"unlimited" service that was actually limited could deceive consumers

Posted on October 7, 2013 by rtushnet

Chapman v. Skype Inc., — Cal.Rptr.3d —-, No. B241398, 2013 WL 5502960 (Ct. App. Oct. 4, 2013)

Chapman alleged that Skype falsely advertised its voice over IP calling plans as “Unlimited” when they actually limited the number of minutes per day and month and the number of calls per day.  The trial court dismissed her claim, but the court of appeals reversed, holding she’d stated a claim for violation of the usual California statutes, and could potentially plead intentional and negligent misrepresentation with sufficient specificity as to actual reliance, as well as unjust enrichment.

Skype offers “Unlimited” monthly calling plans, including an “Unlimited World” calling plan that it describes as allowing “unlimited” calls to 40 countries and an “Unlimited U.S. & Canada” plan.  A footnote appears immediately after “Unlimited.”  The superscript references a link at the bottom of the page stating in a much smaller font, mostly in blue text, “A fair usage policy applies.” The link goes to the policy terms on another page.  The policy says that the calling plan is limited to 6 hours per day, 10,000 minutes per month and 50 numbers called per day, and that calls in excess of these limits will incur the “normal rates and connection fees.” Plus, calls to mobile telephones in 32 out of the 40 countries are not included.

I took screenshots of one Skype offer today, which still seems to have the allegedly problematic features—the “fair usage policy” doesn’t even have a link, which is not good.  Query also whether “things you should know” just above the bottom interferes with directing consumers’ attention to the important caveat about “unlimited”—to wit, that it’s actually limited.
 
Top:

 
One screen down:
3 screens down:
 
 
Chapman subscribed to the Unlimited U.S & Canada plan and believed that there was no limit on the minutes or calls she could make. She didn’t notice the “fair usage policy” language, used her calling plan freely, and was charged overage fees when her use exceeded the limits.  She filed a putative class action.  The trial court accepted Skype’s arguments that customers were required to click a box affirming that “I agree to the Skype Terms of Service” before buying, and that Skype provided a link to the terms of service, which itself provided a link to the fair usage policy.  Having agreed to be bound by the ToS, Chapman was bound by the fair usage policy.  The trial court found that the footnote reference was “clearly conspicuous.”

Practice note: The general rule about advertising disclosures is that you can’t disclose information that contradicts a false or misleading claim and thereby cure the deceptiveness.  The FTC doesn’t like that at all.  The court of appeals agreed that Chapman had stated a claim for violations of the UCL and FAL (thus also CLRA).  Whether consumers are likely to be deceived is usually a question of fact. 

Here, a factfinder could reasonably conclude that consumers were likely to be deceived because they’d fail to notice the disclosure that the plan wasn’t actually unlimited.  As the court noted, “[a] reasonable interpretation of the words ‘fair usage policy’ is that they suggest a policy to protect against misuse of the service provided. They do not necessarily suggest to an ordinary consumer that the ‘Unlimited’ plan is actually limited as to the number of minutes and number of calls. Those words therefore do not necessarily, and as a matter of law, alert a reasonable consumer to the need to follow the link to learn the details of those limits.”

In addition, Chapman adequately alleged actual reliance—causation—which can be inferred from a material misrepresentation.  The materiality of “unlimited” was also a factual question.

As for negligent and intentional misrepresentation, Chapman adequately alleged misrepresentation.  The question was whether she alleged actual and justifiable reliance.  Skype argued that Chapman failed to properly allege that she wouldn’t have bought a subscription if she’d known of the limits, and that the fact that she twice renewed her subscription after learning of the limits showed that she did not actually rely on “Unlimited.”  The renewal wasn’t part of the complaint and wasn’t judicially noticeable, and the court expressed no opinion on whether renewals demonstrated that she would’ve bought a subscription even if she’d known of the limits.  Moreover, it was possible for Chapman to have justifiably relied on the misrepresentation even after being afforded a reasonable opportunity to read the terms.  “Although the failure to read a contract precludes a claim of fraud in the execution, so as to render the contract completely void, it does not necessarily preclude equitable relief from the contract terms based on a misrepresentation.”  Chapman wasn’t alleging fraud in the execution, and she didn’t entirely fail to read the contract, but instead read and allegedly relied on the “unlimited” representation.
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mere lack of substantiation isn’t actionable by consumers

Posted on October 7, 2013 by rtushnet

Nilon v. Natural-Immunogenics Corp., No. 3:12cv00930, 2013 WL 5462288 (S.D. Cal. Sept. 30, 2013)

Defendant NI sells a colloidal silver dietary supplement, “basically positively charged silver particles suspended in purified water,” that claims to provide immune support.  Nilon bought it and said it didn’t work, and filed the usual California claims.  Though his complaint focused mostly on lack of substantiation, he also alleged that it didn’t provide the promised benefits to him.  The court summarized: “Nilon and Natural-Immunogenics make all of the arguments the Court would expect them to” about class certification. While the court was inclined to grant the motion for a restitution class of purchasers who were exposed to the claims at issue and bought a product allegedly worth less than what they paid.  The restitution would be the difference between the price paid for the product, Sovereign Silver, and the value actually received. If Sovereign Silver did absolutely nothing, its value would be zero and the restitution award would be a total refund.  “But there is a threshold problem with this case that the Court can’t look past.”

Lack of substantiation claims can’t be brought by private parties under California law, but that’s what Nilon’s complaint was.  Nilon might be able to go ahead if he could cite a study purporting to show that colloidal silver doesn’t benefit the immune system; he might also proceed “if the Sovereign Silver packaging actually said its benefits have been scientifically proven (which it does not) and there are no such studies.”  But the complaint only alleged lack of substantiation, which wasn’t enough.  Comment: I am still waiting for a court to address the argument that a health claim of this type necessarily implies scientific substantiation—known as an “establishment claim” in Lanham Act terms; Lanham Act cases recognize that establishment claims can be made by implication.  Although not all claims are establishment claims, in the modern world there’s a good case to be made that all health claims, especially supplement claims, are establishment claims.  That being the case, NI would have made a falsifiable statement, at least by necessary implication, about the quality of its evidence.  That statement could then be disproved by showing that studies didn’t support these claims, which were in fact nonscientific and at best hope-based contrary to the message that a reasonable consumer would receive.

Anyhow, the court denied the motion for class certification and allowed Nilon to file an amended complaint, but cautioned that, to the extent the complaint relied on the product’s failure to work for him or other specific plaintiffs, that would raise individual issues cutting against class certification.  Or Nilon could explain to the court why this wasn’t a lack of substantiation case.  If this barrier were to be overcome somehow, the court would be inclined to grant certification.
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another evaporated cane juice plaintiff gets to proceed

Posted on October 7, 2013 by rtushnet

Werdebaugh v. Blue Diamond Growers, No. 12–CV–02724, 2013 WL 5487236 (N.D. Cal. Oct. 2, 2013)

The usual California claims, this time directed at Blue Diamond’s almond milk products and snack foods, which allegedly falsely claimed to be “All Natural” despite containing chemical preservatives, synthetic chemicals, added artificial color and other artificial ingredients” and made unlawful and misleading “evaporated cane juice” (sugar) claims.

Werdebaugh argued that “evaporated cane juice” was unlawful and misleading because it violated the FDA’s definition of the term “juice” (since sugar cane isn’t a fruit or vegetable and juice has to come from those); the FDA’s requirements for identifying cane syrup on food labels; and the FDA’s blanket requirement that foods have to be referred to by their common or usual names and not by names “confusingly similar to the name of another food that is not reasonably encompassed within the same name.”  The complaint alleged that the FDA’s position on evaporated cane juice was stated in a 2009 Guidance for Industry letter as well as in warning letters.

The court reached the emerging standard result on Blue Diamond’s preemption and primary jurisdiction arguments: nope.  Werdebaugh didn’t just rely on the 2009 Guidance, but rather on the regulations themselves, and anyway the Guidance expressed the FDA’s view, as reiterated in at least three warning letters over the past nine years.  This made for a consistent position opposing the use of “evaporated cane juice,” which meant that Werdebaugh’s claims were identical to FDA requirements and non-preempted.

Though the FDA hasn’t generally defined “natural,” there was also no preemption there, given existing regulations that did address “natural” in a limited way and the FDA’s statement that natural means “that nothing artificial or synthetic (including all color additives regardless of source) has been included in, or has been added to, a food that would not normally be expected to be in the food.” Werdebaugh didn’t need to rely on a comprehensive general definition of “natural,” because he relied on a specific regulation prohibiting the use of the term “natural” on foods containing artificial or synthetic ingredients.

The primary jurisdiction doctrine didn’t apply because the court saw no reason to think the FDA’s position on these claims was unsettled, though some courts have found otherwise.

Next, standing: Werdebaugh could assert claims based on “substantially similar” products he didn’t buy.  And he had standing because he adequately alleged that he lost money or property as a result of Blue Diamond’s deceptive and unlawful conduct by buying products he wouldn’t otherwise have bought. 

He also satisfied Rule 9(b) by identifying the regulations that the challenged representations allegedly violated, stating why the representations allegedly violate these regulations, and stating why a reasonable consumer would be misled by these alleged regulatory violations.  The court rejected Blue Diamond’s argument that Werdebaugh should lose because he failed to specify whether he purchased the “refrigerated” or “stable shelf” version of Blue Diamond Almond Breeze Chocolate Almond Milk, as well as when and how many times during the class period Werdebaugh purchased the product.  As for the former, he included pictures of the product he allegedly purchased in the complaint, identifying that product.  And he pled that he bought during the class period, which was good enough as long as there was no suggestion that the label changed during that time.  Nor could the nationwide class claims be dismissed at this point.
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This NYT story on mugshot removal has it all

Posted on October 6, 2013 by rtushnet

Mugged by a Mugshot: Right of publicity claims, extortion claims, state-level attempts to deal with for-profit databases whose claims to promote the public interest are made somewhat less plausible by their willingness to pull down the pictures of those who pay, free speech arguments, and–perhaps most significant in the long run–the role of intermediaries.  Though this isn’t the first story on these websites by far, when the NYT started asking questions for what’s evidently a feature story, Google quickly responded that it was changing its algorithm, and MasterCard and PayPal dumped the sites.  (No word on Visa.)  I’m no fan of these websites, but I do wonder: what differentiates the intermediaries’ actions here from what happened to Wikileaks?

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You know a survey’s been done badly

Posted on October 3, 2013 by rtushnet

… when it produces a negative net confusion rate.

Water Pik, Inc. v. Med-Systems, Inc. No. 12-1065 (10thCir. Aug. 29, 2013)

Highlights: when SinuCleanse, SinuSense, and NeilMed neti pot packages were shown to survey respondents, 29 of the 198 total respondents, or 14.6%, expressed confusion between SinuCleanse and SinuSense. But 30 respondents (15.2%) expressed confusion between SinuCleanse and the supposed control, NeilMed—producing a net negativeconfusion number.  Plaintiff did better with the other product tested, with net 6.5% confusion, but that wasn’t enough to create a factual issue on likely confusion.  (There were also flaws with the survey construction, but frankly, who cares?)

The court accepted a theory of “unconscious” confusion, whatever that means (apparently it means association, though association alone isn’t actionable), despite the relevant consumer’s testimony that she made a typographical error rather than being actually confused.  Still, this was anecdotal evidence and not sufficient to show likely confusion.

Also, the court rejected the district court’s analysis of intent, which was that intent favored the firstcomer because the secondcomer knew about SinuCleanse before adopting SinuSense as a trademark, and only developed its own product after an offer to buy SinuCleanse was rejected.  Instead of focusing on intent to copy the product, the proper inquiry is whether the secondcomer intended to deceive consumers about source—and there was no evidence of that, even though intent to copy a mark may justify an inference of confusion in the 10thCircuit.  Knowledge plus intent to compete is not intent to mislead.
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The political economy of zombies

Posted on October 3, 2013 by rtushnet

This essay on the new zombie genre has a great analysis of the IP of the zombie apocalypse in Colson Whitehead’s Zone One

In Whitehead’s imagination, the forces that be – the remnants of the U.S. government still holding on to power and working to beat back the zombies and restart the world – have founded their efforts on preserving pre-apocalypse property rights.

Spitz is part of a cleanup crew searching a largely zombie-free downtown Manhattan for undead stragglers. That should be a party right?

But instead of fucking on the silk sheets of dead hedge fund managers, burning money for fun and stocking up with all the coolest stuff they find as they explore the emptied city, they are left to walk through New York coveting the abundance they see around them – because in Whitehead’s world of the undead, you can only plunder brands that have sponsored your crew. According to the rules set down by the provisional U.S. government holed up in Buffalo and enforced by the local military authorities based in Manhattan’s Chinatown (dubbed “Fort Wonton”), the party at the end of the world has been canceled.

In Zone One, a jingoistic administration is “rebranding survival.” So if a single stockholder or executive of Nike has survived, he now owns all Nike shoes. If you want to lift a pair of Air Jordans, to snack on a box of Powerbars you happen to find or take a sip of Vitamin Water, you need corporate “sponsorship.” Whitehead turns our current regime of patent trolls and copyright extension into the worst kind of dystopia: One that is exactly as shitty as right now – but with zombies.

In the post-catastrophe world of Zone One, some nameless corporation will still own the rights to the song “Happy Birthday to You,” even if preserving that copyright means allowing all of humankind to go extinct. Whitehead’s great zombie innovation is to suck all the joy out of the apocalypse – but by doing so, he shows you that the apocalypse should be fun. This isn’t just a vision of capitalism gone sour; it is a vision of the American brand of capitalism as triumphant even in catastrophe. This is true zombie capitalism.

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New treatise on fashion law

Posted on October 3, 2013 by rtushnet

Lois Herzeca and my former Debevoise colleague (now at Gibson Dunn) Howard Hogan have just released Fashion Law and Business: Brands & Retailers.  My blurb calls it an “accessible overview of key issues facing any fashion business, with case studies, examples, and sample forms that will help people working at any level of the industry.”

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Organization for Transformative Works: fundraising drive

Posted on October 2, 2013 by rtushnet

The Organization for Transformative Works is having a fundraising drive!  Donations support our work protecting and preserving fannish cultures, including our work on the DMCA remix exemptions, our open access journal, one of Time’s top ten websites of the year, and many other projects!

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Newton law: puree is real fruit

Posted on October 1, 2013 by rtushnet

Manchouck v. Mondelēz International Inc., No. C 13–02148, 2013 WL 5400285 (N.D. Cal. Sept. 26, 2013)

This one’s short: Manchouck argued that Nabisco’s strawberry and raspberry Newton cookies were not “made with real fruit,” as labeled, but merely with “mechanically processed fruit purée.”  This didn’t pass Iqbal’s plausibility requirement; Manchouck didn’t explain why “made with real fruit” would not include mechanically separated fruit purée.  Even the most narrow definition of “real fruit” didn’t exclude strained/puréed fruit.  Also, the package prominently displayed a picture of the cookies and their puréed fruit filling, and the ingredient list confirmed the presence of purée. “It is ridiculous to say that consumers would expect snack food ‘made with real fruit’ to contain only ‘actual strawberries or raspberries,’ rather than these fruits in a form amenable to being squeezed inside a Newton.”  Williams v. Gerber Products Co., 552 F.3d 934 (9th Cir. 2008), was not to the contrary, because there the packaging depicted fruits not actually found in the product.
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Rebooted website

Posted on June 28, 2013 by rtushnet

Welcome!  My main blog is Rebecca Tushnet’s 43(b)log. Here’s where I’ll post my writings, my exams, and other things, such as my grandfather Leonard Tushnet’s writings as I scan them.

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