competition in the market of ideas isn’t commercial competition

Posted on September 3, 2021 by rtushnet

Children’s
Health Defense v. Facebook Inc., 2021 WL 2662064, No. 20-cv-05787-SI (N.D. Cal.
Jun. 29, 2021)

CHD,
an anti-vaccination group (that also considers pesticides and wireless tech
dangerous), sued Facebook and other defendants for violating the First and
Fifth Amendments, Lanham Act false advertising, and RICO violations. It didn’t
like having some of its content on its FB page labeled “false,” out of date, or
unreliable. Prepandemic, FB also allegedly barred CHD from disputing any
actions taken by FB, and allegedly began to demote its content
(“shadowbanning”). FB deactivated the “donate” button on CHD’s page and barred
it from buying new ads. After repeated violations, FB put a Warning Label at
the top of its page: “This Page posts about vaccines. When it comes to health,
everyone wants reliable, up-to-date information. The Centers for Disease
Control (CDC) has information that can help answer questions you may have about
vaccines. Go to CDC.gov.” Then, after the pandemic hit, CHD shared an article
about the flu vaccine written by a third party website. PolitiFact labeled the
title of the article as “false,” noting that the title is “ambiguous and
misleading,” and the site changed the title to clarify that it was not about
the novel coronavirus.

CHD
alleged the usual fringe argument that the United States government — through
Congressman Adam Schiff, the Centers for Disease Control (CDC), and the World
Health Organization (“WHO”), as the CDC’s “proxy” — has “privatized” the First
Amendment by “teaming up” with Facebook to censor CHD’s vaccine safety speech.

The
court spent a bunch of time on the state action issues; I will only mention the
theory that “government immunity [under Section 230 of the CDA] plus pressure
(Rep. Schiff) … should turn Facebook and Zuckerberg’s private-party conduct
into state action.” The pressure included an alleged threat to rethink §230 if
FB didn’t take more action. No, because “Section 230 does not require private
entities to do anything, nor does it give the government a right to supervise
or obtain information about private activity.” Nor did the general “threat” to
revisit §230 constitute direction to a specific entity to take a specific
allegedly unconstitutional action against a specific person such as CHD.

Lanham
Act: the warning labels and fact checks allegedly told consumers to abandon CHD
and “instead to follow CDC’s recommendations to get the vaccines produced by
its major advertisers, Merck, GSK, Sanofi, and Pfizer, who buy $1 billion per
annum in advertisements from Facebook.” Thus, CHD alleged, “Facebook and CHD
may reasonably be considered commercial competitors with respect to the
messaging regarding vaccines and 5G that they promulgate to Facebook users.”

But
if this is a political speech case, as CHD alleged, it was hard to see how it
fell in the Lanham Act’s zone of interests. “[T]he warning label and fact-checks
are not disparaging CHD’s ‘goods or services,’ nor are they promoting the ‘goods
or services’ of Facebook, the CDC, or the fact-checking organizations ….” They
didn’t encourage users to donate to anyone, but to look for reliable
information at the CDC. “Thus, all of the alleged misrepresentations – the
warning label and the fact-checks – are simply providing information, albeit
information with which CHD disagrees.” “Information” was not a relevant
service; “[u]nder CHD’s expansive and novel theory of false advertising, any
Facebook warning label identifying an alternative source of information and any
fact-check with an explanation would constitute false advertising under the
Lanham Act because of an injury to ‘messaging.’”

Courts
have held that “[t]he mere fact that the parties may compete in the marketplace
of ideas is not sufficient to invoke the Lanham Act.”  In past suits where nonprofits’ Lanham Act
claims were entertained, “the non-profit alleged an injury to a commercial
interest in sales or reputation.” Thus, CHD was neither within the Lanham Act’s
zone of interests nor did it allege that the warning label and fact-checks constituted
“commercial advertising or promotion,” even assuming that Lexmark
abrogated a commercial competition requirement in the test for the latter.

RICO
claims failed because they were RICO claims.

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Amazon pulls further ahead of possible competitors in TM secondary liability wars

Posted on September 3, 2021 by rtushnet

Ohio State Univ. v. Redbubble, Inc., No. 19-3388 (6th Cir.
Feb. 25, 2021)

“Because Amazon’s marketplace operates as a neutral
intermediary between consumers and third-party vendors, courts have typically
not found it liable for trademark-infringing goods sold through its platform.”
But Redbubble wasn’t entitled to the same treatment.  “Because Redbubble’s marketplace involves
creating Redbubble products and garments that would not have existed but for
Redbubble’s enterprise, we find that the district court erred by entering
summary judgment for Redbubble under an overly narrow reading of the Lanham
Act.” The description:

Independent artists, not employed
by Redbubble, upload images onto Redbubble’s interface. Consumers then scroll
through those uploaded images and place an order for a customized item.

Once a consumer places a purchase
on its website, Redbubble automatically contacts the artist and arranges the
manufacturing and shipping of the product with independent third parties. So
Redbubble never takes title to any product shown on its website. And Redbubble
does not design, manufacture, or handle these products. But the shipped
packages bear its logo, and Redbubble handles customer service duties such as
returns.

Aside from managing the website,
Redbubble plays a larger role in overseeing and executing sales made on its
marketplace. For example, Redbubble helps market products listed on its
website. And it markets those goods as Redbubble products to consumers; for
instance, it provides instructions on how to care for “Redbubble garments.”
When customers receive goods from Redbubble’s marketplace, they often arrive in
Redbubble packaging and contain Redbubble tags. And if there are excess goods,
Redbubble has the right to dispose of those items.

Some of Redbubble’s artists uploaded trademark-infringing
images. When OSU sent Redbubble a C&D, Redbubble asked it to “specifically
identify each infringing design.” OSU sent Redbubble a letter containing photos
of nine offending items, but Redbubble told OSU that pictures, asking for URLs
or other identifying information. There was apparently no reply, and Redbubble didn’t
remove the offending products from its website. OSU sued for Lanham Act
violations and a violation of Ohio’s ROP for use of the persona of a former
employee who had transferred his rights to OSU.

The district court found that Redbubble did not “use” OSU’s
trademarked images in operating its business model under the Lanham Act because
it only acted as a “transactional intermediary” between buyers, sellers,
manufacturers, and shippers.

OSU didn’t preserve a theory of vicarious liability, so the
court considered only direct liability. (OSU claimed not to have known about Redbubble’s
relationship with third-party vendors, but it could have amended the complaint
once it learned more.)

Fortunately for OSU, the court of appeals held that the
Lanham Act extends direct liability beyond manufacturers, sellers, and those
“who apply infringing marks to sales displays or other related advertising
materials.” eBay and Amazon are not subject to direct liability, and neither
are sellers of domain names, but there’s a line to be drawn.

“[O]ne key distinction between a
direct seller who “uses” a trademark under the Act and a mere facilitator of
sales who does not is the degree to which the party represents itself, rather
than a third-party vendor, as the seller, or somehow identifies the goods as
its own. A retailer who sells products directly to a customer at a
brick-and-mortar store is indisputably a seller to whom the Lanham Act applies.
An online marketplace like eBay that clearly indicates to consumers that they
are purchasing goods from third-party sellers is not. … Here, although the
record is sparse, it appears that products ordered on Redbubble’s website do
not yet exist, come into being only when ordered through Redbubble, and are
delivered in Redbubble packaging with Redbubble tags. Under those facts, the
district court erred in affirmatively placing Redbubble on the passive end of
the liability spectrum.

Use of a third party to manufacture goods sold on the site,
and the degree of control and involvement exercised by Redbubble over the
manufacturing, quality control, and delivery of goods to consumers, were
relevant to “whether the offending goods can fairly be tied to Redbubble for
the purpose of liability.” The record needed further development. Still, “it
appears that Redbubble brings trademark-offending products into being by
working with third-party sellers to create new Redbubble products, not to sell
the artists’ products.” That’s more than just being a passive facilitator.
Plus, it calls the goods “Redbubble products” and “Redbubble garments,” so it
goes beyond Amazon.

As for the ROP claims, the question was whether Redbubble
used “any aspect” of the ex-employee’s persona for a “commercial purpose.”  While Amazon doesn’t make editorial choices
about book covers [note judicial factfinding that seems both untethered to any record and somewhat improbable as a blanket statement], Redbubble is different. “Redbubble interweaves its brand
with the products it sells.” Plus, the text of Ohio’s ROP statute prohibits
using a persona in connection with a product, advertising a product, or
soliciting the purchase of a product. “That broad language expands liability
beyond directly selling trademark-infringing goods.” So even if Redbubble was
passive, the ROP would apply. [And also it seems that cases letting Amazon off
the hook wouldn’t apply to Ohio ROP claims either. More First Amendment
conflicts coming!]

Record development was required because it wasn’t clear that
OSU could win. It wasn’t clear what “Redbubble products” and “Redbubble
garments” really meant. Redbubble never takes title. Factual gaps: “facts
regarding the precise nature of Redbubble’s contractual relationships with
third-party manufacturers and shippers”; “the precise degree to which Redbubble
is involved in” selecting and imprinting trademark-infringing designs upon its
products; “details as to Redbubble’s involvement in the process for returning
goods”; “detail[s] on how Redbubble characterizes its own services”; and facts
about “defenses to liability[,] such as possible fair use defenses or defenses
that confusion is not likely.”

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Homeopathy claims weren’t unfair in the absence of proven falsity

Posted on September 3, 2021 by rtushnet

Allen v. Hyland’s, Inc., 2021 WL 718295, No. CV 12-1150-DMG
(MANx) (C.D. Cal. Feb. 23, 2021)

This class action, about whether certain homeopathic
products didn’t perform as indicated on the packaging, went to a jury trial
that ended in Hyland’s favor on breach of warranty, Magnuson-Moss Warranty Act,
and CLRA claims. The court then ruled for Hyland’s on the equitable UCL/FAL
claims, guided by the jury verdict. However, the court of appeals reversed in
part because “[t]he UCL’s prohibition of unfair business practices sweeps more
broadly than the CLRA, Magnuson-Moss Warranty Act, or express warranty.” The UCL
claim in fact “encompassed both a deceptive advertising theory and an unfair
business practices theory.” Because UCL unfairness applies to practices that
are against public policy; that are “immoral, unethical, oppressive,
unscrupulous or substantially injurious”; or that cause unforeseeable injuries
to consumers that are not outweighed by countervailing benefits, “[t]he jury’s
narrow findings as to deceptive advertising do not resolve [Plaintiffs’]
broader unfair practices theory” in their equitable UCL claim.

The court deferred to the jury’s implicit factual
determination that plaintiffs failed to prove by a preponderance of the
evidence that the products cannot relieve the symptoms represented on
Defendants’ products’ packaging. Plaintiffs failed to submit “evidence of
definitive scientific research to meet their burden of proof as to the products
at issue.” Though several did testify that they wouldn’t have bought the
products if they knew the products had only a placebo effect, they didn’t meet
their burden to prove by a preponderance of the evidence that the only medical
benefit was via the placebo effect. Defendants’ products followed FDA labeling
regulations (or lack thereof), indicating numeric dilution levels, ingredient
names, and the word “homeopathic,” which by definition means the administration
of remedies in minute doses. Defendants didn’t disclose the absence of
controlled clinical trials or other medical testing, but they weren’t required
to do so, despite the FTC’s determination that many consumers mistakenly
believe manufacturers of homeopathic products test their products on people to
show their effectiveness.

“While aspects of homeopathy are inconsistent with modern
understandings of physics and chemistry, Defendants presented evidence that
some clinical trials have shown favorable results from homeopathic treatment,
as compared to a placebo or conventional treatment.” And there was evidence
that “homeopathically prepared materials have an effect on animals and on human
cells,” and that consumers are generally satisfied with the products.

Starting with an unfairness test borrowed from the FTCA, the
factors that define unfairness are: “(1) the consumer injury must be
substantial; (2) the injury must not be outweighed by any countervailing
benefits to consumers or competition; and (3) it must be an injury that
consumers themselves could not reasonably have avoided.” Because the jury found
either that defendants’ products may perform as promised for some people or
that plaintiffs failed to show otherwise, the court couldn’t find on this
record that “the only conceivable benefit the products provide is as a
placebo.” Thus, plaintiffs didn’t show substantial injury, especially with the evidence
showing high levels of consumer satisfaction.

An alternative balancing test asks whether the alleged
business practice “is immoral, unethical, oppressive, unscrupulous or
substantially injurious to consumers and requires the court to weigh the
utility of the defendant’s conduct against the gravity of the harm to the
alleged victim.” This too hadn’t been shown. The ingredients are safe and the
FDA doesn’t require randomized controlled trials for homeopathic products.
There was scientific controversy over whether they worked.

Under a final test, “that the public policy which is a
predicate to a consumer unfair competition action under the ‘unfair’ prong of
the UCL must be tethered to specific constitutional, statutory, or regulatory
provisions.” And plaintiffs couldn’t do this either. The FTC’s recent
Enforcement Policy was issued after the trial.

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Rogers test protects name of online news publication

Posted on September 2, 2021 by rtushnet

Punchbowl, Inc. v. AJ Press LLC, — F.Supp.3d —-, 2021 WL
3356848, No. 21-cv-03010-SVW-MAR (C.D. Cal. Jul. 16, 2021)

This Rogers case about the name of an online
publication involves a motion to dismiss that was converted to a motion for
summary judgment.

Plaintiff Punchbowl “is a technology company that develops
online communications solutions for consumers, including online event
invitations and greetings cards, with a focus on celebrations, holidays, and
events.” It allegedly used its Punchbowl mark since April 2006, and it has a
2013 registration for “Punchbowl” in connection with online communications
services.

AJ operates “Punchbowl News,” “an online news publication
that provides newsletters, podcasts, and videos in the fields of government,
politics, public policy, and current events.” It uses “Punchbowl” because that
is the Secret Service nickname for the U.S. Capitol (a fact that Punchbowl
didn’t contest), and its logo also invokes the Capitol building. Punchbowl sued
it for trademark infringement and related claims.

The court concluded: “[N]o reasonable juror could find that
Defendant’s use of Plaintiff’s mark either (1) is not artistically relevant to
the underlying work, or (2) explicitly misleads consumers as to the source or
content of the work.” Part (1) was simple; the geographic/political reference
to the Capitol was analogous to the geographic reference to the “Empire State”
in Empire.

(2) is a “high bar that requires the use to be an explicit
indication, overt claim, or explicit misstatement about the source of the
work.” Use of a mark, even a well-known mark, isn’t explicitly misleading if it
only implicitly suggests endorsement or sponsorship. The recent Dr. Seuss
case found that Rogers applied even when the defendant’s work was not a
copyright fair use, and the work used Seussian font, Seussian illustration
style, and a similar title. Under Ninth Circuit precedent, explicit
misleadingness is assessed contextually [a contradiction, but here we are],
considering also “(1) the degree to which the junior user uses the mark in the
same way as the senior user; and (2) the extent to which the junior user has
added his or her own expressive content to the work beyond the mark itself.”

No reasonable juror could find that either consideration
weighed in favor of Punchbowl. More broadly, no reasonable juror could find an
explicit misrepresentation.

For (1): The parties’ services, though both online, were
entirely distinct: events/parties versus journalism, targeting respectively
“families and, specifically, mothers with young children” versus “individuals
who follow politics closely.”

But, Punchbowl argued, they both used the mark in the same
way: as a source identifier. First, that argument “is effectively an argument
that mere use of the mark itself is sufficient for a finding that a defendant
uses the mark in an explicitly misleading manner.” But we know that’s not the Rogers
test. Second, Punchbowl was really arguing that the parties both operate
commercially and sell services to consumers, so the name was explicitly
misleading; Empire foreclosed such an argument since that’s also what
happened there (and was arguably more confusing since the parties were both
related to hip-hop music production). [This discussion really highlights that
getting rid of the title v. title exception to Rogers actually ended up
complicating the doctrine much more. You don’t need the extra contextual
considerations of Gordon if you just treat titles of works versus titles
of other works separately, and that would have been a much better path. Under
plain old Rogers, this is an easier case.] Finally, the facts refuted
Punchbowl’s argument, since AJ consistently used “Punchbowl News” and not
“Punchbowl.” And it added its own expressive content with every use.

This case was unlike Gordon, where the parties sold,
“at least in part,” the same product: greeting cards. That overlap was the
primary reason the court found a triable issue on explicit misleadingness, and
it wasn’t present here.

Finally, alleged evidence of actual confusion didn’t show
explicit misleadingness. Under Rogers, “[the] focus [is] on the nature
of the junior user’s behavior rather than on the impact of the use.” Thus,
evidence of actual confusion wasn’t “particularly relevant.” The recent Dr.
Seuss case, for example, rejected the relevance of a survey purporting to show
24% confusion.

No reasonable juror could find that the parties use
Punchbowl in the same way, and even if they could, that wouldn’t be enough, as
in Dr. Seuss where both parties used marks for graduation-themed books
but the defendant added expressive content to the work beyond the mark itself.
No reasonable juror could find that defendant failed to add its own expressive
content to the work beyond the mark itself. Punchbowl was not used “as the
centerpiece of an expressive work itself, unadorned with any artistic
contribution.” Even in the mark, “Punchbowl News” appears, “almost always, next
to the image of the Capitol dome, upside down and filled with punch.” And the
publication was consistently explicitly connected to its founders, highly
credentialed journalists; this was similar to the Dr. Seuss case, which
empashized that the use there wasn’t explicitly misleading in part because the
cover “conspicuously lists” the authors of the book and not the plaintiff.

Finally, Punchbowl argued that there was no interference
with AJ’s First Amendment rights because it could select any non-infringing
mark and still report and comment on the news. But Rogers applies to all
“expressive works.” Accepting Punchbowl’s argument would eviscerate Rogers
because one could always create a different work or different title. As Rogers
itself says, “[i]n the context of titles, this ‘no alternative’ standard
provides insufficient leeway for literary expression.”

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failure to allege comparative performance dooms falsity claim

Posted on September 2, 2021 by rtushnet

Ruiz v. Owlet Baby Care, Inc., 2021 WL 3370259, No.
2:19-cv-00252 (D. Utah Aug. 3, 2021)

A proposed class action against Owlet’s Smart Sock pulse
oximeter sought to cure earlier defects by alleging that other pulse oximeters
were used differently (and not on babies’ feet). Nonetheless, plaintiffs sought
to allege, “Owlet deliberately and misleadingly aligns itself with both medical
grade devices and consumer wellness products, seemingly whenever it was
convenient for sales.”  Owlet’s
representations thus allegedly led “consumers to reasonably expect the Owlet
Smart Sock to be at least as accurate as hospital grade pulse oximeters” and
that Owlet took advantage of “consumer expectations by their use of hospital
grade and similar terminology in their advertisements.”

Amendment would be futile. Plaintiffs didn’t sufficiently
allege differences in accuracy and reliability between medical pulse oximeters
and consumer products incorporating pulse oximeter technology—let alone between
medical pulse oximeters and the Smart Sock or between other consumer products
incorporating pulse oximeter technology and the Smart Sock. They also failed to
allege that Owlet’s failure to disclose “frequent and unnerving false alarms,
inaccurate readings, and complete failure to detect and alert to abnormal
oxygen levels and heart rates” was material, “because it is not clear what the disclosure
means, and thus whether it differs from what a reasonable consumer would expect
from a consumer product incorporating pulse oximeter technology.” The magnitude
and persistence of alleged problems with accuracy and reliability were not
specified. Was the Smart Sock inaccurate twice in two weeks, twice in one week,
or something else? Based on the allegations, it was impossible to compare that
with what a reasonable consumer would expect from pulse oximeter devices.

Cherry-picking consumer reviews didn’t help. Most of the
reviews didn’t distinguish among false alerts and other errors, or indicate
expectations about medical pulse oximeters—although plaintiffs sought to omit
one reviewer’s statement that “[p]ulse oximeters in the hospital also have false
alarms all the time, not sure why I thought this would be any different.”
Anyway, the reviews were “far from a representative sample.” On Owlet’s own
site, the Smart Sock had more than 3,226 reviews, with 2,489 five-star reviews
and an average rating of 4.6 stars. On Amazon.com, the version of the Smart
Sock used by Ruiz has more than 5,250 ratings, with 4,013 5-star ratings, 1,658
5-star reviews, and an average rating of 4.5 stars. The court said it would’ve
taken judicial notice of these facts, which strikes me as troubling, given the
well-known problems with fake reviews. What would the judicial notice be,
exactly?

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“ethical” fur sourcing claims not puffery

Posted on September 2, 2021 by rtushnet

Lee
v. Canada Goose US, Inc., 2021 WL 2665955, No. 20 Civ. 9809 (VM) (S.D.N.Y. Jun.
29, 2021)

Lee
sued Canada Goose alleging misrepresentations about the methods used to procure
coyote fur for certain Canada Goose jackets:

“The Canada Goose Fur Transparency StandardTM is our
commitment to support the ethical, responsible, and sustainable sourcing and
use of real fur”;

• “The first traceability program to cover the wild
habitat, it ensures that all fur sourced by Canada Goose is in accordance with
the Agreement of International Humane Trapping Standards (AIHTS) in Canada and
the Best Managed Practices (BMP) in the United States, and is fully traceable
throughout the supply chain”; and

• “The standard certifies that we never purchase fur from
fur farms, never use fur from endangered animals, and only purchase fur from
licensed North American trappers strictly regulated by state, provincial and
federal standards.”

Lee
alleged that these statements suggested that the fur-sourcing practices used by
Canada Goose trappers “prevent the infliction of extreme pain or distress on
animals trapped for its fur products” when they do not. In reality, according
to Lee, “Canada Goose’s suppliers use cruel methods that cause strangulation
and broken bones to coyotes and other animals who are inadvertently trapped and
discarded,” specifically leg traps and snares, in contravention of its “ethical”
and “sustainable” language. Even alternatives to traditional leg traps
allegedly cause “severe distress and injuries,” with long-term effects for
animals released after trapping. Likewise, studies on the use of snares and
leghold traps allegedly indicate that up to 67% of the animals caught in the
traps are not the intended targets.

As
to the AIHTS and BMP standards, Lee alleged that the claims were misleading
because “these standards themselves authorize inhumane trapping practices that
reasonable consumers would perceive as neglectful and unduly harmful.” AIHTS standards
allegedly tolerate traps in which up to 20% of animals tested demonstrate
physical and emotional suffering, while BMP accepts 30%. Neither bar leg traps
or snares, and while AIHTS standards require that any device used to kill
animals must render them “irreversibly unconscious within 300 seconds,” snares
do not consistently accomplish that, and the ones who don’t die immediately “suffer
painful injuries including dehydration or starvation, compounded by the fact
that in many cases snares may be left unchecked for lengthy periods of time.”

Likewise,
Canada Goose’s statements about licensure of its trappers and compliance with
governmental regulations were also allegedly misleading: Canada Goose states
that it “only purchase[s] fur from licensed North American trappers strictly
regulated by state, provincial and federal standards,” but many places have no
relevant licensing or regulation, and Canada Goose didn’t exclude fur from
those places. Anyway, licensing from the North American Fur Industry
Communications group is “simply a matter of taking a training course on
conservation and trapping systems, and then purchasing the license.”

The
court dismissed the claims with respect to some statements, but not with
respect to “ethical, responsible, and sustainable sourcing” which was plausibly
alleged to mislead a reasonable consumer. But statements about compliance with
AIHTS and BMP standards, and sourcing from licensed fur trappers regulated by
state, provincial, and federal standards, were “accurate and therefore unlikely
to mislead,” which is not really what “misleading” means.

It
was not enough to allege that the AIHTS and BMP standards were too low, or that
licensing for trappers was too minimal, without alleging that Canada Goose
didn’t comply with those standards or didn’t only work with licensed trappers.
Because accurate claims generally aren’t misleading, these weren’t. [This
result may be right, but the reasoning reads “misleading” out of the standard,
replacing it with “false.” Sigh.]

Nor
was it false to claim they worked with “North American trappers strictly
regulated by state, provincial and federal standards” when there were no US
federal standards for trapping—Canada is also a federal system and the word
could refer to federal laws in Canada.

However,
Canada Goose’s purported commitment to “ethical” fur sourcing could be
misleading because Canada Goose obtains fur from trappers who use allegedly
inhumane leghold traps and snares. And this was material because plaintiff
alleged that reasonable consumers consider “animal welfare” to be an important
factor in whether a product is “ethically produced,” and that
consumer-perception research indicates that terms such as “sustainably
produced” are perceived as signaling compliance with “higher animal welfare
standards.” These weren’t puffery: “the ethical, responsible, and sustainable
sourcing and use of real fur” was measurable and discernable, not “outrageous”
or “generalized.”

No
standing for injunctive relief, though.

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Defendant’s survey too flawed to avoid class certification in “rapid release” case

Posted on September 2, 2021 by rtushnet

Bailey
v. Rite Aid Corp., 338 F.R.D. 390, 2021 WL 1668003, No.. 4:18-cv-06926 YGR (N.D. Cal. Apr.
28, 2021)

Bailey
brought claims over Rite Aid’s marketing of its over-the-counter acetaminophen
gelcaps as “rapid release.” Studies allegedly show that “traditional, non-rapid
release acetaminophen products can be equally effective in the same, if not
faster, time period than its Rite Aid rapid release products,” but Rite Aid still
charged a premium. The court reasoned that Bailey’s theory of economic harm was
predicated on consumers having been misled into thinking that the Rite Aid
gelcaps are faster-acting than Rite Aid tablets “by virtue of having compared
the labels and prices of both products,” so “only consumers who purchased Rite
Aid gelcaps at brick-and-mortar Rite Aid stores could have suffered the
economic injury alleged in the FAC.”

“rapid release” results

FWIW,
my search for “rapid release acetaminophen” on Rite Aid’s website actually
offered me non-rapid release versions to compare, so I have questions about
this conclusion, but Bailey conceded the issue at the hearing and limited the
proposed class to in-store purchasers.

The
court certified a damages class, rejecting Rite Aid’s objections to Bailey’s
expert Silverman, who testified based on advertising experience and not based
on a specific survey of Rite Aid gelcaps consumers. “[A]n expert who offers
testimony on the question of whether a reasonable consumer is likely to be
deceived by an allegedly misleading statement, or whether a reasonable consumer
would find such a statement to be material, is not required to conduct a
consumer survey if his or her testimony is otherwise reliable.”

Rite
Aid’s own survey purported to show lack of deception/materiality, but the
survey “suffers from significant flaws that detract from its persuasiveness as
evidence that the issue of likelihood of deception cannot be resolved with
common proof.” One part of the survey asked past consumers of Rite Aid gelcaps
to select from among twenty-three reasons for why they purchased the product,
but none of the twenty-three options was “rapid release.” Nor did they describe
attributes consistent with Bailey’s theory of liability, such as “faster-acting”
or “works faster.” These closed-ended questions didn’t offer respondents the
option to select a response that is consistent with Bailey’s theory of
liability. Other closed-ended questions in the survey had the same flaw; even
when they gave respondents the options of choosing that the product “is fast
release,” they didn’t allow respondents to answer in ways indicating a
comparison with other products. Nor did the images used allow a survey
respondent to compare the prices and labels of the Rite Aid gelcaps with those
of the Rite Aid tablets.

Rite
Aid also argued that the statement wasn’t actually false, because it just meant
the speed at which the gelcaps dissolved relative to the FDA’s standards for
“immediate release” dissolution. But “Rite Aid points to no evidence showing
that consumers of Rite Aid gelcaps were uniformly aware of the FDA’s standards
for immediate dissolution and uniformly interpreted the ‘rapid release’
statement at issue in light of such standards.”

Likewise,
given the survey flaws, the court wasn’t convinced that it showed that
consumers didn’t have a common understanding of the term “rapid release.” Plus,
the plaintiff wasn’t required to establish a uniform interpretation at the
class certification stage.  

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LinkedIn dodges UCL claims because big businesses aren’t covered plaintiffs

Posted on September 1, 2021 by rtushnet

Topdevz, LLC v. LinkedIn Corp., 2021 WL 3373914, No.
20-cv-08324-SVK (N.D. Cal. Aug. 3, 2021)

Plaintiffs, on behalf of a putative class of advertisers,
alleged that LinkedIn overstates the level of actual user engagement with ads
on its platform in order to charge premium rates to advertisers. Every
advertiser “agree[s] to pay on the basis and at the rate shown when a campaign,
order or other purchase was submitted … e.g., price per impression, click” or
other pricing options. LinkedIn does not provide advertisers with access to raw
data regarding which users viewed their ads, their level of engagement, or
whether the users are real humans or automated bots. It provides various
metrics, such as “reach metrics,” which purport to measure the number of
impressions, views, and clicks.

In August 2020, LinkedIn discovered that its video ad
metrics for Sponsored Content ads may have been inflated: it was counting views
in the app even when the user merely scrolled past the video and the video was
only playing offscreen. A couple of months later, LinkedIn notified the
affected advertisers and provided them with makegoods.

Plaintiffs brought UCL and common-law claims.

Some courts have held that “where a UCL action is based on
contracts not involving either the public in general or individual consumers
who are parties to the contract, a corporate plaintiff may not rely on the UCL
for the relief it seeks.” But other courts have only excluded “sophisticated
corporations or large corporations,” a rule the court applied here (and which
might seem to preclude class treatment even if these claims continue). The complaint
alleged that “[m]ost LinkedIn advertisers are small businesses.” It described
each named plaintiff as a corporation or limited liability company, and didn’t
plead facts that they were small and/or unsophisticated entities, seeking to
represent a class of all persons or entities who paid for ads on LinkedIn’s
platform, without limitation as to size or sophistication.

Other courts have held that “[t]he relative size of the
plaintiff companies … is secondary to the analysis of whether, as a result of
the alleged unfair or fraudulent business practice, consumers are adversely
affected.” But the allegations of harm to the public were vague and conclusory.
Thus, the UCL complaint was dismissed with leave to amend, apparently allowing
repleading on either theory if appropriate.

Also, their claim for restitution under the UCL failed
because they couldn’t show that they lacked an adequate remedy at law,
following Sonner v. Premier Nutrition Corp., 971 F.3d 834 (9th Cir. 2020), in
which held that “a federal court must apply traditional legal principles before
awarding restitution under the UCL and CLRA” and “state law cannot expand or
limit a federal court’s equitable authority.”

Other claims didn’t fare much better.

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failure to disclose environmental risks in MTBE data sheets not actionable

Posted on September 1, 2021 by rtushnet

In re Methyl Tertiary Butyl Ether (“MTBE”) Products
Liability Litig., 2021 WL 3371938, No. 1:00-1898, MDL 1358, No. 14 Civ. 6228
(VSB) (S.D.N.Y. Aug. 3, 2021)This MDL litigation centers on
contamination—actual or threatened—of groundwater from various defendants’ use
of the gasoline additive MTBE and/or tertiary butyl alcohol, a product formed
by the breakdown of MTBE in water.

I will focus on the court’s holding that the commonwealth of
Pennsylvania failed to make specific allegations of deceptive and misleading
conduct that are actionable under the Pennsylvania Unfair Trade Practices and
Consumer Protection Law (UTPCPL).

Pennsylvania alleged, that in connection with the marketing,
distribution, and sale of their products, certain defendants prepared and
distributed material safety data sheets (MSDSs), which are documents used by
manufacturers of hazardous materials to address OSHA hazard communication
requirements. The relevant defendants allegedly knew that MTBE was highly
soluble in water and mobile, and that MTBE contamination of water was therefore
difficult to remediate. Despite this, they published MSDSs between 1986 and
2006 that suggested that MTBE gasoline could be handled just like traditional
gasoline, according to the same standard of care. However, internal documents
acknowledged, e.g., that ethers “are much more water soluble than hydrocarbons
and will have a tendency to dissolve in – groundwater if allowed to leak or
spill” and that they are more difficult to clean up than non-oxygenated
gasoline. Thus, the document continued, “facilities handling ethers and
ether/gasoline blends must be designed and operated to insure (1) low
likelihood for spills and leaks, (2) early detection of leaks when they occur,
and (3) rapid repair and cleanup when leaks are found.” And an e-mail to Shell
Oil from its hydrologist detailed the risks to groundwater posed by MTBE and
cautioned that “MTBE and similar oxygenates should not be used at all in areas
where groundwater is a potential drinking water supply. If it is used,
engineering design and site operations … should be carefully developed to
minimize the potential for a release.”

But in public statements, the relevant defendants allegedly
promoted MTBE gasoline as “clean burning gasoline good for the environment,”
failed to disclose “the significant environmental dangers that MTBE and MTBE
gasoline posed to the public and private water supplies in the event of a spill
or leak,” and “disparage[d] ethanol oxygenated gasoline.”

A UTPCPL claim may only be based on an omission if the maker
of the statements has a duty to disclose, and Pennsylvania didn’t sufficiently
allege such a duty. Nor was there a clear statement in the MSDSs that MTBE
gasoline “could be handled according to the same standard of care as ordinary
gasoline.” Nor did the Commonwealth provide “any context or explanation to
suggest that the text could mislead a downstream purchaser or customer into
believing that regular gasoline and MTBE gasoline could be handled in the same
manner.” The Commonwealth didn’t compare the MSDSs for regular gasoline to
support its argument for implied falsity. “Indeed, the example MSDSs advise the
handler to ensure the MTBE gasoline does not enter the water supply; the
Commonwealth has not provided any allegations or context as to why these
warnings were insufficient or misleading.”

At the time of briefing, there was also an issue of whether
the MSDSs were “advertising,” but the Pennsylvania Supreme Court subsequently
held that “subsection (v) … encompass[es] activities other than
‘advertising,’ ” and that a statement need not have impacted a purchasing
decision to be actionable. Commonwealth by Shapiro v. Golden Gate Nat’l Senior
Care LLC, 194 A.3d 1010, 1028 (Pa. 2018) (accepting allegations that a nursing
home made representations to individuals after they had become residents of
facility about “the extent and quality of services to be provided”).

What about public statements about ethanol and MTBE? An
allegedly disparaging ad placed by the American Petroleum Institute disparaging
ethanol as “Government Gas” was protected by Noerr-Pennington: it
“exhorts readers to contact their legislators and ask them to vote against
specific amendments to the Clean Air Act.” It wasn’t relevant that this served
API’s commercial interests, or that it allegedly contained misrepresentations;
the First Amendment still precluded liability. There was nothing to distinguish
UTPCPL “from the many Pennsylvania state law causes of action that courts have
found to be subject to Noerr-Pennington. Moreover, courts have applied the
doctrine to consumer protection statutes in other states.” This was not commercial
speech: the Supreme Court specifically held in Noerr that “a publicity
campaign to influence governmental action falls clearly into the category of
political activity.”

What about statements to newspapers about “cleaner”
gasoline? E.g., “[T]he future is in gasolines, in fuels that are more
environmentally compatible”; Shell “came to the conclusion that the customer
… really wanted an environmentally enhanced fuel”; the MTBE blend was “an
important step in the right direction for cleaner air” that it “reflect[ed]
Shell’s commitment to make environmental considerations a priority in
development of our new products and processes.” These weren’t false
representations of fact about MTBE or ethanol, or disparaging ethanol—they were
vague, nonactionable puffery.

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Found on road deceptive: “track car” claim plausibly misleading

Posted on September 1, 2021 by rtushnet

Tershakovec
v. Ford Motor Co., — F.Supp.3d —-, 2021 WL 2700347, No. 17-21087-CIV-MORENO
(S.D. Fla. Jul. 1, 2021)

In
this multistate class action based on purchases of the Shelby GT350 Mustang,
the court granted Ford summary judgment on some claims and certified none state
law classes and Magnuson-Moss Warranty Act classes in Texas and California.
Background:

The Shelby Mustang is a performance version of the standard
Mustang. It is several cuts above both the base version of the Mustang and the
Mustang GT (which has a V8 engine). Only true car enthusiasts opt for the
Shelby GT350, and they do so mainly for its racing and track capabilities. In
fact, the name “Shelby” comes from Carroll Shelby, a race car driver and
designer for Ford in the mid-20th century. Indeed, Ford touted the Shelby as
“an all-day track car that is also street legal.”

There
were five packages: Base, Technology, Track, R, and R technology. The two first
didn’t come with coolers that prevent the engine from overheating at consistently
high rotations per minute, allowing the driver to drive faster for longer. In
order to prevent overheating in the lower Shelbys, Ford programmed those
packages to rapidly decelerate when engine temperature got too high. This “Limp
Mode” was an intentional design choice; the coolers were removed from those two
packages before launch, allegedly to increase profit margins in their
volume-leading Technology package.

“Plaintiffs
allege that many of their vehicles unexpectedly entered Limp Mode, both on the
track and the open road. The Shelbys are essentially unusable for sustained
track driving—the main reason many Plaintiffs bought the car.” Plaintiffs
argued, in essence: “1) Ford advertised all Shelbys as track-capable, the
advertising induced Plaintiffs to purchase the car, and then the car did not
perform as advertised. 2) The consistent occurrence of limp mode is a breach of
Ford’s express and implied warranties.”

Ford
argued that its ads were puffery.

It
advertised the entire Shelby lineup as “track-ready” and “track-capable.” And
it that knew race-track enthusiasts were the Shelbys target audience. For
example, “[i]n a track day invitation sent to all Shelby owners post-purchase,
Ford’s marketing manager wrote that the GT350 had ‘exceptional race track
capabilities, we’re sure that’s one of the reasons you purchased your
GT350—perhaps the main reason.’” Other advertising materials include: “an
all-day track car that’s also street legal,” “tested endlessly on the most
challenging roads and tracks in the world,” “we wanted to build the best
possible Mustang for the places we most love to drive – challenging back roads
with a variety of corners and elevation changes – and the track on weekends,”
and “track-focused.”

Still,
Ford argued that the claims were puffery because no one really agrees on what
“track-capable” means and because its ads differentiated the Base and Tech
models from the others by lavishing much more “track” praise on the higher end
models and specifically warning consumers that Base and Tech models would need
aftermarket coolers.

Puffery:
“At the summary judgment stage, this argument, much like the Mustangs’ engines,
blows smoke.” Although individual plaintiffs offered different definitions of
what the term meant to them, this was a question of fact for a jury. For
example, one press release touted the Shelby GT350s’ transmission as “developed
with all-day track capability and high-RPM capability at the forefront.” “This
statement is specific—it focuses on the car’s transmission—and it is
empirically verifiable.” The court thought Ford’s argument was “ironic”: “Racing
is an activity obsessed with metrics and objective verification—victory is
often decided by tenths of a second and Ford relentlessly tests its performance
vehicles so that they meet the expectations of their target customer,
considered ‘gearheads.’” Internal Ford documents show “that the Base/Tech
Shelbys caught fire after being put through their paces by Ford Engineering,
and afterwards, the engineering team informed the marketing team that it was
concerned that the Base Shelby was not ‘track durable’ nor ‘appropriate for
track use.’”  If Ford thinks those terms
are objective, a reasonable jury could agree.

Did
the ads as a whole avoid deceptiveness by warning consumers about the need for aftermarket
coolers and specifying elsewhere that certain non-Base and non-Technology
models were the “track day specialists”? Again, a reasonable juror could find
that a reasonable consumer would be misled by the “net impression” created by
Ford’s advertising. The recommendation to add coolers if they planned on
“sustained high speeds or track day use” “came on page 25 of the Supplemental
Owner’s Guide—a pamphlet only available in the glove box of the car one has
already purchased.” (Ford argued that the Guide was available online
pre-purchase, but that was disputed—and by the way, not the kind of thing you
should have to read the supplemental manual to find out.) And while a Ford
marketing employee told one customer that if he planned to use his Technology
package Shelby on the racetrack for “sustained lap sessions, we would still
recommend that you purchase coolers,” that was one consumer, the general
consuming public.

Nor
did marketing the R model as “the most track-ready” and the Track model as the
“track-day specialist” while staying silent on the Base and Technology models’
track capabilities avoid deception. “With all due respect to American
engineering, Plaintiffs surely knew a Ferrari would be better suited for
intense track driving than the Base Shelby, but they were nonetheless entitled
to rely on Ford’s representation that its car was an ‘all-day track car.’”

The
jury would have to decide whether individual plaintiffs relied on these claims,
even though many saw online reviews suggesting potential problems or had other
possible sources of knowledge. Ford argued that plaintiffs who took delivery
after February 2016 could not reasonably claim to be misled “because of
information and rumors available on Internet forums that the cars at issue
could not do track days. Plainly, this argument is not a summary judgment
winner. … [P]osts on Internet forums are not sufficient evidence to put the
question beyond the debate of a jury.”

Omission
claims: There was not enough evidence that Ford knew that Limp Mode would occur
on public roads under normal driving conditions. One Ford Performance parts
manager was aware of a consumer report that Limp Mode occurred on a public road;
a 2014 internal email from Ford’s Chief Functional Engineer warned not to send
cars without coolers to Germany (likely due to the manner of driving on the
autobahn); and Ford added standard coolers in later model years. “Of all the
evidence in this case, it is telling that there is only one internal email that
mentions Limp Mode on public roads; and even then, the email merely relays a
single, unverified consumer report with no other diagnostic information.” This
wasn’t sufficient to show Ford’s knowledge that Limp Mode would begin under
normal driving conditions.

“[P]erhaps
12 examples could provide a sufficient factual assertion in the proper case.
But here, not only is it a very small number relative to the ‘hundreds of
thousands’ of vehicles that supposedly have this defect,” but plaintiffs also
failed to offer context about how many complaints are normal. “Just as
unverified internet reports could not give consumers objective knowledge of
Limp Mode, they are not sufficient to impute to Ford Management actual
knowledge of Limp Mode occurring on public roads.”

Class
certification: Did individual issues about each class member’s knowledge of the
truth about his car “swamp” the common questions about Ford’s conduct” Plaintiffs
argued, first, that materiality, reliance, and causation can be proven on a
class wide basis with reference to an objective consumer standard. Second, the
depositions of named plaintiffs didn’t show that they understood that the lack
of coolers specifically meant the Base and Tech GT350’s were incapable of Track
Days, or that they knew the truth from Ford itself. The court agreed with the
second argument. “[S]urely a reasonable consumer cannot have been expected to
search the Internet for unverified reports of problems she did not know
existed.” Although plaintiffs may have had multiple reasons for buying their
cars, Ford’s representations were uniform. “In this particular predominance
inquiry, the Court finds that the more relevant considerations are Ford’s
uniform course of conduct and the dearth of evidence pointing to individual
reliance issues that stem from Ford’s communications.”

There
might be individual affirmative defenses, but “[t]he general rule, regularly
repeated by courts in many circuits, is that courts traditionally have been
reluctant to deny class action status under Rule 23(b)(3) simply because
affirmative defenses may be available against individual members.”

Damage
theories: Although plaintiffs calculated their damages in two different ways
(benefit of the bargain and fixing the cars), that didn’t violate Comcast.
“[A]ntitrust law requires a plaintiff to specifically explain which effect of a
defendant’s conduct makes the conduct unlawful and calculate the damages
attributable only to that isolated impact. The fraud laws at issue in this
class action impose no such requirement.” The alleged harm was that plaintiffs
overpaid for their cars. “On the other hand, … the harm suffered by antitrust
plaintiffs by each different antitrust impact is legally separable and distinct
and requires a damages calculation tied to its theory of liability.” So,
because plaintiffs’ damage model calculated how much a class member “overpaid”
for his vehicle due to Ford’s misrepresentations and omissions, it was “the
translation of the legal theory of the harmful event into an analysis of the
economic impact of that event,” and thus satisfied Rule 23(b). Either version
of damages could be applied classwide. Thus, the court certified state consumer
protection classes where state law allowed class-wide proof to win a
presumption of reliance and causation.

However,
unjust enrichment couldn’t be evaluated classwide.

Certification:
statutory and common law fraud classes in California, Florida, Illinois, New
York, and Washington; statutory fraud classes in Missouri and Texas; common law
fraud classes in Oregon and Tennessee; and implied warranty and Magnuson-Moss
classes in California and Texas.

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