hashtags are plausibly infringing; sales claims plausibly false based on P’s own history of sales

Posted on April 25, 2023 by rtushnet

Automated Pet Care Prods., LLC v. Purlife Brands, Inc., 2023
WL 3046592, No. 22-cv-04261-VC (N.D. Cal. Apr. 21, 2023)

In two opinions on the same day, the court dealt with various
IP/false advertising claims brought by one litter box seller against another.
The first considered various trademark claims, including claims based on use of
a hashtag on social media, where we are apparently going through everything we
went through with domain names and search terms/metatags, yay.

Plaintiff (dba Whisker) sued defendant (dba Smarty Pear),
its competitor in the market for automated, self-cleaning litter boxes. “Whisker
is the pioneer of this technology while Smarty Pear is the newcomer.”

Whisker’s flagship Litter-Robot consists of a rotating
chamber that automatically sifts cat waste after each use into a waste drawer
beneath the chamber, thus keeping the litter box perpetually clean and
eliminating the need for manual scooping. It has registrations for the word
marks “Litter-Robot,” “Litter-Robot 3,” “Litter-Robot 3 Connect,” and
“Litter-Robot Pinch Detect.” Smarty Pear allegedly used confidential information
to inject the market with a new—and virtually identical—automated litter box:
the Leo’s Loo. Its social media posts featured photos of the Leo’s Loo
products, but those posts were tagged, at least in part, with #litterrobot,
#LitterRobot, and #litterrobot3.

Using the old “Internet troika,” the three most important
factors were (1) the similarity of the marks, (2) the relatedness of the goods
or services, and (3) the simultaneous use of the Web as a marketing channel,
all of which weighed heavily in plaintiff’s favor.

Defendant claimed that plaintiff lacked valid rights over the
phrase “Litter Robot” (that is, with a space instead of a hyphen) and the
hashtag “#litterrobot,” given the previous refusal of registration for “Litter
Robot” as merely descriptive; in subsequent applications, Whisker “disclaimed”
exclusive rights to the “Litter Robot” word mark, “meaning it acknowledged that
it lacks a valid trademark over those words.” The PTO also declined to register
“#litterrobot” on the Principal Register, because adding a hashtag to an
otherwise descriptive mark did not alone make the mark suggestive.

If Whisker were pursuing claims
based on [“Litter Robot” and “#litterrobot”]—say, if it were arguing that those
marks have attained secondary meaning since the time they were rejected—then
Smarty Pear’s disclaimer arguments would have merit. Whisker’s recent
disclaimers would constitute admissions that the marks are not yet protectable.

But Whisker is not advancing
trademark infringement claims based on those disclaimed marks. It neither
disputes that it has disclaimed them nor argues that they’ve attained secondary
meaning. … The key question here is whether Smarty Pear’s hashtags are
confusingly similar to the marks over which Whisker has rights; focusing on
whether they are also similar to marks over which Whisker does not have rights
is not helpful.

This is the classic problem of scope v. validity, which modern
trademark doctrine generally resolves by promising to appropriately limit scope
in the infringement analysis, though that promise is often unrealized. The
court commented:

To be sure, there is something
unintuitive about the idea that Smarty Pear could be held liable for using
marks that are nearly identical to marks the Trademark Office has determined
are not protected. … But there is a place in the analysis to account for this
peculiarity: the first of the Sleekcraft factors, the “strength of the mark.” …
The resemblance between the marks that the Trademark Office has determined are
merely descriptive and those it has agreed to register suggests that Whisker’s marks—while
valid—are weak.

But plaintiff also alleged “significant marketing efforts
over the course of 22 years, widespread publicity and write-ups, and rave
customer reviews ranging in the tens of thousands. These allegations suggest
the marks have been strengthened over time.” Anyway, “weak mark[s] entitled to
a restricted range of protection,” infringement may still be found where, as
here, “the marks are quite similar, and the goods closely related.”

The real issue here isn’t validity or strength, but whether
the hashtags functioned as comparative advertising, and here the court tilts
heavily against defendant: “For one, Smarty Pear’s intent is transparent: Not
only are the products themselves virtually identical, but the strategic use of
the number three and the upper-case letters in its hashtags evinces an intent
to capitalize on Whisker’s goodwill.” The court didn’t discuss whether the rest
of the post contained anything equivalent to the labeling that the 9th Circuit
has considered relevant for sponsored ads.

Likely expansion also favored plaintiff. And plaintiff alleged
actual confusion: “when Smarty Pear offered consumers free accessories to
incentivize reviews of the Leo’s Loo, several consumers emailed Whisker’s
customer support to claim their accessories, such that Whisker’s product
specialists had to explain that the Leo’s Loo was not Whisker’s product.” And purchaser
care was hard to assess: “These automated litter boxes aren’t exactly cars
costing tens of thousands of dollars, but they’re not insubstantial purchases
either. They sell for nearly $500 each. Most consumers would pause to reflect
before spending that much on a product.”

Motion to dismiss denied as to trademark infringement, false
designation of origin, and unfair competition claims based on the use of Smarty
Pear’s hashtags.

Automated Pet Care Prods., LLC v. Purlife Brands, Inc., 2023
WL 3049106, No. 22-cv-04261-VC (N.D. Cal. Apr. 21, 2023)

After dismissing patent claims because infringement wasn’t
plausibly pled, the court declined to dismiss some false advertising
claims.  Statements like “[w]e’ve packed
the Leo’s Loo with features that make it one of the most convenient
self-cleaning litter boxes available” and “[w]e designed Leo’s Loo with kitty
safety in mind … so our feline friends are always safe when they step inside”
were classic, non-actionable puffery. The allegation that these statements were
likely to mislead consumers into believing that the product is made in
California when it is allegedly manufactured in China was “strained and
unconvincing.”

It was also puffery to label the Leo’s Loo Too as “the
smartest self-cleaning litter box.” Standing alone, that descriptor is classic puffery.
Plaintiff argued that, in context, the statement is actionable because the
video then goes on to identify several specific features, falsely implying that
competitor products lack those features.

If anything, the context here reinforces the conclusion that
the statement is not actionable. Immediately below the video is a bold header
that reads “Features You’ll Love,” followed by a second line of text which—in
reference to the features listed immediately below it—describes the Leo’s Loo
Too as “one of the most advanced … self-cleaning litter boxes available.” And
of the four features highlighted ever so briefly in the video itself, two are
the most basic functions of any automated litter box: the Leo’s Loo Too
“detects when kitties visit” and “cleans after they leave.” Under these
circumstances, no reasonable consumer could believe the video implies that no
other automated litter box can boast the identified features.

However, plaintiff adequately alleged false advertising
based on defendant’s claim that the Leo’s Loo Too is the “First-Ever
App-Connected Self-Cleaning Litter Box with Alexa and Google Voice Controls.”
Plaintiff alleged that its own product, released years earlier, had its own
smart app and can support Alexa and Google Voice, and that another Chinese
product that defendant allegedly knocked off featured this built-in
functionality long before the Leo’s Loo Too did.

Likewise, plaintiff plausibly alleged false advertising that
“[o]ver half a million cats and their owners have made the transition to a
litter-free life with Pear Family.” “This statement—conveying to consumers that
Smarty Pear has sold over 500,000 of its Leo’s Loo and/or Leo’s Loo Too
products—is a quantifiable claim capable of being proven false.”

Here’s the interesting bit: falsity was plausible because
plaintiff, which has been in business for over 22 years, has had 700,000 sales
in that time. “It thus seems implausible that Smarty Pear could have sold over
500,000 of its products in the one to two years it has been in the market.
Moreover, such a representation is material to consumers and likely to induce
reliance because it inspires confidence in the product.”

And the statement that defendant’s product’s UV rays are
99.9% effective at eliminating viruses and bacteria was also plausibly false
advertising. Plaintiff alleged the existence of FDA guidance advising that UV
rays are not effective at eliminating viruses or bacteria when they are
“covered by dust or soil, embedded in porous surface or on the underside of a surface.”
“Because bacteria or viruses within the Leo’s Loo Too are likely to be buried
in litter, Whisker has adequately alleged that Smarty Pear’s boast of 99.9%
effectiveness is false. And the complaint adequately alleges that such a
representation is material and likely to induce consumer reliance given the
premium placed on odor reduction in the market for litter boxes.”

from Blogger http://tushnet.blogspot.com/2023/04/hashtags-are-plausibly-infringing-sales.html

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fake meat law reinstated on appeal: intentionally misleading commercial speech gets no protection

Posted on April 25, 2023 by rtushnet

Turtle Island Foods, S.P.C. v. Strain, No. 22-30236 (5th
Cir. Apr. 12, 2023)

Reversing the district
court, the court of appeals found that Tofurkey’s facial challenge to a
Louisiana anti-fake meat law failed because the law plausibly could be read
only to cover intentional deception.

Louisiana’s 2019 Truth in Labeling of Food Products Act bars,
among other things, the intentional “misbrand[ing] or misrepresent[ing of] any
food product as an agricultural product” through several different labeling
practices. Those practices include “[r]epresenting a food product as meat or a
meat product when the food product is not derived” from various animals.

Tofurkey’s products include plant-based “chick’n,” deli
slices, burgers, sausages, tempeh, and roasts. Each of its labels, while
employing meat-esque words like “sausage” or “burger,” prominently indicates
that the product is “plant-based.”

Tofurkey had Article III standing: it intended to engage in
conduct arguably affected by a constitutional interest. “Tofurky’s labels and
marketing— which no one contends are misleading or involve illegal activity—are
just the kind of commercial activity the First Amendment protects.” And its
intended actions were arguably proscribed by the law given its dictate that
“[n]o person shall intentionally misbrand or misrepresent any food product as
an agricultural product through any activity including:

[ . . . ]

(2) Selling a food product under
the name of an agricultural product.

[ . . . ]

(4) Representing a food product as
meat or a meat product when the food product is not derived from a harvested
beef, pork, poultry, alligator, farm-raised deer, turtle, domestic rabbit,
crawfish, or shrimp carcass. [similar for beef, pork, and poultry]

[ . . . ]

(9)       Utilizing
a term that is the same as or deceptively similar to a term that has been used
or defined historically in reference to a specific agricultural product.

The statute defines “misbrand” as “intentionally
identify[ing] or label[ing] a food product in a false or misleading way.” To
“misrepresent” also requires intention.

Louisiana argued that Tofurkey lacked standing because it
didn’t intend to mislead or to break the law. But “intent” can mean different
things, including intentionally making a statement that turns out to be
misleading. Thus, the law was arguably broad enough to cover Tofurkey’s conduct.
There was no explicit safe harbor for “meat-like, plant-based products as found
in similar statutes in other states. See, e.g., Okla. Stat. tit. 2 § 5-107 (‘[P]roduct
packaging for plant-based items shall not be considered in violation of [this
statute] so long as the packaging displays that the product is derived from
plant-based sources.’).”

And Tofurky faced a substantial (or credible) threat of
enforcement. In a pre-enforcement challenge “to recently enacted (or, at least,
non-moribund) statutes that facially restrict expressive activity by the class
to which the plaintiff belongs, [we] will assume a credible threat of
prosecution in the absence of compelling contrary evidence.” While Louisiana
conceded that Tofurky’s nine demonstrative labels do not violate the Act, it declined
to make any “representations as to whether any other label of Tofurky would be
violative of the provisions of the Act.” And nothing bound the state from
changing its mind and deciding Tofurky’s labels do violate the statute.

Merits: This was a facial challenge, which is a big deal. In
the commercial speech context, “[t]o succeed in a typical facial attack,
[Tofurky] would have to establish ‘that no set of circumstances exists under
which [the Act] would be valid,’ or that the statute lacks any ‘plainly
legitimate sweep.’”

Here, the law covered only speech that was completely
unprotected: actually misleading commercial speech. Courts are required “to accept a narrowing construction of a state law in order
to preserve its constitutionality.” The state’s preferred interpretation was
that the law prohibits a company from intentionally misleading a consumer by
claiming a product is made from beef, pork, poultry, crawfish, shrimp, meat,
sugar, or rice when it is not. These would be “actually misleading
representations” and thus not within the coverage of the First Amendment. The district
court erred by applying Central Hudson to its reading of the statute,
when it should have accepted this narrowing construction.

 

from Blogger http://tushnet.blogspot.com/2023/04/fake-meat-law-reinstated-on-appeal.html

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May the Fourth promotion seen in the wild

Posted on April 21, 2023 by rtushnet

Not sure I’d want to describe my own food as Bantha meat, but ok.

from Blogger http://tushnet.blogspot.com/2023/04/may-fourth-promotion-seen-in-wild.html

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consumer class settlement can’t include injunctive relief unless there’s Art. III standing to seek injunctive relief

Posted on April 20, 2023 by rtushnet

Williams v. Reckitt Benckiser LLC, — F.4th —-, 2023 WL
2906311, No. 22-11232 (11th Cir. Apr. 12, 2023)

The court of appeals reversed approval of a settlement that
would have provided injunctive relief and up to $8 million in monetary relief
to a class of individuals who purchased one or more “brain performance
supplements” manufactured and sold by defendants. Given that the named
plaintiffs alleged that the products were worthless, there was no reasonable
probability that they’d want to buy them again, so they lacked standing to seek
injunctive relief—and apparently even to agree to it as a settlement offer,
which seems different.

I’m not a standing expert, but I don’t understand why, even
if claims for injunctive relief couldn’t be maintained, one couldn’t settle
claims for monetary relief with non-monetary remedies. The case the court of
appeals discussed, Local No. 93, International Association of Firefighters v.
City of Cleveland, 478 U.S. 501 (1986), seems very different (it’s about a
consent decree that arguably violated a rule against issuing race-conscious
court orders, and says “a consent decree must spring from and serve to resolve
a dispute within the court’s subject-matter jurisdiction”). Here, the money damages
provide the jurisdiction for the damages class, so why can’t the damages class
agree to accept injunctive relief?

I assume that next on the chopping block is cy pres remedies
for nonexhausted settlement funds, since plaintiffs can’t seek that as a remedy
to be awarded either.

FWIW this was not a great settlement in terms of injunctive
relief—it didn’t require anything meaningful—but this ground of reversal might
be worse for consumers overall if such settlements do provide meaningful relief.

from Blogger http://tushnet.blogspot.com/2023/04/consumer-class-settlement-cant-include.html

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paying a referral fee is a consumer injury, not a competitor injury, for Lanham Act standing purposes

Posted on April 20, 2023 by rtushnet

Lewis v. Acuity Real Estate Services, LLC, 63 F.4th 1114 (6th
Cir. 2023)

Acuity operates a website that connects people looking to
buy or sell homes with a local real-estate agent in their area. Acuity offers
its services for free to home buyers and sellers but requires realtors to pay a
fee for referrals. Lewis’s employer required him to pay Acuity’s fee out of his
commissions from home sales. Lewis sued under the Lanham Act, alleging false
statements to home buyers and sellers.

Lewis lacked a “commercial injury” because he was suing as a
customer—he alleged that the “product” he bought was defective and sought to
recover the referral fee. (The facts do sound frustrating: Lewis paid a
referral fee to a different site, which he considered the one that brought him
the client, but because Acuity was also involved, it successfully sued him and
also collected.)

The court held that “no reasonable person would describe
Lewis’s payment of this referral fee as a commercial injury to his ‘reputation
or sales.’” Rejecting Lewis’s specific factual situation as relevant, the court
reasoned, “whenever this injury arose (that is, whenever Acuity requested its
fee), Lewis will have gained, not lost, a sale.” (This arguably makes sense
because the falsity alleged is misrepresentations that lead consumers to use
Acuity’s site rather than continuing to search for agents on their own.) Lewis
didn’t allege that his payment of this referral fee injured his status in the
realtor market in any way. Nor did he allege any reputational harm from, say,
Acuity’s online description of the realtors in its network (including Lewis) as
“top talent.”

The court commented that other realtors could have standing:

To be sure, it is not difficult to
imagine a potential commercial injury to realtors arising from Acuity’s
allegedly false advertising. Instead of identifying the referral fee as the
injury, suppose that a different group of realtors refused to join Acuity’s
network. Suppose further that these realtors alleged that they lost business
because Acuity’s purportedly false advertising caused home buyers and sellers
to use Acuity’s referral services and the competing realtors in Acuity’s
network. Even though this different group of realtors would not directly
compete with Acuity (as compared to its network of realtors), this purported
lost business may well qualify as “an injury to a commercial interest in …
sales” that falls within the Act’s zone of interests.

But that wasn’t the case presented.

from Blogger http://tushnet.blogspot.com/2023/04/paying-referral-fee-is-consumer-injury.html

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Adequate price disclosure?

Posted on April 19, 2023 by rtushnet

Seen in the wild:

Sign on door: “Due to inflation, prices for some food are increasing without notice. Guests can ask the staff at any time for the updated prices. Sorry for the inconvenience!”

My suspicion is that this is not really adequate, but these days, who knows.

from Blogger http://tushnet.blogspot.com/2023/04/adequate-price-disclosure.html

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Press release touting preliminary injunction can found false advertising counterclaims

Posted on April 18, 2023 by rtushnet

Zest Anchors, LLC v. Geryon Ventures, LLC, 2023 WL 2903668,
No. 22-CV-230 TWR (NLS) (S.D. Cal. Apr. 10, 2023)

Zest sued defendants for trademark/trade dress infringement,
alleging that defendants’ DESSLoc suite of denture attachment products
infringed the trademarks and trade dress of their Locator product suite. The
alleged trade dress was the insert colors and “distinctively-shaped” gold
abutments. Defendants had entered into a distribution agreement for its
allegedly infringing products with one of Zest’s former distribution partners,
ZimVie, under ZimVie’s OverdenSURE line.

The court partially granted the request for preliminary
injunctive relief on the trade dress claim. Zest issued a press release
announcing “a significant legal victory” that enjoined use of “the DESS
overdenture system that imitates Zest’s LOCATOR® product line while Zest
pursues its claims. The ruling helps to assure Zest customers, new and old,
that when they buy Zest LOCATOR® products they will receive the genuine
article.” The press release also stated that the order covered “infringing
products sold by ZimVie.” Etc.

ZimVie intervened and counterclaimed for declaratory
judgment of invalidity, cancellation fo the color marks registration,
declaratory judgment of noninfringement, false advertising under the Lanham Act
and California law, and tortious interference.

Lanham Act: ZimVie alleged three false and/or misleading
statements in the press release: (1) Defendants’ DESSLoc products “infringe”
Zest’s products, (2) ZimVie’s products “infringe” Zest’s products, and (3) the PI
applies to ZimVie.

Zest argued that the claim should be dismissed because there
was nothing false, misleading, or even factual in the statements, since “the
truth of Zest’s position ‘depends on the resolution of a disputed legal issue.’
”

The court disagreed. Though it found likely success on the
merits, “whether DESS—much less ZimVie—is actually infringing remains to be
determined.” Although Zest used the phrases “preliminarily” and “while Zest
pursues its claims,” reading the press release as a whole, the court couldn’t
conclude as a matter of law that no reasonable consumer could have been
deceived regarding the scope of the PI, and ZimVie alleged that several reports
and consumers understood the press release to mean that the Court had concluded
that ZimVie was acting unlawfully. It went beyond “legal opinions” by imputing
conclusions that had yet to be reached to the court; the limits of the court’s
opinion were “clear” enough to be factual.

However, California FAL claims failed because ZimVie sought
monetary damages, which are not authorized under the FAL. The FAL allows
restitution, but that “requires both that money or property have been lost by a
[claimant], on the one hand, and that it have been acquired by a
[counterclaimant], on the other.”

Intentional interference with prospective economic advantage
also survived.

Zest also argued that ZimVie’s state law claims were barred
by California’s anti-SLAPP statute. ZimVie responded that the commercial speech
exception applied. Zest argued that “the Press Release is a litigation update,
not comparative advertising, so it is not exempt from the Anti-SLAPP Statute.” But
the press release compared Zest’s “genuine article” to the “infringing products
sold by ZimVie” and “provides contact information and a website URL for readers
‘[t]o learn more about’ Zest’s products and how they ‘can help you exceed
patient expectations and grow your practice[.]’ ”

This was a close issue, but the press release was commercial
speech because it “did more than summarize Zest’s allegations or provide a
summary of this litigation.” Former licensees, such as ZimVie, “may not
challenge the licensor’s mark based upon facts which arose during the term of
the license,” although they “may challenge the validity of the mark if such
challenge is based upon facts which arose after the license expires.” ZimVie
alleged that the Trademark Office refused Zest’s trademark applications “for
the ‘standard’ Inserts (blue, pink, and clear) and the ‘extended range’ Inserts
(red, green, and orange) as they appeared packaged together in a set,” the court
had previously “observed the functionality of these Inserts,” and Zest issued
the press release touting the Locator product suite’s “well-known aesthetic
features.” Because these developments occurred after the termination of the
Distribution Agreement in September 2021, the court couldn’t find as a matter
of law that ZimVie was estopped at this stage in the proceedings.

from Blogger http://tushnet.blogspot.com/2023/04/press-release-touting-preliminary.html

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Monster wins permanent injunction against VPX in false advertising case

Posted on April 18, 2023 by rtushnet

Monster Energy Co. v. Vital Pharmaceuticals, Inc., 2023 WL
2918724, No. EDCV 18-1882 JGB (SHKx) (C.D. Cal. Apr. 12, 2023)

Following a large verdict for Monster on false advertising
claims, this opinion discusses extensively the requirements for injunctive relief
in false advertising cases. The jury awarded $271,924,174 for damages sustained
by Defendants’ false advertising and found that the false advertising was
willful and deliberate.

“As a general rule, a permanent injunction will be granted
when liability has been established and there is a threat of continuing
violations.”

The court applied a rebuttable presumption of irreparable
harm. VPX argued that Monster didn’t show irreparable harm because: (1) the
harms are purely economic; (2) VPX “abandoned any marketing focus on Super
Creatine or creatine” before the jury rendered its verdict; and (3) VPX’s
remediation obviates the need for an injunction.

Are lost prospective customers and market share purely
economic harms? Although they sound economic, “evidence of threatened loss of
prospective customers” can be intangible, irreparable harm. [This only makes
sense if the real issue is difficulty calculating those losses; otherwise, this
is straight-up economic harm.] There was evidence at trial that Super Creatine
was VPX’s point of difference, allowing VPX to distinguish its Bang from
Monster’s beverages. “Six months after the jury rendered its verdict, Defendants
continue to manufacture, distribute, and advertise BANG cans with the Super
Creatine label. Accordingly, unless an injunction is granted, consumers will
continue to believe that BANG contains creatine and view Monster’s products
less favorably than they otherwise would, rendering the threat of future lost
customers an intangible irreparable harm.”

The court reasoned that “a loss of customers directly
translates to lost sales. A lost customer may constitute the loss of a
relationship with a customer as well as reference to other potential customers.”
It might not be irreparable if there was already no evidence of lost customers
or sales and no explanation of why money was sufficient.  But “Monster presented evidence that it lost
customers and an award of monetary damages to Monster has not stopped
Defendants from continuing to falsely advertise their products to consumers.”

So too with lost market share.

Defendants argued that VPX had already abandoned any marketing
focus on Super Creatine or creatine, “reflecting the economic reality that
neither is an important contributor to sales.” The jury rejected this argument
at trial, and they were still—even after trial—posting ads showing pictures of
cans with the Super Creatine label.

VPX also argued that it has redesigned the BANG label,
promotional materials, and advertising to eliminate any reference to Super
Creatine or creatine. It has announced its decision to stop marketing BANG as
containing Super Creatine and notified its distributors of the label changes
along with the jury verdict; and its retailers are aware of its ongoing
transition as well as the verdict. “VPX also argues that it will not return to
the type of advertising that was the subject of the jury’s verdict because it
is now governed by a board of majority-independent directors, who have
instructed VPX to complete the redesign transition.”

These efforts were insufficient to meet the “formidable”
burden of showing “it is absolutely clear the allegedly wrongful behavior could
not reasonably be expected to recur.” Defendants admitted that VPX was still
manufacturing cans with the “Super Creatine” label and continued to do so until
sometime in March 2023. They also intend to sell “Super Creatine” cans through
the end of the calendar year. Defendants argued that the destruction of its
existing cans “would cause millions of dollars in losses, severely disrupt
VPX’s supply lines and business relationships, and leave VPX unable to fill
existing customer orders or meet consumer demands.” “But Defendants have
brought on themselves these unfortunate consequences through their false
advertising.”

Plus, they hadn’t removed existing false advertising from
their social media accounts. Defendants assert that “[i]t is impossible for VPX
to review and eliminate all of the hundreds of thousands archived and
historical social media posts that may include an image of the legacy [BANG]
can or logo.” But they didn’t explain why this is impossible, especially for VPX’s
own social media accounts. It wasn’t enough that VPX was “removing active
content most likely to be seen by consumers … [and] expects to complete …
revisions to the contents of its website by approximately March 31, 2023.” content.”
Moreover, consumers were still being deceived by its false advertising (citing
a consumer post saying “The ceo posted a pretty descriptive video on the whole
breakdown. A lot of fancy words in there but it sounded like [Bang]’s got
[creatine] and the lawsuit is more against the word ‘super’ and another saying “A
reminder that Bangs have creatine.”).

For the same reasons, monetary remedies were inadequate,
though the court was less persuaded by the contention that a damages award is
inadequate because VPX’s bankruptcy makes future relief uncertain. VPX is
undergoing a chapter 11 reorganization, where “[l]iquidation is not the
objective” and “the aim is by financial restructuring to put back into
operation a going concern.” Monster offered no proof that damages “payable
through a plan of reorganization is an inadequate remedy” or evidence that VPX
“would be unsuccessful in reorganizing.”

The balance of hardships also favored an injunction: “there
is no harm to a defendant from an injunction which prevents continuing
dissemination of false statements.” What about the problems with destroying
inventory/filling existing customer orders? Monster argued that VPX could wrap
the cans in shrink sleeves, and anyway it’s been more than 6 months since the
verdict. “Courts have ordered recalls for less than that amount of time. … But considering
the burden that may fall on Defendants to remove all false advertising and cans
nationwide, the Court will give Defendants an additional 30 days to complete
the transition.”

The public interest also favored a permanent injunction.

Defendants argued that an injunction would burden legitimate
and protected speech by requiring VPX to remove social media posts merely for
including an image of a BANG can with the Super Creatine label. But there’s no
free speech interest in false commercial speech. [Interesting question about old
advertising hanging around—especially if the ad didn’t focus on the label; what
result if the benefit of old promotional partnerships would be lost? Would the
possibility of digital editing suffice? What if such editing would violate the
contract with old promotional partners?]

The court wasn’t concerned about the non-false aspects of
advertising that included images of the falsely labeled cans, e.g., an Instagram
post with an image of a BANG can with the Super Creatine label and the caption
reads: “With a blast of berry flavors in every sip, you won’t believe it has
ZERO sugar, carbs, or calories! Tag a friend in the comments who needs to try
this flavor!” “That social media post is advertising Defendants’ product by
encouraging consumers to tell their friends to buy the BANG can with the Super
Creatine label—a label that misleads consumers into believing that the can
contains creatine.”

The court did narrow the scope of the proposed injunction. An
injunction that prohibits Defendants from falsely or deceptively claiming that
Super Creatine is creatine, that BANG drinks contain creatine, and that BANG
drinks or Super Creatine provide the physical, mental, health, or other
benefits of creatine, was appropriate. However, Monster’s proposed outright ban
on any reference to creatine/creatine-related substances, even if truthful, was
overbroad. It would enjoin VPX from ever using “any form or purported form of
creatine” in their beverages, even if there was no deception. Thus the court
adopted this language:

The Enjoined Persons are
permanently enjoined from falsely or deceptively using, either expressly or
impliedly, [using] the word ‘creatine’—whether alone or together with other
words—in selling, offering to sell, marketing, promoting, or advertising any
BANG energy drink or any other beverage ….

Defendants argued that the injunction should not burden
truthful discussions concerning ongoing scientific research and developments
regarding creatyl-L-leucine (“CLL”) and creatine forms, “ ‘about which there is
legitimate ongoing scientific disagreement,’ ” [citing ONY v. Cornerstone]
and that individual defendant Owoc has “legitimate commercial and noncommercial
interests in CLL and creatine research that go beyond the promotion of BANG,
which the injunction needlessly burdens.” But the injunction would be limited
to advertising and promotional statements, not conclusions made from scientific
articles. It was tailored to enjoin false statements made in “selling, offering
to sell, marketing, promoting, or advertising” BANG drinks. Defendants were
only enjoined from speaking about their views on CLL in a false or deceptive
manner when “selling, offering to sell, marketing, promoting, or advertising,”
BANG drinks.

Defendants argued that Monster’s brief confirmed its attempt
to suppress noncommercial speech when Monster argued that defendants’ false claims
continued by highlighting an Instagram video posted by Owoc on @bangenergy.ceo in
November 2022, that has since been taken down by Defendants. Defendants argued
that Owoc’s video was not purely commercial as it does more than propose a
commercial transaction by including his critiques about Monster’s litigation
tactics, his opinions on defendants’ and Monster’s studies, and VPX’s
reorganization. The court declined to decide the issue since the video was no
longer public. “But the Court will note that Owoc’s statement in the video that
Super Creatine is ‘just like creatine monohydrate’ seems to be misleading and
not inextricably entwined with pure speech such that it would be entitled to
full First Amendment protection.” As the Supreme Court has held, “advertising
which links a product to a current public debate is not thereby entitled to the
constitutional protection afforded noncommercial speech.”

Removing the word “creatine” from all Bang labels and packaging
wasn’t impossible; defendants were already in the process of doing it. Monster argued
that the redesigned label will continue to deceive consumers because it lists
CLL as an ingredient and it shows the seal and number for the Super Creatine
patent. The court was not persuaded that VPX should be required to remove CLL
as an ingredient or its patent number.

Defendants are entitled to include
CLL and its patent number in their drinks, but they are not entitled to falsely
claim that CLL is something it is not. Thus, because the redesigned label does
not mention the word “creatine,” it sufficiently addresses the false
advertising at issue: that CLL or “Super Creatine” is creatine.

The court also modified Monster’s proposed requirement to remove
from all media “all videos and pictures showing the Bang Drinks can, label, or
packaging,” because VPX isn’t in charge of the internet. The court thus limited
the injunction to those that were posted by defendants or at their direction.

The court also partly granted Monster’s request for a required
corrective statement.  A corrective
statement was appropriate to “remedy lingering confusion caused by” past and
ongoing deception. But it was unnecessary to require defendants to share a
corrective statement in all of their presentations and to make available copies
of the injunction at all U.S. trade shows and professional meetings attended by
the defendants for at least a year. The “purpose of an injunction is to ensure
that past wrongdoing is not repeated, not to further punish the wrongdoer.” They’d
be ordered to “deliver to all retailers, e-commerce websites, brokers,
distributors, dealers, wholesalers, importers, influencers, and other
non-consumers who they have worked with to sell, offer to sell, market,
promote, or advertise BANG Drinks a written, signed notice” “that includes a
copy of” the permanent injunction.

Likewise, Monster’s proposal to make them share the
corrective statements for at least one year raised First Amendment concerns. “Once
Defendants remove within 60 days of this order their false advertising from all
cans, labels, packaging, physical locations, and media, the harm to Monster
will likely be greatly reduced, and sharing corrective statements for at least
a year will ‘burden speech without justification.’” Thus the required duration would
be reduced to one month. During that period, defendants had to post a
corrective statement on “all webpages they use to sell, offer to sell, market,
promote, or advertise any BANG Drinks” and on all their social media accounts a
corrective statement in a font size at least 50% as large as the most prominent
language on the page “and immediately adjacent to the most prominent language
on the landing page of each website or pinned or otherwise saved as the first
post on each social media account”:

In September 2022, a jury issued a
unanimous verdict finding that Vital Pharmaceuticals, Inc. (d/b/a Bang Energy)
(“VPX”) and former Chief Executive Officer John H. “Jack” Owoc willfully and
deliberately engaged in false advertising by claiming that the BANG energy
drink contains creatine, contains “Super Creatine,” and provides the benefits
of creatine. The United States District Court for the Central District of
California has permanently enjoined VPX and Mr. Owoc from falsely or
deceptively selling, offering to sell, marketing, promoting, or advertising
BANG as containing creatine, as containing “Super Creatine,” or as providing
the benefits of creatine.

[This also omitted Monster’s request to mention the jury’s
willfulness finding.]

Would the injunction compel VPX’s independent retailers and
distributors to return or destroy any legacy products they purchased, creating
massive losses? VPX cited caselaw finding that nonparty retailers and
distributors were not in active concert or participation with the defendant
because they had completed their purchases of the enjoined products prior to
the injunction, though the court gave a “but see” to Aevoe Corp. v. AE Tech
Co., 727 F.3d 1375, 1384 (Fed. Cir. 2013) (finding that distributors were
“acting in concert” with defendant “in connection with the resale of the
enjoined products,” because distributors had notice of the injunction and they
had an exclusive distribution agreement with the defendant, making them
“privies” of the defendant).

Because determining whether a retailer or distributor is in
“active concert” with defendants wass a fact-intensive inquiry, the court
declines to decide whether the injunction would compel retailers and
distributors to return or destroy Bang products and subject those retailers and
distributors to being held in contempt. Defendants were “free to explain the
lawsuit, the scope of the injunction, the injunction’s timetable, and
Defendant[s’] own theory of ‘active concert or participation’ to those
retailers [or distributors] who express concern.” Yikes.

 

from Blogger http://tushnet.blogspot.com/2023/04/monster-wins-permanent-injunction.html

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timeshare exit firm wins fee award where plaintiff failed to show key elements of claim

Posted on April 17, 2023 by rtushnet

Club Exploria, LLC v. Aaronson, Austin, P.A., 2022 WL
19479011, No 6:18-cv-576-JA-DCI (M.D. Fla. Nov. 4, 2022) (R&R)

“[F]ew parties are as adversarial—or as litigious—as
timeshare developers and timeshare exit companies.” Plaintiffs, timeshare
developers, sued defendants, a timeshare exit law firm and its named partner,
alleging various claims, including claims under the Lanham Act and the Florida
Deceptive and Unfair Trade Practices Act (FDUTPA). The court granted summary
judgment to defendants on all counts. Plaintiffs filed a fruitless “Motion for
New Trial,” essentially seeking reconsideration of the Court’s decision on the
tortious interference claim. The Eleventh Circuit affirmed the Court’s rulings.
Defendants sought to recover their attorneys’ fees; the magistrate recommended
granting the motion in part.

The Lanham Act provides that “[t]he court in exceptional
cases may award reasonable attorney fees to the prevailing party.” A
nonexclusive list of factors that district courts may consider includes
“frivolousness, motivation, objective unreasonableness (both in the factual and
legal components of the case) and the need in particular circumstances to
advance considerations of compensation and deterrence.”

This was an exceptional case. To survive summary judgment on
their Lanham Act claim Plaintiffs needed to produce at least some evidence
satisfying five elements; that: “(1) the … statements were false or
misleading; (2) the statements deceived, or had the capacity to deceive,
consumers; (3) the deception had a material effect on the consumers’ purchasing
decision; (4) the misrepresented service affects interstate commerce; and (5)
the plaintiff has been, or likely will be, injured as a result of the false or
misleading statement.” Although there were genuine issues of material fact as
to the first and second elements, there was no evidence presented as to the
third element.

In response to defendants’ motion, plaintiffs stated only: “[r]egarding
materiality, it is difficult to argue that [the alleged misconduct] would not
influence the Club Exploria Owners’ decision to hire Defendants.” There was “no
citation to legal authority and no citation to any record evidence that even
arguably supports this proposition. Even without hindsight, Plaintiffs should
have known that a single conclusory statement was wholly inadequate to rebut
the obvious lack of evidence supporting the materiality element.” [There are
arguments that literal falsity—which was all that plaintiffs argued—should be
presumed material; sometimes those arguments are persuasive, as when the falsity
goes to the core of the product or service.]

In other timeshare exit cases, including cases against these
defendants, the plaintiffs presented evidence of materiality, including an
expert report. Even if owners contacting Aaronson as a result of exposure to
the allegedly false websites was evidence of materiality, there wasn’t such
evidence here: almost all of the putatively affected owners were referred to
defendants by outside lawyers. Only one found defendants through the website on
which they hosted the allegedly false and misleading advertisements. Plaintiffs
neither deposed that owner nor included them in their expert’s damages report.
The result in the other case against these defendants “evinces, at least to
some extent, that if Plaintiffs had diligently pursued their claims, there was
a substantial likelihood that their claims would have proceeded to trial.” That
was not favorable to them in the fees inquiry.

Plaintiffs argued that the presence of genuine issues of
material fact regarding the first two Lanham Act elements militated against
awarding attorney fees here. “However, missing one element is just as fatal to
a claim as missing multiple elements. Moreover, the Court’s finding as to the
first two elements had little to do with the strength of Plaintiffs’ litigation
position.”

Also, the court found that plaintiffs lacked Lanham Act
standing for similar reasons: they presented no evidence creating “a genuine
issue of fact as to whether the nonpayment was caused by [Defendants].” Interestingly,
after the sj motions were briefed, defendants made a settlement offer that
would have waived all claims to attorneys’ fees, which expressed confidence
that they would prevail and be entitled to such fees, which the court labeled “prescient.”
Instead, despite the “obvious, fatal defect” in the Lanham Act claims, which defendants
pointed out and plaintiffs devoted only a “single, conclusory sentence” to in their
briefing, and despite the reasonable settlement offer, plaintiffs chose to
gamble on surviving summary judgment. Thus, this case was exceptional because
it “stands out from others with respect to the substantive strength of the
party’s litigating position” and in “the unreasonable manner in which the case
was litigated.” Zealous pursuit of a claim shouldn’t result in a fee award, “but
there is no such protection for a lackadaisical pursuit.”

FDUTPA: A prevailing party in a FDUTPA action may recover
reasonable costs and attorney’s fees from the nonprevailing party according to
the court’s discretion, which does not require exceptionality but does require
consideration of case- and party-related factors, as well as deterrence. Here,
those factors weighed in favor of such recovery.

“During this litigation, the Court voiced disapproval of
Plaintiffs’ litigation tactics,” including multiple motions to extend the summary
judgment deadline and others. Exploria had the ability to satisfy an award of
fees given its size. Deterrence was relevant because the district “has become
inundated with scores of timeshare-related disputes. Many of these disputes are
similar to this case …. [A]warding attorney fees here would serve to deter
timeshare-related claims that are not legitimate or that will not be diligently
pursued.” The court also noted that generally, the timeshare plaintiffs were
substantially larger than the timeshare exit companies. “This disparity creates
some risk that a timeshare developer (or multiple timeshare developers) may
weaponize ultimately meritless litigation to pressure a specific timeshare exit
company—which may be operating legally—out of business.” (This was not said to
accuse these particular plaintiffs of malfeasance but to make a general
observation about deterrence.)

As here, a claim that isn’t pursued diligently “ends up
wasting the Court’s limited resources and draining the resources of the smaller
defendants.” This case took three years, ending because of plaintiffs’ failure
to present enough evidence. “This failure is especially egregious as to the
Lanham Act claim because Plaintiffs’ failure went to materiality and
causation—basic, related elements—and developing the necessary evidence may
have been as simple as deposing the Affected Owner who found Defendants through
Defendants’ website.”

As to the merits, “[u]ltimately, the success of a
plaintiff’s FDUTPA claim is tied to the federal Lanham Act claim for false
advertising.” Even though the court found FDUTPA to be inapplicable because defendants
were not engaged in “trade or commerce,” had the court reached the merits it
was likely that the FDUTPA claim would have also failed for the same reasons as
the Lanham Act claim. “To the extent Plaintiffs believed that they could
piggyback off the result in another case without putting in the requisite
effort to develop the necessary evidence in their own case, that belief was
unreasonable.”

Thus, even though there was insufficient evidence of bad
faith, and insufficient efforts by the parties to explain whether the claim was
brought to resolve a significant legal question under FDUTPA, the factors
weighed in favor of a fee award.

However, defendants weren’t entitled to their appellate
fees, because the appeal concerned only tortious interference.

from Blogger http://tushnet.blogspot.com/2023/04/timeshare-exit-firm-wins-fee-award.html

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Agency liability theory satisfies “commercial advertising or promotion” requirement of promoting one’s own products/services

Posted on April 17, 2023 by rtushnet

Ariix, LLC v. Nutrisearch Corp., 2023 WL 2933306, No.
17CV320-LAB (DDL) (S.D. Cal. Apr. 13, 2023)

Previous
court of appeals ruling discussed here. Ariix alleged that NutriSearch, the
publisher of the NutriSearch Comparative Guide to Nutritional Supplements, and the
Guide’s author MacWilliam were directly funded by Ariix’s competitor, Usana, so
that Usana could achieve the Guide’s number-one rating for nutritional
supplements. The Ninth Circuit reversed an initial dismissal, finding that
Ariix had “plausibly alleged that the defendant’s publication was commercial
speech, was sufficiently disseminated, and contained actionable statements of
fact.” The appellate panel remanded to decide whether the defendant’s
publication was for the purpose of influencing consumers to buy the defendant’s
goods or services, as additionally required for “commercial advertising or
promotion” under the Lanham Act.

The panel majority did note that the allegations in the
complaint suggest that the advertising was “intended to help Usana’s goods, not
NutriSearch’s product,” and that in analyzing this element, it may be helpful
for this Court “to determine whether the defendants and Usana had an agency
relationship; for example, it might be the case that the defendants were acting
as agents of Usana and therefore had a vested interest in the goods that Usana
sold, which might be enough to satisfy this element.” Judge Collins, in his
dissent, suggested that the third element may be satisfied with allegations
suggesting that “Defendants … acted on Usana’s behalf or at its direction by
secretly making, in exchange for compensation, specific changes requested by
Usana in its own or competitors’ product reviews in the Guide.” He concluded,
however, that the complaint falls short of alleging a true agency relationship
between Defendants and Usana:

That Defendants wrote obsequious
reviews in the hope that Usana would be pleased and buy more Guides or give
MacWilliam speaking engagements does not make them Usana’s agents in writing
those reviews. Nor does it establish that they acted on Usana’s behalf or
subject to its control in doing so.

Instead, the court agreed that Ariix’s position that,
“[w]hether assessed as a hidden financial arrangement, an agency relationship,
or a conspiracy, MacWilliam and NutriSearch had a vested interest in the sale
of Usana’s goods sufficient to attribute Usana’s goods to them.”

Ariix alleged that “Usana pays NutriSearch and MacWilliam
hundreds of thousands of dollars per year and provides substantial other
benefits—such as book sales to Usana representatives—which altogether account
for more than 90% of MacWilliam’s income.” [Okay, just for clarity: the next
few paragraphs are allegations from the complaint as recited by the court but I’m
not going to repeat “allegedly” 50 times.] As compensation, “Usana exercises
ultimate control over MacWilliam and NutriSearch’s product,” namely by having
Defendants “manipulate their ratings criteria to ensure Usana remains the
top-rated supplement company in the guide and actively sandbag Usana’s
competitors’ ratings and certifications” in order to “ratchet up sales for
Usana products.”

After formally ending his tenure on Usana’s advisory board
because his affiliation with Usana gave the appearance of bias, MacWilliam
approached Usana executives, explaining that he’d like to continue publishing
the Guide in exchange for Usana’s financial support: “I am going to create more
of a third-party appearance, but I’d like you to use me for speaking and
support me.” Usana agreed, but only if MacWilliam promised to “give [Usana] the
number-one rating.” MacWilliam accepted, “assuring Usana it would get the
number-one rating despite the guide’s claims of independence and objectivity.”

Defendants are “entirely dependent” on compensation from
Usana. For instance, “Usana directly pays [Defendants] hundreds of thousands of
dollars per year in fixed stipends, speaking fees, promotion fees, and travel
fees”; Usana “heavily promotes the guide to its sales representatives and
encourages them to purchase it”; Defendants “almost always tie[ ] the
publication of a new edition of the guide to the date of Usana’s annual
convention” so as to “continue to direct associates to the latest edition” and
ensure “robust sales” of the Guide; and at Usana’s speaking events, “MacWilliam
is the only purportedly ‘independent’ speaker who is allowed to promote and
sell his own products at such events.” Thus, “not only do[ ] [Defendants] rate
Usana highest because of the incentive to increase Usana’s sales and to keep
Usana happy, but also because, driven by the dictates of Usana, Usana’s
distributors are their largest market segment [for sales of the Guide].”

During times when Defendants “have failed to meet their
commitments to Usana”—i.e., awarding the top Gold Medal certification to
another company—“Usana punished [Defendants] for failing to deliver per their
agreement by cutting them off financially.” In 2008, an Usana executive
explained to MacWilliam that “we don’t want to stand up and say ‘we’re one of
the five best’ ”—Usana wants to be “number one.” After Usana responded
positively to MacWilliam’s question about whether it would help to be number
one in some way, NutriSearch allegedly “cured this breach of its secret
agreement with Usana by coming out with a new award called ‘Editor’s Choice’
and giving it to Usana.” NutriSearch understood that this would “entitle
MacWilliam to return to the Usana event circuit to speak and sell more books,
and thus earn more speaking fees and book royalties.” The next year, when
“another company was actually going to beat Usana,” MacWilliam explained the
situation to Usana, to which an Usana executive responded that “we pay
[Defendants] to make us number one.” MacWilliam “worked with Usana to adjust
his allegedly objective matrix so that Usana stayed on top.” Each year
thereafter, “Usana required MacWilliam to adjust his matrix” to ensure Usana
remained the top-rated company in the Guide.

The court found that the complaint plausibly alleged the
existence of a hidden financial agreement between defendants and Usana, under
which MacWilliam was paid “hundreds of thousands of dollars” under the guise of
speaking fees in exchange for awarding Usana’s products the Guide’s number-one
rating. All the while, the Guide was explicitly touted as an independent
publication.

This hidden financial agreement plausibly helped increase
the sale of both Usana’s products and sales of the Guide itself—to Usana’s
distributors. “ The parties here had a clear financial arrangement designed to
influence consumers to buy products from a third-party in which Defendants had
a direct financial stake.” (Citing, among others, Enigma Software Grp. USA, LLC
v. Bleeping Comput. LLC, 194 F. Supp. 3d 263, 294 (S.D.N.Y. 2016) (holding that
“by alleging that [Defendant] earns a commission on directed sales of [products
sold by Plaintiff’s competitor], the SAC adequately pleads that [Defendant] had
an economic incentive to engage in such promotion,” and that such commercial
speech was “made for the purpose of influencing consumers to buy products in
which [Defendant] has a financial stake”).)

In light of this financial agreement, an agency relationship
would exist, and the alleged misrepresentations were made within its scope.

“For an agency relationship to exist, an agent must have
authority to act on behalf of the principal and ‘[t]he person represented [must
have] a right to control the actions of the agent.’ ” Actual control is not
necessary; as long as there is an agreement that the principal has the right to
control the agent, an agency relationship exists.

The facts above plausibly alleged that Usana manifested
assent to defendants acting on its behalf. The precise details of the agreement
weren’t required at this stage in the litigation. Likewise, the complaint plausibly
alleged that defendants consented to act on Usana’s behalf and agreed to be
subject to its control. The allegations indicated that defendants voluntarily
yielded to Usana’s desires and complied with its directives in order to secure
Usana’s financial backing.

The Court need not find that the principal “actually
control[s] [the] agent as a prerequisite for establishing a[n] [agency] relationship,
rather the principal need only have ‘a right to control the actions of the
agent.’ ” The complaint plausibly alleged Usana’s editorial control and that “Usana
was clear in its directive that it be awarded the number-one award or else it
would withdraw its financial support…. That Usana went so far as to require
that Defendants change their entire ratings matrix to ensure Usana received the
number-one award is highly suggestive of Usana’s right to control not only
Defendants’ end product, but also the manner and methodology of Defendants’
performance.”

The Ninth Circuit recognizes four avenues through which an
agency relationship may be established: “actual authority, apparent authority,
ratification, and employment (respondeat superior).” Ariix claimed that the
first three all applied.

An agent has actual authority to take a certain action when
“the agent reasonably believes, in accordance with the principal’s
manifestations to the agent, that the principal wishes the agent so to act.” Actual
authority is limited to actions “specifically mentioned to be done in a written
or oral communication” or “consistent with” a principal’s “general statement of
what the agent is supposed to do.” Ratification, on the other hand, occurs when
the principal accepts the benefit of the agent’s act either with actual
knowledge of the material facts or with “knowledge of facts that would have led
a reasonable person to investigate further”—also known as “willful ignorance.”

The complaint plausibly alleged an agency relationship
created through actual authority. “[W]hile the precise details of their
agreement remain unknown, including whether Usana’s instructions were written
or communicated verbally to Defendants, such facts are appropriate for discovery
at a later stage in this litigation.”

The court declined to address whether Ariix’s allegations
separately established a plausible conspiracy.

from Blogger http://tushnet.blogspot.com/2023/04/agency-liability-theory-satisfies.html

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