Duelling results in Mexican origin cases

Posted on August 30, 2021 by rtushnet

Rodriguez
v. Olé Mexican Foods Inc., 2021 WL 1731604, No. EDCV 20-2324 JGB (SPx) (C.D.
Cal. Apr. 22, 2021)

Rodriguez
alleged that Olé’s La Banderita tortillas falsely advertised Mexican origin
based on  a Mexican flag front and center
on the packaging, the phrase “El Sabor de Mexico!” or “A Taste of Mexico!”, the
brand name “La Banderita” (“the flag”), and the Spanish phrase “Tortillas de
Maiz” on the label of the Corn tortillas. Some of the products also contain a
circular logo with the Mexican flag and the word “Authentic,” as well as other
Spanish words and phrases.  

Olé
argued that its products merely invoked the “spirit” of Mexico and didn’t make any
specific geographic references (other than “MADE IN U.S.A.” and “Manufactured
by: Olé Mexican Foods, Inc., Norcross, GA 30071” at other places on the
package, which properly disclosed origin). The court disagreed. Although a
previous case found that “The Taste of Jamaica” wasn’t plausibly misleading,
that product was prominently marked “Jamaican Style Lager,” and style or type
language strongly affects the meaning of a geographic term used on food or
drink.  Here, there was no such
indication about “style.” Moreover, deception was still plausible here in
context, even if some reasonable consumers would not be deceived. Though the
back disclosed the true origin, a reasonable consumer is not “expected to look
beyond misleading representations on the front of the box to discover the
truth.” 

from the complaint; disclosure: I have purchased these and I have never given a second’s thought to their geographic origin one way or another

version with the “authentic” graphic

Govea
v. Gruma Corp, 2021 WL 1557748, No. CV 20-8585-MWF (JCx) (C.D. Cal. Mar. 1,
2021)

The
packaging here wouldn’t plausibly mislead a reasonable consumer into believing
that Guerrero Tortillas are produced in Mexico, though the court granted leave
to amend.

One of the accused packages

Plaintiffs
allegedly saw and relied on the word “Guerrero” (the name of a Mexican state,
also “warrior”) and the Spanish phrases on the packaging, which included: “Un
pedacito de México” and “Calidad Y Frescura” (“a piece of Mexico” and “quality
and freshness” respectively). They also allegedly relied on the Spanish descriptions
of the products they purchased: Tortillas De Maiz Blanco, Riquisimas Tortillas
De Harina, and Tortillas De Harina Integral. The rule is that “the language or
imagery of a product’s packaging is actionable if it falsely indicates a
specific place that the product is purportedly made.” “Originated in Germany,”
“Born in Brazil,” and “Belgium 1926” were plausibly false and misleading
statements of origin where the products at issue were not made in those
countries and lacked a visible origin disclaimer. In contrast, if the packaging
merely evokes the spirit of a generalized location or culture in a vague and
non-specific manner, such claims are properly dismissed at the 12(b)(6) stage.”

Here,
there were no “born in” statements, and “un pedacito de México,” was “a vague
and meaningless phrase” that is meant to “evoke the spirit or feeling of
[Mexico].” Nor did the packaging expressly describe the tortillas as Mexican.
All the packages disclosed that the Gruma Corporation was based in Irving,
Texas, and at least some of the Packaging also stated that the Tortillas are
“[l]ocally baked and delivered fresh from your Guerrero Bakery.” Nor did the
package name a specific address, city, or location in Mexico where the
tortillas were purportedly baked or invite a visit.

One of
the prior cases refusing to dismiss a complaint also noted allegations of
survey evidence that more than 85% of a “demographically representative U.S.
sample of over 1,000 adults” who viewed the accused beer or its packaging
believed that it was produced in Japan. There was no such evidence here. While
the court was dubious that it could be done, it did give plaintiffs a chance to
augment their allegations with a similar consumer survey, which might or might
not alter the court’s overall impression.

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Lexmark allows direct and contributory false advertising claims against certifier

Posted on August 27, 2021 by rtushnet

U.S. Structural Plywood Integrity Coalition v. PFS Corp.,
No. 19-62225-CIV-ALTMAN, 2021 WL 810279 (S.D. Fla. Mar. 3, 2021)

Sometimes I worry that judicial writing is tending too much
towards the flip as it moves away from prolixity, but this is a lovely example
of how clear language can be deployed:

If you want to build with plywood
in the United States, you generally need a certification— called a PS 1-09
stamp. The Plaintiffs are a coalition of ten American structural-plywood mills
who manufacture and sell their plywood in the United States. The Defendants are
two companies that inspect structural plywood and, if it conforms to the PS
1-09 standard, stamp the wood as PS 1-09-compliant. According to the
Plaintiffs, the Defendants have been certifying 36 Brazilian plywood mills with
the PS 1-09 stamp—even though the Defendants know (or should know) that the
Brazilian wood doesn’t comply with the PS 1-09 standard. In the Plaintiffs’
view, this sham certification process has allowed the Brazilian mills to sell
their cheaper, non-compliant wood all over the United States—thus displacing
the Plaintiffs’ stronger, better, more expensive products.

Plaintiffs brought negligence and Lanham Act claims.

After a settlement with one defendant, the two remaining
defendants “are the sole licensors of the PS 1-09 stamp to 36 Brazilian plywood
mills that export structural plywood to the United States.” The US standards
for structural plywood are voluntary at the federal level, but customary, and “construction
codes across all 50 states require builders to use PS 1-09 structural-grade
plywood.” The stamps thus allegedly operate as powerful advertising, allowing Brazilian
plywood companies to market their products as conforming to an important
American safety standard. But, plaintiffs allege, “it is impossible to
consistently manufacture PS 1-09 compliant plywood from the extraordinarily
fast-growing loblolly and slash pine plantations in southern Brazil which are
the source of the raw materials for all of the Brazilian plywood producers in
southern Brazil.” Such accelerated growth rates allegedly “inevitably result in
weaker (and less dense) plywood, even when the plywood panels are produced from
the same pine species that are commonly found in North America.” These cheaper
imports drove down sales and profits of domestic manufacturers, causing the plaintiffs
some $75 million in alleged annual losses.

A few years back, the American Plywood Association, the
non-profit organization to which all of the plaintiffs belong, announced that defendants’
Brazilian licensees failed its PS 1-09 testing. Plaintiffs commissioned a
second test at Clemson University which, again, allegedly revealed shocking
failure rates.

Plaintiffs allegd both direct and contributory false
advertising, which requires (1) that the “third party in fact directly engaged
in false advertising that injured the plaintiff” and (2) “that the defendant
contributed to that conduct either by knowingly inducing, or causing the
conduct, or by materially participating in it.”

Were there allegedly false or misleading statements by the
defendants? Yes, the defendants made representations about the quality of the
Brazilian products by giving the Brazilian mills the authority to certify their
plywood with the defendants’ PS 1-09 stamps. And without the stamps, the mills
wouldn’t be able to sell in the US. This wasn’t like Google running a search
engine that putative locksmiths abused to sell fraudulent services. Google didn’t
attest to anything about the locksmiths; it was like a building that rents
space to business owners. Defendants, “by contrast, are like a state
medical-licensing board, which tests the doctors’ qualifications and, by
issuing them their licenses, allows them to practice medicine within the
jurisdiction. In doing so, the licensing board is making a powerful
statement—some would say, the most important statement—about the doctors’
qualifications.”

Defendants argued that they weren’t making any statements at
all, because it was the Brazilian mills stamping the wood. “But the Brazilian
plywood companies didn’t steal or forge the Defendants’ stamp. The Defendants
gave them the stamp and authorized them to use it…. These stamps are thus
unquestionably statements of the Defendants.” Even if the mills are the ones
touting the certification, the certification came from defendants, and it was
disingenuous to say otherwise, given that outside of this litigation, it would
be awful for defendants’ business for them to say that they weren’t doing the
certifications. “What value … would the certification hold if it were just the
self-affixed manifestation of any-old mill’s efforts at self-policing? No. The
Defendants’ stamps only have value—and the Defendants’ certification businesses
only exist— because the stamps are statements of the Defendants.”

Anyway, even if the stamps weren’t “statements” within the
meaning of the Lanham Act, plaintiffs also alleged other false statements by
defendants, such as letters to clients reassuring them about the APA report.

As for the contributory false advertising claim, it too was
well pled. Plaintiffs “allege that the Defendants knew or should have known about
the Brazilian mills’ lack of compliance; that, despite this knowledge, they
failed to stop it; and that they conspired with the mills to facilitate the
dissemination of faulty plywood throughout the United States.” Because it was
undisputed that the mills needed the stamp to sell in the US, “looking the
other way” “easily” sufficed as material participation.

Defendants argued that, because they neither stamped the plywood
nor profited directly from plywood sales, their stamps weren’t “commercial advertising.”
But “commercial speech encompasses not merely direct invitations to trade, but
also communications designed to advance business interests.” And the stamps
unquestionably “advance” their “business interests,” since their entire
certification business depended on the message conveyed by the stamps.

Defendants then argued that the stamps were mere statements
of opinion. But “subjective assessments by third-party entities that had no
control over market entrants” involved in other cases were not the same as “a
series of engineering tests susceptible of objective examination,” as here. A
licensor’s certification is a statement of fact—that the aspirant has met the
relevant standards—whereas a third-party evaluator that purports to assess
competency would just be offering an opinion. It’s true that a licensor, like a
medical board, can get it wrong. “But the possibility that the certifier might
get the tests wrong—or apply the tests improperly—doesn’t somehow render the
tests subjective. We can all agree that the answers to questions of math are
objective, even if, from time to time, a young student may erroneously believe
that two and two is five.”

Plus, plaintiffs weren’t merely alleging failure to meet the
PS 1-09 standards. They alleged that use of the stamp certified that defendants
had subjected the mills to certain quality-control processes—even though they
allegedly did no such thing. That isn’t subjective. “Either the Defendants
tested the wood—or subjected it to quality-control review—or they didn’t. In
all these ways, then, the stamp is an actionable statement of fact— not a mere
safety rating.” The court also noted that other professionals must of necessity
rely on the stamp for verification of quality, since they don’t test it
themselves. This too supported the characterization of the stamp as factual.

Next, defendants argued that their certification wasn’t the
proximate cause of the plaintiffs’ injuries. But Lexmark teaches that
direct sales diversion isn’t the only cognizable injury. Because (and only
because) of the allegedly false certification, the Brazilian mills can sell
their wood in the United States at a far lower price point, causing major
losses. This was proximate cause.

Finally, defendants argued that plaintiffs didn’t
sufficiently allege control or participation in the Brazilian mills’
noncompliance. But the plaintiffs adequately alleged close relationships with Brazilian
clients, including exclusive inspection service deals. And they alleged that defendants
knew or should have known of the defects based on biological facts and
independent studies.

The court also refused to dismiss the negligence claim.

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class action certified with adequate price premium model for “nutritious” claims

Posted on August 27, 2021 by rtushnet

McMorrow v. Mondelēz International, Inc., 2021 WL 859137, No.
17-cv-2327-BAS-JLB (S.D. Cal. Mar. 8, 2021)

Consumers in California and New York who purchased belVita
breakfast biscuits, brought a putative class action alleging that MDLZ labeled
the breakfast biscuits as “nutritious,” despite the biscuits’ high added sugar
content. Showing how plaintiffs’ lawyers adapt to barriers to class
certification, the court granted a renewed motion for class certification
because their class-wide damages model matches their theory of liability in
compliance and because no other individual issues predominate over common ones.

Plaintiffs’ expert opined that a conjoint analysis could
measure the relevant price premium. MDLZ argued that the price premium cannot
be estimated without considering supply-side and competitive factors, but
conjoint analysis can do so if the prices used in the surveys underlying the
analysis reflect actual market prices in the class period, and the quantities
used in the calculatiosn reflect actual quantities sold during the class period.
That was the case here. Other criticisms of conjoint analysis went to weight
rather than admissibility.

A similar fate befell MDLZ’s objections to the proposed
survey. Debates over whether the survey should include taste; include only belVita
purchasers or include breakfast biscuit purchasers generally; account for repeat
purchases where a consumer might not scrutinize the label; etc. went to weight
and not admissibility.

The court also declined to exlcude MDLZ’s experts. It relied
on one consumer expert to argue that different interpretations of the term “nutritious”
meant that individualized issues predominated over common ones. The court
disagreed. The expert’s survey sought to measure, in relevant part, whether and
to what degree “consumers associate the term ‘nutritious’ with a variety of
attributes including calorie content, whole grains, and vitamins and minerals.”
However, plaintiffs wouldn’t need to prove individual reliance, but rather that
members of the public are likely to be deceived, so some variation isn’t fatal.
Plaintiffs “need only make an objective showing of a probability that a
significant portion of the relevant consumers acting reasonably could be misled
by the challenged statements.”

Plaintiffs used internal MDLZ documents to show that
reasonable consumers can understand “nutritious” to mean food conducive to
health. This was enough to get to a jury. Similarly, it wasn’t important that the
health effects of sugar varies among consumers; that’s irrelevant to
misleadingness.

NYGBL statutory damages: Plaintiffs sought to recover
statutory damages for the NY class. For violations of section 349, the statute
allows a plaintiff to recover “actual damages or fifty dollars, whichever is
greater” For violations of section 350, a plaintiff may recover “actual damages
or five hundred dollars, whichever is greater.”

MDLZ argues that statutory damages were unavailable absent
class-wide proof that consumers suffered an “actual injury” in the form of a
price premium, and that an award of statutory damages would result in
disproportionate recovery for the New York class as compared to the class
members’ actual injury. It is true that the GBL has injury and causation
elements, requiring them to prove a price premium, which they were prepared to
do. And as for disproportionate recovery: “It is well settled that statutory
damages under the relevant sections of the GBL are available as a class-wide
remedy in class actions brought in federal courts under Federal Rules of Civil
Procedure, irrespective of New York legislature’s limitation of class actions
to causes of actions brought under statutes with specific authorization of
class recovery.” That didn’t bear on whether certification was “superior” to
alternate methods. (Citing, inter alia, a case pointing out that “[i]f the size
of a defendant’s potential liability alone was a sufficient reason to deny
class certification, however, the very purpose of Rule 23(b)(3)—‘to allow
integration of numerous small individual claims into a single powerful
unit’—would be substantially undermined.”) “In the Court’s general experience,
the prospect of recovering $550 (the maximum statutory damages for each
violation under the New York GBL, for example) is not enough to incentivize
individual litigation.”

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Diamond hands: timeshare entity’s alleged misconduct towards consumers didn’t allow exit company to assert unclean hands

Posted on August 27, 2021 by rtushnet

Diamond Resorts U.S. Collection Development, LLC v. Wesley
Financial Group, LLC, No. 3:20-CV-251-DCLC-DCP, 2021 WL 3277260 (E.D. Tenn.
Jul. 14, 2021) (R&R)

In this timeshare v. timeshare exit company case, the judge
recommended tossing the exit company’s unclean hands defense.  An analogy between trademark and false
advertising arguably would have supported allowing unclean hands: the exit
company pointed out that, without the allegedly false solicitation of
timeshares, the timeshare company would have nothing for the exit company to
interfere with. This matches pretty well with the trademark standard that
unclean hands requires that the plaintiff must have secured the right upon
which it sues by inequitable conduct.

But the judge here quoted another case with approval:
“allowing Defendants to assert the affirmative defense of unclean hands may
serve to confuse the issues and prejudice Plaintiffs.” The timeshare company’s
allegedly inequitable conduct was harmed a third party, not the exit company.

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false association wasn’t plausible given clear comparative statements

Posted on August 27, 2021 by rtushnet

Dynatemp Int’l, Inc. v. R421A, LLC, No. 5:20-CV-142-FL, 2021
WL 3284799 (E.D.N.C. Jul. 30, 2021)

Dynatemp and another company sued defendants for false
advertising and related claims; defendant RMS counterclaimed similarly.

Notable holdings: RMS didn’t plausibly allege that
plaintiffs falsely designated their goods. Instead, it alleged that their
customers displayed a Dynatemp R421A product and the Dynatemp brand alongside
RMS’s trade dress and trademarks. But RMS failed to allege any facts that allow
the court to infer that these plaintiffs controlled the content on those
websites. RMS alleged that their behavior “confused even their own customers,”
but this was a conclusory assertion.

The allegations were particularly speculative in light of
Dynatemp statements that RMS attached to its counterclaims, such as, “for a
number of years we have distributed the Choice® R421A product with a lubricant
additive. Recently, we began a transition to producing and distributing our own
Dynatemp R421A™ product. It contains a different lubricant that we believe you
will find works even better.” Also: “Our new proprietary Dynatemp R421A™
contains a different premium lubricant than Choice® R421A, and it is sold
exclusively under our own Dynatemp brand.” And: “[a]s we make our transition to
producing and distributing our new Dynatemp R421A™ product and phasing Choice®
R421A out of our product line-up, we are continuing to sell our remaining
inventory of Choice® 421A.” These statements “reflect an effort to distinguish
its products from RMS’s products, to associate its products with the Dynatemp
R421A™ brand, and to associate RMS’s R-421A product with RMS’s trade dress and
trademarks.”

 

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statements about legality of service were factual/falsifiable

Posted on August 26, 2021 by rtushnet

Allied Servs., LLC v. Smash My Trash, LLC,  2021 WL 3354839, No. 21-cv-00249-SRB (W.D.
Mo. Aug. 2, 2021)

Allied, aka Republic, “provides waste and recycling services
to business and residential customers in the Kansas City metropolitan area.” It
supplies dumpsters and open top roll-off waste containers to its customers.
This equipment is designed and constructed only to collect a customer’s
ordinary waste. Their agreements with customers provide that the equipment is
Republic’s property and that the customer is liable for any loss or damage to
it.

Smash provides mobile waste compacting services in the
Kansas City metropolitan area using “Smash Machines,” 25,000 pound trucks with
hydraulic booms and three-ton spiked, rotating metal drums. (Awesome.)

Republic alleged tortious interference, trespass/conversion,
and false advertising claims.

Lanham Act false advertising: Smash’s website FAW said:

Will my waste company let me Smash my trash? It’s not their
waste, it’s yours. Well established legal doctrines protect your rights to
manage your waste while under your control at your facility. This includes the
right to Smash your trash.

First, the complaint adequately alleged that the challenged
statements weren’t merely opinion. “Statements about the status of a case or
one’s … property rights are not necessarily subjective opinions and are
generally verifiable … [t]hat a court of law need ultimately determine the
truth or falsity of these statements does not render them ‘opinion’
statements.”

Second, Republic adequately alleged literal falsity by
alleging that Missouri law does not recognize this purported “right.” Republic
also alleged falsity by necessary implication: Republic’s customers were
allegedly “led to believe that they are legally entitled to utilize Republic’s
containers to have their waste compacted by Smash’s mobile compaction service.”

Materiality: It was sufficient to allege that “Smash has
falsely led Republic’s business customers to believe that the company is both
aware of and has no objection to Smash’s misuse of the Equipment and also that
Republic’s customers nevertheless have the unfettered ‘right to Smash their
trash’” along with allegations that “Republic’s business customers have
contacted it to cancel and amend Agreements, and in some instances, they have
refused to follow Republic’s direction that the Equipment may not be used by
Smash for its mobile waste compaction services.”

Causation/injury: 
Again, it was adequately alleged that the statements “caused Republic’s
customers to breach their Agreements, have resulted in the denial of access to
its Equipment, have interrupted regularly scheduled hauls, have led to damage
to its containers, and have harmed its reputation with its customers.” Only
that last one is traditional false advertising damage—the others don’t really
seem to fall within the usual zone of interests—but ok!

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affiliation claim true when sent out to consumers can’t be false endorsement

Posted on August 26, 2021 by rtushnet

Klayman v. Judicial Watch, Inc., — F.4th —-, 2021 WL
3233953, No. 19-7105 (D.C. Cir. 2021)

Larry Klayman founded and ran the conservative activist group
Judicial Watch, but the relationship ended badly in 2003. “During the fifteen
years of ensuing litigation, Klayman lost several claims at summary judgment
and then lost the remaining claims after a jury trial. The jury ultimately
awarded Judicial Watch $2.3 million.” The court of appeals affirmed.

Based on the trial evidence: “Klayman’s time at Judicial
Watch came to a close after a meeting in May 2003 with two Judicial Watch
officers,” at which he showed them his then-wife’s divorce complaint and admitted
he was pursuing a romantic relationship with a Judicial Watch employee.
“Negotiations over Klayman’s departure ensued over the next several months.
Meanwhile, in September 2003, Judicial Watch began preparing its October
newsletter, which was mailed to donors along with a cover letter signed by
Klayman as Judicial Watch’s ‘Chairman and General Counsel.’ After Klayman
reviewed the newsletter, Judicial Watch sent it to the printer.”

They executed a severance agreement while the newsletter was
at the printer; Klayman agreed to resign effective Sept. 19, 2003.

Klayman alleged, among other things, that the newsletter was
a false endorsement or advertisement under the Lanham Act because it identified
him as “Chairman and General Counsel” after he had left Judicial Watch. The
court of appeals affirmed the rejection of this claim. “There was no genuine
dispute of material fact that Klayman authorized the use of his name in the
newsletter, so it was neither a false endorsement nor a false advertisement….
As proven by his handwritten edits on a draft, Klayman edited the newsletter at
issue, which Judicial Watch approved for printing while Klayman still worked
there.”

Klayman argued that he didn’t authorize the use of his name
after he left, but the Lanham Act focuses on “false or misleading statements of
fact at the time they were made.” When Judicial Watch wrote the newsletter
identifying Klayman as “Chairman and General Counsel,” that’s what he was. “His
subsequent resignation does not render the newsletter a false endorsement or
advertisement.”

[Note that if they’d continued to call him that in material
they distributed after he was gone, the cases could counsel a different result
on this particular issue—you generally can’t continue an active ad campaign
after it becomes false. And some cases even require products on shelves to be
altered if their labels become false, which makes sense as a
consumer-protective measure;  but even those cases probably wouldn’t require
reaching out to consumers who’d already taken the products home, as these
newsletters were. First Amendment considerations, too, could play a role in
the court’s conclusion, though that might be in some tension with the Lanham
Act counterclaims the jury heard about Klayman’s subsequent fights with Judicial
Watch.]

Lanham Act counterclaims: evidence of Klayman’s forced
resignation and name-calling of his ex-wife was relevant to Judicial Watch’s
Lanham Act unfair competition counterclaim, which alleged that Klayman falsely
represented in his Saving Judicial Watch campaign that he left Judicial Watch
to run for U.S. Senate. Evidence about his forced resignation was introduced to
prove falsity, and the court of appeals agreed that the risk of prejudice
didn’t outweigh its probative value. [I have questions about whether the First
Amendment really allows a Lanham Act false advertising claim about an advocacy
organization slapfight, but unfortunately neither side had an incentive to
press this point.]

Klayman also argued that the district court failed to properly
instruct the jury on Judicial Watch’s trademark infringement claims alleging
infringement of “Judicial Watch” and “Because No One is Above the Law.” Klayman
argued that the court erred by failing to instruct the jury that likelihood of
confusion requires confusion by an “appreciable number” of consumers. But the
instructions, viewed as a whole, fairly presented the applicable standard,
based on a model instruction. (The court noted that it had never actually
adopted a particular multifactor test, though it had cited other circuits’ with
approval.) “Neither our sister circuits nor the model instruction mention the
number of consumers likely to be confused. No instruction on the number of
consumers was required for the district court to fairly present the applicable
legal principles on the confusion element.” [I have my doubts about this
too—not needing to mention a “number” is not the same thing as not needing to
meet some requirement of substantiality, or even nontriviality. Suppose the
jury is absolutely convinced that confusion is likely among .5% of relevant
consumers. What should it do?]

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Cal. statutory false advertising isn’t fraud and individual reliance isn’t necessary

Posted on August 26, 2021 by rtushnet

Peviani v. Arbors at California Oaks Property Owner, LLC, 2021
WL 1264423, E073950, — Cal.Rptr.3d —- (Ct. App. 2021)

Plaintiffs sought to represent a putative class, bringing
claims against a landlord for (1) false advertising; (2) breach of the implied
warranty of habitability; (3) nuisance; (4) breach of the implied covenant of
good faith and fair dealing; (5) bad faith retention of security deposits; and
(6) unfair competition. The court of appeals held that the trial court erred by
denying certification.

Plaintiffs alleged, inter alia, that defendants’ ads falsely
depicted renovated interiors, “quality plush carpeting,” “sparkling swimming
pools,” heated spas, cabanas and lounges, a tennis/basketball court, a fitness
center, a rock climbing wall, a community game room, a Wi-Fi café, barbeque
grills, a picnic area, a dog park, a playground, a garden, a carwash area, central
heating and air conditioning, assigned covered parking, a 48-hour maintenance
commitment, granite countertops, hardwood floors, full size washers and dryers
in the apartments, controlled access to the property, and a smoke-free
property.

However, the apartments were not newly renovated and
carpeting was not plush. For example, one set of renters “had mushrooms growing
out of their carpet.” Plaintiffs alleged “the fitness equipment was dirty and
broken; the swimming pools were dirty and diseased; the hot tubs were green
with algae; the assigned parking rules were not enforced; the 48-hour
maintenance promise was not kept; there was violence, crime, and drug use in
the area of the barbecues, playground, and dog park; the property was not
smoke-free; and the water connection in the carwash area was non-functioning.”

Defendants argued that common questions didn’t predominate
for false advertising. “For example, Peviani claimed her apartment had rust
stains on the countertop, Judy claimed there was a mushroom growing out of her
carpet, Lubbock asserted his toilet was broken, and Caicedo-Valdez claimed
there was a stain on the bathroom vanity.” The trial court reasoned that
putative class members learned of the property in different ways: “some read
defendants’ website, some toured the property, some read a brochure, and some
drove by the property.” It reasoned: “One class member’s a claim [sic] might be
based upon an oral representation while another’s might be based upon something
stated in a brochure. And the representations could be about different
amenities or services.” There were too many alleged misrepresentations—each one
would have to be assessed for factuality, materiality, and reasonable reliance.

The court of appeals reversed. Statutory false advertising
is not common law fraud. It does not require literal falsity, knowing falsity, reasonable
reliance, or even damages (since restitution and injunctive relief are the only
available remedies). The standard is objective: that “members of the public are
likely to be deceived.” Likewise, materiality is assessed objectively: if a reasonable
person would attach importance to the falsity or omission. The trial court
conflated false advertising with fraud; there was no need for individualized
reliance inquiries, and the trial court failed to discuss the reasonable person
standard, which is relevant to deception and materiality.

This error also infected the habitability/nuisance claims,
which were based on the common areas (allegedly full of dog feces, trash, and
pests) and could thus be assessed as a common question. Because the unfair
competition claims didn’t get separate analysis, the court of appeals also sent
those back.

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false designation claim doesn’t require distinctiveness, court wrongly holds

Posted on August 26, 2021 by rtushnet

Simpson Strong-Tie Company Inc. v. MiTek Inc., 2021 WL
1253803, No. 20-cv-06957-VKD (N.D. Cal. Apr. 5, 2021)

The plaintiff benefits from very generous treatment of its false
designation and copyright claims, in the process stripping false designation of anything other than a prohibition on copying/vitiating both Wal-Mart and Dastar.

Simpson sells structural connectors for use in building
construction. Each product has an individual alphanumeric product name including
a “part name” consisting of a letter or combination of letters designating the
product line, and a “model number” consisting of additional numbers and letters
appended to the part name to distinguish between various models of a particular
part with different attributes. Its Wood Construction Connectors Catalog
contains an alphabetical product index and various charts specifying various
attributes of Simpson’s products, listed by product names. It registered
copyirghts in its catalog and supplements.

Simpson alleged that MiTek’s products were “knock-offs or
close copies” of Simpson’s products that are not equivalent to or substitutes
for Simpson’s products due to the patented nature of some of Simpson’s
technology. MiTek’s 2020 Catalog allegedly uses Simpson product names as a
basis for MiTek’s own product names and includes an alphabetical reference
index using Simpson product names as reference numbers, deceiving consumers
into believing that the companies’ products are equivalent and interchangeable
when they are not, or that MiTek’s products are actually Simpson’s products.

MiTek argued that a product name cannot be proven true or
false, but the court agreed that Simpson had sufficiently pled that placing the
parties’ products next to each other in this way created a false impression
that the parties’ products are “equivalent or otherwise interchangeable.”

Passing off: MiTek argued that Simpson didn’t plead inherent
or acquired distinctiveness, and Simpson responded that the Lanham Act protects
even generic marks from “false designation of origin.” [You know it’s going to
be bad when a court says “generic marks,” a noncategory.] The court agreed! It
was enough to allege that (1) MiTek’s use of Simpson product names as MiTek’s
own product names falsely identifies MiTek products as Simpson products, and
(2) MiTek’s use of Simpson’s product names as reference numbers for MiTek’s own
products in MiTek sales and marketing literature creates a false impression
that MiTek’s products are in some way connected to or associated with Simpson. Comment: this is entirely junk reasoning, since there can be no false identification without distinctiveness (that is, identification)–the genericity cases require “de facto secondary meaning” in the absence of legally protectable secondary meaning, and they also limit the available remedies to clear disclosure. 

Copyright infringement: MiTek argued that the portions of
the catalog it allegedly copied—Simpson product names and the alphabetical
index of Simpson products—were not protectable. Although originality is a
question of fact, sometimes you can just look at the accused and accusing work.
Though there were “serious questions” about the originality of the product
names and alphabetical index, it wanted a fuller record before saying that the names
and alphabetical index weren’t sufficiently original as a matter of law.

The state law claims also survived; as a competitor, Simpson
didn’t have to plead its own reliance under the UCL.

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pharma database isn’t commercial speech about listed products

Posted on August 25, 2021 by rtushnet

Alfasigma USA, Inc. v. First Databank, Inc., 2021 WL 930453,
No. 18-cv-06924-HSG (N.D. Cal. Mar. 11, 2021)

Previous
opinion. Alfasigma makes medical foods, which are allegedly not properly
described as OTC. It sued First Databank for coding implemented in the latter’s
pharmaceutical database:

Historically, the “class value”
field in the MedKnowledge database indicated whether manufacturers identified
their products as prescription-only. Code “F” identified product labels that
indicated a prescription was required, and “O” identified when the product
label did not contain any dispensing limitations. Plaintiff alleges that
subscribers “universally understand[ ] that a product designated ‘O’ is an
[over-the-counter (“OTC”) ] drug, available over-the-counter and without
physician supervision.”

Although Alfasigma’s products were historically designated
as F, First Databank reclassified them as O.

This allegedly falsely represented that they were available
OTC, “when in fact they are available by prescription, and should not be taken
by a patient without physician supervision.” Then First Databank created a new
class value, Q. Q was to be for “Products that are neither drugs nor devices,
such as dietary supplements (including prenatal and other vitamins), medical
foods, herbal preparations, and bulk flavorings or colorants.” This was allegedly
still false and misleading, and First Databank allegedly falsely advertised
that it “compile[s]” the relevant information in its database and for its
coding determinations from the FDA and from manufacturers, such as Alfasigma.

Alfasigma sued for false advertising and contributory false
advertising under the Lanham Act and related state law claims. Previously, the
court denied First Databank’s anti-SLAPP motion because Alfasigma had shown a
reasonable probability of success on the merits of its state law claims, but
had not plausibly alleged that the coding changes were made for the purpose of
influencing subscribers to purchase First Databank’s own products or services,
as required under the Lanham Act. Alfasigma amended its complaint.

The 9th Circuit applies the motion to strike and
attorneys’ fees provisions of the anti-SLAPP statute to state law claims in
federal cases because there is no “direct collision with the Federal Rules,” but
the court still expressed the concern that this interpretation of the statute
“vastly understates the disruption when federal courts apply the California
anti-SLAPP statute,” particularly as it interacts with Rule 12 and its
plausibility standard.

Alfasigma continued to allege that the recoding decisions
were false and misleading, and that First Databank misrepresented that the FDA
and manufacturers were the source of the information in the database.

Previously, the court found that Alfasigma sufficiently alleged
that the database constituted commercial speech for purposes of surviving the
motion to strike, but (1) now there are additional allegations, and (2) Ariix,
LLC v. NutriSearch Corp., 985 F.3d 1107 (9th Cir. 2021), provided further
guidance, so the law of the case did not control.

The database provides information about third-party
pharmaceutical products, not First Databank’s own products. Other third parties
then use this information to determine which products to prescribe and
dispense, and to decide whether to reimburse for these pharmaceutical products.
This isn’t a traditional ad; representations about the database may be ads, but
that doesn’t make the database itself an ad. There were product references in the
database, but that didn’t establish that it was commercial speech, so the court
turned to defendant’s motivation for the speech.  Alfasigma alleged that it was commercial
because (1) “pharmaceutical product manufacturers and distributers have…come
to rely on [the] database as a crucial promotional channel for their products”;
(2) the database is directed toward third parties “to influence their decisions
whether to prescribe, purchase, dispense and/or pay for” Plaintiff’s products;
and (3) Defendant collaborates with its subscribers in making changes to the
database.

Alfasigma persuasively alleged that the database is critical
to the billion-dollar pharmaceutical industry. “These allegations, however,
only underscore that third parties—not Defendant—use the information contained
in the database as part of their own commercial transactions.” First Databank
didn’t make any of these economic decisions itself. Alfasigma maintained that
First Databank’s editorial decisions in maintaining and updating the database were
driven by subscribers’ feedback, and that Defendant “generates revenue by
selling subscriptions to MedKnowledge.” First Databank allegedly decided to
change the class value of Alfasigma’s products at least “[i]n part to satisfy
the preferences of certain customers….” But a profit motive didn’t
distinguish First Databank from a newspaper.

Ariix, which found that a guide to supplements was
commercial speech, emphasized that its decision was “a narrow one that is tied
specifically to the troubling allegations in this case,” involving payments to
the CEO for better reviews and similar pay-to-play allegations making the guide
a disguised ad rather than true editorial content. Here, by contrast, there was
no allegedly hidden financial arrangement; First Databank just made more money
from more sales. Alfasigma argued that many pharmacy benefit manager customers
preferred to have products O-rated so they didn’t have to reimburse patients
for their costs, so at least some subscribers wanted medical foods recoded. But
which products were covered by which insurance wasn’t within First Databank’s
control, nor did Alfasigma allege that it was compensated more based on whether
specific claims were paid or denied. Under Alfasigma’s logic, “any speech could
be commercial if eventually relied on by third-party actors who conduct
business.” That was too extensive, so the claims all failed.

Even if the database were commercial speech, the
coding-based Lanham Act claims independently failed for want of “commercial
advertising and promotion.” After Lexmark, the test seems to be: “(1)
commercial speech, (2) for the purpose of influencing consumers to buy
defendant’s goods or services, and (3) that is sufficiently disseminated to the
relevant purchasing public.” The failure here was on (2): Alfasigma didn’t
plausibly allege that the database was created for the purpose of influencing
consumers to buy First Databank’s goods or services. The court saw an
inconsistency in Alfasigma’s theory that sounds more like heterogeneity to me:
while some subscribers would benefit financially if the coding changed,
Alfasigma alleged that other subscribers were confused, and “did not know that
[Plaintiff’s] recoding was a commercial decision intended to enhance the
profits of PBM and insurance company customers, rather than based on
information from the FDA or [Plaintiff].” The FDA’s medical director even
“expressed concern” that “patients…are losing or have lost insurance coverage
for their products marketed as medical foods” because “their insurance
providers belie[ve] that the products are over-the-counter (OTC) drugs….”

The allegation that First Databank inaccurately changed its
coding to promote its own services wasn’t plausible given that, as Alfasigma acknowledged,
“[i]t is important for [Defendant’s] customers that the compendia services and
products they purchase be accurate.” Confusing subscribers and providing them
with false information that was later challenged by the FDA itself wouldn’t plausibly
promote First Databank’s own products or services. Anyway, “[a]ny publication
would be deemed an advertisement if the defendant had an interest in
encouraging others to purchase it,” so that definition is too broad. Ariix
suggested that something like an agency relationship would be vital, and there
was no indication here that there was such a relationship with the PBMs or other
financial stake in specific sales of a product. “The database does not list any
of Defendant’s own products or additional services. Rather, the database itself
is Defendant’s product.”

Contributory false advertising: First Databank’s representations
allegedly induced its subscribers to falsely advertise that Alfasigma’s
products were “OTC drugs.” “It is unclear in this Circuit if contributory false
advertising can apply to non-commercial speech in any context because the
Lanham Act, as a whole, applies only to commercial speech.” Anyway, because the
database wasn’t commercial speech, this claim also failed; it also failed because
Alfasigma didn’t allege that First Databank knowingly or intentionally induced,
or materially participated in, its subscribers’ alleged false advertising. To
the contrary, Alfasigma alleged how PBMs and insurers have their own incentives
to code its products as “O” and to refuse coverage.

Information source allegations: Rule 9(b) applied because
Alfasigma alleged that the false statements were knowing or intentional. And
the complaint failed to meet the heightened pleading standard because it was “devoid
of specifics about when and where the alleged ‘source’ misstatements were made.”
It wasn’t enough to identify some specific statements like brochures that told
manufacturers, “You tell us. We tell the world,” and undated statements that it
made the changes to be “in alignment with [ ] FDA standards.”

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