Netflix prevails over claims by lawyers that they were misportrayed in money laundering film

Posted on September 22, 2021 by rtushnet

Mossack Fonseca & Co., S.A. v. Netflix Inc., 2020 WL
8509658, No. CV 19-9330-CBM-AS(x) (C.D. Cal. Dec. 23, 2020)

MFSA brought trademark dilution and false advertising claims
against Netflix for its portrayal in the film “The Laundromat.” (It’s about
money laundering.) No. (Libel/false light claims aren’t addressed in this decision;
see below.)

Rogers governed the false advertising claim. There
was artistic relevance because the film is about MFSA and the Panama Papers, so
the use of the mark was relevant to the film. And using a mark without the
owner’s authorization does not explicitly mislead consumers about the source or
content of the film. Gordon v. Drape Creative, Inc., 909 F.3d 257 (9th Cir.
2018), is not to the contrary, because Netflix used the mark in a different
context, as opposed to using it exactly the same way the plaintiffs do. “Plaintiffs
use their mark in the offshore shell company finance industry, whereas
Defendant used Plaintiffs’ mark in a film.” Plus, and also distinguishable from
Gordon, the mark appears in several scenes of the film, “and is
therefore only one component of Defendant’s larger expressive work.” This was
not explicitly misleading.

MFSA also argued that the trailer made false statements,
because it “portrays the Plaintiffs as criminals and/or in the false light of
criminality in the provision of their services as overseas lawyers.” But they
failed to identify any false statement in the trailer for the Film. And use of
MFSA’s logo in the trailer was also protected by Rogers.

Trademark dilution/tarnishment. Among the problems,
Netflix’s use of the MFSA logo was noncommercial because it had some artistic
relevance to the film. (Not precisely the full reason, but really I can’t blame the
court for cutting some corners on a claim this terrible.)

Mossack Fonseca & Co., S.A. v. Netflix Inc., 2020 WL
8510342, No. CV 19-9330-CBM-AS(x) (C.D. Cal. Dec. 23, 2020)

Special motion to strike the state-law claims of libel/false
light invasion of privacy. “The Laundromat” is allegedly “based on” investigative
journalist Jake Bernstein’s book entitled Secrecy World: Inside the Panama
Papers Investigation of Illicit Money Networks and the Global Elite. It “tells
the story of the documents known as the Panama Papers … leaked in 2015,”
which “revealed how Panamanian law firm Mossack Fonseca illegally funneled
money for the wealthy in Panama and worldwide.”

Plaintiffs initally failed to authenticate internet stories
reviewing the film, e.g., the description: “When a widow gets swindled out of
insurance money, her search for answers leads to two cunning lawyers in Panama,
who hide cash for the super rich.”

The film was disseminated in a public forum, and it covered
a public issue/an issue of public interest. The burden shifted to MFSA to show
a probability of success on their claims.

They didn’t.

The Court finds no reasonable
viewer of the Film would interpret the Film as conveying “assertions of
objective fact,” particularly given the statement at the beginning of the Film
“BASED ON ACTUAL SECRETS” which sets the stage and the disclaimer at the end of
the Film that states the Film is fictionalized for dramatization and is not
intended to reflect any actual person or history.

Even assuming a reasonable viewer
would view the Film as statements of actual fact, the Film does not portray
Plaintiffs as directly involved in the murders, drug cartels, and other
criminal activity committed by their clients as referenced in the Complaint.

And the complaint admitted that some of the offshore
entities created by Plaintiffs “appears to have been utilized by some [end
users] for criminal activity including, but not limited to, money laundering,
tax evasion, bribery and/or fraud.” So the film’s portrayal of persons for whom
MFSA created shell companies as engaging in criminal activity was not false. Fonseca
and Mossack were also criminally charged, so depicting them as being arrested
and jailed wasn’t false. There was no reason to allow them discovery.

 

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4th Circuit continues its Lanham Act frolic, notes overbreadth of expansive injunctive relief

Posted on September 22, 2021 by rtushnet

De Simone v. Alfasigma USA, Inc., No. 19-1731, 847 Fed.Appx.
174 (4th Cir. Feb. 17, 2021)

Depressingly doubling down on its bizarre interpretation of
the Lanham Act first created by misinterpreting California’s UCL, the Fourth Circuit
nonetheless mitigates some of the consequences of that game of telephone in
this opinion. (I filed an amicus brief, with which the court didn’t agree.)

The parties have been fighting for a while. Ignoring entity
shifts: De Simone used to license a probiotic formula to Alfasigma, which
continues to make a probiotic under the same trademark, VSL#3, but now with a
different formulation. Now De Simone’s entities compete with Alfasigma. A jury
found the VSL parties liable for false advertising and unjust enrichment,
basically for advertising that the formula was still the same, and awarded over
$17 million in damages. The court of appeals affirmed on liability/damages, but
partially vacated the injunction as overbroad, picking up on another problem in
the case as it has evolved—its restrictions on apparently truthful commercial
speech.

The parties presented conflicting expert testimony regarding
whether two versions of VSL#3 were essentially the same. Defendants argued
that, under In re GNC Corp., 789 F.3d 505 (4th Cir. 2015), their expert’s
testimony that the two products were genetically and functionally equivalent
precluded a finding of literal falsity as a matter of law. The district court
disagreed.

The court of appeals upheld the district court but declined
to recognize its GNC error, because “plaintiffs who believe that no
reasonable scientist would agree with the challenged representations remain
free to make that allegation. A manufacturer may not hold out the opinion of a
minority of scientists as if it reflected broad scientific consensus.” The
court of appeals said that the district court applied GNC accordingly by
holding as follows:

GNC thus does not broadly hold that
a false advertising claim based on a statement grounded in science must fail if
the defendant presents an expert witness supporting its position. In the
absence of a concession that the statement is the subject of reasonable
scientific debate, that question is properly decided by the jury.

Of course, the court of appeals and the district court said
two different things! In the district court, the plaintiff was not required to prove that “no
reasonable scientist would agree with the challenged representations,” or that
the defendant “held out the opinion of a minority as if it reflected broad
scientific consensus.” Apparently after GNC the plaintiff is required to plead that no reasonable scientist would agree, or at least to avoid pleading that there is a controversy. 

But at the liability stage, the plaintiff here was, appropriately, required to prove that the challenged
representations were, by a preponderance of the evidence, false. That is
different from requiring the jury to find that the defendant’s expert was
unreasonable. Punting to the jury helps disguise the variation, but does not entirely avoid the
question of what it is that the jury must find. The district court’s
approach is better than nothing, because it allows pleading to get around the
qualified immunity-like standard of GNC, but this whole mess could be
more easily avoided by looking at what the Lanham Act actually requires.

The district court’s permanent injunction barred defendants
from

(1) stating or suggesting in VSL#3
promotional materials directed at or readily accessible to United States
consumers that the present Version of VSL#3 produced in Italy (“Italian
VSL#3”) continues to contain the same formulation found in the Versions of
VSL#3 produced before January 31, 2016 (“the De Simone Formulation”),
including but not limited to making statements that VSL#3 contains the
“original proprietary blend” or the “same mix in the same
proportions” as earlier Version[s] of VSL#3; and (2) citing to or
referring to any clinical studies performed on the De Simone Formulation or
earlier Versions of VSL#3 as relevant or applicable to Italian VSL#3.

(2) was initially based on trademark reasoning, but seems to
have been converted over time into a concomitant of the false advertising
claim, so the district court reasoned that the remedy should be “focused on
curtailing such claims of continuity between Italian VSL#3 and the De Simone
formulation.” The court of appeals agreed, but noted that (2) was overbroad for
that objective. The studies couldn’t be cited as if they were performed on
current VSL#3, but prohibiting citation or reference to them as even
relevant went too far. They could feasibly cite or refer to the studies as
relevant “without claiming continuity between their old product and their new
one.”

 

 

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even admissions and severe financial distress don’t justify TRO/asset freeze in false advertising case

Posted on September 22, 2021 by rtushnet

SI03, Inc. v. Musclegen Research, Inc., 2021 WL 765293, No.
1:16-CV-274 RLW (E.D. Mo. Feb. 26, 2021)

The parties compete to sell protein powder to consumers. SI03
originally sued for false advertising and related claims, and Musclegen
counterclaimed similarly.

SI03 alleged that Musclegen markets its Genepro protein
powder product by falsely claiming it contains 30 grams of protein in a roughly
11.15 gram (1 tablespoon) serving, when Genepro actually has 10 or fewer grams
of protein per 11.15 gram (1 tablespoon) serving; and by claiming the protein
in Genepro is absorbed by the human body at a rate that is 300% higher than the
rate at which a human body absorbs “traditional whey.” It further alleged that Musclegen’s
marketing and packaging statement that it contains “medical grade” protein is
incorrect, false, and misleading, as no industry or FDA standard exists for
“medical grade” protein.

Musclegen initially said that its product had “three times
the protein absorption rate as traditional whey protein—meaning that consuming
one scoop of Genepro is the functional equivalent of consuming 30 grams of whey
protein,” as supported by a clinical trial. Then it sought to amend its answer
and admit many of the allegations when its founder and COO pled guilty to a
federal felony count of distributing unapproved new drugs with the intent to
defraud and mislead. As a result, Musclegen was “experiencing severe financial
distress” and sought to resolve the case. That was good cause to amend!
However, the court declined to grant a protective order to pause discovery.
There were still issues about willfulness, entitlement to damages/disgorgement
of profit, and exceptionality under the Lanham Act. Nor were declaratory
judgment claims necessarily moot.

The court also denied SI03’s motion for a TRO to prevent
sales of Genepro and to freeze Musclegen’s assets. “The evidentiary support it
offers for the TRO motions is fairly slim at this point and based in part on
speculation, and the Court finds the motions are premature. Plaintiff points to
Defendant’s refusal to participate in discovery, but this cannot serve as a
substitute for evidence to show Plaintiff’s likelihood of success.” Plus,
Lanham Act trademark infringement/counterfeiting cases about asset freezes
didn’t show that similar relief was appropriate in a Lanham Act false
advertising case. (I really don’t understand why courts make the TM/false advertising distinction
when they do as opposed to ignoring it when they don’t.)

SI03 also failed to show irreparable harm, because a
misrepresentation about the defendant’s own product didn’t justify a
presumption of harm. (The TMA changes this for irreparable harm, but we have
yet to discover whether this will affect courts’ decisions on whether the
elements of the underlying cause of action for false advertising have been
satisfied.)

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Contract remedies again prove broader than false advertising for pandemic-related suits

Posted on September 21, 2021 by rtushnet

In re Columbia Tuition Refund Action, No. 20-CV-3208 (JMF)
& 20-CV-3210 (JMF), — F.Supp.3d —-, 2021 WL 790638 (S.D.N.Y. Feb. 26,
2021)

These are two putative class actions against Columbia and
Pace based on allegedly broken promises due to the pandemic. “The cases are not
formally consolidated, but the Court addresses the two motions together because
they raise similar issues.” The claims survive only to the extent that they
plausibly alleged violations of specific contractual promises for particular
services or access to facilities.

Thus, some but not all breach of contract claims survived.
For example, plaintiffs failed to plead that Columbia made a specific promise
of exclusively in-person instruction. “[R]eferences to classroom locations and
physical attendance requirements in Columbia’s syllabi, departmental policies
and handbooks, and course registration portal … merely memorialize the
pre-pandemic practice; they offered no guarantee that it would continue
indefinitely.” References in Columbia’s marketing materials to “the on-campus
experience” were often mere puffery “too vague to be enforced as a contract,” such
as a statement in a University publication that “Columbia is an in-person kind
of place.”

However, the instructional format claim against Pace
survived because the plaintiff alleged that the course registration portal on
Pace’s website stated that “[o]n-campus” courses would be “taught with only
traditional in-person, on-campus class meetings.” On a motion to dismiss, it
was ambiguous whether Pace’s disclaimer that “unforeseen circumstances may
necessitate adjustment to class schedules” and that “[t]he University shall not
be responsible for the refund of any tuition or fees in the event of any such
occurrence …. Nor shall the University be liable for any consequential
damages as a result of such a change in schedule” applied to a shift online.

And the Columbia plaintiffs did plead that Columbia breached
a contract to provide access to certain campus facilities and activities in
exchange for mandatory student fees. Resolving this claim involved no
intervention into academic judgment, and bad faith was not an element. So too
for similar Pace claims. But unjust enrichment wasn’t available where it merely
duplicated the contract claims, and conversion also wasn’t available.

NYGBL 349 and 350:  Plaintiffs
failed to allege that the universities’ representations were materially
misleading. “Plaintiffs cite, and the Court has found, no case holding that a
plaintiff can state a claim under Section 349 or 350 where the defendant
neither knew nor could have known that its commercial acts or practices were
false.” [A reversal of the usual result: contract claims are usually much
narrower than unfair trade practices claims.]

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No PI where individual defendant has left allegedly trademark-infringing role

Posted on September 21, 2021 by rtushnet

Nigerians in Diaspora Organization Americas v. Key, 2021 WL
811094, No. 19-3015 (RDM) (D.D.C. Mar. 3, 2021)

“NIDOA is a continental nonprofit organization that
advocates for the interests of Nigerians in the Western Hemisphere.”  It alleged that, under the continental
organization’s bylaws, defendant Key’s term in office as the chairperson of the
Board of Directors expired in 2019, but Key and her associates refused to cede
control. Thus, two separate groups claim to be the Board. NIDOA’s theory is
that Key is infringing NIDOA’s trademarks by continuing to act in the name of
NIDOA-USA.

“While the dispute between the dueling Boards continues, Key
has now relinquished her position on the holdover Board of Directors and has
thus ceased the activities that arguably infringed the trademarks.” Thus, the
request for preliminary injunction was moot, and NIDOA didn’t show likely
irreparable injury despite evidence that having two competing Boards caused
some confusion and some loss of goodwill and donations for NIDOA and for the
Board elected in 2019. For example, a member messaged one NIDOA person through
WhatsApp to report a $100 donation for a COVID-19 fundraiser, but it turned out
that the money had accidentally been sent to Key’s Board of Directors, when the
member intended to send the money to the Board of Directors elected in 2019. In
another WhatsApp message, a different NIDOA member observed that a press
release from Key was “very[,] very confusing” and complained that the “faction”
within NIDOA “sends a wrong signal to the outside world.”

Key satisfied the stringent standards for mootness due to
voluntary cessation—at least while the case was pending final resolution, as
appropriate for a preliminary injunction. NIDOA was challenging the activities
of the holdover Board, not of Key as an individual; many of the documents that
allegedly infringed its mark didn’t use her name at all or listed her with
other Directors. “[T]here is no basis to find that she will continue to
infringe Plaintiff’s trademarks during the pendency of this action, now that
she is no longer a member of that board.” Nor was the equitable power to enjoin
third parties as successors an interest an exception to the mootness doctrine.
The court would not enjoin third parties “even though the claim for a
preliminary injunction against Key, the only defendant named in the case, is
moot.”  Nor did NIDOA show that the other
Board members were in privity with Key or are acting as her agents. NIDOA
decided whom to sue, and chose only Key, not the entire holdover Board; it
opposed the intervention of the entity representing the holdover Board; it
didn’t seek to add the holdover Board as a party.

However, the court reserved judgment on NIDOA’s damages
claims and permanent injunctive relief.

Even if the claim weren’t moot, NIDOA failed to show
irreparable harm. Apparently uninformed about the TMA’s change in the standard,
the court held that there was no presumption of irreparable harm. Interesting
question: would cessation rebut the presumption if it had been properly
applied? The court concluded: “Ongoing confusion allegedly caused by Key’s past
acts is insufficient to support injunctive relief, in the absence of some
likelihood that Key will take similar actions again in the future.”

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continued desire to purchase TVs suffices for California standing

Posted on September 21, 2021 by rtushnet

Julian v. TTE Technol., Inc., 2021 WL 810228, No.
20-cv-02857-EMC (N.D. Cal. Mar. 3, 2021)

Plaintiffs alleged false advertising of TTE’s TVs in
violation of California and New Jersey law; the court granted the motion to
dismiss but allowed leave to amend as to injunctive relief claims.

According to Plaintiffs, it is false or misleading for TTE to
market the televisions as having a “120Hz CMI effective refresh rate” when in
fact the televisions have a 60Hz refresh rate. Two of the four named plaintiffs
alleged:

• “As a result of [TTE’s] false and
misleading statements, Plaintiff…paid more for his [TTE] television than he
would have paid had [TTE’s] advertising and representations been truthful.”

• “Plaintiff…would like to
purchase a [TTE] television in the future if he knew he could trust their [sic]
refresh rate advertising. But, without a court ordering [TTE] to fix their
[sic] advertising, Plaintiff…has no way of knowing whether he can trust
[TTE’s] refresh rate advertising.”

• “As a result of [TTE’s] false and
misleading statements, Plaintiff…paid for a television that [TTE] misrepresented
as using technology and including technical capabilities it did not actually
have. Plaintiff would not have bought the television but for [TTE’s] refresh
rate (Hz) misrepresentations.”

• Plaintiff has experienced poor
picture quality when using the TTE television for, e.g., action movies, sports,
or video games.

Was this plausible? If plaintiffs wanted a 120Hz television
only, not a 60Hz television with poorer picture quality, TTE argued, then
“correcting TTE’s alleged advertising to 60Hz would not affect [their]
purchasing decisions.” But “the point of the injunctive relief is to prevent
TTE from engaging in false advertising so that Mr. Julian and Mr. Pacano can
rely … on TTE’s advertising in the future – i.e., so that they can decide
whether or not to purchase a television from TTE.” Second, it wasn’t clear that
they would never buy a TTE TV in the future. “It is not inherently
contradictory for Mr. Julian and Mr. Pacano to make both allegations (i.e., to
assert that they would not have bought the televisions or would have paid less
for the televisions had there been no false advertising).” The TVs weren’t
allegedly worthless if truthfully advertised.

TTE argued that there was no actual or imminent threat of
future harm because, now that the individuals know what is meant by “120Hz CMI
effective refresh rate,” they will not be deceived in the future: “merely
looking at the online specifications or product label would clear any
ambiguity.” Again, though, the harm was inability to rely on advertising. As
another court cited by the 9th Circuit has held, “A material
representation injures the consumer not only when it is untrue, but also when
it is unclear whether or not it is true.” A consumer need not check the fine
print and is not expected to look beyond misleading representations on the
front of a package to discover the small-print truth. And, in fact, plaintiffs
“could not know whether the TTE televisions were truly 120Hz or 60Hz without
purchasing them.”

But were they really likely enough to be on the market for a
TV for an actual or imminent threat of future harm? TVs aren’t like flushable
wipes in terms of repeat purchases. “[S]ome day” intentions for the future are
not sufficient to establish standing. The complaint’s current allegations
weren’t good enough without any factual allegations to “suggest a purchase in
the relatively near or forseeable future …, at least in the context where, as
here, the goods are not, e.g., consumable items that are bought on a repeat
basis …, but rather a durable good not typically purchased on a regular basis.”

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divided NY court finds incomplete legal compilation wouldn’t mislead reasonable consumers

Posted on September 21, 2021 by rtushnet

Himmelstein, McConnell, Gribben, Donoghue & Joseph, LLP
v Matthew Bender & Co., 2021 NY Slip Op 03485, — N.E.3d —-  37 N.Y.3d 169 (Jun. 3, 2021)

The plaintiffs were a law firm that handles landlord-tenant
actions, a non-profit corporation that assists pro se litigants in housing
court matters, and a tenant advocate and organizer. They bought the annual
edition of a legal resource manual, New York Landlord-Tenant Law (the Tanbook),
which was published by Matthew Bender. They alleged Matthew Bender violated GBL
§ 349, based on its alleged misrepresentations about the completeness of the
laws reproduced in one section of its publication. The court found that the
alleged misrepresentations were consumer-oriented because they were “contained
in a manual that was then marketed to and available for purchase by consumers,”
nonetheless “a consumer acting reasonably under the circumstances here would
not have believed that defendant represented that the section at issue,
containing rent control statutes and regulations, was current and accurate for
its one-year shelf life.”

Plaintiffs contended that omissions and inaccuracies
rendered the Tanbook of no value to its users and that, after receiving
complaints, Matthew Bender included the previously omitted statutes and
regulations in the 2017 edition, which, although published late in the calendar
year, was sold to plaintiffs and other subscribers at full price.

Plaintiffs alleged that Matthew Bender deceptively implied
that Part III of the book contained a complete compilation of the rent control
and stabilization laws and regulations applicable to New York City. The book’s
“Overview” section described other sections as consisting of
“selected” laws and regulations or “excerpts.” By contrast,
the Overview describes Part III as containing “the laws and regulations
covering rent stabilization,” despite omitting significant portions thereof.
Matthew Bender argued that the omissions were an unfortunate mistake but not
actionable misconduct; among other things, the sales contracts expressly
disclaimed the accuracy, reliability, and currentness of the Tanbook.

The Supreme Court (that is, the appellate court) reasoned
that GBL § 349 was inapplicable because the Tanbook wasn’t directed at
consumers at large for personal, family, or household use, but rather to legal
professionals. That was error. “[A]ny such narrowing of the term ‘consumer’
would be contrary to the legislative intent to protect the public against all
forms of deceptive business practices.” Consumer-oriented conduct distinguishes
conduct with a broader impact on consumers at large from “[p]rivate contract
disputes, unique to the parties,” but does not depend on the use to be made of
the product. The Tanbook was advertised and available for sale to the general
public, including through Matthew Bender’s website and a public, online
shopping service. “Consumer-oriented conduct” need not “be directed to all
members of the public,” and Matthew Bender’s “As even plaintiffs concede, the
legal materials contained in Part III are subject to legislative amendment at
any time, seriously undermining plaintiffs’ contention that yearly publication
was a representation that the Tanbook was complete and accurate.” And the
misrepresentations weren’t materially misleading “under all the circumstances,
including defendant’s disclaimer.” The contract specifically didn’t guarantee
updates and provided for invoices for any supplements if and when they became
available. “It is therefore clear to a consumer that the Tanbook is not a
completely accurate compilation of the law.”

What about the express disclaimer? “A disclaimer may not bar
a GBL § 349 claim at the pleading stage unless it utterly refutes plaintiff’s
allegations, and thus establishes a defense as a matter of law. The defendant
must do more than disclaim liability generally; instead, a disclaimer must
address the alleged deceptive conduct precisely, so as to eliminate any possibility
that a reasonable consumer would be misled.” Moreover, an overall misleading
impression can’t be saved by a disclaimer.

The disclaimer here was: “WE DISCLAIM ALL WARRANTIES WITH
RESPECT TO PUBLICATIONS, EXPRESS OR IMPLIED . . . WE DO NOT WARRANT THE
ACCURACY, RELIABILITY OR CURRENTNESS OF THE MATERIALS CONTAINED IN THE
PUBLICATIONS.” Here, “[t]he Tanbook’s susceptibility to revision at any time,
coupled with the fact that the disclaimer addresses the precise deception
alleged in plaintiffs’ complaint, leaves no possibility that a reasonable
consumer would have been misled about the contents of the Tanbook.” The
question of whether the Tanbook was worthless without completeness “goes to
whether defendant is offering an item worth buying, not whether defendant has
deceived consumers about the nature of its product.”

A partial dissent would have allowed the claim to continue.
The dissent noted that plaintiffs alleged both that Matthew Bender’s statements
would lead a reasonable consumer to believe that the Tanbook contained all the
updated laws regarding rent regulation and stabilization, and that “the fact
that the Tanbook is updated and purchased by customers annually would lead a
reasonable consumer to believe that the Tanbook was updated on an annual basis
with the changes to the law that were made the previous year, i.e., that
consumers were not merely purchasing another copy of the same book each year.”
The plaintiffs didn’t plead that consumers would assume that the print copy
automatically updated for new rules enacted during the year, but rather the
more reasonable theory that consumers would believe that the print copy was
complete when it was printed. But the 2016 edition of the Tanbook allegedly
failed to include legislative amendments to statutes contained within the text
even though those amendments had taken place years, even a decade, earlier.

The dissent would have let the second theory go forward, at
least. Disclaimers shouldn’t “allow routine disclaimers to render the consumer
protections, codified by the statute, meaningless.”

The dissent went on to address a third issue: the cost of a
product the consumer would not otherwise have purchased is a cognizable injury.
“The use of deception to induce a consumer to buy a product is precisely the
kind of conduct the legislature sought to prohibit with GBL § 349.” To the
extent that some courts were interpreting previous Court of Appeals decisions
to bar that theory, the Court or legislature should clarify the matter.

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competitor’s copying of photos doesn’t inherently inflict competitive harm

Posted on September 20, 2021 by rtushnet

McCleese v. Natorp’s, Inc., 2021 WL 2270511, No. 1:20-cv-118
(S.D. Ohio Jun. 3, 2021)

The parties compete in the market for custom landscape
design services. “[I]n February 2010, Natorp’s began using approximately 24 of
McCleese’s photos on its commercial website.” The parties disagree about how
and whether they were authorized to do so. Each webpage that contained one of
McCleese’s photos also contained Natorp’s own trademark and copyright symbols
at the top and bottom. Natorp’s removed all of his photos from its website
shortly after he complained, but the photos allegedly remained “online at
various social media outlets including Natorp’s private website, Facebook, and
Pinterest.” McCleese registered copyrights for his photos in 2019.

Along with copyright claims, McCleese asserted Lanham Act
false advertising claims. But he failed to plead any injury to a commercial or
sales interest. He did allege sadness, distress, and “profound grief” from
Natorp’s copying of images of a particular landscape job, but the Lanham Act
doesn’t cover psychological, emotional harm. The complaint didn’t allege how
his position in the marketplace was harmed in any way; he even alleged that he
“does not license his photos for any commercial purpose, does not sell copies
of his photos, and his photos are unpublished.” Although the complaint alleged
that defendants were unjustly enriched, “[a] plaintiff’s standing under the
Lanham Act hinges on a commercial injury to the plaintiff, not merely a benefit
to the defendant.” (Now do trademark standing.)

The same analysis applied to claims under Ohio’s statutory and
common law of unfair competition.

DMCA §1202: McCleese didn’t plead facts sufficient to allege
the existence of false CMI. It was not enough to allege that Natorp displayed
its trademark and copyright symbols on the same webpage as McCleese’s photos. False
CMI, according to the case law, must appear in the “body” or “area around” the
infringed work.

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natural decay of nicotine complicates evaluation of literal falsity of nicotine content claims

Posted on September 20, 2021 by rtushnet

Bidi Vapor, LLC v. Vaperz LLC, 2021 WL 2433642, No. 21 C
1430 (N.D. Ill. Jun. 15, 2021)

“The novel question of how the electronic cigarette industry
should approach labeling nicotine content in the face of nicotine degradation
is both significant and unsettled.” Thus, the plaintiff was not going to get a preliminary
injunction against its competitor for falsely advertising 6% nicotine content.

All nicotine degrades with time, so all e-cigarette products
contain different amounts of nicotine than reported. This undermined Bidi’s
literal falsity theory.

Bidi’s lab reports found that Vaperz’s stick, which
advertises 6% nicotine, had an average nicotine level between 3.06% to 3.43%.
It’s cheaper than Bidi’s stick, and this allegedly caused Bidi to lose
business. It brought state and federal false advertising claims.

In context of inevitable degradation, 6% was not shown to be
literally false. “Even though Bidi’s reply argues that a +/- 10% degradation is
the industry norm, the mere existence of some norm acknowledges the fact that
some degradation is inevitable and even expected.” A case that must inevitably
be about what is acceptable variation within the industry cannot be about
literal falsity. The court pointed out that the package never made any claims
about when the stick had 6% nicotine. “[A] linguistically competent person
could, when considering nicotine degradation, reach at least two conclusions
about what 6% means in this context. This inherent ambiguity means that
Vaperz’s statement is not indisputably or undeniably false.”

Comment: One annoying thing about Seventh Circuit precedents
is that they are often sloppily phrased even when they intuitively have the
result right. The court of appeals did not mean “linguistically” competent
despite what it said, and the court here isn’t applying linguistic analysis. It
is considering cultural competence. Indeed, immediately following this
statement, the court concludes: “Rather, this case presents a genuine dispute
about market norms in the e-cigarette industry and whether Vaperz has defied
those norms.”

Bidi tried to argue that the statement was literally false
because defendant’s stick contained less nicotine than the industry-accepted
+/- 10%. But there was little evidence that such a standard existed. [The court
probably goes overboard saying that a literal falsity theory could prevail if
all sides agree that 6% doesn’t mean 6%–if there really were an industry
standard that defendant violated, or if there were 0% nicotine from the start,
that seems literally false.]

Likewise, Bidi didn’t have a clearly enough defined or well
enough evidenced theory of misleadingness. Also, there was at least one lab
report finding that defendant’s stick had 5.38% nicotine, which was within the
10% tolerance proposed by Bidi.

Even if it showed falsity, Bidi didn’t show materiality. It
presented little evidence that rates of nicotine degradation are “actually
salient to consumers”— “especially when nicotine degradation appears to be an
industry-wide issue.” “Instead, it is distinctly possible that customers base
their purchasing decisions on factors like taste, convenience, or price.”

Finally, Bidi didn’t make a strong showing on causation,
just a bare assertion of a tradeoff in sales, and Bidi’s sales had also been
increasing, which weighed against showing likely success.

Because of all this, Bidi wasn’t entitled to the statutory
presumption of irreparable harm (of which the court did not seem very fond,
citing Winter despite its obsolescence in the Lanham Act context). And Vaperz
largely rebutted any presumption, by which the court seems to mean “made
arguments that Bidi didn’t do a good job providing evidence.” Lost profits
aren’t generally irreparable injury and a sales tradeoff would be “purely
financial, easily measured, and readily compensated.” Claims about “customer relationships,
goodwill, and reputation” were mere bare assertions. Market
dynamics—specifically the existence of other 6% products on the market, as well
as the inevitability of nicotine degradation for all participants—made
irreparability of harm hard to assess.

And the balance of harms didn’t favor Bidi, since a
preliminary injunction would essentially be a mandatory recall. The court was
also influenced “by the very strong likelihood that the Bidi Stick also does
not contain exactly 6% nicotine. … The available record evidence suggests that
the Bidi Stick could have as low as 5.47% nicotine.” This could constitute
unclean hands.

The court was also concerned that any injunction would
incentivize e-cigarette manufacturers to add more nicotine in the manufacturing
process, but the FDA usually worries more about products with too much nicotine
than too little. It’s much worse for a user to consume too much nicotine than
too little, and the current situation errs on the side of too little. Plus, the
FDA is actively regulating this market, and the court didn’t want to interfere.

The court did caution that discovery might reveal a very
different picture; this was just how it looked now.

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ordinary recalls aren’t commercial advertising or promotion

Posted on September 20, 2021 by rtushnet

Pictsweet Co. v. R.D. Offutt Farms Co., 2021 WL 4034222, No.
3:19-cv-00722 (M.D. Tenn. Sept. 3, 2021)

Defendant RDO has a subsidiary, CRF, which was in the
business of “producing, preparing, processing and selling frozen vegetables to
frozen vegetable producers, processers, repackers, distributors and wholesale and
retail re-sellers, including Pictsweet, for human consumption.” Pictsweet
packages frozen vegetables for various wholesale and resale customers,
including Kroger.

CRF assumed responsibility for
Pictsweet’s previous supplier’s facility and obligations, which Pictsweet
allegedly consented to in reliance on representations that CRF would fully
perform those obligations and that Pictsweet—through CRF— “effectively would be
doing business with RDO Farms, which was well known in the industry.”

However, shortly after CRF took
over, defendants allegedly became aware that products processed at CRF’s
facility had tested positive for Listeria or “exceeded an IEH2 Process Control
Test (‘PCT’) value of 9,” meaning that they knew the products were “adulterated,”
and they affirmatively chose not to notify Pictsweet of the Listeria-positive
test results, despite purchase orders containing express warranties by CRF
regarding the products’ wholesomeness and fitness for human consumption,
language regarding the seller’s obligation to notify Pictsweet of any
“significant issues” relating to the products, and indemnification provisions
requiring CRF to indemnify Pictsweet for any claims against it relating to
injury caused by the products.

In 2016, the CDC and the FDA began investigating reported
instances of illnesses related to Listeria and soon determined that the strains
were “closely related to strains” of Listeria detected in vegetables processed
at CRF’s facility. CRF thereafter issued two voluntary nationwide recalls of
its frozen vegetable products. The second recall “impacted 432 products and
included Pictsweet products.” However, Pictsweet alleged, the “second recall,”
for undisclosed reasons, also included products that were not contaminated. “Because
of CRF’s recall, Pictsweet, as required by law, issued its own recall of
products that either contained or could contain CRF green beans and green peas.
Pictsweet’s customers, including Kroger, were then required to issue their own
recalls.”

As a result of a consumer class action against Kroger, Pictsweet
allegedly obtained an FDA inspection report for CRF’s facility, from which it
learned for the first time that CRF had concealed positive Listeria test
results and PCT scores above 9 and that it had engaged in a protocol pursuant
to which it redirected and shipped product that it knew was contaminated to
Pictsweet and other customers that did not require finished-product pathogen
testing. Pictsweet allegedly also learned through discovery that “CRF’s representations
about [Listeria] contaminated products was [sic] inaccurate, and that a large
portion of the frozen green peas and beans CRF had supplied to Pictsweet were
not contaminated by [Listeria].”

Most of the decision is about alter ego liability, but the
court spends some time on the various business tort claims. Some fraudulent
concealment claims weren’t challenged in the motion to dismiss, but libel
claims failed because the complaint didn’t allege that CRF made any statements
about Pictsweet’s product. CRF allegedly knew that, “once it issued its recall,
Pictsweet would be obligated to issue its own recall, which would communicate
to Pictsweet’s customers that the product Pictsweet had delivered was
contaminated and not merchantable.” But that meant that “it was Pictsweet’s own
recall that communicated to its consumers false and disparaging information
about Pictsweet’s products, not CRF’s recall. CRF’s recall, necessary or not,
was only about its own product.”

Lanham Act claim: The recall was not “commercial advertising
or promotion.”  Innovation Ventures, LLC
v. N.V.E., Inc., 694 F.3d 723 (6th Cir. 2012), was not to the contrary. That
case involved a recall order based on a trademark/trade dress claim. The
plaintiff had sued two different manufacturers of competing energy shots and
gotten a preliminary injunction based on trade dress, but not trademark. It
then sent a “recall notice” to 110,000 convenience stores and truck stops,
without specifying which “6 Hour Shot” was covered or mentioning that there
were multiple such products on the market. There was no dispute in that case
about whether the notice was commercial advertising or promotion.

Here, the plaintiff didn’t sufficiently allege what in the
recall notice was false or misleading. But more important, the recall here “clearly
did not constitute commercial advertising or promotion of CRF’s product but
instead recalled it. Even if the court assumes that the recall was ‘misleading,’
insofar as it allegedly extended to products of its own that CRF actually knew
were not contaminated, this is simply “not the kind of misrepresentation
prohibited by the [Lanham] Act.’”

Tennessee Consumer Protection Act claims based on the same
conduct also failed, though there was other stuff going on (alleged
misrepresentation of the CRF/RDO relationship, and allegedly knowing provision
of contaminated/adulterated products to Pictsweet while representing their
wholesomeness/fitness for human consumption). The economic loss doctrine didn’t
bar recovery under the TCPA.

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