Rebecca Tushnet

surveys/expert evidence of deception still not required in consumer protection claims

Posted on January 25, 2021 by rtushnet

Hawkins v. Kroger Co., 2021 WL 210843, No. 15cv2320 JM (AHG)
(S.D. Cal. Jan. 11, 2021)

Hawkins sued, with the usual California claims, because
Kroger breadcrumbs said “0g Trans Fat Per Serving” on the front and the nutrition label said
“Trans Fat 0g”; the breadcrumbs included partially hydrogenated vegetable oil
(PHO), which meant that they contained “trace amounts” of trans fat.

The use of PHO in food products was legal during the class
period: the FDA allowed producers until June 18, 2018 to remove PHO after it
was removed from the “generally regarded as safe” classification.

So the use of PHO was not unlawful, but was it unfair?
During the class period, there was no public policy against it, and the FDA
declined to prohibit its use then, weighing against unfairness. But the degree
of harm associated with PHO was a material and genuinely disputed fact. “[D]espite
the legality of the use of trans fat during the class period, reasonable jurors
could disagree as to whether the danger of trans fat to human health was sufficient
to render its use ‘immoral, unethical, oppressive, unscrupulous or
substantially injurious to consumers,’” so the court declined to grant Kroger
summary judgment on UCL unfairness.

Labeling claims: The court rejected Kroger’s argument that a
reasonable consumer would understand the breadcrumbs contained trans fat
because the ingredient list included PHO. Not only are reasonable consumers not
required to look beyond misleading representations on the front of the box, but
here it was not clear that typical consumers understood that PHO necessarily
meant trans fat. Moreover, no reasonable juror could find that interpreting “0g
Trans Fat” to mean “no” trans fat was unreasonably “sweeping.” [The FDA did
require rounding down for amounts under .5g, in contradiction to what
reasonable consumers would think. As the court explains, the cases have
therefore held that, “although the FDA mandates the disclosure of ‘0g Trans Fat’
on the nutrition label when the product contains less than 0.5 grams of trans
fat, it does not mandate or allow for the product to be labeled ‘0g Trans Fat’
elsewhere.”]

The court also rejected an attempt to impose a survey/expert
evidence requirement for determining reasonable consumer expectations in
California consumer protection cases. Here in particular, “it is not clear what
else the claim ‘0g Trans Fat’ would lead a reasonable consumer to believe other
than the product contains no trans fat.” Certainly Kroger wasn’t entitled to
avoid a trial.

Hawkins also got summary judgment on the argument that “0g
Trans Fat” violated 21 C.F.R. § 101.62(a)(1)-(2), “[a] claim about the level of
fat …. in a food may only be made on the label …. if … (1) [t]he claim
uses one of the terms defined in this section [or] (2) [t]he claim is made in
accordance with the general requirements for nutrient content claims in §
101.13.” Section 101.13 then provides “the label or labeling of a product may
contain a statement about the amount or percentage of a nutrient if …. [t]he
statement does not in any way implicitly characterize the level of the nutrient
in the food and it is not false or misleading in any respect (e.g., ‘100
calories’ or ‘5 grams of fat’)[.]” Previous cases have held that this provision
doesn’t “authorize” a “No Trans Fat” claim on the label. Though this was in a
preemption context, the logic held here: “No Trans Fat” outside of the
nutrition facts panel was misleading, given that the conceded use of PHO and
thus of “some” trans fat content was actual evidence the “0g Trans Fat” label
was false or misleading. Thus, Hawkins established a predicate for her
“unlawful” UCL claim.

However, even if Hawkins didn’t have to show that a
reasonable consumer would be deceived, there was a genuine dispute of material
fact on reliance/causation, so she didn’t win summary judgment on the entire
claim.

Kroger’s statute of limitations defense also failed because
Hawkins wasn’t required to look beyond the front of the box.

Also, the “0g Trans Fat” label was “too specific to be
puffery.”

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when is a publisher sufficiently beholden to a manufacturer to engage in commercial speech?

Posted on January 25, 2021 by rtushnet

Ariix, LLC v. NutriSearch Corp., No. 19-55343 (9th Cir. Jan.
22, 2021)

Over a dissent, the court reverses the district court’s dismissal
of a false advertising claim against a purportedly independent supplement
guide that allegedly is linked, behind the scenes, with one producer,
motivating its praise of that producer and refusal to praise others. On the facts
alleged, the supplement’s relevant statements constitute commercial speech;
there’s a remand to determine whether the statements are designed to encourage
the purchase of relevant products as required by a remaining element of the
“commercial advertising or promotion” test. There is no First Amendment
protection for “a publisher of supposedly independent product reviews if it has
secretly rigged the ratings to favor one company in exchange for compensation.”

“NutriSearch publishes a widely used nutritional supplement
guide.” It is allegedly “a trusted name among sales representatives in the
direct marketing supplement industry.” It rates supplements comparatively;
companies that get a five-star rating can get NutriSearch Medals of Achievement,
which require compliance with the FDA’s pharmaceutical good manufacturing
practices (GMP) and certification from an approved laboratory that its label
claims are true. The medals are allegedly “described as a binary determination:
either a company obtains [GMP] certification and laboratory verification of the
label claims, or it does not.” In the sixth edition, Usana Health Science was
the only company that obtained the highest ranking, the platinum medal.

NutriSearch allegedly “portrays itself as an independent
company that presents only objective data and scientific analyses to the public,”
claiming “it relies on scientific criteria to mathematically calculate the
ratings.” The guide’s author, the former CEO, appeared on the Dr. Oz Show
promoting the Guide as an evidence-based book that does not have any
“particular bias.” The inside of every edition of the Guide through the fifth
edition stated:

This guide is intended to assist in
sorting through the maze of nutritional supplements available in the
marketplace today. It is not a product endorsement and does not make any health
claim. It simply documents recent findings in the scientific literature.

This guide was not commissioned by
any public sector or private sector interest, or by any company whose products
may be represented herein. The research, development, and findings are the sole
creative effort of the author and NutriSearch Corporation, neither of whom
is associated with any manufacturer or product represented in this guide. (emphasis
added).

NutriSearch removed the second paragraph from the sixth
edition, published after Ariix filed this lawsuit.

However, NutriSearch allegedly rigged its ratings to favor
Usana under a hidden financial arrangement. The author/ex-CEO, MacWilliam, worked
as a Usana sales representative and served on its scientific advisory board
until another company exposed this affiliation. He allegedly told former Usana
executives, “I should not be on the board or a representative anymore because
it looks like I’m biased. I am going to create more of a third-party
appearance, but I’d like you to use me for speaking and support me.” Usana
allegedly agreed in exchange for the number one rating in the Guide, and uses
it in marketing pitches.

Usana allegedly pays hundreds of thousands of dollars
annually in speaking and promotion fees to NutriSearch and MacWilliam in
exchange for being rated the top supplement company in the Guide, accounting
for more than 90% of his income. In addition, NutriSearch allegedly “promotes
certain scientific claims to dovetail with Usana’s marketing campaign, or
emphasizes certain ingredients that Usana has added to its products to ensure
that Usana attains the top ranking in the Guide.”

In 2008, Usana allegedly withdrew its support for
NutriSearch after other companies obtained a medal certification in the Guide,
causing NutriSearch and MacWilliam to suffer financially. Usana allegedly
suggested that Usana would recommence providing fees and speaking engagements
if Usana obtained a number one ranking in some way. NutriSearch released a new
“Editor’s Choice” award and gave it to Usana, and MacWilliam then asked for and
received a nationwide tour from Usana.

Ariix alleged it was wrongly denied a medal certification in
the Guide, including through the use of metrics that exempted Usana from the
same standards. NutriSearch initially rated one Ariix product 3.5 stars, “but
after public criticism and incontrovertible evidence of quality, NutriSearch
revised the rating to 5 stars.” When Ariix tried to get MacWilliam as a
speaker, he allegedly admitted that “[t]hey [Usana] will cut me off the second
I do this [speak for Ariix].”

Were the challenged statements commercial advertising or
promotion? This is “(1) commercial speech, … (3) for the purpose of influencing
consumers to buy defendant’s goods or services, and (4) that is sufficiently
disseminated to the relevant purchasing public.” The omitted (2), everyone here
agrees, is a competition requirement that was abrogated by Lexmark; one
satisfies Lexmark by having a relevant commercial interest and showing
proximate cause.

The complaint plausibly alleged that the Guide was
commercial speech by plausibly alleging “that the Guide is essentially a sham
marketing ploy intended to boost Usana products.” Under Bolger, “speech
that does not propose a commercial transaction on its face can still be
commercial speech.” Although the question was close, the majority agreed with Ariix.

Although the Guide lacked “the traditional form of an
advertisement” and didn’t provide price or availability information,

this fact alone does not tell us
much, especially given today’s sophisticated and subtle marketing campaigns. For
example, companies now pay so-called “influencers” to issue posts on social
media touting their products or services. While such social media posts may not
have the indicia of a traditional advertisement, there can be little doubt that
these paid posts are in fact advertisements. [citing FTC alert; footnote about
how much Kim Kardashian West is paid per Instagram post according to publicly
filed litigation documents]

The Guide also referred to specific products, though that is
far from dispositive.

The Bolger test also asks “whether the speaker acted
primarily out of economic motivation, not simply whether the speaker had any
economic motivation.” Obviously, “not all types of economic motivation support
commercial speech. A simple profit motive to sell copies of a publication or to
obtain an incidental economic benefit, without more, does not make something
commercial speech.” But at the same time, “economic motivation is not limited
simply to the expectation of a direct commercial transaction with consumers.”
Indirect benefits can also count, such as “benefits to employee compensation, improvements
to a brand’s image, general exposure of a product, and protection of licensees’
interests.” The key is whether “the economic benefit was the primary purpose
for speaking.”

FWIW, I think this point could be helpfully sharpened: the
key is whether the hoped-for economic benefit involves people buying some
product other than the speech itself. If you write a song with the intention of
creating an earworm that will have a zillion plays on Spotify, that is not a
commercial speech motivation: you want people to buy the speech itself. If you
write a song with the intention of promoting a beer brand, and you are paid
based on the beer company’s hope of success, then the results are commercial
speech (though there may well be no regulable factual statements in the song).
[My formulation has to do a bit of finessing when there are potentially
falsifiable statements made about the speech itself—“this album costs $9.99” is
commercial speech; that specific statement about the noncommercial speech on
the album is separable from the content of the album, though the titles of the
songs on the album aren’t—but I believe that it addresses the key distinction.]

Footnote: Not any economic benefit will suffice; “speech
that is mainly motivated out of economic benefit can still be fully protected,
such as in labor cases…. Rather, the question is context-specific and requires
determining whether the speaker’s purpose primarily turns on the economic
benefit that the speaker receives from the speech.” [Again, I think we can
usefully distinguish “unions will increase employee pay” from “hire me to do
this job because I have a JD” here, but reasonable minds might disagree.]

Anyway, Ariix “plausibly alleged that NutriSearch and
MacWilliam published the Guide mainly with the economic goal of furthering
their own self-interests beyond simply benefiting from sales of the
publication,” given the facts alleged above. [Emphasis added because this
gets at how I would phrase the distinction.]

The court noted that it wasn’t relying only on alleged
payments. “Many of Ariix’s allegations raise significant doubts about whether
the Guide is an objective compilation of product reviews and suggest that the
Guide is instead a sham marketing scheme intended to benefit Usana,” such as
the allegedly false disclaimer in the first five editions.

The district court noted that the
factual allegations do not show that the defendants should be treated as a
single entity subject to the same conflicts of interest. But showing that the
defendants are so closely related as to constitute a single entity is not
required to plausibly allege that the Guide was published primarily for
economic benefit. We are not asking whether MacWilliam’s actions influence
NutriSearch or vice versa, but whether allegations involving either defendant
reveal the primary purpose of the Guide.

…. Usana even uses MacWilliam as
part of its image advertising; the complaint includes an image of MacWilliam
that states that “I have full confidence that USANA will once again stand out
as an industry leader and will continue to receive an elite standing in the new
Comparative Guide.” That NutriSearch and MacWilliam chose such a strongly
worded yet false disclaimer — disclaiming any association with all
manufacturers in the Guide despite having obvious ties to Usana — raises substantial
questions about the Guide’s true purpose, if the allegations in the complaint
are true.

The court cautioned that its decision was “narrow.”
Consumers face so many choices that they often seek out independent reviews. “But
when someone falsely claims to be independent, rigs the ratings in exchange for
compensation, and then profits from that perceived objectivity, that speaker
has drowned the public trust for economic gain. Society has little interest in
protecting such conduct under the mantle of the First Amendment.” Ultimately,
the majority embraced “a common-sense distinction between protected speech and
commercial speech — in this case, legitimate product reviews versus paid
product promotion …. Simply put, paid promotion is commercial speech.”

This wasn’t just an allegation of bias and inaccuracy—and
here comes a line defendants may well quote: “A mere failure to disclose bias or
financial interest would not necessarily make speech commercial.”

Here, though, we face allegations
that the defendants conceived the Guide to juice sales of Usana products,
actively misled the public about their supposed independence, and fiddled with their
own ratings criteria to boost a favored company that lavishes them with
hundreds of thousands of dollars in compensation. Put another way, it is more
paid promotion than product review, according to the complaint. It is not
controversial to conclude that “liability can arise under the Lanham Act if
websites purporting to offer reviews are in reality stealth operations intended
to disparage a competitor’s product while posing as a neutral third party.”

Nor was this speech “inextricably intertwined” with fully protected
speech. The Guide also “describes the benefits and science of nutritional
supplements.” But the commercial, specifically, the allegedly rigged ratings “are
not so connected to this informational section to lose their commercial character.
On the contrary, they seem easily separable.” The Guide even allegedly comes in
two parts, informational and ratings; the first could easily be published
separately. “[T]he Guide does not gain full First Amendment protection simply
because it includes a distinct summary of scientific ideas as a prelude to its
supposed product reviews.”

But was the Guide “intended to influence consumers to buy
the defendants’ goods,” as required by a remaining factor of the “commercial
advertising or promotion” test? The advertising was allegedly intended to help
Usana’s goods, not NutriSearch’s product. The parties didn’t brief the issue
and the district court didn’t rule on it, so the court of appeals remanded.
Though the dissent made good points on this element, the district court should
address it. “In considering this question, though, it may be useful to
determine whether the defendants and Usana had an agency relationship; for
example, it might be the case that the defendants were acting as agents of
Usana and therefore had a vested interest in the goods that Usana sold, which
might be enough to satisfy this element.” [Also, the false claims of neutrality
might well be helping sell the Guide, too.]

Final element: was the Guide allegedly sufficiently
disseminated to the relevant purchasing public? Sure. Ariix alleged that the
“professional edition [of the Guide] is specifically designed for and marketed
to tens of thousands of Usana sales representatives, who are told that
referring prospective customers to the guide is one of the most effective ways
to sell Usana products.” The district court mistakenly looked at whether
statements within the Guide were sufficiently disseminated.

The district court also found that Ariix didn’t sufficiently
allege misrepresentations; the court of appeals disagreed. The comparative
five-star ratings were non-actionable statements of opinion; even though the
Guide purported to rely on scientific and objective criteria, “there is an
inherently subjective element in deciding which scientific and objective
criteria to consider.” However, the disclaimer of independence was a factual,
falsifiable statement. And the failure to award Ariix a medal certification
presents specific and measurable statements about Ariix, given that it was allegedly
based on two falsifiable criteria: compliance with the FDA’s pharmaceutical
good manufacturing practices and certification of product labels’ claims from
an approved laboratory. “By not awarding Ariix a medal certification — despite
Ariix being eligible for such an award — the Guide falsely implies to consumers
that Ariix did not comply with the FDA’s GMPs or that it did not obtain the
appropriate laboratory certification.”

The district court wrongly found that compliance with the
GMPs wasn’t a statement of fact because consumers would merely “conclude that
perhaps a manufacturer did not follow practices that the FDA considered good.” But
whether Ariix followed those practices was itself a question of fact.

Judge Collins dissented.

First, he would not give any weight to allegations that
defendants falsely advertised the Guide itself, rather than Usana’s products.
But “advertisements that accurately reprint[] false claims contained in the
advertised works [are] protected from tort liability to the same degree as the
underlying works.” Anyway, Ariix didn’t plausibly plead that its injuries were proximately
caused by the advertising of the Guide, as opposed to the product reviews
contained in the Guide. [FWIW, I disagree: Independence is what makes such claims
more credible; consumers may discount claims made by a party with an economic
interest, which is why disclosure is so important to the FTC. Proximate cause
is an issue of legal causation, not a matter of counting steps in the chain.]

Rather than stretching the Lanham Act in ways that threaten
the First Amendment, the dissent would have relied on the remaining prongs of
the “commercial advertising or promotion” test. The dissent agreed with
everyone else that Lexmark abrogated the “competition” requirement in
older versions of the test. “Given that (1) a competitors-only limitation
similarly lacks any textual grounding in the phrase ‘commercial advertising or
promotion,’ (2) Gordon & Breach derived this atextual limitation
from its review of pre-Lexmark caselaw; and (3) Lexmark’s
emphatic rejection of a competitors-only limitation would be wholly undone by
continued adherence to this aspect of Gordon & Breach, the
conclusion is inescapable that Lexmark precludes limiting ‘commercial
advertising or promotion’ only to the commercial advertising and promotion of a
direct competitor.”

Lexmark left the sufficient dissemination requirement
intact; this was adequately pleaded.

What about “for the purpose of influencing consumers to buy
defendant’s goods or services”? This too

flows from the statutory language
and remains valid after Lexmark. By referring to representations that a
“person” makes “in commercial advertising or promotion,” the Lanham Act clearly
refers to commercial speech promoting sales of goods that may fairly be said to
be those of that “person,” i.e., the defendant. We do not normally think of
third-party product reviews or endorsements as being that person’s “commercial
advertising”—at least when they are not done on behalf of the product’s
manufacturer or seller.

That last qualification seems to be at issue here; also it’s
interesting that the dissent doesn’t discuss the nearby statutory language
making clear that statements in commercial advertising or promotion are
actionable if they “misrepresent[] the nature, characteristics, qualities, or
geographic origin of his or her or another person’s goods, services, or
commercial activities” (emphasis added). Even if, as the dissent says,
independent reviews are fully protected speech, that’s not the situation
alleged here, and the concerns governing the lesser protection for deceptive
commercial speech are clearly implicated.

The dissent recognized that the statute extends beyond
advertising by manufacturers and distributors themselves. “[W]hen an entity
acts as an agent of a manufacturer in making a product review, then that entity
acts on behalf of the manufacturer and is in that sense advertising its own
product. ‘[P]aid publicists’ speech’ about their payor’s products is commercial
speech.” Likewise “there may be other endorsers who have such a direct
financial stake in specific sales of a product—such as a cut of each sale—that
it may likewise be fair to say that they are thereby advertising their own
product.” But being cautious here avoids difficult constitutional questions. [It
is notable that those difficult questions have generally involved regulation of
truthful speech, like information about contraceptives; where the speech
is deceptive, there is less reason to be concerned for the free flow of
information.] The dissent thought that the majority created “a substantial
amount of uncertainty as to the scope of First Amendment protection for product
reviews, a result that I find doubtful and disquieting.”

The dissent would thus have concluded that Ariix failed to
plausibly plead that the statements promoted NutriChoice’s own products. The
complaint didn’t allege “Usana’s advance direction and control in preparing the
content of the Guide,” which might have sufficed. The dissent wanted Usana to
have changed or put “specific content” in the Guide—a standard that would
likely free many influencers from regulation. It wasn’t enough to allege that “Defendants
produced biased reviews in the craven hope that Usana would then act in ways
that were economically favorable to Defendants.” [That really seems like a
misdescription of the allegations—it might be a fair characterization if the
parties had never before interacted and the first contact was when MacWilliam
reached out to say “look how well I rated you!”]

The dissent thought that the allegations merely showed “that
Usana liked favorable reviews and that Usana promoted the Guide and its author
when the reviews were distinctly superlative and did not do so when they were
not…. That Defendants wrote obsequious reviews in the hope that Usana would be
pleased and buy more Guides or give MacWilliam speaking engagements does not
make them Usana’s agents in writing those reviews.” Sure, MacWilliam was
Usana’s agent when he did paid speaking tours expressly promoting Usana’s
products, but the complaint didn’t rest on that theory. [Surely it is relevant
to what MacWilliam was doing with the Guide, though.]

Nor was there anything else justifying the conclusion that Usana’s products were in any relevant sense NutriChoice’s
products, such as an entitlement to a cut of each sale, or other links to
profit if consumers chose particular supplements.

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Happy inauguration day to Redbubble in particular: 9th Cir. affirms functionality in Lettuce Turnip the Beet

Posted on January 20, 2021 by rtushnet

LLTB LLC v. Redbubble, Inc., No. 19-16464 (9th Cir. Jan. 20,
2021)

LTTB LLC sells t-shirts and other goods bearing its
registered trademarks, the words and design, “LETTUCE TURNIP THE BEET.” LTTB sued Redbubble for infringing by selling
products containing the same words and design. The district court granted
summary judgment in favor of Redbubble on grounds of aesthetic functionality/failure
to function. The court of appeals affirmed in a nonprecedential opinion,
holding (contrary to what INTA wanted) that Job’s Daughters is still
good law even though its “broad language was soon clarified and narrowed.”

Anyway, under Au-Tomotive Gold, the symbols here were
functional. Although “the t-shirts, tote bags, and other products bearing the
LTTB mark would still function as t- shirts and tote bags without the mark” and
use of the mark doesn’t alter the cost structure of production or add to the
[physical] quality of the products, but the question of aesthetic functionality
is whether the marks “perform some function such that the exclusive use of the
marks would put competitors at a significant non-reputation-related
disadvantage” (cleaned up).

Without explicitly interpreting what “significant” means
here, the court reasoned: “It cannot be disputed that competitors would be
unable to sell products bearing the phrase if LTTB’s marks were protected.” And
the Ninth Circuit disfavors monopolization of “a design feature which, in
itself and apart from its identification of source, improves the usefulness or
appeal of the object it adorns.” There was no evidence that consumers bought LTTB’s
goods because they identify LTTB as the source, rather than because of the
aesthetic function of the phrase, “LETTUCE TURNIP THE BEET.” LTTB’s evidence of
the popularity of its goods didn’t raise a triable issue on source
identification. Indeed, almost all of LTTB’s products bore the phrase “LETTUCE
TURNIP THE BEET” on them, “indicating that the phrase acts as an aesthetic
design, not as a symbol for the company.” Unlike high fashion brands, LTTB presented
no evidence “that consumers buy the goods because the design associates the
goods with the company LTTB rather than because they want goods bearing the
phrase.” Thus, it didn’t raise an issue of fact on aesthetic functionality.
[Although the court also doesn’t say anything about this, here the fact that no
evidence of secondary meaning was required to register the marks cuts against
LTTB: it was never required to develop such evidence, and the fact that a
symbol could be inherently distinctive if used in the right way doesn’t do
anything to rebut evidence that consumers are looking for the aesthetic effects
of displaying the symbol prominently on goods.]

LTTB’s registrations, and even incontestable registrations,
couldn’t overcome the defenses listed in statute, including “[t]hat the mark is
functional.” “Because, on this record and when used on the allegedly infringing
products that are the subject of LTTB”s complaint, LTTB’s marks are functional,
they are not protectable against any type of allegedly infringing activity.”

So, is the court actually recognizing pure defense-side functionality?
Sort of. Footnote: “[W]e do not hold that LTTB’s marks are per se invalid.”
Instead (?), the uses here—including on Redbubble’s website and in online
advertising—could not be infringing. But also: “Because LTTB’s mark is
functional and therefore not protectable on this record, there is no need to
address the issue of likelihood of confusion.” Nor did the district court err
in not addressing LTTB’s design marks separately; trademark isn’t supposed to
protect originality or creativity, but rather to protect source identification.
“Like the sweater designs in Wal-Mart, LTTB’s marks are primarily
aesthetic on this record, not source-identifying.” [This reiteration of “on
this record” is confusing. Is the court suggesting LTTB can try again if it
develops evidence as to front-of-product uses? Why? While there are a couple of
cases allowing terms that had distinctiveness, then became generic, to reclaim
that earlier distinctiveness, I’m not aware of cases allowing a once-functional
product feature to become nonfunctional.]

The district court also didn’t err in looking at the PTO’s
initial rejection of LTTB’s application on failure to function grounds; TrafFix
looked at the prosecution history of an expired patent in addressing trade dress
functionality.

We end with some vagueness about whether LTTB owns anything:

LTTB’s marks do not function as
trademarks because they are aesthetic only and do not identify the source of
the goods. The allegedly infringing activity does not deceive or mislead
consumers about the source of the goods but copies the designs themselves…. Because
functionality is a defense to the validity of the marks and to LTTB’s exclusive
right to use the marks, the district court properly granted summary judgment to
defendant Redbubble ….

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Dastardly DoorDash fails to get restaurant complaint dismissed, including under UCL/FAL

Posted on January 19, 2021 by rtushnet

Lona’s Lil Eats, LLC v. DoorDash, Inc., No. 20-cv-06703-TSH,
2021 WL 151978 (N.D. Cal. Jan. 18, 2021) (magistrate)

This case addresses a topic that’s received broader media coverage
than most advertising issues. The magistrate finds that Lona’s sufficiently
alleged false advertising by DoorDash about its availability, diverting
potential consumers from Lona’s to restaurants that were DoorDash partners. (The
practices considered are why I always start with the restaurant’s own website
and order from that.)

This putative class action alleges violations of the
Lanham Act, the FAL, and the UCL, alleging that DoorDash “misrepresents to
consumers that it provides delivery and pick-up services for non-partner
restaurants and then misrepresents the restaurants are closed, do not offer
delivery services, or are unavailable for pick-up orders.” The complaint
alleges that, especially given the pandemic, “DoorDash’s market power is such
that restaurants are put in a difficult situation: they can become partner
restaurants and pay exorbitant fees and commissions to Defendant, or they
decline to do so and risk losing out on sales.”

Even worse,

DoorDash pressures non-partner
restaurants by setting up “landing pages” for them, which in some instances
still are available on its website and on its mobile app. … DoorDash’s
marketing power is such that the landing pages are often prioritized on
internet search engines and displayed even before the restaurants’ own
websites. These landing pages are complete with DoorDash branding and usually
show a restaurant’s full menu, even if the restaurant has no affiliation with
DoorDash and has not authorized the use of its information. This façade of a
connection signals to consumers that the landing page for the non-partner
restaurant is legitimate and can be relied upon.

On these landing pages, DoorDash
publishes false and misleading information about restaurants that are not its
partners, including restaurants being “closed” when they were in fact open;
being “unavailable” as “too far away” for delivery; and being “unavailable” for
pick-up orders when the restaurant is in fact accepting pick-up orders. Each of
these false and misleading statements steers would-be customers of non-partner
restaurants’ to DoorDash’s partner restaurants.

Lona’s alleged that a search for “Lona’s Lil Eats delivery”
in June 2020, “as a result of DoorDash’s market power and internet marketing strategies,”
would display a link for Lona’s on a DoorDash website as one of the first
results. “Clicking through the
link for Lona’s would bring a consumer to a page with DoorDash branding and
Lona’s’ complete menu, as if it were possible to place an order through the
site:”

“DoorDash’s site would let the customer go through the
process of placing an order, including the opportunity to customize the order,
adding credibility to the idea that Lona’s had partnered with DoorDash and that
placing an order was possible:” (not cool, DoorDash)

“The order, however, could not be completed, and no matter
what the user’s proximity to Lona’s—even as close as only 200 feet away—the
site would say that ordering from Lona’s was ‘unavailable’ on account of being ‘out
of the delivery area’ and ‘too far.’”

Likewise, DoorDash’s mobile app allegedly (as of Nov. 2020) misrepresents
that Lona’s is not available for delivery and also not accepting pick-up
orders:

If the consumer clicked on the information button
immediately next to “Unavailable too far away,” then the app displayed options
of “Switch to Pickup” or “See other stores.” But if a consumer chose “Switch to
Pickup,” DoorDash would then misrepresent that pickup wasn’t an option, even
though Lona’s does offer pickup:

At that point, the only other option, “See other stores,” switched
consumers to DoorDash’s partner restaurants.

Lona’s alleged that several customers were, in fact, misled
by DoorDash’s misrepresentation that Lona’s was closed. Some allegedly reached
out to Lona’s to ask if they were actually open. Although the false “closed”
designation was removed, Lona’s allegedly lost business because of DoorDash’s
misrepresentation, and nothing stopped DoorDash from doing it again.

Applying Rule 9(b), the court found that Lona’s pled the
existence of a “false statement” with particularity; sufficiently pled that the
statement was in a “commercial advertisement”; sufficiently pled actual
deception/tendency to deceive; and adequately pled injury.

Two literal falsehoods were pled: that Lona’s was closed and
that pickup from it was unavailable. And one misleading statement: that pickup
was unavailable because the customer was “too far away.”

The judge understandably rejected DoorDash’s argument that
Lona’s needed to allege who at DoorDash made the statements: “DoorDash points
to no legal authority suggesting that an individual employee must be named in
the complaint, and it’s hard to see how Lona’s could get that information at this
point or who even at DoorDash would be considered the maker of the statement in
lieu of the company itself.” Nor did any authority suggest that Lona’s must identify
specific deceived customers at the pleading stage. “In this case, where the
plaintiff has alleged that a statement was made to the purchasing public and
that at least some of the public communicated that they were misled by those
statements, that is enough specificity at the pleading stage.”

Commercial advertisement: The judge clearly explained how
the Gordon & Breach test, which was adopted by the Ninth Circuit, has
been modified by Lexmark, making the “by a competitor” element of the
test no longer good law.

Accordingly, for representations to
constitute “commercial advertising or promotion” post-Lexmark, they must
be: (1) commercial speech; (2) for the purpose of influencing consumers to buy
defendant’s goods or services; and (3) disseminated sufficiently to the
relevant purchasing public to constitute “advertising” or “promotion” within
that industry.

DoorDash argued that pages on its website or app where customers
complete orders aren’t “commercial speech.” But it waived that argument through
failure to do more than gesture at it (and anyway they obviously are; Lona’s
even alleged the economic motive: increasing its commissions and strong-arming
Lona’s into partnership). Even if you accepted that the statements were not in “advertising
format” (which in my opinion they clearly are, given how internet advertising
works), that’s not dispositive.

DoorDash argued that the complaint failed to allege that
“closed” or “unavailable” designations were made to convince customers to
purchase DoorDash’s products because DoorDash does not sell food. That was
irrelevant, given Lexmark and given that DoorDash “makes money in fees
and commissions whenever a consumer orders food from a partner restaurant ….
[B]y allegedly misleading consumers and re-directing them away from non-partner
restaurants to partner restaurants, DoorDash allegedly gains at non-partner
restaurants’ expense.” That was all that was required at the pleading stage.

DoorDash also argued that Lona’s didn’t allege sufficient
dissemination because Lona’s “does not identify, or even estimate, how many
potential customers saw” the statements. “[A]t best,” DoorDash argues, “only
those customers who attempted to place an order for food from [Lona’s] would
have come across such statements.” But that was sufficient, since “the primary
focus is the degree to which the representations in question explicitly target
relevant customers.” Lona’s alleged that DoorDash targeted all relevant
customers, and that, as a result of its market power and marketing strategies, it
was “one of the first results” that such customers would encounter.

Finally, DoorDash argued that the alleged misrepresentations
only occurred after multiple clicks, on a final checkout page. But so what? “The
reasonable takeaway is that by luring would-be Lona’s’ customers onto its
landing pages, taking them through a Lona’s’ menu, and then ‘redirect[ing]
[them] to [ ] Partner Restaurants by suggesting that Lona’s is not an option,’ DoorDash
was promoting its own services. Why else go through the trouble?” Bait and
switch, indeed.

Deception/tendency to deceive: Evidentiary proof of actual
or likely deception is not required at the pleading stage, and deception can be
presumed from literal falsity.

Injury: Lona’s sufficiently alleged both short-term and longer-term
harm: “[N]ot only do [putative class members] miss out on orders in the short
term, but they are less likely to attempt to order from them in the future,
since they are represented to be closed or not available.” General allegations
of resulting monetary damages and “other irreparable injury, including loss of
market position, loss of reputation, loss of goodwill, the ability to continue
as a going concern, and other damage for which there is no adequate remedy at
law” were sufficient. The fact that DoorDash wasn’t a direct competitor didn’t
matter after Lexmark. Although DoorDash argued that “alleged injuries
‘still require sufficiently detailed allegations,’ ” it didn’t offer suggestions
of what more Lona’s needed short of lost customer names. For purposes of the
pleadings it was sufficient that Lona’s alleged that “[s]everal customers were,
in fact, misled by DoorDash’s misrepresentation that Lona’s was closed, and
they did not know whether Lona’s was actually open,” and that “[s]ome of these
customers reached out to Lona’s to ask if they were actually open.”

FAL/UCL claims: While a number of California federal district
courts have held that Proposition 64 meant that plaintiffs have to allege their
own reliance on the defendant’s false claims, which obviously would exclude
Lona’s as a proper plaintiff, the magistrate rejected that line of cases.

In re Tobacco II Cases and Kwikset held that Proposition
64 narrowed the reach of fraud-based claims under the UCL and FAL. Now, a
plaintiff’s economic injury must “come ‘as a result of’ the unfair competition
or a violation of the false advertising law.” “The phrase ‘as a result of’ in
its plain and ordinary sense means ‘caused by’ and requires a showing of a
causal connection or reliance on the alleged misrepresentation.” Recognizing
that “ ‘reliance is the causal mechanism of fraud,’ ” the California Supreme Court
held that in consumer claims based on fraud under the UCL or FAL, a plaintiff “
‘must demonstrate actual reliance on the allegedly deceptive or misleading
statements.’ ” Courts have extended this to “unlawful” and “unfair” claims when
the claims are based on misrepresentation.

But Tobacco II “emphasize[d] that our discussion of
causation in this case is limited to such cases where, as here, a UCL is based
on a fraud theory involving false advertising and misrepresentations to
consumers,” and the court noted that “[t]here are doubtless many types of
unfair business practices in which the concept of reliance, as discussed here,
has no application.” And Kwikset elaborated that “as a result of” means “caused
by” and requires “a showing of a causal connection or reliance on the
alleged misrepresentation.” (emphasis added). The judge here reasoned that this
language “suggests strongly that there are situations where the element of
causation can be proved without showing actual reliance, so as long as there’s
sufficient causation.” If every plaintiff in every situation had to prove
reliance, “it would be hard to imagine when a competitor would be able to
assert a false advertising claim,” which would conflict with the California
Supreme Court’s clear statement in Kwikset that the purpose of the false
advertising laws “is to protect both consumers and competitors by promoting
fair competition in commercial markets for goods and services.”

In addition, Proposition 64 was passed to prevent abusive
UCL claims where plaintiffs had not been injured in fact. But unlike such
plaintiffs, competitor[ish] plaintiffs do suffer injury in fact as a result of
false advertising: lost market share and sales. “Proposition 64’s purpose of
preventing actions by plaintiffs who have not suffered an actual injury is not
served well by extending Kwikset to all cases, and a rule requiring all
plaintiffs to prove actual reliance would in fact defeat the UCL and FAL’s
purpose of protecting consumers and competitors alike.”

Finally, DoorDash argued that Lona’s lacked standing for
injunctive relief, but this was rebutted by the complaint’s allegations. Lona’s
alleged that it was realistically threatened by a repetition of the violation;
it even alleged that the “out of range” misrepresentation persisted at least
through a month after Lona’s sued. This
wasn’t a case where the defendant’s purported reform was “irrefutably
demonstrated [ ] and comprehensive.” “The fact that Lona’s had to wait over a
month for DoorDash to remove the content adds plausibility to Lona’s’
allegation that ‘there is nothing to prevent [DoorDash] from reinstating such
misrepresentations as to Plaintiff or any member of the putative class.’”

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WVa SCt immunizes religious schools and camps for false advertising about services

Posted on January 18, 2021 by rtushnet

State ex rel. Morrisey v. Diocese of Wheeling-Charleston, 851
S.E.2d 755 (W.Va. 2020)

In response to a certified question, the West Virginia Supreme
Court, over a dissent, held that the AG could not sue the Diocese and a former
bishop for violating the deceptive practices provisions of the West Virginia
Consumer Credit and Protection Act, reasoning that the law didn’t apply to
educational and recreational services offered by a religious institution.

The allegations of deception related to the Diocese’s knowing
employment, for decades, of people who admitted to sexually abusing others or
who were credibly accused of sexual abuse at its schools and camps. The Diocese
allegedly neither disclosed that material information to consumers nor warned
them of the alleged dangers inherent to the educational and recreational
services it provided, and also falsely represented that it conducted background
checks (an allegation of affirmative misrepresentation that is buried in a
footnote of the main opinion). The alleged deceptive practices were advertising
services not delivered and failing to warn of dangerous services.

The relevant statute says: “Unfair methods of competition
and unfair or deceptive acts or practices in the conduct of any trade or
commerce are hereby declared unlawful.” “ ‘Trade’ or ‘commerce’ ” is “the
advertising, offering for sale, sale or distribution of any goods or services
and shall include any trade or commerce, directly or indirectly, affecting the
people of this state.” “ ‘Services’ include[ ] … ‘privileges with respect to
… education[ and] recreation.’ ”

Nonetheless, West Virginia Code §§ 18-28-1 to 7 created a
conflict by imposing requirements on “private, parochial or church schools or
schools of a religious order” (church schools), such as observance of a 180-day
instructional term, maintenance of attendance and immunization records,
compliance with the West Virginia school bus safety regulations, administration
of a nationally-normed standardized achievement test, and establishment of a
school specific crisis response plan. If a church school meets those
requirements, then the Legislature has directed that it “shall [not] be subject
to any other provision of law relating to education except requirements
of law respecting fire, safety, sanitation and immunization” (emphasis added).
The majority held that, though church schools might not be exempted from the
entire CCPA, this preemptive provision barred “the regulation of educational
services offered by a church school under the deceptive practices provisions of
the CCPA.” [Are living circumstances part of “educational services”?]

The deceptive practices provisions were “provisions of law
relating to education” when the AG tried to apply them to educational services.
“[W]hile the deceptive practices provisions may regulate the commercial
relationship between a church school and consumers, its enforcement depends on
the assessment of the qualities of the education actually supplied by the
church school.” Finding a violation would require “passing judgment upon the
substantive educational services actually provided.”

Because of this preemption and because of West Virginia’s
public policy of freedom of religion in education, there was also implied
preemption of any regulation of educational and recreational services by a
religious institution, because it was silly to preempt regulation as to only school-related
services, thus allowing the AG to regulate false statements made by a church
about a trip it sponsored but not false statements by a church-affiliated
school about the same trip. [I’m not sure that argument proves what the
majority wants it to prove, and it’s also pretty odd as a theory: explicit
preemption is usually limited to what it explicitly covers.] Thus, and despite
the fact that the CCPA is a remedial statute intended to be liberally
construed, “[i]t would also be absurd to conclude that the Legislature intended
to exempt a church school’s representations about its educational services from
regulation under the deceptive practices provisions of the CCPA, but not those
same representations when made by the affiliated religious institution
regarding its recreational services.”

The majority ended by commenting that the allegations were
nonetheless “deeply troubling,” and might have allowed liability under other
legal theories, such as a violation of mandatory reporting law, which
definitely covers religious institutions and their schools and camps.

Justice Workman’s dissent was persuasive:

The majority opinion is
transparently result-oriented which explains its logical incoherence and sins
of omission. The issue before the Court is one of fairness and honesty in
commercial communications to the public—potential purchasers of goods and
services. The fundamental question involves matters of unfair or deceptive acts
or practices in advertising or selling and in advertising based on false
promises. That is all. Nothing else is at issue. This case has absolutely
nothing to do with the free exercise or expression of religious thought and
nothing to do with regulating religious institutions in the sense of excessive
State entanglement. As brought and pled by the State, what is at issue is
alleged false promises and deceptive advertising promoting a safe environment
aimed at getting students and campers to attend for-fee-based schools and
camps, when alleged facts indicated the contrary to be true.

As the dissent pointed out, the yearly fees ranged from
$6,000 to $8,000. “The Diocese also provides partial scholarships, arranges
financing through third parties, and uses in-house installment payment plans.
Just as any other creditor may act, the Diocese has availed itself of the
courts and legal system to enforce credit agreements.” The Diocese advertises
to the public at large with no faith-based restrictions for either schools or
camps. Starting in 2002, it advertised its “Safe Environment Program for the
protection of minors from abuse by religious and lay employees of the Diocese
and volunteers,” which plainly sought to “attract consumers away from
competitors that did not advertise similar safety measures.”

In the dissent’s view, truthful advertising and safety are
purely secular concerns. The majority agreed that “services” encompassed the
activities here, and that should have been enough.

Instead, the majority wrongly asserted that enforcing the
deceptive practices provisions would require “assessing the qualities and
substance of the education actually provided.” But the allegations here did not
require anything of the sort. “Requiring fairness when selling advertising and selling
educational and recreational services simply does not interfere with the
services themselves. Rather, it is the marketing of the services that is at
issue.” Given the CCPA’s specific coverage of educational services, this
manufactured conflict was even more unjustified; the legislature has exempted
other institutions from the CCPA, such as lawyers, accountants, stockbrokers,
and licensed pawnbrokers, but not religious institutions.

The majority approach authorized religious schools to
advertise one tuition but, halfway through the year and as a matter of policy,
demand more or the student will be expelled. Religious schools could advertise ten-to-one
student/teacher ratios and deliver forty-to-one. This freedom would provide
them an unfair advantage over nonreligious schools.

I share the dissent’s view that “most incredible is the
sophistry exhibited in the opinion’s bootstrapping into its unfounded
conclusion the issue of recreational services.” As it pointed out, the supposedly
preemptive code provisions simply do not cover recreational services or camps,
but now religious institutions can advertise whitewater rafting or other
dangerous activities, promise fully certified instructors, and deliver nothing
of the sort. This results both in consumer danger and competitive disadvantage
to regulated camps.

“[N]othing about religious freedom, thought, or instruction
is infringed upon by virtue of enforcing an act mandating that entities
offering services for-fee tell the truth about the services.” Fear of overly
broad enforcement actions wasn’t a justification for disallowing these specific
claims, even if remedies would have to be carefully crafted to avoid infringing
on religious freedom.

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Rogers v. Grimaldi and the TMA

Posted on January 15, 2021 by rtushnet

The legislative history of the TMA, just enacted into law, includes several paragraphs blessing Rogers v. Grimaldi and saying it’s what Congress understands the Lanham Act to mean. I’d be interested to know how that got in there, and I wonder if there are any judges left who care.

H.R. Rep. No. 116-645, pp. 19-20:

In providing that a plaintiff is entitled to a rebuttable
presumption of irreparable harm following a court’s finding of trademark
infringement, or upon a finding of likelihood of success on the merits in the case of a motion for preliminary injunction or temporary
restraining order, the Committee acknowledges the need to take special care to
ensure that the interests protected by the Lanham Act do not encroach on the rights to free speech and expression
enshrined in the First Amendment. Courts have long been appropriately
circumspect in applying the Lanham Act so as not to interfere with the First
Amendment rights of creators and distributors of ‘‘artistic works’’ (sometimes
called ‘‘expressive works’’), including without limitation movies, television
programs, songs, books, plays, video games, and the like, which may depict or
reference third-party marks within such artistic works or in such artistic
works’ titles.59 It is the intent of the Committee that this legislation will not
in any way affect that jurisprudence.

The standard for accommodating First Amendment interests in the
Lanham Act context for infringement and unfair competition claims was first
articulated in Rogers v. Grimaldi,60 which has been widely adopted by courts
across the nation in the subsequent three decades. As a threshold matter under
the Rogers test, a plaintiff cannot state a viable trademark claim in the
context of an artistic work (1) unless the defendant’s use of the mark ‘‘has no
artistic relevance to the underlying work whatsoever,’’ or (2) ‘‘if it has some
artistic relevance, unless the [use of the mark] explicitly misleads as to the
source or the content of the work.’’ 61 The ‘‘no artistic relevance . . .
whatsoever’’ standard sets an extremely low bar, requiring only that ‘‘the
level of relevance must merely be above zero.’’ 62 ‘‘This black-and-white rule
has the benefit of limiting [the court’s] need to engage in artistic analysis
in this context.’’ 63 When that bar is met and any level of artistic relevance
to the underlying work is present, the use may be actionable only where the
creator explicitly misleads consumers. This test appropriately recognizes the
primacy of constitutional protections for free expression, while respecting a
trademark owner’s right to prevent unauthorized use of its mark and the
public’s interest in avoiding confusion.

In enacting this legislation, the Committee intends and
expects that courts will continue to apply the Rogers standard to cabin the reach
of the Lanham Act in cases involving expressive works. The Committee believes
that the adoption by a court of a test that departs from Rogers, including any
that might require a court to engage in fact-intensive inquiries and pass
judgment on a creator’s ‘‘artistic motives’’ in order to evaluate Lanham Act
claims in the expressive-works context would be contrary to the Congressional understanding
of how the Lanham Act should properly operate to protect important First
Amendment considerations, and upon which the Committee is relying in clarifying
the standard for assessing irreparable harm when considering injunctive relief.

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American Merck and German Merck’s TM battle doesn’t involve covered “advertising injury”

Posted on January 12, 2021 by rtushnet

EMD Millipore Corp. v. HDI-Gerling Am. Ins. Co., 2021 WL
66441, No. 20-cv-10244-ADB (D. Mass. Jan. 7, 2021)

Is trademark infringement (or similar) “advertising injury”
because a trademark is an advertising idea? I’ve always thought that’s the core
of what a trademark is, which makes many insurance policies seem conflicting to
me, but the exclusions for trademark are often pretty clear. In this case
growing out of underlying German Merck v. US Merck litigation, the court finds
that the TM-like claims don’t involve covered advertising injury because the
parties’ campaigns weren’t allegedly similar, only their names.

One of the plaintiffs here is Merck KGAA (aka MKGD), the
German Merck (the US government split US Merck off in WWI). The relevant
policies covered “personal and advertising injury,” including “[o]ral or
written publication, in any manner, of material that slanders or libels a
person or organization or disparages a person’s or organization’s goods,
products or services” and “[t]he use of another’s advertising idea in [an
insured’s] ‘advertisement.’ ” The policies didn’t define “disparage” or
“advertising idea.” There was also an exclusion for “‘personal and advertising
injury’ arising out of the infringement of copyright, patent, trademark, trade
secret or other intellectual property rights.” The exlusion further states that
“such other intellectual property rights do not include the use of another’s
advertising idea in [an insured’s] ‘advertisement,’ ” and that the exclusion
“does not apply to infringement, in [an insured’s] ‘advertisement,’ of
copyright, trade dress or slogan.”

US Merck sued MKGD for trademark infringement, trademark
dilution, unfair competition, false advertising, and cybersquatting, and New
Jersey state law claims for trademark infringement, trademark dilution, unfair
competition, deceptive trade practices, and breach of contract. The two Mercks
have entered into coexistence agreements around the world, under which MKDG
cannot use the trademark “MERCK,” or attempt to acquire rights in any trademark
containing “MERCK,” in the United States or Canada. They’ve fought over this
agreement for internet and other uses.

MKDG is permitted to use the word “Merck” as part of a firm
or corporate name in the United States but only in the phrase “E. Merck,
Darmstadt, Germany,” and only if the four words are given equal prominence.
Nevertheless, MKDG allegedly used the trade names “MERCK,” “Merck KGaA,” and
“Merck KGaA, Darmstadt, Germany” in the United States, including on a website
and social media, and allegedly used “Merck KGaA” and “MERCK” in ways so “prominent
and widespread that they function as a trademark.” This included promotion and
sale of products called “SedalMerck®,” “Merckognost®,” and “MRCKβ Protein,” as
well as signs at kiosks at multiple industry conferences.

Merck also alleged that MKDG engaged in two marketing
campaigns “specifically intended to confuse consumers as to MKDG’s history”: MKDG’s
“Original” campaign, referring to MKDG as “the Original Merck” and Merck as
MKDG’s “younger brother/sister.” Likewise, its “125 Years” campaign allegedly
touted that it has been in the United States for 125 years, even though, in
reality, MKDG has been re-established in the United States only since 1971. Finally,
MDKG allegedly registered a number of domain names virtually identical to
Merck’s registered “THE MERCK MANUAL.”

Prior Massachusetts cases have interpreted “advertising
idea” broadly, including use of the name of an athlete: A “wide variety of
concepts, methods, and activities related to calling the public’s attention to
a business, product, or service constitute advertising ideas.” Here, MKDG argued
that the advertising idea was using the “MERCK” name, in connection with the
“Original” and “125 Years” campaigns, to draw attention to the business and
attract customers. But the court agreed with the insurer that Merck didn’t
allege that it had used either “Original” or “125 Years,” and thus the
advertising idea allegedly used was not “another’s.” “To the contrary, the few
allegations in the NJ Litigation complaint about Merck’s advertising efforts
are so vague that it is impossible to divine anything about the content of its
advertisements or the style, manner, or method in which it advertises.”

Likewise, the underlying complaint didn’t plausibly allege
disparagement. Most of the statements identified were about MKDG, not about
Merck, and they didn’t say anything bad about Merck. A restaurant that
advertised “fresh” and “delicious” food would not disparage competitors by
implication. Even if “younger” was pejorative, that didn’t reference any
specific good or service and thus wasn’t disparaging. Also, the policies could
have included false advertising or publications that harmed another’s
reputation if this kind of conduct was supposed to be covered, instead of using
“disparage.” Anyway, the gravamen of the claim was false association: using
Merck’s good reputation for itself. “While harm resulting from badmouthing
would be an injury covered by the policies, harm resulting from falsely
implying an affiliation is not.”

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literal falsity as Q of fact v. law and other important issues in a dueling ladder case

Posted on January 12, 2021 by rtushnet

Wing Enters., Inc. v. Tricam Indus., Inc., No. 17-cv-1769
(ECT/ECW), 2021 WL 63108 (D. Minn. Jan. 7, 2021)

After remand
because the court of appeals concluded that a materiality survey was wrongly
excluded, the court here tries again in this false advertising case between
competing sellers of articulated ladders, also known as multi-position (or MPX)
ladders. Given the inclusion of the survey, a reasonable jury could find both
that Tricam made a literally false statement and that Wing suffered cognizable
commercial injury. One thing worth noting here is the relevance of greater
availability of disgorgement of profits, creating the potential for an award
even when damages can’t be proven with reasonable specificity.

Wing’s claims all revolve around ANSI A14.2, a voluntary
industry standard that “prescribes rules governing safe construction, design,
testing, care and use of portable metal ladders of various types and styles.” The
standard says, inter alia, that when a ladder uses particular types of rungs
those rungs “shall have a step surface of not less than 1 inch, either flat or
along a segment of 3 inches or greater radius.” The outer rungs on Tricam’s
multi-position ladders are greater than one inch deep in the middle, but they
are crimped and less than one each deep at each end, where the rung meets the
rail. Wing argued that they therefore fail to comply with the standard, despite
(1) the label affixed to each ladder containing an oval icon that bears the
text “MANUFACTURER CERTIFIES CONFORMANCE TO OSHA1 ANSI A14.2 CODE FOR METAL
LADDERS”; (2) the portion of each product’s page at Home Depot’s website that
provides: “Certifications and Listings: ANSI Certified”; and (3) the portion of
each product’s page on Tricam’s website that provides: “CERTIFICATIONS: ANSI
A14.2 OSHA.”

Tricam argued that it couldn’t be held responsible for
statements on Home Depot’s website. The court found a jury issue (which is a
gift to Tricam). “The gist of this argument is that Tricam only made this
statement to Home Depot—not to the public—and that Home Depot was the one to
disseminate it.” Thus, it wasn’t Tricam’s statement. Wing pointed out
that Tricam “expected and intended that [statements to Home Depot] would be
used in commercial advertising.”

How did the statements get on the website? Home Depot uses an
Item Data Management (IDM) system vendor portal for “managing online content
relating to products Home Depot sells (or that vendors hope Home Depot will
sell)”:

Home Depot chooses what fields a
vendor can or must populate within the IDM system, reviews the content vendors
submit through the IDM system, may reject content that does not follow Home
Depot’s requirements, must approve any changes requested by the vendor, and may
itself change content on a product page without prior notification to the
vendor.

Tricam knew that if it did not
select some type of ANSI certification from a drop-down menu in the IDM system,
Home Depot would not issue a SKU number for the product, and the product would
likely not be sold at Home Depot. A Home Depot representative testified that
the “IDM is the source of truth for all content as it relates to Home Depot”
and that Home Depot relies on its suppliers, like Tricam, to make sure the
content it enters into the IDM system is accurate.

Home Depot doesn’t independently audit that information, and
Tricam warranted that its marketing materials were accurate, including
specifically ANSI statements. Deposition testimony unsurprisingly confirmed
that Tricam expected and intended that the information it entered would appear
on Home Depot’s website and that customers would use it for comparison when
ladder-shopping.

Tricam monitors Home Depot pages for Tricam ladders; it can
request content changes by submitting a ticket in the IDM system. It considered
doing so after this lawsuit was filed, when it removed the ANSI-certification
language from its own website, but didn’t, “in part because it wanted customers
to be able to differentiate its products from other articulated ladders on Home
Depot’s site.”

The court found no previous authority addressing “whether
and when a supplier’s Lanham Act liability is cut off after the supplier passes
on an allegedly false statement to a retailer expecting and intending that the
statement will reach the purchasing public.” Tricam made the novel but too
clever by half argument that it could only be contributorily liable, and Home
Depot was not alleged to be primarily liable (and Wing might lack standing
against Home Depot).

I would have rejected this claimwashing attempt out of hand
given the evidence of both intent and effect—the claim reached the consumer
just as if Tricam had paid the transit authority to put posters up on buses—but
the court was more sympathetic. Wing pointed out that false advertising precedent
indicates that retailers can’t be liable for statements from manufacturers,
which indicates that the manufacturers are the appropriate target for primary
liability, but the court thought that was irrelevant to whether Tricam could be
liable, apparently comfortable with the idea that nobody could be liable for a
false ad. The court reasoned that because it’s possible that both manufacturer
and retailer could be liable, authorities that retailers weren’t liable
for transmitting false advertising to consumers didn’t bear on whether
manufacturers were liable. This seems to me like a logic error.

The court found that, with reference to the language of the
Lanham Act, which requires “use” of a false statement in commerce, the relevant
question was “whether the business has ceded so much control that it is no longer
‘using’ the ad.” [Even under the court’s own terms, the issue should be whether
the business is controlling the statement at issue. Extensive editorial
control by the publisher over the format or other non-false portions of the ad
should be irrelevant.]

The court held that there was a genuine dispute of material
fact over “whether the degree of control Home Depot exercised over its website
means that Tricam did not ‘use’ the online ANSI-certification statement in
commerce”:

The evidence that Home Depot could
change the content on its webpage without notifying Tricam could suggest that
Tricam effectively surrendered control over the allegedly false content. But
there is also evidence that Home Depot relies on its vendors to enter accurate
information in the system without independently auditing that information; that
Tricam expected and intended that customers would use the information it
entered into the IDM system to make purchasing decisions; and that Tricam could
request changes to the information after it was posted on the website.

I don’t understand how Home Depot’s “potential”
control could allow a reasonable jury to conclude that Tricam didn’t “use”
this information.

Anyway, a reasonable jury could also find literal falsity.
Literal falsity requires a clear answer to the question “what message is being
conveyed?” because “[o]nly an unambiguous message can be literally false.” Is
this a question of fact or of law? The Eighth Circuit cases are not clear, with
at least one case treating it as a factual question by applying the clearly
erroneous standard of review to an appeal of a preliminary injunction, and
another stating that “[a] literally false statement can be determined as a
matter of law, but whether a statement is misleading is considered a matter of
fact.” The majority approach in district courts and other circuits is to treat what
message is being conveyed as a question of fact, like the question of whether
that message is false. The court found that the better approach was that potential
ambiguity is a question of fact; the former Eighth Circuit case was decided
first and the weight of authority was on this side.

Again, the court gives weight to what I would have dismissed
as mere chutzpah: Tricam argued that the only reasonable reading of its
statements was that its ladders were tested for ANSI compliance, not
that they passed, and they undisputedly were tested. This was a genuine
dispute over what it means to “certify” ANSI conformance or to claim an ANSI
“certification.” Although Tricam thus posited competing meanings, there would
only be ambiguity if there were multiple “reasonable” interpretations of the
advertisement, and a jury could find that all reasonable interpretations were
just different ways of saying the same thing: ANSI conformance.

Actual deception: The Eighth Circuit has held that once a
plaintiff has proved that a statement is literally false, “the court may
presume that consumers were misled … without requiring consumer surveys or
other evidence of the ad’s impact on the buying public.” Tricam argued that this
rule only applied to comparative statements, but cases saying this are talking
about presumptions of harm to the plaintiff/irreparable injury, not
presumptions of consumer deception.

Injury: “Relying primarily on cases involving money damages,
Tricam asserts that the record lacks evidence to support Wing’s claimed
injuries—diversion of sales, price erosion, and loss of business
opportunities—and that Wing has not adequately tied those injuries to Tricam’s
statements, as opposed to other market factors.” But the nature of a plaintiff’s
burden on the injury-and-causation element depends on the type of remedy that
it seeks. There’s no presumption of causation when the parties compete
directly, though courts will presume injury and causation “in comparative
advertising cases where money damages are sought and where there exists proof
of willful deception.” The plaintiff’s burden is highest when it seems money
damages, and lower (now of course presumptive) when it seeks injunctive relief.
Given the congressional policy in favor of protecting consumer rights, “courts
are not and should not be reluctant to allow a commercial plaintiff to obtain
an injunction even where the likelihood of provable impact on the plaintiff may
be subtle and slight.”

Important move: “The burden is similarly low when a
plaintiff seeks the equitable remedy of disgorgement of profits. That is
because, rather than aiming to compensate the plaintiff for specific,
identifiable losses, this remedy ‘exists to deter would-be infringers and to
safeguard against unjust enrichment.’” Once a plaintiff has shown the likely
harm necessary to establish an underlying Lanham Act violation—and remember, a
plaintiff also seeking injunctive relief now gets a presumption of irreparable
harm, so courts now have to decide whether that counts— the plaintiff must
“prove defendant’s sales only; defendant must prove all elements of cost or deduction
claimed.” Willfulness, while a relevant factor, is not an “inflexible
precondition to recovery” of profits under the Lanham Act—the court quoted
McCarthy for the proposition that Romag should also apply to false
advertising claims.

Wing seeks injunctive relief and disgorgement, and thus “does
not need to meet the heightened injury-and-causation burden that applies when a
plaintiff seeks money damages.” Although Wing didn’t provide sufficient
evidence of its alleged lost opportunity to sell ladders in Home Depot stores,
it created a genuine issue of material fact on lost sales/market share and price
erosion. (It didn’t show lost opportunity to sell ladders because the evidence
showed a previous falling out between Wing and Home Depot leading Home Depot to
blacklist Wing. Even though this dispute provided Tricam “an opportunity to get
back into the business” of multi-position ladders, and even though Wing
eventually returned to Home Depot with some other products, Home Depot’s former
ladder merchant declined to speculate about whether she would have invited Wing
back into Home Depot’s retail stores if Tricam had not represented itself as
conforming to ANSI A14.2, saying only that she “would probably reach internal,
to existing suppliers, before [she] reached external, to new suppliers.” Under
these circumstances, including the fact that Home Depot merely accepted Tricam’s
offer rather than conducting a search for a new supplier, the causal chain was
too speculative.)

Sales/market share: Wing argued that Tricam could not have
entered the market if it had not represented that its ladders conformed to the ANSI
standard, and that such ANSI-certification statements made customers more
likely to purchase Tricam’s ladders than Wing’s. There was a close but triable
issue of fact. The parties were in direct competition, including on Home Depot’s
website, and Tricam sold over 565,000 ladders in the first year and a half that
they were on the market. “The combination of the competitive relationship
between the two companies and the volume of Tricam’s sales led Wing’s expert …
to conclude that the introduction of Tricam’s ladders cost Wing sales and
market share.” Add to that testimony that Home Depot likely would not have
continued selling Tricam’s ladders if it had attempted to change its
ANSI-compliance statements and the evidence of materiality accepted by the
Federal Circuit, and you get a triable issue.

There was evidence in the record pointing the other way;
Wing had higher sales on the Home Depot website than projected, and, after
Tricam’s ladders had entered the market, Wing obtained a substantial new line
of business by selling its ladders at Lowe’s. But Wing does not need to
identify “specific damage,” and the jury should resolve the question.

So too with Wing’s evidence of price erosion:

[A] reasonable juror could find
that Tricam’s false ANSI-compliance statements allowed it to enter and remain
in the market by selling its ladders at Home Depot. Once in the market, Tricam
consistently charged a lower price than Wing for its ladders. One of the
reasons Tricam was able to do this was that the crimped design of its ladder
rungs—the source of the dispute over ANSI compliance in this case—made its
ladders cheaper to manufacture.… And this led several of Wing’s retail
partners, particularly Lowe’s, to repeatedly pressure Wing to lower its prices
to compete with Tricam. On one occasion, Wing agreed, at the urging of Lowe’s,
to a 27% promotional discount on 75,000 ladders in order to compete with
Tricam, and the “[e]very day” price of Wing’s ladders “[e]asily” dropped by $40
or $50.

The court cautioned that, while Wing was entitled to go to the
jury, “there is no guarantee that Wing will ultimately be able to obtain the
monetary relief—disgorgement of profits—that it seeks,” given courts’ broad discretion
under the principles of equity. The Eighth Circuit recently suggested that
disgorgement is only appropriate in “exceptional” cases. (Does that survive Romag?)
Given the new presumption of irreparable injury, however, and the possibility
that ANSI certification is necessary in this market, an injunction alone might
be worthwhile for Wing.

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Nominative fair use in the Seventh Circuit: a practical tool

Posted on December 31, 2020 by rtushnet

Data Mgmt. Ass’n Int’l v. Enterprise Warehousing Solutions,
Inc., 2020 WL 7698368, No. 20 C 04711 (N.D. Ill Dec. 28, 2020)

Without resolving burden of proof issues, the court uses nominative fair use to quickly resolve a case where fair competition requires some use of the mark, but not as much as the defendant made.

DAMA-I, which runs a standardized data management
certification program whose exam is called the Data Management Fundamentals
Exam, sued EWS, which offers prep courses for the exam, for trademark
infringement. It sought an injunction against EWS’s use of any of its marks,
including suspension of EWS’s website, damacdmp.com. The court granted a
limited injunction against the use of the domain name and the use of “stylized
trademarks and graphics that resemble those marks.” But EWS “may continue to
use DAMA-I’s marks on a limited basis to describe its exam preparation course,
consistent with nominative fair use.”

DAMA-I has incontestable registrations for “CERTIFIED DATA
MANAGEMENT PROFESSIONAL”; “CDMP”; “DAMA”; “DAMA INTERNATIONAL”; and a stylized
DAMA mark.

EWS’s allegedly infringing use includes referring to its
prep course as the “DAMA CDMP® Data Management Fundamentals exam preparation
course” and using DAMA-I’s marks, including its stylized mark, throughout the
http://www.damacdmp.com website.

Although the Seventh Circuit hasn’t formally adopted NFU,
the district court thought it was the right approach here. As the court pointed
out, the traditional multifactor test was ill-suited for this particular type
of inquiry: “EWS must use DAMA-I’s marks to describe its product—a product that
DAMA-I does not itself offer— making factors like the ‘similarity of the marks,’
the ‘strength of the plaintiff’s mark,’ the ‘relatedness of the products’ and
the ‘defendant’s intent to “palm off” its product as the plaintiff’s’
meaningless.”

Is the product readily identifiable without the use of the mark?
DAMA-I argued that EWS has “no need to use any of the Marks” because the
official name of the test—the “Data Management Fundamentals Exam” —was not “trademarked.”
But

DAMA-I does not contend that the
official name of the exam is so widely known that use of the marks is redundant
or gratuitous, just that such use is technically avoidable. That the name of
the exam is not itself trademarked, however, suggests just the opposite—that
the name of the exam itself is not widely recognized independent of a connection
with DAMA-I’s registered marks. And if EWS were only allowed to use the exam’s
official name, lack of consumer awareness about that name would significantly
hinder EWS’s ability to reach its target audience. EWS’s prep course is
exclusively tailored to DAMA-I’s test, which individuals take in the hopes of
achieving DAMA-I’s CDMP certification, so using the marks at issue is the “most
straightforward, obvious and truthful way” for EWS to describe its product.

However, “EWS’s admittedly ‘liberal’ use of the marks, and
particularly its use of the domain name damacdmp.com, go well beyond what could
reasonably be considered necessary to identify the exam to which its prep
course relates.” As the Ninth Circuit’s Tabari case indicates, unadorned
use of a mark (here, two marks together) in a domain name is often going to
suggest sponsorship or endorsement.

And EWS’s use of the marks throughout its website “similarly
goes well beyond what is needed to make its advertisements intelligible to its target
audience and falsely creates the impression that DAMA-I officially sponsors its
prep course.” The marks “DAMA” and “CDMP” were used over twenty times on the
website’s landing page alone, and EWS also used a graphic that combines the
globe-like background of DAMA-I’s stylized trademark with the term “Certified
Data Management Professional” superimposed.

[W]hile EWS repeatedly warns
customers that they are purchasing only a prep course, and not the actual exam,
through disclaimers at the point of sale and throughout the website, it does
not go to similar lengths to dispel the potential (and understandable)
impression that DAMA-I sponsors the prep course offered at the damacdmp.com
URL. Weighed against the totality of the domain name and repeated references to
DAMA-I, the DataManagementU.com logo at the top left and the confusingly worded
disclaimer at the bottom left of the website are relatively easily overlooked
and ineffective even if noticed.

The court applied a presumption of irreparable harm (now rebuttably
presumed due to the recently signed COVID relief law, though not when the court
was considering the issue). DAMA-I argued that, because it was not involved in
the development of EWS’s prep course curriculum, it “cannot vouch for the
quality or comprehensiveness of the course.” While “[i]t takes quite a leap to
conclude that DAMA-I will inevitably be scapegoated for a hypothetical test
taker’s disappointing performance,” the court was willing to make that leap
because inability to control the nature and quality of defendant’s goods is
inherently irreparable. [I have never seen why that is true if there is no
evidence that the defendant’s goods are actually bad—a risk is not itself the
materialization of that risk. But I guess that won’t matter much going
forward.] The court was unimpressed by DAMA-I’s alleged delay in seeking
relief, unwillingness to negotiate, or inability to approximate damages, which
itself suggested irreparable harm. “To be sure, DAMA-I could approximate its
monetary losses related to EWS’s unauthorized use of its marks using the
licensing fees paid by the authorized users referenced at oral argument. But
this type of calculation would only capture one facet of DAMA-I’s injury.” The
value of lost control can’t be reduced to dollars.

Likewise, “the onus on avoiding trademark infringement falls
on EWS, and DAMA-I has no obligation to negotiate with EWS about what
constitutes an acceptable use of DAMA-I’s marks.” DAMA-I could well have
avoided unnecessary litigation costs and months of alleged consumer confusion
if it had been more receptive to EWS’s offers to modify its use of DAMA-I’s
marks on its web site, but that isn’t the standard for irreparable harm, and
EWS could have offered more to DAMA-I.

And the delay here didn’t lull EWS into a false sense of
security. There were threat letters, and in light of the ongoing pandemic, “it
is understandable that a lawsuit did not immediately follow; when DAMA-I did
file its complaint, it also filed its motion for a preliminary injunction.”

But the scope of the resulting injunction was key, since a trademark
injunction, “particularly one involving nominative fair use, can raise serious
First Amendment concerns because it can interfere with truthful communication
between buyers and sellers in the marketplace.” A blanket injunction like the
one DAMA-I requested here “does not advance the Lanham Act’s purpose of
protecting consumers and preventing unfair competition.”

The court instead ordered EWS to suspend operations “at” its
current domain name [can it redirect? That seems like an important question];
prohibited its use of DAMA-I’s stylized marks or confusingly similar graphics;
and ordered EWS to “reduce” its use of the other marks: it can’t use any of the
text marks “more than five times on any web page or two times in any social
media or print advertisement, such restrictions exclusive of the use of any of
DAMA-I’s marks that may appear in quoted customer testimonials.” Though “the
proper remedy for infringing use of a mark on a site generally falls short of
entirely prohibiting use of the site’s domain name,” “EWS cannot legitimately
claim nominative fair use of a URL that is comprised solely of two of DAMA-I’s
incontestable marks, and it will not be disproportionately harmed by migrating
its operations to a different URL.”

Of note: there’s no real confusion analysis of the “five times/two times” rule; it seems to be what the court thinks is fair under the circumstances.

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product changes as false advertising: TM may serve as express warranty of formulation & quality

Posted on December 30, 2020 by rtushnet

Starr v. VSL Pharmaceuticals, Inc., No. TDC-19-2173, 2020 WL
7694480 (D. Md. Dec. 28, 2020)

This putative class action is related to the longstanding trademark/false
advertising litigation between the VSL parties and Claudio De Simone parties,
and probably qualifies as a follow-on class action.

Plaintiffs alleged violation of RICO, breach of express
warranty, unjust enrichment, and violations of various state consumer
protection statutes. Many claims survive, including RICO claims—at least at the
motion to dismiss stage.

The relevant proprietary probiotic formulation, aka the De
Simone Formulation, was sold for many years under the name “VSL#3,” a trademark
owned by VSL. Relevant VSL parties are now enjoined from (1) stating or
suggesting in VSL#3 promotional materials directed at United States consumers
that the present version of VSL#3 produced in Italy continues to contain the De
Simone Formulation, including by stating that VSL#3 contains the “original
proprietary blend” or the “same mix in the same proportions” as the earlier
version 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.” Plaintiffs allege that defendants made equivalence
claims despite scientific evidence establishing that the new VSL#3 was neither
the same, nor as clinically effective, as the De Simone Formulation.

In addition, plaintiffs alleged that “Defendants improperly
continued to use the VSL#3 trademark to identify the new probiotic, even though
that mark had become associated with the De Simone Formulation.” At some point,
the packaging was changed to remove listing specific bacterial strains, but on
the product information sheet inside the package, defendants allegedly
continued to state that the new VSL#3 had been the subject of extensive
clinical research and cited to clinical studies establishing the efficacy of
the De Simone Formulation, not the new formulation. Defendant Leadiant also
sent a letter to all health care providers who had previously recommended VSL#3
to their patients stating that production of VSL#3 would be moving to Italy but
assuring customers that they would be receiving “the same quality product,
containing the same genus and species of bacteria, in the same proportions you
have come to expect.” “Other Leadiant marketing materials made similar
representations,” such as that the new VSL#3 remained “the same multi-strain
probiotic” and was “supported by more than 170 studies.” Defendant Alfasigma took
over the distribution of VSL#3 and allegedly advertised the same message,
including in an August 2016 press release asserting that the new VSL#3
“maintain[ed] the original proprietary mix of eight strains of live bacteria”
and was “supported by more than 170 published studies over the past 15 years.”

The named plaintiffs alleged that they purchased the new
VSL#3 in reliance on the packaging and marketing materials and the
recommendation of their doctors, believing that the new VSL#3 continued to
contain the De Simone Formulation.

As mentioned, the RICO claims survived because the
misrepresentations were sufficiently alleged.

Express warranty: Was there an express affirmation of fact
or promise as to the quality or characteristics of VSL#3? Plaintiffs identified
the product information sheet statement that “VSL#3 has been the subject of
extensive clinical research in the dietary management of IBS, UC, and an ileal
pouch” and that seemed to be an affirmation of fact or promise about the new
VSL#3.

Plaintiffs also alleged that the continued use of the term
“VSL#3” on the packaging of the new VSL#3 itself constituted an affirmation of
fact that the product was the same as the prior version of VSL#3. This was a
more interesting argument, because defendants rejoined that this was just a
trademark use, rather than a warrant of particular ingredients and of
particular quality. The court was not persuaded by cases finding no warranty in
the use of “Gap” on clothing or “Apple” on electronics: “[T]hese cases focus on
the meaning conveyed by the use of a brand name or trademark for multiple
products at the same time and do not address the present issue of whether a
brand name or trademark can, over time, become so identified with a particular
product that its continued use constitutes an affirmation of fact of
continuity.” McCarthy holds that “a sudden or substantial change in the nature
or quality of the goods sold under a mark may so change the nature of the thing
symbolized that the mark becomes fraudulent.” 3 McCarthy on Trademarks and
Unfair Competition § 17:24 (5th ed. 2020). In Royal Baking Powder Company v.
Federal Trade Commission, 281 F. 744 (2d Cir. 1922), Royal Baking had for 60
years produced a “superior” baking powder under the brand name “Dr. Price’s
Cream Baking Powder” which contained cream of tartar, rather than phosphate or
alum, and had in its advertising touted the benefits of cream of tartar while
warning of the dangers of phosphate and alum. When it substituted phosphate in
place of cream of tartar for cost reasons, but kept the same product name and
used the reference “Makers for 60 years,” the court upheld an FTC cease and
desist order unless the word “cream” was omitted and the word “phosphate”
included, because it was a “deception of the public” to sell an “inferior
powder” “under an impression induced by its advertisements that the product
purchased was the same in kind and as superior as that which had been so long
manufactured by it.” Likewise, the Eighth Circuit held that “[i]f the
manufacturer makes a change in the article and that change be of a character
which would, considering all of the attendant circumstances, naturally affect
the attitude of the purchasers of that article, fair dealing and the law
require that such purchasers be effectively informed of that change.” Royal
Baking Powder Co. v. Emerson, 270 F. 429, 440 (8th Cir. 1920).

The case law supported the conclusion that “a brand name can
come to function as a representation of a continuity of product contents and
quality that could deceive those ‘familiar with the old brand and ignorant of
any change.’” Thus, the trademark-as-warranty legal theory was at least
plausible, especially when accompanied by a product information sheet
containing more specific false affirmations.

Defendants argued that the product information sheet wasn’t visible
pre-purchase and thus couldn’t become part of the agreement. But “[t]he focus
is not on any particular language at a particular point in time but whether the
seller’s actions or language when viewed in light of his relationship with the
buyer were fairly regarded as part of the contract to purchase the good.” No
dismissal at the pleading stage.

Defendants also argued that privity was required for express
warranty claims under various state laws, but the court noted that many states
relax that requirement where the manufacturer makes warranties directly to the
consumer on product packaging, though Tennessee and Michigan did not and so
those claims were dismissed. Of the claims under the surviving state laws,
where reliance was required, plaintiffs adequately pled it, based on pleading past
purchases under the VSL#3 brand name.

Consumer protection claims under Florida and Texas survived,
but the court thought that the Michigan, and California law claims didn’t plead
reliance sufficiently, which I find a bit puzzling given that the allegations
are the same. The court treated the consumer protection claims as largely
resting on failure to disclose, which can be harder to plead, but I would think
the affirmative misrepresentation argument is the same here: VSL#3 allegedly had a
meaning and defendants did not honor that meaning. If they’d sold margarine as
butter based on an undisclosed definition of “butter” that included all
dairy-like spreads, we’d easily see that as deceptive. Challenges to the plaintiffs’
claims under the consumer protection statutes of Washington, Wisconsin,
Illinois, Tennessee, Massachusetts, and New Jersey under the heading of
causation failed; causation is typically a factual question, and plaintiffs
sufficiently alleged that, where the VSL#3 packaging identified no material
change to the product, they bought VSL#3 believing it to continue to contain
the De Simone Formulation, “resulting in the foreseeable loss of monies spent
on a product that was no longer of the quality and content that it appeared to
be.” To the extent required, plaintiffs also sufficiently alleged intentional
deception.

Ascertainable loss: In general, there is “no pleading
requirement of a specific quantity inherent in this term.” But for New Jersey,
the state supreme court emphasized the importance of the ascertainable loss
requirement “as an integral check upon the balance struck” under the New Jersey
Consumer Fraud Act “between the consuming public and sellers of goods.” Thus,
courts applying New Jersey law have required pleading an actual quantification
of the loss, even if not entirely specific. Thus, the NJCFA claim was
dismissed.

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