comparison charts could infringe, but properly labeled internal search didn’t

Penn Engineering & Manufacturing Corp. v. Peninsula
Components, Inc., 2023 WL 9051998, No. 19-513 (E.D. Pa. Dec. 28, 2023)

Penn Engineering designs and manufactures various types of
fasteners sold under various trademarks, and alleged that Peninsula sold
identical fasteners while infringing on Penn Engineering’s marks.

The court grants partial summary judgment on trademark
claims but reserves some, and a false advertising claim, for trial. There’s a factual dispute over whether
Peninsula’s use of Penn Engineering’s trademarks in its “PEM Family of Marks”
(based on the name of its holding company) in Google search advertisements
stemming from three ad vendors constituted an intent to confuse. But claims
based on Peninsula’s website search tool were dismissed. “Like a person
searching for Domino’s Pizza on Pizza Hut’s website could not be confused that
they are purchasing Domino’s Pizza when being presented with Pizza Hut options,
a customer searching for Penn Engineering products on Peninsula’s website that
presents Peninsula products could not be confused into thinking he or she is
buying Penn Engineering products.” However, there was a factual dispute over
the extent to which Peninsula’s use of sales drawings constituted advertising.

In a previous round of summary judgment, the Court rejected
claims based on “Keyword Conquesting” (which seems to be just keyword
advertising) and “Unlawful Gray Market sale of authentic Penn Engineering
fasteners.”

Search engine ads: Penn Engineering argued that Peninsula
has “continue[d] to intentionally use PEM’s famous mark PEM in [Peninsula’s]
online display ads and that such use was not a ‘vendor mistake’ as [Peninsula]
has alleged.” An August 2023 for “pem standoff” produced a sponsored search
result for “Pem Standoff – Clinch Standoffs” underneath a URL directing the
user to Peninsula’s website.

 

screenshot showing sponsored “Pem Standoff – Clinch Standoffs” ad

But there was still a genuine factual dispute about whether
this was intentionally confusing.

Things were easier for Peninsula’s internal website search.
A user couldn’t place an order from Peninsula’s website without directly
interacting with Peninsula sales staff. The court first reasoned that a customer’s
use of Penn Engineering’s marks to search constituted “use” of those marks
because of Peninsula’s internal metatags, which provided Peninsula with an
opportunity to reach consumers apparently the court means that the site
redirects searches for Penn Engineering marks to coordinate Peninsula products.
(Abitron could seem to put this in question). Nonetheless, the court
still granted summary judgment to Peninsula on this activity. Although “initial
interest confusion is probative of a Lanham Act violation” as a type of bait
and switch, keyword-generated ads that don’t use Penn Engineering’s marks in
text were not actionable because the results were “clearly labeled as belonging
to Peninsula and there is no likelihood of confusion where the use of
trademarks as trigger words is hidden from the consumer.” The same reasoning
applied here. (For some reason, the court doesn’t cite the Amazon/MTM case.)
Initial interest confusion depends on wrongful diversion, but there could be no
wrongful diversion when consumers were already on Peninsula’s website. Penn
Engineering argued that the consumers might have come from infringing search
ads, but “there cannot be two points of initial interest for a customer.” Penn
Engineering, much like MTM, argued that the search results provided “no
indication or disclaimer that these products are not PEM products,” such that Peninsula’s
website might believe that the site is “under the guise of some affiliation or
sponsorship” with Penn Engineering or believe that Peninsula is a “dealer,
authorized distributor, or otherwise affiliated with PEM” and thus confuse the
customer. But there was no evidence supporting this theory, and summary
judgment was thus appropriate. 

screenshot: search results for CLS-0420-2, showing results with different names

As a matter of law, no reasonable jury could find the
display confusing (apparently Penn Engineering claims the product number as a
trademark), since the results were clearly labeled, as in a Google search. (I
always note when courts are blessing Google’s business model as a reference
point!)

 

super blurry Google screenshot with targeted ads that don’t use plaintiff’s marks

The same would be true if one got results on Samsung’s
website by searching “Apple iPhone,” or on Toyota’s website by searching “Honda
Civic.” “A customer could not be confused that a part name, wholly different
from the part name entered in the website search tool, is in fact that same
part name, and Penn Engineering has presented no evidence that any consumer has
even searched for Penn Engineering products on Peninsula’s website, let alone a
customer who believes that he or she is purchasing Penn Engineering products
when presented with Peninsula products.” As a matter of policy, businesses
shouldn’t be forced to use disclaimers in this situation; the court noted the
prospect that, under Penn Engineering’s argument, businesses would have to
disclaim affiliation with every possible competitor in every search result.

Website search was distinguishable from Peninsula’s
cross-reference charts that listed Penn Engineering marks alongside Peninsula
substitutes on Peninsula’s website, “because whether the charts led to consumer
confusion depended on the factual question of whether consumers might infer a
business relationship between Peninsula and Penn Engineering by seeing Penn
Engineering’s marks on Peninsula’s website.” There was a factual dispute over
whether the charts that listed the Penn Engineering product side-by-side with
the Peninsula product demonstrated “a manufacturer-distributor relationship, or
that Peninsula is a division of Penn[ ]Engineering or a division of a common
parent.” (That … isn’t really how manufacturer-distributor/divisional
relationships are presented to consumers, as far as I know; it seems like this theory
should have required actual evidence too.) But for the website search, none of
Penn Engineering’s information or marks were side-by-side with the
corresponding Peninsula product.

Indeed, the court was open to the general theory: “had Penn
Engineering presented evidence of customers consistently searching for its
products on Peninsula’s websites and then believing that the search results
yielded Penn Engineering products, that would likely be enough for such claims
to survive summary judgment.” (Note here that this is describing pure source
confusion, not the weird, unprovable, immaterial affiliation confusion theories
that plaintiffs like to assert.) Likewise, false claims to offer a competitor’s
products/labeling the seller’s product as the competitor’s would obviously be
actionable.

Penn Engineering also made false advertising claims based on Peninsula’s use of
sales drawings. Here the issue was “commercial advertising or promotion”;
Peninsula argued that it would provide a single drawing of a single product to
a single customer only when the customer requested that sales drawing. In
response,

Penn Engineering argues that
Peninsula has created over 2,000 sales drawings that Peninsula has distributed
to hundreds of customers over a period of time spanning more than 25 years. For
example, Penn Engineering relies on a letter from Peninsula in which Peninsula
admitted that it created 199 new sales from the sales drawings and provided one
of those drawings approximately 60 times to 30 different customers over
approximately two years. Peninsula’s Chief Operating Officer also testified at
his deposition that the sales drawings are “generally available” to Peninsula’s
customers. At oral argument, Peninsula did not dispute these facts.

Even if the sales drawings were not published but sent only
on request, person to person, they could still constitute commercial
advertising or promotion if they were sufficiently disseminated to the relevant
purchasing public, which was a question of fact. Approximately 2.5% of
Peninsula’s customers over that two-year span received such sales drawings,
which could show that they were “part of an organized campaign to penetrate the
relevant market.”

from Blogger http://tushnet.blogspot.com/2024/01/comparison-charts-could-infringe-but.html

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“plant butter with almond oil” plausibly implies significant amount of almond oil

Reyes v. Upfield US Inc., — F.Supp.3d —-, 2023 WL
6276685, No. 22-CV-6722 (KMK) (S.D.N.Y. Sept. 26, 2023)

Reyes alleged that the labeling on some of Country Crock’s
plant butter was deceptive in violation of §§ 349 and 350 of the New York
General Business Law; common law breach of express warranty; common law fraud;
and common law unjust enrichment. The first claim survived, with some sharp
words from the judge on the common-law claims.

Country Crock sells a vegetable oil spread described as a
plant butter “made with almond oil” or “with almond oil.” The label highlights
the terms “Plant Butter,” “Dairy Free,” “79% Plant-Based Oil Spread,” and a
description that the product is made “With Almond Oil.” The label also has
pictures of almonds, an almond flower, and almond leaves.

image of product with almonds on label

Reyes alleged that consumers would, from this, expect a
significant, non-de minimis amount of almond oil, in relative and absolute
amounts to all oils used, but in fact the ingredient list showed a “negligible”
amount of almond oil, both in relative and absolute amounts. Instead, the oil
came from, in order, palm fruit, palm kernel, canola and almond oil.

Reyes alleged both consumer-oriented conduct and injury
(paying a premium price). Moreover, the label was plausibly misleading. Upfield
argued that “the Product’s front label makes no representation regarding the
relative or absolute amount of almond oil in the Product,” and thus that
“including the ingredient list[ ] clearly precludes the possibility of
deception,” along with contesting the description of the almond oil as de
minimis.

At this stage, it was plausible that consumers would expect
the predominant oil to be almond oil, under Mantikas v. Kellogg Co., 910 F.3d
633 (2d Cir. 2018), which found that it was plausible that crackers labeled as
“WHOLE GRAIN” and “MADE WITH WHOLE GRAIN” would mislead consumers into thinking
that the grain content was predominantly whole grain.  As another court said:

While reasonable consumers may not
have a well-defined understanding of what “plant butter” is, they are likely to
understand that a “plant butter” spread is made from plant-based ingredients.
As in Mantikas, they will likely look to emphasized assertions on the packaging
to discern what these ingredients are. It is therefore plausible that the
representation that the plant butter is “Made With Olive Oil” could lead a
reasonable consumer to conclude that the major plant-based ingredient was olive
oil. In this context, the disclosure on the front of the packaging that the
Product is a “79% vegetable oil spread” would not necessarily contradict the
initial impression ….

This wasn’t a case where the touted ingredient was obviously
not the predominant ingredient, as with Kennedy v. Mondelez Global LLC, No.
19-CV-302, 2020 WL 4006197 (E.D.N.Y. July 10, 2020) (no reasonable consumer
would assume that “made with real honey” on a graham cracker label meant it was
predominantly honey and thus couldn’t assume it was the predominant sweetener).
Nor would the back-of-package ingredient disclosures necessarily dispel the
misleading front. And as for whether it was plausible to think that a spread could
be mostly olive oil, “a reasonable consumer is not expected to have an
intimate understanding of the chemical properties of [almond oil] vis-à-vis the
other vegetable oils or a sense of what ratio of oils is feasible.”

Nor was there FDCA preemption; Reyes wasn’t challenging nutrient
claims.

Breach of express warranty failed for want of the required pre-suit
notice. On this and the following, the court noted that plaintiff’s counsel had
made and lost similar claims multiple times in this court, and mentioned Rule
11. Fraud also failed because of failure to allege scienter; it wasn’t enough
to point to the profit motive. And unjust enrichment was duplicative.

from Blogger http://tushnet.blogspot.com/2024/01/plant-butter-with-almond-oil-plausibly.html

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“One a Day” plausibly misleads when consumers need to take more than one to get full benefit

Newman v. Bayer Corp., — F.Supp.3d —-, 2023 WL 6318523, No.
22-CV-7087 (KMK) (S.D.N.Y. Sept. 28, 2023)

Another day, another
“One A Day” claim where the bottle instructs users that, you guessed it, a daily
serving is more than one gummy. NY GBL § 349 and § 350 claims survived. (Does
this cause any problems for the One A Day trademark?)

One a Day gummies that aren’t one a day

The court found consumer-oriented conduct and price premium
injury sufficiently alleged. The labels were also plausibly materially
misleading. Defendants relied on two cases rejecting similar theories,
including one that was vacated by the Ninth Circuit in light of California
cases more favorable to plaintiffs (Goldman v. Bayer AG, No. 17-CV-647, 2017 WL
3168525 (N.D. Cal. July 26, 2017), vacated and remanded, 742 F. App’x 325 (9th
Cir. 2018); and Howard v. Bayer Corp., No. 10-CV-1662, 2011 WL 13224118 (E.D.
Ark. July 22, 2011)). But, under Mantikas v. Kellogg Co., 910 F.3d 633 (2d Cir.
2018), it was plausible that “there is little chance that clarification or
context on the reverse of the package will suffice to overcome a deception
claim (especially at the motion-to-dismiss stage).”

The product “communicat[es] by the large, bold-faced claims”
to a reasonable consumer that “One A Day,” or specifically, to a reasonable
consumer purchasing a bottle of supplements, one supplement a day, is needed to
receive its benefits. It was also relevant, though not dispositive, that other
supplements sold under the same brand were, in fact, one per day. “Common sense
would dictate that a reasonable consumer, choosing between supplement brands or
products, may choose a product within a line that provides the ‘full
nutritional value’ in a single gummy, as Defendants indeed market with their
other, non-chewable versions within the same line.” The interpretation “one
serving a day,” by contrast, was “a stretch.” “An apple a day keeps the doctor
away” means one apple, not one serving.

Even though one would need to look at the ingredient label
to know exactly what the nutrients were, the issue was whether a consumer would
believe she’d get the full nutritional benefit—whatever that was—with one gummy
a day.

Breach of warranty claims survived. But scienter was a
problem for fraud. The plaintiff quoted a California state court (linked above)
“discussing One A Day’s 75-year work ‘convincing the public they could be
trusted to divine its vitamin needs.’” “[T]he Court is skeptical of Plaintiff’s
use of another court’s musings upon Defendants’ business model as substantial
allegations of Defendants’ scienter,” and there weren’t supporting allegations
about the market share of the defendants and industry practices.  

from Blogger http://tushnet.blogspot.com/2024/01/one-day-plausibly-misleads-when.html

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identical product labeled “For children” and sold at higher price could be deceptive

Mendoza v. Procter & Gamble Co., No. CV 23-1382-DMG
(JPRx), 2023 WL 8860900 (C.D. Cal. Dec. 20, 2023)

Mendoza brought the usual
California claims
, alleging that Vicks Vapo cough and cold treatment
products marketed as being for children were identical to the adult versions,
only pricier; the court mostly rejected P&G’s motion to dismiss. The
Children’s VapoRub front label states that it is for children two and older;
the Standard Product’s front label includes no age instruction. Id. ¶
Children’s VapoRub costs approximately $1.03 more per ounce than Standard
VapoRub. The Children’s VapoPatch includes a picture of a cartoon child wearing
the patch; the Standard Product contains a more defined image of an adult
wearing the patch, and costs at least $0.70 less. The Children’s VapoCream
includes the language “easy to apply” and illustrations of various objects,
such as an airplane, butterfly, flowers, stars, paper airplanes, and clouds;
the Standard Product does not have such language or illustrations and costs
less.

There was no FDCA preemption of a standard misleadingness claim.
Further, the complaint sufficiently alleged an affirmative misrepresentation
that led reasonable consumers to believe, falsely, that the products were
specially formulated for children—not just a price differential. Negligent
misrepresentation claims failed, however, for want of non-economic damages.

Mendoza had standing to challenge the VapoCream products
because the products and alleged misrepresentations were sufficiently similar
to those of the products she did buy. And she sufficiently alleged that she
“would like to, and would consider, purchasing the Products again … [but]
will be unable to rely on the Products’ advertising or labeling in the future,
and so will not purchase the Products again although she would like to” to have
standing for injunctive relief.

from Blogger http://tushnet.blogspot.com/2023/12/identical-product-labeled-for-children.html

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Cy pres recipient in false advertising case has to be false-advertising-focused group, court rules

 You might think that class action rules can be a bit like Calvinball, and I’d be hard pressed to disagree. Here’s another hurdle to jump, although it’s certainly jumpable.

Hawes v. Macy’s Inc., 2023 WL 8811499, No. 1:17-cv-754 (S.D.
Ohio Dec. 20, 2023)

The court denies settlement approval in this case alleging
that Macy’s misrepresented the thread count in some of the sheets it sold, because
it doesn’t like the cy pres part of the remedy. The global class action
settlement created a $10.5 million common fund, and the parties jointly moved
the court to approve. As part of the settlement, Macy’s agreed to change the
packaging on its sheets to include the language: “Thread count determined from
a sample of a representative sheet by counting cotton yarns and by separating
and counting adjacent parallel polyester yarns.” The $10.5 million fund would
first satisfy any notice and administrative costs. The remaining balance was to
go towards the class counsel’s attorneys’ fees, incentive payments for the
named plaintiffs, and payouts to the class members who submit eligible claims. Class
members whose purchases Macy’s can verify through its own records would receive
$7.50 per unit of CVC Sheets purchased (and could potentially receive a
secondary distribution), as would class members who had proof of purchase
through receipts. Class members who attest under penalty of perjury that they
purchased CVC sheets would receive $2.50 per household (no matter how many
sheets persons in the household claim to have purchased) and no secondary
distribution.

If, after all that, it was “economically feasible” to make a
second distribution, the first two groups of claimants would receive their
pro-rata share of the remaining funds, weighted according to the purchase price
that each claimant paid for his or her sheets, but capped at 50% of that
purchase price. If it wasn’t economically feasible to make a second
distribution, or if funds remain even after a second distribution, the
agreement provides that the remaining funds would go to the Public Interest
Research Group (PIRG), a nonprofit advocacy organization that the parties
chose.

The notice plan already went into effect and was “remarkably
successful at generating claim submissions,” with an estimate of over one
million claims before the close of the claims period; roughly 10% could be
verified either by internal record or proof of purchase.Only 59 class members
opted out and none objected.

First, the court found that the state consumer protection
law claims couldn’t cover the US because it wasn’t enough to allege that “substantially
similar statutes” exist in all other states is insufficient, and they only
cited California and Missouri consumer protection law in the complaint. But fraud
and unjust enrichment, along with UCC breach of warranty, did not create any
conflicts. Thus, the court certified a class.

“The relief provided in the settlement (at least for those
whose purchases are verifiable by Macy’s business records or who can provide
proof of purchase) likely meets or exceeds what any class member could have
procured by an individual lawsuit.” The submitted claims would likely account
for around 40% of the class. “For low-value-claim class actions like this one,
a 40% distribution rate weighs towards a finding of adequate relief.” Nor were
appropriate incentive awards to class representatives a problem.

Although “every circuit to squarely consider the issue” has
found that Rule 23 does not preclude cy pres awards. But when are they ok? The
Eighth Circuit says only when “existing class-member claimants have been fully
compensated and further distribution to remaining class members is not feasible”
and when the recipient is “for the next best use for indirect class benefit.” Accordingly,
the use to which the funds are put must be “consistent with the nature of the
underlying action and with the judicial function.” The recipient must be one
that “relates directly to the injury alleged in [the] lawsuit and settled by
the parties.”

Here, it was proper to use cy pres as a last resort. “While
Category 3 claimants will only receive $2.50, which would fall short of a full
recovery for a fully-proven claim, the claimants in that category would likely
not succeed at trial because they would struggle to prove they actually bought
sheets,” and further distributions to absent class members were also feasible.

So what was the problem?

As far as the Court can tell, …
PIRG does no work addressing false or misleading labeling for bed sheets,
textiles more generally, or even false advertising as a category. … PIRG’s work
appears to primarily focus on company or government policy related to toxins,
waste, or climate change. … [M]ost of PIRG’s consumer-related campaigns relate
to product safety, food safety, and unfair loan practices. True, the bed sheets
here may have had a rougher texture than the customers had been led to believe,
but uncomfortable and unsafe are two different categories, and no one contends
the sheets raised safety issues.

Perhaps even more troubling to the
Court in its assessment of PIRG as a potential cy pres recipient, … PIRG uses
portions of its funds to donate to other organizations—organizations whose
missions are even a further cry from any issues this suit presents. In 2016,
PIRG granted $40,000 to the People’s Action Institute, an organization that
advocates for socialized medicine, pursues “climate justice,” and fights
against “the growing threat of authoritarianism in rural communities.” PIRG
also donated over a million dollars to Environment America, an organization
that seeks to ban plastic. Last, but not least, PIRG donated $60,000 to “Onward
Together,” a PAC that supports progressive candidates in their runs for offices
across the country.  

Whatever one may think of the
merits of such endeavors, it is hard to see how they have much to do with bed
sheets, thread count mislabeling, or even consumer fraud more generally. In
sum, the Court can discern no way in which a potential multi-million-dollar
award to PIRG is the “next best use” for a class fund created to settle
consumer fraud claims stemming from inaccurate bed sheet thread counts. PIRG
does not relate “directly to the injury” suffered by the class members and it
would be an inappropriate exercise of the “judicial function” to divert class
money to an unrelated organization that has nothing to do with the class or the
injury its members suffered.

Worse, the parties didn’t provide argument beyond a “vague,
unsupported statement” that PIRG “has as its purpose the advancement of
consumer protections and rights.” Nor was it enough to provide a declaration
from PIRG’s Director of its Consumer Watchdog Team stating that they will use
any award “to promote accurate and truthful labeling and advertising of
consumer bedding products … [to] educate consumers with a focus on truth in
labeling … [to] serve as a marketplace watchdog … [and to] research and monitor
the marketplace.” This was too vague a promise, and anyway there was no
mechanism to enforce it. Further, money is fungible, so even enforceable
restrictions wouldn’t help. (Does that mean every cy pres recipient has to be
newly created? That seems … unhelpful, and also fungibility could presumably be
overcome with evidence that there’d be no bedding marketing program at all in
the absence of the money.)

“[T]he Court has an obligation to ensure that settlement
proceeds benefit the class. The cy pres doctrine simply allows for a
distribution that achieves those benefits indirectly.” The court singled out the
National Advertising Division of the Better Business Bureau, which “exists
entirely to address false advertising,” though TINA seems like a much better
bet to me. Apparently NAD would satisfy the court’s desire for “narrow[]
tailor[ing]” to the class’s interests, but the parties needed to identify some “organization
that verifiably engages in meaningful work related to deceptive advertising,”
requiring new notice to the class. The court expressed its concern that “the
settlement notice postcard distributed to potential class members included no
mention of the cy pres award, [which should] be included in any future notice
so that class members can raise objections to that distribution if they wish.”

from Blogger http://tushnet.blogspot.com/2023/12/cy-pres-recipient-in-false-advertising.html

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reseller’s unsuccessful challenge to takedown notices leads to more successful infringement counterclaim

CDC Newburgh Inc. v. STM Bags, LLC, — F.Supp.3d —-, 2023
WL 6066136, 22-cv-1597 (NSR) (S.D.N.Y. Sept. 18, 2023)

CDC sued STM, alleging violations of New York state and
federal law arising from STM’s involvement in the removal of ten of its product
listings from Amazon.com. The court dismissed CDC’s defamation, tortious
interference, and common law unfair competition claims, while allowing most of
STM’s counterclaims to survive (except for dilution and common law unfair
competition).

CDC is a “non-authorized reseller” of consumer products that
it purchases from resellers and distributors, among other sources, in order to
resell these products at a discount. Although it didn’t usually purchase its
inventory directly from the relevant manufacturers, it alleged that its
products are authentic.

CDC alleged that STM knew that, when a trademark owner
submits a report that a seller is listing a counterfeit product on Amazon,
Amazon automatically removes the listing without warning to the seller, and
Amazon’s algorithm considers this history of removal when determining how
frequently the accused seller’s other products appear in consumer’s searches,
reducing the accused seller’s sales of all products that it lists on Amazon.

STM sells cases, bags, sleeves, and other accessories for
electronic devices under the “STM” and “DUX” trademarks. Codefendant Lienau
allegedly assists clients with removing fraudulent products from Amazon’s
website, and reported CDC to Amazon for selling counterfeits.

CDC allegedly knew that the items it sold through these ten
listings were authentic because it obtained them from a reputable, publicly
traded company that purchases these items from STM. It alleged that Lienau
filed the reports for anticompetitive reasons after defendants suspected or
confirmed the products were genuine.

STM’s counterclaims alleged that online marketplaces
threaten a manufacturer’s ability to maintain its brand integrity because
customers cannot easily distinguish between the authorized and unauthorized
sellers of a manufacturer’s products. Thus, it alleged, it conducts all sales directly
or through authorized dealers who are prohibited from selling on third-party
websites. Its warranty is allegedly a “material component” of “genuine” STM
products because consumers factor the existence of this warranty into their
decision to purchase an STM product, and CDC isn’t an authorized dealer. CDC
allegedly sold products as “new” when they were previously sold, and
potentially opened or repackaged. CDC allegedly didn’t comply with STM’s
customer service requirements because it cannot provide the type of instruction
and support (for iPhone cases?) that STM requires authorized dealers
to offer to consumers. Thus, the products sold by CDC allegedly don’t include
the STM warranty (is this actually legal in NY?). This allegedly infringes STM’s
marks and diminishes their value because consumers associate negative
experiences that may result from purchasing them with STM’s brands. (As usual,
a compelling and intuitive theory of harm.)

Defamation: The “counterfeit” statements to Amazon were
opinion. A statement of opinion is one which is either “accompanied by a
recitation of the facts upon which it is based” or “does not imply that it is
based upon undisclosed facts.” Here, the challenged reports said things like

“Please note only CaseMotions and Sportique are authorized
by STM to sell on Amazon. These sellers are not authorized nor are they buying
direct from STM therefore we conclude this product is counterfeit”; and (2)
“Please know STM has authorized only Sportique and CaseMotions to sell on
Amazon.com outside of STM selling direct. STM has double checked their records
and have no data to support this seller acquired STM product through a
legitimate channel therefore we can safely assume they are selling counterfeit
products.” Thus, the allegedly defamatory statements were opinion, not based on
undisclosed facts.

STM, however, could not use NY’s anti-SLAPP law in federal
court.

Tortious interference: Removal of listings on an
e-commerce platform does not constitute harm to the underlying business relationship
with the platform, so it wasn’t sufficiently alleged that STM interfered with CDC’s
business relations with Amazon.

Nor did the alleged acts constitute unfair competition under
NY state common law: there was no palming off or misappropriation.

The court also found it was inappropriate to exercise
jurisdiction over a request for declaratory judgment of noninfringement.

Trademark infringement/unfair competition under
§1125(a)(1)(A) was sufficiently pled and first sale couldn’t be decided on a
motion to dismiss. But the state common law claim for trademark infringement
was dismissed for failure to allege more than conclusorily that CDC acted in
bad faith.

False advertising under § 1125(a)(1)(B) was also
sufficiently pled because STM alleged that CDC made a literally false statement
that the products came with their warranties, which was presumed to be
material.

Dilution: “spare, conclusory allegations” that the STM trademarks
“are widely recognized by the general consuming public of the United States”
and “STM has expended substantial time, effort, money, and resources
advertising and promoted STM Products with the STM trademark” were insufficient.

from Blogger http://tushnet.blogspot.com/2023/12/resellers-unsuccessful-challenge-to.html

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Using dominant competitor’s part names/numbers for comparison isn’t false advertising, TM infringement, or (c) infringement

There really should be a fee shift when a competitor harasses another competitor for daring to make comparisons of part numbers, but we don’t seem to live in that world. 

Simpson Strong-Tie Co. v. Mitek Inc., 2023 WL 8697700, No.
20-cv-06957-VKD (N.D. Cal. Dec. 15, 2023)

Simpson sued its competitor MiTek for using Simpson part
numbers for structural connectors/fasteners for use in the construction
industry in its catalogs/other promotional material; the court here, after a
nonjury trial before the magistrate judge, rather comprehensively rejects its
false advertising, trademark, and copyright claims. (It sure would be nice if
we could get a consensus that copyright in parts numbers and names should not be
allowed.)

Structural connectors are used to join, and transfer the
load between, different structural members, including vertical members like
studs and posts, horizontal members like floor joists and roof trusses, and
foundations. The engineer of record must indicate on construction drawings the
specific structural connectors that will be used on a given project, whether a
custom connector designed by the engineer to join and transfer the load between
members or a pre-engineered connector. Typically, the engineer will specify a
connector noting both part name and manufacturer (e.g., Simpson or MiTek),
which the contractor/subcontractor is responsible for purchasing. The
configuration and load capacity are the two most important considerations for
selecting a connector, though aesthetics, treatment, and cost also play roles.

Simpson’s structural connectors are specified on most construction
drawings in the US; its market share is over 75%. A contractor may request that a different connector be used, but
may not use a different connector or otherwise deviate from the construction
documents without the engineer’s approval. 

For decades, companies selling structural connectors have
used descriptive product names, and names that consist of an acronym formed
from the initial letters of the words of the product name followed by a model
number or stock number. The product names are formed from words that are common
in the construction industry, including: hanger, anchor, clip, concrete,
masonry, brick, post, column, cap, tie, strap, beam, base, girder, rafter,
roof, truss, hold down, plate, and retrofit. Simpson and MiTek part names
generally consist of an acronym formed from the initial letters of the words
that describe the connector in the product name, followed by a model number or
stock number that corresponds to information about the particular connector,
such as load capacity or size. Although Simpson’s naming process uses
descriptive words, it’s “not dictated by a rule or system,” though it is limited
by the number of characters that can be used—a maximum of 16. 

MiTek’s product and part names are also descriptive, but MiTek
often begins by assigning a MiTek connector in development the same name as the
Simpson connector with which MiTek intends to compete. Sometimes it keeps that
name for sale. For 51 of MiTek’s structural connectors, MiTek’s part name is
identical to the part name for the Simpson connector for the same application,
and for 32, its part name differs from the part name for the Simpson connector
for the same application by one letter.

Engineers rely on the information in the parties’ catalogs
in evaluating whether a connector can be used in a particular application, and
contractors may also do so. Simpson’s catalog includes a two-page “alphabetical
product index” or “API,” an alphabetical list of the part names for the
connectors included in the catalog with the page number where information about
the connector can be found. New parts in recent catalogs are marked as new;
Simpson registered copyrights in two of its recent catalogs. All Simpson’s connectors, catalogs, marketing literature,
and retail display materials, are clearly labeled with the “Simpson Strong-Tie”
name.

MiTek’s 60th product catalog also contains a reference
number index, which includes most of the part names listed in the API in
Simpson’s 2019-2020 Wood Construction Connectors catalog; the same was true of
the most recent product catalog. All MiTek’s connectors, catalogs, marketing
literature, and retail display materials, are clearly labeled with the “MiTek”
name.

For decades, companies selling structural connectors have
used “reference numbers” to cross-reference their competitors’ products,
including charts listing [X] part names next to competitors’ part names,
including Simpson’s. When MiTek uses reference numbers in its marketing
materials, it does not affirmatively identify the reference numbers as Simpson
part names. The MiTek catalogs’ reference number index lists Simpson part names
in alphabetical order, without attribution to Simpson, and the page number
where a MiTek connector product may be found, and are introduced with the text:

Reference numbers shown through the
charts in this catalog are part numbers which may be more familiar to customers
in various regions of the United States. These are included for the convenience
of our new customers who have recently switched from a competitor’s product
line to [MiTek/USP].

The reference numbers in this
catalog are for general application comparison only and should not be used as a
substitution tool. The user is responsible to compare specific load values,
fastener schedules, material specifications, and other factors to determine
suitability of use for any particular product.

MiTek’s catalogs also use Simpson part names as reference
numbers, without attribution to Simpson, in the tables that summarize the
technical information for the MiTek connector offered (see second column, Ref.
No.):

MiTek’s Reference Number Conversion Guide likewise lists
Simpson part names in alphabetical order, without attribution to Simpson, next
to MiTek part names, and this use of reference numbers is repeated in its
website/software/mobile app and point of sale materials.

example of point of sale display with “ref. #” in upper right under MiTek part number

Most MiTek connectors have at least one attribute that
differs from the referenced Simpson connector. Nonetheless, MiTek’s use of
reference numbers “is consistent with how reference numbers have been used in
the construction industry for decades, and in particular with how reference
numbers have been used by providers of structural connectors.”

Simpson offered no admissible evidence of actual confusion,
and no evidence that anyone chose to specify or purchase a MiTek connector
based on MiTek’s use of a Simpson part number as a reference number because the
engineer believed the reference number meant that the MiTek connector was
equivalent to or substitutable for a Simpson connector. MiTek received
inquiries about whether its connectors could be used in particular
applications, including in place of Simpson’s, but there was no evidence that any
inquiry arose from confusion or misunderstanding associated with MiTek’s use of
Simpson part names as reference numbers or MiTek’s use of part names similar or
identical to Simpson part names. Although a customer (reportedly) expressed
concern that a MiTek product wasn’t a good substitute for the referenced
Simpson product, there was no admissible evidence that the consumer was
confused or misled.

Simpson offered a survey purporting to show confusion as to
(1) source/affiliation/authorization and (2) equivalence.

False advertising: The use of a Simpson part as a reference
number was not a necessary implication that the MiTek parts were equivalent and
substitutable in all respects; one reasonable interpretation was that the
products were generally suited to the same application or function and should
be compared. Nor, for similar reasons, was the use intentionally misleading.

Because Simpson’s structural
connectors are specified in the first instance on most construction drawings in
the United States, the reference number serves as a starting point for
identifying the relevant MiTek connector for further investigation for a possible
substitution of the MiTek connector for the Simpson connector. Even where
Simpson structural connectors are not already specified on the construction
drawings, because Simpson is by far the dominant provider of structural
connectors throughout the United States and therefore familiar to designers and
engineers, the reference number serves a similar purpose as a starting point
for identifying the relevant MiTek connector for evaluation to be specified
instead of or in addition to (as in the case of dual specification) the
referenced Simpson connector.

Simpson’s survey was unpersuasive because it was suggestive.
For example, instead of using an open-ended question asking respondents what
“Ref #: DTT1Z” means on the MiTek product label, the survey used a close-ended
question (i.e. “do you believe that …”), suggesting to respondents (a) that
DTT1Z refers to a product that belongs to a company other than MiTek and (b)
that using “DTT1Z” as a reference means that MiTek is communicating its product
is equivalent to the product of another company. This meant the survey offered “no
meaningful evidence” of confusion. Also, the control group respondents were
exposed to the same MiTek stimuli, but the reference numbers were removed; the
questions didn’t make sense in that context. For example, the control
respondents were asked whether “based on this label, do you believe that MiTek
sells [a product number not included in the label.]” MiTek’s expert testified
that “there’s no way that [the respondents] could intelligently say yes. How
could they say yes when don’t know what’s being compared?” Even so, the results
of the primary and control surveys were very similar, “suggesting that the
primary survey results are not reliable indicators of how the relevant audience
understands MiTek’s use of reference numbers.”

Nor was the expert’s conclusion that the responses showed
recognition of the numbers as Simpson part numbers reliable. The survey tested
only six part names for “distinctiveness” or “secondary meaning,” and the
results didn’t indicate that respondents identify these particular part names
with Simpson.

Materiality was also a problem. With few exceptions, the
engineer of record is in charge of choosing the structural connectors, and
Simpson didn’t show that they were influenced “to any degree” by MiTek’s use of
Simpson part numbers as reference numbers. They consider geometry, load
capacity or strength, and, to a lesser extent, aesthetics, treatment, and cost.

Nor did Simpson show injury.

Passing off/§43(a)(1)(A): The part names were descriptive
or, in some cases, generic. The court did not find secondary meaning. “[T]he
relevant audience typically does not encounter Simpson’s part names alone,” but
rather with Simpson and/or Strong-Tie. The evidence showed that engineers
specify connectors by manufacturer (i.e. Simpson or MiTek or both) in addition
to including specific part names on construction drawing.

And even if Simpson had shown secondary meaning, it couldn’t
show likely confusion. Although similarity of “marks” and direct
competition/overlapping marketing channels favored Simpson, strength, actual
confusion, and consumer sophistication didn’t. As for intent, while MiTek did
use some names identical to those first used by Simpson, “the Court is not
persuaded that MiTek did so with the intent to confuse the relevant audience,
but rather because the names described well the connector at issue.”

California UCL: same.

Copyright infringement of the API: I’m not sure there was
any copying in fact of the index, unless MiTek replicated names of parts
it didn’t stock! But it doesn’t matter. Merger/thin copyright, including the
lack of protectability of product names/abbreviations that are standard or prevalent
in an industry, prevented any finding of infringement. Alphabetical order, of
course, is not protected, but Simpson argued that its product names for the
connectors and their corresponding part names reflected at least a minimal
degree of creativity and were protectable elements of the API. “Some of
Simpson’s part names appear to lack even minimal creativity, see, e.g., (‘H’
for ‘Hurricane Ties’), but most of the others have the minimal level of
creativity required for copyright protection, see, e.g., (‘HSLQ’ for ‘Heavy
Shear Transfer Angle’).” Ugh. “[W]ith some exceptions, MiTek has not shown that
there are so few ways of naming the connectors at issue that the part name
merges with the idea of the connector itself or is otherwise unprotectable,
particularly where the part name has four or five letters.” Ugh again.

Nonetheless, even assuming that all the product names in the
APIs qualified for copyright protection, the copying was de minimis. The
catalogs were concededly not substantially similar—the alleged copying was
limited to the new material, no more than 20 new part names, in each API, of
which MiTek copied at most 12 out of about 400 names (in a 300+ page catalog).
Both in quantity and quality, this was de minimis. This would be true even if
the court considered the API as a whole as a protected work.

Plus, even if there had been substantial similarity, the use
was fair. (Applause to the court for separately considering protectability and substantial
similarity instead of just considering them in factors two and three of the
fair use analysis, which courts often unfortunately do.) Though MiTek’s use was
commercial, so was Simpson’s, and there was more scope for fair use of its
highly factual work. The amount used was tiny, and there was no effect on the
actual or potential market for the works, “as there is no such market
for Simpson’s catalogs, but only for the connectors the catalogs describe.” But
asserting a copyright claim didn’t constitute misuse because there were itty-bitty
copyrightable bits.

MiTek also didn’t show laches, even though Simpson knew of
this type of use since at least 2013, and Simpson knew of similar uses of
Simpson part names by other competitors, including MiTek’s predecessor
companies, since at least 1988. At least by 2015, Simpson knew that MiTek
planned to continue ignoring its legal threats; this was unreasonable delay. But,
because Simpson was seeking only prospective injunctive relief, that wasn’t
enough.

Was there evidentiary prejudice? MiTek argued that relevant
documents and witnesses with information regarding early uses of product names
and part names by companies other Simpson were no longer available by the time
Simpson filed this action. But none of the non-copyright claims depended on the
idea that Simpson created the part names or was the first user.  “Nor does the question of whether Simpson’s
part names serve a source-identifying function now depend on another company’s
use of the same part name at some point in the past.” (Genericity can, or at
least could; maybe not post-Booking.com.) And MiTek already made a
persuasive showing on industry practice, so it didn’t need better or different
evidence.

Nor was there expectations-based prejudice because MiTek
didn’t show that it would have avoided investments or changed its advertising
had Simpson sued earlier.

from Blogger http://tushnet.blogspot.com/2023/12/using-dominant-competitors-part.html

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Reasonable consumers may not be required to peel back labels in store to read drug facts

Zimmerman v. L’Oreal USA, Inc., 2023 WL 8587620, No.
22-cv-07609-HSG (N.D. Cal. Dec. 8, 2023)

This putative class action bringing the usual
California statutory claims
alleges that L’Oréal misleadingly advertises
the sunscreen benefits of some of its cosmetic products, such as L’Oréal
Infallible Fresh Wear 24HR Foundation. The front label statements claiming it
provides “Up to 24HR Breathable Texture,” “Up to 24H Fresh Wear,” and
“Sunscreen Broad Spectrum SPF 25” allegedly led Zimmerman to believe that the
foundation provided 24 hours of sunscreen protection. But this protection lasts
only two hours. The drug facts panel, located underneath a peel-back sticker on
the back label, directs users to “reapply at least every 2 hours” for sunscreen
use.

Similarly, plaintiff Heuchan alleged that she purchased
L’Oréal Infallible Pro-Glow Foundation, whose front label claims that it
provides “Up to 24HR Foundation,” “OCTINOXATE Sunscreen,” and “Broad Spectrum
SPF 15.” It also has a drug facts panel located underneath a peel-back sticker
on the back label, directing users to “reapply at least every 2 hours” for
sunscreen use. Plaintiff Giordano made similar allegations about “Lancome Teint
Idole Ultra 24H Long Wear Matte Foundation,” with a front label claiming
“Octinoxate Sunscreen” “Broad Spectrum SPF 15,” and “Up To 24H Color Wear &
Comfort.” However, the complaint didn’t allege that the Teint foundation’s drug
panel facts are located underneath a peel-back sticker on the back.

L’Oréal argued that it wasn’t plausible that a reasonable
consumer would be deceived because the 24-hour statements clearly referred only
to cosmetic benefits, and that a reasonable consumer would refer to the back
panel. The court agreed with L’Oréal as to Giordano only.

The “Up to 24H Foundation” statement was ambiguous, but it
was not clear that this ambiguity “can be resolved by reference to the back
label.” “The Court cannot conclude as a matter of law that a reasonable
consumer would peel back the label in the store, before purchasing the product,
to find and read these instructions.” So too with the Teint foundation, but the
back label resolved any ambiguity. (As a consumer, I’d worry about being forced to buy anything I’d done that to!)

from Blogger http://tushnet.blogspot.com/2023/12/reasonable-consumers-may-not-be.html

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alleged misrepresentation of partnership/approval suffices for false advertising claim

Faire Wholesale, Inc. v. Tundra, Inc., 2023 WL 8586681, No.
23-cv-02538-JSC (N.D. Cal. Dec. 8, 2023)

When does TM logic creep into false advertising cases? Faire operates an online marketplace connecting wholesalers
with retailers. Faire sued Tundra, which makes a comparison tool. Faire sued, challenging
Tundra’s unauthorized use of Faire’s users’ login credentials to gain access to
Faire’s non-public information. The court denied Tundra’s motion to compel
arbitration; the remaining statutory claims weren’t intricately intertwined
with, nor dependent on, Faire’s service terms. Tundra—a nonsignatory to the
service terms, and thus the arbitration agreement—couuldn’t force Faire to
arbitrate those claims.

Tundra’s motion to dismiss was granted with leave to amend
on the CFAA and California Comprehensive Computer Data Access and Fraud Act
claims, and the California UCL claim to the extent it relies on the two former
claims. The rest of the UCL claim and the Lanham Act claim survived because
Faire plausibly pled that Tundra made misrepresentations likely to deceive the
public into believing Tundra had partnered with Faire and was permitted to
access Faire’s computers.

To list a product or search the catalog of products for sale
on Faire’s platform, users must create an account with a username and password.
Only users who have logged into password-protected accounts may access
inventory, pricing, and contact information related to the goods available for
sale on Faire’s platform. Faire’s service terms prohibit users from disclosing
their passwords to third parties. Faire makes a commission on successful
transactions on its platform, but Faire also provides wholesalers with a
personalized link they can use to invite retailers to order directly from their
shop on Faire’s platform; using that link results in 0% commission to Faire. Tundra’s
comparison tool encourages its users to disclose their Faire login credentials
and offers to pay the retailers up to 10% “cash back” on every purchase they
make from a Faire wholesaler. Tundra solicits sellers on Faire’s platform to
provide their Faire Direct links to retailers registered with Tundra by
“promising to promote their brands to new retailers and give them greater
exposure” to Tundra retailers. Tundra charges sellers who participate in the
Faire Direct program a fee of 15% “that replaces the marketplace commission for
new retailers to a marketplace and their reorders.” It then pays a percentage
of this fee as “cash back” to the retailers and pockets the rest. This
allegedly diverts commissions properly owed to Faire to Tundra. Tundra allegedly
uses the information it scrapes from Faire’s platform, including contact information,
to market its product.

UCL fraudulent claims: These were predicated on 1) Tundra’s
misrepresentations it was an authorized user when logging into Faire’s platform
and 2) Tundra’s misrepresentations Faire was aware of and approved Tundra’s
practices. Reliance was required; Faire adequately alleged its own reliance on
1), and that its customers relied on 2), which was enough given that the parties
competed.

Screenshot: "you're eligible for cash back on 11 marketplaces," with specific solicitation for Faire login credentials

The screen seeking a consumer’s login credentials plausibly supported
an inference the public would falsely believe Tundra was partnering with Faire
and had Faire’s permission to obtain the consumer’s Faire login credentials.
(Would a clear disclaimer have solved the problem? Does it matter that there seem to be 10 other marketplaces involved?)

The Lanham Act claim also survived, for similar reasons. The
screenshot was “commercial advertising or promotion.” And Faire alleged that
Tundra repeatedly falsely advertised via phone and email solicitations that
Faire was aware of and approved Tundra’s scheme: on December 15, 2022, Tundra’s
employee allegedly told Brand A Faire approved of Tundra’s scheme and “it was
above board.” The allegation that hundreds of brands have been targeted by
Tundra’s false advertising “supports an inference Tundra’s misrepresentations
have the tendency to deceive a substantial segment of Faire’s audience.”

On materiality, it sufficed to allege that brands pay for
its services and Tundra’s false advertising influences brands to purchase
Tundra’s services instead of Faire’s services. “Again, the screenshot of
Tundra’s website is alone sufficient.” This seems wrong; in other cases,
including one I just blogged, courts require a link between the falsity
and the purchase decision. It wasn’t false that Tundra offered this service
related to Faire; what was the allegation that Faire’s approval of the
scheme mattered?

from Blogger http://tushnet.blogspot.com/2023/12/alleged-misrepresentation-of.html

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false advertising is harder to prove than TM infringement because of the injury requirement (not to mention materiality)

ImprimisRx, LLC v. OSRX, INC., 2023 WL 8604148, No.
21-cv-01305-BAS-DDL (S.D. Cal. Dec. 12, 2023)

The parties are compounding pharmacies that focus on
medications used in optometry and ophthalmology. Section 503A compounding pharmacies
fill prescriptions for individual patients. Section 503B compounding pharmacies
produce compounded products in large quantities that are not necessarily tied
to a specific patient, sold to practitioners and hospitals as “office stock” to
be available for use on an as-needed basis. Plaintiff ImprimisRx operates both
a Section 503A pharmacy and a Section 503B pharmacy, while defendants operate
only a Section 503A pharmacy.

Section 503A allows for drugs compounded “for an identified
individual patient … [that are] necessary for the identified patient” to be
exempted from the typical FDCA drug-approval requirements if certain conditions
are met, including: (1) the drug compounding occurs after the receipt of a
valid, individual prescription; or (2) the drug compounding occurs before the
receipt of a valid, individual prescription “based on a history of …
receiving valid prescription orders for the compounding of the drug product”
within an “established relationship” between the compounding pharmacy and the
prescriber. There are other requirements, including for sterile manufacturing.

The court addressed motions for partial summary judgment on whether
the statement that “OSRX operates in full compliance with Section 503A
regarding compounded drugs as defined in the [FDCA]” violated the Lanham Act. Imprimis
had two theories of falsity: (1) Defendants instruct prescribers to place bulk
product orders, rather than for particular patients, and provide “office stock”
for use by unspecified future patients; and (2) defendants fail to compound
drugs in a sterile manner. The truth/falsity of these theories was subject to
material dispute.

On materiality, literal falsity wasn’t enough to presume
materiality. Defendants argued that their claims were in tiny print on the
website and thus could not be observed by consumers. “While the statements may
be presented in a small font, possible purchasers could still see them on
Defendants’ website and order forms.” Imprimis also provided declarations by
four ImprimisRx customers that claim Section 503A compliance was an important
factor in their purchasing decisions and survey evidence that 54.1% of surveyed
prescribers indicate that whether a compounding pharmacy “operates in full
compliance with Section 503A” is an important factor in selecting a compounding
pharmacy. But defendants’ own expert and survey evidence created a material
issue of fact. (Even on sterile manufacturing?!?)

Injury: Injury too could not be presumed despite the fact
that the parties were direct competitors; this wasn’t false comparative
advertising. “Instead, Plaintiff must provide some proof of past injury or risk
of future injury caused by Defendants’ false statements” to get money.  

Email correspondence where defendants attempted to poach Imprimis’s
customers and other evidence of direct competition wasn’t sufficient to presume
injury. This wasn’t mostly a two-player market, and the allegedly false
statements did not harm the entire market. Although the parties were two of the
largest compounding pharmacies within the post-operative ophthalmological
market, Allergan, Novartis, and Bio Tissue manufacture competing products. “Because
prescribers have many options in selecting post-operation ophthalmological
drugs, the Court cannot assume Plaintiff’s sales were necessarily reduced by
any increases to Defendants’ sales due to the false statements.”

And Imprimis provided evidence of materiality, but not of
injury.  The evidence of poaching didn’t
show that these customers were poached as a result of the alleged false
statements. Although a precise calculation of damages is not required under the
Lanham Act, a showing of some injury is required. Thus, defendants received
summary judgment on Imprimis’s monetary damages and unjust enrichment claims.

In addition, Imprimis didn’t show irreparable injury, which
would be required for a permanent injunction.

Counterclaims: Defendants alleged that Imprimis falsely
advertises that it “compl[ies] with all cGMP requirements which are the most
stringent standards in the nation.” All four challenged claims were publicly
available three years before defendants lodged their counterclaims (three years
being the California fraud statute of limitations, which the parties agreed was
the most analogous). Defendants had the burden of showing why they lacked the
means to discover the statements to invoke the discovery rule. They didn’t. “Indeed,
because Plaintiff is a main competitor for Defendants, one assumes Defendants
would be aware of the content hosted on Plaintiff’s website or the claims
Plaintiff makes regarding its products.” So there was a presumption of laches.
But there was no evidence of prejudice, so summary judgment on the laches
defense was denied.

Once again, there were disputed fact issues on falsity and
materiality. Once again, the counterclaimant couldn’t show any lost customers
or any other actual harm, thus no irreparable harm, so there was summary
judgment on monetary damages and injunctive relief.

(I guess what’s left is disgorgement?)

from Blogger http://tushnet.blogspot.com/2023/12/false-advertising-is-harder-to-prove.html

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