video on company’s YouTube channel was informational, not commercial speech

Posted on March 20, 2023 by rtushnet

WatsonSeal Marketing LLC v. Crawlspace Ninja IP LLC, 2023 WL
2533061, No. 5:22-cv-649-LCB (N.D. Ala. Mar. 15, 2023)

When is informational material related to a for-profit
company’s business commercial speech? Here, the court finds a YouTube video
noncommercial despite some reasonably solid connections to profit-seeking.

WatsonSeal Marketing sued for false advertising under the
Lanham Act, tortious interference with business relations under Alabama law,
and unjust enrichment under Alabama law, but, having kicked out the Lanham Act
claims, the court didn’t proceed any further with the state claims.

WatsonSeal is “in the business of crawl space and basement
performance products.” It develops and manufactures “polymer lumber and
concrete sealants” for basements and crawlspaces, including LumberKote, a
subfloor and floor joist sealer designed “to protect structural framing and
subfloor systems from excessive moisture absorption and rapid moisture uptake.”
“Simply put, LumberKote dries out lumber while sealing it off from subsequent
water intrusion and moisture. This means that lumber does not need to be dried
before LumberKote is applied.”

Crawlspace Ninja “sells and distributes a variety of
products designed to waterproof crawl spaces and remediate mold,” including Anabec
x70, “a moisture barrier product designed for application to unfinished
building surfaces.”

Crawlspace Ninja’s YouTube channel is dedicated to educating
“homeowners about their crawl spaces and basements.” The channel and videos
contain hyperlinks to Crawlspace Ninja’s website and online store. This case is
about one video, “Do Wood Sealers Work at Preventing Mold in Crawl Space,” which
was narrated by Crawl Space Ninja’s owner, Church:

… One of our inspectors down in
Alabama went to a job that had a subfloor and floor joist sealer applied. And
now it has mold growing on it. So I want to talk about this. Are these sealers
effective? And how to properly install them.

… Church shows viewers a photo of
the mold and specifies that the sealer in question is LumberKote. Id. at 4–5.
He explains that LumberKote, like Anabec x70, is a mold preventative that
should be applied only after lumber is dried. He then gives some
straightforward advice: “If you’re going to install a preventative, if you’re
going to install some kind of coating to your flooring, you’ve got to dry out
the subfloor … before you do that.” 

Throughout the video, Church
emphasizes that he is not criticizing WatsonSeal or LumberKote. He stresses
that LumberKote is not to blame for mold found at the Alabama jobsite, opining
that whoever installed the LumberKote at the Alabama jobsite failed to first
dry out the lumber. Church even describes LumberKote as “a fine product” that,
“like everything” on the market, “is only as good as it’s installed.” At the
end of the video, he cautions viewers not to “let some mold remediation
crawlspace company come into your house and tell you that they can … leave
the wood wet and apply a LumberKote or an X70.”

WatsonSeal alleged that the YouTube video falsely “leads
consumers to believe that both LumberKote and Anabec x70 require wood to be
dried prior to application,” when in fact LumberKote has no such requirement.

The court reasoned that 
core commercial speech means “speech that does no more than propose a
commercial transaction,” while “[n]on-core commercial speech has no clear-cut
definition.” Courts weigh three factors: (1) whether the material is “conceded
to be” an advertisement; (2) whether the material contains a “reference to a
specific product”; and (3) whether the speaker “has an economic motivation” for
distributing the material. [Some versions of this look for advertising format
in part 1.] No one factor, or combination of factors, is dispositive.

The accused YouTube video didn’t propose any commercial
transaction, but merely advised that  

subfloor and floor joist sealers should be applied only to
dry lumber. Nor was it concededly an ad. It made only a handful of references
to the sealers, and didn’t promote one over the other. [Although the claims
here indicate that’s the problem: it denied the existence of a competitor’s
purported advantage.] “These limited references to specific products fall far
short of bringing the video into the realm of commercial speech.” Finally,

Crawlspace Ninja’s economic
motivation for distributing the video is, at most, incidental to the video’s
central message. Crawlspace Ninja undoubtably has some economic motivation for
uploading the video, given that the video provides the company with market
exposure and includes hyperlinks to the company’s website and online store. But
such an attenuated economic motivation is wholly insufficient to transform
otherwise noncommercial speech into commercial speech.

Ultimately, “In sum, the video possesses many of the
hallmarks of non-commercial speech. It communicates information, expresses
opinion, recites the grievances of others, and encourages dialogue on matters
of public concern.”

In addition, the video wasn’t plausibly made for the purpose
of influencing customers to buy Crawlspace Ninja’s products. “Material created
for the sole purpose of helping consumers make informed decisions is not
commercial advertising subject to Lanham Act liability—even if the material is
under-researched, inaccurate, or misleading.”

from Blogger http://tushnet.blogspot.com/2023/03/video-on-companys-youtube-channel-was.html

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no disgorgement/fees in false advertising case even after Romag remand

Posted on March 16, 2023 by rtushnet

Harbor Breeze Corp. v. Newport Landing Sportfishing, Inc., 2023
WL 2504988, No. SACV 17-01613-CJC (DFMx) (C.D. Cal. Mar. 13, 2023)

Previous
district court ruling on irreparable harm; previous
9th Cir. opinion remanding for reconsideration of disgorgement and
attorneys’ fees after Romag. Despite Romag, the court
declines to award disgorgement or fees in this false advertising case.

A jury found that Harbor Breeze proved all elements of
liability for false advertising but awarded $0 in damages and profits. Romag
rendered incorrect the jury instruction that willfulness was a prerequisite
to disgorge profits. On remand, the court held a bench trial.

The parties compete to offer whale-watching and other boat
cruises off the coast of the Los Angeles metropolitan area. In 2011, Harbor
Breeze sued for unfair competition and false advertising in California state
court, alleging a variety of unlawful actions, such as submitting a fake
business address in Long Beach, creating misleading website URLs, and posting
fake reviews about services. “The jury found that the defendants had engaged in
false advertising, and the court enjoined them from specified conduct.”

The state court declined to hold defendants in contempt for
ads referencing “Long Beach Departures” and the sufficiency of “a graphic
stating ‘All Vessels Depart from Beautiful Newport Beach’ [on] each of [Newport
Landing’s] websites” that purportedly could not “be ‘read’ by third-party
search engines.” The court found that the two ads were “inadvertent” and
“subsequently removed” and that the graphic was adequate to comply with the
injunction because it was “conspicuous to consumers viewing Newport Landing’s
website.”

Later, Harbor Breeze sued in federal court, alleging Lanham
Act, UCL, and FAL violations. Harbor Breeze’s evidence focused on two things:
First, location. E.g., a consumer who searched on the internet for “Long Beach
whale watching” would be directed to a page on Defendants’ website repeatedly
stating the phrase “Long Beach residents and visitors,” suggesting that their
cruises departed from Long Beach rather than Newport Beach. Second, prices.
Defendants advertised, for example, a “$10 whale watching special” even though
a consumer could never get on a whale watching cruise operated by defendants
for only $10 because of a $2.50 fuel surcharge and a 2% wharfage fee on top of
the $10. There was also evidence that calling these extra charges a “fuel
surcharge” or “wharfage fee” was misleading because these fees were a way to
get extra revenue, not tied to actual expenses, and defendants didn’t disclose
these fees until late in the purchase process.

The court subsequently denied a contempt motion for several
purported violations of the injunction. E.g., the mobile site temporarily
failed to include disclosures required by the injunction because of “a
technical error”—“one errant line of code”—but “the webpage in question was
updated … [to] contain[ ] the required disclosures.” Plaintiffs challenged “advertising
that prices start at or are ‘from’ a listed price,” but “[t]he Court [wa]s
unwilling to interpret its own Injunction to proscribe” as much.

The bench trial focused on previous trial evidence plus
additional evidence mostly about defendants’ conduct since 2022. Plaintiffs’
evidence suggested that defendants continued to include locations like “Long
Beach” in the title tags of some webpages, which appeared in organic search
results on Google. Defendants also included “supplemental charges,” such as
those purportedly for the decrease in passengers and higher fuel costs due to
the COVID-19 pandemic for their regular whale-watching cruises. And defendants
sold $10 Groupon vouchers that customers could redeem for cruises departing
“Before 10am/After 5pm,” although Defendants did not offer departures after 5
p.m., and for approximately one week offered vouchers that customers could
redeem only when paying an additional $2 fee. And they used the phrase “Feel
the Harbor Breezes” in a pay-per-click advertisement on Google.

Disgorgement is available under the Lanham Act “subject to
the principles of equity.” “Two reasons foreclose disgorging profits
here—first, Defendants’ profits are not attributable to their misconduct, and
second, the equitable considerations, in the Court’s discretion, do not weigh
in favor of disgorgement.”

The Lanham Act allows disgorgement of profits attributable
to false advertising, not other things. “[A] court may deny recovery of a
defendant’s profits if,” for example “they are only remotely or speculatively
attributable to the infringement.” A plaintiff must “prove [a] defendant’s
sales only,” while a “defendant must prove all elements of cost or deduction
claimed.”

But here, evidence connecting false advertising to
defendants’ profits was lacking. (Is that the right placement of the burden?) Plaintiffs
argued that defendants profited because their false fees came with a set dollar
value.

But the Court is not convinced that
Defendants would have earned less absent their misconduct. Defendants charged
significantly lower prices for their cruises even including their fees. And
they ultimately disclosed all fees to consumers before any purchase was
completed. It seems more likely than not that consumers would—and did—care more
about getting a good deal than where the cruise departs or whether a few
dollars get added to the ticket cost.

To be sure, Defendants may have “thought [that their]
advertising was important or would generate profits,” but that “is a truism.
Companies obviously hope that advertising will be a boon to business. What [the
evidence] failed to do,” however, was persuade the Court “that the advertising
actually had this effect.” Thus, “there is no basis for inferring that any of
the profits received by [Defendants] … are attributable to” their misconduct.

As for the general equitable principles at play, they
include (1) “a defendant’s mental state,” (2) whether sales have been diverted,
(3) the adequacy of other remedies, (4) any unreasonable delay by the plaintiff
in asserting [the plaintiff’s] rights, (5) the public interest in making the
misconduct unprofitable, and (6) whether it is a case of palming off.”

Mental state: defendants were at worst negligent, not
willful. One of the individual owners testified that they made changes to their
websites and advertisements following the state court litigation and thought
they were in compliance. Also, the defendants didn’t intend to mislead on
prices, “even if their advertising was, in fact, misleading,” since they
ultimately disclosed all fees prior to purchase. [This seems to deny the
reality that bait and switch ads work because of consumers’ sunk costs in
search; it’s a really bad idea unless tied tightly to what the court sees as
the unusually sharp price differential.] “And the evidence on Defendants’
advertising on location showed that Defendants intended to optimize their
search engine results, not confuse consumers.”

Although they still advertise “nominal” prices, they also conspicuously
state that a supplemental charge applies immediately below the ticket prices
and that cruises departed from Newport Beach. And multiple options were
available at any given moment at their advertised “from” or “starting at”
prices.

Plaintiffs accused defendants of trademark infringement for
using the phrase “Feel the Harbor Breezes” in an ad in August 2022. The court
was dubious that this was even distinctive or likely to cause confusion if
distinctive.  But it was also irrelevant
to disgorgement for false advertisng, and was at most negligent. “At some
point, the volume and nature of mistakes may justify a finding of willfulness.
But that moment has not yet arrived…. To date, Defendants’ sloppiness has been
just that—sloppiness.”

Although willfulness is no longer required, Romag
agreed that mental state remains “a highly important consideration in
determining whether an award of profits is appropriate,” as “[a]n innocent …
violator often stands in very different shoes than an intentional one.”
Further, as the Tenth Circuit has said, “an award of profits under the Lanham
Act is truly an extraordinary remedy and should be tightly cabined by principles
of equity.”

Evidence of sales diversion was also lacking. The jury’s
award indicted that it must have found that plaintiffs failed to prove that
they suffered any harm, or failed to prove to a reasonable degree of certainty
an amount of harm, which would include diverted sales.

Other remedies:  A
finding of liability coupled with an award of $0 in damages may “support[ ] a
finding that there is no [ ]adequate remedy at law.” Nonetheless, injunctive
relief sometimes “provides a complete and adequate remedy,” as when a
defendant’s misconduct was not willful. That was the case here.

Plaintiffs didn’t delay bringing their claims, favoring
disgorgement.

The public interest in making misconduct unprofitable wasn’t
important because the misconduct hadn’t been profitable and an injunction was
enough. “Any generalized public interest in minimizing false advertising,
moreover, is mitigated by the competing interest of the public in robust
competition from a competitor that, candidly, offers lower prices than
Plaintiffs.”

This was also not a case of palming off.

Basically the same analysis also doomed a fee shift. Octane
Fitness directs courts to consider “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.” It was even doubtful whether plaintiffs were “prevailing
part[ies]” entitled to fees under the Lanham Act. Regardless, this case wasn’t
exceptional in substantive strength or public importance— “stopping misleading
advertising about whale watching does not ameliorate a serious public harm.” Eight
years of litigation didn’t make the case exceptional. “If anything, it
undermines Plaintiffs’ claim of exceptionality, as the litigation has achieved
mixed results.” Nor had it been litigated unreasonably. “To be sure, the
conduct of all parties in this action has been at times vexing to everyone
involved. But there has been no significant ‘failure to comply with court
rules, persistent desire to re-litigate issues already decided, advocacy that
veered into “gamesmanship,” [or] unreasonable responses to the litigation.’”

from Blogger http://tushnet.blogspot.com/2023/03/no-disgorgementfees-in-false.html

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Transformative work of the day, SVB edition

Posted on March 15, 2023 by rtushnet

from Blogger http://tushnet.blogspot.com/2023/03/transformative-work-of-day-svb-edition.html

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HLS teaching series: Developing Professionalism in Students, March 21, at 12 noon EST

Posted on March 15, 2023 by rtushnet

Developing Professionalism in Students

Register here: https://harvard.zoom.us/webinar/register/WN_W60Re3yDQRSfSPWgw0EP8Q

Noon EST, March 21

What is professionalism for a lawyer? How can we as teachers
help students develop professional identities in ways that honor their
diversity and commitments? Norms of professionalism can be exclusionary, even
when our students adapt consciously and strategically to them. But the ideal of
serving clients with specialized legal knowledge has value and meaning. Our
panelists will discuss their strategies for working with developing lawyers to
find professional identities that honor both themselves and the legal
profession.

Kendra Albert is a technology lawyer and scholar of
computing, gender, and society. They are a clinical instructor at the Cyberlaw
Clinic at Harvard Law School, where they teach students to practice technology
law. Kendra also serves as a lecturer in the Program on Studies of Women,
Gender, and Sexuality at Harvard University. Kendra holds a JD cum laude from
Harvard Law School and a BHA from Carnegie Mellon University. They serve as the
Chair of the Board of Directors for the Tor Project, and as a member of the
Board of Directors of the ACLU of Massachusetts.

Jack Lerner is Clinical Professor of Law at the University
of California, Irvine School of Law and Director of the UCI Intellectual
Property, Arts, & Technology Clinic. Professor Lerner works to find
solutions to problems at the intersection of law and technology, particularly
how technology law and policy affect creative expression and innovation.  He has written and spoken widely on
copyright, privacy and other areas of technology law. In 2021, Professor Lerner
authored the landmark Rap on Trial Legal Guide, the first-ever treatise on the
use of rap lyrics in criminal trials (with Kubrin et al.). He is also Executive
Editor of the award-winning treatise Internet Law and Practice in California
(CEB). In 2015, he authored The Duty of Confidentiality in the Surveillance
Age, 17 J. Internet L. 1 (2014) (with Lee et al.). See more of Professor Lerner’s
publications at his UC Irvine profile.

Kim Thomas, HLS ’99, is a Clinical Professor of Law at the
University of Michigan Law School, where she has taught since 2003.  She teaches in the area of criminal law,
primarily in the Civil-Criminal Litigation Clinic and the Juvenile Justice
Clinic, a clinic which she directs and co-founded. In 2021, Thomas was
appointed as a member of the Governor’s task force on juvenile justice reform,
which issued its recommendations for structural reform of Michigan’s youth justice
system in 2022.  Thomas’ research focuses
on youth who commit serious offenses and those who are serving long and life
sentences, as well as adult sentencing and post-conviction proceedings. Her
scholarly work has been published in the California Law Review, the Ohio State
Journal of Criminal Law, the U.C. Davis Law Review, among others.  In 2017, Thomas received a Fulbright award to
teach juvenile justice at the University College Cork, in Cork, Ireland. 

from Blogger http://tushnet.blogspot.com/2023/03/hls-teaching-series-developing.html

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New paper: Bad Spaniels, Counterfeit Methodists, and Lying Birds: How Trademark Law Reinvented Strict Scrutiny

Posted on March 15, 2023 by rtushnet

On SSRN, in advance of the JDI v. VIP case:

Bad Spaniels, Counterfeit Methodists, and Lying Birds: How
Trademark Law Reinvented Strict Scrutiny

Abstract:

Does trademark law cover noncommercial speech, defined as it
is in First Amendment doctrine as speech that does more than merely propose a commercial
transaction? This basic question has three different answers, all regularly
used in any given jurisdiction. The answers are yes, no, and sometimes, a list
both comprehensive and dismaying. The Supreme Court is presently considering a
case that may require it to choose—or may leave the field more confused than
ever.

In response to the massive expansion of trademark’s scope
over the last century, lower courts have implicitly devised a compromise by
which trademark is pulled back to a more traditional anti-fraud-like scope when
it is applied to noncommercial speech sold in the marketplace, such as movies,
newspapers, songs, and visual art, or used as the name of an organization with
dues-paying members, such as a political party or congregation. This compromise
explains an otherwise surprising feature of the cases: Political speakers and
religious speakers can expect worse outcomes than “commercial” publishers
engaged in noncommercial speech, given the kinds of cases brought against them.  Of particular note, churches can be
prohibited from using names that their worshipers sincerely believe are
accurate descriptions of their faith. Although the doctrines articulated by
courts are confused and sometimes directly contradictory, the results
approximate what would happen if First Amendment strict scrutiny were applied
to trademark claims brought against noncommercial speech—as long as material
deception, not consciousness of wrongdoing, is the standard for liability.

We would be better positioned to understand the law and to
decide future cases if courts were honest about their uses of the
commercial/noncommercial line to police whether trademark law can be used for
more than anti-fraud purposes. Understanding the relationship of noncommercial
speech to trademark law also offers broader insights into the relevance of
scienter and actual deception for speech regulation.

from Blogger http://tushnet.blogspot.com/2023/03/new-paper-bad-spaniels-counterfeit.html

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detailed examination of harm story dooms FedEx’s false advertising claim

Posted on March 14, 2023 by rtushnet

Ah, how I wish courts would apply the same scrutiny to trademark harm stories.

FedEx Ground Package System, Inc. v. Route Consultant, Inc.,
2023 WL 2466624, No. 3:22-cv-00656 (M.D. Tenn. Mar. 10, 2023)

FedEx uses around 4500 independent contractors (ISPs) to pick
up and deliver packages. As alleged,

Each ISP’s contract grants it a
certain service area, or “route,” and the ISP is permitted to sell its route to
another entity if they can agree on terms. The result is that FedEx routes are,
as a practical matter, intangible commodities traded on a competitive market
and subject to price fluctuation based on the actual or perceived value of each
individual route.

Route Consultant is a consultancy business that serves ISPs,
as well as another type of FedEx contractor—transportation service providers or
TSPs, who provide long-distance transportation services as opposed to actual package
delivery, which is done by ISPs. Together they are known as CSPs, contracted
service providers.

Route Consultant allegedly holds itself out as offering CSPs
(and aspiring CSPs) advice and information regarding “acquisition strategy,
business valuations, operations, efficiency, post-close support, [and]
compliance review.” It also “maintains an exclusive portfolio of routes and
runs for sale across the United States.” It does not perform any ISP work on
its own behalf, but the company’s founder and president founded and operates
four other companies that were FedEx ISPs.

Its products/services include a 12-week course on
acquisition strategy that costs about $15,000, a program called “FedEx Routes
for Sale 101,” and other consultancy and support services. It allegedly promotes
FedEx routes as under-the-radar, but promising, investment assets, “like buying
Apple at $1 a share.” Its principal, Patton, allegedly promoted the business “by
creating a fictionalized crisis between [FedEx] and its ISPs and TSPs as an
advertisement for the purported need for Route Consultant’s consultancy and
other services.” He allegedly “exaggerated and misrepresented the purported
financial hardships of the ISPs and TSPs in the current economic conditions” as
well as FedEx’s purportedly bullying response. FedEx posited that Route
Consultant’s aim was to encourage CSPs to renegotiate their deals (profiting
Route Consultant), or at least to raise Route Consultant’s profile and foster
the sense that its services were necessary. FedEx also alleged that the videos
could have “drive[n] attendance” for an annual conference put on by Route
Consultant.

The challenged materials were: (1) a publicly posted “Letter
of Assurance” from Route Consultant to FedEx, highlighting the hardships faced
by FedEx contractors and “demanding certain across-the-board modifications to
[FedEx’s] agreements with ISPs and TSPs”; (2) “various videos” posted to Route
Consultant’s YouTube channel making similar points; and (3) a press release
reiterating those points.

In the letter, Patton claimed that FedEx, “knowingly or
unknowingly, has placed the financial viability of CSPs in their Ground network
at enormous risk.” He stated that “[n]ot a single day passes without my phone
ringing with the story of yet another contractor who is financially collapsing
under the weight of these dramatic cost changes that have gone unaddressed by
FedEx Ground in 2022.” Although FedEx took steps to support its CSPs during the
height of the COVID-19 pandemic, it purportedly made “no financial adjustment
in any capacity” to the even greater challenges associated with 2022 cost
conditions. The letter also mentioned Route Consultant’s upcoming “Contractor
Expo + Party.” The videos and press release were of similar tenor.

FedEx sent a C&D telling Patton to shut up (demands
included “cease all advocacy on behalf of any service providers other than [his
own] ISPs”) and sent a letter to CSPs addressing Route Consultant’s
allegations. Obviously, the dispute didn’t end there.

The allegedly false statements made various claims about the
precarity of CSPs/FedEx’s responsibility therefor, such as, after referencing
the economic changes over the past 12 months, “there has been no financial
adjustment in any capacity”; the “average FedEx Ground business run by a CSP
currently operates on profit margins below 0%”; since the Q4 of 2020, the
industry has seen “a 15% pullback on the value of routes”; “the current CSP
financial model is collapsing”; claiming “soaring levels of CSP default rates
as evidence of the current financial stress within the network”; and “Almost
all of the other contractors that had renegotiation requests were also denied.”
Patton also allegedly overstated the size of his businesses by stating, “I have
about 225 routes, 275 trucks on the road across 10 different states.”

For falsity, FedEx pled that (1) its CSPs “earn average
annual revenue of approximately $2.3 million dollars, a figure that has doubled
over the last four years,” (2) “ISPs have requested mid-contract renegotiations
for only about 10% of their agreements in 2022,” (3) FedEx “has consented to
approximately 40% of renegotiation requests since July 1, 2022, and (5) “over
90% of those renegotiations led to agreement on new terms that resulted in
higher contractual payments to the ISPs.” FedEx also points to a report by a
business analyst based on data “for 100 ISP businesses … for sale on Route
Consultant’s own website,” which concluded that those businesses “generated an
operating margin of 16.0%.”

The press picked up on Route Consultant’s agitations and
began reporting on “tension” and a “burgeoning feud” between FedEx and its CSPs.
“Some of the coverage suggested that, if the situation continued to
deteriorate, it could lead to a slowing of deliveries—a possibility with
obvious, serious reputational stakes for FedEx. At least one financial analyst
cited Route Consultant’s statements as evidence of ‘structural problems’ with
FedEx’s ‘broken and inefficient’ model.”

FedEx brought Lanham Act and Tennessee Consumer Protection
Act claims.

Was this “commercial advertising or promotion”? Plausibly.
It didn’t have to directly/literally propose a transaction to be commercial
speech, as long as it was sufficiently relevant to a real or proposed transaction.
The court didn’t resolve what it saw as the difficulty of evaluating Route
Consultant’s argument that its speech was not commercial “because it consisted
almost entirely of broad, public-facing commentary about business conditions
and practices involving FedEx and its CSPs—not any transaction or proposed
transaction involving Route Consultant,” versus FedEx’s point that “Route
Consultant—like any consultancy business—feeds off the perception of
rectifiable (or avoidable) corporate dysfunction. Hyping up that
dysfunction—while simultaneously reminding individuals that your services as a
consultant are available—is a plausible promotional strategy.” While further
factfinding could change the outcome, the accused communications were plausibly
commercial speech. “The fact that some aspects of Route Direct’s critique could
have been delivered noncommercially … provides no ground for dismissing claims
based on the more ambiguous communications that actually did occur.”

However, falsity proved a harder barrier. Some of Patton’s
statements, such as those making quantitative claims, were falsifiable. But others
were much more subjective—too much so to be falsifiable: “the current CSP
financial model is collapsing due to substantial increases in the cost of fuel,
labor, and vehicles over the past 12 months.” Since the latter half of the sentence
was not pled to be false, there was “no clear division between a company or
business model that is ‘collapsing’ under cost increases and one that is merely
struggling with them, particularly given that that assessment is at least as
much a prediction about the future as a claim about the present.” A “melodramatic”
claim is not actionable when a speaker uses a “loose, hyperbolic term” to
“convey[ ] an inherently subjective concept.” So too with claims based on “soaring
levels of CSP default rates as evidence of the current financial stress within
the network” and claims that CSPs are in “financial distress.”

Another set of statements claimed that FedEx made no
“adjustments” to “address[ ]” the financial challenges facing CSPs. FedEx argued
falsity because CSPs, as a group, were not struggling, and FedEx did, in fact,
grant some renegotiation requests, “meaning that it is technically untrue that
the company did absolutely nothing.” But in context, it was “clear that the
statements at issue were not intended to suggest that FedEx never granted a
renegotiation request or never improved the terms pursuant to which an
individual, struggling CSP did business. Rather, the statements made were about
FedEx’s failure to adjust its overall model and approach and its failure to
adequately remedy the headwinds facing CSPs as a class in the manner that it
had during the height of the pandemic.” The complaint did not plausibly plead
falsity there, given that “FedEx’s consistent position has been that there was
no need for any such large-scale adjustment in the first place.”

Thus, it was unlikely that any substantial portion of the
intended audience, which was sophisticated, would have been deceived; the court
noted that Patton’s own statements acknowledged that FedEx did not have a 100%
denial rate for requested renegotiations. And even if one read the statements
to be “technically, albeit trivially, false,” it was not plausible that such
technical errors were capable of harming FedEx. FedEx’s allegations of harm
were “not based on some technical distinction between FedEx’s having done no
adjustment versus its having done a little bit of adjustment in a few select
instances. Rather, any harm to FedEx appears to have been from the general
impression that its contractors were struggling so severely that it posed a
risk to FedEx’s operations. That premise did not depend on FedEx’s having done
literally nothing—merely that it did not do enough.”

The quantitative assertions could be falsified, but the
complaint didn’t plead facts to do so. One challenged statement, for example, was
about average profit margins, but FedEx pled evidence regarding average
revenues. The only information that FedEx has pleaded about margins was based
on a sample of 100 ISPs, not on the “average” CSP. While people might believe either
side, FedEx “conspicuously failed to allege that Route Consultant’s numbers were
actually false or, in any sufficiently explained way, even misleading.”

For “[a]lmost all of the … contractors that [made]
renegotiation requests were … denied,” FedEx pled that it “has consented to
approximately 40% of renegotiation requests since July 1, 2022.” But the
relevant dates didn’t match; the letter at issue was released in July
2022. At most, FedEx pled that a statement that was made at one chronological
point would have been false or misleading if it had been made later and with a
different time limitation.

FedEx did allege that the statement about the size of Patton’s
own routes was literally false.

“[I]t is at least conceivable that a falsehood about
Patton’s businesses could harm FedEx by lending Patton’s, and by extension
Route Consultant’s, critique more credence than it deserved.” But it was
explicitly an estimate, and FedEx didn’t plead just how overstated those
numbers were. “Given the comparatively attenuated importance of this fact to
FedEx’s theory of harm, the overstatement would have to have been quite
substantial to have made any plausible difference in the course of events.”

Claims dismissed.

from Blogger http://tushnet.blogspot.com/2023/03/detailed-examination-of-harm-story.html

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Jack Daniels reply brief: the horror!

Posted on March 14, 2023 by rtushnet

Is in. Obviously there are many things to say about it, but I suppose the easiest is that the parade of horribles sounds kind of just like a parade (albeit perhaps a Halloween one):

VIP’s logic would extend to vases mimicking Coca-Cola bottles (pretend sodas), replica toy Mercedes (pretend
cars), pillows resembling Goldfish crackers or Hershey Kisses (pretend snacks), or key chains consisting of miniature Lucchese cowboy boots (pretend shoes).

(1) Wonder what Ai Weiwei has to say about that first example? (2) Did they … know that all these things exist (except that a miniature Lucchese cowboy boot is just a cowboy boot at that scale, and doesn’t seem famous enough to parody) and haven’t caused society to collapse or toddlers to run around stuffing pillows in their mouths? NB: I actually bought one of those Goldfish pillows before I read the brief. It’s cute! 

from Blogger http://tushnet.blogspot.com/2023/03/jack-daniels-reply-brief-horror.html

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“fit” on snack bars isn’t implied nutrient or “healthy” claim

Posted on March 13, 2023 by rtushnet

Seljak v. Pervine Foods, LLC, 2023 WL 2354976, No. 21 Civ.
9561 (NRB) (S.D.N.Y. Mar. 3, 2023)

Plaintiffs sought to represent a class of purchasers of
FITCRUNCH Whey Protein Baked Bar products or FITBAR energy bar products. They contain
high levels of protein and come in flavors that sound like desserts, including
Milk & Cookies, Chocolate Chip Cookie Dough, Apple Pie, and Chocolate
Peanut Butter. Plaintiffs, who purchased the products “for the protein” and “to
help with muscle gain,” allegedly falsely believed that the products were
“healthy,” despite the fact that the term “healthy” or related terms aren’t
appear anywhere on the products’ packaging or ads. They based their beliefs on
the use of “FIT” in the products’ names. The court found this implausible in
context.

The products contain between 8 and 18 grams of fat, which
exceeds the permissible level of fat in products labeled as “healthy” under FDA
regulations. But each product’s fat content is available on the ingredient
panel, which appears on the back of each package.

Genericity watch: As an example, “the package of the Milk
& Cookies FITCRUNCH product includes a picture of Oreo cookies”:

A bar whose package shows creme-filled chocolate cookies next to a cut-open bar

The court took judicial notice “of the numerous videos
publicly available on defendant’s website of consumers reading the ingredient
panel available on the back of the products’ label.” The court also took
judicial notice of other publicly available videos on the website “in which
fitness trainers reviewing the products caution consumers that while the
products contain a high level of protein, they also contain a high number of
calories and a high level of fat and therefore may not be suitable for
consumers who are trying to lose weight.” Not sure this is judicially noticeable
for what reasonable consumers would do, but ok.

Plaintiffs alleged that defendant’s ads state that the
products are “different from other nutritional products;” “[d]elicious
nutrition for all FIT lifestyles;” and “the most delicious eating experiences
that you’ll find in high protein, low sugar products.” The ads also include
images of people exercising, and state that the products should be consumed
“post workout to refuel, as a snack between meals, and any other time when you
need protein on the go.” On defendant’s website, defendant’s co-founder, Chef
Robert Irvine, stated that he set out to “create a brand-new bar that not only
delivered great nutritional value” and believes that “[n]o matter your age,
gender, fitness goals, or dietary restrictions, I’m confident I’ve made
something that’s going to meet your needs.” But the complaint didn’t allege
that plaintiffs relied on these ads in forming their belief that the products
they purchased were “healthy.”

The plaintiffs sought to represent a national class (common
law warranty/unjust enrichment claims), a New York subclass, a California
subclass, and an Illinois subclass.

There was no standing to seek injunctive relief.

There would be no NLEA preemption if they successfully pled
that “FIT” constituted a disallowed implied nutrient content claim as a synonym
of “healthy.” But “the FDA already determined decades ago that it would not
define synonyms for healthy as it had done for other implied nutrient claims.” Although
the FDA has said that, when synonyms “appear in association with an explicit or
implicit nutrient content claim or statement about a nutrient, they will be
implied nutrient content claims,” “[p]laintiffs do not [then] plead that the
word [“FIT”] alone makes any “explicit or implicit claim or statement about a
nutrient.” “FIT” didn’t appear in association with a nutrient content claim
about the products’ fat content. (By contrast, “[n]utritious, contains 3 grams
of fiber,” “[b]est choice, contains 200 mg sodium,” and “[g]ood for you,
contains 5 grams of fat,” would do so.) Thus, the claims for violating FDA
regulations (as incorporated into state laws) were preempted.

But the baseline claim that use of the term “FIT” on defendants’
was false or misleading was not preempted. It just wasn’t plausible. The high
number of calories was listed on the product labels; the FITCRUNCH products’
labels also include “images of desserts, such as Oreo cookies. Accordingly,
before even turning to the ingredient label, a reasonable consumer viewing this
label simply would not believe that FITCRUNCH products are ‘healthy.’” Even if
the term were ambiguous, the ingredients label would cure any ambiguity,
especially since “healthy” wasn’t the “ordinary meaning” of “fit.” “In viewing
the term ‘FIT’ in the context of the entire label, a reasonable consumer would
interpret ‘FIT’ to mean getting into a suitable state to build muscle.”

The court also found that plaintiffs lacked standing to
challenge FITBAR products, which they hadn’t bought. The packaging of the two
lines was distinct. Each FITCRUNCH product states that it is a “Whey Protein
Baked Bar” and has a “baked soft cookie center,” and states it is gluten free. Each
FITBAR product states that it is an “energy bar;” is non-GMO, vegan, dairy
free, soy free, and gluten-free; and directs “see nutrition facts for total fat
content.” The products come in different flavors and have different ingredients
(whey protein blend and soy protein as primary ingredients versus organic brown
rice syrup and hemp protein).

 

from Blogger http://tushnet.blogspot.com/2023/03/fit-on-snack-bars-isnt-implied-nutrient.html

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Failure to include adjusted protein percentage on protein-touting products can be misleading

Posted on March 13, 2023 by rtushnet

Rausch v. Flatout, Inc., — F.Supp.3d —-, 2023 WL 2401452,
No. 22-cv-04157-VC (N.D. Cal. Mar. 8, 2023)

I love a good summary:

When a manufacturer advertises the
amount of protein in a product on its package, the Food and Drug Administration
requires the manufacturer to include additional information on that product’s nutrition
facts panel: the manufacturer must provide the “percent daily value” for
protein based not on the raw amount of protein in the product, but on the
amount of protein that the human body will actually absorb. The question
presented in this case is whether a manufacturer’s failure to include that
percent daily value renders its other statements about protein quantity
misleading—both within the meaning of the FDA’s regulations and state law. The
answer is yes.

While “consumers often pick products based on their protein
content, “not all protein is created equal.” Protein’s constituent parts are
amino acids; a high-quality protein contains “all nine amino acids in the right
proportions for protein synthesis.” Also, “most plant proteins are only 85%
digestible, so 15% of the protein from a plant source will just pass through
your body.” The FDA requires all products to include the grams of protein in a
serving, without needing adjustment for amino acid content or digestibility
(together “quality”). However, if there’s a “protein claim” anywhere else on
the label, including both “Excellent source of protein!” or just “20g of
protein,” the FDA requires the manufacturer to include the “corrected amount of
protein per serving,” expressed as a percent of daily value. This is corrected
amount is calculated by using a discount factor that accounts for the protein’s
amino acid content and digestibility.

Flatout sells a variety of products, including flatbreads
and pizza crusts. Several of these products allegedly advertise their protein
content on the front of their labels, but they fail to include the
quality-adjusted percent on their nutrition facts panels. Thus, a consumer
would only absorb about half of the protein in Flatout’s Flatbread, but that
isn’t disclosed.

Rausch sued for UCL unlawfulness and the usual California
claims including UCL fraudulent claims. California’s Sherman Act incorporates
the FDCA and regulations; Rausch alleged that the protein statements violated
the FDA’s requirement that Flatout include the quality-adjusted figure and a
more general FDA regulation that prohibits misleading “nutrient content
claims.”

The second theory required a bit more unpacking because of Nacarino
v. Kashi, 584 F. Supp. 3d 806 (N.D. Cal. 2022). There, like here, the label on
Kashi’s cereal stated that the cereal had “11g” of protein, but that figure was
not adjusted for the protein’s quality. But there were no allegations that
Kashi failed to include the quality-adjusted percent on the cereal’s nutrition
facts panel (and the Kashi requested judicial notice that it had done so). In
that context, the court held that “making a statement about protein quantity on
the front of the package—without including a disclaimer about protein quality
also on the front of the package” didn’t violate the prohibition on misleading
statements.

That wasn’t this situation, but Nacarino also said
that requiring the use of the quality-adjusted percentage in the nutrition
facts panel didn’t mean that statements of protein content would be misleading in
the absence of that disclosure:

To hold otherwise would be to find
that an FDA-approved protein measurement technique is inherently misleading.
This is not a plausible interpretation of the regulations. A better reading is
that the FDA recognizes that in situations where consumers are drawn to a
product for its protein content—those situations in which a manufacturer is
touting its product’s protein on its packaging—consumers deserve additional
information in the Nutrition Facts label. This is not to remedy an otherwise
misleading figure, but to supply protein-conscious consumers with information
that gives them further assistance in deciding what to buy.

The court here disagreed:

The better reading of the FDA’s
regulations is that prominently advertising a product’s protein quantity
outside of the nutrition facts panel is misleading (within the meaning of the
Food, Drug, and Cosmetic Act and the FDA’s regulations), if the manufacturer
doesn’t include the quality-adjusted percent in the nutrition facts panel. As a
matter of common sense, it’s reasonable to think that small text in the
nutrition facts panel is less likely to mislead a consumer than text
advertising the protein content on the front of a label. When a manufacturer
chooses to emphasize a product’s protein content elsewhere on a label, the
manufacturer is implicitly suggesting that the product is a good source of
protein. In effect, it’s encouraging consumers to buy the product based off
that feature. That’s not the case when the manufacturer includes the amount of
protein in the nutrition facts panel (something manufacturers must do on all
products). Thus, the FDA’s regulations are best understood as reflecting a
determination that when a manufacturer emphasizes a product’s protein content,
that statement is misleading without including information about the product’s
protein quality on the nutrition facts panel.

Why didn’t the FDA require all manufacturers to disclose the
quality-adjusted percent on all products Apparently it was, at least at the
time, expensive to calculate a product’s precise amino acid score; the FDA
decided not to impose those additional costs generally because Americans
generally consume enough high-quality protein in their diets. But, it reasoned, “where a
manufacturer decides to make a protein claim, the ‘the burden and expense’ of
calculating the percent are ‘voluntarily assumed by the manufacturer.’” The court here concluded that FDA’s decision
to “spare most manufacturers from the expense of calculating the
quality-adjusted percent does not mean that protein statements (made outside of
the nutrition facts panel) can never be misleading.”

Flatout responded that the quality-adjusted percent was
essentially meaningless, so it did nothing to remedy the potentially misleading
statement of protein quantity, because “reasonable consumers” do not possess
“the regulatory or mathematical skill” required to use the percent daily value
to convert the “grams of protein stated on the label into digestible protein.”

True enough! But not helpful to Flatout:

The FDA is generally skeptical that
consumers know exactly how much of any nutrient they should be consuming every
day. That’s why the FDA thinks the percent daily value is helpful: it gives
consumers a sense of how the food might fit into their broader nutritional
needs….  That doesn’t require any
complicated math, and that information puts the potentially misleading protein
statement in context. The expectations created by statements like “excellent
source of protein!” or “20g protein!” can be tempered by looking at the percent
daily value.

Indeed, parsing the text, the court determined that the
quality-adjusted percentage disclosure requirement was not promulgated under
the general nutrition rules—then it would have to be on all nutrition labels—but
under FDA’s authority to regulate misleading labels. Thus, “it’s not much of a
leap to say that failure to follow the requirement renders a label misleading
within the meaning of the FDA’s regulations.”

This all allowed Rausch’s theory of misleadingness to move
forward. Rausch also plausibly alleged that she has no adequate remedy at law,
so she may seek equitable relief at this stage in the litigation, and she had
standing to challenge the products she did not purchase because they are
“substantially similar” to the products she did purchase. But the conclusory
allegation that Flatout’s conduct was “willful and malicious” didn’t support a
claim for punitive damages; if discovery revealed information relevant to
punitive damages, Rausch could seek leave to amend.

from Blogger http://tushnet.blogspot.com/2023/03/failure-to-include-adjusted-protein.html

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Vanilla class action certified based on sufficient survey evidence

Posted on March 13, 2023 by rtushnet

Vizcarra v. Unilever U.S., Inc., 2023 WL 2364736, No.
4:20-cv-02777 YGR (N.D. Cal. Feb. 24, 2023)

Hey, it’s a certified class in a vanilla case: Vizcarra
alleged that Breyers Natural Vanilla Ice Cream misleadingly communicated that
it contained vanilla flavor derived exclusively from the vanilla plant. The
cartons “said ‘Natural Vanilla’ in large, light green letters against a black
background, contained pictures of two vanilla beans and vanilla flowers and a
scoop of the ice cream with noticeable specks purporting to be actual vanilla
beans.” She brought the usual
California claims.

Previously, the court found that Vizcarra didn’t show
commonality or predominance, because her expert’s opinions were based on
consumer-perception and materiality surveys that did not specifically test the
effect of the vanilla representations on consumers’ beliefs and purchasing
decisions, and the proposed damages model didn’t measure the resulting price
premium, if any. Her expert did more surveys and returned.

Based on the results of the revised surveys, her expert
concluded that (1) a reasonable consumer in California perceives the Vanilla
Representations to convey that all of the vanilla flavor comes from vanilla
extract made from the vanilla plant, which answers the common question of
likelihood of deception that is integral to her claims under the UCL and FAL;
and (2) that the Vanilla Representations were material to the purchasing
decisions of a reasonable consumer in California, which answers the common
question of materiality that is integral to her claim under the CLRA.

Unilever argued that the survey still didn’t do the job
because it didn’t test “a stimulus that removed the Vanilla Representations but
was otherwise identical to the package of the ice cream at issue.” The revised
perception survey involved presenting to respondents an un-branded ice cream
product that displayed only the Vanilla Representations on the front label of
the product. 78.7% of respondents reported that they believed that “all of the
vanilla flavor” comes from the vanilla plant; 16.6% perceived that “not all of
the vanilla flavor” comes from the vanilla plant; and 4.7% were not sure. Unilever
argued that this survey couldn’t distinguish the effect of the Vanilla
Representations on survey respondents’ perceptions from the effect of the
survey respondents’ pre-existing beliefs or biases, including about the Breyers
brand and vanilla ice cream in general, and that the questions were leading. Vizcarra
rejoined that the survey (including the stimuli) were designed so that the
survey would measure the effect of the Vanilla Representations directly while
avoiding the risk that the results of the study would be “contaminated by
pre-existing beliefs” of respondents or other biases, including pre-existing
beliefs associated with the Breyers brand. Vizcarra met her burden to show by a
preponderance of the evidence that her expert’s opinions were capable of
answering the question of whether a reasonable consumer is likely to be
deceived by the Vanilla Representations. “Unilever’s criticisms boil down to a
disagreement as to Dr. Dennis’ survey design choices, which go to the weight to
be accorded to Dr. Dennis’ survey results and opinions when determining the
merits of Vizcarra’s claims at trial.”

CLRA: “The requirements for stating a claim under the CLRA differ
from those for a claim under the UCL and FAL because a CLRA plaintiff can
obtain damages, as well as equitable relief and other remedies.” Thus, a CLRA
plaintiff must “show not only that a defendant’s conduct was deceptive but that
the deception caused them harm.” However, “[c]ausation, on a classwide basis,
may be established by materiality. If the trial court finds that material
misrepresentations have been made to the entire class, an inference of reliance
arises as to the class.” Vizcarra’s expert’s materiality survey was also
capable of answering that question on a classwide basis. The revised survey
measured the extent to which a product having the Vanilla Representations is
preferred over the product not having the Vanilla Representations in the
context of purchasing behavior. 88.8% of respondents indicated that they would
prefer to purchase the product that had the Vanilla Representations; and 11.2%
indicated that they would prefer to purchase the product that did not have the
Vanilla Representations. Unilever objected that they weren’t shown a real
product, but the survey “does test and does speak to the effect of the Vanilla
Representations on consumers’ purchasing decisions, consistent with Vizcarra’s
theory of liability, … with a sufficient degree of reliability such that a
reasonable factfinder at trial could find, based on Dr. Dennis’ opinions, that
the Vanilla Representations were material to a reasonable consumer’s purchasing
decisions.” The expert explained that he designed the survey and stimuli to
measure the effect of the Vanilla Representations while minimizing the effect
of potential confounding factors, such as respondents’ pre-existing beliefs and
biases.

Predominance: Damages must be capable of measurement on a
class-wide basis. While the model “must measure only those damages attributable
to” the plaintiff’s theory of liability, the calculations “need not be exact”
at the certification stage. A revised price premium model using contingent
valuation, which had been proposed, but not yet studied, by Vizcarra’s expert, would
suffice. Contingent valuation methodology has been widely accepted as a
reliable method for calculating damages on a class-wide basis in false
advertising and mislabeling cases. The expert proposed to use actual, historical
pricing data for the ice cream product at issue in calculating the price
premium, which serves to incorporate supply-side factors into the price premium
analysis, answering one of Unilever’s key criticisms; the jury could consider
the weight of these opinions.

from Blogger http://tushnet.blogspot.com/2023/03/vanilla-class-action-certified-based-on.html

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