“tested” can misleadingly imply high performance on test

Posted on September 13, 2021 by rtushnet

Carder v. Graco Children’s Products, Inc., — F.Supp.3d
—-, 2021 WL 3909953, No. 2:20-CV-00137-LMM (N.D. Ga. Aug. 31, 2021)

Plaintiffs from fifteen states alleged that Graco made false
and misleading representations about two models of children’s car seats,
specifically marketing them as being (1) “side-impact tested” and (2) safe for
children as small as thirty pounds and as young as three years old. Graco
allegedly knew since 2002 that the seats didn’t appreciably reduce the risks
associated with side-impact collisions (and that there are no federal safety
standards for side-impact testing); that Graco’s own testing didn’t show that
the seats were safe in side-impact collisions; and that the seats weren’t safe
for children under forty pounds or younger than four years old.

A couple of points: The claims didn’t fail under Rule 9(b)
even though some plaintiffs didn’t plead the exact model they purchased or the
exact time, date, and price of their purchases; those details aren’t required
to satisfy Rule 9(b), which requires specificity about “the particulars of the
allegedly misleading statement itself, not .. the circumstances of the
plaintiff’s conduct in reliance on that statement.”

Could the advertising mislead a reasonable consumer? Graco
argued that its statements were true, but the court accepted that, “at the very
least, reasonable consumers could believe that Booster Seats advertised and
represented as ‘side-impact tested’ would offer appreciably increased safety in
side-impact collisions.” And plaintiffs alleged that they didn’t. Even
accepting that “side-impact tested” was literally true, it could still mislead
a reasonable consumer. [Cue XKCD reference.]

There’s a lot of discussion of various state consumer
protection acts. As to state safe harbor provisions, Graco argued that its
seats complied with federal safety standards set by the National Highway Traffic
Safety Administration, but its alleged conduct (stating that the seats were
safe for kids under forty pounds) was neither “required” or “specifically
permitted” by NHTSA. Manufacturers are required to use a label stating a
recommendation for maximum and minimum child sizes, with a lower bound
prohibiting booster seats for kids under 13.6 kg, but it is left to
manufacturers “to determine what that specific safety recommendation should be.”
And NHTSA prohibits misleading labels or instructions, so if “side-impact
tested” misleadingly suggested that the seats offered increased safety in
side-impact collisions, this representation would violate federal rules rather
than complying with them.

However, claims for injunctive relief under Illinois law
failed because plaintiffs didn’t allege an intent to repurchase the seats.

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Reading list: The Confusion Test in European Trade Mark Law

Posted on September 13, 2021 by rtushnet

Ilanah Fhima & Dev S. Gangjee, The Confusion Test in
European Trade Mark Law (2019)

A very helpful overview. From a US perspective, offers real
insights into how a system of registration primacy differs from a system of use
primacy. A couple of points that I specifically noted: the authors conclude,
based on “a substantial number of cases,” that courts that consider similarity
of marks first are more likely to find confusion. “This is because once the
tribunal has invested the effort in conducting the highly case-specific
comparison of the marks and found them to be similar, it is less likely to
dismiss confusion based on the comparatively formalistic comparison of goods. On
the other hand, if goods are considered first, it is easier to place more
reliance on this element of the test without having one’s perception clouded by
the work done to compare the marks.” I’m not sure one could say the same about
US cases.

It’s also striking how comparatively little distinctiveness
of the mark, or of shared elements of the parties’ marks, matters in the
European analysis versus US analysis, which is more likely to give a narrower
scope to a weaker mark. (Both approaches give broader scope to especially
strong marks, but European cases seem less willing to do the inverse.) That may
be something that relates to use-based versus registration-based approaches. As
the authors report, an analysis of European General Court decisions found “that
the distinctiveness of the senior mark had very little if any bearing on the
outcome of cases” and “visual similarity of marks played the greatest role in
assessing similarity of marks.” (As they note later, visual similarity may loom
larger in Europe because of language differences—for those who don’t understand
the meaning of a word in another language, conceptual similarity doesn’t really
matter.)

Unlike US cases, in Europe, distinctiveness (or relative
lack thereof) “cannot override the importance of similarity of marks and of
goods,” and the court often rests on similarity of marks and goods only,
wihtout reaching any result on “what the mark’s level of distinctiveness
actually was.” Language differences also inform this result: even where the
majority of EU languages would consider a common element to be descriptive, if
some might not, the doctrine indicates that people who used those languages
would perceive greater similarity and therefore face a greater likelihood of
confusion. As the authors conclude, “[t]he undesirable consequence of this
approach to global appreciation is to grant a broad legal monopoly to ‘weak’
marks.” The CJEU shows the greatest favoritism to weak marks, whereas the
EUIPO, national registries, and national courts “are more sceptical and seek to
narrow the scope of protection for such marks.”

Also, some useful statistics: As of mid-2018, “shapes or
three-dimensional marks constituted 0.55% (10,279) of EUTM applications and
0.41% (6,231) of registrations, while pure colours constituted 0.01% (104) of
EUTM applications and 0.01% (95) of registrations.” And I appreciated the point
that “the most revealing indicator of the commercial significance of colour and
external packaging marks is the extent to which the tobacco industry has sought
to preserve them” in its pitched battle against plain packaging requirements.

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tortious interference claim from false advertising survives, but why bother?

Posted on September 10, 2021 by rtushnet

Logistick, Inc. v. AB Airbags, Inc., — F.Supp.3d —-,
2021 WL 2433944, No. 3:21-cv-00151-BEN-MDD (S.D. Cal. Jun. 15, 2021)

Logistick sells disposable load bars which are used to
secure cargo freight during transport. AB allegedly began advertising for a
similar product, claiming that its load bars have “30% more Holding Power than
similar Disposable Load Bars,” allegedly an admitted reference to Logistick. AB
allegedly acquired one of its older products and performed faulty testing on
the load bars in order to incorrectly claim that its product has 30% more
holding power.

Here, AB moved to dismiss the negligent interference with
prospective economic relations claim, and didn’t succeed. The tort requires (1)
the existence of a valid economic relationship between the plaintiff and a
third party containing the probability of future economic benefit to the plaintiff;
(2) the defendant’s knowledge (actual or construed) of (a) the relationship and
(b) that the relationship would be disrupted if the defendant failed to act
with reasonable care; (3) the defendant’s failure to act with reasonable care;
(4) actual disruption of the relationship; and (5) resulting economic harm.

AB argued that its ad never mentioned or referenced
Logistick, so it couldn’t interfere with Logistick’s business. Further, it
argued, Logistick basically just recited the elements about future
relationships and knowledge. Although that seems right to me, the court
disagreed.

Courts have held that a tortious interference claim that
rests on “a hope of future transactions” is insufficient to support a claim of
tortious interference. But here it was sufficient to allege that “Plaintiff had
an ongoing business relationship with John Doe customers that probably would
have resulted in a future economic benefit to Plaintiff,” and “Defendant knew
or should have known of this relationship between Plaintiff and John Doe
customers,” at least where “the Complaint confirms that Plaintiff will disclose
the customers’ names upon the entry of a protective order.” The facts were
specific enough to put “the defendant on notice that a third-party, indeed,
existed.”

Plaintiff also sufficiently alleged knowledge by alleging
that “Defendant knew or should have known of this relationship between
Plaintiff and John Doe customers.” As a direct competitor, it knew or should
have known of these relationships when it engaged in comparative advertising
referencing Logistick’s product.

Likewise, Logistick plausibly alleged that AB knew or should
have known that its relationships would be disrupted, even without alleging
that any third party saw the ads. And it plausibly alleged actual disruption in
its relationships causing economic harm by alleging pretty much that. “[G]iven
both parties were competitors, it is reasonable to infer that an allegedly
false statement based on allegedly faulty testing comparing Defendant’s product
with ‘similar products,’ could damage competitors, like Plaintiff.”

The court did express doubt about whether these claims would
survive summary judgment. Comment: I often tell students that, absent
individually negotiated contracts for six figures or more, tortious
interference claims just run up the lawyers’ bills. This case does not convince
me otherwise.

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expert admissibility, literal falsity receive close review in drug disposal case

Posted on September 10, 2021 by rtushnet

In re C2R Global Manufacturing, Inc., No. 18-30182-beh,
2021 WL 1347193 (E.D. Wis. Bkrcy. Mar. 30, 2021)

Previous denial
of injunctive relief. There are a number of opinions in
this case—the judge spent time on this rather unusual false advertising
analysis in a bankruptcy case, including taking care with the expert evidence.
I’m only going to discuss a few highlights, but it makes useful reading for
those seeking a review of case law on admissibility for experts in false
advertising cases.

The parties compete in the market for drug disposal
devices. Plaintiff Verde designated its current CEO, Sundby, as a non-retained
expert witness. C2R sought to exclude his testimony with respect to any
opinions about “consumer perceptions,” that is to say, consumers’ mental
impressions when presented with C2R’s advertisements, including how consumers
are likely to interpret those advertisements, whether the advertisements are
likely to confuse or deceive consumers, and whether consumers are likely to
rely on the advertisements in making purchasing decisions. Examples from his
declaration: “[C]ustomers rely and depend on drug deactivation products to
actually deactivate the pills and tablets that the products are advertised as
being able to deactivate.” “[T]he drug-deactivation market as a whole is harmed
by C2R’s continued misrepresentations regarding the Rx Destroyer™ product
capacity” because “when C2R advertises a product using activated carbon that
does not work as represented, that casts doubt on all products using activated
carbon” and “customers lose faith that any products are capable of deactivating
medications as advertised.” “Cost is a central factor in the purchasing
decision and it is directly related to the capacity of the products available
to the customer.” “As a result”—because consumers read C2R’s capacity
advertisements to indicate that Rx Destroyer products deactivate medication at
a lower price-per-pill than the Deterra system—“consumers choose to purchase RX
Destroyer™ rather than Deterra.”

The court granted C2R’s motion in part, and reserved
ruling on the remainder until trial, which would be to the bench, making the Daubert
motion more of a matter of allowing the parties to prepare for trial more
efficiently than of protecting a jury.

Sundby had expertise in the drug disposal industry.
Lanham Act cases (primarily trademark and trade dress infringement cases) have
“excluded expert opinions on customer perception—opinions such as what a word
in an advertisement means, whether customers are (or are not) likely to be
misled or confused by advertising, and whether customers would recognize a
party’s trade dress—when the expert was an industry expert, but not a
perception expert, and therefore did not base his or her opinion on a valid
consumer survey or similar empirical data.”

Verde rejoined that an expert need not conduct consumer
surveys or consumer market research before offering any opinions related to
customer reliance or perceptions. While this is true, it doesn’t mean that “an
expert may offer his own opinions about likely consumer deception or consumer
mental impressions in place of a properly conducted consumer survey.” Verde
argued that surveys/market research were less relevant  “where the customers at issue are not
predominantly individual consumers,” but instead are organizations and
institutions who make purchasing decisions through businesspeople, nurses,
doctors, pharmacists, and public health professionals. But the case law is to
the contrary. It is true that an expert can be qualified purely based on
experience in the industry, but that didn’t mean Sundby could testify about
everything. He wasn’t the same as a consumer or dealer testifying about their
own deception.

Thus, Sundby was not qualified to offer opinions on
consumer perceptions— “opinions typically offered by experts with training and
experience in conducting and interpreting consumer surveys.” This covered at
least his statements that C2R’s capacity overstatements led consumers to think
that C2R’s product had a lower price per pill than Verde’s system, and that “as
a result,” consumers chose the former over the latter. “Both of these
assumptions involve predictions about a consumer’s thoughts and impressions
after reviewing C2R’s advertisements—in other words, how consumers perceive the
statements at issue in this litigation.” However, the other statements in the
declaration were about the effect of false advertising on the drug deactivation
market in general (and Verde in particular), and product features relevant to
customer purchasing decisions. “Sundby’s lack of expertise in consumer
perceptions or behavioral linguistics is not, by itself, a reason to exclude
these additional opinions.” (Note that the second—what’s material to consumers—is
a matter of consumer reaction, but one that people in the industry might be
particularly able to know in general.)

Similar analysis applied to the reliability of his
opinions:

Sundby can testify about his own experiences with
customers over the years—provided such testimony is not inadmissible for other
reasons—but Verde has not persuaded the Court that any opinions Sundby intends
to offer about the likely thoughts or perceptions of Verde’s target consumers
are sufficiently reliable to be admitted. To the extent Sundby intends to rely
on his “industry experience” rather than a consumer survey to opine on likely
consumer perceptions—and, more particularly, that consumers in general would
interpret “capacity” in C2R’s advertisements to mean “capacity to deactivate”
and, as a result, would be more inclined to purchase C2R’s products over the
competition—Sundby has not adequately explained why his chosen methodology
(apparently based on experience including conversations with others in the
industry) is appropriate or reliable.

Sundby could offer testimony “on subsidiary factual
issues relevant to the question of deception, such as typical advertising and
marketing channels in the industry, the types of consumers in the target
market, the sales process, and other circumstances helpful to providing a full
context for the advertising at issue—provided that Sundby is able to lay a
proper foundation for such testimony at trial.” For the same reasons, he could
testify on the effect of false advertising on the drug deactivation market, or
product features relevant to customer purchasing decisions, at least for now
and subject to cross-examination.

Nor could Sundby offer the excluded testimony as lay
testimony, because that would exceed the scope of his personal perceptions. He
could, however, offer “specific examples of consumer deception that he has
witnessed” along with the admissible testimony described above, if given a
proper foundation. 

In re C2R Global Manufacturing, Inc., No.
18-30182-beh, 2021 WL 1347160 (E.D. Wis. Bkrcy. Mar. 30, 2021)

Here, Verde won partial summary judgment on the
literal falsity of certain capacity statements about its competitor’s drug
disposal product. 

C2R’s advertisements claimed that the Rx Destroyer
“destroys” and “[d]issolves, adsorbs, and neutralizes” medications. C2R also
advertised that its products meet DEA disposal standards by making drugs
“scientifically irretrievable.” And it advertised specific pill capacities by
size, though sometimes with asterisks saying this was approximate. Its capacity
claims were based on calculations and other tests of activated carbon in the
medical literature, not on actual testing with pharmaceuticals, which it deemed
impractical given the variety out there. Unfortunately, its expert’s
calculations assumed that the products contained more activated carbon than
they actually do, and plaintiff Verde had a number of other criticisms. Verde’s
Director of R&D also conducted multiple tests of C2R’s products using
different drugs and concluded that they were “incapable of deactivating
medications up to their capacity claims.” After litigation began, C2R also
retained another expert, whose tests showed varying levels of adsorption, but
who also concluded that there were other deactivating ingredients in the
products besides activated carbon.

C2R also posted a document on its website appearing
to summarize the results of a test conducted on C2R’s NarcGone product, by an
unidentified lab described only as DEA-certified. According to this one-page
summary, “Based upon 5 grams methamphetamine, 65% adsorbed in 2 hours, 86%
adsorbed in 24 hours, 94% adsorbed in 4 days and 100% in 7 days.” C2R omitted
additional test results: “When 12.5 grams of methamphetamine was added 70% was
absorbed in 7 days.” When relevant witnesses were questioned, C2R was not able
to provide additional detail about the testing.

Verde argued that the challenged advertisements
conveyed the message that C2R’s products had the capacity to deactivate or
neutralize approximate amounts of medication and that this deactivation or
neutralization was accomplished by adsorption to activated carbon, regardless
of the medication placed inside—that is, regardless of whether a given sized
pill contained 5 mg of drug or 200 mg. C2R instead argued that its ads conveyed
that its products render approximately the stated number of pills “safe for
disposal” (not fully deactivated) using a variety of mechanisms, activated
carbon adsorption being one. Some of its advertisements—not all of which
contained “capacity” representations—stated that the products contain, and
operate using, more than just activated carbon. So, C2R said, its ads were
ambiguous about what they did. C2R argued that its ads were also ambiguous
about pill size, and that it was more plausible to read the capacity representations
as referencing 5 mg or 30 mg tablets, rather than 200 mg tablets. Its pre-suit
expert made assumptions based on 5 mg and 30 mg pill sizes, and his
calculations were linked on its website and sent to customers with C2R’s
advertising.

The court agreed with Verde that some of the ads
relied on claims about the activated carbon alone, not the accompanying liquid,
but not all the ads. As for pill size, the evidence didn’t show that the
expert’s assumptions about pill size were conveyed with each ad, and even if a
link to those assumptions were provided, “it would be insufficient to change
the plain language of the advertisements at issue—particularly the former
‘Q&A’ webpage, which expressly states that ‘[c]apacity [is] based upon
200mg Advil™ tablet[s].’” C2R used to advertise that “[c]ombinations of
medications added to the Rx Destroyer are limitless.” “C2R now wants to walk
back the unqualified language of its advertisements, urging the Court to find
its message equivocal…. That the statement at issue is broad—and not limited to
pill sizes of 30 mg or less, as C2R now may wish it were—does not make it
ambiguous.”

However, ads about pill “capacity” or how much a
product “holds” were more ambiguous, since the ads didn’t explicitly define
capacity or hold to mean ability to adsorb/deactivate. But did they necessarily
imply adsorption/deactivation? The Seventh Circuit has neither adopted or
repudiated the doctrine. [I’d say that by emphasizing what an ad means to any
“linguistically competent” person, it has adopted the doctrine, but sure.] The
doctrine has never been rejected by any other court of appeals, and is readily
used in district courts around the country. The court here would use it, but
carefully: there must be no more than one plausible reading for necessary
implication to apply.

Relevant considerations include the surrounding
context, which includes the nature of the business at issue and the product
being sold. (Citing Avis Rent A Car System, Inc. v. Hertz Corp., 782 F.2d 381
(2d Cir. 1986), for the nature-of-the-business/product factors; that case
wasn’t explicitly a necessary implication case, but falsity of the claim “Hertz
has more new cars than Avis has new cars” did turn on whether you counted only
cars for rent or also counted cars that were available for sale after their
rental lives ended.)

“Here, the text of the advertisements that surrounds
the ‘capacity claims,’ as well as the nature and purpose of the Rx Destroyer
products, provide relevant context for the Court’s analysis.” The court
concluded that, with respect to one webpages, “[t]he clarity of the statement
of purpose, combined with the statement of capacity (using the word ‘hold’),
conveys the single message that the product will perform its advertised
function—neutralization and adsorption of active medication ingredients by
activated carbon—up to the stated capacity.” Nothing in the ad suggested that
“hold” meant, for example, mere storage—in context, it meant neutralization.
Other pages/flyers weren’t quite as clear.

Verde didn’t show that consumers would see the flyers
together with other C2R ads. Nor has Verde offered any evidence of the nature
and sophistication (or lack thereof) of the “audience to which the statement[s]
[are] addressed.” Thus, the court wouldn’t assume or infer that consumers
reading the flyers would go to the website and learn more that would put the
pieces together for them—not for literal falsity by necessary implication.

Were those literal messages false?  The initial predictive model “cannot prove or
disprove the falsity of C2R’s capacity claims; they merely predict, rather than
measure, the actual performance of the Rx Destroyer products.” So his
predictions wouldn’t allow a reasonable factfinder to find that the products
do, in fact, have the represented capacities. In a footnote, the court
commented that it would be different if the ads had included an express
disclaimer within the body of the advertisement, e.g., “product capacity
numbers are based on theoretical modeling performed by Dr. Henry Nowicki, in
which he predicts adsorptive capacity of the Rx Destroyer carbon based on pills
of up to 30 mg.”

However, it wasn’t enough for summary judgment that Sudafed
and Claritin tests showed deactivation levels of only 59% and 68%,
respectively. These two tests standing alone weren’t enough when other (hotly
contested) test results of ibuprofen, Advil, and aspirin showed 90%
deactivation.

It was concerning that the math showed that there
wasn’t enough carbon to adsorb the advertised pill capacity when using 200mg
pills, which was one of the pill sizes C2R chose to advertise. Still, there
wasn’t literal falsity. (I really don’t see why the 200mg claim wasn’t
literally false.)

Lesson: Even strong claims can fail to win summary
judgment.

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slack fill and “healthy” claims unite in one case

Posted on September 10, 2021 by rtushnet

Stewart
v. Kodiak Cakes, LLC, 2021 WL 1698695, No. 19-cv-2454-MMA (MSB) (S.D. Cal. Apr.
29, 2021)

Plaintiffs
alleged that Kodiak was liable for “(1) non-functional slack fill and (2)
deceptive marketing practices” for its pancake and waffle mixes.

Defendant
misleadingly labels and advertises its products as having “no preservatives” as
well as being “free of artificial additives,” “non-GMO,” “healthy,” and
“protein-packed.”

After
deciding that it would consider marketing material incorporated by reference
into the complaint and dismissing nationwide/out-of-state class claims, the
court turned to the request for injunctive relief. Here, plaintiffs mostly
lacked standing because they could tell from the box whether the slack fill
amount/quantity or box size had changed, so they wouldn’t be fooled again by
the inability to rely on the package. As for the allegedly deceptive marketing,
they could check the ingredients to see if the products still contain
preservatives; artificial additives; unhealthy levels of fat, cholesterol,
sugar, and vitamins; or insufficient protein. However, they did have a
continuing injury of being unable to rely upon “non-GMO” marketing statements
in deciding whether to buy the product in the future.

For
representations not made on the product packaging, most plaintiffs didn’t
sufficiently allege reliance, though one plaintiff did plausibly plead reliance
on the “healthy” statement on the online store.

The
parties argued over whether a reasonable consumer could rely on the size of a
box instead of weight, price per ounce, serving sizes, and final product output
listed on the box, especially if they were buying online. Plaintiffs pointed
out that Kodiak didn’t argue that its slack fill was functional and argued that
a baking mix that requires cooking is more susceptible to deception than other
things. The complaint included a picture comparing the opaque exterior box next
to a clear interior sealed bag containing the product mix—and using a ruler to
show the difference. The exterior box was roughly nine inches tall, the
interior bag was about eight-and-a-half inches tall, and the content of the bag
was under four inches tall. They alleged that competitors sell products with
“significantly more product” than Defendant, which “lead[s] consumers to the
reasonable assumption that [Defendant’s products] contain the same amount of
mix.” For example, one Kodiak package contains 12.7 ounces of product while a
similarly sized competing product contains 32 ounces of products.

Courts
have divided on similar slack fill claims. Though many have found that disclosure
of number of servings defeats deception, others have reasoned that, e.g.,

a
reasonable consumer is not necessarily aware of a product’s weight or volume
and how that weight or volume correlates to the product’s size. In other words,
the fact that the Products’ packaging accurately indicated that a consumer
would receive 141 grams or 5 ounces of candy does not, on its own, indicate to
a reasonable consumer that the Products’ box may not be full of candy and that,
instead, 35.7% of the box is empty. Rather, a reasonable consumer may believe
that 141 grams or five ounces of candy is equivalent to an amount approximately
the size of the Products’ box.

The
underlying question is something like: Do reasonable consumers know “how much”
five ounces really is, in the abstract, if they don’t have something like “X
Oreos” to compare it to?

The
court here concluded: “Substantial, nonfunctional empty space may be a factor
that could plausibly mislead a reasonable consumer.” Further:

The
reasonable consumer does not don Sherlock Holmes garb to scrutinize an entire
aisle filled with shelves of a various pancakes by comparing the exact weight
of each box’s content with the price across a dozen brands or shaking and
manipulating each box to detect the nature of the hidden culinary treasure.
Although consumers take into consideration certain labels and information
provided on the packaging, consumers plausibly do not perform intense
word-by-word detective work for each product they toss in their shopping cart.
To some degree, “consumers may reasonably rely on the size of the packaging and
believe that it accurately reflects the amount she is purchasing.”

Still,
reasonable consumers also consult serving size and product yield information.

So
what to do? Baking mix wasn’t part of a high-end market where large and weighty
packages are expected, and plaintiffs’ allegations suggested that empty space
in pancake packaging is not the market norm. And while some of the labels
stated the final product yield, “other labels only provide serving size in
cylindrical cups and list an approximate number of those servings per container.”
At this stage, it was plausible that “the reasonable consumer is unlikely to
convert cylindrical cups plus other ingredients into the approximate product
yield of the finished pancakes, waffles, or other baked goods.”

What
about online purchases? This argument failed because the slack fill allegedly
violated the California Fair Packaging and Labeling Act, and thus formed the
basis for unlawfulness UCL violations, and because, even online, consumers
could plausibly rely on the online product’s picture—without a measure of
reference—to assume that the container’s size bears some relation to amount of
its contents. As to online purchases, the CFPLA provides that there is no
nonfunctional slack fill where “[t]he mode of commerce does not allow the
consumer to view or handle the physical container or product.” But it also says
that, if it doesn’t impose the same requirements as the relevant section of the
FDCA/its regulations governing slack fill, then the federal requirements are
incorporated instead. The federal rules don’t distinguish between modes of
commerce, so the CFPLA doesn’t either.

The
court also rejected Kodiak’s argument that the CLRA claim had to be dismissed
as to the slack fill theory because the CLRA requires a representation and
slack fill is not a representation. “Construing the CLRA liberally as required
by statute, the Court finds that exaggerated box size and slack fill
allegations can form the basis for a CLRA claim.”

Thus,
the result was split: plaintiffs plausibly alleged deception where the
packaging didn’t provide information about final output, but didn’t plausibly
allege deception where it did.

Likewise,
various ingredient claims survived, though the court was skeptical “how
consumers of baking products would be misled by the presence of [allegedly
artificial additive or preservative] leavening agents.” However, plaintiffs
didn’t define “non-GMO” or provide further allegations to assess whether the
challenged ingredients were plausibly genetically modified or how a reasonable
consumer would be misled.

And,
in context, “healthy” wasn’t necessarily puffery used to describe a muffin mix,
but reasonable consumer wouldn’t be misled by the “Healthy Living on a Budget”
blog post that stated, “[b]ut now that the kids are back in school, it’s even
more important to have a healthy breakfast every morning.” “The paragraph
merely provides generalizations of breakfast and does not mention Defendant’s
products.” Likewise, a reasonable person would not find “protein-packed” to be
misleading. The grams of protein were listed clearly on the front of the box, and
if there were any remaining uncertainty, the nutrition facts label would dispel
it (as opposed to correcting a falsehood, which the nutrition facts can’t do).

Did Sonner
preclude all equitable claims? Not to the extent that plaintiffs showed future
harm; having standing to seek injunctive relief also meant lacking an adequate
remedy at law to at least some degree. And, unlike in Sonner, the
plaintiffs weren’t “pursuing equitable remedies to the exclusion of a remedy at
law,” so the court declined to dismiss the equitable claims at this time.

 

 

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getting friends to leave fake reviews isn’t enough for direct liability

Posted on September 10, 2021 by rtushnet

BHRS Gp.,
LLC v. Brio Water Technol. Inc., 2020 WL 9422352, No. 2:20-CV-07652-JWH-JCx
(C.D. Cal. Dec. 14, 2020)

BHRS,
which makes water cooler products, sued its competitor Brio for state and
federal false advertising and trade libel.  BHRS alleged that studies showed that online
product reviews, especially Amazon reviews, have a significant impact on
consumer decision-making. BHRS alleged that multiple customers who posted
negative Amazon reviews of BHRS products and positive reviews of Brio products are
connected (through social media, family, school, or geographic location) to
individuals in Brio’s management and other individuals employed by Brio.

Reflecting
the continuing confusion in the courts about fake reviews, the court dismissed
the claims.

First,
BHRS didn’t sufficiently allege that Brio itself made the challenged
statements. For example, BHRS alleged that one of the reviewers attended high
school with the son of Brio’s CEO, and that the two were currently classmates
at the University of Southern California and Facebook friends. However, there were
no allegations that any individual acting on behalf of Brio “instructed or
otherwise engaged” him with respect to his review of the BHRS product. These
allegations didn’t satisfy Rule 9(b) or establish any legal relationship between
Brio and the reviewers.

Also,
BHRS didn’t adequately allege “how” the statements were false, because the
reviews contained “vague, generalized statements of opinion about the quality
of, and the respective reviewers’ experience with, the BHRS product.” (I didn’t
reproduce them, but some of the statements might have been found to be factual
by a different court, such as claims about quality of manufacture or
comparative ease of use, but the real question is of course whether these were
actual reviews of the product at all–that’s the key alleged falsity, and it is falsifiable.)

This
largely disposed of all the claims. As for trade libel, BHRS failed to plead
special damages. And, because BHRS didn’t allege that it relied on the
allegedly false statements, it didn’t sufficiently allege reliance for UCL
claims. (There is a clear split on this question in district courts.)

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IIC decision also says some things about false advertising: materiality may not be presumed from literal falsity

Posted on September 9, 2021 by rtushnet

Select
Comfort Corp. v. Baxter; 996 F.3d 925 (8th Cir. 2021)

You
probably know that the court of appeals sent this case back for retrial on an
initial interest confusion theory. I won’t say much about that, though I do
have a big question, but there are also false advertising aspects of the case.

The
parties compete in the market for adjustable air mattresses and related
products. Plaintiffs’ registered trademarks include “SLEEP NUMBER”, “WHAT’S
YOUR SLEEP NUMBER”, “SELECT COMFORT”, and “COMFORTAIRE.” The defendants
allegedly “compounded internet-related confusion by making fraudulent misrepresentations
and failing to dispel confusion when consumers contacted Defendants’ call
centers.” The case went to a jury only on point of sale confusion, not initial
interest confusion, and the jury found in defendants’ favor (including a
finding, untouched on appeal, that Select Comfort did not have trademark rights
in “Number Bed”).

TM:
The court of appeals found that, because there was a question of fact about how
sophisticated mattress consumers are, the initial interest confusion theory
should be submitted to the jury. I have practical questions: Given that a jury
already found no likely point of sale confusion, can point of sale confusion
evidence be part of the retrial? The court of appeals heavily relied on
evidence of “actual confusion” in reversing—but is that evidence of IIC? Should
the jury instructions limit the jury to deciding whether there was initial
interest confusion? The most relevant comment made by the court of appeals is
not super helpful in answering these questions: “As a practical matter, the
ability to determine the inferences the jury drew from the evidence is
substantially clouded by (1) the interrelated nature of the infringement,
dilution, and misrepresentation claims in this case, (2) the mixed verdict, and
(3) our conclusion that summary judgment and instructional error occurred.”
(The dilution claims are now out of the case because Select Comfort didn’t
meaningfully appeal the jury’s rejection thereof.) The court or appeals also
commented that relying on IIC might change the available damages and relief—how
exactly?

The
evidence of internet use:

Defendants
had used Plaintiffs’ actual trademarks as paid search terms and as identical
phrases in their own web-based advertising in text pages, combined text and
graphical pages, as terms embedded in linked internet address urls, and in
other fashions. Examples included website links that presented Plaintiffs’
trademarks as identical phrases (e.g. personalcomfortbed.com/vSleepNumber or
https://ift.tt/3lbQA40). In addition, Defendants used phrases
similar to Plaintiffs’ trademarks, often with words broken up in a
grammatically non-sensical fashion. Examples included the use of terms such as
“Sleep 55% Off Number Beds” and “Comfort Air Beds on Sale” in online
advertisements.

There
was also disputed survey evidence on actual consumer confusion, and “instances
of actual confusion, often from transcripts of call-center interactions,
messages from customers, or messages from call-center employees.”

The
transcripts and recordings of call-center interactions appeared to show that
Defendants’ call-center employees at times attempted to promote confusion and
at other times attempted to dispel confusion. Finally, evidence included
statements from Defendants’ principals in which they described confusion as
between Plaintiffs’ and Defendants’ brands as a “good thing” and, in response
to reports of confusion, indicated that their advertisements were “working.”

How
much of this is even relevant for determining whether IIC exists?

False
advertising: the jury found for Select Comfort on seven false advertising
claims and for defendants on the remaining eight, awarding about $160,000 in disgorgement
and nothing on lost profits.

The
court of appeals held that the instructions erroneously allowed the jury to
presume materiality from literal falsity. The instructions allowed a
presumption of materiality from “(1) a literally false statement; (2) a false
statement relating to the inherent quality or characteristic of a product; or
(3) a deliberately false or misleading statement that was comparative or
implicated a competitor or its product.” (1) was the error. (2) and (3) “are
essentially definitions for materiality that describe types of statements
reasonable persons would recognize as likely to influence a purchasing
decision.” But literal falsity doesn’t necessarily entail materiality. “[A]n
inference of a statement’s materiality based merely upon its falsity is neither
so clear nor direct that it might support a burden-shifting presumption in a
plaintiff’s favor.” Thus, it was error, and not harmless error, so the court of
appeals reversed and remanded for a new trial on those seven claims.

 

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Journalism about investment isn’t commercial speech

Posted on September 9, 2021 by rtushnet

Crash
Proof Retirement, LLC v. Price, 2021 WL 1387501, No. 2:20-cv-05906-JDW (E.D.
Pa. Apr. 13, 2021)

Competing
in the marketplace of ideas can ground a defamation claim, but not a false
advertising claim. Crash Proof, which offers retirement planning counseling,
alleged, inter alia, that Price violated the Lanham Act by writing an article
that criticized Crash Proof’s investment strategy. “But the Lanham Act does not
regulate critical speech. It regulates commercial speech, which Mr. Price’s
article is not.”

Price
is a former stockbroker who continues to write and give investment seminars. TheStreet
published an article by Price titled, “If It Sounds Too Good to be True, It
Will Probably Cost You.” About half the article criticizes Crash Proof and
questioning how it could offer a risk-free investment opportunity with a 5% to
8% interest rates with “no fees whatsoever.” He wrote: “if you believe Crash
Proof’s claims, there’s a bridge in Brooklyn I’d like to sell to you.” He
challenged Crash Proof’s claims “that there are no fees attached to [its]
services” because “[w]ho do you know who works for free?” He speculated “that
Crash Proof was taking a huge cut of the principal for themselves right off the
top.” In summary, he called Crash Proof a scam that preys on desperate people
who plunge “huge pieces of their life savings into products with no chance of
success.”

The
other half of the article described an alternative investment strategy for
those who “seek reasonable total returns while accepting a very small degree of
risk….” He didn’t refer to any specific product. It is, in Crash Proof’s
words, “an unoriginal, oft-written about, stock-based investment strategy of
owning blue-chip stocks while selling in-the-money call options….”

Crash
Proof sued Price for violations of the Lanham Act and the Pennsylvania Unfair
Competition statute, as well as common law claims for commercial disparagement
and tortious interference with business relations.

As the
description of the article indicates, this is an easy case: the article doesn’t
propose a commercial transation. It doesn’t promote any product or service.
Nothing in the article, or in the complaint, suggested that Price was
trying to get consumers to buy a service that he sold instead of Crash Proof’s.
Under the allegations of the complaint, he was retired, and an unoriginal
strategy disclosed in the article itself “could not even be a veiled attempt to
steer customers to a single competitor.” It didn’t matter whether or not TheStreet
paid Mr. Price for the article.

The
court declined to exercise supplemental jurisdiction over the state claims (but
I can’t imagine the statutory unfair competition claims do any better on a
First Amendment analysis).

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Microsoft dodges some false advertising claims based on its security offerings

Posted on September 9, 2021 by rtushnet

Tocmail
Inc. v. Microsoft Corp., 2020 WL 9210739, No. 20-60416-CIV-SMITH (S.D. Fla.
Nov. 6, 2020)

From
the deepest depths of backlog: Tocmail alleged that Microsoft’s deceptive
promotions of its cyber-security service, Safe Links, constituted false
advertising and contributory false advertising. Tocmail alleged that it sold
the only patented solution for cloud-based hacking, specifically the cloud
security flaw of IP-Cloaking. IP Cloaking allegedly allows hackers to pass
security scanners by sending benign links to the scanner and, then, once
approved by the scanner, proceed to send malicious content to the end user. Microsoft
offers a product, Safe Links, that Microsoft claims protects users against
cloud-based hacking. This allegedly harmed Tocmail’s reputation by convincing
over 100 million users of the Microsoft product that its product offers no
value to them.

Drawing
all inferences in Tocmail’s favor, the court found that it properly alleged reputational
and economic harm within the zone of interests protected by the Lanham Act.

Proximate
causation: Microsoft argued that the harms alleged were too speculative. “But
courts have found allegations based on the diversion of business from one party
to the other enough for purposes of pleading proximate causation.”

Specific
alleged falsehoods:

A
Microsoft product video stated, inter alia:

Sophisticated
attackers will plan to ensure links pass through the first round of security
filters by making the links benign, only to weaponize them once the message is
delivered. Meaning that the destination of that link is altered later to point
to a malicious site. Time is important when thwarting this type of attack. 20% of
all clicks happen within just five minutes of when an email is received, and
with Safe Links, we’re able to protect users right at the point of click by
checking the link for reputation and triggering detonation if necessary.

Tocmail
alleged that “it is literally false that Safe Links protects users by
‘thwarting this type of attack’ [that is, the described attacked of
sophisticated hackers].” The court disagreed, because on its face the statement
didn’t claim that Safe Links thwarts this type of attack, but rather that time
is important in thwarting this type of attack. Comment: Necessary implication
is made for these situations. There is no communicative reason for identifying
this type of attack if it’s not one that Safe Link thwarts “right at the point of
click.”

Next
statement:

[A]ttackers
sometimes try to hide malicious URLs within seemingly safe links that are
redirected to unsafe sites by a forwarding service after the message has been
received. The ATP Safe Links feature proactively protects your users if they
click such a link. That protection remains every time they click the link, so
malicious links are dynamically blocked while good links can be accessed.

But
Tocmail alleged that Safe Links does not do this. Microsoft argued that its
statement didn’t make “any promises, guarantees or other representations.” “Defendant’s
argument is belied by the express language of this statement, which promises
customers protections against attackers’ malicious links.” Falsity was
sufficiently alleged.

“You
Don’t Need Any Other Security Products. With ATP You’re Covered”: This was a
statement made by a Microsoft customer (possibly touted by Microsoft), and was
just opinion.

The
name “Safe Links”: “Safe” is sometimes puffery and sometimes not, depending on
context. In the context of a product name, it was “a very general claim that
characterizes classic puffery, as opposed to a specific assertion describing
absolute characteristics of Defendant’s product.”

“Safe
Links Ensures Hyperlinks in Documents are Harmless”: Also sufficiently alleged
to be literally false.

Contributory
false advertising: Tocmail alleged that that “[a]lmost all email cybersecurity
vendors participate in a coordinated, industry-wide deception that promotes
‘time-of-click’ redirection as the solution to links that appear benign to
cloud scanners yet send users to somewhere dangerous.” Microsoft allegedly
works with third parties to offer Safe Links alternatives paired with Microsoft
cloud services, and these “third parties cannot offer their services without
Microsoft providing access.” “Microsoft benefits from its cloud users being
assured that time-of-click redirection guarantees that they will never download
malware from a protected link.” Additionally, Tocmail alleged that “Microsoft
continues to supply its service to those it knows or has reason to know are
engaged in false advertising directly in regards to the service being
supplied.”

This
wasn’t enough to state a claim for contributory false advertising. “[T]he mere
sale of products in the course of an ordinary business relationship, without
more, cannot justify a finding that a defendant induced, encouraged, caused,
procured, or brought about false advertising.” A plaintiff must show that the
defendant “actively and materially furthered the unlawful conduct—either by
inducing it, causing it, or in some other way working to bring it about.” Tocmail
didn’t plead enough details to plausibly infer knowing or intentional
participation by Microsoft.

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competitor has state, federal standing to challenge nondisparaging false ads

Posted on September 9, 2021 by rtushnet

Jerome’s
Furniture Warehouse v. Ashley Furniture Industries, Inc., 2021 WL 1541649, No.
20CV1765-GPC(BGS) (S.D. Cal. Apr. 20, 2021)

Jerome’s
alleged false advertising under state and federal law based on Ashley’s alleged
false advertising  “intended to deceive
customers into falsely believing that it offers prices and financing that
cannot be beaten by Plaintiff or other competitors.” Arizona’s AG pursued
Ashley and there was a consent judgment, but Jerome’s wanted more.

Jerome’s
identified four misrepresentations: First, Plus claims, such as “40% OFF PLUS!
60 MO. NO interest NO down payment NO minimum purchase.” However, the offer is
allegedly “either 40% off already inflated prices or 60 months interest free
payments,” and the ads are allegedly misleading because they don’t disclose “that
most of the merchandise at the Ashley stores are excluded from the advertised
sale due to on site “manager’s specials” and/or other exclusions discovered
once a customer enters the stores. “The disclaimer that the sale in the ad
cannot be combined with any other promotion or discount is on the second page
of the ad and in microscopic fine print.” An email from Ashley’s Senior Vice
President of Business Development says 80% read the headline, only 20% of those
then read the content.” Jerome’s reps visited a store offering “50% off plus 60
months no interest,” but the promotion didn’t apply to nearly all items within the
upholstery and dining department and all “14-piece packages” because they were
already marked down with “manager’s special.” In the bedroom section, the items
were marked up to roughly double Jerome’s prices for similar pieces. A
salesperson explained that “PLUS” meant the second sales term was “another”
sales option available but the representatives could not receive both.

Second,
alleged misrepresentations of “regular price” to falsely inflate the “savings”
to be realized from its “sale price.” For example, one ad stated the “regular
price” of the Ballinasloe 3-piece sectional sofa as $2,299 and offered a sale
price of $1,150, but the actual regular advertised price for the set on its
website was allegedly $1,300. This violates FTC regulations. Another email
quote from that Senior VP: “Raise prices, then offer a discount if willing to
wait for delivery…the longer you wait the more you save, up to 40% off for 4
months.”

Third,
alleged misrepresentations of quality by inflating “regular” prices, leading
consumers to think they’re getting higher quality. Fourth,
alleged misrepresentations of time limits on sales, when the real terms of the
promotions seldom change at all. Jerome’s
alleged that it was well known that bait and switch worked in the industry
because higher volumes of “foot traffic” lead to higher sales.

The
court found that the complaint satisfied Rule 9(b). Jerome’s identified
specific ads making the challenged claims; it did not need to identify specific
deceived customers.

The
court also rejected Ashley’s dumb argument that Jerome’s didn’t sufficiently
allege that the ads were in interstate commerce because Jerome’s only
identified one billboard ad. The complaint alleged that the billboard was
materially identical to other billboards used by Ashley throughout Southern
California and the rest of the country, and that there was website advertising (accessible
throughout the country).

Also
of note here: the court applies a presumption of materiality from literal
falsity, which is becoming a more contested thing.

Injury:
Ashley argued that there was no plausible harm to Jerome’s because consumers
could compare the parties’ prices. A plaintiff alleging competitive injury
under the “false advertising” prong “need only believe that he [or she] is
likely to be injured in order to bring a Lanham Act claim.” Moreover,
commercial injury is presumed “when defendant and plaintiff are direct
competitors and defendant’s misrepresentation has a tendency to mislead
consumers.” (Citing pre-Lexmark precedent, but probably fine especially
in situations like this.)

State
claims: The court found competitor standing under the UCL and FAL; the
plaintiff didn’t itself have to rely on the false claims if it was
injured thereby.

Sonner’s effect on restitution and
injunctive relief claims by a competitor: Jerome’s argued that it properly
alleged that legal remedies were inadequate because of the inability to
ascertain the amount of future damages from Ashley’s continued, future
misconduct. The court agreed with respect to the injunctive relief requested,
but not with respect to restitution. Anyway, Jerome’s wasn’t entitled to
restitution because it hadn’t given any specific money to Ashley. “Compensation
for a lost business opportunity is a measure of damages and not restitution to
the alleged victims.”

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