Rebecca Tushnet

IPSC Panel 15 – Trademark Law II

Posted on August 21, 2020 by rtushnet

Trademark Fame and Corpus Linguistics, Jake Linford, FSU
College of Law and Kyra Nelson, Independent

Dilution protects famous marks as if they were monosemous:
having same source meaning no matter what goods/services applied to. Proposal:
use data about TM use from large corpora to better ensure that fame is properly
granted and perhaps reduce the costs of finding fame/decrease reliance on
things like sales numbers. Famous=unique commercial signifier (consistent with
Schecter’s original formulation) and widely recognized (household name). Different
databases with different sources, date ranges, numbers of words. Could use
these databases to measure recognition via frequency of appearance in corpus
and to measure level of singularity. [That’s measuring production not
recognition, which is probably worth distinguishing.]

Question: can we set a threshold for appearaances?

Diachronic changes/change over time: could a mark lose fame
the same way it loses distinctiveness? What are the words that appear more
frequently than you’d expect next to this word, and do they point to singular
meanings or multiple meanings?

Looked at frequency in database, compared to litigated
cases. Lots of marks held not famous are relatively not frequent: Buck Rogers,
Blue Man Group, Field of Screams. Some high frequency marks are found famous:
Microsoft is an outlier [that is likely because the corpus draws from articles
that mention using Excel or another Microsoft product that does the work]. But there
are also ones with mismatches. Was this FTDA problem only? FTDA cases do have
slightly lower mean frequency v. TDRA, but not statistically significant. One
per million is relatively high frequency so that could be a frequency, but leaves
out Citibank, Tylenol, Rolex, and Victoria’s Secret. Nearly 2/3 of marks found famous are at 0.83
per million, so maybe that’s right. Non famous .042/million. 3 standard
deviations above mean is .375 per million. Hotmail also changes in frequency a
lot over time.

Collocation: Microsoft’s adjacent terms all point to Microsoft
the entity (or its competitors).

What about Coach? Collacates in top 20 are all sports terms.
Apple: all the brand use is computer-related but all the non brand use is much
bigger and is apple/fruit. What’s the best treatment?

Could we do a better job predicting how cases should go?
Choose Your Own Adventure: court seems to presume CYOA famous. In 1979, when
first book comes out, only one hit. .06 frequency, highest .12 over time, never
gets there. Concordance: some TM use, some not.

Mark Lemley: useful tool, but separate utility of tool from
the particular vision of dilution which might not be widely accepted. Could be
valuable even if you don’t need singularity.

Mark McKenna: singularity might not be about fame, but it is
about dilutability: if the mark isn’t singular, it’s already diluted. Also,
does frequency really correlate with fame? It’s not surprising that “coach”
would have a lot of non-brand use b/c it’s an English word. Are you really
measuring anything other than fancifulness?

A: Panavision is distinctive, but not famous: that’s why
frequency matters. Apple is the question: does Apple swamp commercial
terminology and (more importantly) should that commercial dominance matter?
Jeanne Fromer: need to have an explicit methodology for measuring fame for
nonfanciful marks. Recognition and production are distinct: apple might be easily
recognized as a fruit without a lot of use in the corpus. So we need better definitions.

A: is the concern overcounting or undercounting famous
marks?

Fromer: probably both! It has to have frequency for you to
care, but if there’s any mention of a non brand appearance, how does that
factor in? Develop a methodology at the outset=very helpful.

Lisa Ramsey: agrees re fanciful or even suggestive marks
(Microsoft) & separate analysis of those from what’s not in the dictionary.

Barton Beebe: exciting idea. Hand coding can account for nonmark
use but you should feature that in the intro/discussion.

A: note that Hotmail looks very strong in one year—the corpus
doesn’t always give you a snapshot over time and databases vary. Another
concern: scholars seem to assume that a judge can be turned loose w/ this toolkit
and reach right answers, and that might not be true. This could just be a tool
to stick a number on an intuition, like with stampeding the factors.

RT: non word marks: it matters that the corpus is for words!
Bigger picture: there is a hierarchy of goodness of marks; word marks are
better at doing the things we want done with fewer side effects and we should
start admitting it more readily. [Alt take: we maximize what we can measure and
reliance on the corpus will make it harder for us to think about what
non-word-mark fame would look like. That could be good or bad!]

Ramsey: does the corpus distinguish b/t contexts where brand
use is more likely (casual discussions) v. where it’s not (academic journal
articles)?

Fandom is Nonexcludable, Betsy Rosenblatt, University of
Tulsa School of Law

Warner sued Potterhead running club, which raises money for
charity by having runners run on their own. “We solemnly swear that we are up
to no good.” WB claims: Ds designed merch & business model to appeal to and
attract fans of the HP franchise, but that’s a privilege reserved to WB and its
licensees. But that’s not the law: New
Kids on the Block says you can raise money by appealing to fans. There are other
limitations as well, including the First Amendment.

Defenses tend to break down over things that look like “use
as a mark”: Potterheads name, Packers Fan podcast. Names identify source of
group/its goods or services and describe relationship to underlying object of
fannish attention. They are descriptive in her categorization b/c they are
referring descriptively to what they’re fans of rather in a TM sense to the
creator of that underlying work.

Claims against fan organizations look like irrational
overclaims, but that’s not a helpful argument. Even when there’s competition w/
the “authorized” user, there is no economic benefit in allowing control over
these kinds of descriptive uses. Fanmarks have characteristics of aesthetic
functionality: a non reputation related value. Anti-monopoly principles: you
get shoddy fan goods instead of really nice ones.

Ramsey: use as a mark by the plaintiff? False association as
a countervailing risk.

A: Among other things we’re willing to tolerate risks of
confusion in Rogers, nominative fair use, descriptive fair use, other contexts;
we should be willing to tolerate some risks here.

Jessica Litman: need a pretty crisp definition of fan
activity/fanworks, or any number of competitors will be able to claim to fit.

A: not distinguishing fan from non fan, but distinguishing
referential mark from that which refers to the producer of the underlying work
in a Dastar sense.

Linford: people are raising money and that seems nice, but
how do we distinguish that from a universal 5K run? We are in a place where there
is a presumption of licensing for runs & theme parks. Not persuaded yet
that New Kids will get you there.

A: agree, which is why she’s developing the argument.

Linford: but why is referential not indicating source/sponsorship?
Can you say something about grassroots/astroturf, is that what we care about?

A: reference is to a type of good not to a source. We shouldn’t
be calibrating rights based on maximizing TM owner wealthy; these are positive
spillovers.

Elizabeth Townsend Gard: is this a commercial/noncommercial
distinction?

A: Not necessarily.

Lisa Macklem: Concerned about people taking advantage of
fans/feeding at the trough?

A: think it doesn’t matter b/c we still get the benefits [that
happens all the time in traditional expressive media: biographies or magazine
articles taking advantage of something popular, and we think that’s a good
thing].

Lemley: very easy to say that money changes everything. And
very easy to find money somewhere in a transaction, especially online. So you
will have to go broad.

A: doesn’t care whether people make money. Under her
standard: Why can’t someone just call themselves Warner Brothers & make movies?
Because she’s basing this on a genericism [I’d say functionality] and
referential use framework, we can use the same framework we use for house
brands.

Certification (and) Marks – Understanding Usage and
Practices Among Standards Organizations, Brad Biddle, Arizona State University,
Jorge Contreras, University of Utah, and Vigdis Bronder, Biddle Law

Would expect to find certification marks going along
w/standards orgs. Just 17K of 36 million TM registrations are certification
marks, but hard to distinguish ICT standard setting organizations from others.

Findings: testing and certification is an important activity
for SSOs, though some large organizations don’t do the testing. Over 60% did do
their own testing, and most had an associated logo. Use traditional TMs much
more than certification marks. In 94 different organizations: 122 certifications
across 9 jurisdictions, but that’s just 2% of their marks. Why? Initial registration
is challenging; providing a copy of the specification; more flexibility and
control over use of a traditional TM; tend to have sophisticated licensing
programs. Certification marks can’t be used by certifying entity, and as a
pragmatic matter most orgs had similarity b/t mark and organization name. International
issues. Implications: conventional wisdom doesn’t seem to match real world
practice. Is this a misuse of marks, dodging the consumer protective elements
of certification marks? For policymakers, clear that certification marks aren’t
using them as intended. For reformers, tightening rules for certification marks
won’t matter if most certification happens outside certification mark system:
would have to focus on the process of certification instead.

Margaret Chon: TM too are supposed to be about quality, and
your findings reinforce that.

Jorge Contreras: practically it seems harder for
certification mark user to police use

Vigdis Bronder: no certification cancellations we found;
even organizations that had no formal licensing structure for a long time were
fine.

Chon: was revenue stream an issue?

A: interviewees were practitioners who might not know and
probably would not have said. The people who run these orgs aren’t lawyers and
don’t have in house counsel. Figuring out who has the info is tricky.

Rosenblatt: should we let people use non-certification marks
in this way? Part of her issue with fandom marks is that there’s a similar
blurring.

A: it seems there’s some need that the certification mark
isn’t fulfilling.

Rosenblatt: but maybe that’s a bad need, like discrimination
or self-dealing for oneself.

A: doesn’t think most of these orgs are being nefarious.
International treatment issues are huge and they’re trying to be global
organizations. Even trying to file certification marks in other countries can
be very difficult w/different rules.

Bronder: since interoperability and sometimes even safety is
a priority, it’s a different scenario than w/t shirts.

Ed Timberlake: are there new data you were able to get?

Biddle: did a mini project before w/USPTO and it was
enormous amount of work. TMNow is really great. Could just go in and scarf up huge
amount of data. Different than using USPTO data. Can find countries and
classes.

Contreras: international data are also there and usable,
which is great.

Barton: Do European perspectives change depending on tech
sector? Might be different in how they treat agriculture versus tech where they
might not diverge as much. Alexandra Mogyoros: Work on pseudo-certification
marks: connect w/her. Antitrust/competition law issues, also in Fromer’s
work.

A: yes there are nefarious actors, also non-nefarious actors
doing good work.

Contreras: so many different organizations independently
decided not to use certification marks. Doesn’t seem to be law firm driven/coordinated.

RT: Say more about international issues. Sounds a bit like
they’re using trademarks just b/c it’s easier, which is not meaningless but
suggests different policy levers.

Biddle: yes, there’s a global system for managing TM, but
not for certification marks; only a handful of countries have such a regime,
sometimes you have to show gov’t authorization. Can be expensive and even
impossible in some jurisdictions. Even if you assumed that away, there are
still relevant aspects, like discrimination. Do they have good reasons to
discriminate that are policed via antitrust and not via certification marks?

Jessica Silbey: motivation—why one instead of the other—can be
very hard to find in these studies. One possibility: catalog possible reasons
and evaluate. Or focus instead on repercussions.

Chon: Jeffrey Bell’s book discusses breach of implied
warranty from certification – maybe TM doesn’t raise that issue.

Biddle: many orgs call what they do certification, but a
handful were very intentional about avoiding that word explicitly for that
reason.

Portmanteaumarks, Brian L. Frye, University of Kentucky
College of Law

Popular marks b/c they combine novelty (distinctiveness?)
and familiar meaning. Looking for a framework for when they should be treated
as distinctive v. descriptive/generic. Can mush words together, combine w/o blending
syllables (brunch), combine w/blending (smog), orthographic/puns where there’s
a homophonic element (shampagne); etc. May not help much w/evaluating
distinctiveness but can be useful.

Framing: some portmanteau words are good, easily
intelligible, and improve on existing words, thus enter the vernacular. [Is
this distinguishable from embiggen?] Bad ones sound awkward/fail to convey
information. Brunch is good, lunchfast and linner are not.

TMEP: portmanteau is subset of unitary mark, which is a combination
of unregistrable terms that has the potential to be registrable. Compounds. Telescoped
mark: closer to portmanteau, with blending.

Concept: failure to function. A good portmanteau creates a new
word and thus should be generic. A bad one does not. Telling the difference:
scores using a linguist’s test for predicting whether newly generated words are
likely to become real words in a language. Formalized heuristic: Frequency of
use; unobtrusiveness (does it feel natural or awkward); diversity of
users/situations; generation of other forms/meanings; endurance of the concept.
Each factor is scored 0-2 and if sum is 8 or higher, word is likely succes. 5-7
chance of success; less than 5 almost certain to fail. May not be directly
portable to this situation but could be useful in helping think.

Linford: is this test really predictive? It seems post-use,
which will have limited use to the PTO if the application comes early in the
life of the new word. Work on sound symbolism may also help.

A: test is trying to predict whether a current word will
survive, but needs tweaking.

Ramsey: consider genericide: what’s the process for a word or
its components? Does it matter whether the initial components are clearly
generic? Doctrine of foreign equivalents comparison: how likely are people to
combine these words?

Rosenblatt: maybe we don’t care at all about portmanteau
status, only about function: how does brunch function in language? The test you
offer might work for all words.

A: does think that different words might need different
analysis, but not fully committed to that. With spork, alternatives were
offered, but they never worked well/caught on. Says there’s something special
about that particular kind of combination.

Fromer: thinks these are a fruitful source of (claimed)
marks to focus on. Consider the whole spectrum: could the word be descriptive
even if not generic? There is some work on this in AI: working to take concepts
and words and find best portmanteaus.

McKenna: similar question about categorization: how much do
we want new categories that feed into or separate from Abercrombie? Takes Booking.com
to be a statement that we will ask only one question about genericness:
consumer meaning. The paper doesn’t have to be descriptive, but curious about
the broader utility of subcategorization. Maybe easier to get purchase on that
in registration than infringement, since TMEP is full of rules of thumb.

Lemley: it’s not right to say good = unprotectable/bad=protectable,
though there might be some correlation; what do consumers think about it? To
him the interesting placement is between descriptive and suggestive. You can
see the etymology (if the new word is good enough) and then the question is how
do you think about it. Also, everything here seems plausibly true of any
combination of words put together to generate a new concept, e.g., Pretzel
Crisps.

Sarnoff: neologisms can’t be generic until received into
language [I am not sure this is true: any new invention will need a generic identification].
Time sequence is key.

A: trying to distinguish b/t way in which portmanteau is new
and way in which other words are new words. How novelty works.

RT: we unfortunately have seen some conflation in TM b/t ©
concepts and TM concepts and this area could be a way to explore that. Compare
the treatment given to HONEY BADGER DON’T CARE where the court conflated the
creator’s authorship interests w/his TM interests v. LETTUCE TURNIP THE BEET,
where at least at the district court level it may have been relevant that there
was evidence that the TM claimant didn’t “invent” the pun.

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suit against laser-bearing baseball hat (for hair regrowth) proceeds

Posted on August 18, 2020 by rtushnet

Cooper v. Curallux LLC, 2020 WL 4732193, No. 20-cv-02455-PJH
(N.D. Cal. Aug. 14, 2020)

Curallux makes “baseball-style hats with lasers in them” and
advertises them as hair regrowth products that are “without side effects” and
“physician recommended.” Cooper brought the usual California claims. She
alleged that her side effects included itchy scalp, dry scalp, dandruff,
headaches, and dizziness. She further alleged that scientific studies and
experts in the field of hair restoration have identified several side effects
associated with the use of low level laser therapy for hair loss. Although
Curallux relied on eight physicians to endorse the products, Coopoer alleged
that these physicians have a financial incentive to make the purported
recommendations, while a reasonable consumer would interpret “physician
recommended” to mean a physician without financial incentives.

The court denied a motion to dismiss.

Defendant argued that these were mere lack of substantiation
claims, for which there is no private cause of action in California. Not so. A
false advertising claim is one in which the claim has “actually been
disproved,” such that “the plaintiff can point to evidence that directly
conflicts with the claim.”

For “without side effects,” Cooper alleged the existence of
side effects, confirmed by “[s]cientific studies and experts in the field of
hair restoration,” citing a study published in the medical journal Lasers in
Medical Science. This was a falsity claim, not a “there’s no evidence one way
or another” claim, which would be a substantiation claim.

Curallux tried to distinguish the study as not actually
discussing its specific product. But
“[t]he technology (low level light treatment/therapy) and the goal (hair
growth) is the same in both the study and defendant’s products.” Although the
study didn’t list all the side effects alleged in the complaint, it did list
itchy scalp. Curallux posited that the helmet in the study might have caused
the side effects versus a hat by creating a warmer environment/higher humidity
on the scalp, and the study’s authors acknowledged this possibility, including
the itchy scalp reported in the control group. The court thought this was a
close case, but on a motion to dismiss plaintiff statted a claim.

“Physician recommended”: This was a misleadingness claim,
not a substantiation claim. Cooper agreed that physicians recommended the
product, but Curallux failed to disclose their biases. Curallux argued that she
was really saying that it had no basis to make its statement because the
physicians were biased, but the court didn’t agree, and I note that such
reasoning would make every falsity claim into a “lack of substantiation” claim;
as the court noted above, some claims are unsubstantiated because they are
false or misleading, and consumers can challenge such claims.

Warranty claims also survived.

Curallux tried to strike Cooper’s request for attorneys’
fees because the FTC already investigated Curallux and required Curallux to
change its advertising from “no side effects” to “no adverse side effects” and
“recommended by physicians” to “recommended by physicians within Capillus’
network.” Curallux argued that California Code of Civil Procedure § 1021.5
requires a plaintiff to demonstrate that he or she actually motivated a
defendant to change its advertising in order to recover attorneys’ fees. But
under the CLRA, Civil Code § 1780(e), a plaintiff prevailing in litigation
shall be awarded costs and attorneys’ fees; because she stated a claim, her
request for fees survived, though defendant could raise the issue later.

So too with the request for injunctive relief: “It is not
clear to the court that the FTC remedial action agreed to by defendant is
coextensive with plaintiff’s requested injunction.”

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using picture of competitor’s product as reverse passing off

Posted on August 18, 2020 by rtushnet

John Bean Tech. Corp. v. B GSE Gp., LLC, 2020 WL 4698984, No.
1:17-cv-142-RJS-DAO (D. Utah Aug. 13, 2020)

Plaintiff JBT “is a major player in the aviation industry
for ground support equipment,” used to maintain aircraft, including preconditioned
air (PC Air) units that cool aircraft and ground power units (GPUs) that power
this equipment. JBT sought to enter the niche market to supply ground support
equipment—primarily PC Air units and GPUs—for the F-35 fighter, which usually
required specialized equipment. “To help it through the bidding process and to
win these government contracts, JBT hired Defendant Bryan Bullerdick.
Bullerdick left JBT after about three years, however, to become the head and
majority shareholder of Defendant B GSE Group, LLC (BGSE),” which initially
acted as JBT’s designated distributor. However, “Bullerdick began representing
to industry contacts, primarily contractors and sub-contractors, that BGSE was
the designer of several of JBT’s products and that JBT was merely the
manufacturer of BGSE’s designs…. BGSE later began competing directly with JBT
to win F-35 projects by supplying products manufactured by [competitor] Twist
and others.”

I won’t discuss the trade secret/contract claims you can
imagine from this situation; JBT also sued for unfair competition, trademark infringement,
and false advertising under the Lanham Act. Defendants counterclaimed for,
inter alia, tortious interference, negligent misrepresentation, and defamation,
primarily relating to JBT’s efforts to inform industry contacts of its lawsuit
against BGSE and Bullerdick. Here, JBT won summary judgment on some of its
claims, including trade secret, trademark, and breach of contract, and kicked
out some of the counterclaims, while defendants got summary judgment on the
false advertising/defamation claim against them, and the rest was left for
trial.

From 2015 to 2017, BGSE independently submitted several bids
to sub-contractors to supply PC Air units or GPU systems (or both) for F-35
maintenance hangars. In many, “BGSE included JBT documents and pictures of JBT
products but with JBT identifiers removed and replaced with BGSE identifiers.”
For example, these two images are the same, but the second image was used in a
BGSE submission with its logo superimposed over JBT’s (though I’m assuming the image quality is better in the original; otherwise I don’t see how anyone could tell):

Bullerdick represented to several contractors that, although
JBT manufactured BGSE’s PC Air unit and GPU products, BGSE was the creator and
owner of the designs, e.g.,

[BGSE] initially brought our
designs for JBT AeroTech to build. They built the power and air for us up until
last summer…. We began to shar[e] BGSE designs with Twist last summer in
confidence. For 8 months now we have worked with Twist engineers quietly …
The product made for BGSE with BGSE technology is call[ed] “Cool Jet.” It is
not available anywhere else.”

And:

JBT AeroTech builds 270VDC and CAS
as a licensee of BGSE Group design specifications. The agreement has expired
and JBT is not making the design supplied previously under BGSE licensee
agreement at this time…. Solution … Replace JBT with BGSE Group since BGSE
Group is the designer and owner of the technology.

BGSE also created a brochure that contained excerpts of
original JBT documents, with JBT identifying information removed and replaced
with BGSE identifiers, and another that claimed that “All projects completed on
this list have installed, commissioned and working 100% BGSE Group designs”
with a technical specification substantially copied from JBT and two pictures
of JBT HPCF 3000 PC Air units with BGSE logos superimposed on them.

After JBT sued, it sent the complaint and a cover letter to
some of the parties’ mutual industry contacts. The cover letter reaffirmed that
all JBT equipment sold through BGSE was designed and developed solely by JBT,
and made some related statements.

False designation of origin: This was a reverse passing off
claim, contending that defendants sold their products—competitor Twist’s PC Air
units—by creating a false link with JBT’s products, by incorporating doctored
JBT documents into bid proposals. (I don’t think the “false link” part is
actually reverse passing off, stated that way—it’s false association.) But what
was allegedly reverse passed off? Given Dastar, if the argument is that the bid proposals were reverse
passed off, that fails. But the relevant goods were the equipment promoted by
BGSE, which are tangible.

Arguing that they
never actually sold any repackaged JBT products, defendants argued that Dastar
precluded the claim, because Twist was the origin of the units BGSE ultimately
supplied.

The court rejected this argument, relying on a Fourth
Circuit case, Universal Furniture International, Inc. v. Collezione Europa USA,
Inc., 618 F.3d 417 (4th Cir. 2010), which upheld a false designation of origin
claim even though the defendant never sold any of the plaintiff’s products as
if they were produced by the defendant. The defendant sold cheaper versions of
two of the plaintiff’s most popular furniture lines, and at one point displayed
in its showroom some of the plaintiff’s actual pieces. “Because [the defendant]
displayed actual pieces from [the plaintiff’s furniture line] and marketed them
as belonging to [the defendant’s] 20200 collection, [the defendant] falsely
designated the origin of such furniture.” That was the case here too. JBT was
the producer of the tangible goods Defendants were offering for sale in the
documents, including the document that provided information for a nonexistent
BGSE product that was copied from a JBT specification/manual. “Thus, although
BGSE represented that it was offering for sale a BGSE product to be
manufactured by Twist, the substance of the submittal revealed the product
being offered for sale was actually produced by JBT.” [Comment: that’s really
false advertising: they delivered a product other than that which was
advertised, but the product delivered was from Twist/BGSE. This matters because
calling it false designation of origin relieves plaintiff of the burden of
showing materiality. The court doesn’t discuss Bretford
Mfg. v. Smith Sys., 419 F.3d 576 (7th Cir. 2005), which held to the
contrary that advertising a prototype made with another company’s parts, but
delivering a product made by the advertiser, was not false designation per Dastar.]

The court then found that confusion was inherently likely
from the false designation of origin. “[A] party’s attempt to pass off another
party’s product as its own satisfies the confusion requirement of the Lanham
Act for an obvious reason—it represents a direct attempt to confuse a consumer
about the origin of a product.” And BGSE’s conduct harmed JBT because it “prevented
JBT from reaping both the financial and reputational rewards associated with
its products,” given that “Defendants often were able to fulfill the
requirements of the bids they won only by representing a product JBT produced”
and lacked their own, non-JBT, requirement-compliant products. JBT thus “lost
contracts on which it would have otherwise been the supplier.”

False advertising: JBT’s separate false advertising claim principally
relied on four promotional documents whose alleged falsities were (1) inclusion
of excerpts of two JBT product manuals and two engineering documents stripped
of JBT identifiers and replaced with BGSE’s logo; (2) a statement that “[t]he
following F 35 specific projects all have BGSE Group Equipment. All projects
completed on this list have installed, commissioned and working 100% BGSE Group
Designs”; (3) a similar statement in another letter that “These are BGSE Group
Designs. We produce the bill of material and design and pay for the
certifications”; and (4) a statement claiming BGSE brought its designs and
expertise to JBT to make “second generation” PC Air units.

Defendants argued that JBT endorsed these arguments with a
presentation slide stating, “Together JBT and BGSE have developed, marketed,
and tested power conversion, PC Air, and Aircraft Air Start products for the
21st century warfighters’ needs.” That slide expressed only general sentiments
about working together—it wasn’t an official endorsement by JBT of BGSE’s role
in developing any specific products. And even if BGSE might have contributed to
the development of some of JBT’s products, it was undisputed that JBT designed
and built one key piece of equipment, the one to which BGSE affixed its logo in
the altered picture. That was literally false, and (2) and (3) were at least
ambiguous but misleading (though the court didn’t require evidence of consumer
deception in finding that there was no factual issue precluding summary
judgment here).

However, showing the utility for plaintiffs of moving claims
into §43(a)(1)(A) where possible, JBT didn’t show that the false statements
constituted “commercial advertising or promotion.” Neither party submitted
evidence from which the court could determine the size of the relevant market.

JBT argued that the relevant purchasing public was
exceptionally narrow, limited to the design firms, the contractors working with
the military, and the military itself, and the court was willing to make that
inference, but “it remains unclear to the court how small is small.” The court
had no idea how many design firms and contractors are hired per hangar or in
the overall market, and “the court cannot on its own come up with the
appropriate denominator to evaluate the extent of Defendants’ dissemination.”
While the arguments here could’ve worked to defeat a motion to dismiss, this
was a summary judgment motion where JBT needed to point to evidence in its
favor.

JBT cited evidence that BGSE sent a promotional email to 38
individuals involved with F-35 maintenance hangars at military bases, and
argued that this was a good reference point. But one instance “does not
establish that those recipients comprise the entirety—or even a rough
approximation—of the relevant market,” since there were many plausible reasons
to target a subset. “Ultimately, the
record provides the court no meaningful way to extrapolate the relevant market
from the email.” Summary judgment for defendants.

Trademark infringement based on BGSE’s use of JBT’s
trademarks on BGSE’s website and incorporating them into the website’s metatags
(ugh): The parties gave no help to the
court on the multifactor test; JBT argued initial interest confusion. The court
rejected older, out of circuit case law “suggesting it is enough to show
initial interest confusion where the defendant has used the plaintiff’s
trademarks in the metatags of the defendant’s website.” Although similarity and
intent weighed in JBT’s favor, there was no evidence of actual confusion, and “weighing
perhaps heaviest against likelihood of confusion is the fifth factor, the
degree of care likely to be exercised by purchasers.… Contractors do not
casually place PC Air units and GPUs into their digital shopping carts” and
indeed don’t seem to buy them via websites at all. However, the court still found a
fact issue for the jury because “JBT submitted evidence Defendants used its
trademarks exactly and did so with the intent to lure customers away from JBT,”
and degree of similarity is the most important factor (sadly, no discussion of
how that works in the comparative advertising context).

Defamation against JBT: Failed for lack of evidence of
damages. JBT argued that damages could be presumed; under the relevant state
law defamation per se was: “(1) charge of criminal conduct, (2) charge of a
loathsome disease, (3) charge of conduct that is incompatible with the exercise
of a lawful business, trade, profession, or office; and (4) charge of the
unchastity of a woman.” [That last should be eliminated; it is ridiculous to
have it in the standard list. No court would today say, as courts even half a
century ago might have, that a false accusation of nonwhite heritage is
defamatory per se or keep that on a standard list; what justification is there for this persistent sexism? Cf.
Samuel Brenner, ‘Negro Blood In His Veins’: The Development and Disappearance
of the Doctrine of Defamation Per Se by Racial Misidentification in the
American South, 50 Santa Clara L. Rev. 333 (2010) (discussing defamation per se
by racial misidentification).]

JBT highlighted statements such as “You have to remember
[JBT was] our supplier and BGSE experience they steal very easily … What JBT can’t come up with themselves they lie and steel [sic]
and just recently in Israel they told the customer they would buy and resell
USS PITs. A complete lie but they said this so they could fool the customer
into the order and then build themselves….” The court found that some of the
statements looked defamatory, but also they were “rhetorical hyperbole.”
Bullerdick’s allegations of JBT lying and stealing thus didn’t actually accuse
JBT of unlawful conduct. “At bottom, though inappropriate, Defendants’
statements are not of such common notoriety or unmistakably injurious to
relieve JBT of its burden to prove it was damaged.” Because JBT lacked evidence
of special damages, defendants got summary judgment.

Tortious interference claims based on specific projects
would go to the jury because of disputed issues of fact on whether JBT (which
claimed it was the sole compliant supplier) would’ve gotten the contracts
without defendants’ fraudulent conduct.

Defendants’ counterclaims: negligent misrepresentation claims
based on JBT’s statements that it would (1) enter into a renewed distribution
agreement with them and assist them on a bid failed because JBT owed them no
duty of care at the time.

Defamation in the cover letter publicizing the suit:
Statements that defendants weren’t authorized to sell JBT equipment didn’t rise
to the level of defamation, even if they caused confusion. Tortious
interference likewise failed for want of an improper means of interference.

Unfair/deceptive trade practices under North Carolina law
based on the cover letter: This required that (1) the defendant committed an
unfair or deceptive act or practice, (2) the action in question was in or
affecting commerce, and (3) the act proximately caused injury to the
plaintiff.” This cause of action is broader than the traditional common law; proof
of actual deception is not required as long as “an act or practice possessed
the tendency or capacity to mislead, or created the likelihood of deception.” Further, “[n]either the actor’s intent nor
good faith are relevant.” The cover letter qualified as deceptive based on the
statements that the parties’ distribution agreement was terminated in early
2013, that JBT would only support sales that were in process at that time, and
that JBT was the sole support contact. The first statement was untrue because JBT
accepted multiple sales after early 2013 that it knew about, authorized, and
supported. Likewise, JBT was not the “sole” support contact, despite the
implication that BGSE was unauthorized to provide support. Defendants would
face an “uphill battle” showing that these “relatively benign misstatements”
proximately caused injuries, but JBT didn’t contest that aspect of the claim in
its motion for summary judgment.

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deceptive resort fee case against Marriott survives

Posted on August 18, 2020 by rtushnet

Hall v. Marriott Int’l, Inc., No. 19-CV-1715 JLS (AHG), 2020
WL 4727069 (S.D. Cal. Aug. 14, 2020)

A class action against Marriott for deceptive “resort” and
other added fees that make the total price of a hotel room impossible to
determine/compare with other prices until late in the transaction (at best)
proceeds. Marriott advertises its available rooms and daily room rates online
through its own website and the websites of third-party online travel agencies
(OTAs), such as Priceline and Expedia.

On its own site, search results by destination and date list
various hotels and rooms with matching availability, but the quoted daily room
rate for each hotel doesn’t include or mention the mandatory resort fee a
consumer must pay.

Once a consumer selects an option, another webpage lists
available rooms with daily rates. This time there’s a light blue box at the top
of the page with blue bold font that states that a “daily destination amenity
fee will be added to the room rate,” followed by the hours for the property’s
concierge lounge. If a consumer selects a specific room, there is a “USD
subtotal” for the reservation consisting of the “USD/Night” added to “USD Taxes
and Fees.” Although there’s a stopwatch graphic ticking that allegedly
encourages consumers to complete their reservation quickly, if the consumer
clicks the “Summary of Charges” menu, they get summary breaking down the
overall costs of the reservation by room rate, “Destination Amenity Fee,” and
“Estimated government taxes and fees.” In smaller and lighter-colored font, the
page displays “Additional Charges,” including on-site parking and valet parking
fees.
At some properties, there’s no amenity fee, and the “USD Taxes and Fees”
consists solely of government taxes and fees. This is allegedly misleading
because Marriott “USD Taxes and Fees” to represent one component of the hotel
room charge, regardless of whether the “USD Taxes and Fees” includes an amenity
fee or not. Plaintiff also alleged that the website was misleading because of
inconsistent representations regarding what amenities are covered by the
amenity fee or are offered complimentary. For example, a hotel may indicate
that the amenity fee “includes high speed Internet/resort equipment
rentals/fitness classes and more” and simultaneously advertise that fitness
classes are “[c]omplimentary” and that the “[f]itness center is free of charge
for hotel guests.”

Marriott also allegedly misleadingly fails to include resort
fees in the rates advertised by OTAs. On Expedia, for example, the quoted room
rate does not include or mention any resort or amenity fee. When a consumer
clicks “Select your room,” Expedia directs the consumer to another page
containing the same quoted room rate. Selecting the quoted price then directs
the consumer to yet another page that fails to display a resort or amenity fee.
Instead, the page includes only the discounted bargain price and the “Taxes and
Fees,” indicating that there is a “Mandatory property fee: Collected by
property” with a link to “Details.” Only by clicking on “Details” does the
consumer learn the amount of the resort fee and what it claims to include.
Nonetheless, Expedia may advertise that a room includes “Free WiFi,” while
simultaneously indicating that the “Resort fee” includes “Internet access.”
Expedia also allegedly encourages consumers to complete a booking by displaying
stopwatches indicating how many other people are viewing the property and how
many of that room type are still available.

Plaintiff brought the usual California claims, alleging
deceptiveness because: (1) Marriott doesn’t include mandatory resort fees in
initially advertised room rates; (2) Marriott doesn’t break out the cost of
mandatory resort fees when later listing the summary of charges for a hotel
room; (3) Marriott includes mandatory resort fees within the broader heading of
“taxes and fees,” which leads consumers to believe the resort fees are
government-imposed charges; (4) Marriott doesn’t inform consumers of the
services included in the resort fee; (5) Marriott falsely states that certain
amenities are complimentary when it later describes them as covered by the
resort fee; and (6) Marriott provides such pricing information to consumers in
an inconsistent manner across different hotels, compounding the confusion.

The court rejected Marriott’s argument that the plaintiff
couldn’t challenge statements made on third-party OTAs because he himself did
not rely on any OTA websites when booking a Marriott hotel room, but he was an
acceptable representative plaintiff for the allegedly consistent false
advertising, “regardless of whether those prices were displayed directly on Defendant’s
website or indirectly on third-party OTAs’ websites.” This was a question for
the certification stage.

He also sufficiently alleged an injury even though he was aware
of the total amount he paid, including the resort fee. He alleged that he “paid hotel charges that
were not as advertised,” and paid a higher price than he would have “in the
absence of Defendant’s misrepresentations and omissions.” In Hinojos v. Kohl’s
Corporation, 718 F.3d 1098 (9th Cir.), as amended on denial of reh’g and reh’g
en banc (July 8, 2013), even when the consumer knew how much he’d pay for
allegedly falsely advertised “discounted” merchandise, the court found that the
plaintiff stated a claim because “regular” price matters to consumers even when
they’re receiving discounts. “[A]lthough
Plaintiff may have known the full amount of money he would be charged for his
hotel room, the room’s regular or baseline price matters, and the inclusion or
omission of resort fees affects that consumer valuation.”

For similar reasons, he had standing to seek injunctive
relief. The Ninth Circuit has already held that, “[i]n some cases, the threat
of future harm may be the consumer’s plausible allegations that she will be
unable to rely on the product’s advertising or labeling in the future, and so
will not purchase the product although she would like to.” Here, the plaintiff
alleged that, “[u]ntil Marriott changes its practices, Plaintiff will be unable
to determine what his true hotel charges will be and what a specific fee covers,
as some Marriott hotels do not disclose what is and is not included in which
fees, and other Marriott hotels state that an amenity is both complimentary
when it in fact is being charged for in a fee.”

And he sufficiently alleged misleadingness: (1) Marriott allegedly
omits the resort fee from its initial advertised price, luring customers in
with an artificially low advertised rate; (2) by combining the resort fee with
taxes under the heading “Taxes and Fees,” Marriott misleads consumers into
believing that the additional fees are government-imposed (which, among other
things, suggests that consumers couldn’t avoid them by choosing a different
hotel); and (3) Marriott misleads consumers by representing that the resort fee
covers certain amenities that are advertised as complimentary or by
representing that the resort fee covers certain expenses that are charged
separately.

Marriott argued that, because the consumer is twice informed
of the resort fee before committing to a reservation, “no reasonable consumer
would believe Marriott does not charge a $30 resort fee above and beyond the
$369 rate for the room at the Marriott Marquis San Diego.” And the countdown
clock, it argued, “is not deceptive,” but rather “put[s the consumer] on notice
that the rate is subject to change if booking is delayed.”

But that wasn’t the alleged misleadingness. Bait and switch
was the problem. [And really why regulators should take action, given the
barriers to consumer class actions here.] On a motion to dismiss, the court
wasn’t going to conclude as a matter of law that the alleged failure to
disclose the resort fee until a consumer is invested in the booking process wouldn’t
deceive a reasonable consumer.

So too with the alleged concealment of the resort fee in
“Taxes and Fees.” “Although this theory is the weakest of Plaintiff’s alleged
misrepresentations, the Court is not prepared to conclude at this stage as a
matter of law that no reasonable consumer would be misled.”

Failure to disclose covered amenities: The alleged
misleadingness was the representation that certain amenities are offered
“complimentary,” whereas the consumer is really paying for them through the
resort fee. This theory also survived the motion to dismiss.

Reliance was also sufficiently alleged at this stage.

Finally, Marriott argued that hotel rooms were neither
“goods” nor “services” covered by the CLRA. Fairbanks v. Superior Court, 46 Cal. 4th 56
(Cal. 2009), held that insurance was not a good or service under the CLRA
because the California Legislature deliberately excluded “insurance” from the
statutory definition of services that had appeared in the National Consumer
Act, on which the CLRA was modeled. But that case didn’t establish that hotel
rooms and related amenities were not covered by the CLRA.

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UCL claim against Twitter survives where advertiser allegedly was charged for bot activity

Posted on August 18, 2020 by rtushnet

DotStrategy Co. v. Twitter Inc., 2020 WL 4465966, No.
19-cv-06176-CRB (N.D. Cal. Aug. 3, 2020)

Twitter “promises advertisers on its platform that they will
only be charged when “people” interact with the accounts or Tweets they are
paying to promote.” DotStrategy alleged that it was charged for interactions
with automated accounts and that Twitter failed to refund it for those
interactions even after it learned that the truth. The court partially granted
and partially denied denied Twitter’s motion to dismiss—granted to the extent
that DotStrategy complained about “fake” accounts that were nonetheless
controlled by people, denied to the exent that the complaint concerned bots.

As an example of its representations, in 2013, Twitter
represented to advertisers that they would “only be charged when people follow
your Promoted Account or retweet, reply, favorite or click on your Promoted
Tweets.” DotStrategy is a marketing company; between October 2013 and December
2016, it placed thirty-four ads on Twitter for which it paid a total of
$2,220.76.

Twitter’s Advertising Terms state that Twitter “[t]o the
fullest extent permitted by law … disclaim[s] all guarantees regarding …
quality … of … any User Actions….” and state that “[c]harges are solely based
on [Twitter’s] measurements for the Program.”

“A large number of accounts on Twitter are primarily
controlled by bots rather than human beings.” Around the time that Twitter
deleted 70 million accounts “it had deemed spammy, inactive, or which were
displaying ‘erratic’ behavior that indicated they were likely bots,” 480 of
dotStrategy’s Twitter followers were deleted. After a Twitter account has been
deleted, it is allegedly “as if the account never existed,” making it difficult
or impossible to find information about the account. DotStrategy sued for
violation of the UCL.

Twitter argued that the complaint failed to satisfy Rule
9(b) because dotStrategy alleges that Twitter wrongfully charges for “fake,”
“false,” or “spam” accounts without adequately defining those terms. The court agreed
to the extent that the complaint alleged that a broader category of
human-controlled Twitter accounts are fake, without identifying the outer
boundaries of this group. DotStrategy argued that the terms “fake,” “false,”
and “spam” cannot be insufficiently precise, because Twitter itself has used
those words to describe activity forbidden on its platform. “But the fact that
Twitter knows what it means when it uses these terms does not excuse
dotStrategy’s obligation to identify the categories of interactions it was
wrongfully charged for.”

Also, any theory of liability premised on interactions with
human-controlled accounts failed because Twitter never promised not to charge
advertisers for interactions with “fake” accounts that were controlled by
people. “A reasonable advertiser would understand that achieving its goals
might require some interaction with Twitter users who use the platform to
disseminate spam, violate Twitter’s terms of service, or otherwise qualify as ‘fake’
despite being human. This is especially true because according to dotStrategy’s
own allegations, Twitter is rife with such users.” Likewise, no reasonable
advertiser “would understand the word ‘people’ to mean people who abide by
Twitter’s rules.”

“However, dotStrategy adequately alleges that Twitter
falsely represented that advertisers would not be charged for interactions with
bots.” And the complaint adequately alleged that such charges were imposed. The
allegations that dotStrategy lost 480 (roughly 17%) of its followers in the
twenty-eight days preceding July 20, 2018, during Twitter’s bot purge, and the
allegations that a large number of automated accounts are active on Twitter, plausibly
alleged that at least some of the 480 deleted accounts must have been bots,
that dotStrategy most likely paid for interactions with some of those bots, and
that Twitter failed to reimburse the money paid for those interactions despite
knowing they involved automated accounts.

Though dotStrategy didn’t identify what interactions with
the 480 deleted accounts it was charged for or which deleted accounts were bots,
that was “matter[ ] within the opposing party’s knowledge.” Only Twitter—not
dotStrategy—has access to information about deleted accounts.

DotStrategy also adequately alleged reliance, even though it
agreed to the Advertising Terms in October 2013. The complaint adequately alleged
that Twitter misrepresented in 2013 that advertisers would not be charged for
interactions with botsso even if statements made after that point were
irrelevant, dotStrategy would still adequately allege reliance. And dotStrategy
allegedly continued to place ads, thereby incurring additional charges, after that
time; it could have relied on the misrepresentations when deciding to place
additional ads at additional cost, distinguishing this situation from one in
which misrepresentations were only made after the plaintiff’s purchase was complete.
And dotStrategy’s reliance was reasonable. A reasonable consumer would
understand statements such as “You’ll only be charged when people follow your
Promoted Account or retweet, reply, favorite or click on your Promoted Tweets”
to mean that Twitter would refund charges for those interactions if it later
learned they involved a bot.

Twitter’s contractual disclaimers weren’t sufficient. First,
a UCL fraud claim can be based on misleading representations in a solicitation
even when the plaintiff later signed a contract with provisions contradicting
the earlier falsehoods. “The question, then, is not whether Twitter’s
contractual terms corrected the false statements in its advertising, but
whether dotStrategy’s reliance on the false advertising was reasonable even in
light of the contractual disclaimers.” And it was. The contractual provisions
weren’t irreconcilable with dotStrategy’s understanding. “Disclaiming the ‘quality’
of ‘User Actions’ is not a clear warning that those users might not be people,”
but could just be about whether they’d be nice or naughty. “That understanding
would be particularly reasonable given Twitter’s other representations
guaranteeing that advertisers would not pay for interactions with automated
accounts. … An advertiser could reasonably believe that Twitter would determine
the amount of advertising charges in a manner consistent with its other
representations.”

DotStrategy also sufficiently alleged injury by alleging that
it “paid for ads for which it would not have agreed to pay anything at all had
it known the truth about Twitter’s misconduct.” Twitter argued that dotStrategy
received the benefit of its bargain because it gained more Twitter followers,
but “a public[ly] visible increase in … follower count” isn’t the only goal
an advertiser might have in promoting its products on Twitter. “Presumably
human followers are more valuable to advertisers than automated ones, because
humans, unlike bots, sometimes purchase goods and services. If anything, that
difference seems more meaningful than, for example, a product’s domestic
origin.” [Well, that surely depends on one’s goals; there’s no need to
disparage the materiality of a claim in one purchasing context in another
totally different context.]

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continued claim, including failure to edit existing YouTube video, leads to contempt finding

Posted on August 17, 2020 by rtushnet

De Simone v. VSL Pharmaceuticals, Inc., 2020 WL 4368103, No.
TDC-15-1356 (D. Md. Jul. 30, 2020)

Disclosure: I filed an amicus brief in support of De Simone
on one legal issue (the proper standard for a Lanham Act literal falsity
finding) in the appeal that is pending in this case. Of broader relevance: failing to edit previously published YouTube videos and captions is treated as contumacious. And I continue to worry about the injunction here to the extent that it prohibits truthful statements about the ingredients in VSL’s products (as studied in what is now the De Simone product).

As the court explains, this was a dispute between former
business partners about a proprietary formulation (“the De Simone Formulation”)
used in a probiotic previously known by the tradename VSL#3 and now known by
the tradename Visbiome. In November 2018, a jury returned a verdict in favor of
the De Simone parties, including for false advertising of VSL#3 in violation of
the Lanham Act. The court permanently enjoined the VSL parties from making
certain representations about VSL#3; De Simone moved to hold them in contempt. The
court granted it in part and denied it in part.

The injunction, issued in June 2019, barred the VSL parties
from

(1) stating or suggesting in VSL#3
promotional materials directed at or readily accessible to United States
consumers that that the present version of VSL#3 produced in Italy (“Italian
VSL#3”) continues to contain the same formulation found in versions of VSL#3
produced before January 31, 2016 (“the De Simone Formulation”), including but
not limited to making statements that VSL#3 contains the “original proprietary
blend” or the “same mix in the same proportions” as earlier versions of VSL#3;
and

(2) citing to or referring to any clinical
studies performed on the De Simone Formulation or earlier versions of VSL#3 as
relevant or applicable to Italian VSL#3. [Side note: the difference in First
Amendment treatment of the FDA versus private plaintiffs seeking government’s
aid, in the form of a court, to suppress speech is quite stark here.]

After the jury verdict, the VSL parties posted on the VSL#3
website a letter to healthcare providers that recounted the verdict but
asserted that the trial evidence “confirmed that … Italian-made VSL#3
contains the same 8 strains of bacteria” as the De Simone Formulation and that
“Italian-made VSL#3 is equivalent to” the De Simone Formulation. The letter also
stated that prior clinical studies of the De Simone Formulation could “be
relied on to show the efficacy and safety” of Italian VSL#3. After the
permanent injunction issued, the VSL parties took some steps to remove the letter,
but it remained accessible until September 10, 2019.

In the same time frame, the VSL#3 Facebook page and the
written summaries accompanying numerous YouTube videos contained the statement
that VSL#3 is “clinically proven in the dietary management of IBS, ulcerative
colitis and ileal pouch.” The videos were posted several years prior to the
permanent injunction, but remained accessible at least through November 4, 2019.
At least one posting connected to a YouTube video stated that VSL#3 has “more
than a decade of patient support and use” and that it “is one of the most
studied” probiotics of its kind.

During September 2019, VSL#3 representatives responding to
consumer questions about the composition of VSL#3 on the VSL#3 Facebook page
repeatedly offered the assertions that “VSL#3 was not recalled or discontinued,
there are no safety or efficacy concerns and the formulation has not changed,”
and that “In January 2016 manufacturing of VSL#3 was moved back to its original
site in Italy and the lactose was removed from the product. No changes to the
current formula have been made.”

In a September 9, 2019 press release touting a victory for
the VSL parties in Italian litigation about VSL#3, Luca Guarna, the Chief
Executive Officer of VSL, affirmed VSL’s commitment to “making the VSL#3
probiotic available to our dedicated customers and healthcare providers notwithstanding
De Simone and ExeGi’s aggressive efforts to sell their competing, generic
probiotic product.” The press release appeared on numerous websites.

On July 26, 2019, the VSL parties sent a letter to
wholesalers and distributors of VSL#3 relaying the terms of the permanent injunction,
asserting that it was not retroactive, and stating that no recall of, or
corrective advertising about, previously packaged VSL#3 was required. They
advised that Alfasigma was removing product information sheets from remaining
VSL#3 packages still within its facilities, that future VSL#3 product
information sheets would be revised to remove any comparison of Italian VSL#3
to the De Simone Formulation, and that the sheet would be posted on the VSL#3
website. On August 20, 2019, Alfasigma advised VSL#3 wholesalers and
distributors that they should either remove the old product information sheets
from all VSL#3 packages remaining in their inventory before sale, or return the
unsold product to Alfasigma for credit.

The key questions were whether the VSL parties violated the
injunction and whether the De Simone parties suffered harm as a result. For
civil contempt, there’s no requirement of willfulness. But the order allegedly
violated must be one that sets forth in “specific detail an unequivocal
command.” This specificity requirement is not unlimited; “[i]t is enough
protection for defendants if close questions of interpretation are resolved in
the defendant’s favor in order to prevent unfair surprise.”

Statements that clearly violated the injunction: (1) the
January 31, 2019 letter on the VSL#3 website stating that, despite the jury
verdict, Italian VSL#3 was equivalent to the De Simone Formulation; (2)
statements on Facebook by VSL#3 representatives, in response to consumer
questions, that the formulation for VSL#3 has not changed; and (3) statements
on Facebook and YouTube that VSL#3 is “clinically proven.” Even if the
consumers in (2) were “plants,” it iddn’t matter, because the repeated use of
the same language “reveals that the VSL Parties clearly had a script from which
they were working,” which script violated the permanent injunction. As for (3),
there was no evidence that Italian VSL#3 was the subject of clinical studies,
so the reference could only fairly be construed as referring to the clinical
studies performed on the De Simone Formulation and thus suggesting that those
prior studies are “relevant or applicable to Italian VSL#3,” especially given
related statements about the product’s history. Although there was no evidence
that Italian VSL#3 was “clinically ineffective,” that was “a far cry” from a
claim that it is “clinically proven.”

Press release describing Visbiome as the “generic” version
of VSL#3: This also violated the Permanent Injunction. it clearly suggested an
equivalence between the products’ formulation “and did so a way that signaled
that Visbiome was the later copy while Italian VSL#3 was the original version.”
This constituted “passing off Italian VSL#3 as the authentic De Simone
Formulation,” which “squarely violates the Permanent Injunction’s bar on ‘stating
or suggesting’ that Italian VSL#3 ‘continues to contain’ the DeSimone
Formulation.” The use of “generic” didn’t have its patent-specific meaning “in
a press release widely circulated to diverse media outlets.” When the VSL
parties began to manufacture their own version in Italy using a different
formulation, “it was no longer accurate to describe Visbiome as a generic
version of VSL#3.”

Product information sheets: failure to take steps to ensure
the removal of old product information sheets inserted into packages before the
permanent injunction didn’t amount to civil contempt. The court didn’t
specifically order retroactive action, and the De Simone parties didn’t show
evidence of harm. The VSL parties’
actions to direct the removal of package inserts still in the possession of
wholesalers and distributors adequately addressed the issue.

Content of the revised VSL#3 product information sheets: The
De Simone parties argued that representations that VSL#3 has been
manufactured with ingredients that have been deemed “Generally Recognized as
Safe,” (“GRAS”), and that it is “a probiotic medical food intended for the
dietary management of Irritable Bowel Syndrome (IBS), Ulcerative Colitis (UC)
or an ileal pouch,” violated the injunction’s requirement that the VSL Parties
not cite to or refer to clinical studies as relevant or applicable to Italian
VSL#3. The court disagreed. None of these statements on their face suggested or
implied any continuity between products or cited clinical studies of the De
Simone Formulation.

The De Simone parties argued that the GRAS designation
implied equivalence because it was granted after an analysis that included
consideration of the De Simone Formulation’s history of clinical studies. [This
argument sounds like it has FDA preemption/preclusion problems.] But the GRAS
report was based on a review of Italian VSL#3, not of the De Simone Formulation.
It didn’t conclude that the formulation was the same, but focused on the safety
of the ingredients, which substantially overlap with those of the De Simone
Formulation, and apparently relied on De Simone Formulation studies to conclude
that those ingredients are safe. The chain of reasoning was “too attenuated” to
support a violation of the injunction.

So too with the characterization of Italian VSL#3 as a
“medical food.” The De Simone parties argued that “medical food” is a
statutorily defined term that may be applied only when there is significant
scientific agreement that it is clinically effective. Since Italian VSL#3 has
never been tested clinically to determine its effectiveness, the use of the
term allegedly implied that prior clinical studies on the De Simone Formulation
may be appropriately considered as applicable to Italian VSL#3. Again, this was
too indirect.

And here my questions about the First Amendment and FDA
preclusion limits on the injunction really spiked:

To be sure, in using these terms,
the VSL Parties run the risk that they may not be able to adequately respond to
any consumer inquiries into the GRAS or medical food designations without
violating the Permanent Injunction. For example, if asked to provide support
for these designations, they would be unable to provide or even refer to either
the earlier clinical studies or the GRAS report, which references those studies
in a way that would make them “relevant” to Italian VSL#3.

But the sheet alone didn’t violate the injunction.

The violations that did occur, “which were designed to
create a false continuity between Italian VSL#3 and the De Simone Formulation
so that VSL#3 could keep its prior customers and potentially poach new ones,”
caused harm to the De Simone parties. There was evidence customer confusion
over whether VSL#3 still contains the De Simone Formulation caused ExeGi to
lose business.

The De Simone parties asked for some or all of the profits
derived from the sale of VSL#3 during the relevant time period, but there
wasn’t “evidence of quantifiable damages of such a magnitude as would warrant
such a remedy.” And the letter and some of the statements that VSL#3 is
“clinically proven” predated the injunction and might have been left in place
inadvertently; the press release was limited to a single occasion “not focused
on establishing an equivalence between VSL#3 and the De Simone Formulation.”

Thus, the court instead ordered VSL and Alfasigma to (1)
remove the remaining contumacious statements from the relevant media, review
all promotional materials and online postings, including the audio content of
any YouTube videos referenced, for the same or similar statements and to remove
them, and instruct all relevant personnel to refrain from using the same or
similar language going forward; and (2) pay the De Simone Parties’ reasonable
attorney’s fees expended in advancing the Motion. This was justified because “certain
violations, such as the September 2019 Facebook statements, were blatant violations
of the Permanent Injunction, and other violations, such as the claims that
VSL#3 is ‘clinically proven,’ persisted over an extended period of time.
Moreover, the number of different violations demonstrates that the VSL Parties’
efforts to avoid violations of the Permanent Injunction were notably deficient.”
The court found that there was no requirement of a showing of willful
disobedience or obstinacy for a fee award upon a finding of civil contempt.

And the court cautioned that the VSL parties were “on notice
of the identified violations and of potential violations that could arise from
the use of the clinical studies in support of the GRAS and medical food claims,”
so “any such violations occurring in the future will likely result in more
severe sanctions.”

I see risks here, especially if the De Simone parties
really do have “plants” asking Facebook questions about what the VSL parties are hiding, as alleged by the VSL
parties. Ultimately, the injunction should be modified to allow the VSL parties
to truthfully explain that GRAS and similar determinations can be made based on
ingredient assessments, including studies on other products that don’t have the
exact same ingredient list. It’s hard to see how that could be deceptive and
easy to see the anticompetitive risks imposed by the court’s current bar on any
kind of reference to clinical studies.

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patent publication privilege mostly protects licensee against licensor’s false advertising claims

Posted on August 17, 2020 by rtushnet

AU New Haven, LLC v. YKK Corp., No. 15-cv-3411-GHW, 2020 WL
4366394 (S.D.N.Y. Jul. 30, 2020)

Summarizing only a few key issues: YKK entered into an exclusive
licensing agreement (the ELA) with the owners of a recently issued patent. The
ELA provided YKK an exclusive (but limited) field of use license: “an
exclusive, worldwide right to manufacture, use, sell, offer for sale and
otherwise use and practice the invention… except for zippers placed in
finished goods in the high end outerwear, marine, military and luggage
(excluding sports and cosmetic bags) markets.” Plaintiffs sued YKK because,
among other things, they believe that, for years, YKK has been selling
laminated zippers into the unlicensed, high-end outerwear market.

Issues in the current motions: whether the patent
publication privilege barred plaintiffs’ Lanham Act false advertising claim;
whether plaintiffs could use Connecticut’s CUTPA to sue YKK for selling to
customers all around the world; and whether the remaining contract claim
presented triable issues, given YKK’s offer of judgment for the amount sought
(about which I will say no more).

False advertising: plaintiffs alleged that YKK falsely
advertised its field of use license by advertising that it was “licensed,” “the
exclusive licensee,” or similar statements. Precedent establishes that, to
avoid conflict with patent law, false statements about patent rights “are
actionable under the Lanham Act false advertising provision only if they are
made in bad faith.” But are statements about licensee status similarly covered?
The court said yes: Such statements “fall squarely within the scope of the
patent publication privilege: They inform the marketplace of the existence of
the ’214 patent and YKK’s rights under that patent.”

Plaintiffs argued that, since there was no need to look at
patent law to determine whether the statements were false—as there would be if
the alleged falsity went to patent validity or what infringes—the patent
privilege didn’t apply. The court disagreed: The “privileged right of a
patentee to notify the public of its patent rights is statutorily rooted in the
patent laws at 35 U.S.C. § 287, which authorizes patentholders to ‘give notice
to the public’ of a patent by marking [their] patented articles and makes
marking or specific notice to the accused infringer a prerequisite to the
recovery of damages.” Even if most of the time this means that a court has to
apply patent law to determine whether the challenged statement was true or
false, the privilege isn’t necessarily limited to that context.

Plaintiffs then made a clever argument about the inherent
nature of patent rights that the court had no interest in at all:

[B]ecause the core right conveyed
by a patent is the right to exclude others from using the claimed invention,
that fundamental right must necessarily define the scope of the patentee’s
privilege to notify the public of its patent rights. Thus, according to Plaintiffs,
because a licensee does not obtain the right to exclude by virtue of its
license—it merely obtains a covenant from the patentee not to sue for
infringement—a licensee’s statements about its own license rights cannot fall
within the scope of the publication privilege.

But the caselaw doesn’t support this; one key Federal
Circuit case explicitly treated exclusive licensees and patentholders
identically for the purposes of analyzing the privilege’s applicability. Also,
the statute from which the publication privilege is derived, 35 U.S.C. § 287,
specifically permits not just patentees, but “persons making, offering for
sale, or selling within the United States any patent article for or under them
or importing any patented article into the United States” to “give notice to
the public” that an article is patented. And finally, YKK’s exclusive license
in fact gave it a right to sue infringers.

More simply, plaintiffs argued that the publication
privilege applied only to statements claiming potential infringement. That too
was wrong. The patent laws permit marking to give notice to the world in
general. “That marking is not a statement that infringement has already
occurred; it is a warning to potential infringers.”

I’m more sympathetic to the plaintiffs’ argument, though I’m
not convinced the court is wrong—the question is about balancing the interests
served by the two bodies of law. If one were convinced that the specific aim of
protecting consumers against deception often overrides ancillary patent law aims,
then it could make sense to limit the privilege where a marketing statement
isn’t so much a warning to potential infringers as a promise of the
advertiser’s own ability to deliver. After all, the problem here is allegedly
that YKK told customers it could supply them with zippers it had no right to
supply, possibly converting the customers into patent infringers as
well/deterring them from contracting with the actual owner of the patent rights
for the relevant segment.

Regardless, given the result, plaintiffs had to show that
YKK made its statements in bad faith. They mostly couldn’t do so. The first
requirement of bad faith was that the statements were “objectively baseless,”
which usually means that “the infringement allegations [are] such that no reasonable
litigant could reasonably expect success on the merits.” Of course, the
statements here aren’t infringement allegations, but the Federal Circuit has held
that “the ‘objectively baseless’ standard applies to publicizing a patent in
the marketplace as well as to pre-litigation communications.”

The court found that three of the four challenged statements
was “objectively true on its face, and accordingly does not lack a reasonable,
objective basis.” Not objectively baseless: (1) “YKK is the Exclusive Licensee
of the [relevant tech]”; (2) “YKK Corporation is licensed to manufacture and
sell across the world, products protected by these patents”; and (3) “YKK
Corporation is a licensee to manufacture and sell products protected by [the
’214 and related foreign patents]”. But the same could not be said for: (4) “YKK
is the exclusive licensee of the water repellant slide fastener technology
embodied in U.S. Patent No. 6,105,214 and its corresponding foreign patent. YKK
has the exclusive right to manufacture, use, sell and import zippers
incorporating this water repellant technology.”

How to distinguish (1) and (4)? “The mere fact that the
exclusive license was not an unlimited exclusive license does not render these
statements objectively baseless,” but a reasonable jury could conclude that the
second sentence in (4) was objectively baseless, because YKK actually shared
that right with the licensor’s company.

Causation: Was there enough evidence for a reasonable jury
to find that YKK’s fourth category of statements caused plaintiffs’ alleged
injury? Yes. The court excluded proposed expert testimony from “a clothier,
creative director, and brand manager “who was set to testify “that companies
would not have purchased the accused zippers from YKK if they had known that
YKK was infringing upon Uretek’s patents.” The opinion was excluded for being
rooted in hypothetical speculation, “abstract belief[s],” and attorney
argument.

Still, plaintiffs had a theory: “Customers in excluded
markets, having decided that they wanted to purchase a patented water-resistant
zipper, believed they had only one choice after reading YKK’s false
advertisement—YKK-laminated zippers. Had YKK’s advertisements made clear that
only Uretek could sell in the excluded market, YKK’s customers would have had
to buy from them instead. Thus, every sale of a YKK zipper in the excluded
market was a sale stolen from Uretek.” In a footnote, the court noted that it
had looked for record evidence that customers in the excluded market were
“sensitive to the intellectual property rights of their component suppliers”
and would not have purchased infringing products. There wasn’t much, but it was
enough. Three emails suggested, with varying degrees of firmness, that desire to
respect patent rights would affect purchases. E.g., a reference to one customer
who wouldn’t buy non-YKK “because of the patent issue,” and another who “is not
interested in buying non-YKK or violating our patent.” Also: “YKK needs to
educate and inform Brand Holders (LandsEnd) that YKK is an exclusive licensee
and Uretek is a patent owner of this products. They know what this means and
what they need to do and you know that.” Drawing all inferences in favor of plaintiffs,
this evidence was sufficient to support plaintiffs’ causation theory. The court
cautioned, however, that the emails might not be admissible at trial; they were
arguably hearsay.

“Tricky as this link might be to prove at trial, the
evidence presented here is sufficient to survive summary judgment. It presents
a cogent reason why YKK’s profits on sales in the excluded market might have
been at Uretek’s expense: every sale of a YKK zipper was a diverted sale.”

CUTPA (Connecticut Unfair Trade Practices Act): This goes,
because there was no evidence that YKK engaged in any unfair or deceptive
practices “in the conduct of any trade or commerce” in Connecticut, as required
by the statute. Even if YKK’s “underlying business is associated with
Connecticut,” CUTPA “covers only unfair or deceptive practices that occur in
the course of trade or commerce in Connecticut.” Plaintiffs never alleged that
YKK made any sales into the excluded markets in Connecticut, and the court was
dubious that the act of negotiating the terms of a contract to secure the
exclusive license—“an act at least two steps removed from any eventual sale of
a zipper (first: acquire the license, next: manufacture zippers, finally: sell
them to customers)”—qualified as “trade or commerce” within the meaning of
CUTPA.

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9th Cir. revives suit against allegedly deceptive “prescription pet food” marketing

Posted on August 17, 2020 by rtushnet

Moore v. Mars Petcare US, Inc., No. 18-15026, — F.3d —-,
2020 WL 4331765 (9th Cir. Jul. 28, 2020)

Over a dissent, the court of appeals reversed the dismissal
of plaintiffs’ claims based on allegedly deceptive marketing of “so-called
prescription pet food” under California’s consumer protection laws, though it
affirmed the dismissal of antitrust claims. “Plaintiffs allege that the
prescription requirement and advertising lead reasonable consumers falsely to
believe that such food has been subject to government inspection and oversight,
and has medicinal and drug properties, causing consumers to pay more or
purchase the product when they otherwise would not have.”

As alleged: Defendants are pet food manufacturers,
veterinary clinic chains, and a pet goods retailer. Defendant Hill’s sells
“Prescription Diet.” Purina sells “Pro Plan Veterinary Diets.” Mars sold
prescription pet food under the “Iams” label and then switched to “Royal Canin
Veterinary Diet.” I’m skipping details about the market concentration, but the
defendant manufacturers have over a 90% share of the U.S. prescription pet food
market.

All defendants require a vet prescription as a condition for
the purchase of prescription pet food. In 2012, the FDA published a Draft
Compliance Policy Guide for comment, noting the increase in pet food products
labeled as intended for use in the diagnosis, cure, mitigation, treatment or
prevention of disease, as well as a shift in marketing toward pet owners
directly. FDA expressed concerns that these products “affect physiological
processes to extents that may not be tolerated by all animals and/or may not
achieve effective treatment.” It was, however, “less concerned when such dog
and cat food products are marketed only through and used under the direction of
a licensed veterinarian because the agency presume[d] the veterinarian will
provide direction to the pet owner.” The FDA then proposed nine factors it
would consider in determining whether to initiate enforcement action against
pet food products.

Again as alleged: At that time, defendant manufacturers’
products violated three of those factors: (1) their prescription pet food
included indications of disease claims on the labels; (2) the distribution of
promotional materials with disease claims were not limited to veterinary
professionals; (3) they electronically disseminated promotional materials with
disease claims to consumers on the internet. The 2016 Final CPG was
substantially the same, but added two more conditions that could lead to
enforcement action. Defendant manufacturers didn’t change their behavior, but
the FDA hasn’t taken any actions.

Plaintiffs were six California residents who purchased
prescription pet food for their sick pets after consulting with their vets. For
example, one plaintiff bought prescription urinary care dog food that costs
$3.44 per pound while urinary care non-prescription dog foods from other
manufacturers cost $2.73 and $2.45 per pound. The non-prescription dog food was
also allegedly marketed to “[p]romote[ ] balanced urinary pH” and “a healthier
immune system [and] urinary tract,” and had “a number of overlapping
ingredients in common” with Hill’s prescription dog food, while the
“non-overlapping ingredients are not drugs and are not sufficient to justify
one product being sold by prescription for a significantly higher
price.”Plaintiffs allegedly assumed from the prescription requirement that this
pet food was “(a) a substance medically necessary to health; (b) a drug,
medicine, or other controlled ingredient; (c) a substance that has been
evaluated by the … [FDA] as a drug; (d) a substance to which the
manufacturers’ representations regarding intended uses and effects have been
evaluated by the FDA; and (e) a substance legally required to be sold by
prescription.” As a result, they alleged that they paid more for the
prescription pet food than they would have in the absence of the prescription
requirement, had they purchased it at all. They alleged the usual California
claims.

The district court dismissed those claims, reasoning that the
sale of the prescription pet food exclusively through vets or with veterinarian
approval was not itself a deceptive or otherwise misleading practice; that
plaintiffs failed to plead enough facts to show that prescription pet food and
other pet food are not materially different; and that they failed adequately to
allege that the use of the word “prescription” or “Rx” symbol to have caused
any of their claimed loss. The court of appeals reversed on all three grounds.

Some themes: First, “[l]iteral truth can sometimes protect a
product manufacturer from a misleading claim, but it is no guarantee,” whereas
“there is no protection for literal falseness.” Second, qualifiers in packaging,
usually on the back of a label or in ingredient lists, “can ameliorate any
tendency of the label to mislead.” If, however, “a back label ingredients list
… conflict[s] with, rather than confirm[s], a front label claim,” the
plaintiff’s claim is not defeated. Third, “brand names by themselves can be
misleading in the context of the product being marketed.” Descriptive brand
names require of the consumer “little thought,” which can make consumers
susceptible to purchasing because “they won’t have the time or interest to read
about [the product] on [the] website or the back of the box.”

Following these rules, the labeling of “prescription pet
food” appeared deceptive and misleading. “Common sense dictates that a product
that requires a prescription may be considered a medicine that involves a drug
or controlled substance. This conforms to general understandings of
prescription drugs for humans and pets.” The brand name of “prescription pet
food” “itself could be misleading.” The role of vets in the referral process
wasn’t enough to avoid deception. Plaintiffs alleged that the food was marketed
to consumers, not just to vets. The 2016 CPG “doesn’t signal [the FDA’s]
authorization” and “doesn’t specifically authorize the [defendant]’s
prescription requirement, prescription label, and related marketing
representations.” Vanzant v. Hill’s Pet Nutrition, Inc., 934 F.3d 730, 739 (7th
Cir. 2019).

Indeed, the FDA warned in the CPG that the labeling on such
pet food “may lack sufficient information, particularly for pet owners.” And
plaintiffs alleged violation of three of the conditions listed in the CPG.
Anyway, an advertising practice can be deceptive without directly violating FDA
regulations.

Rule 9(b): The consumer protection claims were based in part
on a theory of fraud: that prescription pet food is not materially different
from non-prescription pet food and therefore does not justify the higher cost. In
a footnote, the court commented that “Rule 9(b) requirements may not even be
necessary, given that a defendant can violate the UCL, FAL, and CLRA by acting
with mere negligence.” But plaintiffs didn’t make this argument in their
briefing, so the court didn’t reach it. Regardless, the complaint satisfied
Rule 9(b) by alleging “what is false or misleading about a statement, and why
it is false.” Specifically, they identified six kinds of prescription pet food
and alleged how they overlap with a substantial portion of ingredients in
non-prescription pet foods that were marketed to treat similar health issues. “More
importantly, Plaintiffs allege that all non-overlapping ingredients are not
drugs and are not sufficient to justify one product being sold by prescription
for a significantly higher price.” This was enough to put defendants on notice.

Reliance/standing: the district court thought there wasn’t
enough detail on how each plaintiff relied on the “prescription” label or
requirement to buy the food. But a consumer “who relies on a product label and
challenges a misrepresentation contained therein can satisfy the standing
requirement of [the UCL] by alleging … that he or she would not have bought
the product but for the misrepresentation.” Plaintiffs collectively alleged that
“[a]s a result of the false and fraudulent prescription requirement, each
Plaintiff paid more for Prescription Pet Food than each Plaintiff would have
paid in the absence of the requirement, or would never have purchased
Prescription Pet Food.” That was sufficient. “The fact that vets had prescribed
each Plaintiff the pet food—rather than each discovering the pet food on their
own—does not negate the allegation of actual reliance because the prescription
requirement and advertising need not be the sole or even the decisive cause of
the purchase.”

Also, at the motion to dismiss stage, “actual reliance …
is inferred from the misrepresentation of a material fact.”

[I]t certainly seems plausible that
a reasonable consumer would at least partially rely on the prescription
labeling to pay more money for a certain type of pet food over others … particularly
for a pet owner who is dealing with possibly a sick or unhealthy pet. … Pets
can, after all, be as cherished and cared for as family members, and a
reasonable person in Plaintiffs’ shoes would rationally gravitate toward a
“prescription” product if that family member’s health is at risk.

Agreed. You’re paying for what you hope is a greater chance
of a better outcome. (Disclosure: We buy prescription pet food for our cats, for that very reason.)

The court of appeals also rejected challenges to injunctive
relief. “There is sufficient cognizable injury where Plaintiffs allege that
they cannot rely on Defendants’ labeling of a product when deciding whether to
purchase it in the future.” Also, the argument that plaintiffs couldn’t eek
equitable relief under the UCL or FAL, given an adequate legal remedy under the
CLRA, was “foreclosed by statute. The UCL, FAL and CLRA explicitly provide that
remedies under each act are cumulative to each other.” Finally, defendants
argued that plaintiffs lacked standing because they hadn’t bought every single
type of prescription pet food available form them. No: the challenge was “to the common scheme of
the prescription requirement and prescription-based advertising,” giving class
representatives standing.

Judge Rawlinson, in dissent, agreed with the district court.
The FDA hasn’t initiated any enforcement action, so the CPG violations are just
theoretical, and the CPG is non-binding anyway. Relying on the alleged
“violations” of the recommendations about disease claims & dissemination to
consumers wasn’t enough [FWIW, my reading of the majority is that those
violations are not that central to the holding except insofar as they reinforce the plausibility that consumers are deceived, which seems like the right call post-Pom Wonderful].

Plaintiffs’ basic argument was that an individual seeing the
word “prescription” in connection with pet food “would reasonably assume that
the pet food has been vetted and approved by the FDA.” But plaintiffs didn’t
explain why that would be reasonable, given that the FDA hadn’t historically
done such approvals and that pet foods had been marketed to cure/treat pet
diseases for more than fifty years. [If the FDA weren’t involved in any disease
claims, I’d see the dissent’s point. Given the role the FDA plays in regulating
human disease claims, though, it would be reasonable for most people not to
know this distinction and to assume that an arthritis claim for dogs & one
for people are treated similarly.]

The dissent also thought that plaintiffs couldn’t show
reliance on the labels because they didn’t read the labels prior to purchase,
but relied on vets’ advice.

And the dissent would have found the CLRA claims preempted “because
the FDA has exclusive enforcement authority over the claims made by Plaintiffs
predicated on alleged misrepresentations through use of the term ‘prescription
pet food,’ and the healing properties of that food.” [I think that would be a
pretty major departure from existing understandings of California law &
preemption, especially given the dissent’s point that the FDA hasn’t made binding regulations here.] Analogizing to a pre-Pom Wonderful case finding that fraud
by omission claims against the off-label use of a medical device were
preempted, the dissent would have found that this issue as well was within the
FDA’s exclusive authority. As in that case, the FDA has been made aware of the allegations that
defendants were providing mislabeled products, but hasn’t taken action.

The
dissent also pointed to Mylan Laboratories, Inc. v. Matkari, 7 F.3d 1130 (4th
Cir. 1993), which rejected a theory that merely placing prescription drugs on
the market impliedly represents FDA approval. [I suspect that Mylan could survive Pom, but only because of the very specific context of Congress deciding to allow certain grandfathered drugs to stay on the market without modern efficacy testing; that’s a much greater conflict than that posited here.]

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Covid cure “church” can’t avoid false advertising investigation

Posted on August 17, 2020 by rtushnet

Morningside Church, Inc. v. Rutledge, 2020 WL 4333539, —
F.Supp.3d —-, No. 3:20-cv-05050-MDH (W.D. Mo. Jul. 7, 2020)

“Plaintiffs are a not-for-profit corporation, which
describes itself as a church, a for-profit corporation, wholly owned by the
church, and an individual employed as a ‘minister’ by both.” They sought a TRO
against the Attorney General for the State of Arkansas (Rutledge); the District
Attorney for the County of Merced, California; the District Attorney for the
County of San Joaquin, California; and the City Attorney for the City of Los
Angeles, California, restraining them from taking any action against them for
their refusal to comply with Civil Investigative Demands or for alleged
violations of the Arkansas Deceptive Trade Practices Act, California False
Advertising Law, or California Unfair Competition Law, “resulting from the
content of their sermons, efforts to inculcate, or solicitation of
contributions” in conjunction with the offering of “Silver Solution,” or other
products. They alleged that touting Silver Solution etc. was part of their
religious practice and exercise and thus sought relief under 42 U.S.C. § 1983,
claiming First Amendment and related due process rights.

No.

Plaintiffs argued that the CIDs infringed on their religious
freedom and other rights by requiring disclosure of the names of their church
partners. “Defendants argue they have made it clear they are not requesting a
list of any church members, even given Plaintiffs’ broad definition of that
term (Plaintiffs refer to these individuals as ‘partners’), and that their
inquiries are limited to representations made in relation to, and furtherance
of, the sale of a product consumed in their respective jurisdictions.” Their
requests were limited to any products related to Silver Solution offered by plaintiffs
and any representations made by plaintiffs related to whether the products are
effective in the treatment or eradication of COVID-19.

Plaintiffs claimed
that anyone who ever interacted with them was a “member” of their church,
including anyone who ever ordered from the Silver Solution product line. “They contend their church partnership does
not require any request for or consent on the part of the partner. … They
acknowledge they provide the product upon request only to those willing to make
a certain minimum level church contribution,” but denied that this was a sale. They
denied that they ever represented Silver Solution to be an effective cure or
treatment for COVID-19.

The AG of Missouri has a pending case against them; and
plaintiffs argued that interest from the FDA and FTC led to their decision to
stop offering Silver Solution in March 2020.

The court found no irreparable harm. Even with chilling
effect concerns, defendants agreed to drop requests for the names of individual
recipients of Silver Solution (though, I note, this could complicate consumer
redress), and plaintiffs have stopped offering Silver Solution products. And,
given their factual denials, they couldn’t be irreparably harmed by being
deterred “from doing something they say they have never done and do not intend
to do.”

Separately, jurisdictional issues alone raised doubts about
likely success on the merits, given the law enforcement authority of these representatives
of other states.

“The Court also has serious concerns regarding the breadth
of religious freedom Plaintiffs claim.” They argued that, if they sincerely
held a religious belief that the product was good, the government had no right
whatsoever to test the validity of their representations. “[S]uch a broad
interpretation opens the door to the criminally inclined to fraudulently market
products to the harm and detriment of the consumer public under the protection
and subterfuge of religious freedom.” Or, in other words, Employment Div. v.
Smith had a good point about generally applicable laws.

But—perhaps unwilling to say that—the court instead said: “While
caution and deference should define the government’s approach in these
situations, at least some governmental inquiry into representations concerning
product offerings by ‘religious organizations,’ including an inquiry into the
basis and sincerity of the representations being made, and the safety of the
product for use by the public, seems appropriate.” Of course, the Supreme Court
is wary of inquiries into religious sincerity, and it’s completely unnecessary here,
because sincerity is irrelevant to the consumer protection question. That is
not about belief but about substantiation—and safety is far from the only
relevant issue. The court would have been better off focusing on facts and
substantiation of factual representations.

Anyway, the court thought that the CIDs were “within the
bounds of reasonable inquiry and focused on the protection of constituents of
the governmental entities conducting the investigation.”

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White Kit Kats not misleading, court rules, despite consumer perception

Posted on August 14, 2020 by rtushnet

Rivas v. Hershey Co., 2020 WL 4287272, 19-CV-3379(KAM)(SJB) (E.D.N.Y.
Jul. 27, 2020)

Another not-white chocolate case. The Kit Kat White is
coated “in a white confection coating.” Plaintiff alleged that Hershey marketed
it as an “alternative[ ]” to the dark and milk chocolate versions of the Kit
Kat, and in that context, “the reasonable consumer expects the white variety to
contain white chocolate,” which is “derived from cacao fat.” The package
describes the product as “[c]risp [w]afers [i]n [c]rème.” Retail websites such
as those of Target, Dollar General, and Amazon, which use “white chocolate” in
the description of Kit Kat White bars, and Hershey’s own marketing allegedly suggested
that by advertising/displaying it next to milk chocolate and dark chocolate
versions. Kit Kat White allegedly used to contain white chocolate, but it no
longer does with no change in the package, which allegedly further misleads
consumers.

It turns out that in 1989, Hershey asked the FDA to
establish a standard to identify white chocolate:

In many cases, the use of fanciful
names obscures the true nature of the product. Consumers who might expect to be
purchasing a “chocolate” or “white chocolate” product may, in fact, be
purchasing a coating-type product manufactured with cheaper ingredients made
from other oils and/or fats and which contain little or no cacao ingredients.

Also, Hershey conducted a marketing survey “to determine the
most common name used by adult candy consumers when shown a variety of
confection products, including a generic white confection bar.” The results
showed that “the majority of candy consumers tend[ed] to identify white
confection as either ‘white chocolate’ specifically or as some variety of
chocolate.”

I am disappointed, but not surprised, that the GBL §§ 349
and 350 claims failed, though the court primarily ruled that it lacked subject
matter jurisdiction because the amount in controversy was too low. Still,
amendment was futile because (despite the evidence of what consumers actually think)
the court held that a reasonable consumer acting reasonably could not have been
misled because Hershey never itself describes the product as containing white
chocolate. If “diet” on soda can’t be misleading to reasonable consumers about
whether it would help with weight loss, then “white” can’t be misleading to
reasonable consumers about whether candy contains white chocolate. (Not
impressed with the logic. While no soda can ensure or necessarily even increase
the chances that you lose weight, plenty of candy does contain white chocolate.
Relatedly, the cost-benefit analysis might be very different: if “diet” is an
efficient way of communicating “zero calorie” (itself probably something that
courts shouldn’t assume on a motion to dismiss, but whatever) then suppressing
it has costs to consumers, but if they have trouble distinguishing “white” and “white
chocolate” then the costs of deception could be much higher here.)

Anyway, the dictionary says that white means a color, and
the Kit Kat White is white (ish). Thus, there’s no falsity, even when the Kit Kat is
put in context with other, chocolate-containing Kit Kats. “Even if Plaintiff’s
allegation may have been plausible if the packaging only included the words ‘Kit
Kat White,’ the product is also clearly
described as ‘[c]risp wafers [i]n [c] rème.’ … A reasonable consumer would not
be misled into believing that the wafers are dipped in white chocolate when the
packaging does not mention chocolate, and states that the wafers are dipped in
crème, which is not the same as white chocolate.” But why not? The court has disregarded the context, but context is how implication works.

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Posted in Uncategorized | Tagged court rules, despite consumer perception consumer protection, false advertising, White Kit Kats not misleading | Leave a comment

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Rebecca Tushnet

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