Sins of a trademark owner: Rogers applies regardless of intent

Rebellion Developments Ltd. v. Stardock Entertainment, Inc., 2013 WL 1944888 (E.D. Mich.)

H/T Eric Goldman.

Rebellion sued Stardock alleging that Stardock’s game, Sins of a Solar Empire: Rebellion infringed its registered trademark for a game development company.  The court dismissed the complaint under Rogers v. Grimaldi.

Rebellion is a well-known British games company that has developed more than forty video games for major gaming consoles.  REBELLION is registered for, among other things, “entertainment and amusement machines and apparatus, namely, video games and electronic games.”   

Stardock, reviewers, and players sometimes refer to Sins of a Solar Empire: Rebellion as simply Rebellion (one can see why from the cover/posters).  There was “some evidence” of consumer confusion: a YouTube user mistakenly referred to Rebellion as the developer of Rebellion. 

Rebellion argued that Rogers didn’t apply because Stardock was a competitor labeling its commercial good with a confusingly similar mark; Stardock even filed a trademark application for the mark.  Thus, Stardock was using Rebellion solely to identify a source.

Video games are expressive works, and the Sixth Circuit has adopted Rogers, so that was the standard. Rogers itself recognized that titles could acquire secondary meaning and become eligible for trademark protection, but didn’t ask in its test whether a title can or did function as a source identifier.  Artistic and commercial elements are intwined in titles, and the commercial nature of artistic works doesn’t diminish their First Amendment protection.  Likewise, the fact that a title “attempts to attract public attention with stylized components” was irrelevant. 

Next, Rebellion argued that Rogers cases must involve defendants who were directly referring to the plaintiff, but there was no such reference here: Stardock was just using a suggestive trademark to brand its product, and limiting such expression via trademark didn’t violate the First Amendment.  Also no!  Reference is not required by either prong of Rogers.  Many cases have applied Rogers to uses that didn’t refer to the plaintiffs.

Moreover, Rogers could be applied on a motion to dismiss.  “Courts are cognizant of vindicating First Amendment protections through early dispositive motions to avoid chilling speech.”  Rebellion argued that the court shouldn’t make its own conclusions at the pleading stage, especially without the opportunity to examine the underlying work (which, not for nothing, I think the court could do, given that the game is incorporated by reference).  There’s no reason not to grant a motion to dismiss “where the undisputed facts conclusively establish an affirmative defense as a matter of law.” 

Now it’s all over but the crying.  “Rebellion” had some artistic relevance to Stardock’s game.  Within the game, players could choose to align with “loyalist” or “rebel” factions in the context of a civil war.  The requisite level of artistic relevance need only be above zero.  Stardock described the game as follows: “The time of Diplomacy is over. The length of the war and differing opinions on what should be done to bring the war to an end has led to a splintering of the  groups involved. The controlling powers-that-be have depleted arsenals and seemed to have exhausted all efforts of diplomacy. Trapped in a stalemate, sub-factions have rebelled and broken off the main alignments. Rebellion is upon us.”  This was clearly enough to meet the low threshold of relevance. (Although this was from Stardock’s website, the text was included in the complaint as screenshots.)

Nor was the title explicitly misleading as to source or content.  Pleading that the title was willfully misleading wasn’t enough.  Even if members of the public are misled, that’s not actionable without an overt misrepresentation.  Under Rogers, “factors that might establish likelihood of confusion—such as the Defendants' intent—are irrelevant.”

H&R Block can't plausibly plead confusion from comparative ads

H/T The Trademark Blog

H&R Block Eastern Enterprises, Inc. v. Intuit, Inc., No. 13-0072-CV-W-FJG  (W.D. Mo. May 22, 2013)

An anti-trademark-expansionist twofer: claim against comparative ad dismissed on the pleadings, and a holding that “confusion” doesn't mean just any kind of confusion. Now if only courts will start awarding fees ...

Intuit ran some comparative ads that H&R didn’t like, Master Plumber and Return Expert.  H&R sued for false advertising and trademark infringement.  The ads said “more Americans trusted their federal taxes to TurboTax last year than H&R Block stores and all other major tax stores combined” and showed a bar graph comparing TurboTax use versus other major tax stores, including H&R Block.

Intuit argued lack of confusion and nominative fair use; the court found it unnecessary to address nominative fair use.  Intuit argued that, looking at the confusion factors, confusion was implausible: the ad was comparative (making strength and similarity irrelevant), there was no allegation of intent to pass of Intuit’s services as H&R Block’s, there were no allegations of actual confusion, and the type of product and conditions of purchases differed between in-store customers of H&R Block versus Intuit’s do-it-yourself software.

“Realizing that they have not pled confusion about the source or origin of the service represented by the trademark, plaintiffs seem to argue that ‘confusion’ under trademark infringement law should be read more broadly so as to include general confusion about the quality and nature of plaintiffs’ and defendant’s services.”  Not so (that’s what §43(a)(1)(B) is for).  Cases outside the Eighth Circuit “seemingly stand for the proposition that, when 15 U.S.C. § 1114 was amended in 1962 to delete the phrase ‘purchasers as to the source of origin of such goods or services,’ from the end of the former definition, which now reads ‘likely to cause confusion, or to cause mistake, or to deceive,’ this broadened the Act so as to now cover any kind of consumer confusion, mistake, or deception.”  But in all those cases, the courts were examining infringement claims when the defendant had named its product or service similarly to that of plaintiff’s.  None applied to classic comparative advertising, as here. Moreover, the 1962 amendments were about protecting non-purchasers, not just purchasers.  (In fact, they were about protecting people who were potential purchasers, not just actual purchasers.  People with no potential to be purchasers weren’t of interest because confusion wouldn’t harm them.)

None of H&R Block’s cited cases “expand trademark infringement law to include alleged confusion where it is clear from the context of the ads that the plaintiff is not an originator, sponsor, or endorser of the ad.”  Thus, though consumer confusion is typically an issue of fact, the complaint here failed to plausibly plead confusion.  The type of confusion contemplated by trademark law is “confusion as to source, origin, sponsorship, affiliation, or endorsement of a good or service.”

economic loss doctrine doesn't bar New Jersey consumer fraud claim

Francis E. Parker Memorial Home, Inc. v. Georgia-Pacific LLC, --- F. Supp. 2d ----, 2013 WL 2177974 (D.N.J.)

Parker sued GP on behalf of a putative class alleging violations of the New Jersey Products Liability Act (PLA); breach of express warranty; and the New Jersey Consumer Fraud Act (CFA).  Parker alleged that GP misrepresented the quality of its exterior trim, PrimeTrim, which prematurely deteriorates and promotes the growth of mold, insects, etc. in the structures on which it’s installed.  GP allegedly knew this as early as 1998 and acknowledged it internally, but didn’t stop advertising the product for a wide range of uses without explaining that specially exacting installation was required.  GP allegedly rejected known design improvements due to their cost, while failing to test new versions of PrimeTrim and failing to test in actual installations despite the importance of such information.  GP’s allegedly false claims included that PrimeTrim: “offers up to four times more decay resistance than lumber[;]”“outperformed lumber through two years of direct exposure to sun, rain, and snow[;]” has “more than fifteen years with a track record of proven performance[;]” “[f]eatures superior moisture and decay resistance[;]” and was “proven in over four years of laboratory and field testing.” GP denied Parker’s warranty claim under its express warranty on the ground that the trim was misinstalled; Parker alleged that GP failed to provide adequate installation instructions, particularly omitting instructions on how to seal and prime site-cut ends despite knowing and intending that PrimeTrim would be cut to size on site.

Parker brought its claims on behalf of a damages class, with an economic loss damages subclass for property in which the PrimeTrim had been damaged but not other property.  The allegations relating to the subclass included that PrimeTrim’s failure typically began with its own deterioration, only later exposing other elements of the building to damage.

GP moved to dismiss the CFA claim as preempted/subsumed by the PLA.  The court denied the motion.  Economic losses due to harm to the product itself are recoverable under the CFA, whereas they are explicitly exempted from the PLA’s definition of harm to property: “physical damage to property, other than to the product itself.” A product liability action is “any claim or action brought by a claimant for harm caused by a product, irrespective of the theory underlying the claim, except actions for harm caused by breach of an express warranty.”

The Third Circuit has already examined the interaction between the PLA and the CLA in a case seeking failure to warn and design defect damages, plus a CFA claim for unconscionable consumer practices. Estate of Edward W. Knoster v. Ford Motor Co., 200 Fed. Appx. 106 (3d Cir. 2006). The court of appeals found no overlap.  The plaintiffs sought only economic damages resulting from the harm to the product itself, and the PLA excludes those damages from its definition of “harm,” so the CFA claim wasn’t a “product liability action”: “The PLA cannot subsume that which it explicitly excludes from its coverage.”

The New Jersey Supreme Court has said that, in order to overcome the presumption that the CFA applies to a covered activity, a court must be satisfied that there’s a direct and unavoidable conflict between application of the CFA and some other regulatory scheme, showing a legislative intent not to subject parties to multiple regulations that will work at cross purposes.  Lyle Real v. Radir Wheels, Inc., 198 N.J. 511 (2009).  A mere possibility of incompatibility is insufficient, given the importance of the CFA in combating fraud.

The court found that the CFA and PLA claims weren’t incompatible, at least not at this stage.  (Given the conclusion about “harm” here, how could they ever be as long as Parker restricted its economic damages claims to the value of the trim product itself?)  The degree to which consumers experienced damage to the PrimeTrim but not to adjacent materials was as yet unclear.  GP argued that the damage to the PrimeTrim would eventually cause rot to the adjacent structures, and “were damage to a class member's PrimeTrim to spread to adjacent property, the claims may arguably be in direct conflict.”  But there was no indication “that the Legislature intended to foreclose today's fraudbased remedies by providing a remedy for a tort-based harm which may or may not materialize in the future.” 

 

People who bought based on misrepresentations, but who hadn’t yet experienced harm to adjacent materials, “would have to sit on their rights and wait for the harm to spread to adjacent structures,” and that might bar relief altogether based on complications of notice inquiry/tolling the statute of limitations.  (I would think that if they didn’t have a complete cause of action today, the limitations period couldn’t run, but New Jersey is weird about limitations periods.)  Other cases have reasoned similarly, e.g., Rehberger v. Honeywell, No. 11–0085, 2011 U.S. Dist. LEXIS 19616 (M.D. Tenn. Feb. 2011) (“[T]he relevant harm was the plaintiff's decision to purchase the [product], which was caused by the defendant's alleged misrepresentations and omissions, not by the product. Indeed, this harm occurred before the plaintiff ever operated the [product]. Because the plaintiff has not asserted any ‘product liability’ claims, his claims are not subsumed by the PLA.”).

GP’s attack on Parker’s CFA standing was also premature.  Parker alleged that it bought the product at issue and suffered an injury in fact based on that purchase; its warranty claim was denied.  “Whether or not Parker will need to amend the pleading … to identify an adequate subclass representative is a question for another day.”

The court continued to find that Parker properly pled unlawful affirmative acts, knowing misrepresentations and unconscionable commercial practices under the CFA, but not regulatory violations.  GP argued that no misrepresentations were made to Parker, only to builders, subcontractors, and agents.  But Parker alleged misrepresentations within the 30-year express warranty, which was given to Parker; the allegations of misrepresentations to others were part of explaining why the product was defective and GP knew it.  Specificity isn’t required for specificity’s sake, but to put a defendant on notice of the precise misconduct with which it is charged, and the allegations here did so. 

Parker argued that the express warranty provided the crux of its CFA claim; the court didn’t reach whether lack of privity with regard to builders etc. would render the CFA inapplicable, but noted that the CFA explicitly covered both direct and indirect acts. Perth Amboy Iron Works, Inc. v. Am. Home Assur. Co., 226 N.J. Super. 200 (App. Div.1988), aff'd, 118 N.J. 249 (1990) (affirming the CFA's coverage of “acts of remote suppliers, including suppliers of component parts, whose products are passed on to a buyer and whose representations are made to or intended to be conveyed to the buyer”).

Parker also sufficiently alleged knowing concealment of a material fact with the intention that the consumer rely on the concealment. Actual reliance wasn’t required, only a causal nexus between an unlawful act and an ascertainable loss.  New Jersey implies a duty to disclose where that’s necessary to make a previous statement true. The complaint clearly alleged that GP knew of the defect and that “GP's senior sales personnel, over GP's own technical personnel's objections, actively sought to conceal these facts, continued to advertise to the contrary, and intentionally opted not to adopt available product improvements known to be effective, solely due to cost.”

GP then argued that its conduct didn’t qualify as an unconscionable commercial practice, one forbidden type of act in addition to fraud/deception/misrepresentation.  Unconscionability is an amorphous concept.  Breach of warranty isn’t per se unconscionable without substantial aggravating circumstances. Relevant factors include whether a supplier took advantage of a consumer’s inability to protect her interests; whether the price was grossly excessive compared to market prices; and whether the supplier made a misleading statement of opinion on which the consumer was likely to rely to her detriment.  This wasn’t clear before discovery, so the court denied the motion to dismiss.

However, the court found that Parker hadn’t properly pled a violation of the CFA due to regulatory violations; this kind of liability was strict. Rather than alleging violations of regulations promulgated pursuant to the CFA, Parker alleged that violations of other laws—here, the construction code—were actionable.

New Jersey courts have found CFA claims actionable when premised on violations of laws and rules independent of the CFA where the conduct evidenced unconscionable commercial practice. But a violation of the construction code in and of itself wasn’t actionable under the CFA.  And Parker only vaguely and generally asserted violations of parts of the code; this was inadequate.

A fresh face in challenges to Del Monte

It's my impression that defendant-favorable UCL-specific doctrines in California/9th Circuit law have not proved terrifically helpful in getting out of a case at the motion to dismiss stage, though I admit this is not based on any quantitative study.  Here's an example:

Kosta v. Del Monte Corp., 2013 WL 2147413 (N.D. Cal.)

Plaintiffs alleged that certain Del Monte products—Fruit Naturals fruit cups, FreshCut canned vegetables, and canned tomato products—were labeled in ways that violated the FDCA, as adopted into California law, and brought the usual California claims, including warranty claims and claims for restitution based on unjust enrichment and quasi-contract. They alleged that Del Monte unlawfully labeled products as “fresh” when they were actually thermally processed, pasteurized, and chemically preserved; labeled products “all natural,” “100% natural,” or natural despite their containing significant quantities of artificial ingredients/preservatives; failed to follow serving size guidelines, misleading consumers regarding the products’ sugar and calorie content per serving; made unlawful nutrient and antioxidant content claims (e.g., labeling products as “No Sugar Added” when they didn’t meet FDA calorie requirements for such a claim and making claims that their tomatoes were “an excellent source of” or “rich in” lycopene or lutein when they didn’t meet FDA minimums or otherwise didn’t comply with the regulations); and made unlawful and unapproved health claims for prevention/treatment of diseases such as cancer or heart disease (e.g., that the lycopene in Del Monte cooked tomatoes could “retard the aging process and stave off heart disease, cancer and major degenerative diseases”). 

On the first claim, based on Fruit Naturals, the lawsuit picks up on a related, successful Lanham Act suit against Del Monte: Plaintiffs alleged that packing the pasteurized and chemically preserved fruit in glass and plastic containers similar to those used for fresh fruit, putting them in the refrigerated produce section of the grocery store, and labeling them as “Must Be Refrigerated,” along with failing to identify ingredients as preservatives on the label, misled consumers into thinking the fruit was fresh.

Plaintiffs alleged that they read the labeling, were deceived, and bought/paid more for the products than they otherwise would have done.

The court rejected Del Monte’s preemption argument.  California can make violations of the FDCA and FDA regulations actionable under state law, and plaintiffs claimed only such violations.  “While Del Monte may disagree with Plaintiffs as to both the meaning of the FDA requirements at issue here and whether its products conform to those requirements, that disagreement does not mean that Plaintiffs are trying to impose additional requirements beyond the FDA's.” To the extent that Del Monte was arguing that it didn’t violate any regulations, that went to the merits and was beyond the scope of a motion to dismiss.

Like most courts to consider the issue (except the Pom district court on remand!), the court rejected the argument that Pom Wonderful LLC v. Coca–Cola Co., 679 F.3d 1170 (9th Cir. 2012), justified a preemption finding.  The Pom court of appeals explicitly declined to decide whether state law claims were preempted and didn’t deal with the presumption against preemption for state laws dealing with fraud and deception in the sale of food.  Pom “limited its discussion to whether the FDCA preempted Lanham Act claims that required the court to interpret FDA regulations; it did not analyze claims brought under a state law that mirrors the FDCA.”  The NLEA explicitly allows states to pass identical labeling laws, but Del Monte’s view of Pom “essentially would render [this provision] meaningless and … bar any private litigant from bringing actions predicated on a violation of analogous state labeling laws.”

Del Monte next unsuccessfully urged the court to stay or dismiss the case under the primary jurisdiction doctrine, which considers “(1) the need to resolve an issue that (2) has been placed by Congress within the jurisdiction of an administrative body having regulatory authority (3) pursuant to a statute that subjects an industry or activity that (4) requires expertise or uniformity in administration.”  Del Monte relied on Astiana v. The Hain Celestial Group, Inc., No. C 11–6342 PJH, 2012 WL 5873585 (N.D. Cal. Nov.19, 2012), which used the doctrine to avoid deciding a misbranding case involving cosmetics labeled “all natural.”  That decision turned on the “absence of any FDA rules or regulations (or even informal policy statements) regarding the use of the word ‘natural’ on cosmetic products ....” Here, however, plaintiffs sought only to enforce existing rules.  Unlike with cosmetics, the FDA has provided informal policy guidance with minimum standards for “natural” for food.  A judicial determination of whether Del Monte complied with the rules wouldn’t risk undercutting the FDA’s expertise and authority.  Misleadingness and effect on a reasonable consumers are within courts’ expertise.

Del Monte then argued, in vain, that plaintiffs lacked constitutional and statutory standing.  But like most plaintiffs, they’d figured out how to properly allege that they bought/paid a premium they wouldn’t have paid in the absence of false advertising.  Del Monte’s citations to cases where plaintiffs alleged that products were defective were inapposite.

Then Del Monte posited that plaintiffs didn’t plausibly plead reliance and deception, since no reasonable consumer would be deceived because reasonable consumers don’t know the details of what FDA regulations require in order to use certain terms.  But the court found it plausible that a reasonable consumer would rely on “front of the package” labeling claims like “fresh,” “all natural,” and “a natural source of antioxidants” when selecting food products. Also, a reasonable consumer, finding a plastic container of fruit in the refrigerated produce section labeled “Must Be Refrigerated,” and identifying no ingredients on the label as chemical preservatives could plausibly believe that the product is fresh cut fruit, and rely on that to buy it/pay a premium for it.

The Song-Beverly Consumer Warranty Act claim failed, though, because products intended for individual consumption are excluded from it.  And the Magnuson-Moss Warranty Act claim failed because claims about nutrient contents are typically product descriptions, not written warranties (promises of freedom from defect).

Plaintiffs’ claim for restitution based on unjust enrichment/quasi-contract also survived.  Del Monte argued that unjust enrichment wasn’t a cause of action, but a general principle synonymous with restitution.  But restitution was what plaintiffs sought, as disgorgement of a benefit unjustly conferred on Del Monte, so this claim was fine. The court thought that the alleged split on the existence of a “cause of action” for “unjust enrichment” under California law was “essentially founded on semantics, drawing a distinction—between unjust enrichment, restitution, and quasi-contract—without a difference. Regardless of whether the claim is labeled one for unjust enrichment, restitution, or some other equitable theory such as quasi-contract or constructive trust, the legal basis for relief is recognized in California law.”

The court also found that plaintiffs had pled fraud with sufficient particularity.   The who was Del Monte; the what was the specific allegedly deceptive claims on; the when was since 2008 and through the class period; and the where was the labels and website.  As for how the claims were deceptive, that was discussed above.

Nor did the court grant Del Monte’s motion to strike all allegations about statements plaintiffs didn’t see and products they didn’t buy. Plaintiffs argued that they had standing to represent a class as long as the products class members bought were sufficiently similar to the ones they actually purchased.  They argued that Del Monte’s nutrient claims weren’t limited to the tomato products they bought but also included spinach/lutein claims.  The critical inquiry was whether there was sufficient similarity in the products (and the representations).  Thus, Del Monte’s objections to references to apparently unbought products and unseen ads (including statements from Del Monte’s annual SEC report, store ad banners, and website claims) weren’t well taken.  “[I]n the Court's view, these products and representations are sufficiently similar to those purchased and seen by Plaintiffs, and any concerns regarding the differences among products at issue are better resolved at the class certification stage.”  The allegations were not “redundant, immaterial, impertinent, or scandalous” within the meaning of Rule 12(f).

Fordham conference book published

Passing this announcement along from the publisher, including a discount offer:

Intellectual Property Law and Policy Volume 12 Edited by Hugh C Hansen

PRAISE FOR THE SERIES "This must be one of the most enjoyable and thought-provoking conferences in the IP field. The high quality of the speakers is matched by the intense, audience-led debates and challenges which follow." The Honourable Mr Justice Laddie, Royal Courts of Justice, London

"Faculty for this conference are always well-known 'names', well respected leaders in their fields, speaking with a combination of candor and timeliness that is unrivaled by any other forum of its kind." Honorable Marybeth Peters, Register of Copyrights, United States Copyright Office.

This is the 17th Annual volume in the series collecting the presentations and discussion from the Annual Fordham IP Conference. The contributions, by leading world experts, analyse the most pressing issues in copyright, trademark and patent law as seen from the perspectives of the USA, the EU, Asia and WIPO. This volume, in common with its predecessors, makes a valuable and lasting contribution to the discourse in IP law, as well as trade and competition law. The contents, while always informative, are also critical and questioning of new developments and policy concerns. Hugh C Hansen is Professor of Law and Director, Fordham University School of Law, Intellectual Property Law and Policy Institute.

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RSP: £125 / €162 / US$250 / CDN $250
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Being fooled by false "sale" ads confers standing despite receiving advertised price

Hinojos v. Kohl’s Corp., No. 11-55793 (9th Cir. May 21, 2013)

Judge Reinhardt began with some scene-setting:

Most consumers have, at some point, purchased merchandise that was marketed as being “on sale” because the proffered discount seemed too good to pass up. Retailers, well aware of consumers’ susceptibility to a bargain, therefore have an incentive to lie to their customers by falsely claiming that their products have previously sold at a far higher “original” price in order to induce customers to purchase merchandise at a purportedly marked-down “sale” price. Because such practices are misleading—and effective—the California legislature has prohibited them.

Hinojos alleged that he was the victim of such a practice at Kohl’s and that he wouldn’t have paid what he did for what he bought had he not been misled by advertised markdowns from fictitious “original” or “regular” prices.  The district court found that he hadn’t “lost money or property” because he received the advertised price, and the court of appeals reversed.

Under California law, a consumer loses money or property “so long as false advertisements induced him to buy a product he would not have purchased or to spend more than he otherwise would have spent.”  This revived Hinojos’s UCL, FAL and CLRA claims.

Hinojos alleged that he bought several items advertised as substantially reduced in price, but in fact routinely sold by Kohl’s at the advertised “sale” prices rather than the purported “original” or “regular” prices. He alleged that the advertised “original/regular” prices didn’t reflect prevailing prices in the three months immediately preceding the ads, and that he wouldn’t have bought the products without the misrepresentations.  The district court dismissed the claims, and denied reconsideration based on Kwikset, holding that Kwikset applied only to false advertisements regarding a product’s “composition, effects, origin, and substance.”

The FAL provides that “No price shall be advertised as a former price of any advertised thing, unless the alleged former price was the prevailing market price . . . within three months next immediately preceding the publication of the advertisement or unless the date when the alleged former price did prevail is clearly, exactly and conspicuously stated in the advertisement.”

However, Proposition 64 restricts standing to individuals who suffered injury in fact and lost money or property as a result of unfair competition.  The California Supreme Court held that the purpose of Proposition 64 was to “curtail the prior practice of filing suits on behalf of clients who have not used the defendant’s product or service, viewed the defendant’s advertising, or had any other business dealings with the defendant,” but “just as plainly preserved standing for those who had had business dealings with a defendant and had lost money or property as a result of the defendant’s unfair business practices.”  

The quantum of lost money or property is only so much as would suffice to establish Article III injury in fact.  Here, there was “no difficulty” regarding Article III injury in fact: the contention that class members paid more than they otherwise would have paid, or bought when they otherwise would not have bought, constitutes an Article III injury in fact. The only issue was whether this injury in fact was an economic injury sufficient to confer statutory standing.

Kwikset explained that:

From the original purchasing decision we know the consumer valued the product as labeled more than the money he or she parted with; from the complaint’s allegations we know the consumer valued the money he or she parted with more than the product as it actually is; and from the combination we know that because of the misrepresentation the consumer (allegedly) was made to part with more money than he or she otherwise would have been willing to expend, i.e., that the consumer paid more than he or she actually valued the product. That increment, the extra money paid, is economic injury and affords the consumer standing to sue.

Thus, Hinojos properly alleged lost money or property.  Kohl argued that Hinojos didn’t allege at what price (if any) he would have bought if the original/regular price hadn’t been misrepresented.  But that’s not a requirement, as Kwikset explicitly held, though the difference between what he actually paid and what he would’ve paid had the ads been truthful would be the appropriate measure of restitution.  But under Kwikset, he “need not be able to prove the quantum of damages he suffered in order to be entitled to injunctive relief given that he alleges sufficient facts to prove that he suffered some economic injury.”  [Compare the Article III analysis above, plus this statement, to the decision I blogged about yesterday denying a plaintiff standing to seek injunctive relief in this exact situation; were I plaintiff’s counsel I might move for reconsideration.]

The district court also erred to limit Kwikset on the grounds that it was limited to “factual misrepresentations about the composition, effects, origin, and substance of advertised products.” Kohl reformulated this as an argument that there was no difference in value between the product as labeled and the product as it actually was.  A misrepresentation of the “regular” price, Kohl’s argued, didn’t misrepresent the innate value of the products, so a consumer gets the product he expects at the price he expects.  Kwikset is broader than that.  True, Kwikset was about conditions of production (allegedly false “Made in USA” claims), and described other similar actionable misrepresentations, but they weren’t intended to be exhaustive. 

Indeed, Kwikset based its reasoning on the fact that “[t]o some consumers, processes and places of origin matter.” The court of appeals concluded, “[t]o other consumers, a product’s ‘regular’ or ‘original’ price matters; it provides important information about the product’s worth and the prestige that ownership of that product conveys.”  The court cited Dhruv Grewal & Larry D. Compeau, Comparative Price Advertising: Informative or Deceptive?, 11 J. of Pub. Pol’y & Mktg. 52, 55 (Spring 1992) (“By creating an impression of savings, the presence of a higher reference price enhances subjects’ perceived value and willingness to buy the product.”); id. at 56 (“[E]mpirical studies indicate that as discount size increases, consumers’ perceptions of value and their willingness to buy the product increase, while their intention to search for a lower price decreases.”).  Thus, misinformation about a “normal” price was significant to many consumers in the same way as other falsities, just as falsely labeling a watch as a Rolex would be actionable even if the watch was a functional equivalent of a Rolex.  The court noted that it was not relying on the cited article to establish facts not contained in the pleadings, but rather “in support of the conclusion that false advertisements about a product’s true market price are significant to consumers.”  (Iqbal/Twombly aren’t mentioned, but plausibility probably plays a role here.)

Indeed, this significance is exactly why retailers like Kohl’s have an incentive to falsely advertise sales, and exactly why the California legislature barred the practice.  “In fact, the deceived bargain hunter suffers a more obvious economic injury as a result of false advertising than the Kwikset consumer who was duped into buying foreign-made goods, because the bargain hunter’s expectations about the product he just purchased is precisely that it has a higher perceived value and therefore has a higher resale value.”

The district court’s test would preclude claims against “a vast array of other misleading marketing practices that have little or nothing to do with a product’s ‘composition, effects, origin, and substance.’”  Examples: “not available in stores,” “available for a limited time only,” “the same model of shoe worn by LeBron James,” “50% of customers who purchased product X also purchased our product,” and “more doctors recommend our product than any other brand.”  All of these were “effective marketing techniques” that could be used to deceive, if false, and generate purchases that otherwise wouldn’t occur.  There was no reason to think that Proposition 64 “meant to silently close the door on consumers’ ability to bring UCL and FAL claims based on such false advertising,” and Kwikset emphasized that Proposition 64 shifted the focus to actual deception by a misleading ad instead of “fishing expeditions” by nonpurchasers.

The district court also held that Hinojos got the benefit of his bargain because he kept the goods he bought, which weren’t defective.  Kwikset explicitly rejected this rationale.  He only got the benefit of the bargain if the misrepresentation wasn’t material.  This was an issue of fact, and also “the legislature’s decision to prohibit a particular misleading advertising practice is evidence that the legislature has deemed that the practice constitutes a ‘material’ misrepresentation, and courts must defer to that determination.”  (So is it material as a matter of law?)  Hinojos specifically and plausibly alleged that Kohl’s falsely marketed its products as on sale because consumers reasonably regard price reductions as material information. “In sum, price advertisements matter.”

The court also refused to certify the case to the California Supreme Court because Kwikset provided more than sufficient guidance.  The majority also expressed disapproval of Kohl’s strategies in this regard: Kohl’s initially removed the lawsuit under CAFA, then discussed Kwikset extensively in the appellate briefs, but never suggested certification there or at oral argument.  At oral argument, “any objective witness” would’ve concluded that Kohl’s had a “slim at best” chance of prevailing on the merits, and only a month and a day after oral argument did Kohl’s file a motion to certify.  The court looks with disfavor on motions to certify filed after prior opportunities to seek certification.  Also, the court didn’t like manipulation of the appellate system by attempts to avoid unfavorable panels—that’s why the Ninth Circuit doesn’t make panels public until shortly before oral argument.  Kohl’s sought certification only after it knew the panel’s views of the case at oral argument.  This smacked of manipulation.

Judge Wardlaw concurred, but only in the result on certification; though Kohl’s motivations were suspicious, “on this record and without providing an opportunity to Kohl’s to respond, it is somewhat unfair to conclude that Kohl’s had only a nefarious motive. I would simply deny the request as untimely.”

allegations of patent infringement protected by Noerr-Pennington doctrine

Sliding Door Co. v. KLS Doors, LLC, 2013 WL 2090298 (C.D. Cal.)

Sliding Door sued defendants alleging patent infringement; defendants counterclaimed for, among other things, false advertising and unfair competition.  Sliding Door made allegedly false claims that defendants were infringing Sliding Door’s patent and threatened to hold any purchaser of an infringing product accountable.  The relevant email included a link for the recipient to view Sliding Door’s catalog along with pictures of sample products.

For the Lanham Act claim, the court adopted the standard four-factor definition of “commercial advertising or promotion,” focusing on the question of whether the statements were commercial speech. Under the circumstances, the email could be seen as commercial speech.  It was sent by Sliding Door’s sales manager in its commercial division, included a link to Sliding Door’s catalog, and had images of Sliding Door’s product.  Thus, it could be seen as commercial speech made for the purpose of influencing consumers to buy Sliding Door’s goods and services.  The fact that it also included “cease and desist” language wasn’t dispositive, given these other contextual factors.

However, this was still protected communication under the Noerr-Pennington doctrine, precluding liability for petitioning the government for redress.  Conduct incidental to a lawsuit is also protected by Noerr-Pennington, and defendants failed to explain why this wouldn’t also apply to Lanham Act claims. The email here was related to the petition activity of filing suit, even if it was also carried out to further the petitioning party’s commercial interests.  The sham exception didn’t apply because Sliding Door’s claim “contain[ed] sufficient issues of fact” to show (for whatever values of “show” you want to apply on a motion to dismiss)  that its action wasn’t objectively baseless.

Similarly, the state law unfair competition claim was barred by California’s litigation privilege.  Defendants argued that statements made for advertising purposes weren’t protected.  The privilege applies to statements that have a connection or logical relation to the litigation process; it doesn’t apply if the statements only serve interests that happen to parallel or complement a party’s litigation interest.  Here, the email informed customers of the pending litigation and warned them of potential liability for buying infringing products.  This had a logical relation to the lawsuit.  Even though it was also advertising, it still fell within the scope of the privilege.

consumer who knows truth lacks standing for injunctive relief

Mason v. Nature's Innovation, Inc., 2013 WL 1969957 (S.D. Cal.)

Mason sued NI based on his purchase of Naturasil skin tag remover, based on representations on the label and website that Naturasil was an exclusive and 100% natural formula that was FDA registered and was proven to gently and effectively remove skin tags.  He alleged that the representations were false and misleading because the product wasn’t 100% natural; the product was merely listed as an unapproved homeopathic drug with the FDA, despite being marketed next to other FDA-monograph approved OTC drugs; the product isn’t effective because its active ingredient doesn’t remove skin tags, and the active ingredient is not even actually present in the product due to the enormous dilution of the product; and the product did not contain “exclusive” ingredients because the exact same ingredients were used in many of NI’s other products.  He brought California CLRA/UCL/FAL claims and warranty claims.

The court found that Mason lacked standing to seek injunctive relief because, since he knew the truth, he was in no danger of future injury.  There’s a split among district courts on this argument in false advertising cases; courts that reject it note that it vitiates the purpose of California’s consumer protection laws.  But even if California allows plaintiffs to seek injunctive relief on behalf of the public regardless of whether they’re likely to suffer future harm themselves, federal courts have to follow Article III.  “[A] plaintiff does not have standing to seek prospective injunctive relief against a manufacturer or seller engaging in false or misleading advertising unless there is a likelihood that the plaintiff would suffer future harm from the defendant's conduct—i.e ., the plaintiff is still interested in purchasing the product in question.”

In ADA cases, the Ninth Circuit held that injunctive relief is only available when there was likely injury in the future related to the plaintiff’s own disability.  Chapman v. Pier 1 Imports (U.S.) Inc., 631 F.3d 939 (9th Cir. 2011) (not a class action, and dealing with a statute in which injunctive relief is the only remedy available to private plaintiffs, thus making the redressability inquiry a different one). A plaintiff must desire to return to the noncompliant accommodation; plaintiffs lack standing if they don’t really intend to return, or if the barriers at issue don’t pose a real and immediate threat to them given their particular disabilities.  If ADA plaintiffs have to show likely future injury, consumer plaintiffs must too.  There was no likely future injury if a plaintiff had no interest in buying the product again because it didn’t work as advertised.  (I don’t really get this.  If a plaintiff satisfies Article III for a claim, as Mason unquestionably did, why does Article III also govern whether s/he gets to ask for each and every form of remedy that might be available, when a statute makes multiple remedies available?)

The court continued: this result means that injunctive relief won’t be available in federal court in many false advertising cases, though there may be cases in which a consumer would still be interested in purchasing a properly labeled product.  And anyway, Article III trumps California’s consumer protection law.  Consumers who seek injunctive relief can sue in state court. (NB: unless CAFA applies, given that there will be Article III standing for their damages claims!  Sorry ‘bout that.)

So the CLRA claim went in its entirety, since it was just for injunctive relief, as did the injunctive relief claims under the UCL and FAL.

The court declined to dismiss the warranty claims based on Mason’s failure to provide notice to defendant, because he bought the product from CVS, not directly from NI, and thus wasn’t required to give NI notice.  It didn’t have occasion to resolve which, if any, of NI’s representations fit the Magnuson-Moss Warranty Act’s definition of “written warranty.”

court parses Lanham Act standing on statement by statement basis

FieldTurf USA Inc. v. TenCate Thiolon Middle East, 2013 WL 1963918 (N.D. Ga.)

While this was mainly a breach of contract action, the court had occasion to resolve various Lanham Act false advertising/trademark and business tort issues.  TenCate (actually a bunch of related entities) entered into three contracts to supply FieldTurf with polyethylene fiber used to make artificial grass turf for athletic fields. Initially, FieldTurf entered into a supply agreement in which TenCate’s predecessor would provide monofilament fiber called Evolution exclusively to FieldTurf.  FieldTurf allegedly began receiving complaints about fields installed using Evolution fiber.  Its testing allegedly demonstrated that Evolution yarn was degrading prematurely.  It subsequently released Revolution, a competing fiber product.  FieldTurf sued TenCate for breach of contract, breach of warranty, and fraud. TenCate counterclaimed for false advertising, trademark infringement, slander, etc.

On FieldTurf’s statement that Revolution was the “industry’s strongest fiber,” TenCate argued that this meant tensile strength, and provided evidence that Revolution didn’t have the strongest tensile strength.  But a TenCate employee admitted in deposition that fiber strength can be measured in many ways; this was not literally false, and TenCate didn’t have evidence of consumer reception.  As for the statement that Revolution had “strongest ultraviolet inhibitor technology in the industry,” TenCate showed that other UV stabilizers were equal, but that wasn’t enough to show literal falsity, “only that the advertisement was phrased in a manner which may have misled consumers about the strength of Revolution's ultraviolet inhibitor technology.”

Revolution also claimed to have the “most natural looking fiber,” but this was puffery.  TenCate’s expert testified that there were ways to make turf fiber more natural looking, but also admitted that whether one type was more natural looking than another was unprovable.

And Revolution claimed to have the “strongest tuft bind” in the industry, but the court found that TenCate didn’t have standing to contest this claim.  According to FieldTurf, “tuft bind” related to “how hard it is to pull a tuft of fiber out of its backing” and has nothing to do with the fiber itself. Thus, there was no prudential standing.  Although TenCate’s commercial interests may have been harmed if end users purchased turf through FieldTurf rather than a TenCate-supplied turf producer, that didn’t counsel heavily in favor of standing because (NB: this is not a because, but a conclusion about materiality) the ads at issue made a lot of claims for Revolution, and there was no reason to think that the brief “tuft bind” claim persuaded a purchaser more than any other claim.  The directness of the injury counseled against prudential standing because the parties didn’t generally compete to sell the same products to the same end users. TenCate was a commercial entity competing in the general market for artificial turf and was therefore connected to the effects of the false advertising, which counseled slightly in favor of standing, but determining FieldTurf’s profits and TenCate’s losses from the “tuft bind” claims would involve too much speculation given the other important components of the product.  And the possibility of duplicative claims weighed against standing because, if TenCate could sue, so could every other competitor in the market for artificial turf and its components.

TenCate argued that FieldTurf’s ads were deceptive comparative advertising, justifying a presumption of causation and harm for actual damages.  But the “tuft bind”-related claims weren’t comparative advertising.  The ad pamphlet said that a third party fiber manufacturer’s “quality began to suffer” and repeated Revolution's motto: “This is no evolution. This is revolution.” (How is that not comparative with Evolution, the third party product?)  The ads “only” said that Revolution had the “strongest tuft bind in the industry” but didn’t “compare the tuft bind with the tuft bind of any competitors, including TenCate.”  (How is “strongest” not comparative? Ugh.)  Thus there could be no presumption of causation or harm.

FieldTurf also sought summary judgment on TenCate’s trademark infringement/unfair competition counterclaims, on the grounds that TenCate couldn’t show confusion.  The Evolution 3GS mark was incontestable, giving it “presumptive[]” strength (ugh again—no, incontestability means irrebuttable nondescriptiveness: as a matter of law, if it’s not generic, it functions as a mark, but that doesn’t make it a strong mark, so that’s wrong in two distinct ways).  But FieldTurf overcame the presumption of strength by showing that, when it introduced Revolution, Evolution had been sold exclusively to FieldTurf in the US, and “with trivial exceptions,” it hadn’t been advertised or promoted. Therefore it was (commercially) weak.  (Wonder why that pamphlet reads that way—an inside jab?)

The marks differed only by a single letter, but the buyers were sophisticated purchasers of technical products who were unlikely to be deceived.  The motto “It’s not evolution, it’s Revolution” made clear that FieldTurf was trying to distinguish the products, not to deceive, especially since it was saying that Evolution was defective; deception made no sense in context.  Plus, the parties dealt with consumers at different stages of the buying process: FieldTurf sold turf to athletic facilities, while TenCate sold fiber to other manufacturers of artificial turf—FieldTurf’s competitors.  And there was de minimis evidence of actual confusion. 

FieldTurf also won summary judgment on the slander claim because TenCate provided only hearsay to prove that it had occurred.  TenCate argued that a form letter FieldTurf sent was libelous, but the court agreed that the statements were privileged: made in good faith to a properly limited set of persons to protect the speaker’s interest in a matter in which it was concerned. Though FieldTurf’s letter was (relatively) widely disseminated in the “design community,” the letter was limited in scope.  It simply repeated the allegations of FieldTurf’s lawsuit that TenCate changed the fiber and didn’t live up to its promises.  FieldTurf’s protection of its reputation was privileged.

The tortious interference counterclaim also failed because the statements were privileged, and TenCate also failed to show financial injury.  Though three potential customers declined to adopt Evolution for various reasons, including that it had “a lot of baggage,” the statements didn’t show that the customers were affected by any FieldTurf statement, whether about the lawsuit or about a TenCate product.  Specific claims of lost sales, on inspection, were traced to reasons other than FieldTurf’s statements about TenCate, showing again how hard a tortious interference claim is to win in most instances.

restitution for deception is the same as restitution for the underlying unfair practice

Gutierrez v. Wells Fargo Bank, No. 3:07-cv-05923 (N.D. Cal. May 14, 2013)

Previous coverage here (9th Circuit) and here (earlier district court opinion). 

Plaintiffs challenged Wells Fargo’s “high-to-low” posting of account debits, which multiplied overdraft fees “by depleting the account as fast as possible and turning what might otherwise be a single overdraft into as many as ten.”  After a bench trial, the court found that (1) Wells Fargo’s choice of high-to-low posting was made in bad faith with the sole object of increasing overdraft fees, violating the “unfair” prong of the UCL; (2) Wells Fargo failed to adequately disclose this practice, violating the “fraudulent” prong; (3) Wells Fargo made misleading statements to consumers about its resequencing practice, also violating the “fraudulent” prong; (4) this deceptive conduct also established liability under the FAL; (5) Wells Fargo was enjoined to stop using high-to-low posting and tell the truth about whatever sequencing practice it chose; and (6) Wells Fargo was ordered to pay restitution of nearly $203 million, based on the difference between the fees charged based on high-to-low versus chronological posting.  The court didn’t reach the class claims for negligent misrepresentation and fraud because the injunctive relief sought thereunder would be duplicative.

On appeal, rulings 1-2 and 5-6 were reversed, but 3-4 were affirmed, though the court of appeals didn’t expressly address false advertising when it affirmed the findings on fraudulent misrepresentations.  The court of appeals ruled that application of the “unfair” prong was preempted as applied to a national bank’s posting order.  Liability based on failure to disclose was likewise preempted.  However, liability based on the “fraudulent” progn wasn’t preempted, because it was a generally applicable law that didn’t impose disclosure requirements in conflict with federal law. It only barred statements likely to mislead the public.

Wells Fargo made several kinds of affirmative misrepresentations.  One marketing theme was that debit card purchases were “immediately” or “automatically” deducted from an account. “This likely led the class to believe: (1) that the funds would be deducted from their checking accounts in the order transacted, and (2) that the purchase would not be approved if they lacked sufficient available funds to cover the transaction.”  This language appeared on the website, in brochures, and on Wells Fargo’s New Account Welcome brochure for years—on such a wide array of marketing materials, which were distributed so broadly, that class members were likely to be misled by them.

Wells Fargo also made misleading statements directly to customers, such as, “[c]heck card and ATM transactions generally reduce the balance in your account  immediately,” that “the money comes right out of your checking account the minute you use your debit-card,” and that “[i]f you don’t have enough money in your account to cover the withdrawal, your purchase won’t be approved.” 

In online banking, Wells Fargo displayed pending transactions to customers in chronological order, only to secretly rearrange them high-to-low when posting to maximize overdraft fees.  Buried deep in its 60-plus page Customer Account Agreement was language on posting order that was both difficult to understand and misleading.  The agreement said that the bank “if it chooses” might use high-to-low posting, which “might” result in more overdraft fees.  This language, “if it were ever discovered and read in the first place, affirmatively left the misleading impression with consumers that the bank had not yet implemented high-to-low posting (whereas, in fact, the posting practice was already in use).”  The language also misled customers by suggesting that the order might be modified on a case-by-case basis, which it was not.

The court of appeals held that the ruling that the named plaintiffs were misled was “well supported by the evidence,” that “[t]he misunderstanding that Wells Fargo’s misleading statements sowed among customers about its posting scheme was a significant cause of the magnitude of the harm experienced by Gutierrez and Walker,” and that “the district court’s finding that Wells Fargo made misleading statements is amply supported by the court’s factual findings.”  Further, “[t]he pervasive nature of Wells Fargo’s misleading marketing materials amply demonstrates that class members, like the named plaintiffs, were exposed to the materials and likely relied on them.” The court of appeals vacated the injunctive relief because it related to posting order, and stated that the district court could provide restitution against Wells Fargo consistent with the finding on the “fraudulent” prong, even though the original restitution order, predicated as it was on Wells Fargo’s choice of posting method, had to be vacated as well.

On remand, the court reinstated the restitution award and granted a new injunction barring false and misleading representations about posting order.  Wells Fargo argued that the district court couldn’t do that; the court disagreed.

Basically, Wells Fargo argued that there was no evidence supporting the money award because plaintiffs’ damages expert hadn’t calculated damages based on misrepresentations, and plaintiffs had waived any such claim for damages based on fraud.  Though plaintiffs’ attorney sent an awkwardly worded email before trial, what he really meant (and how the trial proceeded) was that the expert hadn’t attempted to quantify damages or restitution based on common law misrepresentation/fraud claims (which require individualized reliance/proof of damages).  That didn’t waive restitution claims ancillary to an injunction under the UCL.  An injunction against an unfair or fraudulent business practice is usually accompanied by the ancillary equitable relief of restitution.  Such relief isn’t “damages” for a conventional “fraud” claim.  “This distinction may seem odd to those unfamiliar with Section 17200 but the difference is generally known to California practitioners.”

Further, Wells Fargo had every opportunity to dispute the damages analysis.  As the case was tried, the court understood, and all the parties should have as well, that restitution was a possible form of relief.

The full award was reinstated.  The remedial provision of the law provides that “[t]he court may make such orders or judgments . . . as may be necessary to restore to any person in interest any money or property, real or personal, which may have been acquired by means of such unfair competition.”  This language has been interpreted to allow recovery without proof of actual reliance.  “[O]nce a wrongdoer is proven to have engaged in a fraudulent business practice whose whole point was to cheat consumers out of money, restitution may be used to restore the money to the victims of the practice.”  It was sufficient that class members were likely to be deceived, a finding affirmed by the court of appeals. 

Still, there needed to be evidentiary support for the amount of recovery.  Plaintiffs’ expert didn’t attempt to quantify amounts obtained by misrepresenting the posting order (which order itself has now been held lawful).  Wells Fargo argued that slicing out the amounts obtained by misrepresentation would be difficult, if not impossible, on a classwide basis.  The court disagreed.  There was an overall scheme, carried out by affirmative misrepresentations that caused class members to believe that debits would be posted chronologically.  Again, the court of appeals affirmed the finding that “[t]he misunderstanding that Wells Fargo’s misleading statements sowed among customers about its posting scheme was a significant cause of the magnitude of the harm experienced by [class plaintiffs] Gutierrez and Walker.”

Even though liability couldn’t be predicated on the posting method itself, the harm from the affirmative misrepresentations came from the unexpected overdraft fees, which was the same harm caused by manipulating the posting method.  Restitution was likewise the same.  At trial, Wells Fargo had already tried to argue that the restitution calculations should be reduced based on assumptions about how many individuals were “on notice” of Wells Fargo’s practices, but the court already rejected that.  The appropriate measure of damages was to restore class members to a position consistent with the reasonable expectations induced by the affirmative misrepresentations—which could be done by calculating overdraft fees in a way approximating chronological order.  “Wells Fargo’s affirmative misrepresentations are intertwined with the other elements of the scheme and cannot be meaningfully separated into discrete causes of harm.”

The court drew an analogy to People ex rel. Bill Lockyer v. Fremont Life Ins. Co., 104 Cal. App. 4th 508 (2002), which challenged an annuity policy with unusual premium charges. The court found the policy as a whole misleading, and ordered restitution of premium charges paid plus interest.  “Although the premium charge itself was lawful, the misleading annuity policy was not, and the restitution order properly returned the unexpected premium charges.”  So here: the appropriate restitution was to return the unexpected charges to the customers, which was the calculation plaintiffs’ expert performed.  “This order is not penalizing Wells Fargo for a practice protected by federal preemption. Instead, it is penalizing Wells Fargo for affirmatively misleading the class as to what the practice was.” 

No prejudgment interest was allowed, but post-judgment interest should be computed based on the date of the original entry of judgment, since that was when Wells Fargo was found liable for false/fraudulent advertising.

Wells Fargo objected to an injunction as insufficiently specific, “but Wells Fargo should not escape an injunction because its misconduct was multifarious.” Also, Wells Fargo voluntarily cased high-to-low posting (in California, anyway) and allegedly didn’t plan on returning to the practice.  But without an injunction, it could return to its prior practice of misleading consumers if it did change posting order.  Thus, Wells Fargo was enjoined from making any false or misleading representations relating to posting order.

Another court rejects waiting for FDA to act on "natural"

Janney v. Mills, 2013 WL 1962360 (N.D. Cal.)

Plaintiffs, bringing the usual California claims, alleged that certain Nature Valley products were deceptively labeled “100% Natural,” “All Natural,” and “Natural” despite containing high fructose corn syrup (HFCS), high maltose corn syrup, and/or maltodextrin and rice maltodextrin, which are allegedly unnatural due to the processing required to create them. The term “natural” was allegedly pervasive and prominent on the packaging and in the advertising for Nature Valley products, including in the brand name and through “images of forests, mountains, and seaside landscapes.”

General Mills first argued that the case should be dismissed under the primary jurisdiction doctrine, since decisions regarding the meaning of “natural” should be made by the FDA.  Courts consider “whether there is (1) a need to resolve an issue (2) that has been placed by Congress within the jurisdiction of an administrative body having regulatory authority (3) pursuant to a statute that subjects an industry or activity to a comprehensive regulatory authority that (4) requires expertise or uniformity in administration.”  General Mills contended that food labeling was an issue placed within the primary jurisdiction of the FDA, which exercised comprehensive regulatory authority over labels, and that the FDA had adopted a policy for the use of “natural,” enforced through administrative action.

“Natural” isn’t defined in the FDCA, and “notwithstanding repeated requests, the FDA has expressly declined to define ‘natural’ in any regulation or formal policy statement.” While it solicited comments on a potential rule adopting a definition in 1991, in 1993 it declined to resolve the acknowledged ambiguity surrounding the term because of resource limitations and other agency priorities.  In 2002, the FDA again stated that defining “natural” wasn’t a priority; it declined again in 2006.  In 2010, a number of district courts stayed pending litigation over HFCS in beverages in the hope of a formal definition, to no avail.

The FDA occasionally refers to a 1993 statement that it would “maintain its current policy ... not to restrict the use of the term ‘natural’ except for added color, synthetic substances, and flavors[;]” and that it would “maintain its policy regarding the use of ‘natural,’ as meaning that nothing artificial or synthetic (including all color additives regardless of source) has been included in, or has been added to, a food that would not normally be expected to be in the food.”  Consistent with the informality of this guidance, the FDA has taken few actions against companies for improperly using the term—warning letters to companies that used the term when their products contained various preservatives. General Mills argued that the warning letters showed that the FDA routinely made “considered, expert judgments about what products and food labels warrant administrative action for non-compliance with its informal policy.”  As in Pom Wonderful LLC v. Coca–Cola Co., 679 F.3d 1170 (9th Cir. 2012), General Mills argued, “[i]f the FDA believes that more should be done to prevent deception, or that [a manufacturer's] labels mislead consumers, it can act.”  Courts that have declined to apply the primary jurisdiction doctrine, General Mills contended, mostly acted pre-Pom (though not all such cases predated Pom).

The plaintiffs responded that the FDA explicitly and repeatedly refused to define “natural,” and that its current guidance only covered added colors and flavors in foods.  Despite significant consumer and industry interest for over two decades, the FDA has declined to act; a dismissal or stay on primary jurisdiction grounds wouldn’t cause any change.  Moreover, plaintiffs argued, they weren’t asking for a general definition of “natural,” but rather they were seeking resolution of a question of state law: whether General Mills’ marketing of its Nature Valley® products as “natural” could mislead reasonable consumers. Misleadingness determinations don’t necessarily entail technical questions or require agency expertise.

While the court found the question close, it denied the motion.  The relevant factors generally favored the resolution of this issue by the FDA; enforcement of a policy regarding the use of “natural” on food products required FDA expertise and uniformity.  And the informal policy was an FDA position “of sorts.”  But, “in repeatedly declining to promulgate regulations governing the use of ‘natural’ as it applies to food products, the FDA has signaled a relative lack of interest in devoting its limited resources to what it evidently considers a minor issue, or in establishing some ‘uniformity in administration’ with regard to the use of ‘natural’ in food labels.”  Because any referral to the FDA would likely prove futile, the court had little reason to stay or dismiss the case to allow the FDA the chance to take action, even if the other factors favored such a result.

General Mills also argued that the complaint failed to plead fraud with particularity. The court agreed that Rule 9(b) applied, but found the allegations sufficiently specific as to the packaging for the five products specifically identified by the plaintiffs.  However, they weren’t sufficient to plead misrepresentations in advertising apart from the product packaging (the Nature Valley website, Flickr photostream, Facebook page, Twitter account, and YouTube channel), or as to unidentified products; specific allegations for each product were required, and attaching only a selection of labels was insufficient. Rule 9(b) required plaintiffs to identify specific ads and promotional materials, allege when they were exposed to them, and explain how they were false and misleading.  Plaintiffs argued that “100% Natural” on the physical product was enough, but they didn’t identify particular misrepresentations in the online sources.  And the allegation that an “image of nature” could be viewed as deceptively describing the ingredients in granola bars was entirely implausible, and therefore inadequate to state a claim for anything.

Never steal anything from someone you can't outrun: Warner Bros. defeats infringement claim

Fortres Grand Corporation v. Warner Bros. Entertainment Inc., No. 3:12-cv-00535 (N.D. Ind. May 16, 2013)

McCarthy has said that there’s “surprisingly little” case law on whether a fictional company or product using the same name/brand as a real one constitutes trademark infringement.  If this is surprising, as the court here agreed, it’s only because we’ve started expecting overreach as a baseline.  This case adds to the small but obviously correct body of case law rejecting such claims (and, I hope, putting defendants in a position to ask for an award of fees next time).

Fortres Grand makes a real software program, Clean Slate.  Clean Slate erases evidence of user activity on a particular computer, and it’s a registered mark for “computer software used to protect public access computers by scouring the computer drive back to its original configuration upon reboot.”

The Dark Knight Rises included a handful of references to a fictional software program called “clean slate,” which Selina Kyle wanted to erase her criminal history from every computer database in the world.  (Yet another example of ridiculous tech premises; see also Carrion on Revenge, the Machine on Person of Interest, “Let’s Enhance,” and Phone Trace Race (warning: this last link goes to TVTropes; I am not responsible for the time you waste if you follow it).)  Also, WB created two relevant websites, rykindata.com and rykindata.tumblr.com, to promote the film. (Ed. note: Eric Goldman says keyword ad cases make no business sense; this tumblr has 5 entries, and the top one—featuring Selina Kyle—has only 94 reblogs/likes, whereas the others have 11, 4 (one of which is me), and none. Perhaps this also wasn’t worth suing over?)  As the court explained, the sites served to extend the movie experience:

[R]ather than just creating a straightforward promotional website where consumers can get information about the film (like, in this instance, www.thedarkknightrises.com), additional websites are created that market the film in a more subtle or creative way. In this instance, the websites are essentially a creative outgrowth of the fictional world of the film. They look like what a (fictional) citizen of Gotham might find if they were looking for information on the (fictional) Rykin Data company. They include images of fictional police reports related to the fictional character Selina Kyle, a fictional police file labeled “Cat Burglar Investigation,” a fictitious software patent, and an endorsement from a fictional Gotham City Better Business Bureau (BBB). [Hilariously/sadly, this last seems to have been removed, perhaps when counsel got a better look at the tumblr because of this suit.] 

These websites also use the term “clean slate” to describe the software referenced in the film. … One of the pages on the website is titled “PROGRAM: ‘CLEAN SLATE’” and explains that “‘Clean Slate’ is the informal name for Rykin Data’s primary service, in which the corporation will amass personal histories (specifically off the Internet) and destroy it permanently.” Both websites also contain a fictitious patent for the software, the abstract of which states that the invention has the effect of “granting the subject a clean slate within the digital world.” The Tumblr site also contains this statement: “Rykin Data: Providing Fresh Starts since 2004. . . . Clean slates are possible. . . . Have a fresh, clean start.”

The court considered these materials on the motion to dismiss because they were integral to the complaint.

Fortres Grand sued for trademark infringement and unfair competition under state and federal law; all the claims were subject to the same standard.  It claimed reverse confusion.

The court began by noting what trademark law isn’t about: “trademark infringement protects only against mistaken purchasing decisions and not against confusion generally.” To prevail, Fortres Grand needed to plausibly allege that Warner Bros. saturated the market with a product that the public was deceived into believing emanates from, was connected to, or was sponsored by Fortres Grand.  The fatal flaw in the case involved correctly identifying “the exact product that Warner Bros. has introduced to the market – a film, not a piece of software.”  Paradigm reverse confusion cases involve directly competing products where a small regional producer is overwhelmed when a larger player “rolls out a similar product with the same trademark on a nationwide level.”

But Warner Bros. didn’t have real “clean slate” software.  Fortres Grand couldn’t argue that it had been damaged by the saturation of the market with “clean slate” software.  Confusion had to be judged by Warner Bros.’ actual product, as other courts in similar situations have also ruled.  See Ocean Bio-Chem, Inc. v. Turner Network Television, Inc., 741 F. Supp. 1546 (S.D. Fla. 1990) (Star Brite Distributing had no claim against fictional Starbrite Batteries); Davis v. Walt Disney Co., 430 F.3d 901 (8th Cir. 2005) (Earth Protector advocacy organization had no claim against fictional environmental software company Earth Protectors); Caterpillar Inc. v. Walt Disney Co., 287 F. Supp. 2d 913 (C.D. Ill. 2003) (no consumer would be more likely to buy or watch George of the Jungle 2 because of any mistaken belief, based on presence of Caterpillar vehicles in the movie, that Caterpillar sponsored it). 

Fortres Grand couldn’t plausibly allege either that consumers were deceived into believing that the DKR “clean slate” program came from Fortres Grand, or that they were deceived into believing that DKR came from Fortres Grand. 

“First, no consumer – reasonable or otherwise – can believe the fictional ‘clean slate’ software in the movie emanates from, is sponsored by, or connected to Fortres Grand because the fictional software does not exist in reality.” A consumer who tried to find it would quickly discover that it didn’t exist.  In other words, Warner Bros. was not making a trademark use of “clean slate”: it didn’t identify a source of software because there was no such software, and it didn’t identify the source of the film either (citing, inter alia, New Kids).

“Second, no consumer – reasonable or even unreasonable – would believe that the The Dark Knight Rises itself is connected to Fortres Grand.”  Fortres Grand isn’t in the motion picture business, and no one would buy tickets or discs because of a perceived association with Fortres Grand’s products.  Any allegation of confusion about the film’s source would be too implausible to survive Iqbal/Twombly.  (Notice how sponsorship/product placement has been erased from the analysis.  Really, the only coherent way to understand these statements is as normative claims, irrefutable by empirical evidence, rather than as descriptive claims.)  The promo websites changed nothing. “To the extent it can be said that the term ‘clean slate’ on these sites is even being used as a trademark, it can only be to indicate the source or origin for the film The Dark Knight Rises.”

Mark McKenna will appreciate this bit:  Pragmatically, infringement means confusion as to source, which means origin, which means “the producer of the tangible product sold in the marketplace.” Hello, Dastar! Vague, generalized confusion isn’t enough, since the key target is mistaken purchasing decisions.  Because “no one looking for Fortres Grand’s software is likely to mistakenly buy a ticket to The Dark Knight Rises,” there was no plausible claim for such mistakes.

And also: the use of “clean slate” was protected by the First Amendment, even if there were potential consumer confusion. Rogers v. Grimaldi, 875 F.2d 994 (2d Cir. 1989), provided the standard.  The Lanham Act doesn’t apply to artistic works as long as a use is artistically relevant and not explicitly misleading as to the source or content of the work.  Rogers is about titles, but also applies to the use of a mark in the body of a work.

The first prong, artistic relevance, is a purposely low threshold.  “Clean slate” had artistic relevance to both the film and the websites, as Fortres Grand’s own complaint acknowledged—it was the name of a program that would erase a person’s criminal history from every computer database.  Nor was the use explicitly misleading.  As the 9^th Circuit has (confusingly) said, “the relevant question” is whether the use of “clean slate” in The Dark Knight Rises would confuse its viewers into thinking that the Fortres Grand “is somehow behind” the film or “that it sponsors” the film.  The requirement of explicit misleadingness makes this a high bar: a work must make some affirmative statement of sponsorship or endorsement, beyond the mere use of a plaintiff’s mark, in order to be explicitly misleading.  There was no such affirmative statement here.

The court rejected Fortres Grand’s argument that Rogers only applies to forward confusion, not reverse confusion, because Rogers was about protecting use of “culturally relevant” marks.  Because Warner Bros. wasn’t trying to refer to Fortres Grand at all, it argued, Rogers wasn’t relevant. The court didn’t see the logic there.  First Amendment protection didn’t depend on the infringer’s having “some well-thought-out, ‘expressive’ critique of the trademark.”  In fact, the chilling effect of Fortres Grand’s position could be huge.  Small, relatively unknown trademark owners shouldn’t enjoy monopoly power over use of words in expressive works any more than the owners of famous marks should.  Other courts had concluded similarly; the one case that supported Fortres Grand, Rebelution, LLC v. Perez, 732 F. Supp. 2d 883 (N.D. Cal. 2010), read “artistic relevance” too narrowly, requiring defendant’s use “to be with reference to the meaning associated with plaintiff’s mark.”  As the Ninth Circuit has held, “the level of relevance merely must be above zero” (and, implicitly, “relevance” means “relevance to the work,” not “relevance to the plaintiff”—which is the only sensible reading; otherwise the reality show Apple Pickers about competing fruit sellers would be vulnerable to a claim from Apple, whose computers would lack artistic relevance to the show).

The same analysis applied to the promotional websites.  Fortres Grand argued that Rogers didn’t apply because the sites were commercial speech, but they weren’t, in that they did more than propose a commercial transaction.  “[I]n fact, it is hard to see that they really propose any commercial transaction, other than obliquely convincing consumers to buy a ticket to the film. Instead, they are creative, fictional extensions of the film – artistic works in and of themselves – and are thus entitled to First Amendment protection.”  Rogers applied in the same way.