiff’s current and prospective customers in the gaming and casino industry.”  LT identified two customers as among those to whom the misrepresentations had been made.  Even if this constituted the who, where, and when, it didn’t explain how the statements were made, and LT didn’t allege the factual content of any statement, even though LT was required to allege with particularity “what is false or misleading about the purportedly fraudulent statement, and why it is false.” This also disposed of the Nevada and Macao unfair competition claims, though LT did plead a plausible claim for tortious interference with prospective business and contractual relations.
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A mocking Snickers ad and Google v. Garcia

Posted on March 28, 2014 by rtushnet

Sociological Images covers a Snickers ad that apparently shows real women responding to supportive, nonsexist comments from construction workers. “The first thing women do is get uncomfortable, revealing how a lifetime of experience makes them cringe at the prospect of a man yelling at them.  But, as women realize what’s going on, they’re obviously delighted.  They love the idea of getting support and respect instead of harassment from strange men. This last woman actually places her hand on her heart and mouths ‘thank you’ to the guys. And then the commercial ends and it’s all yanked back in the most disgusting way.” Tagline: “You’re not you when you’re hungry.” SocImages: “I wonder, when the producers approached them to get their permission to be used on film, did they tell them how the commercial would end? I suspect not. And, if not, I bet seeing the commercial would feel like a betrayal.”

What result in the 9th Circuit, if one of the women sues for infringement based on fraudulent inducement of her participation?

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