Friday, August 28, 2015

Upset tummies at P&G: Sixth Circuit affirms class certification on "snake oil" theory

Rikos v. Procter & Gamble Co., --- F.3d ----, 2015 WL 4978712 (6th Cir. June 16, 2015)
 
A court of appeals affirms the certification of a consumer protection class action, a rarity worth noting.
 
Plaintiffs bought Align, P&G’s probiotic nutritional supplement, and found that the product did not work as advertised—that is, it did not promote their digestive health. They sued for violation of various state unfair or deceptive practices statutes, and  the district court certified five single-state classes from California, Illinois, Florida, New Hampshire, and North Carolina. “While there is a consensus within the medical and scientific communities that utilizing bacteria as a therapeutic measure in human disease is promising, current knowledge of the use of bacteria for these purposes remains fairly primitive.” Overall “[m]edical understanding of probiotics in humans is still in its infancy.” Align is a nonprescription supplement sold in a capsule that is “filled with bacteria and [otherwise] inert ingredients.”
 
P&G initially had trouble convincing consumers of Align’s value, given its premium price point, though it eventually launched Align nationwide through a comprehensive advertising campaign, which included in-person physician visits, television and print advertisements, in-store displays, and product packaging.
 
Commonality: P&G argued that there was no common injury, only anecdotal evidence that Align didn’t work for the named plaintiffs.  Consumer satisfaction, and repeat purchases, showed Align’s benefits—along with at least some studies that appeared to concluded that Align was effective in promoting digestive health.  Dukes doesn’t require plaintiffs to show that all class members were in fact injured at the certification stage—rather that their claims depend on a common contention capable of classwide resolution.  The common question here was whether Align is “snake oil” and thus does not yield benefits to anyone.  If true, that would make P&G liable to the entire class “every class member was injured in the sense that he or she spent money on a product that does not work as advertised.”  Consumer satisfaction isn’t the right way to think about injury in the false advertising context.  It’s misleading to state that a product is effective when that effectiveness rests solely on a placebo effect. See, e.g., FTC v. Pantron I Corporation, 33 F.3d 1088 (9th Cir. 1994).
 
Typicality: basically the same, though P&G framed its argument as being that “many of the unnamed class members have no interest in pursuing restitution, nor in crippling the product. Indeed, this lawsuit may be antithetical to their interests.” That didn’t make the named plaintiffs atypical in the relevant sense.
 
Predominance:  P&G alleged that some putative class members weren’t exposed to its marketing campaign; they may have bought Align based on advice from a family member, friend, or physician.  But the plaintiffs all bought Align because it allegedly promoted digestive health. “That is the only reason to buy Align.” And there was evidence showing that P & G undertook “a comprehensive marketing strategy with a uniform core message, even if its packaging has changed somewhat over time: buy Align because it will help promote your digestive health.”  P&G argued that doctors could recommend Align based on their independent judgment, but P&G developed the probiotic and the campaign that promoted it to doctors.
 
Reliance and causation: under each state’s laws, the plaintiffs could prove what was necessary on a classwide basis as long as (1) the alleged misrepresentation that Align promotes digestive health is material or likely to deceive a reasonable consumer, and (2) P & G made that misrepresentation in a generally uniform way to the entire class.  California is Tobacco II.  Illinois’ ICFA requires a showing of damage to the plaintiff as a result of the deception—that is, proximate cause from the false advertising.  If the challenged representation was made to all putative class members and was material, it’s capable of classwide proof.  Florida’s FDUTPA case law is divided, but many courts have held that it doesn’t require proof of actual, individualized reliance, only a showing that the practice was likely to deceive a reasonable consumer, at least as long as there’s a generally uniform material misrepresentation.  New Hampshire’s Consumer Protection Act also doesn’t require proof of individual reliance or causation; materiality is a proxy for causation and an objective question that can be answered classwide.  North Carolina’s UDTPA requires reliance, but reliance can be proved circumstantially, and a consumer protection class action can be certified on those grounds, especially since the alleged misrepresentation here was the reason to buy Align.  Plaintiffs were prepared to show materiality and the existence of a generally uniform misreprentation; that sufficed.
 
P&G argued that Align actually works, at least for some consumers, which is to say that the scientific evidence might show that Align provides benefits for some purchasers, but not all, requiring individualized proof of injury.  But this is a factual dispute; plaintiffs argued that P&G’s studies were flawed and that Align didn’t work, at least not any more than placebo.  Plaintiffs’ theory was not that the effectiveness of Align was variable, but that it hadn’t been shown that Align worked for anyone.  P&G’s effectiveness argument went solely to the merits, and plaintiffs provided enough evidence to support plaintiffs’ theory of liability. The fact that the common answer might be that Align does work for some people doesn’t transform the classwide issue into one precluding certification.  If there’s an identifiable subclass of people for whom it works or doesn’t work, the district court could even revisit the issue of certification.
 
The court’s holding was is consistent with the Supreme Court’s recent decision in Halliburton Co. v. Erica P. John Fund, Inc., ––– U.S. –––– (2014), which held that, at the class-certification stage, defendants in private securities fraud class actions must be able to present evidence rebutting a particular presumption of classwide reliance available in these kinds of cases. “The Halliburton Court’s holding is limited to allowing rebuttal evidence on issues that affect predominance, not evidence that affects only the merits of a case,” and P&G’s evidence went only to the merits; in any event, P&G was allowed to put forth its evidence, so Halliburton was satisfied.
 
Relatedly, P&G argued that plaintiffs failed to present a viable theory of classwide damages under Comcast Corp. v. Behrend, ––– U.S.–––– (2013).  If Align is snake oil, then there’s no problem with the damages theory; a full refund of the purchase price would satisfy Comcast, since “there is no reason to buy Align except for its purported digestive benefits—‘[i]t is a capsule filled with bacteria and inert ingredients. If, as alleged, the bacteria does nothing, then the capsule is worthless.’” Even if some customers were satisfied, for whatever reason, “either 0% or 100% of the proposed class members were defrauded. There is no evidence that some proposed class members knew of the alleged falsity of Defendant’s advertising yet purchased Align anyway.”
 
P&G also contested class standing, on similar grounds (Align may have worked for some of them).  There was no need to enter a circuit split over whether it’s sufficient for a named class plaintiff to have standing, given the snake oil theory of the case.
 
Further, the proposed class was sufficiently ascertainable.  Carrera v. Bayer Corp., 727 F.3d 300 (3d Cir. 2013), is not the law of the Sixth Circuit, and there was no reason to follow Carrera, given the strong criticism to which that decision has been subject and the Third Circuit’s subsequent caution against a broad reading of that case.  Ascertainability requires the court to be able to resolve the question of class membership with reasonable accuracy by reference to objective criteria.  Purchases of Align in California, New Hampshire, Illinois, North Carolina, or Florida could be determined with reasonable—but not perfect—accuracy. “Doing so would require substantial review, likely of internal P & G data. But as the district court pointed out, such review could be supplemented through the use of receipts, affidavits, and a special master to review individual claims.”  Here, customer membership cards and records of online sales—more than half of Align’s sales—could be used; also, P&G’s studies showed that “an overwhelming number of customers learned about Align through their physicians,” so verification could be accomplished through a signed statement from a customer’s physician.
 
A concurrence by Judge Cohn suggested bifurcating the proceedings and first looking for whether there was scientific evidence that Align promotes digestive heath for anyone, which might allow early dismissal of the case.
 
A dissent by Judge Cook would have found that the district court abused its discretion by failing to conduct a rigorous inquiry into certification.  Plaintiffs didn’t offer proof in support of their argument that Align was “snake oil” that produces nothing more than a placebo effect.”[A]ll the available evidence tends to show the opposite: that consumers benefit more or less from Align based on their individual gastrointestinal health. P & G’s scientific studies and anecdotal evidence tend to show, at the very least, that patients suffering from irritable bowel syndrome (IBS) benefit from Align.”  The certified class included both IBS patients and healthy consumers, so plaintiffs failed to show that their theory of liability lends itself to common investigation and resolution.  Whether Align works similarly for each class member “is relevant to certification and therefore not beyond the scope of the court’s rigorous analysis.” Also, the majority therefore affirmed a class definition that included a “clutch” of members without standing.  Plaintiffs’ “promise to conduct the definitive trial of Align that accounts for all variables of human physiology” was insufficient under Dukes and its progeny.

Wednesday, August 26, 2015

Fifth Circuit upholds mandatory self-abnegating disclosure to correct competitor's harassment

Test Masters Educational Services, Inc. v. Robin Singh Educational Services, Inc., No. 13-20250 (5th Cir. Aug. 21, 2015)
 
The parties, test prep companies, have competing claims to TESTMASTERS as a trademark, and have been litigating for over a decade.  Plaintiff TES operates under the name Testmasters; it was founded in 1991, initially concentrating on engineering licensing exams but expanding to others, including the LSAT. Until 2002, TES offered live courses only in Texas, primarily in Houston; it has since expanded outside Texas.  Singh started offering test preparation courses under the name “TestMasters” in 1991. Singh initially offered only LSAT courses in California, but has since expanded to offer courses nationwide for a variety of exams.
 
Singh applied for registration in 1995; the PTO first denied the application on the basis of other similar marks, but approved the application “after determining that none of the three marks were still in use.” At that point, Singh discovered that TES already owned the domain name “testmasters.com” and sent TES a demand letter.  Litigation ensued, and continued.  In 2002, the Fifth Circuit held that TESTMASTERS was descriptive, that TES’s rights to the mark were limited to Texas, and that Singh had failed to prove that the mark had acquired secondary meaning.  After the second lawsuit, in 2005, Singh was enjoined from interfering with TES’s use of the mark in Texas, and Singh was permitted to challenge TES’s claim to the mark outside of Texas.
 
Also, TES applied for nationwide registration in 2001; Singh opposed.  In 2011, after a lot of stuff I’m sure everyone involved wishes they could’ve skipped too, the TTAB denied the applications, holding that the mark was descriptive and that TES had failed to demonstrate “substantially exclusive use” of the descriptive mark. In April 2013, the district court affirmed the TTAB’s decision, granted Singh summary judgment on TES’s infringement claims, and dismissed Singh’s infringement counterclaims based on collateral estoppel.  There was also a contempt issue, of which more below.
 
On appeal, TES argued that Singh lacked standing to oppose the registration, because he’d previously lost on the secondary meaning issue.  But he’d only been enjoined from pursuing registration, not from claiming trademark rights, so he had standing.  TES further argued that it had presented enough evidence of secondary meaning in “unrestricted geographic and subject matter areas” to survive summary judgment.  It had not.  The evidence showed that both parties had used the mark for a while, and that Singh’s company was larger and did significantly more business outside Texas.  Both parties advertised extensively, TES mostly to engineering students and Singh primarily to LSAT takers.  TES’s survey was flawed because, though it asked engineering exam-takers whether they associated “Testmasters” with one company, it didn’t determine which one that was for the 50.7% who said yes.  Plus, the survey was directed only at people taking engineering exams and half of those polled were from Texas. As for direct consumer evidence, the court of appeals agreed with the district court that “[e]ach party’s evidence shows that, in its strongest subject matter area, it is well-known and there may be some consumer confusion.”
 
What TES needed to show to prove its case was that the mark had “secondary meaning on a nationwide basis for all test preparation courses.” At most, it showed that the mark has acquired a secondary meaning for professional engineering examinations, not any other test preparation services.
 
Singh argued that the district court erred in finding him collaterally estopped from claiming secondary meaning.  It didn’t.  Singh claimed that the passage of 13 years changed things enough to justify giving him another bite at the apple: among other things, his annual revenues increased from just over $3 million in 2001 to an average of $14 million between 2008 and 2010. But “[e]vidence of increased business success alone is insufficient to show a significant intervening change” to justify rejecting collateral estoppel.
 
The court of appeals vacated a contempt order against Singh’s lawyer, Daniel Sheehan, but not against Singh.  In 2003 and 2004, the district court enjoined Singh from registering the mark, interfering with TES’s attempt to register the mark, and using the mark in Texas/directing the mark at Texas; then added an order barring Singh from “threatening, or harassing [TES], its employees, its staff, or TES’s counsel, counsel’s employees, or counsel’s staff.” (A bar on direct communication was reversed by the court of appeals; the threat/harassment prohibitions were upheld.)
 
According to TES, Singh continued to advertise in Texas, instructed employees to post negative comments about TES on various websites, and aided in the posting of defamatory videos online. One posting referenced a state-court paternity suit involving TES’s founder, calling him a “deadbeat dad” and mentioning the minor child involved in the suit by name.  At the contempt hearing, the court ordered Singh’s lawyer incarcerated to get Singh to remove the postings, which Singh took steps to do; the court also ordered Singh to remove the harassing posts. 
 
TES then requested additional contempt sanctions, which were granted in part, and the district court ordered Singh to publish a “remedial posting” on “ripoffreport.com” in response to the “deadbeat dad” post he had previously made, requiring him to post: “Robin Singh and Robin Singh Educational Services previously posted on March 25, 2010, a Complaint Review of Dr. Haku Israni and his website testmasters.com. Singh and Dr. Israni were involved in litigation at that time and Singh would now like to retract his prior complaint. No credence should be paid to that complaint or any of its contents.”
 
Singh argued that the contempt sanctions and remedial order violated the First Amendment. The court of appeals disagreed.  Harassment isn’t protected by the First Amendment, even when the harassment is published on the internet and not directly communicated to the target.
 
Singh also argued that the remedial statement violated his First Amendment right not to speak, and that he was forced to say things that were simply untrue, because he didn’t “wish” to retract his complaint and believed that credence should be given to his claims.  Singh’s statements were commercial speech.  Though the post focused on TES’s founder’s personal life, “Singh must have made it with the economic interest of harming TES.”  A required disclosure related to commercial speech need only be “reasonably related to the [government’s] interest in preventing deception of consumers.” Because the original posting was deceptive, the district court’s order was reasonably related to its interest in preventing consumer deception by correcting the misleading information.  Singh’s objection to the language indicating he’d like to retract the statements didn’t identify a “relevant” falsehood.  “Whether Singh enjoyed taking this medicine is an insignificant question of phrasing.”
 
[Note that under the panel opinion in the NAM v. SEC case, this result couldn’t occur.  The Ripoff Report complaint isn’t “advertising” even if it is commercial speech, and the like/credence wording would seem to trigger the controversiality/not purely factual limit as interpreted therein.]

Monday, August 24, 2015

DC Circuit panel doubles down on invalidating conflict minerals disclosure

Nat’l Ass’n of Mfgrs v. SEC, No. 13-5252 (D.C. Cir. Aug. 18, 2105)
 
After the AMI en banc decision, the panel granted rehearing of National Association of Manufacturers v. SEC, 748 F.3d 359 (D.C. Cir. 2014).  The panel, over a dissent, confirmed its initial ruling that the conflict mineral SEC disclosure rule was unconstitutional, in the process saying some dumb things about what constitutes commercial speech (the panel didn’t think product labels count) and some very troubling things about legislative factfinding (apparently not allowed in the face of controversy).  Basically, the panel majority strongly disagrees with the AMI en banc, so there.
 
The AMI en banc majority held that Zauderer covers more than mandatory disclosures that cure misleading advertising, and also covers disclosures that serve other governmental interests, such as allowing consumers to choose American-made products.
 
The majority here began by responding to the dissent, which pointed out that US law has a lot of disclosure requirements for securities issuers, and First Amendment challenges to them really died in the 80s.  But—SEC, get nervous—“Charles Dickens had a few words about this form of argumentation: ‘“Whatever is is right”; an aphorism that would be as final as it is lazy, did it not include the troublesome consequence, that nothing that ever was, was wrong.’” And anyway, even the SEC agrees that the conflict minerals disclosure regime is very different from the “economic or investor protection benefits” that SEC rules ordinarily strive to achieve.
 
Zauderer doesn’t cover all commercial speech, only “advertising or product labeling at the point of sale,” so Central Hudson applied.  The Supreme Court, after all, didn’t apply Zauderer in Hurley v. Irish-American Gay, Lesbian and Bisexual Group of Boston, 515 U.S. 557 (1995) or United States v. United Foods, Inc., 533 U.S. 405 (2001), and corporations generally have free speech rights.  The conflict minerals disclosures are supposed to be made on company websites and reports to the SEC, so they aren’t advertising, even assuming they’re commercial speech.  [Like I said, get nervous, SEC.]
 
The dissent takes this on very well, but I also find the majority’s analysis here disingenuous; there is a large and contentious literature about what constitutes commercial speech, but Hurley is not part of it, because no one thought that Hurley’s parade involved commercial speech.  The distinction Hurley made was commercial/noncommercial, not advertising/commercial speech that is not advertising; “advertising” is standard shorthand for commercial speech. 
 
The majority noted the dissent’s objection to the anomalous result that requiring producers to put the conflict minerals disclosure on their product boxes—a much more onerous requirement—is judged by more relaxed standards than the SEC reporting requirement, but said that was AMI’s fault for “stretching Zauderer to cover laws compelling disclosures at the time of sale for reasons other than preventing consumer deception.”  And the disingenuousness intensifies!  Apparently Zauderer doesn’t apply when a commercial entity engages in false or misleading commercial speech that isn’t “advertising”?  That is nonsensical.  The panel majority doesn’t like AMI, I get it, but there are reasonable ways to limit AMI and unreasonable ones.  Perhaps this is basically a dare to the overall circuit to take this case en banc if the government so desires, but the reasoning is just embarrassing.
 
Anyway, even if AMI and Zauderer applied, the conflict minerals disclosure would still violate the First Amendment, because it might not work to end war in the Congo.  Though the court assumed that “ameliorat[ing] the humanitarian crisis in the DRC” was a sufficient interest under AMI and Central Hudson, disclosure hadn’t been shown to be effective at achieving that interest.  Statements by two Senators, members of the executive branch, and a United Nations resolution were insufficient, especially given the cost of compliance, which was in the billions, and hundreds of millions of dollars each year. (I do not understand what the cost of compliance has to do with effectiveness, but let’s just call that a conflation of several Central Hudson steps; it’s hardly the worst offense of this opinion.)  The prospect that companies will simply avoid mineral suppliers with a connection to the DRC wouldn’t reduce the humanitarian crisis: “The idea must be that the forced disclosure regime will decrease the revenue of armed groups in the DRC and their loss of revenue will end or at least diminish the humanitarian crisis there. But there is a major problem with this idea – it is entirely unproven and rests on pure speculation.”
 
In commercial speech cases the government cannot rest on “speculation or conjecture.”  Congress didn’t hold pre-enactment hearings on the likely impact of disclosure, and post-enactment hearings contained testimony both pro and con.  Post hoc evidence suggested that the law may have backfired: “miners are being put out of work or are seeing even their meager wages substantially reduced, thus exacerbating the humanitarian crisis and driving them into the rebels’ camps as a last resort.”  Other sources support the disclosure, but its effectiveness was not “proven to the degree required under the First Amendment to compel speech.”
 
[Part of the problem is the failure of the government to defend an investor’s interest in refusing to participate directly in or benefit directly from harm-generating activities, even if that refusal does not stop the harm and only allows the investor to walk away from Omelas.  The best explanation of this interest as a distinct one in legal terms is Douglas Kysar’s Preferences for Process: The Process/Product Distinction and the Regulation of Consumer Choice.  Disclosure, which allows investors (and potentially consumers) to make this choice to implicate or not implicate themselves, directly furthers that exact interest.]
 
That was enough to doom the regulation, but the disclosure was also not “purely factual and uncontroversial,” as required by Zauderer and AMI.  You could read this phrase as descriptive rather than definitional in Zauderer, but AMI said it was a separate requirement for upholding the disclosure, and the panel was, after all, bound by AMI.  [OK, now the majority is just acting like a jerk.  Brutus is an honorable man and all that.]
 
“Uncontroversial” must mean something different than “purely factual.”  It has to be controversial for some reason other than a dispute about factual accuracy.  We could understand this as a fact/opinion divide,
 
[b]ut that line is often blurred, and it is far from clear that all opinions are controversial. Is Einstein’s General Theory of Relativity fact or opinion, and should it be regarded as controversial? If the government required labels on all internal combustion engines stating that “USE OF THIS PRODUCT CONTRIBUTES TO GLOBAL WARMING” would that be fact or opinion? It is easy to convert many statements of opinion into assertions of fact simply by removing the words “in my opinion” or removing “in the opinion of many scientists” or removing “in the opinion of  many experts.” It is also the case that propositions once regarded as factual and uncontroversial may turn out to be something quite different.
 
A footnote discussed changing scientific opinions on the contribution of dietary cholesterol to blood cholesterol, and when the assessment of factual correctness ought to be made, at enactment or at the time of challenge/controversy.  [Though it did not discuss the extensive body of law that deals with whether starting a factual statement with “in my opinion” means that the statement is one of opinion and not fact.   Spoiler: no.  So the minor premise is wrong too.  In my opinion.]
 
Anyway, the AMI en banc viewed country of origin of disclosures for meat as “uncontroversial,” but that was puzzling, rather than providing guidance.  There was definitely a dispute about those disclosures, since they were challenged at the WTO.  [Again, disingenuous.  AMI didn’t give a great definition of “uncontroversial” by any means, but no one disputed that meat required to be labeled as having been slaughtered in the US was in fact slaughtered in the US—unlike the cholesterol example.  Those origin labels were the paradigmatic disclosures that were controversial “for reasons other than dispute over factual accuracy.”  I also note that we’re not going to hear about biased disclosure regulations surrounding abortion in this discussion, because abortion’s First Amendment is just different.]
 
The dissent’s alternative was to read “uncontroversial” as “accurate,” which made the phrase redundant.  “Is there such a thing as a ‘purely factual’ proposition that is not ‘accurate’?  [Well, yes.  “My car is red” is a purely factual proposition.  It is not accurate, at least if I said it.]  Accurate information can also be misleading, anyway, so it’s a bad line.
 
Nor could the statutory  definition  of “conflict free” save the law, because the government doesn’t get to force companies to use its preferred language.  [FDA, get more nervous.]  As NAM said, “companies could be compelled to state that their products are not ‘environmentally sustainable’ or ‘fair trade’ if the government provided ‘factual’ definitions of those slogans – even if the companies vehemently disagreed that their [products] were ‘unsustainable’ or ‘unfair.’” The majority continued:
 
A famous example of governmental redefinition comes to mind:
WAR IS PEACE
FREEDOM IS SLAVERY
IGNORANCE IS STRENGTH
George Orwell, Nineteen Eighty-Four.
 
[Professor Tushnet is impressed, and wonders where, rhetorically, there is to go from here.] “Conflict free” is an ideological statement, since gold doesn’t fight conflicts; the disclosure requires companies “to tell consumers that its products are ethically tainted, even if they only indirectly finance armed groups.”  Companies are allowed to disagree with that assessment, even by remaining silent.
 
Judge Srinivasan dissented.  There are lots of “garden-variety” disclosure obligations for securities issuers that no one [but the majority] thinks are a First Amendment problem.  The conflict minerals disclosure “provides investors and consumers with useful information about the geographic origins of a product’s source materials”—an interest specifically upheld as time-honored in AMI.  The term “DRC conflict free” is statutorily defined; if the issuer can’t determine, after investigation, that a product is “DRC conflict free” under the statutory definition, it must say so in a report disclosing that the product has “not been found to be ‘DRC conflict free.’”
 
The requirement to make that disclosure, in light of the anticipated reaction by investors and consumers, aims to dissuade manufacturers from purchasing minerals that fund armed groups in the DRC region. That goal is unique to this securities law; but the basic mechanism—disclosure of factual information about a product in anticipation of a consumer reaction—is regular fare for governmental disclosure mandates.
 
There was no First Amendment objection to the source-investigation obligation.  Nor was there a challenge to the obligation to list products that fail to qualify as “DRC conflict free” in a report for investors. They just objected to the requirement to describe the listed products with the catchphrase “not been found to be ‘DRC conflict free.’” But the prescribed shorthand phrase couldn’t materially change the constitutional calculus.  This shorthand “comes amidst a set of mandated disclosures about the measures undertaken to determine the source of minerals originating in the DRC or adjoining countries.” So the meaning would be apparent in context, and the SEC also allowed issuers to elaborate however they wanted, including the statement that this is “a phrase we are obligated to use under federal securities laws to describe products when we are unable to determine that they contain no minerals that directly or indirectly finance or benefit armed groups in the DRC or an adjoining country.” At that point, there would seem to be nothing arguably confusing or misleading about the content of the Rule’s mandated disclosure.
 
The basic rule is that, “when the government requires disclosure of truthful, factual information about a product to consumers, a company’s First Amendment interest in withholding that information from its consumers is ‘minimal.’”  That’s enough to sustain this rule.  Though the disclosure “invites public scrutiny,” that’s also true of other requirements, such as required calorie count or nutritional information.  Even under Central Hudson, this requirement would survive, given that commercial speech is valued for different reasons than non-commercial speech—it helps consumers through providing them information.
 
Whether Zauderer or Central Hudson applies depends on whether a regulation adds information to the flow of truthful commercial speech, or suppresses some truthful commercial speech. Under that standard, Zauderer obviously applies.  The speech at issue is commercial: it requires manufacturers to disclose information about product composition. The fact that this disclosure appears on websites and annual reports filed with the SEC doesn’t change its status as commercial speech; United States v. Philip Morris USA, Inc., 566 F.3d 1095 (D.C. Cir. 2009) (per curiam), “treated corrective statements about products required to be included on the company’s website as commercial speech” in response to Philip Morris’ argument that such disclosures couldn’t be commercial speech because they were unattached to ads.  Philip Morris held that commercial speech “include[s] material representations about the efficacy, safety, and quality of the advertiser’s product, and other information asserted for the purpose of persuading the public to purchase” (or, given the corrective disclosures at issue, not to purchase) “the product.” 
 
The newly minted subclassing of Zauderer to only some instances of commercial speech contradicted Zauderer’s core rationale, which is that First Amendment protection for commercial speech is justified only by its informational value to consumers.  Its results were silly—“[a]fter all, if faced with the choice between an annual website report and product packaging, a seller would predictably opt for the former,” but the majority’s approach made it easier to impose a packaging disclosure requirement than a website disclosure.  As I noted above, this had nothing to do with AMI, since the new rule applies to anti-deception disclosures as well.  Zauderer “unsurprisingly used the word ‘advertising’ numerous times in the relevant part of the opinion, but only because that was the particular factual context in which the case arose. For what it’s worth, the Court also used ‘commercial speech’ and ‘commercial speaker’ a number of times in the same part of the opinion when explaining the rationale for the relaxed First Amendment standard it set forth, and it also did so when framing the question it addressed in that part of its opinion.”  Nor did AMI even stop to address whether “labels” were more like “advertising” than like “non-advertising commercial speech,” because Zauderer applies to commercial speech.  Hurley isn’t a commercial speech case, and United Foods merely described Zauderer’s outcome.
 
Under Zauderer, this disclosure was purely factual and uncontroversial—a standard that must be assessed in light of Zauderer’s rationale, which is the value of commercial speech in providing consumers with useful information about products and services. That value is supported by the disclosure of purely factual and accurate information; thus Zauderer requires that the factual disclosure must be non-deceptive, and cannot prescribe “what shall be orthodox in politics, nationalism, religion, or other matters of opinion.”  The disclosure must be uncontroversially factual: there could be no “disagree[ment] with the truth of the facts required to be disclosed.” “[E]ven if the disclosure qualifies as ‘purely factual,’ it would still fall outside of Zauderer review if the accuracy of the particular information disclosed were subject to dispute.”  The meaning of “uncontroversial” should be tethered to the core question of whether the disclosure is “factual.” Were it not so, AMI should have come out the other way, as the panel majority recognized.
 
Under those principles, the requirement to identify whether a product has “been found to be ‘DRC conflict free’” calls for disclosure of “purely factual and uncontroversial” information, because “DRC conflict free” is a defined term of art.  It’s not misleading, especially in its context, which is a description of the manufacturer’s attempts to identify the source of the minerals it uses.  The SEC, for example, approved this language:
 
Because we cannot determine the origins of the minerals, we are not able to state that products containing such minerals do not contain conflict minerals that directly or indirectly finance or benefit armed groups in the Democratic Republic of the Congo or an adjoining country. Therefore, under  the federal securities laws we must describe the products containing such minerals as having not been found to be ‘DRC conflict free.’ Those products are listed below.
 
That’s not a confession of an ethical taint.  The fact that the issuer would prefer not to say anything doesn’t distinguish this from many other disclosures, like calorie counts, nutritional information, and disclosures about the presence of mercury. “Such disclosures of course can elicit a reaction by consumers—that is often the point, as with the country-of-origin rule upheld in AMI—but the disclosures still remain factual and truthful.” 
 
Under this rule, the government can’t misleadingly redefine “peace” to mean “war”—a consumer would have no reason to suppose that this redefinition had occurred.  Likewise, statements of opinion such as “this product is environmentally unsustainable” are outside Zauderer, as compared to “this product releases x units of ozone in y hours,” a pure fact.  There could be difficult questions at the margin, but that’s standard.  Also, “constitutional protections outside of the First Amendment might constrain the government’s ability to compel disclosures—for instance, if the disclosures facilitated private discrimination. See Palmore v. Sidoti, 466 U.S. 429 (1984).”  But that didn’t matter here.
 
The dissent would also have found that the disclosures survived Central Hudson.  The government’s interest isn’t just to promote peace in the DRC.  It’s to do so “by reducing funding to armed groups in the DRC region from trade in conflict minerals.” And, like country of origin labeling, the disclosure rule “operates on the basis of assumptions about the reaction of investors to disclosures about a product’s place of origin.”  This is a substantial government interest.  The disclosure directly advances that interest.  AMI held that “evidentiary parsing is hardly necessary when the government uses a disclosure mandate to achieve a goal of informing consumers about a particular product trait.”  The requirement of due diligence on product supply chains plus disclosure of the results of that due diligence “encourages manufacturers voluntarily to reduce their reliance on conflict minerals from the DRC and adjoining countries,” and disclosure further enables consumers and investors to exert pressure on manufacturers to minimize the use of conflict minerals from the DRC region.  This was a sufficiently reasonable fit between means and ends.
 
Moreover, deference to the political branches’ predictive judgment was more warranted in the arena of foreign affairs.  Nor did the cost of implementation affect the reasonability of the means chosen.  Recall that the production audit doesn’t raise First Amendment questions; once that’s done, obligating issuers to use a shorthand phrase and put it on their website/in SEC reports isn’t unduly burdensome.  [Yes!  Food manufacturers don’t get to include the cost of determining the calorie count of a food in the costs of disclosure—at least not if we don’t want the First Amendment to become super-Lochner.]
 
Even if there were uncertainty about Congress’s predictive judgments about the effect of the disclosure on the conflict in the DRC, the court should defer to the political branches’ assessments, and Congress determined that trade in conflict minerals was helping to finance conflict.  In Holder v. Humanitarian Law Project, 561 U.S. 1 (2010), the Court deferred to the political branches’ foreign policy judgments even under strict scrutiny; the more so here. Plus, constitutionality should not turn on a post hoc referendum on a law’s effectiveness at a particular point in time. “Otherwise, a law’s constitutionality might wax and wane depending on the precise time when its validity is assessed.”  The relevant question is whether, at enactment, the disclosure regime was reasonably designed to reduce the funding of armed groups in the DRC. [This is different from assessing the truthfulness of the disclosure over time, which is the cholesterol example.]
 
Moreover, the rule was having its desired effect even if its larger effects were uncertain: companies in the US were now avoiding DRC-sourced minerals, which was the direct aim. Unintended ripple effects shouldn’t invalidate the law; those should be for the political branches to judge.

The platonic ideal of fair use: critical remix of municipal video

City of Inglewood v. Teixeira, No. 15-cv-01815 (C.D. Cal. Aug. 20, 2015)
 
Teixeira lives in Inglewood, California, and posts videos on YouTube as “Dehol Trouth.”  The City argued that he infringed the City’s copyright in recordings of its city council’s meetings, and here it loses comprehensively.  One hopes a motion for the defendant's attorneys' fees is forthcoming.
 
First, California law barred the City from claiming copyright in its video. “California law establishes a strong presumption in favor of public access to public materials and places significant limits on how public entities may restrict access to such materials.”  In the absence of an affirmative grant of authority to claim copyright, a California public entity may not do so.  There was no such grant here.  The City tried to argue that the Supremacy Clause overrode California law and allowed it to claim copyright, but the Supremecy Clause doesn’t forbid a state from choosing whether or not it wants copyright protection for its entities’ works, and probably the Copyright Act couldn’t require it to allow copyright claims.  The California legislature has expressly granted its entities to assert copyright protection for software, Cal. Gov. Code § 6254.9 (and educational material and materials produced by the Department of Toxic Substances Control, go figure), but not video, as a California appellate case cited favorably by the California Supreme Court made clear.
 
Regardless, Teixeira’s videos were fair use as a matter of law, on the pleadings.  Even assuming, as alleged and contrary to Teixeira’s representations, that the videos were used for commercial purposes, every factor heavily favored fair use.  Teixeira used carefully chosen portions of the larger works to comment on and criticize the City Council’s acts and members.

The videos “consist of his narrating his criticism of Mayor Butts over slides or other text, documents – such as a report by the Inglewood city clerk – and video clips, some of which are taken from the City Council Videos over which the City claims a copyright interest.”  The shortest was 3 minutes and 43 seconds and the longest was 15 minutes, and the clips used were considerably shorter.  “Some of the clips are used unadorned but they are most often frequently overlaid with Teixeira’s oral and written commentary and criticism, as well as music. Even when unadorned, they form only part of longer videos, with the clips contrasted with documents, sound recordings, and other video clips, accompanied with Teixeira’s written and oral commentary.”  This was highly transformative.  Not only did they offer criticism and commentary, but fair use “generally provides a greater scope of protection when the works involve[d] address matters of public concern.”
 
Los Angeles Times v. Free Republic, CV–98–07840– MMM, 2000 WL 565200 (C.D. Cal. Apr. 4, 2000), was inapposite, because that case found that “limited commentary added to verbatim copies was not sufficient” to justify the amount of copying: full, verbatim copies.  Teixeira’s use was wholly different sort: his clips were “carefully chosen and heavily edited,” juxtoposed with other materials, and surrounded by Teixeira’s commentary. “No person wishing to find out what occurred during a lengthy City Council meeting would be satisfied with viewing any of the Teixeira Videos.”  (Side note on “carefully chosen”: on a motion to dismiss, presumably this means “as a matter of law, the clips directly relate to the criticism in the rest of the videos.”)  Even if they were commercial, the first factor tilted heavily in favor of fair use.
 
Nature of the work: Copyrightable, but barely creative.  Favored fair use.
 
Amount used: Small portions.  The longer videos, 15 minutes long, contained clips from an over four-hour-long video; the clips were all under a minute long and most under 15 seconds.  The shortest Teixeira video was 3:43 and was “almost wholly comprised of a single clip from the City Council meeting,” which was the longest clip used in any of the accused videos.  Throughout, the vide included music added by Teixeira, “but more importantly, his commentary runs along the bottom of the screen as [Mayor Butts talks,” ridiculing his physical and verbal tics and specifically identifying points at which Butts is allegedly lying. The source video was over three hours.
 
The City argued that Teixeira failed to show that his copying was “essential” to his purpose, and that each topic addressed at the meetings was “an independent and entire work.” No: review of the videos made it clear that Teixeira copied only the parts of the City Council videos that served his purpose of commenting on them, or criticizing particular statements by Butts. The City’s “exceptionally narrow view of an ‘entire’ work is without merit and contrary to the purpose of the fair use doctrine, which permits the use of reasonable quantities of a work for the purpose of criticism and comment.”  This factor strongly favored fair use.
 
Market effect: there is no market for the City Council videos, and the accused videos were no substitute.  The City argued that Teixeira’s copying denied it  the opportunity to “recoup its expenses” and “deprives [the City] of potential revenue.”  But California law prevents public agencies from charging the public anything more than the “direct costs of duplication” when providing public records, thus prohibiting the City from recouping its cost of production.  There could be no commercial market for the videos.  This factor strongly favored fair use.
 
Thus, fair use as a matter of law. The City accused Teixeira of wanting “to criticize the City without doing his own work” by “posting substantially all of the full [City Council Videos] with [his] comments posted on top of them.” “Even if the City’s characterization of the Teixeira Videos were accurate, fair use would allow such use for the purpose of commentary.”

Ashley Madison and false advertising

I’m sure there’s a dirty joke in here somewhere: the Ashley Madison hack apparently exposed the site’s promise of equal numbers of men and women seeking opposite-sex affairs as untrue, with women running more at 15% of the site.  I don’t agree with this presentation of the issue:
 
[W]hatever the site’s claims, its apparent gender imbalances probably isn’t enough to call it a scam. “In the law, there’s this idea of puffery. Salespeople, and that’s what they are, are allowed to exaggerate,” says Hofstra University law professor Miriam Albert.
 
“A saleslady at Lord and Taylor says, ‘That dress looks awesome on you,’ when in reality, you’re packed like a 10-pound sausage into a 5-pound casing. She’s allowed to say that and you can’t sue her for it because you’re not relying on her to make the purchase.”
 
Similarly, there were some women on the site, so even if there weren’t as many as Biderman publicly claimed, the difference may not be enough to deem it fraud. “If what they’re really saying is ‘It’s evenly split,’ and someone went into it with that basis, I bet you could get your money back,” Albert says. “I’m just not sure it rises to the level of actionable fraud. It’s the cusp between puffery and fraud. It’s a slippery slope.”
 
Puffery of the “you look great in that” type is opinion; “this site has half women and half men” is not opinion. Exaggerating numbers is a classic example of a misrepresentation that can be sufficient to constitute false advertising.  I’m not sure what’s slippery about the slope here—other than the aforesaid dirty joke.

Friday, August 21, 2015

Consumers can't bring the claim that Pom could against Minute Maid

Stansfield v. Minute Maid Co., 2015 WL 4873685, No. 4:14cv290 (N.D. Fla. Aug. 13, 2015)
 
The court kicked out consumer protection claims based on the same falsity alleged in Pom Wonderful v. Coca-Cola, on the ground that they were preempted by the FDCA.  Minute Maid’s “pomegranate and blueberry flavored blend of five juices” is 99.4% apple and grape juices, 0.3% pomegranate juice, 0.2% blueberry juice, and 0.1% raspberry juice.  Plaintiffs alleged that the principal display panel was misleading. They alleged that they paid a price premium because they believed the product had sufficient pomegranate and blueberry juice to provide the associated benefits, and didn’t know it was mostly apple and grape juice.
 



The FDCA expressly preempts state laws that aren’t identical with its requirements.  Under the FDCA, a food is misbranded if its label does not bear “the common or usual name of the food, if any there be,” or if information required to appear on its label “is not prominently placed thereon with such conspicuousness (as compared with other words, statements, designs, or devices, in the labeling) and in such terms as to render it likely to be read and understood by the ordinary individual under customary conditions of purchase and use.” In addition, a food is misbranded if its labeling is “false or misleading in any particular.” If a food violates an implementing regulation, and so is misbranded under § 343, plaintiffs may bring a parallel claim under state law to impose an identical requirement.  But Minute Maid argued that the challenged aspects of the label were authorized.
 
Plaintiffs’ first theory was that the label didn’t bear the “common or usual name of the food.”  FDA regulations require the name to “accurately identify or describe, in as simple and direct terms as possible, the basic nature of the food or its characterizing properties or ingredients.” Moreover, if the proportion of a characterizing ingredient “has a material bearing on price or consumer acceptance or when the labeling or the appearance of the food may otherwise create an erroneous impression that such ingredient[ ] ... is present in an amount greater than is actually the case,” the regulation presumes that the percentage of that ingredient will be declared unless a more specific rule says otherwise.  However, there’s a more specific regulation for multiple-juice beverages.  “[W]here the named juice is not the predominant juice, the common or usual name for the product shall ... [i]ndicate that the named juice is present as a flavor or flavoring.”
 

Plaintiffs didn’t argue that the product didn’t taste like pomegranate and blueberry juice. Instead, they said that, because there is so little pomegranate and blueberry juice in the beverage, as a causal matter the juice was not getting a pomegranate and blueberry flavor from those juices, but rather from “other natural flavors.” The FDA explained that it believed the use of “flavor” would inform consumers that the juice was present “in an amount sufficient to flavor the beverage” but wouldn’t “imply that the content of that juice is greater than is actually the case.” Thus, under plaintiffs’ interpretation of the regulation, “if a named minority juice actually flavors the beverage, then the label may say as much.”
 
The court disagreed: the regulation said that non-predominant but named juices should be indicated with the words “flavor” or “flavoring”; there was no requirement of “gustatory causation.”  On the facts alleged, the product complied with the regulation.
 
Plaintiffs then argued that the NLEA didn’t block challenges to the label “as a whole” or “in a respect not specifically required or authorized by a federal preemptive regulation.” Aspects of labels that are required or permitted by a more specific provision “by definition, are not considered ‘false or misleading’ under federal law.”  But the rest of the label must still comply with the law and not be “false or misleading in any particular.”   In Pom Wonderful, the government argued that “compliance with FDA’s juice-naming regulations does make the juice’s name nonmisleading,” and that the FDA “could not (and would not) bring an enforcement action against a manufacturer … for naming its product ‘Raspcranberry; raspberry and cranberry flavored juice drink,’ if raspberry and cranberry juices were present as flavors, even if the drink was primarily white grape juice.”
 
So, to escape preemption, plaintiffs had to identify some aspect of the label that wasn’t required or permitted by the regulations which a reasonable jury could find made the label false or misleading.  Plaintiffs pointed to the depiction of fruit on the label; the placement, lettering, type-size, and spacing of the juice name; and other labeling statements.
 
As to the name, the regulations say that when a product doesn’t have enough of an ingredient to “independently characterize” the food, the word “flavored” has to be used in letters at least half as big as those of the characterizing ingredient.  It was the appropriate size here.  In addition, the juices not named in the product’s name were appropriately represented in “BLEND OF 5 JUICES.”
 

Fruit vignette: The use of a vignette triggers the requirement that the characterizing flavors— blueberry and pomegranate—be “followed by the word ‘flavored’ in letters not less than one-half the height of the letters in the name of the characterizing flavor.” Minute Maid complied.  Plaintiffs nonetheless argued that the vignette was misleading because “it displays oversized pomegranate and blueberries at least as prominently as an apple and grapes, even though there is virtually no pomegranate or blueberry juice in this product.” The FDA hasn’t issued formal regulations about the content of fruit vignettes, though it did discuss them in the preamble to the juice labeling regulation, which was entitled to Skidmore deference.  The preamble stated that a vignette didn’t need to include each juice source, as long as the written label was appropriate, so “a vignette depicting raspberries would not necessarily be misleading if the statement of identity were ‘raspberry juice in a blend’….”  Nor did the FDA impose a specific size requirement because the size and shape of juice sources vary, and it didn’t determine that there were useful ways to display quantitative relationships.  However, ultimately the vignette couldn’t contradict the other label statements—a determination the agency said it would make on a case by case basis.
 
Under this guidance, Minute Maid “did precisely what the FDA said to do,” even though it could have had pomegranate and blueberry in the vignette.  There were no other arguments that the vignette was misleading for other reasons, such as taste or including a juice source that wasn’t really in the product.
 
Finally, plaintiffs argued that they could challenge the label “as a whole.”  But the regulations required or permitted certain aspects, and the label tracked the FDA’s guidance on misleading use.  The court wouldn’t allow the whole to be more misleading than the sum of its parts.

Court finds misleading omissions can deprive ISP of 230 protection

General Steel Domestic Sales, LLC v. Chumley, No. 14-cv-01932, 2015 WL 4911585 (D. Colo. Aug. 18, 2015)
 
General Steel sued Chumley and Atlantic Building, of which he was CEO, for false advertising, libel, and intentional interference with prospective business advantage (plus civil conspiracy).  It alleged that defendants used the internet to harm General Steel and get business by running ads in response to searches for the words “General Steel,” “General Steel Buildings,” “steel buildings,” and “metal buildings.” Many of these ads allegedly contain derogatory information about General Steel and contain links to a portion of the Armstrong Steel Corporation website which does the same.
 
There were twenty statements on the Armstrong Steel website at issue.  One part of the website was called “Industry Related Legal Matters” (IRLM), created by Chumley; it had 37 posts, 20 of which were alleged to be unlawful.  Each post contains a “read more” button that links to third-party website; each post also contains an excerpt from the document which can be seen in full when the “Read More” button is pushed.  For example, one post’s heading was “Class Action Complaint - Heinbaugh et al v. General Steel Domestic Sales, LLC.” Its first paragraph was a quotation from courthousenews.com describing a class action lawsuit filed against General Steel, with the words “U.S. District Court of Colorado” added before the quotation, which read: “General Steel Corp. and its CEO Jeffrey Knight ‘infamous’ telemarketers of steel-buildings, systematically defrauded their customers, in defiance of court orders, by, among other things, taking nonrefundable deposits and then refusing to deliver buildings for the price advertised, a class-action complaint claims in Federal Court.”
 
Other posts included “Attorney General Madrid Warns New Mexico Churches About Colorado Metal Building Company” and “General Steel Domestic Sales, LLC v. Chumley,” the latter of which described the claims and counterclaims in a 2010 case, but didn’t mention the dismissal of certain counterclaims.  Another post, “Rock Limo Service v. General Steel Domestic Sales,” included quotations from a court case describing a contract and ending with this sentence: “Petitioners demanded return of their deposit, but General Steel refused to pay it.” The “Read More” link led to the full text, affirming an arbitrator’s award finding that General Steel properly retained the deposit because Rock Limo breached the relevant contract.  The IRLM Page contains a general disclaimer: “These external hyperlinks represent allegations made by parties (which may or may not ultimately be adopted by a judge/jury) and findings of fact and law by judges/arbitrators. Some of the cases mentioned here may be ongoing, dismissed, settled and/or may not be final.”
 
As for defendants’ search ads, they included:
 
Don’t Send Them A Deposit - ArmstrongSteelBuildings.com Ad www.armstrongsteelbuildings.com/
Until You’ve Seen These Lawsuits. Read This Before It’s Too Late!
 
Before You Send a Deposit - Do Your Research First Ad www.armstrongsteelbuildings.com/ (855) 882-6555 Read This Before It’s Too Late!
View Gallery - Virtual Building - Design It Online - 1.800.345.4610
 
Steel Building *Lawsuits* - ArmstrongSteelBuildings.com www.armstrongsteelbuildings.com/ +1 800-345-4610 4.8 rating for armstrongsteelbuildings.com
Rock Limo Lost $125,383 in Deposits *Beware* Research Before You Buy! Court Rulings · Lawsuits · Buyer Beware · Complaints
 
‘General Told Her ‘We Will Keep You In Court Until We Break You’ ‘
Court Rulings · Lawsuits · Buyer Beware · Complaints
 
General Steel argued that defendants “collected old documents from long-resolved General Steel litigation and wholly created a website conveying facts that are false as to General Steel’s current operations. In addition, the title of the IRLM Page, “Industry Related Legal Matters,” was allegedly misleading because it appeared to be an objective site disclosing industry lawsuits, but actually is a page targeting General Steel. 
 
Defendants argued that the CDA gave them immunity.  General Steel responded that they wholly or partially developed the information at issue, and thus didn’t qualify.  To be responsible, a service provider must “in some way specifically encourage[] development of what is offensive about the content,” which is to say what is unlawful or legally actionable.  (Interpreting the Accusearch case, which some worried represented an expansion of ISP liability—as with Roommates, it may be that the case actually sets a limit that preserves most ISPs’ immunity.)  Merely inviting or encouraging third parties to post content isn’t development of that content.  Even ratifying or adopting third party content, including through the posting of commentary, isn’t development.  Nor is minor editing, as long as the changes don’t contribute to the false, misleading, or otherwise unlawful nature of the underlying information.
 
General Steel pointed out that the posts weren’t submitted by third parties, but rather created by Chumley.  However, “nothing in § 230 or the relevant case law limits § 230 immunity to information submitted directly to a website by a third party.”  Here, everything came from the internet, so cases finding that §230 didn’t cover publication of material submitted to an ISP that was not intended for public distribution were irrelevant.  Thus, the links received § 230 immunity, and so did the summaries, because the addition of “U.S. District Court” was inconsequential.  General Steel claimed that the excerpts highlighted inflammatory and disparaging parts of the documents.  (With respect to the arbitration, a false light-like theory of responsibility for development would make sense to me—it’s kind of like editing out the “not” in an otherwise nondefamatory statement.) 
 
At many points, the defendants created their own summaries of allegations made by others.  Defendants also didn’t post a court order finding them liable for willful false advertising targeting General Steel.  Still, General Steel didn’t claim that the links went to inaccurate versions of the documents, or that the page contained inaccurate quotations.  Ultimately, the court found that defendants developed some of the information:
 
To the extent the defendants chose certain summaries and quotations describing the referenced court proceedings, failed to accurately describe the proceedings as a whole, and posted those quotations and summaries on the IRLM Page, the defendants developed the information they posted on that page. These editorial choices can be seen as a choice to emphasize unflattering allegations made against General Steel without summarizing or quoting information which reflects the nature and outcome of the court proceeding described…. Highlighting the unflattering allegations without providing other relevant information reasonably can be seen as contributing to the allegedly defamatory or otherwise actionable nature of the underlying information. Such actions specifically encourage development of what is allegedly unlawful or legally actionable about the content and, thus, constitutes development of the information for the purpose of § 230 immunity.
 
However, certain summaries and quotations were “reasonably accurate” summaries of the underlying information developed by third parties, and thus covered by §230. “By organizing, quoting, and summarizing this information, the defendants did nothing to specifically encourage the development of what General Steel claims is unlawful or legally actionable about the underlying content.”  By contrast, other posts highlighted content that was allegedly unlawful/actionable.
 
The search ads also weren’t subject to §230 immunity, since the defendants created and developed their content.
 
General Steel argued that Lanham Act claims were exempt from §230 immunity because of §230’s IP exclusion.  The court ruled that General Steel’s claim was brought under §43(a)(1)(A), but then called it a “false advertising claim,” which it is—and thus mistakenly held that General Steel’s Lanham Act claims weren’t subject to §230: “Particularly given this [statutory placement of false advertising language in a trademark law], a false advertising claim under § 1125 implicates trademark law, an ilk of intellectual property law.”  Sigh (though it’s not clear this matters to the outcome, since the court seemed to focus its analysis on the content it found defendants to have created).
 
For similar reasons, the court found the fair report privilege applicable to some of the posts, not others.
 
Truth: defendants argued that “Rock Limo Lost $125,383 in Deposits” was true.  But this created a material issue of fact about whether the statement clearly implied that the loss resulted from wrongful behavior by General Steel.  The court found that disputed issues of material fact about the ads precluded summary judgment on the grounds of truth for the Lanham Act/tortious interference claims.
 
Defendants argued that General Steel failed to present evidence of customer confusion.  Given General Steel’s theory of intentional deception, no extrinsic evidence of confusion would be required.  Likewise, General Steel’s experts provided sufficient evidence of the loss of one or more contracts to take the tortious interference claim to trial.

Wednesday, August 19, 2015

Copyright infringement is channeled into (c), not state or Lanham Act claims

Quadratec, Inc. v. Turn 5, Inc., 2015 WL 4876314, No. 13–6384 (E.D. Pa. Aug. 13, 2015)
 
The parties compete to sell removable soft tops and other aftermarket parts and accessories for Jeep vehicles. Quadratec alleged that it invests substantial resources in the advertising of its products by “creating tens of thousands of unique photographs” and writing descriptions of the photographs, which “differentiate it from all of its competitors in the automotive market.” Except for Turn 5, which allegedly engaged in extensive copying of its images and descriptions (including a Quadratec photo with a superimposed Turn 5 logo on it), despite Quadratec’s demands that it stop.  (Why no 1202 CMI claim?  Although it seems unlikely to have concealed copyright infringement, so quite probably futile, though that doesn't distinguish it from various other claims asserted.)  Further, Quadratec alleged that Turn 5 falsely advertised its Baricade Soft Top products by falsely claiming that they exceeded original equipment manufacturer standards and are made from Black diamond sailcloth material (though this allegation isn’t addressed in this ruling).  Quadratec registered its images and sued.
 
Copyright infringement: though the complaint alleged that images other than those specifically identified might have been infringed, it also provided sufficient notice about particular registered images, and Quadratec wouldn’t be allowed to base claims on unidentified images. However, statutory damages/attorneys’ fees claims were dismissed because in all cases the infringements began before the registrations; allegations that Take 5 began infringing new parts of the registered work post-registration were insufficient because statutory damages go on a work by work basis.
 
§43(a)(1)(A): Dastar barred this claim. There was no misrepresentation of the origin of the goods for sale.  Quadratec argued that it was claiming false designation of the origin of the services at issue, here providing catalog services. That is, Take 5’s use of the product presentations was likely to confuse Quadratec’s customers into believing that “identical product presentations in both Plaintiff’s and Defendant’s catalogs” means that the “catalog sources are the same or otherwise affiliated.”
 
But Dastar precludes this argument.  Neither party is in the business of selling catalog services, only aftermarket Jeep products.  There could be no confusion as to the origin of those goods.  The Lanham Act doesn’t create a cause of action for plagiarism of marketing.
 
§43(a)(1)(B): Again, this failed because there was no alleged misrepresentation about the products for sale, rather than about the source of the marketing materials used to sell them.
 
Misappropriation: preempted by the Copyright Act.  The alleged deceit involved was not an extra element because it occurred only by way of reverse passing off, which meant that there was nothing fundamentally different from a copyright infringement claim.
 
Unjust enrichment: Ditto.  Quadratec alleged that Take 5 received benefits beyond the mere intrinsic value of the Quadratec materials, because it diverted profits and goodwill from Quadratec and saved money on advertising that it could use to lower its prices in competition with Quadratec.  The alleged financial benefit in the form of reduced overhead didn’t make the unjust enrichment claim qualitatively different than the copyright infringement claim.

Tuesday, August 18, 2015

Connecticut taxi companies' claims against Uber fail

Greenwich Taxi, Inc. v. Uber Technologies, Inc., 2015 WL 4774989, No. 14cv733 (D. Conn. Aug. 13, 2015
 
Plaintiffs sued Uber for violating the Lanham Act, the Connecticut Unfair Trade Practices Act (CUTPA), and RICO, as well as for intentional interference with contractual relationships. The court dismissed the amended complaint with leave to amend.
 
Plaintiffs alleged that Uber began taxicab and/or livery operations in Connecticut without complying with state laws and regulations.  Uber allegedly partners with plaintiffs’ drivers, each of “who[m] make[s] an illegal side deal with Uber to take its customers while simultaneously working a normal shift with his or her authorized company.”  Uber allegedly “misrepresents to customers its compliance with Connecticut laws and regulations, misrepresents its insurance coverage, misrepresents the safety of its drivers, misrepresents its affiliation with lawfully operating taxicab and livery companies, and misrepresents its fares.”
 
False advertising: the court noted that the pleading standard applicable is Rule 8, not Rule 9(b).  See John P. Villano Inc. v. CBS, Inc., 176 F.R.D. 130, 131 (S.D.N.Y.1997) (“No matter how parsed, a claim of false advertising under the Lanham Act ... is not identical to a claim of fraud. Fraud requires, not just the making of a statement known to be false, but also, inter alia, a specific intent to harm the victim and defraud him of his money or property.... By contrast, no fraudulent intent ... is required under 15 U.S.C. § 1125.”).
 
Under Dial A Car, Inc. v. Transp., Inc., 82 F.3d 484 (D.C.Cir.1996), violations of Connecticut transportation laws and regulations aren’t actionable as false advertising; given that it wasn’t clear whether state transportation laws applied to Uber, Uber’s representations that it complied with the law couldn’t be false or misleading.
 
As for other representations, they weren’t adequately pled to be false or misleading.  For example, the complaint didn’t sufficiently allege that Uber claimed to be a “ridesharing” service. Plaintiffs alleged that Uber falsely claimed to have “partner” drivers, but they didn’t plead what it meant to be a “partner” and what would make that claim false or misleading.  They further alleged that Uber does not regularly recheck insurance, but they didn’t allege that Uber represented to customers that it does so. Likewise, they pleaded that it is nearly impossible to collect on Uber’s liability insurance and that the Connecticut Insurance Department issued a consumer alert stating that Uber’s drivers may not be covered by their personal automobile insurance. But they didn’t plead that Uber represented to customers that Uber’s drivers are covered by their commercial or personal insurance.  Further, allegations that Uber’s user agreement allows it to use “surge” pricing when demand becomes “high” or “intense” and that “[t]he mechanism for determining [‘surge’ pricing] appears arbitrary and unpredictable, made solely at the discretion of [Uber]” didn’t support an inference that Uber made a representation to customers that its pricing was simple.
 
False association under §43(a): Plaintiffs failed to allege that they had recognizable trademarks on the cars driven by Uber “partners.”
 
RICO claims: dismissed.
 
CUTPA: Plaintiffs’ unfairness claims required some sort of violation of public policy, but it hadn’t yet been established that Uber’s services violated Connecticut law, and plaintiffs didn’t sufficiently allege anticompetitive, immoral, or otherwise unfair conduct.
 
Tortious interference with contractual relationships: This requires wrongful conduct such as
fraud, misrepresentation, intimidation or molestation.  Plaintiffs didn’t plead that Uber’s interference with the contractual relationships between the plaintiffs and their taxicab and livery drivers and between the plaintiffs and credit card processing companies was tortious. Wooing the drivers wasn’t inherently wrongful.