independent contractors as agents in creating fake reviews

Posted on September 17, 2021 by rtushnet

RingCentral, Inc. v. Nextiva, Inc., 2021 WL 2476879, No.
19-cv-02626-NC (N.D. Cal. Jun. 17, 2021)

The parties are cloud-based communications companies.
RingCentral offers voice, virtual private branch exchange, audio and video
conferencing, messaging, contact center collaboration, SMS, online meetings,
contact center, and fax. Nextiva’s offerings inlcude voice, video, and
messaging.

RingCentral sued for tortious interference, defamation,
trade libel, unfair competition, and cybersquatting. Nextiva’s independent
contractor, Baruch Labunski, “fabricated fictitious online personas of
RingCentral personnel, registered domain names using fake contact information,
and created fraudulent websites associated with those domains for the purpose
of redirecting users away from RingCentral, and toward unrelated business
websites.” Nextiva also allegedly posted fake negative reviews of RingCentral
and fake positive reviews of Nextiva.

Likewise, RingCentral allegedly created a customer review
page selectively aggregating only positive reviews from other review sources.

Starting with the counterclaims against RingCentral:  The review page “reflects an overall 4.8-star
rating in the marketplace,” but Nextiva argued that, on the sourced websites
where the reviews originate, it has “at least hundreds of one- and two-star
reviews; rather than the five one- and two-star reviews reflected on
RingCentral’s Reviews Page.” RingCentral blamed a third party contractor,
though I’m not sure why that should matter; the court found there were genuine
issues of material fact, including about whether the third party had discretion
to exclude reviews. (Even if it did, I don’t see why RingCentral wouldn’t be
liable for them.)

RingCentral then argued that Nextiva failed to prove
causation or economic injury. “Here, Nextiva’s experts used regression analyses
to show that traffic to RingCentral’s web pages closely coincided with reduced
Nextiva sales, and that Nextiva would have to spend significant funds to
correct the misimpressions that RingCentral’s pages caused in the market.”
Though RingCentral pointed out that the experts relied on claims that were no
longer being challenged and didn’t apportion the harm, this was for a jury to
resolve.

Nor could RingCentral’s unclean hands argument be resolved
on summary judgment.

So too with Nextiva’s motion for summary judgment, except
for claims based upon allegedly fake positive reviews of Nextiva. Starting with
those, defamation and trade libel don’t cover fake positive reviews of the
defendant.

As mentioned above, Labunski, under the supervision of
Nextiva’s former CMO, “posted over 10,000 fake positive reviews of Nextiva on
downdetector.com and verified-reviews.com,” as well as a smaller number of fake
positive reviews on other sites.  Nextiva
allegedly published at least 85 fake negative reviews of RingCentral’s
services, though RingCentral’s own expert testified that approximately five of
those fake negative reviews were “verified” as false by being tied to domains
known to be registered by Labunski.

Defamation: Fake positive reviews of Nextiva were not “of
and concerning the plaintiff,” and RingCentral didn’t show that third parties
reasonably understood the fake positive reviews to be a part of a “defamatory
scheme” against RingCentral. In fact, the law doesn’t recognize RingCentral’s
theory that the fake positive reviews were part of drawing a contrast between
the parties with a “defamatory scheme.” It had to prove that prospective
customers reasonably understood the challenged statements to be derogatory
against RingCentral under the circumstances. RingCentral did show that that
three prospective customers, who ultimately chose Nextiva, made a comparison
between the two companies after looking at reviews. “But there is no evidence
that those prospective customers interpreted positive reviews about Nextiva to
mean something derogatory about RingCentral…. To agree with RingCentral’s
‘defamatory scheme’ argument would be to say that any statements made in the
course of market competition, whether falsified or factual, would necessarily
result in defamation.”

However, fake negative reviews of RingCentral were
definitely “of and concerning” RingCentral, so the
defamation and trade libel claims based on them could continue.

Trade libel: Trade libel is the intentional disparagement of
another’s property that results in pecuniary damage. A trade libel plaintiff
“must also prove that the statement played ‘a material and substantial part in
inducing others not to deal with [the plaintiff],’ ” along with special damages
in the form of specifically itemized pecuniary harm that was proximately caused
by the libelous statements. Nextiva argued that RingCentral couldn’t prove
causation and damages. The court agreed that, under governing law, a plaintiff
is required to “identify particular customers and transactions of which it was
deprived as a result of the libel.” But there was a genuine dispute of material
fact on causation and loss: RingCentral identified prospective customers who
saw reviews of both companies and chose Nextiva, but it wasn’t clear whether
they saw the allegedly fake reviews, and if so, whether those fake reviews
played a substantial and material role in their decision to choose Nextiva over
RingCentral.

Tortious interference: Same thing.

UCL: Nextiva argued that RingCentral didn’t show it was
entitled to an injunction.  But “[t]hat
Nextiva has since fired the alleged wrongdoers and discontinued its policy does
not mean that a risk of future injury is lacking.” There were disputes of fact
about whether the officers and employees still employed by Nextiva were
complicit or failed to act on the fake review scheme, and whether changes were
implemented company-wide or only by specific teams.

Cybersquatting: Could Nextiva be held liable for the acts of
its independent contractor “falsely register[ing] at least one domain name
strongly suggestive of the RingCentral brand name.”

Masjedi was the CMO who hired Labunski to work on search
engine optimization. He instructed Labunski to impersonate another competitor
to post fake negative reviews. Labunski then re-used that idea to impersonate
RingCentral; he purchased the domain name “ringcetrnal.com” and used fake
identities and funds supplied by Nextiva, he created fake email accounts on the
“ringcetrnal.com” domain to impersonate RingCentral’s CEO and the CEO’s
daughter, and tried to use those false identities to eliminate positive reviews
of RingCentral with the Better Business Bureau and Fit Small Business.

Nextiva argued that there was no evidence that the
impersonation caused harm. RingCentral’s 30(b)(6) witness testified that “the
reputation of RingCentral was diminished…through the fraudulent emails,” but
also lacked knowledge of any changes to RingCentral’s Better Business Bureau membership
or of any RingCentral reviews being removed from Fit Small Business. It was for
the jury to weigh the credibility of this testimony.

Was Nextiva liable for its independent contractor’s domain
name registration? The Restatement (ThirdO of Agency says: “An agency
relationship arises “when one person (a ‘principal’) manifests assent to
another person (an ‘agent’) that the agent shall act on the principal’s behalf
and subject to the principal’s control, and the agent manifests assent or
otherwise consents so to act.” “An agent acts with actual authority when, at
the time of taking action that has legal consequences for the principal, the
agent reasonably believes, in accordance with the principal’s manifestations to
the agent, that the principal wishes the agent so to act.” There was sufficient
evidence for a jury to find that Labunski was an agent of Nextiva for purposes
of cybersquatting liability by finding that Labunkski’s wrongful conduct was
within his authority, or that Labunski was negligently supervised by Nextiva.
The fact that Labunski’s consulting agreement disclaimed an agency relationship
was insufficient.

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TM infringement and false advertising claims related to putative open source software “fork” succeed

Posted on September 16, 2021 by rtushnet

Neo4j, Inc. v. PureThink, LLC, 2021 WL 2483778, No.
5:18-cv-07182-EJD (N.D. Cal. May 18, 2021)

Neo4j specializes in graph database management systems.
“Neo4j USA’s platform helps organizations make sense of their data by revealing
how people, processes and digital systems are interrelated.” [I still don’t
know what that means, but ok.] It has more than 400 commercial customers,
including global enterprises such as Walmart, Comcast, Cisco, and eBay, and
also does substantial business with government agencies, including US agencies.
It has trademark registrations for the word mark “NEO4J.”

Neo4j originally offered a free and open source version of
the Neo4j platform known as the Neo4j Community Edition, with limited features
and no technical or administrative support. Neo4j Enterprise Edition was
originally offered under both a paid-for commercial license and the free GNU
Affero General Public License, version 3, but Neo4j then replaced that AGPL
with a stricter license (the Sweden license), which prohibited the non-paying
public from engaging in commercial resale and certain commercial support services.
Eventually, they released Neo4j EE version 3.5 under a commercial license only.

PureThink is a software and information technology
consulting company that specializes in supporting agencies within the U.S.
Government. The parties previously partnered nonexclusively so that PureThink
would sell and support the commercial version of Neo4j; upon termination,
PureThink expressly agreed to “cease using any trademarks, service marks and
other designations of Plaintiffs.”

Neo4j ultimately considered PureThink’s Neo4j Government
Edition to be a problem. PureThink’s principal created a new entity, iGov,
which stated:

The principal behind PureThink and
the Government Package has created a new corporate entity called iGov Inc,
which is not a Neo4j Solution Partner. …

* * *

iGov Inc’s new Government Package
for Neo4j can be added to any Neo4j instance making it a “Government Edition”.
By default, all Government Packages for Neo4j now comes with Neo4j Enterprise
included under its open source license!

Many details omitted, but eventually defendants’ principal
helped found an organization that began promoting a software called “ONgDB.”
This used Neo4j EE version 3.4 as a base, but replaced the Neo4j Sweden
Software License with the AGPL. “Defendants continued to promote ONgDB as ‘free
and open source’ by replacing the Neo4j Sweden Software License with the AGPL
in certain LICENSE.txt files alongside the source code. Doing so removed
certain legal notices identifying Neo4j Sweden as the copyright holder and
licensor, and removed the Commons Clause, effectively allowing Defendants to
commercially use and support ONgDB.”

On GitHub, the landing page was called “ONgDB – Neo4j
Enterprise Fork: Graphs for Everyone,” contained numerous references to Neo4j
throughout, and was very similar to that of Neo4j EE. Defendants characterized
it as a “drop in replacement” for Neo4j CE and EE. On their sites, various
links including the sequence “neo4j” remained active for a couple of years,
despite going to OngDB pages; conversely, some hyperlinks on their sites
redirected to operations and developer manuals on Neo4j’s website. They also
regularly used the Neo4j Mark as a hashtag on Twitter.

After nearly two years, the ONgDB software had been
downloaded over 14,000 times, “signaling its widespread success.” At the same
time, some consumers who encountered compatibility issues, technical problems
or glitches with ONgDB sought assistance from Neo4j. And some have “expressed
uncertainty about the propriety of Defendants’ modification to the Neo4j Sweden
Software License. This has caused some confusion about whether and when a
commercial license from Neo4j USA is necessary to use, modify or redistribute
the software in a commercial setting.”

Trademark claims: As to nominative fair use, Neo4j argued
that it didn’t apply because defendants had used the mark to identify their own
product, “Neo4j Enterprise”/“Government Package for Neo4j,” before rebranding
that as ONgDB. But that wasn’t a Neo4j product; it was made of the last public
Neo4j EE code, the Neo4j CE code, and “glue code” authored by others, even
though defendants assured potential customers that it was the “same official
Neo4j Github Repositories as Neo4j Inc uses for their paid commercial licensed
builds” except distributed under an open source license.

Thus, this was not nominative fair use, but rather a use
that created the misleading perception that defendants’ products were Neo4j
products.  “Any reasonable consumer
reading about ‘Neo4j Enterprise’ would conclude that they are getting official
Neo4j EE, or in the case of the ‘Government Package for Neo4j,’ consumers would
conclude they are getting Neo4j EE in a specialized government package.” So too
with defendant’s iGov’s use of the Neo4j Mark in its email address and URL.

By contrast, to the extent Defendants offer “support
services” targeted at software that Neo4j Sweden or Neo4j USA provide on an
open source basis, “use of the Neo4j Mark to explain those services could
potentially benefit from a fair-use defense because such uses reference
Plaintiffs’ products, not Defendants’.” They were also permitted by NFU to
describe their product as an unaffiliated or independent “fork” of Neo4j source
code “because that phrasing makes clear that the product is not itself a Neo4j
product.” Perplexingly, the court also suggested that in comparative
advertising defendants would be bound by Neo4j’s trademark guidelines, which
does not seem exactly right unless those guidelines happen to reproduce the law
(perhaps they do).

As Judge Kozinski once did, the court seemed to treat
non-nominative uses as confusing by definition without further analysis (even
citing the old terrible “metatags” cases for this result), so the bad conduct
was a mix of stuff that probably was confusing and stuff that is more
questionable: (1) extensively
using “Neo4j’ and “Neo4j Enterprise” on iGov and PureThink websites without
proper trademark notices; (2) using embedded “Neo4j” links to Neo4j USA’s
website and GitHub repository on their websites; (3) hyperlinking to Plaintiffs’
build instructions, support documentation and change logs containing the Neo4j
Mark rather than creating and hosting their own with the ONgDB name; and (4)
using “Neo4j Enterprise” and “ONgDB” interchangeably to promote ONgDB on their
websites.

Embedded links to Neo4j’s sites and documentation, along
with the repeated references to “Neo4j,” “including in the title of the
products themselves, create the misleading perception that Defendants and
Plaintiffs are affiliated.” Plaintiffs’ motion for summary judgment on the
trademark claims was granted.

False advertising under the Lanham Act/UCL: Neo4j alleged
two basic categories of falsehoods: (1) statements that ONgDB and Neo4j
Enterprise are “free and open source” versions of or alternatives to commercially
licensed Neo4j EE; and (2) statements that ONgDB is a “drop-in replacement for
an existing commercial licensed distribution of the same version number” of
Neo4j EE.

For (1), Neo4j argued that “the Neo4j Sweden Software
License did not permit Defendants to remove the commercial restrictions imposed
by the Commons Clause,” so ONgDB is not “free and open source.” The court found
that there is no reasonable interpretation of the Neo4j Sweden Software License
that permits licensees such as defendants to remove the Commons Clause and
redistribute the software under the standardized AGPL license. Thus, these
statements were false.

For (2), Neo4j argued that ONgDB is not a true drop-in
replacement because ONgDB contains source code filed that were wrongly licensed
under the AGPL in violation of Neo4j Sweden’s copyright and because the
software was not of the same quality and did not contain all of the features of
Neo4j EE. Defendants argued that “drop-in replacement” didn’t mean that all the
features were the same, but rather that users could move their data from a
Neo4j instance and place into an ONgDB instance of the same version and have it
function.

Neo4j rejoined that, even if “drop-in replacement” merely
indicates compatibility, iGov’s representations related to ONgDB versions 3.5
and later are still false. After Neo4j EE 3.5 was released entirely closed
source, GFI “no longer could … reliably guarantee that [ONgDB] was a drop-in
replacement”; it was “too hard to demonstrate” with the Neo4j EE code becoming
more divergent. Yet iGov continued to make drop-in replacement claims for later
versions. Thus, representations that the equivalent versions of ONgDB were
“drop-in replacements” could not be verified and were therefore false or
misleading. [Is this a lack of substantiation holding?]

As for earlier versions, were the statements misleading?
Even though the phrase didn’t necessarily indicate identicality on its own, the
full context of the statements implied it. [Not clear if the court is doing a
necessary implication analysis; it is focusing on what defendants said, not on
consumer reaction evidence.] E.g., the website said that “commercial packages
available from Neo4j Inc and their partners are essentially support offerings
… [i]f you do not need support for your ONgDB Enterprise or Neo4j Enterprise
open source licensed distribution, then simply download ONgDB Enterprise as a
drop in replacement for an existing commercial licensed distribution of the
same version number.” It further provided a chart comparing Neo4j EE and “Neo4j
Enterprise open source license,” which is captioned: “There are no physical
differences between Neo4j Enterprise commercial and AGPL open source licenses!”
“No reasonable consumer would understand these statements to indicate mere
compatibility with Neo4j EE.”

Further evidence of misleadingness was that consumers who
chose ONgDB and encountered technical issues reached out to Neo4j USA for help,
“indicating that those consumers thought they were operating genuine Neo4j EE.”

Materiality: “Because Defendants misrepresented ONgDB as a
free version of Neo4j EE licensed under the APGL, there is no doubt that this
price differential (free versus paid) was likely to influence customers
purchasing decisions.” So statements about a free replacement were material.The
court also found nothing to rebut Neo4j’s evidence that customers chose ONgDB
based on misrepresentations to Neo4j’s commercial detriment. Summary judgment
granted on state and federal false advertising claims.

False designation of origin: Yep.

Relief: Given the First Amendment interests involved, the
Court “may not enjoin nominative use of the mark altogether.” Though it could
be tweaked later, the court enjoined the specific things it had found to be
false/misleading, including “free and open source drop-in replacement.” (I’m
actually not sure how targeted the injunction was, since it also barred
“infringing” on the marks or causing false association with Neo4j, so it isn’t
all that clear what defendants can do.)

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individualized smear campaign wasn’t plausibly commercial advertising or promotion

Posted on September 16, 2021 by rtushnet

Meredith Lodging LLC v. Vacasa LLC, No. 6:21-cv-326-MC, 2021
WL 2546273 (D. Or. Jun. 21, 2021)

The parties compete to manage vacation rental properties
located in Oregon. Meredith alleged that Vacasa “has embarked on a smear
campaign surgically targeted at [Plaintiff’s] homeowner customers, designed to
unfairly snuff out that competition.” The court found that the alleged
statements weren’t “commercial advertising” covered by the Lanham Act.

Allegations: With the goal of increasing its market share,
Vacasa “sent out promotional mailers to homeowners with properties located in
the same geographic areas where [Plaintiff] manages vacation rental
properties.” It “began a campaign to systematically contact and try to poach
business from Homeowners under exclusive contract with [Plaintiff]. In many
instances, [Defendant’s] representatives have made false or misleading
statements about [Plaintiff] to these Homeowners.”

The question was whether the alleged misrepresentations were
“sufficiently disseminated.” Ordinarily, “the actions must be ‘part of an
organized campaign to penetrate the relevant market,’ which typically involves
‘widespread dissemination within the relevant industry.’ ”

Each alleged falsehood came in the form of a phone call from
an employee or representative of Vacasa to an individual under contract with
Meredith to manage their vacation rental property. The purpose of each call was
to convince the individual to switch companies. There were five alleged
examples of false statements in calls to owners: (1) rep stated there were
“reviews on VRBO for [Plaintiff] stating that there is a lack of cleanliness,”
that Plaintiff “had no manager for negative reviews,” and claimed Defendant
“could manage the property better”; (2) rep stated that Vacasa “had heard a lot
of complaints about [Plaintiff] and its housekeeping teams”; (3) rep said that
homeowners had switched over a “lack of cleanliness,” but rep couldn’t corrpoborate
this; (4) rep said that Vacasa “had been talking to a lot of unhappy
[Plaintiff] customers”; (5) rep led owner to believe “during the first minutes
of the call that he was associated with [Plaintiff] (even though he was not)
before trying to persuade her to leave [Plaintiff] and switch management of
the” home to Vacasa.

Putting aside whether all these statements were falsifiable,
five calls to potential customers, even coming during a short period of time,
wouldn’t typically qualify as the “widespread dissemination within the relevant
industry” seen in false advertising claims. Although Vacasa allegedly had an
actual widespread promotional campaign in the relevant market, Meredith didn’t
allege that those advertisements contained any false or deceptive
representations.

True, “depending on the relative market at issue,
communications made to only one prospective customer may qualify as sufficient
dissemination under the right circumstances.” But the complaint didn’t allege
that the market for managing vacation rental properties was so limited that
communications reaching just five consumers was sufficient. It alleged only
that “there are a finite and relatively low number of homes suitable for short
term vacation rental management in the relevant geographic areas.”  This wasn’t specific and factual enough. The
market for hamburgers is also “finite,” but “a handful of phone calls from
Ronald McDonald himself to potential burger buyers falsely touting the health
benefits of Big Macs would not support a claim for false advertising under the
Lanham Act.” And the complaint also alleged that the relevant market was big
enough to justify both an Oregon Coast headquarters and a Central Oregon
headquarters, as well as “local offices and locally-based staff and support
teams in Bella Beach, Waldport, Depoe Bay, Neskowin, Pacific City, Manzanita,
Seaside, and Sunriver.” Further, the complaint alleged that the market is large
enough that Meredith has “multiple managers to manage negative reviews.” “That
Plaintiff requires multiple managers to respond to negative reviews in a market
with a ‘relatively low number of homes’ appears to confirm that either (1) the
market is larger than argued by Plaintiff or (2) Plaintiff has bigger problems
than Defendant’s allegedly misleading phone calls.” [Yikes.]

If Meredith did replead, the court would consider expedited,
targeted discovery about falsity, but signalled further skepticism by
commenting that “even the Ritz Carlton has guests unhappy with the
accommodations” while suggesting that it would be willing to find falsity if,
when Vacasa made the statements, it lacked knowledge that some of Meredith’s
customers switched to Vacasa over housekeeping concerns. Footnote: The court
also questioned whether it could take judicial notice “of the fact that there
are dozens of reviews online predating the allegedly false statements that take
issue with the cleanliness of properties managed by Plaintiff.” How would you
do that without considering their truth? The court seems to think that went to
reputation for cleanliness: “This is not to say Plaintiff necessarily has a
reputation for uncleanliness. Only that in the vacation rental industry, a
company essentially arguing that it had no reports of uncleanliness appears to
be patently unreasonable. This is akin to a restaurant, no matter how esteemed,
arguing it had never served one customer who walked away unsatisfied.”

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AAA’s expansion to home security derailed by trademark

Posted on September 16, 2021 by rtushnet

AAA Alarm & Security Inc. v. A3 Smart Home LP, 2021 WL 3857417,
No. CV-21-00321-PHX-GMS (D. Ariz. Aug. 30, 2021)

Another expansion case, like the ones Uber has had. AAA
Alarm began in 1985, serving over 8000 customers across Arizona and spending
nearly $200,000 since 2014. In late 2019, AAA Alarm began receiving
“communications from people who believed they were AAA Alarm & Security
customers, but who were actually customers of Defendant.” AAA Alarm documented
over 200 instances, as well as mailed documents and emails directed to A3,
including “three unemployment insurance notices from the Arizona Department of
Economic Security, a request from a fiduciary to modify the terms of her ward’s
service, checks and cancellation notices addressed to Defendant from its
customers, and alarm permits from the City of Phoenix,” as well as false alarm
notices from government entities. 

The American Automobile Association of Northern California,
Nevada, and Utah (that is, the best known AAA) acquired an Arizona security
business, SAFE Security, in late 2018 and changed its name to A3 Smart Home LP.
It began operating under the brands “AAA Smart Home” and “AAA Smart Business.”
A3 Smart Home has approximately 20,000 customers in Arizona.

Who owned AAA for security services? The court found that
AAA Alarm had priority, mostly skipping over secondary meaning. A3’s claim that
security services were within AAA’s natural zone of expansion was too broad:

Defendant’s assertion that it holds
seniority over any service related to security, safety, and the home, stretches
this confusion analysis to breaking point. Indeed, if the American Automobile
Association were permitted to claim seniority in the AAA mark over any product
or service in such broad categories of business, it could protect the AAA mark
in potentially unlimited markets. Defendant entered the Arizona alarm and
security market over 30 years after Plaintiff by purchasing a customer base in
an industry it had not previously occupied.

AAA Alarm made sufficient use over this period, with over
3000 current customers. “This use is sufficiently public so as to identify the
mark in an appropriate segment of the public mind.”

With that out of the way, the multifactor confusion test
clearly favored AAA Alarm, despite the expense of the services. Surprisingly to
me, the court found “AAA” arbitrary “because there is no fundamental connection
between the letters and security services, and the letters offer no description
of the products they are associated with.” I would have thought that the
standard meaning “first” (or at least “first in the phone book”) made AAA
descriptive. But once conceptual strength was set, the court pointed to the
history of AAA Alarm’s advertising and present expenses of over $5000 a year on
search engine optimization. “These advertising expenditures and the arbitrary
nature of the mark support a finding that the mark is strong enough to be
protectable.” In a reverse confusion case, “[t]he relative obscurity of
Plaintiff as a small business does not undermine this conclusion.”

Along with the actual confusion evidence noted above, AAA
Alarm showed “at least one critical customer evaluation posted on the web
concerning Plaintiff that was actually intended for Defendants.” Although a few
misdirected letters may not be relevant confusion that affects consumers’
purchasing decisions, “confusion is not limited to evidence of diverted
customers.” “And Plaintiff demonstrated at the hearing that the first result
for a search for ‘AAA Alarm & Security,’ Plaintiff’s name, is an
advertisement for Defendant’s services.”

Irreparable harm was also shown. “Defendant’s use of the AAA
mark could continue to confuse consumers and diminish the distinctiveness of
Plaintiff’s brand, thereby preventing Plaintiff from controlling its
reputation. Plaintiff presented evidence that personal referrals are a
significant portion of its business.” The likelihood of confusion was itself
irreparable harm, even without considering the TMA’s statutory presumption.
(Comment: In the 9th Circuit, that’s clearly wrong about pre-TMA
law, but it hardly matters except to suggest that many courts were already
desirous of collapsing confusion and harm as inquiries.)

Given that “Defendant entered a market with an existing
smaller business using their desired mark, and either declined to investigate
or chose to ignore Plaintiff’s presence,” the court set a $20,000 bond for the
preliminary injunction.

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9th Circuit: desire to purchase properly labeled product is too abstract for injunctive relief standing

Posted on September 16, 2021 by rtushnet

In re Coca-Cola Products Marketing & Sales Practices
Litig. (No. II), 2021 WL 3878654, No. 20-15742 (9th Cir. Aug. 31,
2021)

The Ninth Circuit limits its injunctive relief standing
jurisprudence in light of TransUnion.

The district court certified a class in a multidistrict
consumer action alleging mislabeling of Coke as having “no artificial flavors.
no preservatives added. since 1886” even though Coke contains phosphoric acid,
and allowed it to pursue injunctive relief.

Under previous circuit precedent, “a previously deceived
consumer may have standing to seek an injunction against false advertising or
labeling, even though the consumer now knows or suspects that the advertising
was false at the time of the original purchase, because the consumer may suffer
an ‘actual and imminent, not conjectural or hypothetical’ threat of future
harm.” The two examples: (1) “she will be unable to rely on the product’s
advertising or labeling in the future, and so will not purchase the product
although she would like to” and (2) “she might purchase the product in the
future, despite the fact it was once marred by false advertising or labeling,
as she may reasonably, but incorrectly, assume the product was improved.”

Here, however, none of the plaintiffs alleged a desire to
“purchase Coke as advertised, that is, free from what they believe to be
artificial flavors or preservatives.” Instead, they alleged that “if Coke were
properly labeled, they would consider purchasing it.” But “such an abstract
interest in compliance with labeling requirements is insufficient, standing
alone, to establish Article III standing,” and merely considering a purchase
isn’t an imminent injury.

Two named plaintiffs specifically “explained that they were
not concerned with phosphoric acid, but rather with whether Coca-Cola was
telling the truth on its product’s labels. Both asserted that they would be
interested in purchasing Coke again if its labels were accurate, regardless of
whether it contained chemical preservatives or artificial flavors.” But that
was no more than alleging “a bare procedural violation,” which isn’t enough for
standing.  As a case quoted by TransUnion
said, “[a]n ‘asserted informational injury that causes no adverse effects
cannot satisfy Article III.’ ” Thus, plaintiffs’ “desire for Coca-Cola to
truthfully label its products, without more, is insufficient to demonstrate
that they have suffered any particularized adverse effects.”

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two “kills 99.9% of germs” cases, divergent results

Posted on September 15, 2021 by rtushnet

Mier
v. CVS Pharmacy, Inc., 2021 WL 1559367, No. SA CV 20-01979-DOC-ADS (C.D. Cal.
Mar. 22, 2021)

Another
pandemic case, this one alleging that CVS’s Advanced Formula Hand Sanitizer
misleads consumers by representing that it kills 99.99% of germs. The front
label read “Kills 99.99% of Germs*.” The asterisk referred to language on the
back label: “*Effective at eliminating 99.99% of many common harmful germs and
bacteria in as little as 15 seconds.” Mier alleged that many types of germs are
not killed by alcohol-based hand sanitizers and that no scientific evidence
supports the claim that alcohol-based hand sanitizers kill 99.99% of all germs.

He
properly alleged an injury in fact, and plausibly alleged misleadingness. This
was not a lack of substantiation claim: Mier alleged the existence of scientific
studies that show that hand sanitizer doesn’t kill 99.99% of all germs, that
certain types of bacteria are becoming alcohol-resistant, and that
alcohol-based hand sanitizers do not kill many non-enveloped viruses, bacterial
spores, and protozoan cysts.

But
would a reasonable consumer, reading the labels as a whole, interpret them to
mean that the product “kill[s] every conceivable disease-causing microorganism”?
The back label couldn’t, for purposes of a motion to dismiss, take away the
alleged falsity of the front. “If anything, as the Plaintiff suggests, the
mention of the Product’s speed and efficiency on the back label may be read as
an additional claim, having the effect of reassuring a consumer of the
Product’s efficacy.” Anyway, reasonable consumers aren’t required to look for
corrections to the front in small print on the back.

There
was also no preemption by the FDCA, despite a lot of regulation of
antimicrobial products. Nothing about the case required interpretation of
federal law or regulation.

Under Sonner,
Mier could seek equitable relief under FAL and UCL to the extent that his
claims are premised on alleged future harm.

Souter v. Edgewell Personal Care Company, — F.Supp.3d —-,
2021 WL 3892670, No. 20-CV-1486 TWR (BLM) (S.D. Cal. Jun. 7, 2021)

Plaintiff alleged that advertising for Wet Ones
misrepresented that the hand wipes kill 99.99 percent of germs and that the
hand wipes are “hypoallergenic” and gentle.” The court dismissed the claims.

For the efficacy representations, plaintiff alleged that the
active ingredient in these hand wipes, benzalkonium chloride, is ineffective
against certain viruses, bacteria, and spores, which comprise more than 0.01
percent of germs and can cause serious diseases. “Some of those diseases
include polio, norovirus, human papillomavirus, picornavirus, crypotosporidium,
and C. difficile,” as well as COVID-19. For the skin safety representations,
plaintiff alleged that the hand wipes contained ingredients that are “known
allergens or skin irritants.”

The court first got rid of defendants’ dumb argument against
standing: that Souter never got sick or suffered skin damage due to the hand
wipes, which of course is not required for constitutional or statutory standing
under the usual California statutes. Likewise, Rule 9(b) was satisfied.

However, the allegations didn’t plausibly plead that a
reasonable consumer would be misled.

Efficacy:

No reasonable consumer would
believe that a hand wipe advertised to kill 99.99 percent of germs would be
effective against the bacteria and viruses that Plaintiff names. For example,
Plaintiff does not explain how or why a reasonable consumer would take a hand
wipe’s representation that it kills 99.99 percent of germs to mean that it
would also be effective against HPV, a sexually transmitted disease, or the
norovirus and polyomavirus, which are food-borne illnesses. It also seems
implausible that a reasonable consumer would believe that a hand wipe would be
effective against polio, a virus that has not had an active case in the United
States since 1979. … If anything, a reasonable consumer would likely suspect
that a hand wipe would be effective against bacteria often found on hands, and
Plaintiff has not alleged how likely these strains of bacteria appear on hands.

Skin safety:

No reasonable consumer would read
“hypoallergenic” and “gentle” to mean that it is completely free of ingredients
that can cause an allergic reaction. … And what is more, a reasonable consumer
may not even think those words suggest anything about the hand wipes’
ingredients as opposed to the hand wipes’ performance. In other words, a
reasonable consumer may take “hypoallergenic” and “gentle” to mean something
about the effect of the hand wipes when applied on the skin—i.e., that it would
not cause skin irritation and be smooth and gentle—regardless of its
ingredients, such as whether they contain skin irritants. Either way,
“hypoallergenic” and “gentle” do not suggest anything about how the hand wipes
may affect the central nervous system, lungs, eyes, kidneys, or the liver, as
Plaintiff argues here.

However, there was no preemption, and the doctrine of
primary jurisdiction didn’t warrant avoiding a decision. As to the latter,
misleadingness is “not a technical area in which the FDA [has] greater
technical expertise than the courts.” As to preemption, the plaintiff wasn’t
asking the court to impose additional labeling requirements, but challenging
the present label as misleading.

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LinkedIn posts weren’t commercial advertising or promotion for pediatric orthopedics

Posted on September 15, 2021 by rtushnet

Orthopediatrics Corp. v. Wishbone Medical, Inc., No.
3:20-CV-929 JD, 2021 WL 3887243 (N.D. Ind. Aug. 31, 2021)

Plaintiffs “have an interest in a patented computer program
that allows medical professionals to more easily determine the correct way to
position bones for optimal healing after orthopedic procedures.” They alleged
that defendants copied the program and infringed the patent, as well as engaged
in a smear campaign against plaintiffs in an effort to steal market share in
the pediatric orthopedic industry. I’m only going to discuss the false
advertising aspects.

There is an ongoing, separate litigation about ownership of
the relevant patent; plaintiffs alleged that the two inventors assigned the
patent to plaintiff Orthex. Defendants allege that one inventor was
contractually bound to disclose and assign to a separate entity any patent he
received related to his work on the idea. There was ongoing litigation in
Florida in which that entity, IMED, was suing the inventor and two of the
instant plaintiffs over the alleged breach.

Plaintiffs alleged that Wishbone employees—including a
former OrthoPediatrics employee—engaged in a smear campaign mostly on FB and
LinkedIn, including by sharing “articles and reports on the ongoing Florida
state court case and another Indiana state court case OrthoPediatrics brought
against Wishbone and a former employee.” When one employee shared an article
about the Indiana state court litigation, Wishbone’s COO/Secretray/Treasurer
commented on the post “suggesting that OrthoPediatrics was following former
employees in an effort to ruin their lives.” The poster added a comment of his
own stating “[t]he only way [OrthoPediatrics] can compete is to constantly
harass us with lawsuits. It is sad.” In another comment, he stated that
OrthoPediatrics had been bullying Wishbone for years and that the company was
engaged in “evil behavior.” And in another LinkedIn post, he wrote comments
that were supportive of the claim that OrthoPediatrics had stolen the patent
and suggested that OrthoPediatrics’ actions in doing so were “just the tip of
the iceberg.”

First, the court found that the litigation privilege—if it
applied to the various claims at issue—would not cover these statements, which
were too remote from actual litigation. Social media posts “sharing articles
about the state cases and by offering their own, often negative, statements as
to what the litigation says about OrthoPediatrics as a company” would not be
covered, nor would the other communications alleged in the complaint (an email
saying the employee’s “goal with litigation was to put pressure on
OrthoPediatrics’s stock price” and “very general allegations” that Wishbone
contacted current and potential OrthoPediatrics customers to spread
misinformation):

The Defendants have not presented,
and the Court has not found, any case that has extended the litigation
privilege to statements like those at issue here, which at best have a barely
tangential connection to the actual proceedings of the ongoing litigation.
Additionally, there is no evidence that protecting these social media posts and
other communications, even those that are arguably commenting on the ongoing
litigation, would serve the recognized purpose of the privilege to protect free
expression that is integral to the judicial system’s functioning.

Lanham Act claim: Were these alleged statements commercial
advertising or promotion? The answer depends on industry practice. “There is
also no requirement that the communication be broadly distributed to the
public, just that there be some public dissemination as opposed to, for
example, simply person-to-person correspondence.” Although the Seventh Circuit
hasn’t adopted Gordon & Breach, the court looked to that test for
guidance as well. Taken together, the complaint didn’t plausibly allege
commercial advertising or promotion.

First, the court wasn’t convinced that the social media
posts or other alleged statements were commercial speech. (This seems
dodgy—they have the usual obvious economic interest of competitors.) The
statements didn’t themselves propose a commercial transaction. They didn’t
advertise any alternative or promote a specific product. Although one could “infer
a possible economic motivation for a subset of the social media posts,” there
was “no evidence to suggest that the posts were broadly disseminated to consumers
or that they had any economic impact.”

More persuasively, even if this was commercial speech,
plaintiffs failed to plead facts showing that the statements were made to
influence consumers or were disseminated to the relevant purchasing public
within the pediatric orthopedic industry. Plaintiffs never alleged that “social
media is a place where potential customers in the pediatric orthopedics space
go to receive information about companies and products.”

And finally, plaintiffs didn’t adequately allege
materiality. Vague allegations of reputational harm didn’t make clear that the
reputational harm was in the eyes of consumers or that the communications
actually translated to any lost sales or other economic harm.

Defamation: Plaintiffs failed to allege malice, even in a
conclusory way.

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Weight Watchers’ pandemic termination of in-person services didn’t violate consumer protection law

Posted on September 15, 2021 by rtushnet

Quintanilla v. WW Int’l, Inc., 2021 WL 2077935, No. 20 Civ.
6261 (PAE) (S.D.N.Y. May 24, 2021)

Weight Watchers shut down in-person services due to the
pandemic. Quintanilla alleged that WW’s cancellation of in-person services, and
transition of its workshop services online, without issuing refunds or any
reduction in membership fees, violated the usual California consumer-protection
statutes and constituted breach of contract, unjust enrichment, and money had
and received.

WW offered three types of subscription-based memberships:
(1) the Digital Membership, which provided access only to WW’s website and app;
(2) the Workshop + Digital Membership, which added weekly in-person group
workshops led by a WW coach; and (3) the Personal Coaching + Digital
Membership, which added one-on-one personal coaching.

Quintanilla alleged that she chose the Workshop + Digital
Membership “in part, because she wanted to participate in the weekly in-person
support meetings.” WW’s T&C state that “[i]n [WW]’s sole discretion and
without prior notice or liability, we may discontinue or modify any aspect of
the Offerings.”

While Quintanilla had standing to claim damages, she lacked
standing to seek injunctive relief. Her continued subscription couldn’t
manufacture standing now that she knew the truth. She “ ‘will not again be
under the illusion’ that WW would maintain in-person workshops, else sua sponte
reduce prices or issue refunds, during this, or a future, pandemic.”

California consumer protection claims: WW argued that no
reasonable consumer would have taken any statements by WW about its in-person
workshops to mean that “WW would never, even faced with a once-in-a-century
pandemic, modify the in-person aspect of those workshops,” especially given its
terms of service. 

The court agreed with WW. “[N]o reasonable consumer could
have understood such representations to mean that WW promised to keep offering
such services even in the face of a deadly pandemic, and in defiance of
dictates of the civil authorities.”  The
terms of service bolstered this conclusion, reserving the right to modify
services, and would have disabused a reasonable consumer who’d believed otherwise.
(Are reasonable consumers required to read the entire terms of service?) The
T&C also allowed Quintanilla to cancel her membership and seek a refund in
the event of, inter alia, “a Workshop closure.” But she didn’t do so, and WW’s
failure to sua sponte issue a refund was not wrongful.

The breach of contract claim
also failed “for the straightforward reason that her contract with WW does not
mention, let alone promise, in-person workshops.”

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acrimony among right-wing pundits isn’t commercial advertising or promotion

Posted on September 15, 2021 by rtushnet

Corsi v. InfoWars, LLC, 2021 WL 2115272, No. A-20-CV-298-LY
(W.D. Tex. May 25, 2021) (R&R)

This is a defamation case with a Lanham Act chunk. The
parties are various right-wing public figures. Plaintiffs alleged that, in
InfoWars videos, Alex Jones made false claims that Corsi “seemed to be
extremely mentally degraded to the point of … dementia,” had a stroke, and
does not tell the truth, and Roger Stone falsely stated that Corsi was fired
from a prior job, is an alcoholic, often lies, is willing to perjure himself,
and is a “deep state” operative and a “fraud” who seeks to make political
conservatives look bad. Stone also allegedly attacked plaintiff Larry Klayman’s
reputation, stating that Klayman “could be the single worst lawyer in America,”
has “never actually won a courtroom victory in his life,” and is an “idiot” and
an “egomaniac.”

Plaintiffs alleged that they were competitors of defendants
“as conservative media personalities, broadcasters, authors and columnists on
social media and elsewhere.”

Dealing only with the Lanham Act claims: Plaintiffs’ alleged
injuries didn’t fall within the Lanham Act’s zone of interests. As other courts
have held, “[t]he mere fact that the parties may compete in the marketplace of
ideas is not sufficient to invoke the Lanham Act.” This was not commercial
advertising or promotion, but rather “expressions of opinions as commentary
during a radio show.” (Is failure of the defendant to engage in commercial
advertising or promotion really the same thing as failure of the plaintiff to
allege that it falls within the statute’s zone of interests? Doesn’t matter a
lot, but the court does seem to conflate them.)

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legal memo to existing customers wasn’t “commercial advertising or promotion”

Posted on September 14, 2021 by rtushnet

IHS
Global Ltd. v. Trade Data Monitor, LLC, 2021 WL 2134909, No. 2:18-cv-01025-DCN
(D.S.C. May 21, 2021)

A
trade secret/similar case in which IHS owns a database called Global Trade
Atlas, which it acquired from the people who founded defendants, and you can
basically guess what happened next.

The
false advertising counterclaim arose from a legal memo that IHS sent to
customers who had been contacted by two people on behalf of defendant TDM:

We
understand that you have been contacted by Trade Data Monitor offering an
equivalent service to the Global Trade Atlas. As you may be aware TDM is a
business owned by an individual who sold the GTI business (including the GTA)
to IHS, and TDM also employs a number of former colleagues of IHS [ ]. I’d like
to make you aware that for a number of reasons we have commenced proceedings
against TDM to protect our proprietary and other rights. Notwithstanding any
proceedings we bring against TDM, we remain committed to support you and all of
our GTA customers and to the long-term development of the Global Trade Atlas.

This
wasn’t “commercial advertising or promotion” because, first, it was sent to
only 9 customers, less than 1% of customers, and communicating with “such a
minuscule subset of the relevant market can hardly comprise a ‘sufficient[ ]
disseminat[ion] to the relevant purchasing public.’” Second, the memo was not
“part of an organized campaign to penetrate the relevant market.” It was “a
responsive communication to existing customers” rather than “an active
advertisement intended to penetrate a market.”

Nor
did the memo breach the nondisparagement clause in the parties’ contract. It
didn’t “unjustly discredit” the principal or “detract” from his reputation; it
didn’t even say that defendants violated the law or breached a contract.

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