Rebecca Tushnet's 43(B)log

Pearls of Wisdom: Tampax claims allowed to continue

2009-07-19T20:43:00.000-04:00

Playtex Products, Inc. v. Procter & Gamble Co., 2009 WL 2043897 (S.D.N.Y.)

The court styled this “the latest skirmish in the tampon advertising wars,” concerning Playtex’s allegations that P&G’s claims of superior protection for Tampax Pearl were false.

Tampax Pearl is the leader in the plastic applicator tampon market, followed by Playtex’s Gentle Glide. Playtex sued P&G in 2002 over ads claiming better leakage protection and comfort than Gentle Glide, and won a jury verdict. The resulting injunction barred P&G from: “communicating or stating that (a) Tampax Pearl tampons are superior in wearing comfort or protection to Playtex Gentle Glide tampons; and (b) Tampax Pearl tampons are superior in absorbency to or have an absorbent braid for better protection than Playtex Gentle Glide tampons, either explicitly or implicitly by reference to ‘the leading plastic’ applicator tampon, and without limitation of reference to the use of comparative words such as ‘super,’ ‘better,’ or ‘more’....”

P&G developed a new version of Tampax Pearl and moved in 2007 to vacate or modify the injnction. The court did so, allowing a superior protection/absorbency claim, based on evidence that P&G had made a number of changes to its manufacturing process that improved Tampax Pearl’s performance. Playtex had developed a new version of Gentle Glide and was ready to market it, but no evidence about it was presented at the hearing. Playtex told P&G that, because of the new version, any claims of superiority would be false, and Playtex would sue.

P&G sued for declaratory relief to preclude any such lawsuit on res judicata grounds, and began running ads in which it asserted that Tampax Pearl protected “even better than the next leading brand.” The court denied P&G’s motion, because the current dispute concerned two products that didn’t exist in 2002. Playtex then sued for false advertising, alleging that claims of (1) superior leakage protection, (2) “more leak-free periods,” and (3) a leak-stopping braid were false. P&G subsequently abandoned claim (2). It’s now advertising that “Tampax Pearl stops leaks better than the next leading brand.”

Playtex ran an in vivo study comparing the tampons in each available absorbency (regular, super, and super-plus). Its study concluded that there was no difference in leakage rates across all absorbencies of both brands. However, the study was flawed in that half of the participants used all the test tampons, but less than half reported using that number, and the number used would match or exceed the average number used per period, except that most women use multiple absorbencies during their periods, so there was something unusual going on with the test uses—it seems that many women didn’t follow the instruction to use the test tampons only when they’d normally use that absorbency. (I’m not sure this last makes reported leaks unreliable, but it does seem that it was difficult to get accurate reporting from users.) Because the used tampons weren’t collected, there was no way to cross-check accuracy, and consumers have varying definitions of “leakage.”

Playtex and P&G also had competing in vitro tests of the braid.

Given the flaws in the Playtex in vivo study, Playtex didn’t meet its burden to show falsity, and the competing results from the in vitro studies likewise prevented Playtex from showing likely success on the merits.

NYT on Indian "knockoffs"

2009-07-16T21:16:00.003-04:00

The article (with pictures) is interesting, but doesn't mention the background principle of territoriality (it does nod at the well-known marks doctrine, which India follows), and it takes a fairly protectionist stance by basically equating pure copying with similarity. I'm not saying I'd advise a shoemaker to use the name Woodland with a tree mark, but to call out Cocoberry as an example of Indian borrowing of popular brands from elsewhere is a bit misleading, as Pinkberry faces plenty of US competitors who have also adopted tradenames and dresses with some obvious similarities to Pinkberry. And, returning to territoriality, if there's been a Financial Times in India since 1984, I'm not sure why it's so obvious that the London FT deserves to be able to enter the Indian market under that (descriptive) name.

What standards govern the FTC in the courts?

2009-07-16T10:58:00.004-04:00

Federal Trade Commission v. National Urological Group, --- F.Supp.2d ----, 2008 WL 2414317 (N.D. Ga.)

Westlaw just coughed up this case, and since I’ve been thinking a lot about commercial speech doctrine and false advertising law, I thought it worth an entry. The FTC sued the defendants for marketing weight loss and erectile performance dietary supplements under the names Thermalean, Lipodrene (which I could have sworn was a drug from the Colbert Report’s Prescott Pharmaceuticals), and Spontane-ES.

The defendants argued that the FTC’s standards for deceptiveness were unconstitutional under Central Hudson and unconstitutionally vague. The Central Hudson test allows regulation of truthful commercial speech concerning lawful activity if there’s a substantial government interest directly advanced by the regulation, and the regulation isn’t more extensive than necessary (though this isn’t a least restrictive means test). As you may have noticed, it appears that false and misleading commercial speech is outside this test from the beginning, and therefore may simply be banned; nonetheless, the defendants argued that the FTC violated these standards by (1) not considering intent to deceive or allowing a good faith defense; (2) relying on its own analysis of an ad, rather than extrinsic evidence of consumer perception; (3) not promulgating rules specifying what product claims or descriptions are misleading, particularly for ads with specific ingredients for which substantiation exists; and (4) requiring all supplement ad claims relating to health benefits to be substantiated by “competent and reliable scientific evidence,” but not defining that term.

The court concluded that the defendants “misapplied” Central Hudson, which was designed to determine whether a regulation that limits protected commercial speech is constitutional. Here, the FTC’s guidelines concern whether speech is protected at all. It would be circular to use Central Hudson to determine whether or not speech is protected. The court found this “confusing and illogical.”

Interlude: It is plainly a mistake to say that Central Hudson of its own terms has anything to say about FTC standards. However, the reasons for protecting truthful commercial speech definitely have relevance to the questions of who should be entitled to determine truth and what standards they should use, for the same general reasons that we scrutinize fact-finding and apply certain procedural protections in defamation cases. I don’t think defamation standards should apply to advertising law—far from it, I’m a supporter of strict liability and think an intent requirement would be a disaster for American consumers—but the basic argument is sound: if you have a sharp distinction in the standards applied to suppressing untruthful speech versus suppressing truthful speech, then it is also quite important to assess how “untruthful” is defined.

Anyway, the court held that whether ads are deceptive and thus unprotected is in “the sound discretion of the court.” Bottom line: The Constitution no more enacts the FJC’s manual on surveys than it does Mr. Herbert Spencer’s Social Statics.

The vagueness and overbreadth challenges also failed. Precedent squarely holds that overbreadth doctrine doesn’t apply to commercial speech regulation. On vagueness, defendants argued that the FTC’s criteria for scientific support were insufficient and didn’t define the necessary size, duration, or protocols of supporting studies. But the criteria neither failed to provide people of ordinary intelligence a reasonable opportunity to understand what conduct was prohibited nor authorized arbitrary and discriminatory enforcement, the two keystones of unconstitutional vagueness. “Competent and reliable scientific evidence” was sufficiently well-defined, and was also appropriately context-specific depending on what the relevant professionals would require for a particular claim. Difficult factual questions don’t make a statute void for vagueness.

On to the FTC’s side: the FTC asserted three categories of violation of the FTC Act: (1) false claims about the supplements, (2) unsubstantiated claims about the supplements, and (3) false claims about research and medical facilities. It also argued that one defendant, Dr. Wright, made false and unsubstantiated claims as an expert endorser.

Where claims are explicit or clearly and conspicuously implied, there’s no need for extrinsic evidence. If an ad only “faintly implies” a claim, however, a court “may” decline to find the claim made without extrinsic evidence of consumer perception. Only at the far end of the continuum from express to implicit, where claims are “barely discernable,” is extrinsic evidence “necessary.” The FTC didn’t present extrinsic evidence, so the court required that any actionable claims must be clear and conspicuous from the face of the ads. (Note that this description of the standard is at best confusing: “may” suggests that a court is authorized to find deception/defer to the FTC at the far end of the spectrum in the absence of extrinsic evidence. But more significantly, the spectrum surely has space in between “clear and conspicuous” and “faint implication”/“barely discernable”—what’s the role of extrinsic evidence in such cases? The court’s statement of the law suggests such evidence is helpful but unnecessary, but see below).

Claims that are likely to mislead can either be false or lack a reasonable basis (substantiation). Materiality, the final requirement, is readily found where claims are express or where they involve health and safety. Indeed, the court found it “hard to imagine” that any reasonable consumer would find health or safety claims immaterial, and particularly presumed that any nutritional supplement claims about health benefits and safety were material.

Applying the standards, the court found that the ads clearly implied that Thermalean was an effective treatment for obesity, but did not “clearly and conspicuously” imply that Thermalean was “clinically proven” to treat obesity, but only “heavily impl[ied]” that it was clinically proven to cause weight loss. The defendants presented evidence that obseity is a disease, different from weight loss, so the court refused to presume that a consumer would infer that Thermalean is clinically proven to treat obesity. Thus, the FTC’s obesity claims failed. I think the court got lost and sliced the salami a bit too fine in terms of what the FTC had to show.

The court then found that the ads represented, among other things, that Thermalean caused rapid and substantial weight loss, including as much as 30 pounds in 2 months; that it was clinically proven to do so; that it was safe; and that it was superior to several named prescription weight-loss drugs. Defendants argued that their substantiation was based on evidence about their “proprietary ingredients,” and yet the claims were made about the Thermalean product.

Defendants made similar claims about Lipodrene, including that it was clinically proven to be safe and effective. And they claimed clinically proven safety and efficacy (of a different sort) for Spontan-ES, their erectile dysfunction supplement.

The FTC alleged that these claims for clinical support lacked a reasonable basis. The FTC’s expert testified about the characteristics of well-designed, randomized, double-blind, etc. studies that would be needed for substantiation of claims of this type; among other things, one would need to test the product itself, not its ingredients, especially not if the dosages in the studies varied from the dose in the final product. Because defendants had no studies at all on the products themselves, the claims were unsubstantiated and likely to mislead.

Likewise, the (clearly and conspicuously implied) ad claims that the products had been clinically tested were false, because the products hadn’t been clinically tested, only the individual ingredients. In addition, the specific claims that Thermalean and Lipodrene could cause substantial weight loss (30 pounds in 2 months/up to 125 pounds) were false because the only evidence was that the active ingredients could generate 2 pounds per month weight loss.

The defendants were left trying to contest materiality. Courts generally presume materiality in these types of cases, but are rarely confronted with any evidence purporting to rebut the presumption. (Indeed, I don’t offhand recall another court indicating that the presumption is rebuttable, since it just doesn’t come up.) Here, the defendants submitted two surveys on the Thermalean and Lipodrene ads. The surveys concluded that the ads as a whole were ineffective in promoting the products, and that most of the claims wouldn’t significantly impact a purchasing decision.

The court found this evidence insufficient to create an issue of fact. The ads at issue in this case generated over $10 million in sales between 2001 and 2004. Clearly, the ads worked on enough people. Moreover, the survey didn’t test the ad claims at issue in the case; it tested small portions, misstatements, or irrelevant claims. Example: participants mildly agreed with the following statements: (1) “I am able to think systematically about information that is given to me about a product, and make my own judgments about the effectiveness of a product”; and (2) “I believe that information about the components of a product is useful to me when deciding whether or not to purchase the product.”

Finally, the FTC alleged that defendants falsely represented that its facilities, “Warner Laboratories” and “National Institute for Clinical Weight Loss,” were bona fide research/medical facilities that engaged in scientific medical research and product testing at on-site facilities. Not only did the names imply this, but the ads used phrases such as “At the National Institute for Clinical Weight Loss, [o]ur research and development team has developed a non-prescription formulation .…”; “With five years worth of research and development in each component going into Spontane-ES by the pharmacological staff at WARNER LABORATORIES we have not experienced any harmful side effects to date”; and “the professional staff and Medical Board at WARNER Laboratories aligned with one of the nation's largest manufacturing facilities to begin Phase I testing of Lipodrene ….” Even without the implications of the names, the court found, the ads represented that NICWL and Warner were research facilities. And, the court further concluded, these claims are false; they didn’t perform any clinical tests themselves or conduct independent research. Because these claims “convey[ed]” that the products were safe, the court also presumed materiality.

The defendants argued that most of the claims were puffery. The court noted that the ads at issue were “indisputably riddled with puffery,” but the proper focus was on the claims derived from the ads as a whole. All the claims the FTC challenged were phrased as verifiable factual statements; even puffing language supporting those claims did not take away their factual nature.

Dr. Wright was held individually liable both for his participation in the marketing and for false expert endorsement. FTC guidelines require that an expert endorsement must be supported by actual exercise of the relevant expertise, including examination or testing at least as extensive as someone with the same degree of expertise would normally require. The FTC presented evidence that a physician would require scientific evidence regarding a product itself, not its individual components, before making the claims Dr. Wright made; he admitted that he didn’t rely on scientific studies of Thermalean when making his endorsement.

The court found injunctive relief and consumer redress appropriate. Defendants made $15 million in sales. Defendants argued, among other things, that they should get to reduce this amount by sales to customers who reordered the product, who were obviously motivated by actual experience with the product. The court disagreed. There was no evidence of what motivated reordering decisions, and the fact that experience may have played some role doesn’t mean that the ads weren’t also material.

Finally, defendants proposed to pay redress directly to purchasers, contacting customers and providing or offering a complete refund. The FTC wanted redress to be deposited into a fund in its name; after consumers were redressed, the FTC would use remaining funds for further equitable relief or pay them into the Treasury as disgorgement. The court had “ample discretion” to go the FTC’s way, and saw no reason to charge “the purveyors of the deception” with competently and honestly reimbursing consumers.

Trek to Madworld

2009-07-15T17:44:00.003-04:00

Portland actors perform Amok Time in the park, apparently unworried by the public performance right--but extremely concerned that they not be mistaken for unwashed, basement-living "Trekkies." I'd love this story more if the actors didn't feel the need to make the Geek Hierarchy move of assuring everyone that they aren't the kind of fan you ought to make fun of, who knows trivia and collects action figures and can make accurate costumes (that was one's mother's job); this is real acting! I really wish more fans would realize that, culturally, we're in this together: you won't get highbrow respect by throwing the fan next to you under the bus. You won't get it at all, most likely, but looking for it that way is a sucker's game.

Anyway, the copyright hook is obvious, but I doubt Paramount has any interest in suppressing free theater in the park.

"New and improved" claim leads to old result

2009-07-14T08:56:00.001-04:00

Robert Bosch LLC v. Pylon Manufacturing Corp., -- F.Supp.2d --, 2009 WL 2001030 (D. Del.)

Bosch sued Pylon for patent infringement and false advertising. Pylon makes and sells windshield wiper blades under the Michelin brand name. Bosch alleged that two statements from Pylon’s website were false: “Michelin’s expertise ... has inspired the development of a high performance, frameless all-weather wiper blade with many innovative features and benefits, including ... Advanced Frameless Design ... and Integrated High-Downforce Spoiler” and “[t]he latest Michelin wiper blades on the market are all new and improved ... adding functional features such as spoilers for improved wiper performance.”

The court read the complaint to allege that the statements “new and improved,” “innovative,” and “development” were false advertising because Bosch developed the technology, which therefore could not be “new and improved” or “innovative.” Building on post-Dastar precedent, the court held that “false attribution of authorship” (or inventorship) isn’t actionable under §43(a)(1)(B) (and I register my usual note that this is an extension, probably an unwarranted one, of Dastar itself, which construed §43(a)(1)(A)). Thus the “development” claim failed.

That left the new/improved/innovative claims. In context, this was not false advertising, merely puffing—it didn’t list specific features of the wiper blades. “Improved” and “innovative” “are opinions and cannot be proved to be false.” (Comment: Really? Certainly there are cases in which such claims could be proved to be false. Suppose all defendant did was relabel existing wipers, in production for ten years, “new and improved.”) Even “new,” which includes a time component, was “classic puffery” (citing Laitram Machinery, Inc. v. Carnitech A/S, 884 F.Supp. 1074, 1083 (E.D.La.1995) (statement that machines are “new and improved” is puffery) and Outdoor Technologies, Inc. v. Vinyl Visions, LLC, 83 U.S.P.Q.2d 1418, 2006 WL 2849782, at *4 (S.D.Ohio 2006) (“phrases such as ‘best,’ ‘new and improved,’ or ‘redesigned and improved’” have all been held to be puffery)).

Result: motion to dismiss granted.

Pass, fail, epic fail

2009-07-13T23:01:00.004-04:00

I must admit: I hate the use of "fail" that's become so common. However, even I will concede that Failblog has identified trademark fail in response to Guinness World Record's complaint that Failblog used a screenshot containing Guinness trademarks to show an embarrassing entry from the Guinness website. So, who holds the world record in "worst trademark claims on the internet"?

Slate on NAD

2009-07-13T09:34:00.001-04:00

Slate runs a very favorable piece on NAD, with lots of eye-catching quotes from Andrea Levine.

Nothing but blue skies: beverage case reinstated

2009-07-12T17:09:00.001-04:00

Chavez v. Blue Sky Natural Beverage Co., 2009 WL 1956225 (9th Cir.)

A little over two years after I wrote about the district court decision, I bring you the appeal, reversing the dismissal of Chavez’s false advertising complaint. Defendant sells lots of beverages; in 2000, it bought the Blue Sky product line from a company that had been based in and operated from Santa Fe since 1980. Until 2006, Blue Sky containers allegedly contained the terms “SANTA FE, NEW MEXICO” or “SANTA FE, NM” and also “CANNED FOR THE BLUE SKY NATURAL BEVERAGE COMPANY SANTA FE, NM 87501” or “CANNED UNDER THE AUTHORITY OF BLUE SKY NATURAL BEVERAGE CO., SANTA FE, NM USA.” The trade dress also presented a “Southwestern look and feel,” including pictures of what appear to be the Sangre de Cristo mountains that border Santa Fe. The website also used the notation “Santa Fe, New Mexico, U.S.A.” and a phone number with a Santa Fe area code (forwarded to company headquarters in California).

Chavez brought a purported class action on behalf of consumers allegedly deceived by the geographic misrepresentations thus entailed. The district court dismissed the complaint on the ground that Chavez failed to adequately allege an injury-in-fact. The court of appeals concluded that Chavez had alleged some injury, albeit perhaps slight, in fact. First, he allegedly chose Blue Sky over other brands because he believed that it was New Mexican in origin. He allegedly lost money because he didn’t receive what he paid for. He alleged that he is a native New Mexican who bought Blue Sky to support a New Mexico company and to associate himself with a New Mexican product. Though this perhaps limites the extent of the putative class, it also supports his claim that he wouldn’t have paid the full price for Blue Sky, or wouldn’t have bought it at all, if not for the alleged misrepresentation.

The court refused to rule on Blue Sky’s alternate ground for affirmance, preemption by the FDCA, on the ground that the district court should be the first to address this important issue of apparent first impression.

Yellow Pages wars, in Spanish this time

2009-07-12T16:43:00.000-04:00

Momento, Inc. v. Seccion Amarilla USA, 2009 WL 1974798 (N.D. Cal.)

Momento sued defendant SAUSA for copying Momento’s Spanish-language ads for use in its own Spanish directories. Momento owned both the individual ads and the design and layout of its directories. (As set forth in another order, Momento created advertisements for its Yellow Pages by “preparing text, taking photographs of client advertisers, translating text from English to Spanish, and designing the layout of advertisements, including selection of fonts and colors.”) SAUSA argued that it got nonexclusive licenses directly from the advertisers as part of its form contract with them, and that the Momento ads were works of joint authorship because they resulted from collaboration between SAUSA and the advertisers and incorporated preexisting elements. (Interesting business model: allegedly, SAUSA solicits customers by sending an “ad proof” that’s a scanned copy of a Momento ad, sometimes with font/color changes; customers are asked for permission to print the ad “as is” for free, or with corrections for a fee.)

Under the 9^th Circuit’s test for joint authorship, the court found, Momento is the sole owner of the ads. Momento’s contracts with its clients say that Momento’s artwork is its sole property; one client expressly sought permission to use a photo taken by Momento on its web page; and several clients submitted declarations that they never gave SAUSA permission to copy the Momento ads (not sure why this is relevant to ownership, but ok—in fact, of course, regardless of whether the ads are jointly authored, the contract could separately change the ownership).

So Momento showed likely success on the merits of the copyright infringement claim. It also alleged false advertising under California state law based on SAUSA’s sales pitch that its directories are “the first and only Spanish directory delivered to consumers in Northern California.” SAUSA argued that the parties have entirely different methods of delivering the directories, making the claim ambiguous at most. However, Momento’s was the first Spanish directory published in Northern California and thus “at least that part of the statement is false.” In the absence of evidence that consumers weren’t deceived, then, Momento therefore showed a likelihood of success on the merits. Now, in Lanham Act parlance, it probably is true that “delivered to consumers” is ambiguous—if a directory is published, but consumers need to purchase it or call to request it or pick it up at a grocery store, then it’s not “delivered to consumers” and that even seems likely to be material to potential advertisers, since a directory delivered to consumers is more likely to reach those consumers who aren’t proactively seeking a Spanish-language directory. However, California law doesn’t include the false/misleading distinction, so it was open to the court to find the statement likely to deceive consumers even without evidence of actual consumer deception.

Since this was a preliminary injunction motion, the court then turned to the issue of irreparable injury. The old 9^th Circuit rule that a presumption of irreparable harm applies in a copyright case can’t be applied automatically after eBay, however. So instead the court applied the general test: irreparable injury; remedies available at law inadequate; balance of hardships; public interest.

Momento argued that the harm to its investment and competitive position caused by SAUSA’s copying at least 30 Momento ads showed irreparable harm. SAUSA says it’s the largest publisher of Spanish Yellow Pages in the world, and Momento is a family-owned business, directly competing. The court found that the copying and false advertising had an adverse and irreparable effect on Momento. The court could fairly consider Momento’s competitive position where SAUSA “built its business” around Momento’s works.

SAUSA argued that Momento’s four-month delay before filing suit precluded a finding of irreparable harm. Momento, however, wrote to SAUSA before that and got a response from SAUSA’s counsel that it took IP rights very seriously and was investigating, and would cease any infringements found, requesting proof of Momento’s copyright registrations and Momento’s directories to investigate further. Then, several months passed. The court accepted Momento’s explanation that it didn’t sue until it had evidence that SAUSA hadn’t ceased infringing, which came only when a new directory was published; Momento sued about a month and a half after that.

The court ordered SAUSA to retrieve directories stored on pallets at distribution points, but did not require SAUSA to retrieve directories picked up by consumers, and enjoined further distribution. SAUSA had notice of the infringement contentions as of the first cease & desist letter, yet proceeded with production; the injunction created a hardship for SAUSA, but not an unreasonable one in light of its decision to keep printing.

Note: in an earlier order, Momento, Inc. v. Seccion Amarilla USA, 2009 WL 1974905 (N.D. Cal.), the court denied a TRO on the ground that the plaintiff hadn’t made the extraordinary showing required. Without notice to SAUSA, the court stated the standard for irreparable harm using the old 9^th Circuit presumption. Once there was notice and a hearing, the court had a chance to get more deeply into the law as well as the facts: a victory for the adversary process.

Hey look, a standing case I like

2009-07-10T21:18:00.001-04:00

Diascience Corp. v. Blue Nile, Inc., 2009 WL 1938970 (S.D.N.Y.)

Plaintiff does business on the internet as Yehuda Diamond Company. It sells diamonds and diamond jewelry treated with a “proprietary clarity-enhancement process” that masks imperfections in its diamonds, and it alleges that it provides “clear and complete disclosure” of this process. Blue Nile sells colored gemstones and diamonds on the internet. Though Blue Nile’s diamonds are untreated, its colored gemstones are allegedly “enhanced” using undisclosed techniques (including oil filling, glass filling, and flux healing). Failure to disclose processes that each individual gemstone has undergone allegedly contravenes FTC regulations. This information is allegedly intentionally withheld from consumers, leading them to choose Blue Nile over Yehuda. Yehuda alleged that, because these enhancement techniques affect the value and care requirements of the gemstones, but aren’t visible to consumers, these deliberate omissions are likely to deceive consumers.

The crux of the matter: did Yehuda have standing? The court applied the Supreme Court’s most recent statement about the standard on a motion to dismiss: though a court must accept the complaint’s allegations as true, the plaintiff must state a facially plausible claim to relief, and a complaint can’t survive with only “threadbare recitals of a cause of action's elements, supported by mere conclusory statements.” Ashcroft v. Igbal, 556 U.S. ---- (2009).

In the Second Circuit, Lanham Act standing requires (1) a reasonable interest to be protected against false or misleading claims, and (2) a reasonable basis for believing that this interest is likely to be damaged by the false or misleading ads. For (1), a plaintiff must show commercial interests, direct pecuniary interests, or even a future potential for commercial or competitive injury. For (2) likely injury and a causal nexus to the false advertising is required. A presumption of harm is disfavored if there’s no comparative advertising and the parties’ products are not obviously in competition. The court agreed with Blue Nile that Yehuda was therefore required to make “a more substantial showing of injury and causation” to establish standing.

At this early stage, Yehuda’s allegations were sufficient. “Even with the requirement for a heightened showing of injury and causation, courts seldom dismiss Lanham Act claims without first permitting plaintiffs to conduct discovery and present evidence of competitive harm, in part due to the overlap between the showing necessary to establish standing and the proof required to succeed on the merits of a Lanham Act claim, i.e. a reasonable interest and a reasonable basis for believing that interest has been harmed. The court examined a few cases decided in defendants' favor on motions to dismiss, and found that they presented quite different circumstances: where, for example, there is no overlap between the parties’ consumers, making a causal nexus between false advertising and harm implausible, or where any harm would be contingent on future commercial activity a plaintiff failed to initiate.

The court couldn’t yet say that Blue Nile and Yehuda didn’t share consumers. Diamonds and colored gemstones are not necessarily substitutes, but it’s possible that the markets overlap sufficiently for Yehuda to show a commercial interest and a causal nexus between the false advertising and harm. Yehuda would thus be allowed discovery limited to the issue of standing, focusing on the causal nexus between the alleged false advertising and lost sales. The court noted in a footnote that standing could be shown by market studies.

For the same reasons, Yehuda’s state law claims survived. The court also refused to stay the case pending resolution of a case brought by Blue Nile against Yehuda in Washington state, because that case involved separate allegations of copyright infringement and false advertising against Yehuda.

Misled again, naturally

2009-07-10T13:58:00.002-04:00

Mark McKenna pointed me to this depressing story, of which the worst is:

Adding to advocates' concerns, a new study shows wide confusion among American consumers about products aimed at the green market. Many mistakenly believe "natural" is a greener term than "organic."

"They felt organic was just a fancy way of saying expensive," said Suzanne Shelton, president and CEO of the Shelton Group, which conducted the survey and specializes in marketing sustainability to mainstream consumers. "They think 'natural' is regulated by the government but that organic isn't, and of course it's just the opposite."

The Shelton Group, interestingly enough, positions itself as a PR firm for "natural products manufacturers."

Dark & Stormy trademark claims

2009-07-07T12:15:00.003-04:00

NYT story about a registered trademark for a cocktail made with a particular brand of rum (HT: Jeremy Sheff). As a review question, check the article for conformity with actual trademark law. Or wonder whether the registrant is engaged in naked licensing by giving everyone the recipe for Dark & Stormy cocktails, to be assembled by the bartender.

Franklin College v. Franklin University

2009-07-06T20:37:00.003-04:00

Indiana's Franklin College sues Ohio's Franklin University now that Franklin U plans to open a campus in Indianapolis. A good case to teach about expanding into new territory with, perhaps. Also note the clocktower logos, one fairly traditional and the other sleek and modern. Are consumers likely to think one is an updated version of the other?

Organic labeling and its discontents

2009-07-03T21:42:00.002-04:00

Washington Post story on the watering down of the USDA label. Money quote (quite literally):

Joe Smillie, a [National Organic Standards] board member, said he thinks that advocates for the most restrictive standards are unrealistic and are inhibiting the growth of organics.

"People are really hung up on regulations," said Smillie, who is also vice president of the certifying firm Quality Assurance International, which is involved in certifying 65 percent of organic products found on supermarket shelves. "I say, 'Let's find a way to bend that one, because it's not important.' . . . What are we selling? Are we selling health food? No. Consumers, they expect organic food to be growing in a greenhouse on Pluto. Hello? We live in a polluted world. It isn't pure. We are doing the best we can."

What consumers are likely to understand is a tough question, especially when the standards are complex. But "they think the food comes from a greenhouse on Pluto, therefore we can put plenty of synthetics in the food because they're misled anyway" has both normative and descriptive weaknesses, it seems to me.

Newspapers, user-generated content, and the cost disease

2009-07-02T20:08:00.003-04:00

I was going to write something about Baumol's cost disease and its implications for Judge Posner's misguided proposal to ban linking/paraphrasing of newspaper stories, but then I found a good post explaining cost disease in the performing arts and applying it to newspapers, which also face greater constraints on increased productivity than other industries. (Though we can debate the extent to which tech allows more efficiency in reporting/editing/fact-checking etc., it doesn't seem as great as the extent to which tech allows Wal-Mart to decrease the price of paper clips.) If cost disease is the problem, then increased legal rights don't make much sense as a solution.

Interestingly, Wikipedia's article on cost disease points out that one of the solutions is increased provisioning of the good by volunteers or increased nonmonetary rewards. So we could see user-generated content, like cultural respect for journalism, as both cause and effect of the economic constraints under which newspapers operate.

If a book meets a book coming through the rye

2009-07-02T19:56:00.000-04:00

A couple of thoughts about the Holden Caulfield decision:

The court’s insistence that a parody must criticize the original specifically seems inconsistent in spirit with the Second Circuit’s most recent Koons decision, which involved a finding of transformativeness when Koons copied images from fashion magazines. Koons claimed to be critiquing the genre and explicitly disclaimed interest in the particular image. (Calling the legs “anonymous,” Koons insisted that the legs were “a fact in the world.” “[T]hey are not anyone's legs in particular,” and thus he had the right to copy them to critique modern consumption-oriented culture.) Perhaps the differences in medium (image/art world/collage versus text/publishing/single work used) mattered to the court, but yesterday’s decision relies far too heavily on Justice Souter’s unfortunate use of “parody” to stand in for transformativeness. (There’s a Campbell footnote pointing out that satire can be fair use, but most subsequent cases ignore it.)

The court also rejects using The Catcher in the Rye to critique Salinger, because parody has to be targeted at the work and not at something associated with the work. Query: how would the Literal Total Eclipse of the Heart fare under this standard if the owner of the copyright in the musical work, as opposed to the owner of the copyright in the music video, brought suit? I think this question reveals the problem with limiting concepts of parody like this—works exist in context, and parody has to be able to embrace that context.

Relatedly, the court finds that the book doesn’t work as a critique because Holden’s depression and anomie were already part of the original text. This strikes me as a mistake of law –in Campbell and in Suntrust, the courts found in the originals the elements highlighted by the respective transformative uses.

Quoting myself:

In a passage quoted by the Supreme Court, Judge Nelson’s dissent from the court of appeals opinion argued that the parody

. . . reminds us that sexual congress with nameless streetwalkers is not necessarily the stuff of romance and is not necessarily without its consequences. The singers (there are several) have the same thing on their minds as did the lonely man with the nasal voice, but here there is no hint of wine and roses.

Note in particular how the opinion imputes the motivations of the narrators in the 2 Live Crew version to the narrator in the Orbison song. Because of the later song, we can recognize that Orbison's narrator has the “same thing”-- sex--on his mind as the later singers ….

And:

The Eleventh Circuit Court of Appeals held that Alice Randall's insertion of homosexuality, in the form of a gay Ashley Wilkes, into the world of Gone with the Wind was an important part of what made her book transformative. The court quoted Gone with the Wind's description of the Wilkes family as artistic and “queer,” a term already widely used to describe homosexuals when Mitchell wrote the novel, to show that a basis for Randall's changes was present in the original. … In other words, the court held that transformation consists of making clear or exaggerated what was opaque or limited in the original text.

The argument for transformativeness is that by showing Holden still whiny and useless in his dotage, the new book critiques the extent to which the original romanticized, or led readers to romanticize, his central characteristics: rather than being a sensitive youth on a significant journey, the passage of time reveals that Holden is merely a callow youth who grows into a callow man, calling into question a generation’s worship. The problem, that is, is the reader’s valuation of Holden’s characteristics – just as the problem in Gone With the Wind was the valuation of whiteness/heterosexuality/Southern nostalgia.

In fairness to the court’s opinion, the idea seems to be that Holden's immaturity was sufficiently apparent in the original already, and thus not “opaque or limited,” as I put it. But the fact that Holden became the hero for a certain segment of a generation suggests that it wasn't, in practice, apparent enough to avert all need for critique. A similar debate broke out over a fanvid based on Joss Whedon’s show Dollhouse: the fanvid presented Dollhouse as a show about rape, and half the commenters at the fansite Whedonesque thought that the fanvid didn’t say anything that the show itself hadn’t already said, because the show was clear that it’s based on rape—and the other half of the reactions were that the fanvid was unfair, because what happens in Dollhouse isn’t rape at all. There was very little recognition on either side that the fact that these two interpretations of the original existed in conflict indicated that the fanvid in fact had a critical message, intervening in a heated debate over interpretation.

Perhaps, like Marx’s history, literature always repeats itself—the first time as tragedy, the second time as farce. The question of this case is whether showing a tragic young man turned farcial in his old age, because he stayed still while the world moved around him, is sufficiently transformative to be commercialized. (Separately, I must note strong disagreement with the court’s idea, for which it gives no citation, that the ability to avoid licensing also works as an economic incentive to be taken into account in analyzing the fourth fair use factor, because the author’s knowledge that no one can add to his work—the moral right, that is—can induce him to create the work in the first place. There is simply no way to distinguish this concern for avoiding interpretation from concern for avoiding criticism/transformation, which we know is not to be taken into account in factor-four analysis.)

Privacy and risk

2009-07-01T16:33:00.000-04:00

I’m reading Daniel Solove and Paul Schwartz’s text Privacy and the Media, which starts out with an overview of theories of privacy. I was struck by an excerpt from Fred Cate, Principles of Internet Privacy, 32 Conn. L. Rev. 877 (2000) (citations omitted):

Open information flows are not only essential to self-governance; they have also generated significant, practical benefits. The ready availability of personal information helps businesses “deliver the right products and services to the right customers, at the right time, more effectively and at lower cost,” Fred Smith, founder and President of the Competitive Enterprise Institute, has written. …

Federal Reserve Board Chairman Alan Greenspan has been perhaps the most articulate spokesperson for the extraordinary value of accessible personal information. In 1998, he wrote to Congressman Ed Markey (D-Mass.):

A critical component of our ever more finely hewn competitive market system has been the plethora of information on the characteristics of customers both businesses and individuals. Such information has enabled producers and marketers to fine tune production schedules to the ever greater demands of our consuming public for diversity and individuality of products and services. Newly devised derivative products, for example, have enabled financial institutions to unbundle risk in a manner that enables those desirous of taking on that risk (and potential reward) to do so, and those that chose otherwise, to be risk averse. It has enabled financial institutions to offer a wide variety of customized insurance and other products.

Detailed data obtained from consumers as they seek credit or make product choices help engender the whole set of sensitive price signals that are so essential to the functioning of an advanced information based economy such as ours.

The discussion of information collection and processing as a way to manage risk, and thus confer benefits that must be set off against the costs of lost privacy, raises at least two questions. First-order: does the collapse of the financial markets, which suggests that the information was not used to price risk correctly—the risks getting lost in the tranches, as it were—change the calculus of privacy? Here’s a quote from a recent NYT story:

John Kay, a leading Scottish economist, noted recently that he used to teach — along with most other economics professors — that derivatives allowed risks to be transferred to those better able to bear them.

But, he added, experience had shown that to be wrong. Now, he said, he teaches that derivatives allow risk to be shifted from those who understand it a little to those who do not understand it at all. That is not a bad description of how the risks of bad mortgage loans were transferred from those who made the loans to those who bought troubled collateralized debt obligations.

We would be much better off as a society if that particular transfer of risk had been regulated, or even prevented.

Second-order: to what extent does framing information collection as an economic benefit inherently disparage privacy, the way many have argued that framing “national security v. liberty” inherently disparages liberty, when there’s at least as good an argument that, as one of the greats said, those who trade security for freedom will end up with neither? Perhaps a certain level of information privacy actually promotes economic soundness, at a minimum to the extent that it reminds lenders to factor risk into their calculations.

The standing mess gets worse

2009-06-28T08:52:00.004-04:00

Trump Plaza of the Palm Beaches Condominium Ass'n, Inc. v. Rosenthal, 2009 WL 1812743 (S.D. Fla.)

I don't know whether to be amused or disgusted. In this trademark case against Rosenthal's use of "Trump Plaza of the Palm Beaches" in advertisements along with the descriptive phrase, "Your Designated Broker," the court engages in extensive analysis of whether Trump Plaza of the Palm Beaches (a Trump-owned condo with a license to use the Trump Plaza name) has standing under the Conte Bros./Phoenix of Broward standing test; very little of its analysis is devoted to answering the question of a nonexclusive licensee's standing, the only question worth asking. As usual, the Conte Bros. test is either trivial, creating only opportunities for error, or misses the point.

The court gets to the answer that the plaintiff has standing--and of course the court may well just be reacting to the parties' arguments, so I'm not saying the judge did anything wrong, just that the effort expended demonstrates how bad "prudential standing" doctrine has gotten. The rot has spread to trademark; I can only hope we'll see some courts rethinking the standing mess.

On the dilution claim, the court focused its attention on the ability of a nonexclusive licensee to bring a federal dilution action, concluding that standing was absent because the TDRA reserves such a claim to the "owner" of a mark, and plaintiff was not the owner of the mark even in its limited territory, both because of nonexclusivity and because of Trump's reserved power to police the plaintiff's use of the mark.

Speedo competitor can't take the heats

2009-06-27T22:09:00.000-04:00

TYR Sport Inc. v. Warnaco Swimwear Inc., 2009 WL 1769444 (C.D. Cal.)

Warnaco does business as Speedo, competing with TYR in the high-end swimwear market. The events at issue surrounded Speedo’s promotion of its swimwear; Schubert, a paid spokesperson for Speedo, was also the national and Olympic team head coach. The court refused to dismiss some antitrust claims, and also addressed false advertising and Speedo’s anti-SLAPP motion.

Among other things, TYR alleges that USA Swimming (the entity behind the US Olympic team) falsely promoted Speedo as superior and rivals’ products as inferior, including claiming that Speedo’s LZR Racer provided a 2% advantage over other products; removing logos of competing products from pictures of sponsored athletes; and refusing competitors the ability to advertise in the official magazine, Splash, or to sponsor USA Swimming-sanctioned meets or post signs at meets.

Speedo argued that the Lanham Act claims should be dismissed as mere puffery, and in any event as protected by the First Amendment. The court agreed that many of the statements at issue—general claims about superiority/inferiority and being “far ahead” of competitors—were puffery. It was puffing for Schubert to say that he was going to tell his team to wear Speedo at trials, even if they were sponsored by another company, and that they’d need to choose between sponsorship revenue and gold medals (among other things, he said that swimmers not wearing Speedo “are contracted to an inferior product” and that “There is one manufacturer that's put millions into research while others are more into fashion”). Schubert may be an expert, but his opinion is still just an opinion.

The court took judicial notice of the fact that Schubert’s relationship with Speedo was well-known among competitive swimmers and coaches. Aside from being surprised that this is a proper subject for judicial notice, I’m not sure that cuts it for FTC endorsement guideline purposes, especially if there’s any chance that ordinary consumers will see the endorsements. The court noted, however, that many of the articles reporting Schubert’s endorsements also contained disclosure of his paid-consultant status, which would suffice.

A few allegations survived, though the court thought it was a close case. In particular, specific and measurable claims of superiority based on testing were not puffery; a numerical comparison “gives the impression that the claim is based upon independent testing.” The 2% advantage claim is unambiguous, and not puffery. Given the allegations that the speech was false/misleading commercial speech, the First Amendment argument also failed.

Likewise, in Speedo’s promotional materials, potentially actionable claims were: (1) “Speedo sent team dealers promotional materials that ‘understated the number of athletes wearing TYR equipment (thus overstating the percentage of athletes wearing Speedo)’ in certain races.” (2) Speedo misleadingly used the large majority of swimmers who’ve recently won meets or set records wearing Speedo, because in fact the majority of all participants were wearing Speedo, and Speedo sponsors a disproportionately high number of world-class athletes who are likely to win/set records anyway. (3) Speedo distributed a promotional document to its team dealers misleadingly analyzing the statistics from a particular competition, omitting races with unfavorable results. These were well-pleaded enough to survive a motion to dismiss, though the trade libel claim based on the same facts was dismissed for failure to plead special damages.

Speedo also asserted an anti-SLAPP defense. California’s anti-SLAPP statute doesn’t apply to commercial speech about a competitor. There’s actually an exception to the commercial speech exception for a nonprofit that receives more than half of its annual revenues from government grants or reimbursements, but that’s not true of USA Swimming and the US Olympic Committee, the relevant nonprofits in the case, which make almost all their money from sponsorships and private funding. However, the exception only applies to a person “primarily engaged in the business of selling … goods or services,” and USA Swimming generally isn’t. But it does employ Schubert, a Speedo spokesperson. Thus, applying the commercial exception to these facts is consistent with the legislative history and the purpose of the exception. The allegations primarily involve a commercial dispute featuring an alliance between USA Swimming and Schubert for Speedo’s benefit. USA Swimming argued that granting exclusive rights to a sponsor is standard in sports generally, but that doesn’t negate the allegations of anticompetitive behavior.

Kayak v. Bing

2009-06-26T20:43:00.004-04:00

Click for bigger comparison. Story from Wired. The story mentions possible copyright claims, but not trade dress, which seems odd given that the story also quotes multiple reviews noting the similarity between Bing and Kayak, including one person who simply assumed that Bing had licensed Kayak's technology. Query: do you need to make more changes to design around a copyright claim, or a trade dress claim? My money's on trade dress, actually. (Disclosure: I'm a Kayak user and like it; I think the Bing result shown is highly similar to Kayak, but I also think Kayak's design has a lot of attractive functional features, so I have yet to form an opinion about the viability of any legal claim.)

Out-of-date mailing not false

2009-06-26T09:29:00.001-04:00

Klayman v. Judicial Watch, Inc., 2009 WL 1797867 (D.D.C.)

Teeny bit of background here. Klayman founded and then split with Judicial Watch. After a lot of motion practice, the court granted summary judgment against Klayman on a number of the resulting claims.

Klayman brought Lanham Act claims based on a fundraising letter Judicial Watch sent more than a month after Klayman stepped down, alleging that it falsely represented that Klayman was still Chairman and General Counsel, and that it used Klayman’s name and image without permission.

However, Klayman was Chairman and General Counsel at the time the letter was written and he himself authorized and approved the letter. The evidennce showed that this was a monthly newsletter, preparations for which usually begin 4-6 weeks before mailing. Before he resigned, Klayman participated in developing and publishing the newsletter, and he also signed the cover letter sent to supporters. Because Judicial Watch doesn’t print or mail its own newsletter, the monthly letters had to be approved to go to its outside vendor by the third week of the preceding month. Thus, Klayman, following his usual practice, edited the October 2003 letter at issue and accompanying cover letter in the first week of September—all this while he knew he was engaged in severance negotiations. When Klayman left, the newsletter had already been sent out to be mailed. All other planned mailings bearing his signature—60,000 pieces of mail—were stopped, at a cost of $30,000.

The court noted some uncertainty about the legal basis for false endorsement, though many courts have treated it as a §43(a)(1)(A) claim. To win such a claim, a celebrity must demonstrate that he or she didn’t endorse the goods or services at issue. Here, Klayman did authorize the use of his name and identity. The endorsement wasn’t false. (The FTC requires that endorsements be up-to-date, but the evidence here is that it was up-to-date.)

Klayman also asserted a §43(a)(1)(B) claim. Here, Klayman couldn’t show falsity because the statements were true at the time they were made. The court wouldn’t hold Judicial Watch liable “for making a statement that, although true at the time made, subsequently became inaccurate due to a change of circumstances.” (Of course, in a continuing ad campaign, this wouldn’t be enough: if a competitor revised its formula, negating comparative test results being used in advertising, the comparative campaign might have to be pulled. But here, where there was only one instance of the claim being made, strict liability does not mean inevitable liability; it’s a little like the volition requirement some courts added to copyright infringement before the DMCA largely obviated that question for ISPs. Note also that a deceived consumer in a similar situation of changed circumstances might, depending on the law of the jurisdiction, have a claim for recission/restitution.)

The court indicated that Klayman would lose anyway, because he couldn’t show injury from the mailing and thus couldn’t maintain a claim for damages.

The court dismissed Klayman’s allegations that Judicial Watch made defamatory statements to its employees for lack of proof that such statements actually occurred. The remaining claim concerned statements to the media that Klayman owed Judicial Watch over a quarter of a million dollars, and that his lawsuit was a tactical maneuver. Klayman is a public figure; thus he’d need to show both falsity and actual malice.

The monetary figure was, Judicial Watch argued, based on Klayman’s severance agreement and Judicial Watch’s audited financial statements. It incorporated amounts that Klayman owed individually and on behalf of his law firm, Klayman & Associates, P.C., for which he’d agreed to indemnify Judicial Watch, as well as attorney’s fees. The statements were, therefore, neither false nor malicious, because Judicial Watch had reason to believe in their truth.

However, the question of debt under the severance agreement was still disputed in the lawsuit, so the court was unable to determine its truth. And yet actual malice exercised its protective function: Klayman didn’t have sufficient evidence that would allow a reasonable jury to find that Judicial Watch knew or entertained serious doubts about the untruth of the monetary figure.

Money4Nothing, falsity for free

2009-06-26T00:39:00.001-04:00

Green Bullion Financial Services, LLC v. Money4Gold Holdings, Inc., 2009 WL 1758728 (S.D. Fla.)

Plaintiff does a good business as Cash4Gold. It spent a bunch of money building a brand, but a descriptive name and a difficulty showing secondary meaning at the time of defendants’ actions prevented it from succeeding on its trademark claims, as detailed here. (Its copyright claims also failed). Many of defendants’ internet ad banners and logos “took Plaintiff’s advertising efforts and brand and attributed them to Defendant. For example, one advertisement on Google placed on behalf of Defendant asked whether consumers had seen Defendant's Super Bowl commercial. Defendant, however, did not run an ad during the Super Bowl, but Plaintiff did. Other websites placed by Defendant’s sub-affiliates directly stole Plaintiff’s operating name and logo. Clicking on these sites would direct consumers to Defendant’s website.”

I find it interesting that this intentional copying didn’t support at least a finding of secondary meaning in the logo at the time of the copying.

Anyway, plaintiff tried to get around the trademark problem by pleading false advertising. The “See our Super Bowl Ad?” ads were literally false, as were the ads containing plaintiff’s name, Cash4Gold, because they “impl[ied]” (necessarily) that plaintiff was the operator of the advertised sites. And because of the literal falsity, consumer deception could be presumed.

The hangup was one of the substantial differences between modern trademark law and false advertising law: materiality. A trademark plaintiff doesn’t have to show that confusion was material; a false advertising plaintiff does. And because materiality would have come from secondary meaning—a consumer’s expectation of doing business with the entity known as Cash4Gold—failure to show secondary meaning left plaintiff with no evidence of materiality.

I note that “As Seen on TV” has been found to be material in other cases, though secondary meaning was not separately litigated. Telebrands Corp. v. Wilton Indus., Inc., 983 F. Supp. 471, 475 (S.D.N.Y. 1997); Project Strategies Corp. v. National Comms. Corp., 1995-2 Trade Cas. (CCH) P 71,181 (E.D.N.Y. Oct. 27, 1995) (finding statement material because it was likely to cause consumers to identify defendant’s product with plaintiff’s, which actually had been advertised on television).

Separate from the trademark issue, one could argue, using fairly standard economic theories of advertising, that “as seen on TV” is material in itself because it indicates a sort of reproductive fitness: this company is successful enough to advertise on TV, and thus is not a fly-by-night operation. (Indeed, the court notes in its recitation of the facts how unusual it is for a new company to be able to afford a Superbowl ad.) Consumers may be reassured by national TV advertising and use it as a factor in determining whether to do business with the company. See, e.g., Lillian R. BeVier, Competitor Suits for False Advertising Under Section 43(a) of the Lanham Act: A Puzzle in the Law of Deception, 78 VA. L. REV. 1, 10 (1992) (explaining the economic theory according to which advertisers use the high costs of advertising to signal consumers that their products are good and successful); Jean Wegman Burns, Confused Jurisprudence: False Advertising Under the Lanham Act, 79 B.U. L. REV. 807, 827 & n.88 (1999) (same).

The court evidenced some displeasure with the defendants’ conduct and with the parties’ presentation of the case, signalling that it might be favorable to a return by the plaintiff, with better evidence.

Seasons, rings, and Lanham Act epicycles

2009-06-22T08:43:00.001-04:00

AFL Philadelphia LLC v. Krause, 2009 WL 1562992 (E.D. Pa.)

The Philadelphia Soul, an arena football team, had its 2009 season cancelled because of financial problems, though the team hopes to return next year. The team and Joseph Krause, a former employee, sued each other over events related to the cancellation: plaintiffs for copyright and trademark infringement and other claims related to a design for the 2008 Championship Ring to be distributed to players, coaches, and executives; and Krause for Lanham Act violations/misappropriation of name. This decision denied plantiffs’ motion to dismiss the counterclaims.

Krause is the former director of sales, with responsibility for game and season ticket sales. He alleged that he was hired for his strong reputation in the sports and entertainment business, and that his success promoting the team enhanced his solid reputation.

The 2009 season was suspended in mid-December 2008; Krause and other employees were given one week notice of termination. Krause alleged that the cancellation was hugely unpopular, especially among 2009 season ticket holders, who criticized the team’s failure to immediately issue refunds and complained to the Pennsylvania AG.

Krause alleged that, after he was terminated, the team sent email to its fans about the season’s cancellation that falsely identified his email address as the source. He alleged that the team sought to cause confusion about his association with the decision and to trade on his good name.

The counterclaim defendants argued that Krause lacked prudential standing (a false advertising question most places, though the 3^rd Circuit says that the test should be the same for (a)(1)(A) and (a)(1)(B)). Because standing doctrine has become one of the most screwed-up areas of the Lanham Act, the court devoted a bunch of effort to determining whether Krause had pled not only harm to his own reputation but benefit to the team as the result of the use of his name. Arguably he did, so (considering the other Conte Bros. factors) he had prudential standing, even though the nature of his injury was “somewhat remote” from the type of harm Congress wanted to address in the Lanham Act.

Next question: was Krause’s name a valid mark? He pled sufficient facts to allege secondary meaning. The trouble is that, especially in the 3^rd Circuit, false endorsement cases are a bizarre hybrid of (a)(1)(A) and (a)(1)(B); Krause hadn’t alleged that his name was used in advertising, just that it had secondary meaning in the abstract. The court concluded that because he was bringing a “false designation” claim, he didn’t need to make “allegations regarding advertising,” but that the same test for secondary meaning applies to false designation and false advertising claims and that Krause had pled enough to overcome the secondary meaning hurdle.

The team argued that there was no likelihood of confusion, because the email showed that it came from the Philadelphia Soul, with an @philadelphiasoul.com address. However, the email’s from line was “From: Joe Krause [mailto:jkrause @philadelphiasoul.com],” thus indicating that the email originated from Krause, albeit in his role as employee. (Another thing to insert in one’s employment contracts, apparently: control over employees’ email addresses and right to use in marketing.) So Krause sufficiently pled likely confusion (the court using, by the way, the trademark factors here).

Krause also counterclaimed for misappropriation of name, a variant of the privacy tort. The court found that he’d validly pled that the email appropriated his good name and reputation, and that he didn’t need to plead that his name was appropriated for commercial advantage, because that’s a component of the right of publicity, which is a different tort. However, Krause had also alleged that the team’s purpose was commercial, as distinguished from an incidental use of his name.

OTC supplement worked like prescription drug because it was prescription drug

2009-06-21T13:11:00.001-04:00

Jackson v. Balanced Health Products, Inc., 2009 WL 1625944 (N.D. Cal.)

Grady Jackson and Kelley Alexander brought a consumer class action against dietary supplement retailer defendants the Vitamin Shoppe and GNC, among others, who moved to dismiss. The case is about StarCaps, promoted by defendant BHP and its principal, Nikki Haskell. Haskell promoted StarCaps as an “all natural” OTC diet pill with garlic and papaya extract as its main active ingredients. Each bottle comes with a pamphlet promising: “This all natural dietary supplement detoxes your system by metabolizing protein and eliminating bloat. It's safe, fast and effective, and it contains no ephedra. Lose between 10 and 125 pounds and keep it off!”

In late 2007, The Journal of Analytical Toxicology ran an article, “Detection of Bumetanide in an Over-the-Counter Supplement.” The Center for Human Toxicology used high performance liquid chromotography revealing that all the StarCaps it tested contained near-therapeutic doses of Bumetanide, a prescription drug that is banned by the NFL. Bumetanide is prescribed to treat edema, but it can also mask steriod use.

Plaintiff Grady Jackson is an NFL player who began taking StarCaps in 2008 to help him lose weight. He tested positive for Bumetanide and was suspended. He’s appealing the suspension. When Jackson’s positive drug test became public, BHP issued a statement that it had temporarily suspended shipments of StarCaps to retailers. But retailers kept selling StarCaps until BHP issued a voluntary recall.

The other named plaintiff is a California resident who bought StarCaps for over four years because it was represented as an all-natural dietary supplement.

The retail defendants claim to have quality control standards to monitor supplements from the vendors it uses.

The plaintiffs sued for unfair competition, false advertising, and other torts.

The court began by discussing preemption. There’s no express preemption of false advertising claims about dietary supplements, but there’s also no private right of action for violations of the FDCA. Defendants argued that plaintiffs were trying to sue for violations of the FDCA, and that the premise of the complaint is that the supplement was was (1) improperly labeled and (2) sold OTC but contained a prescription-only drug, both of which constitute misbranding under the FDCA.

Here, the claims were based on false advertising and mislabeling under the Sherman Law; they didn’t depend on FDCA violations. There was no preemption, though some of the non-false advertising claims were dismissed on other grounds.

A fire station of unknown origin

2009-06-21T10:17:00.000-04:00

Pacheco Ross Architects, P.C. v. Mitchell Associates Architects, 2009 WL 1606066 (N.D.N.Y.)

The parties, who had worked together in a previous incarnation and apparently ended up in a nasty split, fought over advertising claims related to sixteen architectural designs shown at industry trade shows, in general marketing/PR materials, and on the internet. They compete in a specialized industry, the design of fire houses; each project is worth six or seven figures. Advertising that a company has received an architectural award and that it has performed previous architectural work are useful ways to attract new clients. A large percentage of new business comes from the handful of trade shows each year that are attended by fire chiefs, commissioners, and other fire personnel. These customers are likely to be confused if two different firms claim to have received the same award or performed the same work.

The court reviewed §43(a)(1)(A) and (a)(1)(B). (I bet you’re thinking, correctly, that Dastar precludes an (a)(1)(A) claim, but stick around—(a)(1)(A) will retain relevance.) The opinion identified three ways of proving deceptiveness under (a)(1)(B): survey evidence, evidence of actual confusion, and “argument based on an inference arising from a judicial comparison of the claims and the context of their use in the marketplace.” A welcome result, but not one that’s very common, to say the least!

Here, there was neither survey evidence nor actual confusion evidence, but the court nonetheless went on to consider “whether the ordinary, prudent customer in the marketplace would likely be confused,” using the Polaroid factors. The court said these factors were “well-known and need not be recited in their entirety here,” and “can be enlarged or diminished depending on the facts of the particular case” because the court’s evaluation is not mechanical, but should focus on the ultimate question of confusion. (Notice how not reciting the factors helps obscure that the factors are designed to assess trademark infringement, not false advertising in general!) I like how the court thinks; I am increasingly of the opinion that the multifactor confusion test, though it has its weaknesses, is superior to the rigid and ultimately insupportable falsity/misleadingness distinction.

Applying this method, the court found that the Polaroid factors favored a finding of likely confusion for 14 designs, which the court proceeded to order credited in particular ways. The confusion with which the court was concerned covered primary responsibility for designing the architectural works and/or receiving architectural awards. The modified Polaroid factors played out as follows: The parties’ products are similar in quality and consumers are relatively sophisticated. However, the other factors outweighed these considerations: the strength “of the moving party’s claim to be responsible, or largely responsible, for the architectural design and/or award in question”; the close similarity between the parties’ representations that they were responsible for the designs/awards; the identity of services and advertising channels; the parties’ intent to continue making the same claims; the testimony of both principals that confusion was likely; and the parties’ lack of good faith. (While the strength of the claims makes some sense, comparing mark strength to the degree to which the claim at issue is clearly false, the similarity of the parties’ representations will rarely be relevant in a false advertising case. Applied to false advertising, the exact Polaroid factors will often be poor fits—as the court partly acknowledged by modifying them.)

The court required attributions to be conspicuously placed near the relevant claims, in a typeface at least as large as the claims, with no additional language or competing attribution (including claims by one party to have been part of the “design team,” claims to have been “in charge of design,” or references to “the firm he founded”). The attributions had to disclose the architect of record, though in some cases that had to be accompanied by “now known as.”