Monday, December 11, 2017

Sazerac will pay fees for its buffalo stance

Sazerac Company, Inc. v. Fetzer Vineyards, Inc., 2017 WL 6059271, No. 15-cv-04618 (N.D. Cal. Dec. 7, 2017)

The court here awards defendants its fees for proceeding past summary judgment in this trademark infringement case. “This was an exceptionally weak case,” though Sazerac had a legitimate motive in bringing it—to avoid “loss of control over its brand.” What made this case stand out was that “Sazerac proceeded to trial—where the only available remedy was injunctive relief—with zero evidence that it had been harmed in any way. Its decision to continue litigation unnecessarily burdened the court and defendant.”  The court awarded fees incurred after the summary judgment order, over half a million dollars.

Sazerac alleged that Fetzer’s 1000 Stories red zinfandel buffalo mark and trade dress infringed Sazerac’s BUFFALO TRACE word mark, Buffalo logos, and trade dress for its BUFFALO TRACE bourbon whiskey. The court ultimately Fetzer’s request to preclude monetary damages because Sazerac failed to disclose an expert to prove damages, as it indicated it would in its initial disclosures, and the remaining injunctive relief claims were tried to the court.

The basic claim sounded in trade dress; the buffalo depicted on the Fetzer label wasn’t an imitation of the Sazerac buffalo, and Sazerac consistently argued “that it was the combination of Fetzer’s buffalo with the reference to ‘bourbon’ in ‘BOURBON BARREL AGED’ that confused consumers as to the source of Fetzer’s 1000 Stories wine.” But Sazerac failed to provide any evidence of secondary meaning.  For belt-and-suspenders purposes, the court also rejected the claim using the multifactor likely confusion test.  Among other things, Fetzer showed widespread use of buffalo marks in the alcohol market, while Sazerac presented “no evidence of a single instance of actual confusion[,]” which the court found quite compelling considering the products’ “extensive presence, coexistence, and interaction with consumers” over three years, and “the fact that the products even appeared two tables apart from each other at the 2016 Bourbon Classic.”

The court rejected Sazerac’s argument that fees were only available for improper motivation, litigation misconduct, or objective unreasonableness. Under Octane Fitness, the standard is more relaxed.

There was no allegation of improper motive, but the court highlighted that there was “zero evidence of actual confusion,” which was especially important given Sazerac’s reliance on confusion to establish harm.  Sazerac did introduce a survey, which the court rejected, but the majority of respondents who falsely believed that the products were connected “identified the buffalo logo as the source of their confusion, as opposed to other options such as ‘label’ or ‘looks similar’” – this might have supported a trademark infringement claim based on the large buffalo mark, but not an independent claim for trade dress infringement.  Importantly, the main trade dress claim failed both on protectability and on likely confusion, as well as on evidence of harm, indicating the weakness of the case.

Sazerac maintained that its incontestable rights in the Buffalo Logo obviated the need for it to establish that its trade dress had secondary meaning, but that’s a misstatement of the law under Wal-Mart and blurred the line between its trademark and trade dress infringement claims. It turned out that Fetzer had been correct in its motion for summary judgment when it argued that “[t]his case is about Sazerac’s improper efforts to exclude all others from using in commerce the generic term ‘bourbon barrel aged’ in conjunction with any image of a buffalo.” Indeed, one of the reasons Sazerac’s survey was “fatally flawed” was because the control didn’t use the word “bourbon,” because the survey expert indicated that it was his understanding that Fetzer’s use of the phrase “Bourbon Barrel Aged” was somehow wrongful.  On summary judgment, the court concluded that Sazerac might be able to prove a likelihood of confusion without asserting rights over “bourbon.” But it became clear at trial that Sazerac could not do so.

The summary judgment motion didn’t address irreparable harm, but after Sazerac survived that, it was required to present evidence to succeed at trial, but instead it relied on the “meager” disputed facts that enabled it to survive summary judgment and showed no evidence of harm. “These deficiencies effectively render its entire manner of litigation wholly unreasonable.”  Though Sazerac was precluded from introducing evidence of monetary damages, that was Sazerac’s own doing, and it didn’t prevent Sazerac from presenting evidence of reputational damage, or any other form of irreparable harm.

The case began for subjectively legitimate reasons, but “once [Sazerac] forfeited the right to pursue damages and the case ‘officially’ became about injunctive relief, it was unreasonable for it not to present any evidence of irreparable harm.” This also meant the case was litigated exceptionally.  Evidence of harm would have been uniquely within Sazerac’s possession, and it was required under Herb Reed.  Sazerac argued that it provided evidence of harm in its loss of control over its brand. But that claim relied only on the conclusory statements of its senior marketing director, and was completely speculative.

And here, the court does something I’ve long wanted to see (yay Judge Orrick): it walks through the harm scenario, showing its absurdity:

A consumer would have to purchase 1000 Stories wine—which … occupies a “double niche” market given its price point and varietal—because s/he looks at the bottle and draws an association with Sazerac’s Buffalo Trace bourbon. And, in envisioning this obscure possibility, keep in mind that Buffalo Trace represents 0.5 percent of the whiskey market. Now assume that this consumer is a bourbon drinker (because that is 1000 Stories’ target demographic) who goes to the store looking for a red zinfandel. S/he purchases 1000 Stories because s/he knows of Buffalo Trace and associates 1000 Stories with it because of the 1000 Stories trade dress. Then, for Sazerac to suffer damage to its good will, that consumer would have to dislike 1000 Stories to the point that it would impact his or her perspective of Buffalo Trace, and, by implication, Sazerac, who, as an aside, owns over 350 brands.

Among the problems with this scenario, there were no assertions that 1000 Stories was inferior, so the only potential harm to Sazerac was a speculative and remote “loss of control” over one brand. “Accepting this extremely unlikely scenario to arrive at a finding of any harm would still have been insufficient for Sazerac to succeed, considering the other elements required for a permanent injunction,” especially the harm Fetzer would suffer if forced to change its label.

Brand owners may attempt to protect their rights, but they must have “an objectively reasonable basis for believing that its rights are under attack and consumers are at risk of being confused.” Moreover, Sazerac needed to “demonstrate some harm— separate from the potential for confusion”—to win. Exceptionality was shown by Sazerac’s failure to show evidence (1) that 1000 Stories was using any colorable imitation of any of Sazerac’s asserted trademarks; (2) that it had any protectable trade dress; (3) on six of the eight Sleekcraft factors; and (4) of any type of irreparable harm. 

Friday, December 08, 2017

Roundtable: The Right of Publicity in New York, St. John’s University

An Academic Discussion of Policy Choices in Designing a Publicity/Privacy Rights Regime: Rothman, Buccafusco, & Tushnet

The roundtable is on the proposed changes to NY's ROP, which are very extensive.
[I didn't take notes early on, sorry, but Prof. Rothman discussed issues like transferability, postmortem rights/justifications thereof; Prof. Buccafusco worked through the statutory text and showed that the exception to the exception to the exception structure raised lots of questions such as the treatment of biopics]
Bankruptcy: freely transferrable rights can be transferred involuntarily in bankruptcy. OJ Simpson: faced forced transfer of his IP, including his book, released under a cover that looked like it said “I Did It” instead of “If I Did It”

Reed v. Town of Gilbert: Supreme Court announced a stringent rule applying strict scrutiny for content-based distinctions and exceptions: there has to be a compelling government interest justifying the regulation and any exceptions also have to meet stringent tests—overbreadth will get the law struck down, but so will exceptions that indicate that the law isn’t targeting enough of the issue
Consider a biography of a literary figure that includes a number of quotes from her writings that qualify as fair use, or that are licensed by the copyright owner who isn’t the ROP holder—that seems to replicate her professional activities—there seems to be different treatment for writers, composers and artists than for other creators or public figures, and that could generate first amendment problems as well as uncertainties.
Other lessons from recent challenges to new problems largely generated by the digital age: revenge porn laws—where written broadly, risk invalidation as overbroad—Anthony Weiner and now apparently a number of other congresspeople are the usual examples: if you write a law that would prevent a woman from speaking out about the explicit photo that a congressman sent her, then your law is overbroad and will probably not survive First Amendment scrutiny.
By contrast, narrow laws directed at unwanted disclosures of ordinary people’s intimate photos shared in consensual contexts can and should survive.
Publicity rights are different from revenge porn, but the lesson about being clear about the goals, especially when you go beyond regulating advertising, is very important
Recent case from the 9th Circuit: while the 9th Circuit had previously approved very expansive rights of publicity, Hurt Locker case it reversed course—applying ROP to a movie at all required the ROP to survive strict scrutiny, which it could not do at least in the circumstance of the Hurt Locker

Inextricably intertwined w/the right of publicity: definition?  Completely new concept, not borrowed from other doctrines; there is a related concept for determining what is commercial speech, but in that case when the First Amendment protected content is inextricably intertwined with unprotected content, the First Amendment wins, and this provision seems to be designed to reverse that.
Agree with professor Buccafusco about the questions about biopics.  Documentary about athlete’s sports successes? 
Vagueness and uncertainty concerns—First Amendment doctrine says that if you can’t readily determine what’s covered, the law will be void for vagueness.  Here is where a more specific labor right, similar to the special privacy rights now granted to police officers in section 50, rather than an exception to the exception might be better tailored to deal with what seems to be the concern
Another example where a court might find an invalid content based exception under Reed is the exception for the use of an individual's right of publicity for fund- raising purposes by not-for-profit radio and TV stations

Also raises copyright preemption issues: even if 1A doesn’t preclude a use, the Copyright Act may do so if it interferes w/rights to reproduce works that the performers or athletes consented to making—Dryer case in the 8th Circuit, Maloney in the 9th Circuit, 7th Circuit also—2d Circuit is unlikely to create a split by allowing a ROP claim to proceed against a work even if it is subject to the exception to the exception—focusing on the labor law components of a reanimation claim could be more likely to avoid preemption

Part 3: A Discussion With Legislative Actors About The Goals and Means of A8155-A/S5857-A: Sen. Savino, Bergin, Clenahan, & Maggs
Savino: Important to understand how we create legislation.  W/o lots of input you end up with bad law.  Fewer members of the legislature now are lawyers; we rely on counsels/staff to draft laws.  History of ROP in NY started w/a girl who saw her face on a bag of flour and sought redress. Beginning is an individual who felt aggrieved and sought redress from her gov’t— “lobbyist” began in NY where people waiting for legis. would sit in the lobby.  Views this as a labor issue—workers’ rights.  Time to update NY law.  Has heard from SAG-AFTRA and MPAA, but now hearing from IP lawyers. We don’t want trolls.

Bryan Clenahan: 99 year old law needs to be updated for the digital age. This is a fluid process w/ more drafts to come.

Robert Bergin: Represents the majority leader, lead sponsor of bill.  1902 marked first case, and also introduction of Brownie camera, opened up a new field.  Reanimation/computer generated images reach a point where changes are needed.  Fairness to deceased’s estates about benefiting from use v. other people w/no connection.

Amy Maggs: Central staff/drafter.  In the room where the inextricably intertwined language happened.  [But gets bonus points for Hamilton reference.]

Scavino: Suggestions for language changes to correct the deficiencies identified?

Jeremy Sheff: lots of parts of the draft use language with a history. But salient terms don’t have that pedigree, either not explicitly defined or not found in statute on the books w/100 years of history.  What is the impetus for including those terms in the draft?  Is there a way to either define those terms or create legislative history for interpreting those terms?

Maggs: We know inextricably intertwined is imperfect—that’s being negotiated among parties.  Partially meant to deal w/avatars and digital recreations like those in Rogue One.  [But I’d even add talk about why you have proposed protection for “gestures.”  Why is that important for those objectives?]

Bergin: What we were looking at is existing law, grafting onto it. Not trying to undo 100 years of experience.  We’re trying to add postmortem and dealing w/new tech. Trying to keep purposes of trade.

Maggs: took out the misdemeanor, b/c we were asked to get rid of that.

Scavino: Actual entities affected—what may appear to be confusing is language they’ve agreed on to protect their interest; it made sense to them.   [This isn’t a great justification for First Amendment purposes.]

Maggs: some of the language was agreed to by all parties.

RT: Rogue One wouldn’t be purposes of trade in current law.  If you leave purposes of trade where it is in the current law you are also clearly trying to cover Rogue One and thereby creating a serious interpretive issue.  This is why you might want to leave purposes of trade where it is and create a separate provision targeting avatars if that’s the specific concern.

SAG-AFTRA and MPAA may understand the language, but if other people don’t that’s still a problem. First Amendment cases are often brought by outsiders who aren’t covered, and to design a system in which insiders are protected and outsiders aren’t is pretty much a problem from the First Amendment perspective.

Rothman: leave in place what you have which is working well in most instances. Rather than complicating it with exceptions to exceptions, affirmative descriptions of narrow, precise right is a smart approach. Tech change: technical neutrality is important—need to think about whether current law actually addresses this. Reanimation is new, but recasting is not.  There’s a lawsuit about Back to the Future II, Crispin Glover sued because he was recast (they used existing footage and a prosthetic mask); old law provided an opportunity to protect his rights.  Unintended consequences: think of people who don’t have lobbyists who aren’t getting exemptions who might be affected. That’s why she is specifically concerned about transferability of rights—young actors (even minors) w/o bargaining power who will transfer their rights away.  Websites, journalists, ACLU—a more diverse base consulted. 

Maggs: several unions support the bill.

Rothman: may not understand unintended consequences.

Clenahan: how have states dealt w/intestate transfer?

Rothman: 25 states don’t have intestate rights; Illinois says creditors can’t get it; Nebraska said it’s not transferable; it’s an emerging issue not litigated very much.  More pressure likely to come.  (Bettie Page transferred her rights to CGM when she was very old, windfall for CGM and not much justification for it.)  There isn’t a great model in a statutory postmortem right, but if we really care about heirs it should be focused on inheritance by natural persons.  Could also do confusion about sponsorship requirement as some states do.

Q: Lock down the substance first, then the language.  What does “transformative” mean in the ROP context?  Borrowed from © where it’s been the most enormous controversial issue in ©.  Judicially made construct.  Would Vanna White case come out the same way under transformative standard?  What is NY’s interest in protecting noncitizens?  Only 5 states allow that, not even California.

Maggs: If it’s wrong to exploit someone’s persona it’s wrong. 

Q: what if it’s not wrong in the state where they lived their whole life and died?

Scavino: Congress might be better, but we know that’s not going to happen. States as incubators; maybe this will eventually percolate up.  As NY goes, so goes the nation. Maybe if NY says this, that will force a larger discussion.

Q: Live stage rights: Carole King, Frankie Valley/Jersey Boys. The exception seems like it covers a musical, but the exception to the exception seems to bring that back in. When clients ask whether ROP is required, what is the answer?  Create and write the musical, but the next step is reading—may be considered a solicitation under the statute.

Maggs: Exception to exception is more about avatars/create people after they’re dead.  [Then maybe it should be written that way?]  That’s part of the confusion.  That language has to do w/Zacchini and taking away someone’s job by taking whatever entity they’ve created and recreating it w/o them—recreating their persona.  [Chris Pine needs to worry about William Shatner, it seems to me!]

Q: Athletes and biopics: does the exception to the exception come in if there are reenactments of big sports scenes?

Maggs: They had someone play “Who’s on First/What’s on Second”—they’d gone too far [that’s a copyright case involving fair use—and I note that the transformative use exception is subject to the exception to the exception, so even a transformative use is unprotected if it is “inextricably intertwined” w/ performance]. Depending on how it’s done—if you put a clip from a sports event on stage v. you have someone pretending to be people, there’s a lot of variations. [Seems to suggest that one of those should be illegal?]  She’s not sure how that biopic would come out.  [Ulp.]

Q: Active debate about whether we care about the likeness being transformative or whether the work as a whole is transformative. The use has a lot of baggage.  Remedies portion: purposes of trade is in the remedies portion; is there a point of limiting the remedy more than the scope of the right?

Maggs: want to change as little as possible in the case law? 

Q: so you would have a right but you wouldn’t be able to get damages if it wasn’t for purposes of trade?

Maggs: yes. A lot of the language like transformativeness comes from other states’ legislation.

Q: if it’s wrong it’s wrong, then why would you deny this right to the estate of someone who died 10 years ago?

Maggs: Rights have vested, estates have paid taxes, etc.

Thursday, December 07, 2017

Court says shoo to Scat's infringement claim against Dodge

Scat Enterprises, Inc. v. FCA US LLC, 2017 WL 5896182, No. CV 14-7995 (C.D. Cal. Jun. 8, 2017)

Scat, a maker of aftermarket car parts, sued over FCA’s use of “Scat Pack” in connection with its Dodge Challenger and Dodge Charger “Scat Pack”-edition cars, primarily alleging reverse confusion.  The court rejected its claims for money remedies (disgorgement, corrective advertising, treble damages, or punitive damages).  Scat sought disgorgement of profits under an unjust enrichment theory rather than as a measure of lost sales; this requires willful infringement in the Ninth Circuit.  And willfulness means actions “calculated to exploit the advantage of an established mark.”  As to Scat’s reverse confusion theory, there could be no such calculated exploitation where the junior mark overwhelms the senior. Thus, there can be no accounting “even if the defendant was willfully blind to the possibility of infringement.”  

Nor could there be disgorgement under a forward confusion theory, because top Dodge executives responsible for Dodge’s use of “Scat Pack” in 1967, for the 2013 launch of “Scat Pack” for newer models of the Dodge Charger and Challenger cars, and for Mopar’s use of “Scat Pack” for kits for older models, all testified that they were unaware of Scat’s existence. In 2013, FCA’s legal department conducted a trademark search for the phrase “Scat Pack” and neither Scat nor any of its trademarks showed up in the search. Scat argued that FCA’s search wasn’t sufficient because it didn’t search for the word “Scat” alone, but that doesn’t translate into willful exploitation. Likewise, FCA’s decision to continue using the “Scat Pack” mark after the USPTO refused registration of the mark—one that FCA used for decades—also wasn’t willfulness.

Corrective advertising: To get this, a plaintiff must prove that the alleged infringement resulted in actual lost value to its mark. There was no such showing here.  Scat argued that there was actual confusion shown by FCA’s survey; though this was disputed, Scat didn’t submit its own survey, despite having the clear financial means to do so, creating “an inference that the results of such a survey would have been unfavorable to its position.”  Plus, even actual confusion wouldn’t  itself show actual harm to its mark. Here, there was no evidence demonstrating that FCA’s use of “Scat Pack” adversely impacted Scat’s growth or caused it to lose any sales or business opportunities.  Scat also waived its claim for punitive damages.

But anyway, confusion was unlikely. The key factors: (1) relatedness of goods; (2) similarity of marks; (3) consumers’ degree of care; (4) marketing channels. Though the parties were both generally part of the automotive industry, Scat makes “high-end performance aftermarket car parts which it markets and sells to a sophisticated niche of car enthusiast consumers,” while FCA used the “Scat Pack” mark to refer to two of its passenger cars that retail for approximately $40,000 apiece. “Although the goods may inhabit the same broad field, the automotive industry, they are markedly different.”  FCA sold parts/kits only for its own cars, and only through authorized dealerships. Scat made parts for several car companies, including Chevrolet, Ford, Pontiac, and Honda, and sold these parts through aftermarket parts distributors or directly to end consumers. Relatedness plainly favored FCA.

Similarity: While the parties both used the word “scat” to signify speed and quick acceleration, FCA’s addition of “pack” distinguished it.  In 1967, when FCA began using “Scat Pack,” it was an umbrella marketing term for several of Defendant’s muscle cars, and then in 2013 it was the tagline for the high performance versions of its Dodge Charger and Dodge Challenger cars. The term “Pack” gave the meaning of a group or club, e.g., “Run with the Dodge Scat Pack.” Moreover, the designs were different: FCA used the “Scat Pack Racing Bee” character and its house marks, while for Scat, generally the mark’s logo only contains the unitary word “Scat” in different stylized fonts or there’s also a reference to a specific part, e.g., “Scat Crankshafts.” Even though the marks sometimes appeared in plain font when used on third-party websites such as eBay Motors and Amazon, they generally appeared with their distinct logos. Advantage FCA.

“[B]ecause the typical consumers of the parties’ products are relatively sophisticated, there is minimal chance of confusion.” Scat’s rotating assemblies sold for over $2,000, while FCA’s cars retailed for approximately $40,000 apiece, justifying greater care, and Scat’s customers in particular were “a sophisticated niche of car enthusiast consumers. There is no question that purchasing one of Plaintiff’s specialty automotive parts requires either a considerable amount of research by a ‘casual’ consumer or, alternatively, the knowledge already held by a sophisticated car enthusiast.”

And the parties’ marketing channels were distinct: FCA sold to authorized independent dealerships, while Scat sold to aftermarket parts distributors or directly to end consumers. FCA marketed its cars to the general public primarily through mass media television and radio; Scat marketed to its through its own website and catalogs, trade shows, and advertising in various industry trade and consumer magazines. Occasional overlap at the same trade shows was insufficient to increase the likelihood of confusion.

Everything's legal in Jersey: NJ SCt makes class certification harder in price disclosure case

Dugan v. TGI Fridays, Inc., 171 A.3d 620 (N.J. 2017)

Plaintiffs alleged that the defendants failed to fairly disclose prices charged to customers for alcoholic and non-alcoholic beverages. The New Jersey Supreme Court held that one set of plaintiffs failed to show that common issues of law and fact predominated because they argued a price inflation theory that New Jersey law didn’t support. However, other claims that the restaurants violated New Jersey’s consumer protection law (the NJCFA) by increasing the price charged to a customer for the same brand, type, and volume of beverage in the course of the customer’s visit to the restaurant, without notifying the customer of the change.  Consumers with that specific claim could proceed with class certification.

The first set of plaintiffs alleged that TGIF had a practice of offering certain beverages in New Jersey TGIF restaurants’ menus without listing their prices of those beverages, violating the NJCFA as well as a regulatory provision governing “merchandise that is not price marked at the point of purchase.”  In the original complaint, named plaintiff Dugan claimed that during a visit to a TGIF restaurant she was charged $2.00 for a beer at the bar and later charged $3.59 for the same brand of beer after moving to a table.  Dugan admitted that during the visit to a TGIF restaurant in which she paid different prices for two orders of identical beverages at the bar and at the table, she did not read the beverage section of the menu, though she later submitted she had looked at the TGIF menu on many occasions and expected to pay the same price at the bar that she paid when she sat at a table. Training materials for TGIF servers stated that servers seating customers should hand opened menus to customers.  Plaintiffs also submitted a TGIF consultant’s analysis of consumer behavior in the ordering of beverages in restaurants in which customers informed of beverage prices spent an average of $1.72 less per visit than the customers to whom the prices were not disclosed.

This group couldn’t show commonality; they didn’t claim what they bought was defective, deficient, or worthless, but rather received what they ordered.  However, they couldn’t prove that every claimant in their multi-million-member class would have purchased fewer or less expensive beverages, or none at all, had TGIF informed him or her of the beverage prices. The research underlying the $1.72 per visit damages claim wasn’t similar to anything else that had been accepted as a method of proving ascertainable loss and causation in a CFA class action; it was too similar to rejected “fraud on the market”/price inflation damages calculations.

For the second group (the Bozzi class), there were common questions of fact relating to the defendant’s pricing practices and “at least one common question of law—whether increasing the price of a beverage during a customer’s restaurant visit without informing the customer constitutes an unlawful practice.”  Existing records would apparently enable the parties to determine where and when each class member was charged disparate prices for the same brand, type, and volume of beverage on the same restaurant visit, allowing them to account for happy hours and other restaurant-specific practices.

However, neither group could proceed under the Truth-in-Consumer Contract, Warranty and Notice Act (TCCWNA), a statute enacted “to prevent deceptive practices in consumer contracts” that contained unenforceable or invalid terms that nonetheless deceived consumers into thinking the terms were enforceable and deterred them from asserting their rights. Thus, covered entities must not use “any provision that violates any clearly established legal right of a consumer or responsibility of a seller ….” Plaintiffs argued that by failing to list prices for beverages on the menus, the defendant restaurants violated plaintiffs’ “clearly established” legal rights and defendants failed to meet their “clearly established” legal responsibilities requiring the prices to be plainly marked. However, there were too many individual questions.  The TCCWNA addressed “contract[s],” “warrant[ies],” “notice[s],” and “sign[s]” and didn’t apply when a defendant failed to provide the consumer with a required writing. At a minimum, a claimant would have to prove that he or she was presented with a menu during his or her visit to the restaurant in order to establish liability, which couldn’t be resolved by customer receipts or other documents. It wasn’t enough to show evidence that TGIF servers were instructed to hand menus to customers; that didn’t even prove that any individual consumer received a menu.  The majority thought that inferring that servers complied with corporate policy would be to wrongly allow a claim element to be proven for the class as a whole with a single piece of evidence; the dissent would allow such an inference, but even the plaintiffs conceded that not all customers received the menu at issue.  The majority also doubted whether defendants violated a “clearly established legal right” or a “clearly established ... legal responsibility.” No published opinion held that restaurants and other food service businesses couldn’t offer food or beverages to customers without listing the prices for those items on their menu. “Moreover, as plaintiffs acknowledge, many food-service businesses in New Jersey—ranging in size from corporate chain restaurants to family-owned delicatessens and diners—routinely offer customers food and beverage specials and other items without designating in writing the prices for those items.” Even if a menu lacking beverage prices were a relevant writing within the meaning of TCCWNA, that was a dubious result because a penalty of $100 per violation would lead to a total of more than a billion dollars.

Justice Albin dissented, arguing that the majority wrongly raised barriers to class actions.  TGIF could charge what it wanted, but it couldn’t fail to list beverage prices when it knew through its own study that consumers would pay, on average, $1.72 more per meal without such prices.  “TGIF does not pretend to be in compliance with the law; rather, its defense is that a class action is not a proper vehicle to be used by the patrons victimized by TGIF’s practices. However, a single consumer, even if defrauded, cannot engage in costly litigation over a sum involving, at most, several dollars. Only through a class action that aggregates thousands of small claims of similarly defrauded patrons can a viable lawsuit proceed.” 

Justice Albin pointed out that TGIF itself labeled the price consumers were willing to pay the “fair” price, as opposed to the “think-twice” price; “the beauty of not placing beverage prices on menus in violation of the CFA is that uninformed patrons do not know when their purchases have exceeded the ‘fair’ price and reached the ‘think-twice’ price. TGIF learned through the study what is commonly known—that an informed consumer will make rational pricing decisions.”  To prevent that, TGIF made the corporate decision not to put alcohol prices on the menu: “TGIF determined that it did not pay to conform to the law and that it was more profitable to capitalize on the ignorance of its patrons. From TGIF’s own statistical analysis comes the calculation of ascertainable loss to its patrons and the gain to itself.” 

This common issue was qualitatively more important than the others, and individual differences could be addressed later on; the statistical evidence here was acceptable evidence of ascertainable loss.  Plaintiffs’ theory wasn’t “fraud on the market.”  First, the CFA didn’t require proof of reliance, but only a causal connection between the unlawful practice and ascertainable loss. Second, plaintiffs weren’t trying to avoid their burden of proving a causal nexus between TGIF’s statutory violation and the ascertainable loss suffered by TGIF’s patrons. 

“Moreover, the majority is mistaken if it is suggesting that the CFA does not protect consumers from price gouging.  The purpose of requiring that the price of merchandise be listed at the point of sale … is to allow consumers to make informed decisions in making purchases.”  Justice Albin also would have allowed the TCCWNA claims to proceed. At the pleading stage, the fair inference was that TGIF’s servers complied with corporate policy and that patrons received menus.  Moreover, “[t]he plain and simple statutory language clearly indicates that TGIF is required to list beverage prices on its menus”: the law prohibits the sale of “merchandise” without a price at the point of sale; merchandise included goods; clearly, beverages were goods, and at the very least, were included in “anything offered ... to the public for sale.” “TGIF did not have to wait for a published opinion by this Court to reach this common-sense conclusion.”  The majority hinted that the law might not apply to beverages on menus, meaning that restaurants wouldn’t be required to post any prices, since there’s no difference between a hamburger and a milkshake. Even if the Attorney General has never sued to enforce this provision, the CFA vests individuals with the power to act as private attorneys general as a separate enforcement mechanism. There’d be no point in remanding the Bozzi class-certification case for further proceedings, as the majority did, if there was still a question about whether restaurants must place beverage prices on their menus.  Further, the majority didn’t explain why in the Bozzi case it vacated the trial court’s injunction, which mandated that the relevant defendant restaurants list beverage prices on menus. If the law was too broad, the legislature could act to fix it.  Now, however, any relief from TGIF’s violation of consumer fraud law would have to come from the AG. 

Tuesday, December 05, 2017

Tick tick boom: Lyme-blocking claim avoids preliminary injunction

Merial, Inc. v. Zoetis, Inc., 2017 WL 4466471, No. 1:17-CV-1624 (N.D. Ga. Jun. 6, 2017)

Thorough discussions of the effect of disclaimers on literal falsity/misleadingness are rare, so this one is useful. Merial makes NexGard, flea-and-tick removal treatments; the latter was the first U.S. prescription monthly flea-and-tick medication for dogs that could be administered orally. Zoetis launched its own oral flea-and-tick product, Simparica. The parties’ products are only dispensed by licensed vets. 

Zoetis ran a TV ad with a display banner stating: “In a study, Simparica blocked Lyme disease transmission.” A disclosure continues: “In a study, Simparica killed >98% of deer ticks in existing infestations within 12 hours, while Lyme disease is typically transmitted in 24-48 hours. In another study, Simparica was shown to block Lyme transmission from deer ticks.”

A voice-over later states: “Studies show that at the end of the month, Simparica killed more ticks in less time than both Frontline and NexGard,” while an animated dog uses its back paws to kick dirt over boxes of Frontline Plus and NexGard.  The disclosure on screen: “Studies showed that at the end of the month, 24 hours after infestation, Simparica killed more deer ticks than Frontline and more Lone Star, Gulf Coast, brown dog, and deer ticks than NexGard.”

Merial alleged that the first claim relating to blocking Lyme disease is literally false because Simparica does not “block” Lyme disease, and that the second claim of killing ticks faster was literally false because the studies on which Zoetis relied didn’t demonstrate that at the end of the month Simparica kills “more ticks in less time” as compared to Frontline Plus and NexGard.

First, Merial argued that no study supports the conclusion that Simparica worked similar to a vaccine and could completely block Lyme disease itself. Rather, Simparica at most reduces opportunities for ticks carrying the Lyme disease-causing pathogen to bite dogs by killing the ticks themselves.  Zoetis responded that killing ticks effectively blocked the transmission of the disease-causing pathogen, which was sufficient, and that the “clarifying text” informed the interpretation of the ad.  Merial responded that the text was too small and difficult for consumers to read.

“A disclosure is adequate if it is actually communicated to consumers.”  Zoetis offered an affidavit that the disclosure was “compliant with network advertising guidelines, which means that the network compliance attorneys have ... confirmed that the [Clarifying Text is] on screen for a sufficient amount of time to be comprehensible by viewers.” Zoetis also offered evidence that it conducted testing and displayed the Clarifying Text for a sufficient length of time for a consumer to read the information. The court determined that it was appropriate to consider the disclosure as part of its falsity analysis, because the claim “primes the viewer to look to the Clarifying Text by stating ‘[i]n a study, Simparica blocked Lyme disease transmission,’” and the disclosure explains how Simparica blocked Lyme disease.  The disclosure was also part of the full context of the ad, especially because it appeared simultaneously with the ad, and Zoetis provided evidence that the text was sufficient to reach consumers.  For purposes of a preliminary injunction, Merial didn’t show that the disclosure should not be considered.

Merial then didn’t show that, taken together, the claims were likely literally false.  Merial argued that Zoetis’s studies didn’t actually test for Lyme disease; only one study tested for the presence of the pathogen; and only five to ten percent of dogs exposed to the pathogen exhibit symptoms of Lyme disease.  But the study that didn’t test for the pathogen still tested for deer ticks, which are the main vectors of Lyme disease in the United States, and the other study showed that the drug interfered with the pathogen.  Even without the disclosure, “block” wasn’t likely literally false, because “block” can mean to hinder/interpose an obstruction according to the dictionary, and the drug could arguably do that.  Zoetis’s interpretation was also reasonable because others use “block” in the same way, such as an NIH article, “Tick Talk: Block Tick Bites and Lyme Disease” that noted that “the best way to avoid Lyme and other tick-borne illnesses is to prevent tick bites in the first place.”  Also, in the context of the entire ad, which showed Simparica working by killing ticks before they transmit diseases, there was no claim that Simparica is a vaccine that acts directly on pathogens.

Merial’s challenge to the “faster killing” claims also failed at this stage.  Merial argued that, even if Simparica killed more ticks after twenty-four hours, the results were mixed on whether Simparica killed more ticks at eight or twelve hours. But the disclosure indicated that the 8/12 hour marks weren’t relevant, because it specified that “[s]tudies show that at the end of the month, 24 hours after infestation, Simparica killed more ticks” than Frontline Plus and NexGard.  Also, even on its own, the faster killing claim hadn’t been shown to be literally false.  Because the 8 and 12 hour marks were, on the whole, inconclusive as to which medicine killed more ticks, it was okay to look to the twenty-four hour mark (the only other mark tested) to determine who killed more ticks in less time. (The court also found that “killed more ticks in less time” could have multiple meanings, depending on when the kill rate was measured.)

Merial also argued that the Lyme Disease Claim wrongly went beyond the studies to claim that Simparica was superior to Frontline Plus and NexGard across all types of dogs, ticks, and geographies. The parties offered conflicting affidavits on whether studies mainly using Beagles and certain tick types could be used in support of broader claims, but that wasn’t enough at this stage. 

Monday, December 04, 2017

showing falsity of a noncomparative "tests prove" claim

Strategic Partners Inc. v. Vestagen Protective Techs., Inc., 2017 WL 5897711, No. 16-CV-05900 (C.D. Cal. Jul. 31, 2017)

Vestagen sells specialty textiles for healthcare applications, while SPI sells medical apparel; their medical garments with antimicrobial fabrics compete.  Vestagen alleged the falsity of SPI’s statement in its website FAQ that the antimicrobial technologies it uses on its Certainty and Certainty Plus “start[ ] to work upon contact with unwanted bacteria,” rendering bacteria “ineffective immediately.”  Vestagen argued that this statement literally false because SPI only had test data taken twenty-four hours after the fabrics were inoculated with bacteria. SPI offered four declarations asserting that the statement was true, creating a material issue of fact. 

Vestagen argued that the lack of test data directly supporting the statement showed literal falsity.  While literal falsity can be shown by showing that product testing is “not sufficiently reliable to permit one to conclude with reasonable certainty that [it] established the claim made,” those cases involve comparative superiority claims, but this statement wasn’t a comparative claim, and there was no legal authority that such an ad needed proof through test data.

The inventiveness of lawyers is legendary, but this distinction makes no sense.  The rationale for the rule about showing the falsity of “tests prove” statements has nothing to do with comparative advertising.  It’s about scientific evidence and its greater credibility with customers; when consumers see a statement apparently based on scientific rather than anecdotal data, they have more reason to credit it.  Thus, “tests prove X” can be proved false either by showing “not X,” or by showing “tests don’t prove X”; either one will falsify the claim actually made by the defendant.

Regardless, the court ruled in addition that, based on the definition of “ineffective” and justifiable inferences in SPI’s favor, “rendering a bacteria cell ineffective immediately is not necessarily inconsistent with an inability to stop germs instantaneously.” The fabric could immediately render the cell incapable of replicating efficiently, or of not remaining viable as expected, even without killing it immediately.  Vestagen couldn’t prevail on this evidence at this stage.

Thursday, November 30, 2017

reasonable consumers expect real estate agents to be licensed, but remedies are still limited by the 1A

People ex rel. Flippo v. Silva, 2017 WL 5712601, No. H041209 (Cal. Ct. App. Nov. 28, 2017)

Susana Silva operated Estates on the Bay, which advertised itself as a professional real estate company, while her real estate broker’s license was revoked. Defendants’ activities included grossly overstating a borrower’s income on mortgage loan applications.  After a bench trial, the court found violations of the FAL and UCL and awarded civil penalties, restitution, and injunctive relief. The court of appeals upheld the liability finding but remanded on the remedies.

Defendants argued that Estates on the Bay’s website wouldn’t confuse reasonable consumers into thinking Silva had a valid real estate license, as she was required to do in order out to carry out real estate brokerage or selling.  The website had a page entitled “My Resume,” and the top of the webpage stated, “Estates on the Bay - A Professional Real Estate Company.” The body included: “Our experience in the Real Estate industry will provide you the knowledge and expertise that you need throughout the entire buying or selling process. As you choose one of our real estate agents, and/or loan agents our job to you is to price your home effectively from day one ….”  Defendants argued that there was no reference to Silva, and that even if “the use of the first-person-plural to refer to a corporation and its agents is somehow flawed, it is at most the mildest of innocuous puffery posing none of the risks the [false advertising law] protects against.”

Likely deception is generally a question of fact.  The court of appeals found that the website wasn’t too vague to be actionable: “a reasonable consumer would expect that a corporate entity holding itself out as a professional real estate company and offering real estate services requiring a license would in fact have the necessary license(s) to carry out those services, and specifically that all its agents/employees who were carrying out those services would be licensed to the extent necessary to lawfully conduct those services.”  Given the trial court’s findings that Silva violated the licensing law, and that Estates on the Bay permitted this, substantial evidence supported the liability finding.

As for the UCL, the violation was in connection two mortgage loans that they brokered for one borrower, Rosa, by deliberately and knowingly overstating Rosa’s income on mortgage loan applications to induce the lenders to fund the loans. These overstatements unjustly enriched defendants at Rosa’s expense, and that the practices were “a repeat by Silva of the very conduct which led the [Department of Real Estate] to revoke her license.” However, the court apparently imposed a separate penalty for every day the sales were pending, for a total of $21,500.  The UCL allows the People to ask for “a civil penalty not to exceed two thousand five hundred dollars ($2,500) for each violation.” “In assessing the amount of the civil penalty, the court shall consider any one or more of the relevant circumstances presented by any of the parties to the case, including, but not limited to, the following: the nature and seriousness of the misconduct, the number of violations, the persistence of the misconduct, the length of time over which the misconduct occurred, the willfulness of the defendant’s misconduct, and the defendant’s assets, liabilities, and net worth.”

What a “violation” is must be determined case by case, and can be calculated per victim or per act. The amount is reviewed for abuse of discretion.  The court assumed that it would have been proper for the court to determine that there were two violations based on income misrepresentations in loan applications that induced the funding of two loans, or that there were three violations based on three victims (Rosa and the two lenders), or that there were four violations based on income misrepresentations affecting Rosa and a lender as to each of the two properties.  However, the evidence didn’t support the conclusion that false income representations were made to one or more victims on a daily basis for 86 days. Thus, the court remanded for recalculation.

An order of restitution to Rosa was affirmed, in the amount of $29,575, based on the commissions defendants received for brokering the loans and for a “yield spread premium” they received for getting her to take a higher interest rate than her credit entitled her to. Though defendants argued that she got what she paid for—refinancing—the court accepted the argument that the loans were only issued because of the misrepresentations.  However, Rosa was not entitled to recovery of a prepayment penalty in connection with paying off the existing mortgage that she refinanced through defendants.  The UCL allows recovery of restitution, not compensatory damages, and the prepayment penalty went to the bank, not to the defendants.  However, the court pointed out that this could potentially be considered in setting the amount of the civil penalty.

In terms of injunctive relief, the court of appeals affirmed the imposition of recordkeeping requirements on defendants.  The court also ordered “Silva and [her codefendant and sister] Gobert shall not jointly engage in the sale (this specifically includes acting as real estate agents or brokers) or financing (specifically including, but not limited to, originating, negotiating or soliciting loans) of real estate.” Defendants argued that this interfered with their constitutional rights to engage in lawful work and their constitutional rights to association as sisters.  But they didn’t have a constitutional or statutory right to work with each other in real estate. They could individually work in real estate, if they complied with the rest of the injunction, and they could associate with each other; along with the ability to modify the injunction over time, that was enough.  Defendants’ argument that they’d already dissolved the business didn’t matter, given their past behavior of violating the law after Silva’s license revocation (of which Gobert knew).  Even assuming that the injunction burdened the constitutional right of association, it was no more than necessary to serve the compelling interest in protecting the public.

Defendants also challenged two aspects of the injunction as unconstitutional prior restraints: (1) a requirement that they use their best efforts to remove any reference to Silva’s broker’s license from all media, including electronic media and social or business websites, such as LinkedIn, Facebook and Google and (2) a requirement that they submit any real estate-related advertising to the Monterey County District Attorney’s Office at least 15 days in advance of publication.  “[A]n injunctive order prohibiting the repetition of expression that ha[s] been judicially determined to be unlawful [does] not constitute a prohibited prior restraint of speech,” but such an order must be in the narrowest terms that will accomplish a permissible goal.  Under this standard, the ban on any advertising about real estate services, property management, or real estate financing without first obtaining written consent from the district attorney or a court order was too broad: the injunction required preapproval of (1) advertising that could be unrelated to activities requiring a real estate license, and (2) advertising that didn’t contain any reference, express or implied, to Silva’s licensing status. The court of appeals remanded for tailoring more closely to the unlawful conduct in this case. Likewise, requiring the removal of any reference to Silva’s broker’s license from all media also was broader than necessary. “For example, to the extent the reference to her license includes the start and end dates of her licensure, the representation might not be false or misleading depending on the context.” 

AIPLA scholarships & contests for students

Sidney B. Williams scholarship for law students from underrepresented minority groups interested in IP law.

Jan Jancin award for law students with a demonstrated record in the study of IP.

Moot Court on patent issues.

Robert C. Watson award for best student paper on IP.

Monday, November 27, 2017

Closure gets closure from Second Circuit

Schutte Bagclosures Inc. v. Kwik Lok Corp., No. 16-2767 (2d Cir. Nov. 2, 2017): In a summary opinion, the Second Circuit affirmed a district court finding that the design of Kwik Lok’s bag closures, albeit registered as a mark by the PTO, was functional and thus unprotectable by trademark law, as well as the belt-and-suspenders finding that no confusion was likely.  Thanks to an eagle-eyed correspondent who should probably buy this vase as a reward for learning so much about bag closures.

Friday, November 24, 2017

Allegedly outdated comparison not enough to justify TRO in sophisticated industry

NEXTracker, Inc. v. Array Technologies, Inc., 2017 WL 5625926, No. 17-cv-06582 (N.D. Cal. Nov. 22, 2017)

The parties (NX and ATI) compete in the market for solar tracking devices, which “adjust the positioning of solar increase the efficiency of their solar power capture.” In September 2017, TUV, “which appears to be a non-governmental testing and assessment organization,” issued a report comparing the operational costs of two different solar tracking architectures and concluding that “Architecture 1” -- a tracker “driven by a single motor linked by a rotating driveline to multiple tracker rows” -- is associated with lower lifetime operational costs than “Architecture 2” -- “a system where each row operates as a self-contained unit with...dedicated tracker system components.” NX alleged that “Architecture 1” is ATI’s technology and that “Architecture 2” shows an NX product.

Apparently in response to NX’s objections, TUV retracted the report, but NX alleged that ATI widely disseminated the report both before and after the retraction.  NX sought a TRO based on its false advertising, trade libel, and defamation claims, which the court denied.

First, NX didn’t show falsity or misleadingness; the TUV report didn’t mention NX or its products by name, and though it showed an NX product, NX didn’t provide evidence that the relevant claimed trade dress (NX’s “signature gold-colored paint” and “distinctive curve-shaped tube”) had acquired secondary meaning such that consumers would perceive a reference to NX systems in particular, rather than “Architecture 2” systems in general.  

Even assuming that the association existed, NX still failed to show likely success on the merits.  NX argued that the report was false or misleading because “Architecture 2” was a three-year-old NX design, whereas the system described as “Architecture 1” was ATI’s latest tracker.  But the report didn’t purport to compare systems of the same generation or age, and it wasn’t false or misleading just because it compared systems of two different vintages.  “Such a comparison may even be useful in the solar industry because, as NX itself argues, ‘Solar trackers are a long-term investment -- they can remain operational for many decades.’ It also seems possible that solar industry participants savvy enough to identify ‘Architecture 2’ as an NX system might also recognize that the featured device was not necessarily the latest model.”  Nor did the record justify a finding that the report falsely described the NX system, as NX alleged. NX claimed that the report made false statements about its gears, its positioning of solar modules, and its use of struts, but never clarified whether those statements were false only as to current NX products or as to the prior ones too.  ATI argued in opposition that the statements were true for the tested NX products, which was uncontested in NX’s reply brief.

Although TUV retracted the report, the evidence showed that NX’s objections, rather than independent concerns about the veracity of the report, drove the retraction, stating that TUV  “did not subjectively entertain any serious doubt about the truth of the statements in the report,” but still believed that it was “in the best interest of all parties to retract the Report and conduct a diligent investigation of NEXTracker’s allegations about the Report.”

The court also declined to find irreparable harm likely; much of the harm alleged by NX likely already occurred because of the report’s alleged wide dissemination.  Although NX argued that a TRO could help at the margins, NX “fail[ed] to quantify the reputational injuries it will suffer if ATI continues to distribute the report” and thus failed to show irreparable injury.

Monday, November 20, 2017

Another court declines to apply GNC where plaintiff alleges only negative studies

Yeldo v. MusclePharm Corp., 2017 WL 5499588, Case No. 17-11011 (E.D. Mich. Nov. 16, 2017)

Yeldo brought a putative class action alleging that MusclePharm used misleading marketing practices to promote its glutamine dietary supplement, whose label and online ads indicate that it “enhances muscle growth and recovery, supports rebuilding and recovery from the toughest workouts, reduces catabolism and supports an anabolic environment, aids in muscle growth, causes faster recovery, and helps consumers rehydrate, rebuild, and recover faster and more efficiently.” Although glutamine naturally found within the body plays a role in muscle growth, recovery, and immunity support, Yeldo alleged that “glutamine supplementation has been found to be completely ineffective at mimicking these physiological responses.” Yeldo based his claims on nine scientific studies finding no benefit from glutamine.

The court found that Yeldo plausibly alleged falsity.  Although the court accepted that a plaintiff must plead the existence of a study that tests the combination of ingredients used in a given product, that means the active ingredient/s in combination.  Here, the product at issue relied only on one active ingredient. The studies alleged “support the proposition that glutamine supplementation has no effect on muscle performance or strength, muscle growth, recovery, or performance during exercise,” even if they didn’t test MusclePharm’s specific products or dosages. 

MusclePharm argued that some of the studies supported its claims, making the case more like In re GNC Corp., 789 F.3d 505 (4th Cir. 2015), which (wrongly) held that literal falsity is impossible unless all reasonable experts disagree with the advertising claim. Here, the complaint didn’t concede that any scientists found glutamine effective, and MusclePharm merely “cherry-pick[ed] sentences from the papers’ introduction sections, which summarize the findings of other studies or hypothesize conditions where supplemental glutamine may create the represented effects.”  Because the conclusions supported Yeldo’s argument, he stated a claim.  Weighing the merits of these scientific findings to determine which is most credible wasn’t appropriate on a motion to dismiss. [Which is why GNC is wrong.]

Nor did Yeldo need to plead how and when he consumed the product or whether he experienced the advertised benefits; he alleged that he bought and consumed the product and either would not have done so or would not have paid as much for the product if he’d known defendant’s representations were false. That monetary harm was sufficient. However, his negligent misrepresentation claim was barred by the economic loss doctrine.

Yeldo also had Article III standing to seek injunctive relief, because consumer protection statues, which provide for injunctive relief, could never be invoked to enjoin deceptive practices if the complaining consumer’s standing dissipated the moment she discovered the alleged deception and could no longer be fooled.

Yeldo’s claims weren’t preempted by the FDCA, since that statute deems food misbranded when the label contains a statement that is “false or misleading in any particular,” and so Yeldo’s claims paralleled the FDCA’s requirements; the conduct at issue would also give rise to liability under Michigan common law even if the FDCA had never been enacted. Nor did the doctrine of primary jurisdiction bar these claims.

To the spoliator does not go the victory in corporate betrayal case

OmniGen Research, LLC v. Wang, No. 16-cv-268, 2017 WL 5505041 (D. Or. Nov. 16, 2017)

After OmniGen successfully moved for a default judgment in its favor due to spoliation of evidence, the court awarded damages on OmniGen’s trade secret, false advertising, and related claims.  Default means that the factual allegations of the complaint, other than those about damages, will be taken as true.

While working for OmniGen, which makes feed addditives that improve the health of dairy cows and other animals, defendant Wang breached his contracts by secretly creating an OmniGen-clone Chinese business based on stolen OmniGen research and information, forming at least two entities, Bioshen and Mirigen.  He also applied for a Chinese patent that covers a knockoff of an OmniGen product, and had fellow individual defendant Zheng—who is Wang’s wife and ... does not have a background in biological sciences—listed as an inventor in his place, and employed similar tactics with the contact information for Bioshen and Mirigen.  He presented an OmniGen Research slide presentation (whose copyright OmniGen registered) as if it was his own at a large scientific conference in China, with many slides altered only to add the Mirigen logo.  At the conference, which was attended by over a thousand people, including academics, government officials, and business leaders, defendants’ marketing materials claimed to employ “the most advanced modern green agricultural technology from the United States.”  Wang represented the material copied from OmniGen’s slides as Mirigen’s and Bioshen’s, as well the innovations described therein.  [This seems to be Dastar-barred at least as a §43(a)(1)(A) claim, but in a default situation, don’t expect that to matter.]  His acts also led to the dissemination of confidential OmniGen research notes at the conference and elsewhere.  Bioshen and Mirigen also submitted a paper falsely describing research as part of their participation in the conference: the paper described a study conducted with pigs by Bioshen and Mirigen using their feed additive, when in fact the studies were conducted by OmniGen on sheep and dairy cattle using its feed additive. 

Unsurprisingly, the court found for OmniGen on its breach of contract, intentional interference with economic relations, and trade secret misappropriation claims.  As for false advertising, the court also found for OmniGen, including for stating that OmniGen’s slides were defendants’ work, for falsely describing the study, and for falsely claiming that Mirigen and Bioshen were affiliated with a ‘professor’ at Oregon State University.” The court accepted the complaint’s allegations that these statements were material because “they lend credibility to Wang, Bioshen, and Mirigen, giving them the appearance of relying on original scientific research and thinking.” The court further accepted that the statements were made in commercial advertising or promotion, and that the parties competed around the world, including in China.  Finally, and perhaps of greatest interest, the court accepted that defendants’ conduct affected interstate commerce because “Bioshen promotes itself as a U.S. company, attendees at the conference included people who do business in the U.S. and who represent companies that do business in the U.S., and people who review and comment on U.S. scientific research.”

The court also found that Wang breached his fiduciary duties to OmniGen, including, along with the above acts, intentionally sabotaging an OmniGen study he was assigned to work on, and fabricating or falsifying data.  OmniGen therefore repeated the work he was assigned to do.

As to damages, they must be proved to a reasonable degree of certainty, but where a defendant’s conduct makes damages difficult to determine, courts allow “broad latitude” in quantifying damages. Defendants’ $821,000 initial investment in Mirigen reflected OmniGen’s expectation interest under its agreements with Wang: if Wang had fully performed, “the Chinese patent would have been assigned to OmniGen and the investment garnered by that patent and other confidential information would have accrued to Plaintiffs rather than Wang’s competing business entity. These are concrete, certain, and quantifiable injuries under a contractual theory of recovery.” OmniGen didn’t seek a separate award for the intentional interference with economic relations.

On the trade secret claim, $821,000 was likewise reasonably certain and a conservative valuation of what was misappropriated.  OmniGen was also entitled to punitive damages due to Wang’s willful and malicious misappropriation, to a maximum of twice actual damages; the court determined that this was warranted, resulting in a total award of $2,463,000.  For copyright infringement, the court accepted that infringement occurred post-registration, entitling OmniGen to statutory damages.  Although the court was required to accept that infringement occurred post-registration, it wasn’t required to accept that the infringement was willful, as this wasn’t alleged in the complaint, and thus the court awarded the statutory minimum of $750.

Under the Lanham Act, OmniGen was entitled to damages, including profits, but defendants’ discovery abuse and spoliation of evidence related to damages prevented a precise calculation of Defendants’ profits.  The court found it equitable to award OmniGen the $821,000 as the value of Mirigen. Treble damages could be awarded “if the allegations in the complaint support it.”  OmniGen was harmed by defendants’ knowingly false statements, and “[a]s is common in such false advertising cases, quantifying damages is difficult (especially where evidence has been systematically destroyed by the defendant).”  The court nonetheless declined to award OmniGen an estimated $80,000 based on defendants’ head start/avoided costs of conducting its own studies, finding them an improper measure of actual damages, and one that would be punitive rather than compensatory. Nonetheless, the $821,000 was a conservative proxy of damages, and so the court enhanced it to $2,463,000, as justified by defendants’ intentional/willful conduct, especially in destroying evidence.  Enhancing damages would capture otherwise evanescent measures of goodwill, as well as deter defendants and others similarly situated from engaging in unfair and deceptive behavior.

Damages from Wang’s breaches of fiduciary duty were the costs to re-create or repeat research projects because of Wang’s breaches of fiduciary duty, or $252,000, as well as the recovery of all compensation paid during his period of disloyalty as damages, or $92,000.

Because OmniGen was limited to a single recovery, the total was $821,000 for breach of contract, misappropriation of trade secrets, and false advertising; $344,000 for Wang’s breach of fiduciary duty;  $750 for copyright infringement; and $1,642,000 for enhanced damages under the Lanham Act/punitive damages under state trade secret law.  [The language of the Lanham Act that enhanced damages can’t be punitive seems not to do a lot of work, given how the cases come out.]

The court likewise granted a permanent injunction.  The disclosure or threatened disclosure of trade secrets or even non-trade secret confidential information was sufficient to meet the irreparable injury requirement for a preliminary injunction, as was the consumer confusion, loss of good will, and increased market place barriers which can result, and, in this case, did result, from false advertising.  [Not clear whether this is entirely consistent with Herb Reed.]  Damages/legal remedies were also inadequate because the injuries were difficult to quantify, and they were also ongoing and could worsen without an injunction.

However, the court would not enjoin defendants from working for certain types of feed industry businesses; that was too much of a restraint on trade, as well as unfairly limiting defendants’ ability to satisfy the judgment in this case. The defendants were enjoined against further use of confidential information and false advertising, and also required to assign to OmniGen all their interest in the Chinese patent and application, as well as register the assignment with the Chinese government.

The court’s injunction was worldwide, given that defendants’ wrongful actions included conduct in China.

The court also awarded attorneys’ fees and costs pursuant to the Lanham Act, the Oregon Trade Secrets Act, and Fed. R. Civ. P. 37(b)(2)(C) (relating to spoliation of evidence).  As for the Lanham Act, the complaint’s allegation of intentional and willful false advertising was, “on its own, sufficient to establish the substantive weakness of Defendants’ litigation position.”  Defendants also litigated in an unreasonable manner, including Wang’s attempt to evade service by lying to the process server, an initial default, discovery violations, and a destruction of evidence “beyond anything previously witnessed by this Court.” The award of attorneys’ fees pursuant to the Oregon Trade Secrets Act and Lanham Act applied to the entire action and not just the individual claims under which the fees are authorized, because the claims all involved a common core of facts and were interrelated. Fees awarded were nearly $990,000.

Friday, November 17, 2017

We got the empire, now as then: Rogers precludes record label suit against Fox show

Twentieth Century Fox Television v. Empire Distribution, Inc., No. 16-55577 (9th Cir. Nov. 16, 2017) 

“Empire Distribution, founded in 2010, is a well-known and respected record label that records and releases albums in the urban music genre.”  Then came Fox’s TV show Empire, “which portrays a fictional hip hop music label named ‘Empire Enterprises’ that is based in New York” and “features songs in every episode, including some original music.” Columbia Records releases music from the show, and Fox promotes the show and its music through live musical performances, radio play, and consumer goods such as shirts and champagne glasses bearing the show’s “Empire” brand.  Fox sought a declaratory judgment of noninfringement and Empire counterclaimed for infringement and dilution. The district court granted summary judgment to Fox, relying on Rogers v. Grimaldi, and the court of appeals affirmed.

Empire argued that at least some of Fox’s uses weren’t part of expressive works and thus outside Rogers: Fox allegedly used the “Empire” mark “as an umbrella brand to promote and sell music and other commercial products.” The court of appeals found that these were only “technically” outside the title or body of an expressive work: works protected by Rogers “may be advertised and marketed by name.”  There was no reason to think the TV show was a pretextual expressive work “meant only to disguise a business profiting from another’s trademark”; Fox’s promotional activities, “including those that generate revenue, are auxiliary to the television show and music releases, which lie at the heart of its ‘Empire’ brand.”

A footnote in Rogers says that Rogers’ limiting construction of the Lanham Act wouldn’t apply to titles that are confusingly similar to other titles, because the public interest in sparing consumers this type of confusion outweighs the slight public interest in permitting authors to use such titles. But appellate courts haven’t cited this footnote, and even the Second Circuit applied Rogers in the subsequent Cliffs Notes case involving conflicting titles.  Any such exception might be “ill-advised or unnecessary,” and was anyway inconsistent with Ninth Circuit precedent speaking of Rogers as the test that applies when expressive works are accused.

Applying Rogers: Empire argued that, in order for Rogers to apply, the mark must have attained a meaning beyond its source-identifying function.  [Which, not for nothing, “empire” does—it just had that meaning before Empire entered the scene.] But that’s merely a consideration—expressive uses often, but not always, occur “when a brand name enters common parlance and comes to signify something more than the brand itself,” and Rogers is broader. Then, unfortunately, the court commented that “a mark that has no meaning beyond its source-identifying function is more likelyto be used in a way that has ‘no artistic relevance to the underlying work whatsoever,’ because the work may be “merely borrow[ing] another’s property to get attention’” (citing Dr. Seuss Enters. v. Penguin Books, sigh)—which of course is inconsistent; if the mark didn’t have some sort of meaning beyond source identification, it wouldn’t make sense to use it to get attention for an expressive work.

Here, Fox used the common English word “Empire” for artistically relevant reasons: “the show’s setting is New York, the Empire State, and its subject matter is a music and entertainment conglomerate, ‘Empire Enterprises,’ which is itself a figurative empire.”  Prong one was satisfied. There was no additional requirement, as argued by Empire, that the junior work refer to the senior mark. “A title may have artistic relevance by linking the work to another mark, as with ‘Barbie Girl,’ or it may have artistic relevance by supporting the themes and geographic setting of the work, as with Empire.”

The title wasn’t explicitly misleading.  Empire Distribution argued that the “relevant inquiry . . . is whether the defendant’s use of the mark would confuse consumers as to the source, sponsorship or content of the work.” But that’s the general likelihood-of-confusion test, which applies outside the Rogers context of expressive works. Likely consumer confusion wasn’t the key, but rather whether there was “an ‘explicit indication,’ ‘overt claim,’ or ‘explicit misstatement’ that caused such consumer confusion.” Fox’s Empire show contained no overt claims or explicit references to Empire Distribution, and thus wasn’t explicitly misleading; game over. 

Thursday, November 16, 2017

false advertising of copyright ownership of songs not preempted, court rules

Carter v. Pallante, 256 F. Supp. 3d 791 (N.D. Ill. 2017)

Tollie Carter sued, as relevant here, alleging that ARC, Fuji, and BMG infringed his copyrights in certain songs by selling unauthorized licenses to third parties, who in turn publicly performed the songs. Carter’s father, Calvin Carter, and his uncle, James Bracken, were songwriters, and Carter is their heir who allegedly recaptured rights in their works under §203 and §304.

Nonetheless, Carter alleged that the publisher defendants, “without [Carter’s] authorization or consent, represented to numerous third parties it could license—and did license to those third parties—the performance rights and other rights to [Carter’s songs].” The court found that claims for copyright infringement and contributory infringement were sufficiently pled.  Selling licenses plausibly violated Carter’s exclusive right to “distribute copies or phonorecords of the copyrighted work to the public by sale or other transfer of ownership, or by rental, lease, or lending.” [Which right?  Authorization isn’t usually considered a separate right, but merely the foundation for secondary liability, which does seem adequately alleged here.] The court rejected defendants’ argument that Carter needed to state who the third parties were, which songs were licensed, or when the licenses were sold, none of which is required under Rule 8 for copyright claims. “He cannot be expected to know at this stage who the third parties were, when these sales occurred, or which of his songs were licensed. This information, if it exists, is exclusively within the Publisher Defendants’ knowledge, and Carter can obtain it only through discovery.”  So too with contributory and vicarious copyright infringement.

DMCA §1202: The claim for removing CMI also survived, even though the alleged removal here didn’t relate to “the Internet, electronic commerce, automated copyright protections or management systems, public registers, or other technological measures or processes as contemplated in the DMCA as a whole.” The plain text of the statute doesn’t require any of that.  Further, defendants argued that Carter didn’t plead that false copyright information was conveyed “with copies of the work.”  But under Rule 8 he didn’t to plead particularized facts as to how, when, and to whom the publishers communicated false information in connection with their purported licensing agreements. “In any event, Carter unmistakably alleges that false copyright information was conveyed with copies of the work by way of the licensing agreements he claims the Publisher Defendants entered into with third parties.” [That doesn’t seem right—again the court seems to be conflating authorization with actual exercise of a §106 right.]

State law claims, however, were mostly preempted, including tortious interference claims. The partial exception was deceptive trade practices under the Illinois Uniform Deceptive Trade Practices Act, which covers “pass[ing] off goods or services as those of another” and “caus[ing] likelihood of confusion or of misunderstanding as to the source ... of goods” as deceptive trade practices. The claim that publishers passed off the copyrighted songs as their own, so that consumers would license them, “falls squarely within the Copyright Act and is therefore preempted.”  However, allegations that the defendants “misrepresented that they owned the copyrighted songs in advertising material without infringing copyrights to the songs” were sufficient, since “[m]aking misrepresentations about a copyrighted work in advertising material—short of licensing the copyrighted works at issue or taking any other action in connection with a copyright owners exclusive rights—is not among the exclusive rights enumerated in § 106 of the Copyright Act.”  This doesn’t seem right under Dastar—the interpretation of “source” is usually the same under state and federal law, and Dastar’s reasoning should justify conflict preemption of state law anyway.

physical harm to the public isn't irreparable harm for competitor plaintiff

Nutrition Distribution, LLC v. Enhanced Athlete, Inc., 2017 WL 5467252, No. 17-cv-2069 (E.D. Cal. Nov. 14, 2017)

Defendants allegedly falsely advertised products containing 2,4-Dinitrophenol (DNP) to body builders, gym users, and the like. Defendants allegedly promote it as an ingestible fitness supplement that increases fat loss, despite the health dangers it poses. The plaintiff sells its own competing supplement, and sued for false advertising and RICO violations. The court found that there could be no preliminary injunction because the plaintiff hadn’t shown irreparable harm.  After eBay, the court declined to presume irreparable harm from falsity and materiality. Health harm to the public was third-party harm, relevant to the public interest but not to whether the plaintiff had shown irreparable harm to itself.  The plaintiff’s claim of lost sales since the introduction of DNP into the market didn’t show a causal connection between the two, and anyway lost sales could be remedied by money damages.

Wednesday, November 15, 2017

Church & Dwight not protected against challenge to "Made in USA" claim for condoms

Claiborne v. Church & Dwight Co., 2017 WL 5256752, No. 17-cv-00746 (S.D. Cal. Nov. 13, 2017)

At least two lines of Trojan brand male condoms have the words “Made in U.S.A.” printed on the packaging. This statement allegedly violates California law because more than ten percent of the condoms’ wholesale value allegedly derives from natural latex material produced outside of the United States.  Claiborne alleged that the condoms state that they contain natural latex, and that US domestic production of natural latex is minimal, with 90% of the global supply coming from Southeast Asia.  Further, the US is allegedly the largest consumer of natural latex—accounting for approximately 20% of global consumption. In addition, the natural latex is allegedly the only substantial component of the Condoms.

The court found that Claiborne plausibly alleged that more than ten percent of the condoms’ wholesale value comes from outside of the United States, which would make it unlawful to market as “Made in U.S.A.” in California.  It was true that Claiborne didn’t allege exactly what percentage of the wholesale value comes from abroad, but all he needed to do was plausibly allege that the foreign wholesale value was greater than ten percent, rather than an exact percentage above that.

Claiborne also plausibly alleged that he suffered damage: he alleged that, but for the “Made in U.S.A.” representation, he would not have purchased the condoms or he would have paid less. That’s enough under Kwikset.  He also had standing to pursue injunctive relief even though he now believed the representations were currently false (this opinion appeared to have been drafted before the 9th Circuit’s recent ruling on this, because the court says there’s no binding authority; fortunately the court’s reasoning is consistent with the current law).  “[W]here false advertising misleads a consumer, the consumer tends to suffer continuing injury in the form of a lessened ability to trust that any similar future representation is accurate.” Relief “could restore the consumer’s trust, thus aiding him in making informed purchasing decisions in the future.”  Claiborne didn’t need a present intention to purchase a Trojan product in the future; false advertising still injured him “because it lessens his ability to gather all relevant information and incorporate it into his future purchasing decisions.”

Church & Dwight argued that, even under this approach, the allegations of the complaint established that it is not possible for a natural latex condom to carry a lawful “Made in U.S.A.” label because of insufficient domestic natural rubber production. That wasn’t true; it merely alleged that, because of the current domestic supply/demand imbalance, C&D uses imported natural latex.  If C&D changed its sourcing, it could keep the label.

TM question of the day

Game of Bones (at the science museum):

Thursday, November 09, 2017

230 bars false advertising claim against antimalware provider

Enigma Software Group USA LLC v. Malwarebytes Inc., No. 5:17-cv-02915, 2017 WL 5153698 (N.D. Cal. Nov. 7, 2017)

Malwarebytes and Enigma compete in the anti-malware software market.  When Malwarebytes’s software detects an unwanted program, it displays a notification and asks the user if she wants to remove the program from her computer. Enigma alleged that, in 2016, Malwarebytes started to misleadingly identify Enigma’s software as a potential threat, in order to interfere with Enigma’s customer base and to retaliate against Enigma for a separate lawsuit Enigma filed against a Malwarebytes affiliate.  Enigma sued for false advertising under state and federal law, as well as tortious interference. The court found all claims barred by § 230(c)(2) of the Communications Decency Act, specifically subsection (B): “No provider or user of an interactive computer service shall be held liable on account of … any action taken to enable or make available to information content providers or others the technical means to restrict access to material [that the provider or user considers to be obscene, lewd, lascivious, filthy, excessively violent, harassing, or otherwise objectionable, whether or not such material is constitutionally protected].”

Zango, Inc. v. Kaspersky, 568 F.3d 1169 (9th Cir. 2009), indicated that “companies that provide filtering tools,” such as Kaspersky, are eligible for immunity under § 230(c). It found that Kaspersky qualified as a service provider, and “has ‘made available’ for its users the technical means to restrict items that Kaspersky has defined as malware.” Thus, Kaspersky qualified for immunity under § 230(c)(2)(B) “so long as the blocked items are objectionable material under § 230(c)(2)(A).” Kaspersky properly classified malware as “objectionable” material.

Enigma argued that Zango was distinguishable because malware, as defined by Malwarebytes’s criteria, wasn’t material that is “obscene, lewd, lascivious, filthy, excessively violent, harassing, or otherwise objectionable” because it is “not remotely related to the content categories enumerated.” Zango did not address whether an anti-malware provider has discretion to decide what is “objectionable” because that argument was waived.  However, Zango clearly held that § 230(c)(2)(B) immunity applies to “a provider of computer services that makes available software that filters or screens material that the user or the provider deems objectionable.” Thus, Zango was factually indistinguishable.

Enigma then argued that Malwarebytes was entitled to § 230(c)(2)(B) immunity only if it acted in “good faith.” Subsection (A) protects “any action voluntarily taken in good faith” to restrict access to objectionable material, but subsection (B) has no good-faith requirement.  The court refused to imply one; Congress knew how to put one in if it wanted, especially given that subsection (B) includes an explicit reference to subsection (A) with respect to the types of material to which immunity applies.

Finally, Enigma’s Lanham Act claim didn’t entitle it to use the IP exclusion; a false advertising claim is not a trademark claim for §230 purposes.