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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Rogers v Grimaldi doesn’t apply to alcohol, but Peaky Blinders still can’t get injunction

Posted on September 1, 2021 by rtushnet

Caryn
Mandabach Prods. Ltd. v. Sadlers Brewhouse Ltd., 2021 WL 2497928, No. CV
20-10220-CBM-(JEMx) (C.D. Cal. May 19, 2021)

Mandabach
produces the TV series Peaky Blinders, and it alleged that it owned
trademarks and other intellectual property of the show “and certain
quotations/sayings/phrases from the show.” Defendants allegedly sold three
alcoholic beverages under the name “Peaky Blinder” and used quotations/sayings/phrases from
the show. Mandabach sued under §43(a) and coordinate state law claims and
sought cancellation of a trademark registration.

one of the beverages

Defendants
argued that their use “communicates messages and ideas to consumers such as
Defendant Sadler’s historical connection to the real Peaky Blinders gang,” so Rogers
should apply. Defendant Sadler’s managing director declared she “felt that
Peaky Blinder was an appropriate name” for Sadler’s new dark beer because the
Peaky Blinder gang’s “well-known dark history” “connected” with the dark beer
and she was interested in naming the beer after the Peaky Blinder gang in light
of her family and Sadler’s history with the gang.

The
court rejected the argument: “Such evidence does not demonstrate Defendants’
use of the mark conveys an idea or point of view, and therefore the Rogers
test does not apply.” Of course, this is both the right result (the name of the
beer is commercial speech on a nonspeech product) and completely bonkers
reasoning (the Supreme Court has twice held in the past few years that
trademarks often convey ideas and points of view). If we got rid of the bizarre
idea that Rogers was about artistic works and correctly labeled it as
being about commercial speech, courts would do much better.

Did
Mandabach have valid marks? The dictionary definitions of the words “Peaky” and
“Blinders” were not dispositive.  As
applied to a TV show about a group of persons named the Peaky Blinders, it was
descriptive or suggestive. (That doesn’t seem a helpful conclusion, but the
court seems to think that suggestive terms must have secondary meaning to be
protected.) And Mandabach failed to show actual association of the TV show with
a particular source. It submitted 14 social media posts “which it contends
shows consumers and retailers attributed a particular source to Defendants’
liquor and Plaintiff’s television show.” But there was no evidence that these
were actual purchasers of Sadler’s products, and only one actually stated that
they came from the same source (“I’m a MASSIVE fan of the Peaky Blinders TV
series so I had to try their Irish Whiskey and give it a review.”). By
contrast, another asks, “Are you a Peaky Blinders fan? Check out this awarding
[sic] winning gin and whiskey from @sadlersbrewco!” That didn’t show that the
person thought they both came from the same source.

What
about other evidence of sales etc.? Mandabach submitted evidence demonstrating
the show ranks as a top-5 Netflix original drama upon the release of each new
season, a “teaser” trailer for the fifth season of the show has been viewed 2.5
million times, and the show has 4 million followers on in its Instagram
account, 2.6 million followers on Facebook, and 686,000 followers on Twitter. There
was also coverage by The New York Times, The Wall Street Journal, LA Times,
Rolling Stone, Variety, Vox, and Mashable. But this didn’t show source
significance. And five years of use in the US was insufficient to show
secondary meaning.  Nor did Mandabach show
its use was exclusive, so it didn’t show likely success on secondary meaning.

Comment:
Meanwhile we have courts saying that even generic terms can be the foundation
of §43(a) claims and therefore allowing claims based on part number comparisons
to go forward.  

Anyway,
Mandabach also didn’t show likely confusion. The mark was weak; the goods were
not proximate; the marks were similar; one social media instance of confusion
was insufficient to show likely confusion; marketing channels didn’t favor likely
confusion because everyone uses the internet and social media; cost below $25
favored confusion.

As for
intent, an article from Sadlers’ sales director about Peaky Blinder Beer said:
“It’s been selling like mad and done exceptionally well; (2) The idea came from
our managing director Chris Sadler, who is also head brewer. To be honest, the
idea was inspired. And with a second series of Peaky Blinders set to hit the
screen in September, its popularity is only likely to increase; and (3) we are
confident it will be a success because of the popularity of the television
programme.” But that didn’t go to intent in initially selecting the mark. The
managing director declared “[a]t the time that I chose the name Peaky Blinder,
I had never heard of [Plaintiff’s] Peaky Blinders television program … and no
one at Sadler’s was familiar with the program as far as I was aware,” and
further declares she “felt that Peaky Blinder was an appropriate name” as
discussed above.

Product
line expansion: Though Sadler’s was unlikely to expand to TV, Mandabach’s
commercial director declared “there has been great interest from third parties
for licenses for wines and spirits,” in May 2020 Plaintiff executed a license
agreement with a third party for red wine featuring the Peaky Blinders mark,
and Mandabach “has been unable to complete a deal” with potential third-party
licensees “for other types of alcohol and spirits … as a result of the
dispute with Defendants and their continued unauthorized use of the Peaky
Blinders” marks. That favored a confusion finding.

On
balance, Mandabach failed to make a “clear showing” of a likelihood of
confusion at this stage.

False
advertising/passing off: Same basic problems.

Even
if the rebuttable presumption of irreparable harm applied, Mandabach had actual
knowledge of the use of the mark in April 2018, when its licensee sent a
warning letter to Sadler regarding its purported infringement. But Mandabach waited
until November 2020 to sue and moved for a preliminary injunction only in March
2021. This delay demonstrated an absence of irreparable harm.

 

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Renting legitimate goods isn’t actionable, at least with disclaimer

Posted on August 31, 2021 by rtushnet

Proactive Environmental Products Int’l, LLC v. Pine
Environmental Servs., LLC, No. 8:21-cv-250-CEH-CPT, 2021 WL 3025481 (M.D. Fla.
May 20, 2021) (R&R)

Proactive alleged that Pine infringed registered trademarks
associated with Proactive’s groundwater sampling pumps and their components and
engaged in counterfeiting. “Until recently, Pine served as one of Proactive’s
licensed distributors for the pumps. The principal issue in this lawsuit is
whether Pine can continue to rent Proactive’s pumps to its customers despite
the termination of that license, particularly where Pine has made or will make
repairs to the rented pumps.”

In a functioning system, this would be an easy question, but
TM’s definition of confusion has expanded so far that it takes the judge work
to conclude that Proactive probably shouldn’t get an injunction.

In prior litigation, Pine stipulated in a settlement that it
would not rent or sell pumps containing parts not purchased from Proactive,
including, but not limited to, “electrical contacts, contact blocks, and DC
Electric Motors.” Pine continued to purchase pumps from Proactive, many of
which it subsequently rented to end-users. The parties dispute how much
Proactive approved of Pine’s repairs; it did complain about allegedly poor
repair at least twice, but executed a new distributor agreement with Pine
nonetheless.

Pine denied wrongdoing, but removed Proactive’s name from
its website and sales catalog, stopped selling Proactive pumps, and “affixed to
the Proactive pumps it rents a laminated tag, which notifies customers of the
pumps’ used condition and disclaims any association between Pine and
Proactive.”  Its rental inventory
included over two hundred Proactive pumps, fifty-five of which it purchased
after entering into the final distributor agreement.

The judge first found that Proactive wasn’t likely to
succeed on its argument that Pine violated their earlier settlement agreement,
so Pine was entitled to the benefit of that agreement’s covenant not to sue.

Proactive, which licensed the trademarks from the other
plaintiff, did not have standing under §32 (which presumably also affects the
counterfeiting claims), but did have standing under §43(a), applying Lexmark. A
licensee of a trademark need not be expressly afforded a right to enforce the
marks in order to bring a claim under § 43. Here, Proactive had an exclusive,
oral license to use the Proactive trademarks and the licensor joined Proactive
in filing this action. Thus, it had a valid right under §43.

First sale: Even tiny differences can defeat a first sale
defense, including variations in quality control, and also first sale can’t
protect against claims that consumers think the defendant is an authorized
dealer, at least when there is a network of authorized dealers. The judge
recommended that the court find that Proactive failed to meet its burden of
showing that the doctrine didn’t apply at this stage.

As to material differences, rental mattered: “[C]ustomers
who rent a pump (or any product for that matter) are likely to assume that it
has been used before and therefore is not in pristine condition.” Pine
disclosed the condition of its pumps and disclaimed any association with
Proactive; Pine also provided evidence that differences between a rental pump
and an unmodified Proactive pump “do not affect the pump’s operation, amount to
normal wear and tear expected for a used rental pump, and/or were not caused by
Pine.” As for Proactive’s quality control, the agreement between the parties
didn’t address the degree to which Pine was authorized to make repairs, which
was an open question. [And if quality control can defeat the fact that everyone
knows the product is used, then there will be no more used goods market.]

Proactive argued that Pine couldn’t meet its quality control
standards because it can no longer purchase replacement parts from Proactive.
But Proactive failed to provide evidence about the current condition of the
pumps in Pine’s inventory, or other evidence that Pine was presently renting
pumps which do not meet Proactive’s standards, or evidence about the
comparative condition of the pumps rented by Proactive’s authorized
distributors. Without that, the judge couldn’t find harm to the trademarks.

Nor was the judge persuaded that consumers would think Pine
was an authorized distributor, given the changes it made to its site and to the
products.

Anyway, does renting cause likely confusion? Also not shown.
Pine’s rentals were not equivalent to selling counterfeit goods or continuing
to operate a franchise after the agreement expired. Pine operates under its own
name and sells/rents other products, some of which directly complete with
Proactive. And it bought most of the pumps it rents before the last distributor
agreement, and discloses that they’re used. This didn’t create a “certainty of
confusion” that would allow a court to skip over a multifactor analysis. Three
key factors—actual confusion, similarity of the products, and similarity of the
parties’ trade channels and customers—didn’t support an injunction.

Proactive failed to submit any evidence of actual confusion,
which was “particularly noteworthy” given Pine’s anti-confusion steps. Product
similarity didn’t support Proactive because of the differences between new and
refurbished goods, which were analogous to rental goods (citing Champion Spark
Plug). As Champion said: 

[I]nferiority is expected in most second-hand articles….
Inferiority is immaterial so long as the article is clearly and distinctively
sold as repaired or reconditioned rather than as new. The result is, of course,
that the second-hand dealer gets some advantage from the trade mark. But …
that is wholly permissible so long as the manufacturer is not identified with
the inferior qualities of the product resulting from wear and tear or the
reconditioning by the dealer. Full disclosure gives the manufacturer all the
protection to which he is entitled.

The Nitro Leisure golf ball case likewise rejected the
argument that material differences alone sufficed to defeat a first sale
defense if the used and refurbished nature of the goods was disclosed. With the
“re-sale[ ] of new goods,” material differences are vital and “any variation of
the product from a new condition … may signal imitation, counterfeiting,
falsity or some other irregularity affecting a customer’s decision whether to
purchase the product.” [Material differences can be disclosed for new goods
too; courts often skip straight to presuming confusion regardless.]

By contrast, for “used or refurbished goods,” “ ‘material
differences’ do not necessarily measure consumer confusion.” As Nitro Leisure
noted, “consumers are not likely to be confused by—and indeed
expect—differences in the goods compared to new, unused goods.” Thus, “the
question of likelihood of confusion in the context of used goods is whether
[they] are so different from the original that it would be a misnomer for them
to be designated by the original trademark.”

Proactive attempted to distinguish these cases by arguing
that “Pine’s replacement of genuine Proactive parts on Proactive’s pumps with
unauthorized components … will eventually [cause the pumps to] contain few of
the characteristics of the original device.” Proactive’s Ship of Theseus
argument was “both speculative and insufficiently supported at this stage.”
Proactive didn’t show that the differences in pumps actually rented by Pine
were anything more than would be expected for used pumps.

Proactive also attempted to use its network of authorized
distributors to distinguish the cases, but there was no evidence showing
consumer confusion about authorization or, indeed, about the condition of
authorized dealers’ pumps.

Though similarity of trade channels/customers weighed
“marginally” in Proactive’s favor, that wasn’t enough here.

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innovative/”new technology” claims foiled by Dastar

Posted on August 31, 2021 by rtushnet

Powerbahn, LLC v. Foundation Fitness LLC, 2021 WL 2689852,
No. 1:19-cv-1678-AT (N.D. Ga. Ma.r 26, 2021)

POWERbahn alleged that defendant Wahoo made false
representations in its ads by failing to disclose POWERbahn and its CEO as the
source of the technology behind Wahoo’s KICKR products, and by representing
“that its KICKR products were innovative and incorporated new technology when
they in fact were not and did not.” PowerBAHN to plead around Dastar by arguing
that Wahoo misrepresented the “inventive services” that “embody” the KICKR
products as Wahoo’s own, when those inventive services are actually
attributable to POWERbahn. That doesn’t work because Wahoo sold goods that it
made, and Dastar clearly prevents attempts to protect ideas “embodied in”
goods. The accused ads were clearly for goods, not services, let alone services
“qualitatively different” from anything necessarily done in connection with
selling the KICKR products.

False advertising: POWERbahn alleged that ads that the
KICKR’s road feel relies on “innovative technology” and “new algorithms” “to
improve responsiveness and better replicate the sensation of riding on the
road” were literally false because: (1) in designing the KICKR control system,
Wahoo followed the teachings of a patent application filed in the 1980s and (2)
the algorithms in Wahoo’s KICKR infringe on POWERbahn’s patent published in the
mid-2000s. 

Statements describing the KICKR technology as “innovative”
were nonactionable puffery, unlike similar claims that were combined with
specific claims about proprietary technology, “original,” or “first.” What
about “new algorithms” and another ad touting “advanced algorithms that
originated with the iconic KICKR smart trainer”? A claim based on failure to
attribute the technology to POWERbahn was clearly foreclosed by Dastar. But
POWERbahn further argued that the algorithms weren’t new and didn’t originate
with the KICKR product. Those statements were falsifiable.

However, POWERbahn provided no evidence that they were
actually false (even if pending patent infringement claims could show patent
infringement)—it didn’t show that the KICKR flywheel didn’t “use[ ] new
algorithms to improve responsiveness” or that the KICKR CORE does not use
advanced algorithms that “originated with the iconic KICKR smart trainer.”
Wahoo acknowledged that it built its products off of pre-existing technology,
stating that it “based its design for the control system of the KICKR on the
expired, prior art Sargeant patent.” But the court agreed with Wahoo that,
“[e]ven if one aspect of a new product is based on something else, it does not
mean that other aspects of the product, and the product as a whole, are not new
and innovative.”

POWERbahn’s expert opined that Wahoo’s products infringed on
the relevant patents, including by using equations disclosed by the patents.
But he didn’t opine that the algorithms weren’t new.  POWERbahn could have created a jury question
by comparing the algorithms in the KICKR with previously existing algorithms
from other products. But it didn’t.

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Robinhood’s newsletter isn’t commercial advertising

Posted on August 31, 2021 by rtushnet

Jackson v. Robinhood Markets, Inc., 2021 WL 2435307, No.
21-cv-02304-LB (N.D. Cal. Jun. 15, 2021)

Jackson, known professionally as Ice Cube, sued after
Robinhood used his image and a paraphrase of a line from his song “Check Yo
Self” to illustrate an article that it published about a market correction for
tech stocks. In Robinhood’s hands, “Check yo self before you wreck yo self,”
became “Correct yourself before you wreck yourself.” “Check yo self” is Ice
Cube’s “catchphrase.” He sued for Lanham Act false endorsement, violation of
California’s ROP, and unfair competition.

The picture (screenshot?) used to illustrate the newsletter article

“The court dismisses the complaint for lack of standing
because the plaintiff did not plausibly plead that Robinhood’s use of his
identity suggested his endorsement of Robinhood’s products.” This was in a
newsletter, not a conventional ad.

The complaint called this an ad, and alleged that “Robinhood
has a demonstrable pattern and practice of using established celebrities, such
as Nas and Jay-Z, to endorse its products and services.” But the court could
consider the accused material itself as integral to the complaint, and it was
an article about market corrections. Using his picture/paraphrase to illustrate
an article about market corrections doesn’t suggest that Ice Cube endorsed
Robinhood, even if Robinhood uses celebrity endorsement in ads.  This was fatal to all of his claims.

The court characterizes this as a question of Article III
standing, though it seems more like failure to state a claim. But I do wonder
whether the sometimes outré theories of trademark harm we see can really
survive current Article III scrutiny. And indeed the motion to dismiss the
subsequently filed amended complaint, which alleges only a Lanham Act §43(a) claim,
leans into the difference between alleging the defendant’s unjust enrichment
and alleging that one has been harmed. The motion to dismiss also argues that
the First Amendment precludes a Lanham Act claim against a newsletter, using
both ROP precedents and a Rogers argument.

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“Oregon” wine bottled in California might be confusing

Posted on August 31, 2021 by rtushnet

Kay v. Copper Cane, LLC, — F.Supp.3d —-, 2021 WL
2953241, No. 20-cv-04068-RS (N.D. Cal. Jul. 14, 2021)

Plaintiffs challenged the labels on a line of CC’s pinot
noirs, alleging deception about the wine’s appellation of origin in Oregon
generally and three valleys in Oregon specifically, as well as the grapes’
purported coastal roots.

The Alcohol and Tobacco Tax and Trade Bureau prohibits
labeling likely to mislead a consumer and must approve all labels prior to use.
It also has the authority to create appellations of origin for wine grapes and
American viticultural areas. The TTB recognizes Oregon as an appellation of
origin and the Willamette Valley, Umpqua Valley, and Rogue Valley as separate
AVAs.

The labels describe the wine at issue here as an “Oregon
Pinot Noir.” The 2016 label references the “coastal hills” of Oregon as an
“ideal region to grow” this type of wine. The 2017 label also references the
“coast” and includes a map of Oregon with leaves denoting the locations of the
Willamette, Umpqua, and Rogue Valleys. It contains the phrase “Purely Oregon,
Always Coastal.” Marketing materials related to the 2016 version designate the
same three valleys as “Regions of Origin,” and describes them as “premiere
growing regions along Oregon’s coast.” The boxes in which both vintages were
shipped refer to the “Oregon Coast” and the three valleys.

Both back labels contain, however, two lines of text
referencing California. On both labels, the first line provides: “VINTED &
BOTTLED BY ELOUAN.” Below, the 2016 provides: “NAPA, CA • CONTAINS SULFITES.”;
the 2017 reads “ACAMPO, CA • CONTAINS SULFITES.” Id.

In 2018, the federal government forced Copper Cane to alter
the labels after determining that they were misleading. The new label omits any
overt reference to any of the Oregon AVA valleys and replaces “Purely Oregon,
Always Coastal.” with “Purely Elouan, Always Coastal.” It also clarifies that
the wine is “[m]ade in California in the signature Copper Cane style[.]”

Plaintiffs brought the usual California statutory claims.
First, the court dismissed the claim of a Louisiana citizen who purchased a
2017 bottle in New Orleans; applying California law would violate the
presumption against extraterritorial application even though CC is based in California.

The court then refused to hold that California’s safe harbor
doctrine precluded the claims claims because the labels at issue were
previously approved by the TTB. “Safe harbor” is a common law doctrine
insulating defendants from civil liability when the “[l]egislature has
permitted [the challenged] conduct or considered a situation and concluded no
action should lie.” Courts disagree about whether a COLA issued by the TTB
carries the force of federal law to create a safe harbor, and the court here determined
that, following the reasoning of the Supreme Court case Mead Johnson about
deference to agency action, the COLA hadn’t been shown to justify application
of the safe harbor rule.

Compared to the “rigorous” approval process for
prescription-drug labels, the TTB process “hinges on self reporting” and
reflects only the representations made to it by the distributor, not an
endorsement of those claims. There’s no notice-and-comment rulemaking before
processing COLAs and no reason to think they bind parties other than the
government and the beverage distributor. CC argued that the TTB reviewed its
labels three times, but didn’t show that they specifically reviewed for
falsity, and “[t]he quantity of reviews does not guarantee the quality of
review.”

Next, CC argued that the labels expressly disclosed that the
wine was bottled in California. This couldn’t be resolved at the pleading
stage, and the reference to California on the back-left corner of the label
didn’t even use the word “in” to link “VINTED & BOTTLED” with “NAPA, CA •
CONTAINS SULFITES.” “Whether the graphic design of the two lines of text are
sufficiently clear such that no reasonable consumer would be deceived is thus a
question of fact not properly resolved at this juncture.”

CC then contended that references to Oregon or its coast
were too unspecific to mislead.  “This
argument ignores the widely understood fact that the location where a wine is
produced has special significance.” Thus, “a geographic reference on a wine
label is understood to be an assertion about the origin of the product.”

Plaintiffs also had standing to seek injunctive relief.
“Discovering via litigation the true nature of an allegedly mislabeled product
is not analogous to gaining external information that contextualizes the label
in a way that avoids deception.” Plus, plaintiffs never alleged that they were
opposed to purchasing wine grown in Oregon but finished in California.

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Rejected compliance offer to AG leads to fee shift after defense victory

Posted on August 30, 2021 by rtushnet

State ex rel. Rosenblum v. Living Essentials, LLC, 313 Or.App. 176, A163980 — P.3d
—-, 2021 WL 2946172 (Jul. 14, 2021)

The
state alleged that LE falsely advertised its 5-hour Energy drinks,
misrepresenting (1) the effects of the noncaffeine ingredients in their
products and (2) the results of a survey of physicians in several “Ask Your
Doctor” advertisements, falsely implying that physicians recommended 5-HE to
their patients. Not only did the state lose, the court of appeals found that
the trial court erred in denying attorneys’ fees.

First,
the trial court didn’t err in requiring materiality to prove an unlawful trade
practice under Oregon statutes. The challenged claims were, for example, that
5HE “contains the powerful blend of B-vitamins for energy, and amino acids for
focus. The two-ounce shot takes seconds to drink and in minutes you’re feeling
bright, alert and ready for action. And the feeling lasts for hours—without the
crash or jitters.” As for the doctors claim, the ads said, e.g. “We asked over
3,000 doctors to review Five-Hour Energy and what they said is amazing. Over
73% who reviewed Five-Hour Energy said that they would recommend a low-calorie
energy supplement to their healthy patients who use energy supplements. 73%. …
Is Five-Hour Energy right for you? Ask your doctor. We already asked 3,000.”

The
court held that the state failed to prove materiality. As to the first, it
found defendant’s expert more persuasive. That expert “offered a consumer
survey demonstrating that the NCI blend in defendants’ caffeinated products is
not a significant factor in consumer purchasing decisions; that most consumers
were repeat customers who were satisfied with their experience with the
product; that consumer buying was influenced by a multitude of factors,
including product effectiveness, taste, convenience, and price.” And the court
also found that the Ask Your Doctor campaign wasn’t misleading or material. It
was persuaded that by expert and survey evidence “that advertising is not
highly influential to consumer purchasing decisions in general; that, in
particular, the cessation of the AYD advertising campaign did not cause a drop
in sales; that consumers expect bias in a survey touted in advertising; and
that the doctors’ survey was not represented to be conducted in a scientific or
unbiased manner.”

The
state argued that the legislature “did not intend to require specific proof of
materiality in each individual case, which can be difficult and expensive.” This
is not really the same thing as not requiring materiality at all, and the court
of appeals was unpersuaded. Reading the statutory requirement that a practice “cause[
] likelihood of confusion or of misunderstanding,” for example, it had to cause
something, and that something must necessarily be material; if it weren’t material,
it would be unlikely to create confusion or misunderstanding. Not only was that
consistent with the history of unfair competition laws, a statute without a
materiality requirement would risk running afoul of the state constitution’s
protection for free speech.

The
trial court also concluded that falsity about the non-caffeine ingredients
would be material, so that didn’t entirely resolve the case. The trial court
found was persuaded by the state’s view that those ingredients do not produce
feelings of energy and alertness “during the five hours following consumption.”
However, the specific presentation of each claim saved 5HE [as we all know that
consumers read ads like they’re looking for perjury.] For example, “
‘B-vitamins for energy,’ is not an inherently false representation, as the body
does require B-vitamins in order to produce energy.”

The
court thus found that Decaf 5HE’s claims had false implications, but only one
case of the product came to Oregon. It found that civil penalties weren’t
allowed because the falsity wasn’t willful and thus entered a verdict in favor
of 5HE. The state argued that the court should have found a violation even if
civil penalties weren’t appropriate. But the state didn’t show explicit
falsity, only false implications, so its theory of the case (that the other
ingredients had no effect at all, as opposed to no effect for 5 hours after
consumption) failed.

The
statute also provides: “If the defendant prevails in [an action brought by the
prosecuting attorney under the relevant statute] and the court finds that the
defendant had in good faith submitted to the prosecuting attorney a
satisfactory assurance of voluntary compliance [AVC] prior to the institution
of the suit ***, the court shall award reasonable attorney fees at trial and on
appeal to the defendant.” Defendants qualified. They submitted an AVC commiting
not to make false/misleading material representations and offering $250,000 be
used by the State of Oregon as allowed by law, including, but not limited to,
restitution and consumer education.

The
state rejected the AVC on the grounds that “it does not provide restitution for
Oregon consumers and because it does not provide sufficient assurances that
[defendants] will not re-offend.” It was merely a restatement of the legal
prohibition on false/misleading claims, and relative to defendants’ size and
income, the proposed payment was “insufficient to provide meaningful deterrence
to future misconduct.” Although defendants won at trial, the trial court agreed
that the AVC was not satisfactory “given the state’s claims and the relief that
they were seeking at the time.” Noting that the UTPA is subject to various
interpretations and “not a lot of developed case law,” the trial court found
that, despite not prevailing, not all of the state’s claims were unreasonable,
there were contested legal theories involved, and the case was one that
“probably needs to be litigated.”

But
even if it was reasonable for the state to litigate, defendants were still
entitled to fees. The AVC was concededly submitted in good faith; was it
“satisfactory”? This assessment must be made by a court based “on the
circumstances existing at the time the AVC was submitted, not through the lens
of hindsight.” The legislative history indicated that the mandatory attorney
fee provision was intended to protect sellers by deterring the state from
bringing “unjustified” actions. A later amendment specified that the
prosecuting attorney could reject as unsatisfactory any AVC that didn’t promise
specific restitution for people who lost ascertainable money/property or that
didn’t include certain recordkeeping or other requirements necessary to ensure
cessation. But that’s not exclusive; there can be other reasons for an AVC to
be unsatisfactory.

This
one, however, was satisfactory. It did offer restitution, even though the sum
it offered could also be used other ways at the state’s discretion. Given that
the case involved “a small-scale consumable product, in which it may be
difficult, if not impossible, to identify specific individuals who may have
been injured by the alleged violation, and in the absence of any argument by
the state that the restitution amount promised was inadequate,” this offer was
fine. Nor was the offer contrary to Oregon law—even assuming that 5HE’s promise
not to make material misrepresentations or omissions about 5-HE that consumers
would reasonably rely on to their detriment “would hold defendants to a less
demanding standard than what is required under the UTPA,” the AVC contained
other provisions promising to obey the UTPA in its entirety.  Even if it was “reasonable” for the state to
have rejected the AVC and proceeded to trial, the statute didn’t have a
reasonableness test.

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Pom Wonderful applies to pharmaceuticals, but “implied FDA approval” claim still fails

Posted on August 30, 2021 by rtushnet

Belcher
Pharms., LLC v. Hospira, Inc., 1 F.4th 1374 (11th Cir. 2021)

Belcher
alleged that the labels for two of Hospira’s drugs falsely implied that the
products and their uses were FDA-approved. The district court rejected that
claim on the grounds that resolving it would invade the FDA’s enforcement
authority under the FDCA. And anyway, it held, Belcher had failed to show that
Hospira made misleading statements.

Belcher
appealed, and the court of appeals found that its claim wasn’t precluded, but
it also wasn’t sufficiently supported by a showing of misleadingness, so
summary judgment was appropriately granted.

Injectable
ephinephrine is (for purposes of this litigation) grandfathered into the US
market, though there are also actual FDA-approved ampules; they just didn’t
push the grandfathered products out of the market.

Because
Belcher submitted an NDA to the FDA, its indications for use were limited to
those the FDA approved: for hypotension associated with septic shock; during
intraocular surgery; and emergency treatment of allergic reactions. Hospira,
being grandfathered (again, for purposes of this litigation), “listed additional
historical uses, claiming, among other things, that its products could be used
to treat cardiac arrest and to prolong the effects of anesthetics.”

Belcher
argued that Hospira’s inserts gave the false impression that Hospira’s
epinephrine products (along with their indications) were approved by the FDA. The
district court held that, to avoid FDCA preclusion, Belcher needed to “show
more than the mere fact that a drug has been placed on the market with standard
packaging and inserts.” Also, though Belcher offered evidence that “some
consumers believed Hospira’s epinephrine products were FDA-approved,” it was
“unable to tie those beliefs to actionable acts by Hospira.”

Does
the greater regulation of pharmaceuticals mean that Pom Wonderful
applies differently to them than to food and beverage labels? “[N]othing in the
text of the Lanham Act or the FDCA suggests a different rule for drug products.”
Nor is the extensiveness of FDA’s regulatory role matter—FDA’s role in
food/beverage labels is already detailed. But Pom Wonderful stated that
the FDA “does not have the same perspective or expertise in assessing market
dynamics that day-today competitors possess,” and the Lanham Act harnesses that
expertise by motivating competitors to challenge certain misleading labels. “Nothing
about those two points is different in the drug industry.”

There
are some reasons a court might “disallow label challenges involving certain
drug claims that call on courts to contradict a conclusion of the FDA or to
make an original determination on an issue committed to the FDA’s discretion.”
In particular “an original determination that is committed to the FDA,” such as
“whether a drug is ‘new,’ and whether it can be lawfully marketed under the
FDCA, may be for the FDA alone. But this case wasn’t like that.

For
one thing, these labels hadn’t been preapproved by the FDA. Nor was Belcher
asking for an original determination “that only the FDA could make—such as
whether the indications for use are safe or effective, or whether Hospira’s
drug is approved or grandfathered.”

So,
contrary to some previous cases, the court found that whether the package
inserts falsely implied FDA approval was cognizable under the Lanham Act.

But
the claim still failed: “Hospira’s inserts never claimed FDA approval, nor does
Belcher point us to any language that hints at it. As best we can tell, Belcher
relies solely on the existence of the drug and its inserts on the market. That
is simply not enough.” There was no consumer evidence. [Query what kind of survey
would have been appropriate. What if you showed relevant consumers the inserts
with a clear disclosure of lack of approval as a control—would that be ok?]

 

 

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FTC fails to show lack of substantiation because court reads ASTM standards as nonrestrictive

Posted on August 30, 2021 by rtushnet

Federal
Trade Comm’n v. Innovative Designs, Inc., 2021 WL 3086188, — Fed.Appx. —-, No.
20-3379 (3d Cir. Jul. 22, 2021)

Another
FTC loss, this time for failing to prove that IDI’s claims about its Insultext
House Wrap were false or unsubstantiated. Insultex (which I can’t help reading
as “insult-ex”) is “a weather-resistant barrier used in building construction.”
IDI’s ads tout its R-value, a measure of the product’s ability to restrict the
flow of heat. The higher, the better it is at insulating. The standard test for
insulation is set forth in ASTM C518. 

“IDI
advertises that ASTM C518 testing revealed that Insultex has an R-value of
either R-3 or R-6, but “standard” ASTM C518 testing conducted on Insultex has
not yielded those results.” Instead, IDI used “modified” ASTM testing. “IDI
also advertises that Insultex provides energy savings to its users based upon
its claimed R-values, but it has conducted no energy savings studies.”

The
district court held that R-value testing results could be admitted only with
expert testimony explaining them; it then held that the FTC’s expert’s opinions
weren’t reliable or fit under Daubert. Because the FTC couldn’t show
that the modified testing didn’t conform to ASTM standards, it hadn’t shown
falsity, and because of that, it hadn’t shown that the energy savings claims
were unsubstantiated, because IDI relied on the Federal Register statement that
a high R-value leads to energy saving.

At
the time IDI made its advertising claims, relevant regulations provided that
R-values in labels and promotional materials “must be based on tests done under
the methods listed below.” The regulations stated stated one of those methods
is “ASTM C 518[ ],” and that such a test “must be done on the insulation
material alone (excluding any airspace).” (The modified test used an air gap.)

When
the FTC brings a lack-of-substantiation claim, it must show materiality and must
also “(1) demonstrate what evidence would in fact establish such a claim in the
relevant scientific community; and (2) compare [ ] the advertisers’
substantiation evidence to that required by the scientific community to see if
the claims have been established.” If an advertising claim “states a specific
type of substantiation,” as some of IDI’s claims at issue here, the “advertiser
must possess the specific substantiation claimed.”

The
problem here was that the FTC failed to prove “that use of a modified ASTM test
is not ASTM C518 testing.” The standard itself “sets forth a standard test and
explicitly contemplates that variations of the standard method may be
acceptable,” nor does it bar alternative tests with air gaps. [It doesn’t
actually say that variations would satisfy ASTM: The exact language is “[s]tandardization
of [the ASTM C518] test method is not intended to restrict in any way the future
development of improved or new methods or procedures by research workers”
(emphasis added). That plus the “must” be done “excluding airspace” would have led me to the opposite conclusion. I suppose the rationale is that one needs an expert to interpret ASTM standards–no matter what?]

Thus,
“the use of such testing could provide substantiation that satisfies ASTM C518.”
The FTC would have had to prove that consumers believed otherwise to prevail,
and, in the absence of expert or even lay testimony, it couldn’t. The FTC
argued that the modification-permitting language of the ASTM Guidance was
intended to cover future standards developed by “standard-setting bodies” and
“research workers,” not any modifications that “individual marketers” might
wish to make.  That does seem to be the
far more natural reading of the guidance, but the court found that the FTC
didn’t meet its burden of proof, which I guess means that admissible expert
testimony about what ASTM C518 means could have fixed the problem.

The
burden was on the FTC to show that IDI’s substantiation evidence would not
satisfy the relevant scientific community, not on the defendant to do more than
possess evidence that plausibly was sufficient to satisfy the relevant
community.

Thus,
both the falsity and substantiation theories failed. The FTC failed to show
that the modified ASTM C518 unit did not accurately measure Insultex’s
R-values.

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