Rebecca Tushnet's 43(B)log

Not really a surprise: Pom disagrees with my reading of the FTC decision

2012-05-25T08:28:00.001-04:00

Apparently its new ad campaign will focus on claims like "supports prostate health," in stated reliance on the ALJ's ruling. Not clear whether Pom has consumer reaction evidence indicating that consumers do not receive a treatment/prevention message from such claims--like "heart therapy," below. (Who are you going to trust, the government or the business that makes money when you buy its stuff?) But I suppose if you're in a hole, there's no reason not to keep digging, and again you can't deny the chutzpah of using the ALJ as a citation for your "benefit" claim.

"unlawful" conduct causes actionable harm even without deception in Cal.

2012-05-23T10:10:00.003-04:00

Medrazo v. Honda of North Hollywood, 140 Cal. Rptr. 3d 20 (Ct. App. 2012)

Medrazo sued HNH on behalf of a putative class under the UCL and CLRA for failure to comply with California law that required new motorcycles to be sold only with a label disclosing the recommended retail price and the dealer’s added charges. After the court of appeals directed the class be certified, the trial court granted HNH’s motion for judgment, finding that Medrazo failed to establish that she, or any other class member, was injured by HNH's conduct. The court of appeals reversed as to the UCL, but affirmed as to the CLRA because Medrazo failed to adequately address that law in her appeal briefs.

Medrazo presented evidence that: when she bought a motorcycle from HNH, there was no label attached; more than $2000 in dealer charges were added to the cost of the motorcycle she bought; HNH as a matter of consistent practice failed to attach labels to Suzuki and Yamaha motorcycles, failed to attach labels to some Honda motorcycles, and didn’t include the dealer charges on all the labels that were attached; and that HNH sold more than 3000 motorcycles in the relevant period. The court of appeals ordered certification despite the individual issues (each Honda purchaser would have to establish that there was no tag attached to the motorcycle she bought and/or the dealer added costs weren’t disclosed on the tag, and restitution amounts might differ) because those were manageable issues overwhelmed by the commonality of issues.

The evidence suggested that customers would at first only hear the manufacturer’s suggested retail price, but if a customer wanted to buy, a salesperson would negotiate the terms of sale. At that point, the salesperson would complete a worksheet disclosing any dealer-added charges.

As for Medrazo’s specific purchase, HNH produced the hanger tag for the motorcycle she bought; given that HNH still had it, HNH’s witness conceded that it probably hadn’t been attached to the motorcycle when she bought it, and also it showed the MSRP but not the dealer-added charges. After the lawsuit was filed, HNH started creating its own hanger tags, laminated them to keep them from being destroyed or blown off, and had a salesperson look for and replace missing tags every day.

The trial court accepted HNH’s argument that Medrazo wasn’t injured because she was adequately informed of the dealer-added charges before she entered into the purchase contract, failed to show that she was misled or injured by HNH’s failure to comply with the law, and failed to establish the amount of restitution allegedly owed to herself or any other class member.

The court of appeals ruled that the trial court had incorrectly applied the law to the facts. Medrazo wasn’t required to show actual reliance to be entitled to restitution based on the “unlawful” prong of the UCL, and she showed economic injury. To violate the UCL, it’s enough that a practice is unlawful, even if not deceptive. An actual reliance requirement doesn’t apply to UCL actions not based on a a fraud theory; the only requirement is that a plaintiff must show lost money or property caused by the violation.

Medrazo’s evidence that there was no hanger tag and that she wasn’t informed of the dealer-added charges or the total price of the motorcycle until she was presented with the sales contract sufficed to establish that she suffered a concrete, particularized, and actual invasion of an interest legally protected by California law, which requires disclosure before a consumer makes the decision to purchase a specific motorcycle. Her economic injury was that she bought a motorcycle that HNH allegedly “was not legally allowed to sell (or at least was not allowed to sell at the price for which it was sold) because it failed to disclose the dealer-added charges on a hanger tag attached to the motorcycle.” This was enough to constitute lost money or property as a result of the UCL violation, assuming there was in fact a violation of the disclosure law.

Likewise, Medrazo presented sufficient evidence of restitution amounts; HNH refused to disclose certain information about class members, citing privacy concerns. Thus, when the trial court ruled that Medrazo was unable to show each class member’s dealer-added charges at the time HNH moved for judgment, it erred. Medrazo could show the amounts HNH charged for each type of motorcycle, and thus could easily establish the amounts owed as restitution if there was a violation of the law once HNH disclosed the necessary information.

Clive Thompson on the importance of fan fiction and fanworks

2012-05-23T10:08:00.002-04:00

This Wired story goes a bit beyond the "training wheels" metaphor that undervalues fanworks, and celebrates them as a way to access, develop, and sustain creativity in a variety of ways. Some very intriguing creativity research suggests that many great ideas come from boundary crossing: taking ideas from one field and moving them to another. Fans are pretty good at that.

Via OTW News.

direct targeting of ads confers personal jurisdiction

2012-05-23T10:02:00.002-04:00

Man-D-Tec, Inc. v. Nylube Products Co., LLC, 2012 WL 1831521 (D. Ariz.)

Man-D-Tec is an Arizona corporation, and Nylube is a Michigan corporation. They compete in the market for elevator light fixtures and replacement lamps. Man-D-Tec sued for false advertising, and Nylube arged that there was no personal jurisdiction in Arizona.

Nylube sells throughout the US, but doesn’t regularly advertise in Arizona. About 0.5% of its total sales over the past two years were to Arizona customers. The challenged material was an ad circular attached to the invoices of nine of Nylube’s Arizona customers.

Nylube’s contacts with Arizona were not sufficiently continuous and systematic to subject it to general jurisdiction in Arizona. Having its website hosted on an Arizona server was merely fortuitous, nor did the fact that its interactive website was accessible in Arizona create general jurisdiction. A small number of Arizona residents receiving ads was also insufficient. Though Nylube maintained at least 14 customers in Arizona over the last two years, continuous activity alone is insufficient. Nylube wasn’t licensed to do business in Arizona, didn’t maintain offices, telephone numbers, or bank accounts here, and had no sales personnel or agents for service of process in Arizona. Arizona customers represented only about 0.5% of Nylube’s total sales. Nylube’s small Arizona customer base was insufficient to justify suit against it for unrelated activities.

Specific jurisdiction, by contrast, was present. Nylube argued that the ad flyers went to customers throughout the US and thus weren’t purposely directed to Arizona or any particular forum. But because the flyers were directed to particular prior customers, and Nylube apparently knew that some were Arizona residents, there was purposeful direction to Arizona (as well as other states). Nationwide ads in journals or magazines that happen to be read in a forum state may not constitute purposeful direction. But cases so holding involved defendants who didn’t thesmselves direct ads to particular forum residents, but rather advertised in national periodicals that happened to be received in the forum state. Direct targeting of particular consumers in a known forum, by contrast, is purposeful direction.

The claim here also arose out of Nylube’s forum-related activities: the ads. And Nylube did not show that the exercise of jurisdiction was otherwise unreasonable. The court also denied Nylube’s motion to transfer.

What is the limitations/laches period for Lanham Act false advertising claims?

2012-05-22T13:08:00.002-04:00

The court doesn't fully resolve the issue here, but provides a nice overview of the 9th Circuit case law at least.

ThermoLife Intern., LLC v. Gaspari Nutrition, Inc., 2012 WL 1752977 (D. Ariz.)

The parties compete to market dietary supplements. ThermoLife alleged that Gaspari falsely marketed Novedex XT, Halodrol Liquigels, Halodrol MT, and SuperPump 250 products—as safe, natural, containing certain ingredients (Halodrol: 95% 3,4–divanillytetrahydrofuran; SuperPump: terkesterone), compliant with the federal Dietary Supplement Health and Education Act of 1994 (DSHEA), and legal. In 2010, however, the FDA stated that Novedex XT and Halodrol products were not DSHEA compliant. ThermoLife also alleged that the products contained unsafe materials that were not naturally occurring. It also alleged that, according to its tests, commercial production of 95% 3,4–divanillytetrahydrofuran was cost prohibitive, and that therefore Halodrol could not actually contain that concentration. Further, ThermoLife alleged that its tests of SuperPump didn’t detect any turkesterone, and that if there was in fact any in the product it couldn’t be enough to be an effective dose. It claimed to have an exclusive distribution agreement with the only company known to produce turkesterone for use in dietary supplements.

ThermoLife also alleged that Gaspari improperly prevented it from attending and exhibiting at the 2009 Mr. Olympia Weekend Expo bodybuilding competition and trade show by contacting American Media, Inc., the organizer of the event, and threatening to pull its advertising if ThermoLife was allowed to exhibit at the event, causing ThermoLife lost business opportunities and unrecoupable preparatory costs.

Gaspari began with, sigh, a standing argument that ThermoLife didn’t sufficiently allege direct competition or anything beyond speculative injury. To the contrary, ThermoLife specifically alleged that it sold directly competing products. Gaspari attempted to narrowly define the universe of “competitive” products to “only products which are effectively identical and advertised as such is unavailing. Plaintiff's allegations that both Plaintiff and Defendant sold dietary supplements containing similar ingredients, serving similar purposes, and targeting a specific audience (here, competitive and amateur bodybuilders) is sufficient to allege direct competition and justify the presumption of competitive injury at the motion to dismiss stage.” The allegations raised a presumption of injury through sales diversion and loss of goodwill to Gaspari sufficient to confer standing.

Gaspari then argued that the claims were barred by the statute of limitations, borrowed from the one-year period under the Arizona Consumer Fraud Act. Ninth Circuit precedent suggests but does not mandate that the proper analysis is laches instead of an absolute bar, but the court didn’t need to resolve that because the court agreed that Arizona’s 3-year fraud limitations period was instead the proper period. Though ThermoLife alleged false statements as far back as 2007, the pleadings didn’t disclose that it discovered then that the statements were false. It was plausible to infer that ThermoLife discovered the falsity when recalls of Gaspari’s products began in 2009 and 2010, and ThermoLife conducted its independent tests in 2009, all of which fell within the 3-year period (the suit was filed in 2011). Thus the complaint couldn’t be dismissed as time-barred.

On tortious interference, Gaspari argued that ThermoLife failed to allege any specific party with which it expected to do business or any specific damages (though Gaspari didn’t move to dismiss the claim of tortious interference with ThermoLife’s relationship with American Media, Inc.). The court agreed: the only assertions that ThermoLife would have earned business at the Expo were conclusory; the mere hope of business is insufficient.

Pom takes another pounding

2012-05-22T12:20:00.001-04:00

Pom Wonderful LLC v. Coca-Cola Co., No. 10-55861 (9^th Cir. May 17, 2012)

Pom sued Coca-Cola over its “Pomegranate Blueberry” or “Pomegranate Blueberry Flavored Blend of 5 Juices” product. (Coca-Cola argued that the latter was the product’s name, as if any consumer in the entire world would call it that.) Pomegranate Blueberry contains about 99.4% apple and grape juices, 0.3% pomegranate juice, 0.2% blueberry juice, and 0.1% raspberry juice.

The front label displays the product’s name and a vignette depicting each of those fruits:

The district court ruled that the Lanham Act claim against the name and fruit vignette was barred by FDA regulations, though Pom could challenge other advertising and marketing of the product. Also, Pom’s state law claims were preempted to the extent they would impose requirements not identical to federal ones on Coca-Cola. Also, the court held that Pom lacked statutory standing to pursue its state law claims because it hadn’t not shown that it was entitled to restitution.

Pom appealed, and the court of appeals largely affirmed. “[T]he Lanham Act may not be used as a vehicle to usurp, preempt, or undermine FDA authority. That teaching, however, operates as a presumption or a general principle—not as an automatic trump or a firm rule.” Courts must attempt to give as much effect to both statutes as possible.

Here, the naming aspect of Pom’s claim was barred “because, as best we can tell, FDA regulations authorize the name Coca-Cola has chosen.” Under the regs, a manufacturer can name a beverage using a name of a flavoring juice that is not predominant by volume. For example, a raspberry-and-cranberry-flavored product whose predominant juice is not raspberry or cranberry can be called “‘Raspcranberry’; raspberry and cranberry flavored juice drink.” If the juices provide the characterizing flavor, and if Coca-Cola states that the juices aren’t predominant, then the name is ok. Thus, allowing Pom’s claim to proceed would conflict with the FDA’s apparent authorization of names like “Pomegranate Blueberry Flavored Blend of 5 Juices.” The same went for the labeling component of Pom’s claim, which focused on the presentation of the words on the label (Pom didn’t spend meaningful time on the fruit vignette on appeal). Pom apparently sought to make Coca-Cola change the size of the words on its labeling so that the words “Pomegranate Blueberry” no longer appeared in larger, more conspicuous type on Coca-Cola’s label than “Flavored Blend of 5 Juices.” But that too would undermine the FDA’s regulations, which specify what words must or may be included on labels and how prominently and conspicuously they must appear: in such a way “as to render [them] likely to be read and understood by the ordinary individual.” Despite this, the FDA hasn’t required that all words in a juice blend’s name appear on the label in particular sizes; if the FDA thought that such a regulation were necessary, “it could have said so. If the FDA believes that more should be done to prevent deception, or that Coca-Cola’s label misleads consumers, it can act.” But here, to act when the FDA hasn’t would risk undercutting its expertise and authority.

Previous district court decisions allowing similar Lanham Act claims to proceed, on the ground that the claims didn’t require the court to interpret or apply FDA regulations, couldn’t be harmonized with governing 9^th Circuit precedent. “Although these courts were right to recognize that a Lanham Act claim is barred when it would require a court to interpret ambiguous FDA regulations, that is not the only circumstance in which such a claim is barred…. [C]ourts must generally prevent private parties from undermining, through private litigation, the FDA’s considered judgments.”

How do we know when the FDA has made a considered judgment, as opposed to not making a judgment? Good question, to which you will not find a great answer here! The court reiterated that the FDA could determine that Coca-Cola’s label is misleading, but that it hasn’t to date done so, “even though it has acted extensively and carefully in this field. (The FDA has not established a general mechanism to review juice beverage labels before they reach consumers, but the agency may act if it believes that a label in the market is deceptive.) As best we can tell, Coca-Cola’s label abides by the requirements the FDA has established.” However, “mere compliance with the FDCA or with FDA regulations will [not] always (or will [not] even generally) insulate a defendant from Lanham Act liability.” Compliance with FDA’s regulations alone was not enough, but rather the court found compelling “Congress’s decision to entrust matters of juice beverage labeling to the FDA and by the FDA’s comprehensive regulation of that labeling.” The FDA apparently didn’t impose the requirements Pom wants, and the court lacked the FDA’s expertise in guarding against deception in the context of juice beverage labeling. (Does the FDA have expertise in assessing likely deception, as opposed to scientific evidence on safety and efficacy? I don’t think the D.C. Circuit thinks it does.)

Turning to the state law claims, the district court dismissed on standing grounds: it found that Pom hadn’t lost money or property because it wasn’t entitled to restitution directly from Coca-Cola. But the California Supreme Court has made clear that standing doesn’t depend on eligibility for restitution, so the court remanded for further proceedings, which would restart the preemption issue and also raise the question whether California’s safe-harbor doctrine for regulatory compliance insulated Coca-Cola from liability. So it seems unlikely that Pom can get much traction on state-law claims either.

Review: False Advertising and the Lanham Act

2012-05-22T09:50:00.003-04:00

Thomas M. Williams, False Advertising and the Lanham Act: Litigating Section 43(a)(1)(B): Oxford sent me a review copy of this short, practice-oriented book. If Lanham Act cases are core elements of your practice, this book is not for you, but it might be a useful reference for in-house counsel who encounter Lanham Act cases on occasion. I have only two substantive quibbles (and they go to the fact that this is very much a “this is what the cases say” book): (1) Williams says “1+1=many” is an example of an ambiguous claim whereas “1+1=3” is false; absent further context, I don’t see how the former is any less false. (2) Williams, consistent with what many courts say, characterizes Conte Bros. as a test that expands standing beyond the "competitors/competitive interest" rules of other circuits. I think if you ran the numbers on this you'd find that courts actually applying Conte Bros. are at least equally likely to deny standing to competitors than to grant it to noncompetitors, as in Phoenix of Broward; the prospect of expanded standing is largely illusory. Anyway, the chapters provide overviews of important procedural matters like prudential standing, pleading under Iqbal/Twombly, injunctions after eBay/Winter, etc., as well as the substantive elements of a Lanham Act false advertising claim and some discussion of instances when 43(a)(1)(B) won’t work (the TM/false advertising line, Dastar, FDA preemption, etc.).

FTC ALJ rules many Pom ads misleading, unsubstantiated

2012-05-22T09:30:00.002-04:00

In the Matter of POM Wonderful LLC and Roll Global LLC, FTC File No. 082-3122 (May 21, 2012)

Bottom line: while rejecting complaint counsel’s arguments that double-blind, randomized clinical trials were required to substantiate health claims of the sort made by Pom, the ALJ found that Pom didn’t meet the somewhat lower standard of reliable and competent scientific evidence either with respect to claims about heart health/disease, prostate health/disease, and erectile function/dysfunction. Though I don’t think the opinion explicitly says so in so many words, it implicitly acknowledges what I think any honest observer of the general consumer market would have to: ordinary consumers are unlikely to regularly distinguish between a “supports health” claim and a “prevents disease” claim in any relevant way, meaning that the DSHEA’s framework is fundamentally rotten. At the very least, the proceeding against Pom helps to make that point to advertisers trying to finesse the distinction, though of course I expect an appeal.

With respect to a number of ads, set out in the appendix available on the FTC’s site, the ALJ found that reasonable consumers would receive an implied claim that the Pom products treated, prevented, or reduced the risk of heart disease, prostate cancer, or erectile dysfunction, and some of the ads conveyed the further message that these effects were clinically proven. With or without the explicit "clinically proven" language, these claims weren’t sufficiently substantiated. The appropriate level of substantiation is “competent and reliable scientific evidence.” When a disease treatment/prevention/risk reduction claim is made in connection with a safe food product not being offered as a substitute for medical treatment, that doesn’t require double-blind, randomized, placebo-controlled clinical trials (RCTs), but it does require some sort of clinical studies adequate to show that the product does what it claims. Here, the weight of the expert testimony was against the implied disease claims in the ads.

Crucially, whether the substantiation was adequate to support either “highly qualified or generalized health claims” or “the express language of the advertisements” didn’t matter. Advertisers are responsible for (material) implied messages too. Pom argued that its ads were exaggeratedly humorous and simply provided a general “healthy” message; to the extent the ads made specific claims, Pom argued, they disclosed that the evidence came from preliminary studies. The ALJ was unimpressed given the specific health benefits mentioned, the claims of scientific support, and sometimes references to clinical studies. Humor might draw attention to the ads at the outset, but the presence of humor didn’t make every factual claim in the ads into puffery. Likewise, the weasel words in the ad didn’t help: whether a consumer interprets “can” help health as “will” help health depends on context.

Pom argued that, in the context of a food ad, consumers wouldn’t receive a “clinically proven” or other disease treatment/risk reduction message, but would think of it more like “exercise reduces your risks” instead of “drug Z reduces your risks by targeting a specific disease mechanism.” I’m really not clear why there’s a legally relevant difference between these, and the ALJ pointed out that in either case the factual claim would still be within the scope of the FTC’s complaint here. Nor did the qualifiers “preliminary,” “promising,” “encouraging,” or “hopeful” change the message to make it nondeceptive in the overall impression that the ads were claiming clinical proof.

Ultimately, the ALJ concluded, a significant minority of consumers acting reasonably would receive the message that there was scientific support for the disease claims. The ads offered basic syllogisms as a way of implying their claims. For example: free radicals cause or contribute to heart disease; Pom products contain antioxidants that neutralize free radicals; thus, the words and images of the ad implied that Pom products would be effective at fighting heart disease.

Along the way, the ALJ made some other rulings of note: first, TV appearances by one of Pom’s principals, during which she promoted the health benefits of Pom’s products, weren’t ads within the jurisdiction of the FTC if Pom didn’t pay for or sponsor them. Given the jurisdictional limit, it wasn’t necessary to reach any First Amendment argument.

Also: an intent to convey a message alone isn’t evidence that the message was conveyed, since intent isn’t required for a violation of the FTCA and it would be “incongruous” to make intent a sword but not a shield (hmm, wish some trademark cases would think of that…). It was unnecessary here to examine Pom’s intent because of the other evidence showing what messages were conveyed.

So, when are RCTs required? The ALJ found that the best evidence was that RCTs would be required substantiation for a nutrient supplement if the advertiser claimed that the product treated/prevented/reduced the risk of a disease and offered it as a replacement for medical care. But RCTs aren’t required where the safety of the product was known, it created no material risk of harm, and it wasn’t being sold as an alternative to following medical advice.

It didn’t matter whether the claim was presented as “the product reduces the risk of X” or “tests prove the product reduces the risk of X.” In either case, experts in the relevant scientific communities would require the same level of substantiation. (Courts sometimes recognize this in the Lanham Act context as well: in the modern world, some types of claims—health claims prominent among them--are inherently/necessarily based on scientific evidence.)

Okay, if not RCTs, then what? The amount of substantiation experts in the field would agree is reasonable is one factor to determine the appropriate level of substantiation required for non-establishment claims. (Except that, as the ALJ’s findings indicate, these are functionally establishment claims whether they use the words “tests prove” or not, so one would think we ought to look upward and not downward for the standard ….)

The other factors are the products involved, the type of claim, the benefits of a truthful claim, the ease of developing substantiation for the claim, and the consequences of a false claim. The product involved (a well-known food generally known to be safe and not claimed as a substitute for conventional therapies) weighed in favor of a less-than-pharmaceutical-grade standard. The type of claim (health), by contrast, weighed in favor of a high standard. The difficulty and expense of substantiation through randomized double-blinded trials (potentially hundreds of millions of dollars), combined with the potential benefits of truthful health claims, weighed against requiring full-scale clinical trials for substantiation where the product was a safe, natural food that had been in use for centuries. Nor did the risks of falsity loom large given these same product characteristics and given that Pom wasn’t promoting its products as an alternative to conventional treatment. Economic injury in spending on a useless product is significant, but not as important as health harms, especially since this juice would be considered a “premium” product anyway.

Taken together, the factors led the ALJ to conclude that “competent and reliable evidence” must include clinical studies, though not necessarily RCTs, showing that Pom products would treat, prevent, or reduce the risk of the claimed conditions. But Pom lacked such substantiation, according to the greater weight of the expert testimony.

Pom, amazingly, argued that these claims weren’t material. The FTC usually begins with the presumption that the fact that a claim was made makes it material—you only have so much time and money for advertising, so you try to spend it wisely. But the presumption was unnecessary here given the other evidence of materiality. Not only did common sense support the materiality of health claims like these, Pom was well aware of the direct link between providing a scientific reason to believe and sales, e.g. an article reporting that “every time a new study [was] released touting” a health benefit, there was a “spike in sales.” Pom sponsored over 100 studies costing over $35 million over more than a decade; it used those studies for marketing purposes as part of its “unique selling proposition.” “[I]t defies credulity to suggest that Respondents would advertise study results related to these conditions if such advertising did not affect consumer behavior.” Pom’s survey evidence, which purportedly found that consumers were interested in general “health” benefits rather than specifics, didn’t sufficiently inquire into their underlying beliefs and thus didn’t rebut the other evidence of materiality.

The ALJ ordered specific relief against the individual defendants found to have participated in the deceptive advertising, as well as restraints on Pom. The order applies to Pom’s products as well as any other food, drug, or dietary supplement sold by Pom entities (they also sell citrus fruits, nuts, Fiji water and wine). This multi-product order was justified given the transferability of the conduct. Pom argued that their other products didn’t involve pomegranates and were so “dramatically different” that they wouldn’t use Pom research to “understand” any components of the other products. The ALJ noted that this argument was “beside the point because the advertising technique, i.e., sponsoring research of a product’s health benefits and using the results to make disease claims, is readily transferable to advertising any food, drug or dietary supplement.” Indeed, respondents have already sponsored research “exploring” the health benefits of Wonderful Pistachios and Fiji Water. They argued that they had a history of “not advertising those benefits until the science is sufficiently developed.” (Now that's chutzpah!) The ALJ pointed out that this very case demonstrated that “Respondents’ judgment … has not always been exercised appropriately.”

The seriousness and deliberateness of the violations also supported a multi-product order covering all foods, drugs, and dietary supplements sold by Pom entities. The ALJ specifically pointed to the seriousness of the health conditions at issue, consumers’ inability to evaluate the evidence for themselves, and the extent of the advertising. Pom argued that the ALJ should give weight to Pom’s internal ad-vetting procedures, but those hadn’t stopped a bunch of the ads at issue here. Thus, respondents will be barred from making representations that any covered product was effective in the diagnosis, cure, mitigation, treatment, or prevention of any disease, unless at the time they were made the representations were non-misleading and they possessed and relied upon competent and reliable scientific evidence, sufficient in quality and quantity to substantiate the representations, based on standards generally accepted in the relevant scientific fields when considered in light of the entire body of relevant and reliable scientific evidence.

The ALJ rejected complaint counsel’s request for an order requiring FDA pre-approval for any direct prevention/treatment claim (as opposed to “clinical studies suggest that …” claims otherwise supported by competent and reliable evidence). The FDA standard was too high for these particular claims about a safe, known food not being promoted as an alternative to conventional medical treatment. Complaint counsel argued that an FDA standard would provide clear and precise guidance, but the ALJ didn’t accept that as a sufficient justification for these products, especially given that complaint counsel's proposed standards have their own uncertainties and difficulties of interpretation, such as what would count as an unqualified disease claim v. a qualified health benefit claim. Anyway, there was no reason to think that “competent and reliable evidence” was unclear.

Other parts of the order generally prohibited misrepresentations and provided a safe harbor for claims approved by the FDA.

Overall, while a defeat for the FTC’s most aggressive position, this case affirms that food etc. producers making health claims need good clinical evidence substantiating their claims. Always assuming the order holds up (and, because it adopted a less-than-RCT standard, I expect it is likely to do so), it’s unlikely to represent much of a retreat in this area, where concerns about consumers’ health and inability to evaluate scientific evidence for themselves will remain persuasive.

public access to published federally funded research

2012-05-21T12:45:00.000-04:00

Here’s a petition to the US government to commit to free public access to the published results of federally funded research that I think is worth signing. The NIH, which accounts for about half of all federally funded nonclassified research expenditures, is already doing this. If the petition gets 25,000 signatures within 30 days, the Administration will issue an official response. The campaign’s website is http://access2research.org, also on Facebook and Twitter (@access2research).
Here’s the petition text:
WE PETITION THE OBAMA ADMINISTRATION TO:
Require free, timely access over the Internet to journal articles arising from taxpayer-funded research.
We believe in the power of the Internet to foster innovation, research, and education. Requiring the published results of taxpayer-funded research to be posted on the Internet in human and machine readable form would provide access to patients and caregivers, students and their teachers, researchers, entrepreneurs, and other taxpayers who paid for the research. Expanding access would speed the research process and increase the return on our investment in scientific research.
The highly successful Public Access Policy of the National Institutes of Health proves that this can be done without disrupting the research process, and we urge President Obama to act now to implement open access policies for all federal agencies that fund scientific research.
If you’re 13 years or older, you can sign the petition by going to whitehouse.gov, providing a name and email address, and validating the email address, then clicking to sign.
Further background from AU’s Michael Carroll:
After years of work on promoting policy change to make federally-funded research available on the Internet, and after winning the battle to implement a public access policy at NIH, it has become clear that being on the right side of the issue is necessary but not sufficient. We've had the meetings, done the hearings, replied to the requests for information.
If we can all come together to get the word out at once, and stay behind it for 30 days, we have a real chance to get access to taxpayer funded research across the entire government, and send a signal that the people have a voice in this debate, not just publishers and activists.

False advertising case succeeds as TM claim

2012-05-21T09:53:00.002-04:00

Neighborhood Assistance Corp. of America v. First One Lending Corp., 2012 WL 1698368 (C.D. Cal.)

It is interesting to see how TM has become so much more muscular than other false advertising law that this case against odious defendants succeeds as a TM case, even though the core wrong is the fraud on the public (as the resulting injunction makes clear). I don’t think TM should generally be used this way, primarily because real TM cases might cite it, which would be a mistake. That’s what false advertising laws at the state and federal level are for, and they clearly cover all defendants’ misconduct, not just the TM confusion part. That said, it’s hard to work up any sympathy for defendants whose deception proceeded in part by pretending to be affiliated with plaintiff.

NACA, a nonprofit community advocacy organization, sued First One and John Vescera for cheating homeowners by facing foreclosure, charging them $1000-$2000 based on false claims to provide mortgage modification services. In fact, NACA provides these services for free as part of its activities originating loans and advocating for low and moderate income homeowners; after the financial crisis, it expanded its services to help homeowners facing foreclosure. NACA has registered incontestable service marks for NACA; it also has a heavily promoted “Home Save Program” for homeowners with unaffordable mortgage payments, and uses “Save-the-Dream” events, held in large meeting spaces throughout the country, to promote its programs.

First One allegedly does business under a variety of different names such as National Mortgage Help Center (“NMHC”) and National Mortgage Assistance Center (“NMAC”), two “entities” with nearly identical websites and the same phone number.

First One made a number of allegedly misleading statements creating confusion over affiliation with NACA. E.g., it claimed to be “a member of NAHCA.” Other claims: “First One coordinates each client's financial analysis submission to the Home Save Program of the Neighborhood Assistance Network of HUD Housing Counselors to assist you with your lender to achieve a result. HUD (Dept. of Housing and Urban Development) Housing Counseling assistance is provided at no-charge and is not contingent on you hiring First One for any other service”; First One had been “Helping to Save the American Dream since 1995”; First One was a nonprofit organization that educates the general public and is “a Housing Counseling Public Benefit Corporation,” with the purpose of expanding “affordable housing opportunities to the public,” and providing “housing counseling services” and assistance to “homeowners to avoid default and foreclosures.; First One has a “national network of foreclosure prevention specialists” that will negotiate directly with the homeowner's bank to obtain lower monthly payments through a “Mortgage Modification Plan.” First One falsely implied it was approved by HUD for counseling and mortgage modification services, claimed to have relationships with “all major lenders & loan servicers,” purported to obtain “Actual Modifications” through its “National Mortgage Help Center Program,” claimed already to have contacted the relevant lender, claimed to protect its customers’ personal information, and purported to offer free counseling.

Other allegedly false and misleading statements on First One websites: “Only State approved attorneys may legally modify your loan with your lender”; “Do not give out your information with other Websites” (allegedly deterring direct contact with NACA); “Homeowners who have benefited from our services have received mortgage payment reductions that bring their mortgage payment debt ratio to within 31 % [of] their gross income. Mortgage principal balance reductions have also been achieved and are possible when your current mortgage balance exceeds the value of your home”; its staff was “comprised of case managers, loan processors, and housing counselors working on your behalf”; and so on.

NACA submitted five declarations from confused First One customers who stated they thought they were dealing with NACA and sent First One money (typically $1850 or $1450) but didn’t receive help. One customer stated that, instead of contacting his lender, First One sent him a letter reinforcing his belief that First One was affiliated with NACA. It stated his financial analysis had been submitted to his “Housing Counselor of the Neighborhood Assistance Network of HUD Housing Counselors,” and included a NACA identification number, a password, and directions to check the status online at NACA's website, www.naca.com. After he was unable to log on, he went to NACA’s office, and then learned that First One wasn’t affiliated with NACA. NACA alleged that over 240 homeowners fell for this scheme.

Apparently, what First One did was take customers’ money and then use their personal information—which it had promised not to share with third parties—to register a NACA account for the homeowner through NACA's website. Then it told customers that they should call the housing counselor assigned to their file at NACA. When customers complained, First One took the position that it only provided documentation services, and NACA provided the “free of charge assistance phase of the service.” On at least two occasions, employees allegedly responded to complaints by falsely stating or implying a NACA affiliation. California’s Department of Real Estate sent a C&D to First One telling it to stop collecting advance fees for loan modification or forbearance services.

Defendants moved to dismiss, arguing that the complaint failed to allege use of NACA’s registered trademark, that there was no advertising or promotion, and that the parties didn’t compete because NACA doesn’t charge homeowners for its services. The court found that NACA was bringing a false association claim, not a false advertising claim. Such a claim doesn’t require use of NACA’s TM, as long as there’s a “word, term, name, symbol, or device, or any combination thereof, or any false designation of origin, false or misleading description of fact, or false or misleading representation of fact, which ... is likely cause confusion ... as to the affiliation ... or ... misrepresents the nature, characteristics, qualities ... of his or her ... services or commercial activities.” Plus, NACA’s claim could be understood as one for reverse palming off: First One was marketing NACA’s services as its own, and that doesn’t require use of NACA’s mark. Thus, NACA wasn’t required to plead any use of its registered or unregistered marks.

Also, a false association claim doesn’t need to be in “advertising or promotion” as a false advertising claim does. Nor was NACA required to be a competitor to have standing. “Defendants' rule would exclude from the Lanham Act those most deserving of its protection: non-profit organizations that help the neediest members of society and organizations whose operations are so beyond reproach that their reputations survive others' destructive schemes. Fortunately, the law is not as mean-spirited as Defendants would wish.” The alleged damage to NACA’s goodwill was sufficient to satisfy the Lanham Act requirement that a commercial/competitive interest be harmed. “Because consumers are likely to feel ripped off by Defendants and are likely to conflate Defendants and Plaintiff, Defendants' scheme damages and will continue to damage Plaintiff's reputation and good will with the public.” In addition, NACA gets compensation from mortgage servicers for each successful Home Save, and harm to its reputation would likely diminish its ability to attract participants, resulting in lower revenue.

The court also rejected First One’s affirmative defenses that “facts” outside the complaint established the truth of three of the “numerous” false or misleading statements alleged in the complaint and that one defendant was immune from liability under the federal Volunteer Protection Act (one of those “news to me!” statutes). The court refused to consider the claimed facts that First One was (1) a registered NACA referral agent; (2) a HUD approved lender; and (3) a not-for-profit 501(c) corporation, since these were not appropriate for judicial notice. Even if the court could take judicial notice of the existence of certain documents (e.g., a letter from the IRS to First One), that wouldn’t justify judicial notice of the disputed facts in the documents. And also, the documents didn’t even support the purported facts, which were themselves misleading! For example, the printout from NACA’s website stating that First One was a “registered NACA referral agent for NACA” created a dispute over the meaning of “referral agent,” and seemed to confirm the allegation that First One used customers’ personal information to register NACA accounts in their names. Likewise, a HUD letter showing that First One was approved as a lender doesn’t mean that HUD approved First One for counseling/foreclosure avoidance, an allegedly separate program, and thus First One’s claim of HUD approval might be misleading in the foreclosure avoidance context. Even the 501(c)(3) claim was held up by the IRS’s official notice, stating that First One was a 501(c)(4), and the California Secretary of State has a record indicating that First One is “For Profit.” Anyway, even if it’s all true, nothing would entitle First One “to create confusion in the marketplace by passing Plaintiff's services off as First One's services,” or to make the other alleged misrepresentations.

The court turned to NACA’s request for a preliminary injunction, which could be granted either using the Supreme Court’s Winter factors or the 9^th Circuit’s serious questions going to the merits/balance of hardships sharply favoring the plaintiff/irreparable injury/public interest test. Under either test, NACA was entitled to a preliminary injunction; it was likely to succeed on the merits of its false association/reverse palming off claim. The following words etc. were likely to mislead consumers into thinking First One was NACA: the acronym NAHCA; the acronym NMAC; the acronym NMHC; slogans such as “Helping to Save the American Dream since 1995” and “Helping Homeowners to Save Their Dream”; and phrases such as “Home Save Program of the Neighborhood Assistance Network of HUD Counselors.” The acronyms were likely to be confused with NACA, and NACA’s phrase “Home Save Program” and full name “Neighborhood Assistance Corporation of America” was likely to be confused with First One’s “Home Save Program of the Neighborhood Assistance Network of HUD Counselors” NACA’s slogan “Save–the–Dream” was likely to be confused with First One’s “Helping to Save the American Dream since 1995” and “Helping Homeowners to Save Their Dream.” (This is why bad cases make bad law: these highly descriptive terms should generally be free for others to use, and ordinarily there’d be a strong fair use defense. Oh, and also the court called NACA “the strongest kind of mark” because it’s registered and incontestable.) The court found intent the “most telling[]” factor—First One’s use of all four of NACA’s marks, combined with its likely illegal conduct towards its customers, indicated bad faith.

Irreparable harm could be presumed from likely success on the merits, and was shown to be likely in any event because loss of good will or ability to control one’s reputation is irreparable harm. (I’ve never understood why this second statement isn’t exactly the same as the first: what is there behind it other than a presumption?) First One argued that there was no irreparable harm because NACA’s reputation remained good and because NACA, a nonprofit, by definition couldn’t suffer lost profits. The court rejected these arguments as a matter of law. Declarations from five homeowners who were confused about the relationship between the parties and angry at First One sufficed.

Because First One charged money while NACA promotes its free program, “any perceived affiliation between First One and Plaintiff will give consumers the false impression that Plaintiff is being deceptive.” Moreover, even if the homeowner eventually learns the truth, NACA still suffers. “Homeowners who have paid a third party a fee before working with Plaintiff are much more likely to view the entire mortgage modification business, including Plaintiff's Home Save Program, as a scam.”

Unsurprisingly, the balance of the equities and the public interest favored a preliminary injunction:

All too frequently, intellectual property disputes between two faceless entities can make the judiciary appear to the public like a mere handmaiden to corporate interests, blessing corporations' efforts to commodify an ever-growing swath of the nation's intellectual capital. This case is a refreshing reminder that the policy justification for trademark law is to protect human beings, not corporations.

Here, a preliminary injunction would be “extremely beneficial” to the public. First One’s scheme appeared to violate a number of consumer protection laws and had caused significant harm. So the court granted the injunction, which notably covers both false association and false advertising type claims. On the TM side, defendants were enjoined from: making any statements likely to create an impression of affiliation etc. between the parties; using the word NACA or its web address in any website, advertising or promotional materials, or written materials provided to customers or potential customers; using “Home Save,” “Home Save Program,” “Neighborhood Assistance”; or referring anyone to NACA or its phone number or registering anyone through NACA’s site. On the false advertising side, the injunction also barred making any statements likely to create the impression that First One provides loan modification or housing counseling services, or that it’s approved by HUD to provide such services; advising consumers not to provide information to other websites or that only attorneys can provide loan modification services; or stating a consumer has been pre-qualified for a loan modification in the absence of a written statement from the lender to that effect. These remedies, of course, are only justified by the false advertising, which was aided and abetted by the TM confusion but still distinct from it.

Hamlet in over 60 films

2012-05-21T09:34:00.000-04:00

Including some quotations--The Lion King, Clueless--that add to the fun.

Brands, not trademarks?

2012-05-21T08:54:00.000-04:00

The NYT has Adam Davidson on making choices in an information-oversaturated world. It doesn’t use the word “trademark,” but recites the standard justifications for trademark protection, focusing on the signaling effect: a well-known brand or endorser supposedly guarantees that the producer invests in quality, or at least is successful enough that it has the money to spend on showy advertising, though as Davidson points out some of those signals can be easy to feign in the absence of investment in less visible actual quality. Particularly interesting to me was that one of the instances of relying on brand signals involves using an aggregator—Amazon—as an indicator of quality, rather than a smaller site supposedly offering the underlying, most likely branded, product at a lower price. I myself don’t know why fulfillment by Amazon would matter; I’ve gotten scratched DVDs from Amazon sellers (curse you, last disc of Season 2 of The Wire!), and a good aftermarket ceiling fan from an eBay seller (a high-rated one, true!) at a hundred dollars below other offers. The incident Davidson reports also reinforces the point that high price is a (feignable) signal of high quality in itself.

Plain tobacco packaging at Georgetown

2012-05-17T15:10:00.000-04:00

Nicola Roxon, Australian AG, Why Are Plain Packs Making Big Tobacco So Angry?

If used correctly, tobacco kills, which makes it unique; still a leading cause of preventable death in Australia: 50,000/year. Measures include restricting point of sale displays, and banning smoking in restaurants. One state outlawed smoking in cars with children. Proportion of daily smokers has fallen from 30% to 15.1%, one of the lowest rates in the world; much more concentrated now in people in disadvantaged groups. Various other plans: banning internet ads, reducing duty-free amount.

Key element of strategy: plain packaging: graphic health warnings will make up about ½ the front of the pack—idea is to make it impossible for you to look at anything but the warning. Warning text is huge on front and sides; only differentiation will be the brand in standard font and color: no logos, no branded colors. This takes away the last marketing tool.

Packaging is used to promote the brand: turns it into expensive, classy, desirable obect. Meticulously designed to look and feel good, attracting new smokers. Showed video of kids in the UK evaluating how nice cigarette packages looked—“red is nice, like a Ferrari; … I think it would be fun to play with.” An ad message that smokers carry around with them all the time.

With the current conflicting branding, people can be distracted/get a misleading impression of the actual dangers of smoking.

Response: astroturfing—supposedly small retailers, funded by tobacco companies. Claimed that would be very expensive to introduce plain packaging—half a billion cost to retailers claimed based on interviews with 6 retailers. Slippery slope: could this happen to your soda? Your candy? But most manufacturers aren’t biting. Next claim: will lead to illegal cigarettes which help the terrorists. Donations to political opponents; ultimately unsuccessful.

Claim: the restriction on TMs creates a constitutional problem analogous to a US takings claim. Comparison products: would paying for a required warning be comparable to requiring payment to mandate a warning on rat poison? Notably, PM Australia changed ownership to be owned by a Hong Kong company, then instituted bilateral Australia-HK trade proceedings; similarly the Ukraine is claiming a trade violation (many other countries refused to take action on behalf of the tobacco companies).

Change in tactics: one popular brand is now distributing metal tins (scroll down) with cigarettes, hoping people will use the tins once the plain packages come into effect. This is evidence that they do think plain packaging will work.

Q: what about the viewpoint of people in indigenous communities? Some see paternalism/deciding for them when there are other huge health problems; they see smoking as recreational and haven't been reached by previous campaigns.

A: we recognize the issue—for the first time in 2010 we had an campaign targeted at indigenous people created by indigenous designers: breaking the chain. Taking advice from the communities themselves. Smoking among aboriginal health workers is very high.

In response to another Q: the politics are very different—we didn’t face any serious opposition other than from the tobacco companies themselves.

Georgia State and copyright ownership

2012-05-17T14:58:00.004-04:00

James Grimmelmann has a post highlighting what may be the biggest lesson from the case (I know, the fair use stuff is important too, but the inability to prove ownership of digital rights is highly relevant to fair use as well): a lot of times the publishers couldn't prove they actually owned the stuff in which they were claiming rights.

Homeopathic products don't dilute plaintiffs' litigiousness

2012-05-17T09:41:00.003-04:00

Allen v. Hylands, Inc., 2012 WL 1656750 (C.D. Cal.)

Plaintiffs sued Hylands for the usual California claims, including breach of warranty, based on claims about defendants' homeopathic products. The court did some housekeeping here: first, it rejected defendants’ argument that plaintiffs lacked standing because they weren't California citizens and their alleged injuries occurred out of state. But Mazza didn’t hold that out of state plaintiffs’ claims must be brought under their own state laws. Rather, it explicitly left open the possibility of certifying subclasses grouped around materially different bodies of law. Defendants didn’t argue that Florida or Georgia, the states from which the named plaintiffs hailed, had materially different consumer protection laws, so there was no present basis to find that California law couldn’t be applied.

And anyway, choice of law is not the same thing as standing; indeed, Mazza rejected the standing argument while still finding that class treatment was inappropriate. (I understand why defendants are calling everything and the kitchen sink a “standing” challenge. But they’re still wrong.) As for standing, plaintiffs alleged that defendants advertised their homeopathic products as possessing certain benefits but in fact knew that their products contained no active ingredients in quantities that could deliver those benefits. They also alleged reliance and sought monetary and injunctive relief. That was sufficient for standing.

On the warranty claims, defendants contended that plaintiffs failed to identify any false affirmations of fact or promises. Fact v. opinion can be indicated by a lack of specificity or an equivocal statement, though even statements of opinion can become warranties if they’re part of the basis of the bargain. Defendants argued that there were two kinds of statements at issue: first, factual statements about the products themselves instead of intended use or effect, which were affirmations of fact but plaintiffs didn’t challenge. (E.g., “Soft tablets dissolve instantly”; “100% natural”;“Quick dissolving tablets”; “Aspirin free”; “Gentle on Skin No Harsh Chemicals”; and “non-habit forming.”) The court suggested that plaintiffs were in fact challenging the accuracy of these statements.

Second, there were statements about symptoms for which the products purportedly provided relief, which defendants argued weren’t promises. E.g., “relief of simple nervous tension and occasional sleeplessness”; “sleep aid”; “for restless or wakeful sleep from exhaustion”; “for stress, nervousness or nervous headache”; “Relieve Pain and Irritability from Teething”; “Migraine Headache Relief”; “Natural Relief for Itching, Burning and Crusting Skin Due to Exposure to Poison Ivy or Oak”; “Symptomatic Relief for Colic in Children”; and “Temporarily relieves the symptoms of pain and cramps in lower body.” The court was appropriately unimpressed: “there is no reason why statements such as ‘Migraine Headache Relief’ are any less factual in nature than statements that Defendants concede are factual, such as ‘Gentle on Skin No Harsh Chemicals.’ Both require a certain amount of contextualization to evaluate (e.g., How much migraine relief? How gentle on the skin?), yet this does not render them insusceptible to verification.” A statement of fact doesn’t require a statement that the products “will work all the time for everyone” or “are guaranteed ‘cures’ for any ailments or illnesses.” Rather, plaintiffs alleged that defendants wouldn’t work for anyone, because they either lacked ingredients that will produce the advertised relief or contained the ingredients in insufficient quantities to be effective. That was enough for a motion to dismiss.

Defendants also argued that they complied with FDA regulations requiring a statement of intended use, and that the regulations don’t require OTC drugs to be 100% effective. The court was puzzled by this argument: plaintiffs weren’t arguing 100% effectiveness as a standard, nor did defendants make a preemption argument, and the FDA prohibits mislabeling anyway.

The court find that plaintiffs were limited to making claims against products they’d purchased or were likely to purchase, not all homeopathic products in defendants’ line that had the same alleged problems: as to the others, they lacked standing because they had no redressable injury. (Depending on the similarities between the products, this could be a mistake in the class action context, where the key is that the members’ claims have sufficient commonality.)

The court also refused to consolidate this case with a different one against defendants involving defendants’ homeopathic cold and flu remedies, which were not among the seven products identified by the plaintiffs here. The court found that there might be little overlap in class membership, and that the other action raised federal and New Jersey claims that could complicate matters.

Brand dilution as a design patent theory of harm

2012-05-16T11:43:00.000-04:00

Apple, Inc. v. Samsung Electronics Co., Ltd., --- F.3d ----, 2012 WL 1662048 (Fed. Cir.)

Apple sued Samsung for infringing three design patents and one utility patent, and the district court denied a preliminary injunction on all four. The court of appeals reversed and remanded on one design patent. I omit discussion of the utility patent.

Apple’s D'087 and D'677 patents are minimalist smartphone designs “consisting of a large rectangular display occupying most of the phone's front face. The corners of the phone are rounded. Aside from a rectangular speaker slot above the display and a circular button below the display claimed in several figures of the patent, the design contains no ornamentation.” The D'087 patent claims a bezel surrounding the perimeter of the phone's front face and extending from the front of the phone partway down the phone's side.

The D'677 patent shows a black, highly polished, reflective surface over the entire front face of the phone, and disclaims the sides and back of the device:

The D'889 patent related to tablet design: “a rectangular tablet with a polished reflective surface extending to the edge of the front side of the device. Within that surface, broken lines delineate a slightly smaller rectangular display area. The front face of the patented design has rounded corners, and a thin bezel surrounds the front surface along its perimeter. The front surface has no ornamentation, buttons, speaker slots, holes, or raised surfaces. The back and sides of the design are also claimed; the figures depict a flat, unadorned back transitioning into the sides through a rounded-over edge.”

For the D'087 and D'889 patents, the district court found that Apple had failed to show likely success on the merits, while for the other patents the court found that Apple had failed to show that it would likely suffer irreparable harm from continuing infringement while the case was pending. The court of appeals found that the district court hadn’t abused its discretion on the D'087 patent when it found substantial questions about the patent’s validity given anticipation by a Japanese patent showing “similar edges and rounded corners, a bezel, a similarly shaped speaker, and similar proportions of screen and border.”

As for the D'677 patent, the court concluded that it was not anticipated since it wouldn’t have been obvious to a designer to adopt a “flat, black, translucent front screen.” The court also found that an ordinary observer would find the overall design of the accused Samsung phones substantially the same as the claimed design, so infringement was likely. However, the court rejected Apple’s irreparable harm arguments that Samsung's sales eroded Apple's design and brand distinctiveness, resulting in a loss of goodwill, and that Samsung cost Apple market share that would be difficult to quantify. As to the former, Apple didn’t explain how erosion of design distinctiveness would cause irreparable harm, ruling that “[e]ven assuming that brand dilution could arise from design patent infringement, Apple has not met its burden to provide evidence that such brand dilution is likely to occur in this case.” (Good luck figuring out what that evidence might be.)

As to market share, the parties were directly competing for first-time smartphone buyers, so the potential for harm was strong, and initial purchase decisions can have long-term effects on downstream purchases. Purchasers may be locked in, fearing to switch to a competitor because of the potential loss of previous digital purchases such as digital media and apps. That could support a finding of irreparable harm. However, Apple failed to establish a nexus between Apple’s harm and Samsung’s allegedly infringing conduct. While product design is generally a factor influencing smartphone purchases, novelty and not design may also drive purchases, and smartphone buyers have numerous reasons to buy; the evidence suggested that only a small percentage found design dispositive. Apple’s case was weakened further because its patents didn’t cover the entire smartphone. This, coupled with Apple’s delay in seeking an injunction (it alleged that Samsung had been copying for years, but waited to sue until 2011), undercut its claim of irreparable harm. Given all this, and in light of the presence of other smartphone manufacturers in the market, an injunction would substantially harm Samsung without necessarily benefiting Apple significantly.

The court of appeals rejected Apple’s two challenges to this analysis: that it need not show a nexus between infringement and market harm to establish irreparable injury, and that it had indeed shown such a nexus. First, the district court was correct to require a showing of “some causal nexus” between the infringement and the alleged harm. “Sales lost to an infringing product cannot irreparably harm a patentee if consumers buy that product for reasons other than the patented feature.” (While I expect this conclusion will be much cited, it leaves open the question of ‘as opposed to what?’ Obviously, Samsung’s phone would have had some design no matter what, which implies that the proper comparator is a sort of generic design at least for design patents—but does this have any implications when there’s a utility patent? Can we also assume that a product that infringes a utility patent would have used a noninfringing substitute, at least if the defendant proves there’s one available? The court’s later language hints that this might be a special design patent rule, but it’s only a hint and that’s somewhat in conflict with the general idea that the utility and design rules should be similar.)

Anyway, i4i Limited Partnership v. Microsoft Corp., 598 F.3d 831 (Fed.Cir.2010), aff'd, 131 S.Ct. 2238 (2011), was not to the contrary. True, in that case Microsoft Word purchasers weren’t motivated to buy Word because of the inclusion of i4i’s patented software. But there, the patented product was an add-on to Word, and Microsoft completely eradicated the market for the add-on. The “narrow injunction” in that case protected the patented product from “obsolescence,” whereas here the district court found that the alleged infringements wouldn’t threaten any such dramatic effects on the market generally or on Apple’s share thereof.

Apple argued that it had shown a nexus between the infringing conduct and the alleged harm, but that was the district court’s call given the conflicting evidence. Proof of consumer motivation won’t be a prerequisite to finding irreparable harm in every design patent case, but here the district court didn’t abuse its discretion in holding that Apple didn’t produce sufficient evidence of harm. “A mere showing that Apple might lose some insubstantial market share as a result of Samsung's infringement is not enough.”

While a blanket rule against “design dilution” as a theory of irreparable harm would have been improper, here the district court found that Apple had offered only “conclusory statements and theoretical arguments” in support of its theory. Without “concrete evidence, … Apple has not yet established that this harm to its reputation for innovation is likely to occur.” Nor did Apple show “brand dilution.” Thus, the district court didn’t “categorically” reject the design dilution/brand dilution theories. The court of appeals therefore affirmed.

The district court proceeded similarly on the Samsung Galaxy Tab tablet that allegedly infringed the D'889 patent, but found a likelihood of irreparable harm because the tablet market was dominated by only two manufacturers, Apple and Samsung. Apple’s market share decreased in accordance with the increase in Samsung’s market share after it introduced the Galaxy Tab. Also, the court concluded that design mattered more to consumers for tablets than for smartphones, and that Apple hadn’t delayed with respect to tablets.

But the district court denied a preliminary injunction because there were substantial questions about the validity of the D'889 patent given the prior art references. According to the court, the broad, simple design created basically the same visual impression as a prototype tablet developed in 1994 by Roger Fidler. The Fidler tablet lacked a “flat glass-like surface,” but the court found that didn’t “detract from the fact that the ‘overall visual impression’ created by the D'889 patent is the same as the 1994 Fidler[ ] tablet.”

And the flat glass screen showed up in the 2002 Hewlett–Packard Compaq Tablet TC1000.

The district court found Apple’s evidence of industry skepticism and unexpected commercial success inconclusive and not related to the patented design, respectively.

The court of appeals found that the district court erred in its validity analysis. For design patent obviousness, one must consider whether the design would have been obvious to a designer of ordinary skill who designs articles of the relevant type. This requires starting with a single reference with a design basically the same as the claimed design. Other references may be used to modify the primary reference, but only if they’re so related that the appearance of ornamental features in one would suggest the application of those features to the other. The district court did this, and credited Samsung’s expert on the obviousness of the combination.

As usual, reviewing courts feel free to engage in de novo review of visual evidence. (I personally think these create almost identical visual impressions, for what that’s worth.) Here, the court of appeals found that a side-by-side comparison showed “substantial” differences in the overall visual appearance:

The Fidler tablet wasn’t symmetrical, and the frame created a “very different” impression than the “unframed” D'889 design; the Fidler design broke the continuity between the frame and the screen embedded within it, while the transparent glass-like front surface of the D'889 patent covered essentially the entire front face without breaks or interruptions, creating the visual impression of an unbroken slab of glass extending from edge to edge. Also, the Fidler design didn’t have a thin bezel surrounding the edge on the front side, and the frame contained multiple perforations. Its sides were neither smooth nor symmetrical, and the back also conveyed a different visual impression. Fidler wasn’t a proper primary reference.

Even if Fidler had been a proper primary reference, the TC1000 secondary reference couldn’t “bridge the gap” between it and Apple’s design. Its screen area was surrounded by a gray frame area and encircled by a metallic rim; it also had indicator lights in several places, unlike Apple’s minimalist design. It wasn’t similar enough to Fidler to qualify as a comparison reference. The district court looked at the designs “from too high a level of abstraction. Fidler does not qualify as a primary reference simply by disclosing a rectangular tablet with four evenly rounded corners and a flat back. Rather than looking to the ‘general concept’ of a tablet, the district court should have focused on the distinctive ‘visual appearances’ of the reference and the claimed design.”

Samsung offered several other tablet and tablet-like designs as references, but they too all either showed a thick surrounding frame or had extensive ornamentation on the front, creating different visual impressions. Thus, on this record, there was no substantial question of validity.

The court of appeals remanded for findings on the balance of hardships and the public interest. The partial dissent argued that, given the district court’s other findings (including that, if the patent was valid, Samsung likely infringed it), a remand was unnecessary, but the majority concluded that the district court should undertake an analysis of the potential harm to Samsung and weigh it against Apple’s irreparable harm. If the district court’s findings in the smartphone part of the case prove readily transferable to the tablet part, then it can act quickly; if not, “then that is exactly the situation in which we would benefit from findings by the district court and in which the district court's greater familiarity with the record will be an important safeguard against precipitous action.”

My keen fashion sense: L'Oreal class action certified

2012-05-16T09:03:00.001-04:00

Guido v. L'Oreal, USA, Inc., 2012 WL 1616912 (C.D. Cal.)

Plaintiffs sued on behalf of putative classes of California and New York residents who purchased Garnier Fructis Sleek & Shine Anti-Frizz Serum, alleging that L’Oreal failed to properly label the product as being flammable or combustible near high heat producing styling appliances, and made affirmative misrepresentations that suggested it was safe to use the product in proximity to such appliances. The court granted class certification for the California class (UCL, CLRA, and Song-Beverly warranty claims) and the NY class (GBL §§ 349-350).

At its initial launch in 2004, the product had a flammability warning: “Avoid Fire, Flame, Smoking and Heat (Except For Styling Appliances) During Application and Until Hair is Completely Dry.” In 2006, L’Oreal removed denatured alcohol as an ingredient to comply with California’s Volatile Organic Compound regulations, and soon thereafter removed the flammability warning. Plaintiffs argued that two other ingredients rendered the product flammable, while L’Oreal disputed that claim. Before and after the warning was removed, the directions were identical: “Dispense 1 pump of serum, or as much as needed for your hair type, into the palms of your hands. Apply uniformly to towel-dried or dry hair. Do not rinse. For sleekest look, style using brush and blowdryer.”

L’Oreal first argued that plaintiffs were bringing product liability claims that weren’t amenable to class treatment. Plaintiffs responded that their consumer protection claims were ideal candidates for certification; the classes excluded anyone who’d suffered physical injury from using the product, and sought redress for people who paid more for the Serum than they otherwise would have. L’Oreal rejoined that, if so, they lacked Article III standing because they suffered no economic injury, and that each member of the class needed to demonstrate such standing.

The court found that plaintiffs adequately alleged economic injury (lost money or property) to satisfy Article III, and that they could represent the putative class since all that’s required is for a named plaintiff to have standing. Both named plaintiffs testified that, had they known the product was flammable, they would have paid less than its retail price or would not have purchased it at all. They also testified that they suffered a loss in value and usefulness of Serum—one specifically stopped using it after she discovered the problem. Nor must each class member demonstrate reliance under the UCL; restitution is available to absent class members without individualized proof of deception, reliance, or injury. As long as omissions or misrepresentations are material, a presumption or at least an inference of reliance arises on behalf of the class.

L’Oreal submitted a declaration from Dominique M. Hanssens, a marketing professor, opining that it was “speculative to conclude that the lack of a warning or the presence of a misleading warning on product packaging has the same impact on all consumers” and might “le [a]d to a buying decision.” He also said that “one cannot conclude that the omission of a flammability warning has enabled L'Oreal to charge a premium for Serum.” The court found this declaration not relevant to certification. Materiality is an objective standard, so whether it might not have had the same impact on all consumers doesn’t matter. The named plaintiffs testified that they would not have purchased, or would not have paid as much for, Serum had they known it was flammable. That was enough to raise a classwide inference of causation between the alleged wrongful conduct and alleged economic harm.

Turning to certification factors: numerosity was easy, as was adequacy. Plaintiffs argued that there was commonality because the bottles had the same message across the nation, so the claims stemmed from the same source. L’Oreal argued that the UCL required plaintiffs to show a connection between the alleged improper conduct and the unnamed class members, destroying commonality because the class included people who bought the product for reasons other than L’Oreal’s failure to disclose its flammability. For example, one named plaintiff bought the product after reading ads promising sleekness, detangling, and low price, while another bought based on prior experience with the product and price. Thus, even the named plaintiffs weren’t concerned with flammability.

The court agreed with the plaintiffs. There were numerous common factual and legal issues, including whether the packaging/ads were deceptive; whether a reasonable consumer would expect a warning given that the FDCA requires hazardous cosmetics to be appropriately labeled; whether L’Oreal had a duty to disclose the alleged flammability; whether the product is in fact flammable; and what the true market value of the product was. Because the packaging was uniform nationwide, these central issues could be resolved on a classwide basis.

L’Oreal’s arguments to the contrary were unpersuasive; both named plaintiffs testified that they would have behaved differently if they’d known about the flammability, which demonstrated materiality. (It’s true that danger might not be the first thing on a consumer’s mind for many common purchasers; that doesn’t mean that an undisclosed danger is irrelevant, just that she doesn’t know it exists!) In any event, UCL claims focus on the defendant’s conduct, and not on each class member’s reason for purchase. Unlike in Mazza, where it was likely that many class members were never exposed to the allegedly misleading ads, the alleged misrepresentations weren’t in a limited set of ads but were on the bottle itself, necessarily exposing purchasers to them.

Typicality requires named plaintiffs’ claims to be reasonably coextensive with those of class members. Plaintiffs argued that such was the case here; the claims all arose from the same alleged mislabeling. L’Oreal responded that the named plaintiffs weren’t concerned with flammability didn’t pay a premium for the product, so they couldn’t represent others who did. The court disagreed, given each plaintiff’s testimony on materiality; they suffered the same type of economic injury and sought the same redress as the putative class members. Even if the amount of a price premium varied among class members, differences in damage amounts don’t preclude class certification.

Rule 23(b)(3)’s more stringent requirements were also satisfied. On predominance, L’Oreal argued that no presumption of reliance was warranted for the class, making individual questions predominate; because L’Oreal made numerous representations about the product rather than just one, and because the issue here was an omission instead of an affirmative misrepresentation, reliance wouldn’t be uniform. The court disagreed, since the UCL claims could be resolved by determining whether the alleged omissions and misrepresentations deceived the average reasonable consumer, without individualized proof of deception, reliance and injury, so long as the named plaintiffs demonstrated injury and causation. The CLRA treats material omissions similarly. And whether it was false to represent that the product was safe to leave in the hair while using heated appliances, in violation of the Song-Beverly Act ,was also a common question. As for the NY claims, the standard for misleadingness was also an objective one. A §349 claim doesn’t require reliance, though a § 350 claim does; but in the latter case there’s a presumption of reliance when the defendant controls the relevant information and a consumer of ordinary intelligence could not discover the true state of affairs. Further, allegations that consumers paid a premium for the product based on marketing representations adequately alleged an injury under § 350. Thus, there was also predominance for the NY claims.

With that out of the way, superiority was also readily established. Consumer class actions are good ways of enforcing consumer protection laws, especially for products like this one selling at under $10 a bottle where there is no realistic alternative to a class action.

This fruit snack is neither fruity nor snacky

2012-05-16T08:31:00.002-04:00

Lam v. General Mills, Inc., --- F. Supp. 2d ----, 2012 WL 1656731 (N.D. Cal.)

Lam brought a putative class action against General Mills based on allegedly misleading claims about the healthfulness of its fruit snacks such as Fruit Roll-Ups and Fruit by the Foot. The court granted in part and denied in part GM’s motion to dismiss. The products “resemble fruit leather” and the packages identify the products as “fruit flavored snack[s]”; the strawberry version says it’s “strawberry natural flavored.” The side panel says “made with real fruit.” The ingredients: Pears from Concentrate, Corn Syrup, Dried Corn Syrup, Sugar, Partially Hydrogenated Cottonseed Oil, Citric Acid, Acetylated Monoglycerides, Fruit Pectin, Dextrose, Malic Acid, Vitamin C (ascorbic acid), Natural Flavor, Color (red 40, yellows 5 & 6, blue 1).

Lam alleged that GM failed to properly disclose that the Fruit Snacks contained partially hydrogenated oil/trans fats. In addition, the snacks have no significant amounts of real fruit, and “made with real fruit” allegedly deceptively describes the ingredients, since “pears from concentrate” isn’t the fruit indicated by the product name. Strawberry-flavored Roll-Ups contain no strawberries. Lam also objected to the terms “fruit flavored snacks,” “naturally flavored,” and “gluten free.” She brought the usual California statutory law and warranty claims.

To the extent the complaint didn’t identify specific products but only targeted “similar” products, the court dismissed the complaint with leave to amend.

GM argued that the claims were preempted by the Nutrition Labeling and Education Act to the extent they are predicated on the “fruit flavored” and “naturally flavored” terms; Lam responded that claims of falsity/misleadingness in violation of the regulations were not preempted.

The FDCA requires foods with artificial flavoring to be properly labeled, and the FDA has promulgated comprehensive regulations relating to such labeling. The NLEA then preempted certain regulations that weren’t identical to various FDCA standards, including the relevant labeling requirements. GM argued that “fruit flavored” and “naturally flavored” were expressly permitted by the regulations, which allow manufacturers to identify the “characterizing flavor” of a food in this way when the food doesn’t contain enough of the actual ingredient to justify a claim that it’s made with that ingredient. Thus, it is possible under the regulations to label a product as “natural strawberry flavored” even if it has no strawberries. The court found the logic “troubling,” but no matter, as the regulations controlled.

Lam argued that she was seeking to enforce the FDCA’s ban on failure to disclose the presence of artificial flavors, and that “fruit flavored” and “naturally flavored” were false and misleading because the Fruit Snacks were flavored with “unnatural, non-fruit ingredients.” These claims failed because the crux of her claim was that the labeling was deceptive because the ingredients, not the flavors, were unnatural. But a product can be labeled “fruit flavored” or “naturally flavored” even if it doesn’t have fruit or natural ingredients, so long as it “contains natural flavor” which is “derived from” the “characterizing food ingredient.” So her claims were preempted.

How about “gluten free” and “made with real fruit”? “Gluten free” couldn’t support Lam’s claims, since the statement was objectively true and couldn’t be taken to convey anything other than gluten-related claims. “Made with real fruit,” by contrast, could be misleading in the context of a product that is actually made with trans fats, is about half sugar, and has pears from concentrate instead of the fruit indicated by the product name. This, along with the depiction of “imitation fruit leather” on the package could deceive consumers into thinking that the Fruit Snacks were healthful, natural, pressed-and-dried fruit products, “when, in fact, they are an amalgamation of artificial, non-fruit ingredients.”

GM argued that the statement was objectively true and that a reasonable consumer wouldn’t expect that certain fruits were present in a particular quantity or that a specific fruit was present. The court disagreed. “A reasonable consumer might make certain assumptions about the type and quantity of fruit in the Fruit Snacks based on the statement ‘made with real fruit,’ along with other statements prominently featured on the products' packaging.” Given the size and color of “made with real fruit” and the size of the word “strawberry,” which appeared multiple times on the package, a reasonable consumer might believe the product was made with real strawberries, not pears from concentrate. Likewise, the names “Fruit Roll–Ups” and “Fruit by the Foot,” “along with the fanciful depiction of the products, which resemble fruit leather, may lead to further confusion about the Fruit Snacks' ingredients. After seeing these prominent aspects of the packaging, a reasonable consumer might be surprised to learn that a substantial portion of each serving of the Fruit Snacks consists of partially hydrogenated oil and sugars.” The ingredient panel discloses the truth, but that’s not sufficient, especially at the pleading stage. As the Ninth Circuit has ruled, “We do not think that the FDA requires an ingredient list so that manufacturers can mislead consumers and then rely on the ingredient list to correct those misinterpretations and provide a shield for liability for the deception.”

However, Lam failed to state a claim for breach of express or implied warranty. There was no affirmative statement that the Fruit Snacks were healthful.

Sarah Tran on Worth a Thousand Words

2012-05-16T08:30:00.002-04:00

Sarah Tran has written a short piece on my article Worth a Thousand Words.

No publicity is bad publicity for Facebook plaintiff

2012-05-15T11:12:00.000-04:00

Greenspan v. Random House, Inc., --- F. Supp. 2d ----, 2012 WL 1630754 (D. Mass.)

Aaron Greenspan, pro se, sued defendants, including Columbia Pictures, over Benjamin Mezrich’s book The Accidental Billionaires: The Founding of Facebook: A Tale of Sex, Money, Genius, and Betrayal along with the movie The Social Network. Greenspan, a 2004 Harvard grad, wrote Authoritas: One Student’s Harvard Admissions and the Founding of the Facebook Era, which he self-published in 2008. Greenspan alleged copyright infringement, false advertising, unfair competition, and defamation.

Greenspan allegedly developed an original website called houseSYSTEM with a component website called The Facebook in 2003. Mark Zuckerberg’s Facebook then incorporated some of Greenspan’s ideas, while Zuckerberg systematically excluded Greenspan from any recognition. Adding insult to injury, Google refused to advertise Authoritas because the subtitle included the word Facebook (this seems to conflict with current policy; I wonder if he’d get a different result today). Greenspan, evidently no shrinking violet, responded by petitioning to cancel two of FB’s registered marks. In 2009, Greenspan reached a confidential settlement with Zuckerberg and FB.

Meanwhile, in 2008, Mezrich had contacted Greenspan for help with Mezrich’s own book. Greenspan declined to help other than to point him to the Authoritas website. When Mezrich’s book was published in 2009, Authoritas was listed as a secondary source.

All three works (Authoritas, Accidental Billionaires, and The Social Network) detail meetings between Larry Summers and Harvard students. Authoritas describes a meeting involving Greenspan, while the others describe one with Cameron and Tyler Winklevoss. Greenspan alleged that similarities between the two accounts “including descriptions of the reception area, the receptionist's conduct, Summers' office, Summers' conduct and manner, the appearance and conduct of Summers' assistant, and the response of the students in the meetings” evidenced infringement. He also identified similarities between the account of Zuckerberg's statement in an Administrative Board hearing in the movie and his account of his own frustrations in Authoritas.

Access was plainly not the issue. Greenspan identified several other similarities in his attempt to identify actionable copying, including the dual use of “Founding of Facebook” in the book titles; chapter headings “[The Cars of] Harvard Yard” and “Veritas”; and so on. According to Greenspan, Accidental Billionaires’s retelling of students waiting outside Summers’s office—“sitting next to each other on a couch that felt as old as Massachusetts Hall itself”... “[t]he entrance to the building was perpendicular to University Hall, where the legendary statute of John Harvard stood ...”—was similar to an account in Authoritas—“I was sitting on a plush beige sofa in an office in Massachusetts Hall, a small rectangular building lodged snugly next to Harvard Yard's Johnston Gate.” Likewise, in Accidental Billionaires a receptionist says, “The president will see you now,” while in Authoritas she says, “The President will see you in a moment.” The other “similarities” are of the same order. The alleged similarities relating to Summers tend to show him in an unsympathetic light, though that is hardly news. (Accidental Billionaires: “The disdain in Summers’s voice was palpable”; “his chubby hand”; “He ... stared at the brothers with pure distaste in his eyes. ‘Why are you here?’”; “‘So what do you want me to do about it?” Authoritas: “I had never observed such palpable impatience before”; “he was fat, chubby, and slow”; “His tone indicated that I was already being ridiculed”; “‘Well, Aaron, what do you want me to do?’”)

The subtitles/chapter titles weren’t copyrightable; “founding of” is a cliché, “Harvard Yard” is the name of a location, and “Veritas” is simply the Latin translation of the word “truth.” Similarly, “the president will see you,” was an uncopyrightable cliché used to convey the idea that an individual is ready for a meeting. Nor were “palpable” and “chubby” protected, since copyright doesn’t protect fragmentary words and phrases or expression dictated by functional considerations.

Copyright won’t protect the idea of waiting for a meeting, the fact that Summers’s office was in Massachusetts Hall, or the fact that there was furniture therein, but would protect Greenspan’s original expression describing these things through the choice to include particular details. Similarly, Greenspan had no claim to the ethnicity of Summers’s assistant, only to original expression describing her taking notes. Fragmented phrases like “what do you want me to do?” were unprotected, but Greenspan’s original expression of Summers’s “unwelcoming manner and inability to see the students’ point of view” would enjoy copyright protection. And so on.

But even if these fragments could suggest that there was actual copying, that’s not enough for substantial similarity. The similarities here stemmed from ideas rather than expression. For example, “the idea of an assistant taking notes and the fact of her ethnicity create the impression of similarity between the two works." But no reasonable jury could conclude that enough expression had been sufficiently copied to infringe. Both sides described the layout of Summers’s office by including certain pieces of furniture, but “the use of the desk, shelves, and computer fall within the doctrine of scenes a faire as inherent characteristics of an office and thus do not lead to a plausible inference of infringement. The defendants' choice additionally to include antique-looking side tables and an Oriental carpet as compared to the plaintiff's expression including dark African masks undercuts any notion that the copying was so extensive that an ordinary observer could conclude that there was unlawful appropriation.”

Knocking on Summers was also noninfringing: “Although both Greenspan and the defendants use similar phrases to express the idea of Summers’ unwelcoming manner, his inability to see the students’ point of view, and the students being upset at the system …, the five sentences that convey these ideas are quantitatively and qualitatively insubstantial in the context of Authoritas as a whole. Any copying claimed … simply was not so extensive that an ordinary observer could conclude that the defendants unlawfully appropriated the plaintiff's original expressions.” All those things are ideas, and “similar phrases” is just another way of saying that Greenspan was seeking protection for scattered words.

The court noted that the parties used “similar aspects” (of the world?) to express two different meetings with Summers, “including describing the reception area, Summers' office, Summers' conduct and manner, Summers' assistant's appearance and conduct, and the students' responses in the meetings.” It seems to me that most of these things would naturally have stayed constant from meeting to meeting—even the student responses (speaking as someone who’s met with many students)—and thus the descriptions would be similar because the facts were the same. But in any event, the court held, the meetings were “very minimal” parts of the works as a whole, so any similarity was quantitatively and qualitatively insignificant. No reasonable observer could find unlawful appropriation of original expression. (Indeed, I do not see that the court has identified original expression in these fragments, as opposed to longer chunks of description which would be protectable.)

The court then turned to the Lanham Act claims, with a random statement that “facts supporting bad faith” must be alleged to state an unfair competition claim. Greenspan alleged that defendants falsely called Accidental Billionaires nonfiction--which was wrong because it didn’t properly convey Greenspan’s role in the origins of Facebook--bought 5-star reviews of the book, and bulk-purchased it to put it on the bestseller list. Citing answers.com, the court said that “nonfiction only means that the literature is based on true stories or events, not that every statement is in fact demonstrably true.” Greenspan didn’t allege that Accidental Billionaires wasn’t based on true events. He did list a bunch of errors in the book—the misuse of logarithm for algorithm, the attribution of the wrong House to Zuckerberg, a name misspelling, “there was no bookshelf behind the president's desk in Massachusetts Hall,” etc. None of that made the book not nonfiction. As the court pointed out, two books may both be nonfiction even if they have different accounts of the same events.

The other allegations were conclusory, and there was no allegation that buying 5-star reviews or boosting sales numbers would influence consumers’ buying decisions (though that’s likely true). Finally (and many other courts would have started here), there were no allegations that the alleged misrepresentations harmed Greenspan’s business by causing him to lose sales or goodwill.

Greenspan finally claimed defamation based on statements in Accidental Billionaires, omissions in both works, and Mezrich’s statements in a C–SPAN interview. He alleged that Accidental Billionaires called him “Grossman” rather than Greenspan, and used the pejorative terms “kid”/“some kid.” The book’s statement that “hardly anyone had paid any attention to [Greenspan’s website] ... And Grossman’s site wasn't particularly slick,” allegedly implied that his work was irrelevant and of poor quality. This selective omission of his role in the book and film, he alleged, withheld proper recognition from him, amplified by Mezrich’s repeated claims that the book was “true.” (Greenspan had good reason to want his name corrected, and it does appear that the current edition of the book has his name right, according to Amazon’s “search inside the book” feature.)

The court held that the challenged statements in the book weren’t reasonably susceptible of defamatory meaning. The use of the wrong name wouldn’t say anything about Greenspan’s role, or lack thereof, in Facebook’s origins; it wouldn’t tend to injure his reputation or subject him to scorn, hatred, ridicule or contempt. Nor would “kid” do so. Even an implication of immaturity or inexperience wouldn’t be defamatory, especially in the context of descriptions of college students. Greenspan didn’t allege facts to show that the omission of his role in the origins of Facebook would lead a reasonable reader to conclude that he was irrelevant (hunh?), but even if that were a plausible inference, that still wouldn’t hold him up to scorn, hatred, ridicule or contempt. Being robbed of proper recognition doesn’t constitute a defamation claim. Indeed, Greenspan didn’t claim that public unawareness damaged his reputation and career, but rather that the damage occurred when he tried to correct the record (and was shunted aside).

The statements in the book were also nonactionable opinion: “Then the Greenspan kid had gone on to develop something called houseSYSTEM that had some social elements involved in it. Greenspan had even added a Universal House Facebook into his site, which Mark had checked out; hardly anyone had paid any attention to it, as far as Eduardo knew ... And Greenspan's site wasn't particularly slick, and wasn't about pictures and profiles. Mark's idea was really different.” Opinion based on disclosed or assumed nondefamatory facts is nonactionable, even if the opinion is unjustified and unreasonable. The qualifier “as far as Eduardo knew” cautioned the reader that Eduardo might not know everything and prevented any implication of undisclosed defamatory facts. “Merely because a person signed up on a website does not necessarily mean that the person was paying attention to the website; whether or not anyone paid attention to Greenspan's site is a subjective inquiry not amenable to an objective true or false resolution.” Thus, no reasonable reader would receive an assertion of fact about the quality of Greenspan’s work. Likewise, “wasn't particularly slick” was “a figurative and hyperbolic communication for which there is no objective evidence to prove or disprove its falsity.”

Nor were the C-SPAN statements defamatory: “There's been a lot of lawsuits, not just Eduardo and the Winklevosses. There's that other big one, there's this kid, who was involved in some sort of lawsuit, about the name ‘face book.’ I don't remember how that worked out. I stand by the books. And, you know, the things that people point out, like, this is a perfect example of it. It's a person who has a personal beef—with Zuckerberg or with Facebook, and they're bringing it out in the way they can in this conversation. It really has very little to do with my book.” Reasonable listeners couldn’t conclude that Mezrich was implying an undisclosed defamatory fact about Greenspan’s motives. Mezrich disclosed that he knew about the lawsuit but couldn’t remember the outcome, and that was clearly the basis for his opinion about Greenspan’s motives for attacking Accidental Billionaires. “Whether or not this was the plaintiff's motive cannot objectively be proven as true or false.” The defamation claims, like everything else, were dismissed.

Out of joint: supplement case survives motion to dismiss

2012-05-15T10:11:00.000-04:00

Cardenas v. NBTY, Inc., 2012 WL 1593196 (E.D. Cal.)

Cardenas brought a putative class action against NBTY and Rexall for selling Osteo-Bi Flex joint health supplements without support for the efficacy claims they made. She alleged violations of the CLRA and UCL as well as breach of express warranty. The court denied defendants’ motion to dismiss.

Cardenas alleged that she read the front, back and sides of the package and, in reliance on the representations, bought the product for her joint pain. But it didn’t help to promote mobility, renew cartilage, maintain healthy connective tissue, or improve joint comfort, as represented. Defendants allegedly promote these benefits as a result of the products’ ingredients, especially the primary active ingredient, glucosamine hydrochloride. This is an amino sugar that the body produces and distributes in cartilage and other connective tissue, but Cardenas alleged that there was no competent and reliable scientific evidence that taking glucosamine (especially orally) leads the body to metabolize it in a way that provides the promised benefits. “Clinical cause and effect studies have found no causative link between glucosamine hydrochloride supplementation and joint renewal or rejuvenation.” She made similar allegations about other ingredients (chondroitin, methylsulfonylmethane, hyaluronic acid, vitamin D, vitamin C, manganese, boron, or collagen).

Most Osteo Bi-Flex products also contain 5–LOXIN Advanced, a concentrated extract of Boswellia Serrata (“AKBA”). (Previous litigation related to the matter.) Defendants claim that AKBA results in “improvement in joint comfort within 7 days,” but Cardenas alleged that there was no competent and reliable scientific evidence that taking AKBA (especially orally) provided the promised benefits, and that clinical cause and effect studies had been “unable to confirm” any relationship between AKBA supplementation and joint renewal or rejuvenation.

The product packages say that two studies support the claim that Osteo Bi-Flex users “show[] improvement in joint comfort,” but don’t provide information on locating the studies.

Defendants argued that Cardenas lacked standing to bring claims about product varieties she didn’t buy and ads she didn’t view. They also argued that claims of missing substantiation aren’t actionable, and that her allegations about clinical studies were conclusory and didn’t explain what representations were false or misleading.

On standing, the court found her allegations sufficed to allege injury in fact traceable to the defendants’ acts and redressable by a court decision. She at least had standing as to the Regular Strength product she bought and the representations on its packaging. These allegations also satisfied the UCL’s requirement of economic injury—she allegedly lost money on an ineffective product.

What about standing for other products/ads? Some cases say there’s no standing to sue based on such things, but other cases take a different approach, asking in traditional class action style whether the claims have the same core factual allegations and causes of action. This is right: if we both saw the same claim, it shouldn’t matter for standing that you saw it on TV and I saw it in the newspaper any more than it should matter if I saw it on my copy of the newspaper and you saw it in yours. The treatises and the vast weight of authority are in agreement here: “whether a class representative may be allowed to present claims on behalf of others who have similar, but not identical, interests depends not on standing, but on an assessment of typicality and adequacy of representation.” Thus, Cardenas had standing to assert her UCL and CLRA claims based on her purchase of Osteo Bi-Flex Regular Strength “and the product’s more general representations that its line of Osteo Bi-Flex products, which ostensibly share many similarities in ingredients, ‘improve mobility,’ ‘improve joint comfort,’ and ‘support[ ] renewal of cartilage.’” Rule 23 analysis would determine whether she could present claims on behalf of purchasers of other Osteo Bi-Flex products.

Next, the court turned to Rule 9(b), which the Ninth Circuit has held applies to CLRA and UCL claims where a plaintiff alleges that a defendant engaged in fraudulent conduct. Cardenas specifically asserted that defendants failed to disclose material facts when they knew or should have known that the representations were unsubstantiated, and these were allegations sounding in fraud. Cardenas didn’t allege scienter as an inherent part of her UCL claim, but it was difficult for the court to distinguish which parts of her UCL claim sounded in fraud and the court ultimately found that the UCL claim as a whole also needed to meet Rule 9(b)’s standards, even though not all claims of false advertising are necessarily grounded in fraud. In any event, the court found that the complaint sufficiently alleged nondisclosure and scienter, and she alleged justifiable reliance and resulting damage as well. The allegation that clinical cause and effect studies had found no link between the individual ingredients and the purported benefits of Osteo Bi-Flex was sufficient on falsity, since defendants’ representations seemed to be based at least in part on the asserted efficacy of individual ingredients. If Cardenas’s claims about the studies are true, “then it stands to reason that Defendants' representations that AKBA ‘help[s] with joint flare-ups’ are actually false. Because Defendants bolster their overarching claims of joint benefits by referring to the importance and efficacy of a particular ingredient which, if Plaintiff is to be believed, has no actual joint benefits, then Defendants' overarching claims are most likely false as well.” It was the same with the other ingredients. The complaint provided defendants of sufficient notice of the alleged fraud, allowing them to prepare an adequate defense.

Another reason to bring state-law claims: where there’s no “advertising or promotion”

2012-05-15T09:27:00.001-04:00

AstroTel, Inc. v. Verizon Florida, LLC, 2012 WL 1581596 (M.D. Fla.)

AstroTel provides basic local telephone services, enhanced services (e.g., voice mail), and Internet access to Florida residences and small to mid-size businesses. Its telecom network provides services to more than half of the state, and it directly competes with Verizon. Significant infrastructure is required to provide phone services, and Verizon currently owns the only facilities that can do so in AstroTel’s operating area, so AstroTel therefore leases access. AstroTel sued Verizon for, basically, making it difficult for AstroTel to operate. I’ll skip many of the claims, but among them were that Verizon disparaged and misrepresented AstroTel’s products to the public.

Verizon successfully argued that the alleged misrepresentations weren’t made in advertising or promotion as required by the Lanham Act, because they weren’t sufficiently disseminated: AstroTel only alleged a few incidents, apparently from individual salespeople. AstroTel nonetheless successfully pled tortious interference with contract by pleading that Verizon knowingly interfered with its relationship with at least one customer, causing that customer to switch. (The general allegations of interference with prospective business relations, however, failed because AstroTel didn’t identify a specific prospective relationship but rather complained about its ability to do business in general.) Likewise, the state-law unfair competition claim survived: Verizon’s allegedly disparaging statements to AstroTel customers that AstroTel was a “useless middleman” etc. could have confused customers about the nature of AstroTel’s business. The allegedly false representations also were sufficient for AstroTel to plead business defamation/disparagement.

One good reason to plead coordinate state-law claims: damages

2012-05-15T09:01:00.000-04:00

Belk, Inc. v. Meyer Corp., --- F.3d ----, 2012 WL 1592977 (4th Cir.)

Meyer makes Anolon Advanced cookware and formerly sold to Belk, a retailer that began selling its own private-label cookware in 2007 under the Biltmore House brand. (Design patents were also involved in the case.) Analon Advanced:

Biltmore:

Meyer sued Belk for trade dress infringement and unfair/deceptive trade practices in the high-end cookware market. After a 9-day trial, the jury found in Meyer’s favor, including a finding that Belk sold cookware that was “deceptively similar” to Meyer’s knowing of Meyer’s designs as well as a finding that Belk caused Meyer damage. The court trebled the $420,000 in damages found by the jury to $1,260,000 under North Carolina law. Belk appealed.

The court found that Belk had waived a number of its arguments, including the sufficiency of the evidence of infringement along with challenges to jury instructions. (For what it’s worth, the designs look a lot alike to me, but they also look like nice pots and pans.)

In addition, Belk’s challenge to Meyer’s expert was properly rejected. He’d testified as an expert witness in consumer behavior and marketing in a number of cases, and had analyzed and designed consumer research studies in a variety of settings. Even though he hadn’t previously conducted trade dress or trademark surveys specifically, he could qualify as an expert. Cross-examination addressed some of Belk’s concerns; he testified that he’d prepared to address trade dress and infringement issues by consulting “academic and professional sources” and “attorneys and legal practices who practice trade dress/trademark law.” The court of appeals didn’t consider it dispositive that he failed to consult any survey questionnaires that had been offered and accepted in court in trade dress litigation. Belk argued that his secondary meaning/likely confusion survey excluded relevant consumers, had an inadequate sample size, was not geographically representative, had leading questions and wrongly used side-by-side exposure. But this wasn’t the rare case when a survey was so flawed as to be inadmissible; these objections were properly addressed by the trier of fact.

Belk then argued that the district court wrongly sent the state-law UDTPA claims to the jury. North Carolina’s UDTPA requires conduct that was unfair or had the capacity/tendency to deceive and that proximately causes actual injury. Whether the conduct was unfair or deceptive is a legal issue, and “a somewhat nebulous concept, … but only practices involving “some type of egregious or aggravating circumstances are sufficient to violate the UDTPA” (citation omitted). Generally, trade practices can only be unfair when they offend established public policy and are “immoral, unethical, oppressive, unscrupulous, or substantially injurious to consumers.” An act need not be both unfair and deceptive to be covered. The actor’s intent or good faith is irrelevant.

Treble damages are assessed automatically. The statute doesn’t provide the measure of damages, but North Carolina courts have explained that the measure should further the purpose of damages awards, which is to put the victim back in its original condition. The 4^th Circuit had previously held that disgorgement of profits could be trebled under state law (in a case where the plaintiff didn’t provide notice of its registration and defendant had no actual knowledge of it and thus where 15 U.S.C. § 1111 precluded Lanham Act damages for infringement of a registered mark).

The court of appeals found that, given the jury’s factual findings, Belk engaged in unfair and deceptive trade practices as a matter of law. Belk sold a cookware line that was deceptively similar to Anolon Advanced; it did so after receiving product, sales, and market information, along with images and samples of Anolon Advanced; and it bought the deceptively similar designs from a third party even after learning that Meyer was selling the third party’s proposed designs. This “possesses the tendency or capacity to mislead or creates the likelihood of deception” sufficiently to trigger the law.

Belk argued that the legislature didn’t intend the law to cover “unintentional” unregistered trademark infringement claims already addressed by the Lanham Act. An earlier district court case had so held, reasoning that the law was designed to protect consumers, not mark owners, and that, given that the penalty for infringement of registered marks was $200-$1000 plus actual profits or damages, the legislature wouldn’t have intended mandatory treble damages for innocent infringement of unregistered marks.

The court of appeals disagreed. Intent is irrelevant, and state and federal claims are often brought together. Moreover, the N.C. legislature later amended the law to make infringement of a registered trademark a per se violation of the law and thus subject to treble damages. In addition, the evidence didn’t support Belk’s claim of innocent or unintentional infringement. Sadly but unsurprisingly (perhaps based on the welter of arguments that weren’t preserved for appeal), the court said that “the inference of an intent to deceive could hardly be stronger on this record,” without considering whether a reasonable seller could have thought that the design of the product was freely copyable, whether because of functionality or lack of secondary meaning.

Finally, the court of appeals held that the award of profits was properly treated as a damage award subject to trebling. Belk’s profits constituted a proper rough measure of damages.

Vague allegations can't plead around first sale

2012-05-14T13:31:00.000-04:00

Brain Pharma, LLC v. Scalini, --- F. Supp. 2d ----, 2012 WL 1563917 (S.D. Fla.)

BPI, which makes supplements, sued Scalini and others, including Allstarhealth.com, for violating the Lanham Act and coordinate Florida laws. BPI alleged that Allstarhealth misrepresented itself as an authorized BPI agent. Because the products defendants sell aren’t inspected by BPI, BPI alleged that the products aren’t genuine. BPI further alleged that defendants were selling its products at “excessively discounted prices” (50% below retail).

First sale doesn’t apply if there are material differences in the products, and the threshold for materiality is low. But that doesn’t mean that you can ignore the pleading standard. As to the authorized dealer allegations, the complaint didn’t properly allege that claim. A printout from the website was attached to the complaint, and, rather than supporting the claim of authorization, it only showed that defendants sold BPI products; the court could consider this as it was incorporated in the complaint. The mere allegation of misrepresentations of authorized status couldn’t support the infringement claim, given that when a purchaser simply resells a product and does nothing more there can be no actionable misrepresentation. Other cases accepting authorization-based claims involved additional conduct like metatags (sigh) or incorporation of the mark into domain names.

Like me, the court also believed that an allegation of too-low prices doesn’t state a claim for infringement. First sale means that the seller can’t control the product once it’s out the door.

Finally, the quality control allegations were insufficient for failure to allege (1) what BPI’s quality control measures were and (2) how the products sold by defendants failed to comply wiht these quality control measures. As other cases have held, “quality control” is not “a talisman the mere utterance of which entitles the trademark owner to judgment.”

Boldly (and, I think, unwisely), BPI alleged federal dilution. BPI unsurprisingly failed to allege sufficient facts establishing true fame; this claim was dismissed with prejudice, but I hope there’s the prospect of a fee award if BPI tries again. BPI also failed to allege that defendants started use after the mark became famous, and it also failed to allege facts supporting either blurring or tarnishment. BPI alleged that sales at deeply discounted prices “diluted the value of the BPI Mark and diminished BPI's reputation as a provider of reliable, high quality, cutting edge products.” Reselling genuine products at a discount can’t be dilution by tarnishment, though the court did cite a 2003 case holding that a complaint stated a tarnishment claim when it alleged that the defendant distributed genuine goods with an inferior warranty, which I think is also wrong. BPI didn’t state a claim for dilution by blurring because it didn’t allege that defendants used the mark to sell unrelated goods or services. Selling the genuine article can’t create associations with unrelated goods. Everything was dismissed with leave to amend.

Australian Dastar-type cases

2012-05-14T10:22:00.003-04:00

Robert Burrell led me to two quite interesting Australian cases raising Dastar type issues: In Christodoulouv Disney Enterprises Inc [2005] FCA 1401 (Federal Court of Australia), the plaintiff registered THE HUNCHBACK OF NOTRE DAME for entertainment services and sued Disney over its movies of the same name. The court held that Disney’s use of these words as film titles and on related goods did not constitute use as a mark, at least in the context of a public domain work. Burrell also points to a related result in Musidor BV v Tansing (1994) 52 FCR 363 (Federal Court of Australia – Full Court) (use of “The Rolling Stones” on the cover of lawful but unauthorized sound recordings was legitimate).