I haven’t written about the Sherrilyn Kenyon v. Cassandra Clare lawsuit over Darkhunters v. Shadowhunters, though I did read the complaint. I didn’t find the copyright claims to make it past assertions of similarity in ideas, though trademark is often trickier these days. As a geek, however, I was interested to see that one piece of evidence for infringement was both parties’ use of a particular runic symbol (Darkhunters and Shadowhunters)—in part because, in what I’m sure was complete coincidence, that very symbol is now playing a key role on this season of Sleepy Hollow. This recap says it’s also used in Twin Peaks (and by the Nazis, so there’s one segue taken care of). Pretty good evidence that it’s a mystical trope!
Monday, February 29, 2016
BPI Sports, LLC v. Labdoor, Inc., 2016 WL 739652, No. 15-62212 (S.D. Fla. Feb. 25, 2016)
BPI makes supplements, including “Best BCAA,” which contains branched chain amino acids (BCAAs) in multi-chain peptide form, rather than isolated, free-form BCAAs. LabDoor’s website purports to rank and grade supplements after detailed chemical analysis by an “FDA-registered” lab, including Best BCAA. The lab apparently is Avomeen Analytical Services, co-founded by LabDoor’s CEO in 2010. BPI alleged that research, clinical trials, or human studies “are more appropriate methods of testing the safety and efficacy of the supplements being tested and compared.” Nonetheless, LabDoor created a list of the best BCAA supplements, and Best BCAA got a grade of “D.” BPI alleged that LabDoor’s analysis failed to account for the nutritional value of the multi-chain peptides, compared to the individual BCAAs in other supplements. “In an interesting twist, LabDoor sells the product it ranks and grades as number one.”
BPI sued for false advertising under the Lanham Act, violation of Florida’s Deceptive and Unfair Trade Practices Act (FDUTPA), and tortious interference. In a demonstration of the value of Lanham Act claims in overcoming traditional barriers, the court grants LabDoor’s motion to dismiss the FDUTPA and tortious interference, with leave to amend.
Claims of tortious interference with BPI’s relations with its “targeted consumer base” were speculative and insufficient. Existing customers would be readily identifiable, but any reference to them in the complaint was vague and really about “hypothetical consumers generally.”
FDUTPA: Florida amended its law in 2001, changing references to “consumer[s]” to “persons” who suffered losses as a result of a violation of the law. Federal courts are split on whether non-consumers can now sue; the court agreed with the majority (and one state court that considered the issue). Given the statutory requirement that FDUTPA be construed liberally, the shift in language allowed non-consumer plaintiffs. BPI also sufficiently alleged causation, since the Eleventh Circuit has held that FDUTPA doesn’t require proof of actual reliance but only likely consumer deception.
However, BPI failed to plead actual damages sufficiently. Generally, actual damages are the difference in market value between what was promised and what was delivered. Of course that doesn’t make sense here. BPI alleged diverted sales and lost goodwill, which the court deemed to be consequential damages, which don’t count as actual damages. That … really doesn’t make much sense. If you’re going to expand FDUTPA to cover competitors, then actual damage to them must by definition be measured differently than the damage suffered by a deceived consumer. Otherwise, there’s no point. They’re both harmed by false advertising, but their harms are different, as Lexmark made clear in the Lanham Act context. “Consequential” is a way of expressing a limit on tracing harm, so that if I was defrauded when I bought a car, the lost profits from my inability to make work appointments in my unreliable car would not ordinarily be recoverable damages. By contrast, the honest dealer’s direct damage is the sale she would have made to me but for the fraud. That lost sale should not be excluded as “consequential” even if my own lost sales should be. But, because BPI didn’t plead that LabDoor’s conduct “affected the market value of BPI’s product,” (which would, given the causal mechanism, still be “consequential” by the court’s reasoning) the court dismissed the FDUTPA claim.
Obesity Research Institute, LLC v. Fiber Research International, LLC, 2016 WL 739796, No. 15-cv-00595 (S.D. Cal. Feb. 25, 2016)
Fiber Research alleged that Obesity Research made claims for its weight loss product, Lipozene, touting clinical testing supporting the role of “Propol glucomannan” in promoting weight loss, but that Lipozene didn’t contain any Propol glucomannan or any substantially equivalent glucomannan. In particular, Fiber Research alleged that Obesity Research claimed that Lipozene was “clinically proven,” when, in fact, the clinical studies it relied on used Propol. Further, Obesity Research allegedly falsely claimed that at least one of the clinical studies was “sponsored by [Obesity Research]” and that it falsely referred to one of the clinical studies of Propol as a “Lipozene Clinical Study.” Finally, Fiber Research alleged that Obesity Research falsely stated on its label that there were “[n]o known allergens in this product” when, in fact, there were enough sulfites in Lipozene to warrant a warning. Fiber Research is the exclusive licensee for Propol in the US.
Under Lexmark, Fiber Research had standing to challenge the advertising. It alleged an injury to a commercial interest in reputation or sales and proximate cause based on Obesity Research’s alleged passing off of an inferior product as Propol. Obesity Research argued that it wasn’t in direct competition because Propol is only sold to manufacturers as an ingredient, while Obesity Research sells directly to consumers. But there’s no direct competition requirement after Lexmark.
As for Fiber Research’s California UCL and FAL claims, standing requires lost money or property, which can include “lost sales, revenue, market share, and asset value.” Ineligibility for restitution is not a basis for denying standing under either the UCL or FAL, though Fiber Research couldn’t argue that it was injured indirectly as an assignee; it had to rely on injuries has suffered directly as the exclusive seller of Propol in the United States.
Failure to state a claim: The court characterized this as both a false designation of origin and a false advertising claim, using the likely confusion multifactor test as a useful framework even though some of the factors weren’t helpful. Fiber Research alleged sufficient similarity between Propol and Lipozene to state a claim for false designation of origin, especially given that purchasers can’t determine for themselves the actual ingredients. Likewise, Fiber Research sufficiently alleged false advertising. It identified the particular studies to which Obesity Research allegedly referred in its advertising, and alleged that those were Propol studies. The UCL/FAL claims survived for much the same reasons, though not the UCL unfairness claim because Fiber Research didn’t allege antitrust-like injury.
Friday, February 26, 2016
Felix Wu | Professor and Faculty Director, Cardozo Data Law Initiative, Benjamin N. Cardozo School of Law
Panelists: Shelly Paioff | Deputy General Counsel & Head of Legal, US, Taboola: Taboola is a content recommendation platform—publishers like NBC, Microsoft, USA Today—widget at bottom of article pages with links to third-party content from publishers/advertisers. “From around the web” or “other content you make like.” Never thought of ourselves as native advertisers, but content discovery platform; we’ve opened up a native platform, which to us means mid-article or section-front or home-page placement: ads/content integrated w/in the webpage, within the flow of what the user is already reading. Others may define custom content as native advertising—done to create brand awareness, as w/Netflix sponsored article on NYT to promote Orange is the New Black.
Rick Kurnit | Partner, Frankfurt Kurnit Klein & Selz, PC: Debate over definition was whether or not the curation aspect is a problem. Everyone accepts that influence over content is a concern. The issue with the Taboola case in NAD was whether merely influencing curation of content, financing content, distributing reprints is also advertising. That’s where we are today w/a huge problem facing the media. NYT created the Food section to create an environment for advertising—is that native advertising? Influence over curation exists—that’s over the top.
Po Yi | Partner, Venable LLP: brands are content marketing—creating or distributing it to target a particular audience; may be no reference or relationship to their product. May be cause-related. Not necessarily native advertising/advertising at all. Shouldn’t think of native advertising interchangeably with content marketing.
Kurnit: Whether the First Amendment permits the government to permit curation raises question under Sorrell and the campaign finance rules—if I just want to finance another speaker, is that something the FTC can regulate? FTC did say they were going to regulate whether or not consumers choose to interact w/content; whether the action of a brand affects the decision/content regarding the advertising, not just the product/brand. Thus, how can you communicate to readers the difference between brand voice and content influenced by brand v. brand’s decision to provide information that has nothing to do w/product or service. FTC is still wrestling with that despite the guidelines.
Fireside chat: FTC indicated they aren’t particularly interested in going after items that don’t speak to product, service, brand or competitor. FTC embraced disclosures. FTC wants disclosure to be the focal point of the ad, and the marketing people don’t have a warm fuzzy feeling about giving that space to legal. Not just whether the consumer gives it greater credence but also whether the consumer would have chosen not to interact with it if they’d known it was from a brand/company—want a skull and crossbones. This is in a state of flux; FTC asks whether the consumer would be surprised to find out the truth. Media wants to create a context in which their users understand the differences between brand voice and something that a brand supports or wants as a context for its ads.
One prior industry practice: “Sponsored” content as curated versus “sponsor” content as a label to indicate brand voice—that’s silly to assume people will distinguish those. FTC doesn’t like “promoted by” either unless it’s restricted to where advertiser had no influence. Still, expanding materiality to cover consumer’s choices regarding advertising, not choices about purchases—that is a big content-based regulation that goes beyond protecting consumers against material deception in purchase decisions, overstepping.
Wu: what’s wrong with not fooling consumers into thinking it’s an ad?
Kurnit: as long as an ad is a material claim about a product or service, yes, but not if it’s just corporate speech.
Yi: Also: what are you promoting? If P&G is promoting a diaper v. if it’s the content created by P&G that you’re promoting. Which does the FTC care about? If you paid someone to distribute content, you have to say that you paid to distribute content. That’s the FTC’s core focus.
Ellen P. Goodman | Professor, Rutgers University Law School: The guidelines say if it’s obvious the speaker is P&G, the consumer won’t be confused. Also if the speaker isn’t making product claims, she reads the guidelines to say, disclosure won’t be required. True that FTC is going further on consumer confusion. But that’s not reaching so far as to cover all kinds of branded content.
Yi: but it’s how you deliver the branded content. Brand-created content; using paid media rather than organic to distribute that—the FTC wants readers to know that brand paid money to distribute the content, not because the content itself is advertising but b/c you are paying someone to distribute the content.
Kurnit: in a perfect world, when consumers read disclaimers, that’d be nice. FTC failed to take into account that it’s next to impossible to make the distinction with “this is content with complete integrity, from the NYT, and you can trust it to the extent you trust the NYT, and I am simply making it available to you.” If we put “ad” on the top of everything, how does that help the consumer? Mashable/Buzzfeed could label everything ads.
Yi: that would be misleading in itself. Distinguish what’s in the content from the brands behind it; how much the brand is behind it is the question. What terminology will satisfy the FTC? I don’t want my clients to use “advertising” on everything.
Kurnit: everything I publish is “advertising” because it enhances my brand. Should I have to disclose all my ulterior motives? Disclose before a click?
Paioff: makes you have to worry about releases, SAG issues—wouldn’t want to get those for certain content.
Kurnit: using Mary Engle’s name in my article = right of publicity problem?
Wu: is the point to actually inform consumers? Do they even care?
Jeremy Sheff | Professor of Law, St. John’s University and Director, St. John’s Intellectual Property Law Center: It’s not clear that we should care. Why would it be important? B/c that affects whether consumers choose to interact w/it and the weight/credibility they give it. Not clear that this empirical claim is true. Are consumers more skeptical of “sponsored” content? There is some question—evidence is mixed. We tend not to be good at monitoring the sources of our beliefs; we think we’re better than we are; we’re heterogeneous in our capacity. [I think that makes the case for pre-interaction disclosure stronger. If we have sourcing difficulties, then choosing not to interact with claims that might be misleading is our best way to protect ourselves, which is why I skip ads.] Disclosures are just a bad way of dealing with this in many cases. In certain contexts, disclosures make things worse, as w/dietary supplements. May not help v. false advertising law generally—if the claims are true and you believe them, that’s good. If it’s false and you believe it, that’s bad, but already actionable.
We need a deeper theory of autonomy, given that all our exposures affect/influence us. What we want for ourselves to be protected from, at least w/o our knowledge.
Kurnit: 2 levels of protection. Concern w/truth, integrity of content—if a brand wants to redistribute content, it makes the content its own; it’s responsible for ensuring it has substantiation. That’s the key consumer interest—being misled about truth of claim. Problem I have is when FTC says we also have to provide them with info so they can choose whether to interact w/ad: prevents exposure to truthful speech just b/c it’s annoying. [But isn’t the consumer making the choice, not the gov’t, in the “prevention”? Gov’t can regulate time, place and manner so as to preserve privacy/consumer choice about interaction in many circumstances.] YouTube video created by monkey isn’t more “useful” to consumer than an ad created by a major advertiser. Made it impossible for media to create the user experience they want: Taboola needs 3 disclosures: ad from Taboola; publisher is advertiser; third party wanted you to read this article. All this communicates it’s all bad and people walk away. That doesn’t protect the truth.
Goodman: you’re assuming these warning signs are effective and turn people off; Sheff assumes the alternative.
Kurnit: Do I really need to be warned about “it’s an ad, don’t read it”? Wouldn’t I much rather know it’s good content? Do I really care how much someone paid for the ecosystem? [Suppose someone runs an ad that says “this is a public service announcement” that makes factual claims about fruit juice and soda and how they contribute to obesity, but it’s actually a seller of bottled water. Do you think that’s a problem?]
Sheff: sometimes it’s reasonable for people to care about source. Question is how we want to engage with one another in our interactions.
Wu: Imagine that a brand distributes some form of content and says “this is not an ad, this is not being distributed by any commercial speaker and hasn’t been influenced by any brand owner.” But the content has been paid for and influenced by the advertiser. Should that be permissible? [This is another version of my question; my question involves both truth and competition.]
Yi: Wrong question. Creative community: they don’t really care about being told to disclose. Marketers: they’re willing to disclose. It’s the how that matters to them more. They don’t want to create something that somehow makes what they do inauthentic or impedes the message. [Well, the lie Wu discusses would un-impede the message, right?] They want a way to disclose that doesn’t interfere with the message. Seamless, organic, but transparent. Your example will never fly b/c it’s too many words and not creative enough.
Wu: but the point is that it’s a blatant lie, but only about source and creation of content. Assume the content is truthful, but there are blatant lies about source.
Kurnit: if it’s material to purchasing decision, if it enhances the credibility of a claim about the product or service, it’s deceptive and illegal. But if the content has nothing to do with the product or service, no problem. We don’t have a perfect world; content is always influenced by editor’s decision to not piss off an advertiser. Editor has curated publication to attract the kind of advertisers they want to have. Those editorial decisions are not “pure”; there are no editors free from publishers. Even Consumer Reports advertises. Notion of purity in curation will make it impossible to provide protection against deception, which is a materially false claim. It would be nice to get informed consent before we read anything.
[Part of the problem is that this model is algorithmic; some of these articles will be product-relevant, and you can’t easily label only those in the algorithm.]
Goodman: has been mission creep; there’s a long history of requiring disclosure—for example, lower postal prices for newspapers that wasn’t available to pure ads. Their concern wasn’t just with the truth of a product ad or promotion but broader concerns w/ a right to know who’s talking to you. Similar to our concerns about dark money. It’s not b/c we think that people would make decisions differently if they knew, but b/c we think transparency is important and that the consumers aren’t necessarily the direct consumers but citizens who want to know what’s going on. FTC is now the only entity standing with jurisdiction over the digital world. It’s going beyond consumer protection to deal w/these other concerns.
Paioff: a lot of concerns are addressed in the endorsement guidelines already; additional disclosure shouldn’t be required in native ad guidelines. That’s where the confusion is. American Express runs a forum for interesting content targeted at small businesses; NAD said they had to disclose its sponsorship: American Express Open Forum instead of Open Forum. [Why would they resist that?]
Yi: FTC thinks that brand as publisher should be treated differently than traditional publisher. But Red Bull TV isn’t all about Red Bull.
Kurnit: huge problem for media trying to create a context/format that’s a good user experience. The word “ad” is a complete negative. That’s why my clients have done everything in their power to try to not use that word; it interferes w/that communication. Has embraced NAD’s notion that when a brand creates content, that should be avoided.
Wu: if the FTC decides that people do care about source and want to know, and that it’s material to them to know where the money flows, can it decide that?
Kurnit: No, it’s a content-based regulation that isn’t the less restrictive alternative to protect the consumer interest in not being deceived or misled in a purchasing decision. Interest in not clicking on something without informed consent b/c it might be an ad [is less strong]—if it’s a NYT link, do I need Tabooleh’s name on it?
Wu: but it’s about greater credence. Under that standard, should the FTC be able to decide that the answer is yes in all circumstances?
Kurnit: old law—you could disclose before purchase. You just needed, before purchase/call to action, that they knew clearly what the source was.
[different version of Wu’s question: the item appears in your feed: this is not an ad, so you should click on it. Ok?]
Goodman: but the reason for the change is the new world of mobile, disaggregated content, where disclosures are often separated. Harder to know who’s talking to you in your feed. Trying to tackle that new environment. Once they’ve decided it’s material to consumers—I think they’ve gone too far, but it’s not unconstitutional. They’re overreaching b/c much of this isn’t trade regulation. This goes more to our discourse environment. All editors may be influenced as Kurnit says; FCC said that consideration was different than wanting to suck up to your advertisers, and those institutions developed codes of ethics. Everyone wants to disclose some things here, all industry organizations largely in agreement; it’s mostly the “how.”
Yi: It’s also the “when.” FTC went pretty far on the when.
Sheff: consistent w/ psychology research—how and when matter more than whether, and can be outcome-determinative on materiality. Something other than materiality is driving this.
Yi: telling people ahead of time what they might be clicking on is treating the content itself like the ad. The FTC is giving credence to people’s limited time; if you want to distribute content, consumer has right to know what it is before they view.
Kurnit: and that’s my problem, b/c Scalia wouldn’t have wanted to read a NYT story.
Goodman: but he’d want to know it was NYT.
Kurnit: but the FTC won’t protect him from that, only from non-media advertisers. There’s additional regulation on those who sell products, which is a content based regulation. [Put like that, it’s not a content based regulation, it’s a behavior based regulation, which makes it not speech based at all. Your promotional speech doesn’t trigger the regulation, and in fact we’re completely content-indifferent (according to this discussion of the FTC); the fact that you sell a nonexpressive product is what triggers the regulation.] You have to label your content as a skull and crossbones. [Wow, advertisers must really hate themselves: they sell poison.]
Wu: Note that under that reasoning all commercial speech regulation is content based.
Kurnit: we’re all fine with having a disclosure when a brand pays an influencer to tweet about it; that goes to credence.
Sheff: some evidence suggests that disclosure in advance of placement doesn’t work, only disclosure afterwards.
Yi: FTC is asking for both/in the content.
Wu: Bait and switch?
Kurnit: It’s only illegal when the consumer relies to detriment on the deception. The difference is: clicking on a link—is that the same as a door-opener? [Yes?] Unless it makes it hard to click back, that’s not the same thing. In a perfect world that would be great, but they’re asking for too much.
Paioff: No problem with disclosing when the content really is an ad. You should disclose who the advertiser is. But when it’s not used as an ad, why do you need to disclose the source? By virtue of calling it advertising, you’re assuming the issue.
Cardozo Law Conference: New Impressions of Advertising Law
Panel 1: False Advertising (herein of Pom Wonderful v. FTC)
Moderator: Brett Frischmann | Professor and Director, Cardozo Intellectual Property & Information Law Program, Benjamin N. Cardozo School of Law
Panelists: Jen Lavie | Partner, Manatt, Phelps & Phillips, LLP
2003-2010 ads touting medical studies that allegedly showed that daily consumption of their products could treat or reduce the risk of diseases such as prostate cancer and erectile dysfunction. Eventually, the FTC sued. Pom spent $34 million on these studies, but the evidence wasn’t good. E.g.: Prostate cancer: patients who used concentrated juice had already been treated for prostate cancer or had prostate removed, so hard to say prevention of prostate cancer came from juice. For erectile dysfunction, Pom used a measure that the industry doesn’t accept as reliable. Artery thickness: sample size too small.
On appeal, Pom scored a small victory: one randomized clinical trial (RCT) was enough in some cases, not the 2-RCT remedy imposed by the FTC for disease claims.
Jeffrey A. Greenbaum | Managing Partner, Frankfurt Kurnit Klein & Selz, PC: Pom is a “best of” case—so many issues on disclosure, substantiation, standard of review. Issue at FTC: approach to its own guidance. Connection between Pom and native advertising. Pom is about the FTC’s announcement of a new rule, functionally. 2-study requirement when making a disease claim. FTC also came out with a native advertising policy statement, also announcing a new rule in effect, about where to put disclosures in native advertising. Just as Pom was very specific about substantiation, native advertising guide is very specific about the type of disclosures you need, and even where in needs to be. FTC adjudication/enforcement statements are issuing new rules, but they aren’t really rules b/c FTC lacks real rulemaking authority—has to go through torturous proceeding basically impossible to issue effective rules.
Aren’t we sort of acting as if the FTC is making rules? Ad lawyers responded to Pom as if it were a new rule. How else are we interpret FTC taking a position in a particular enforcement action or guide? This question for advertisers is very significant, b/c of FTC’s interpretation of §5. They have to do this if they can’t make real rules—adjudications, settlements, guidance are their only ways to communicate in persuasive ways. Remarkably few enforcement policy statements over the last 40 years; interesting to consider what was so important about native advertising to justify one. But also industry guides, consumer guides—w/o the traditional protections for rulemaking—notice and comment, openness.
One of the things we saw in the Pom case is that the court gives the FTC tremendous deference in findings of fact and interpretations of law. Courts are deferring to how the FTC interprets the rules [as applications of §5]. The law is very simple: prohibition on unfair/deceptive acts or practices. It makes sense given this breadth that you want information about specific practices. But when the FTC makes up rules, like where native advertising should be disclosed, what’s the appropriate level of deference?
What’s the impact on advertisers? The chilling effect is a real concern. The FTC takes very aggressive positions on what’s potentially deceptive when it’s not at all clear there’d be a real violation of §5. Trying to avoid being on FTC’s radar, you don’t just have to worry about §5, you have to worry about what the FTC thinks is unfair/deceptive even though Congress/a court hadn’t decided. FTC is taking a more restrictive position than really required under §5.
Shouldn’t the FTC have real rulemaking authority? Should Congress look again at the FTC’s authority?
FTC’s 2-study requirement is clearly wrong. A claim is either true or false. All that §5 prohibits is unfair/deceptive. Question: whether the claims are false/whether they had sufficient substantiation. FTC standing in shoes of scientists and demanding 2 studies every time was wrong. FTC was trying to prevent mistakes. Pom had lots of studies and 2-study requirement wouldn’t have solved the problem. Fencing-in relief might have justified a 2-study requirement—to prevent problems with this particular advertiser in the future. We see the FTC pushing the boundaries of §5, and advertisers don’t have an effective remedy to challenge that. People have to be more conservative, afraid that until a company has a big enough budget they can’t fight.
I love the FTC! Do a good job, but preventing more speech than they need to.
Rebecca Tushnet | Professor, Georgetown University Law Center
Benefit of being an academic: I get to take as unrealistic a position as I like, at least for purposes of argument. Then again, given current political events, maybe unrealistic and extreme positions are no longer the sole province of academics. Two topics today: (1) the role of disclaimers and (2) the role of constitutional scrutiny of scientific factfinding more generally.
The DC Circuit has shown indifference to whether disclaimers actually work when it mandates that regulators use them. In Pearson v. Shalala, for example, the DC Circuit decided that a disclaimer requiring more than college level reading comprehension was appropriate instead of a ban on a statement misleadingly indicating that selenium had been shown to reduce cancer risks. The FDA tested these disclaimers; not only did they fail; they backfired—people exposed to them had increased confidence that the FDA had reviewed and agreed with the main cancer claim. Reality-based decisionmaking would lead to substantially less elaborate disclaimers; more readiness to uphold bans or FDA-specified wording. However, reality-based decisionmaking plus rigorous First Amendment scrutiny would be a double-edged sword. While courts should hesitate to hypothesize that a disclaimer can substitute for a regulatory prohibition by avoiding deception, that also means that regulators’ choice of disclaimers instead of a ban should be dubious. Regulators often compromise on requiring a disclaimer instead of banning an activity outright. But disclaimers may rarely be a worthy compromise—mostly they impose a burden without doing too much good, though there are important exceptions. The privileged status of disclaimers represents a hope that we can have our cake and eat it too, and if we’re demanding lots more evidence in other aspects of commercial speech regulation it seems odd not to do it here too.
The question of whether all FTC remedies are now subject to Central Hudson-style assessment of whether they’re minimally restrictive. Two sub-issues: first, generally, are regulators entitled to any deference on factfinding? The Pom Wonderful court reasoned that even the FDA sometimes allows a claim based on less than two randomized controlled trials, and hypothesized that there might be one really amazing RCT that everyone agreed was conclusive, so the theoretical existence of that RCT invalidated the FTC’s 2-RCT requirement. Does that mean that the FDA’s general 2 RCT requirement is constitutionally invalid for the same reasons, rebuttably unconstitutional, or unconstitutional if and only if the evidence supports an exception to the usual rule? All of these possibilities represent substantial incursions on FDA authority and should be deeply troubling, especially if it’s the court and not the FDA that decides how strong the evidence is in the absence of 2 RCTs, or whether the RCTs were in fact conducted in a proper way. Like the FTC, the FDA does make individualized determinations about whether a given drug is safe and effective. Once you constitutionalize an issue, factfinding itself receives constitutional scrutiny. (And it’s worth noting that the DC Circuit has already revealed its innumeracy in Pearson v. Shalala, when it ruled that the existence of one positive trial and a number of negative trials meant that it wasn’t true to say that the positive claim was unsupported by the evidence—the whole point of having a concept of a p-value to indicate statistical significance is that you expect false positives if you run a sufficient number of trials.)
Second, with respect to remedies specifically: Historically, once regulators found that an advertiser violated the law, that violation provided justification for future prophylactic measures. The DC Circuit’s opinion gave weight to Pom’s repeated, extensive violation of the law and demonstrated intent to keep on with its practices to any extent it could only in allowing the imposition of a RCT requirement for all disease claims, as if that requirement wouldn’t have been justified for disease claims in the absence of persistent deceptive conduct. Why? In the RICO case against tobacco companies, the same court of appeals found that the companies’ repeated violations of the law justified some mandatory disclosures, but they’ve likewise been allowed to litigate every word—literally!—and so years after the primary liability finding they have yet to make the corrective disclosures ordered by the district court.
Conclusion: The First Amendment is strong medicine. Greenbaum and I are probably a lot closer than we sound on policy questions; I just don’t want them constitutionalized. I often hear the representatives of mainstream businesses, the kinds that hire the lawyers represented on this panel, say that all they want is reasonable freedom, that of course they wouldn’t abuse it because they are responsible businesses. While the record of large established businesses speaks for itself, I think that’s ultimately beside the point. The First Amendment doesn’t follow the contours that “respectable” businesses are willing to accept; marginal businesses will take advantage of these rules, because that’s what the First Amendment is for—protecting marginal speakers. That’s why the lack of constitutional protection for false and misleading commercial speech, plus freedom for administrative agencies with competence in the relevant field to make factual determinations of what is false and misleading, is so important to preserve the regulatory state against a reimposition of Lochner.
Ashima A. Dayal | Partner, Davis & Gilbert LLP: Pearson and Pom: the FTC’s conclusion that the use of one or two adjectives doesn’t alter the net impression: “promising,” “initial,” “preliminary.” Court says those can’t cure the impression made by the ad, especially when the chosen adjectives provide a positive spin. Effectively, said in dictum that if there’d been a disclaimer like “evidence in support of this claim is inconclusive” that would have been a safe harbor. Even if that language is good: We’re saying “drink Pom and you won’t get cancer,” but in a footnote we say “this evidence is no good.” That makes no sense. How can you make a claim in the body copy and then disclaim its import? It’s a contradiction, not a cure.
What is the difference between a claim “evidence in support of this claim is inconclusive” and “these studies are promising”? These are not different. Body copy is at least more likely to be seen. This is terrible advice—encouraging use of disclaimers rather than body copy. Why is the court writing this copy? They’re not good at it.
Bayer case, dietary supplement: FTC’s position on 2 RCTs again rejected for a dietary supplement case. Supplements are regulated differently than drugs. Bayer says you don’t need 2 RCTs for making a supplement claim; not good to impose that on a food product. One of the justifications the FTC gave was that this was a repeat offender. Punitive: these decisions/effective rulemaking has some stare decisis effect. Similar to SEC/IRS letter rulings—we read these and advise our clients.
Lavie: disclaimers should be qualifications for the main claim, not contradiction.
Q: what’s the role of disclaimers?
Lavie: advertiser is responsible for all reasonable interpretations. Disclaimer should help, not contradict.
Dayal: lots of functions, but not reject/rebut plausible and intended interpretations.
Greenbaum: I thought disclaimer issue in Pom was interesting—but the court asked for an effective disclaimer. We hear something different from courts and FTC. If we take a step back and ask: what is the right standard? Clear & conspicuous, says FTC—seen, read, and understood in context. Disclaimer standard doesn’t match up w/general standard, which is reasonable consumer. FTC says: Consumer might glance at headline & turn the page—but that’s not reasonable consumer.
Dayal: Effective has to mean clear & conspicuous. “Studies show drinking 8 ounces of Pom can treat, prevent, or reduce the risk of …” Then at the bottom: “evidence is inconclusive.” That’s a rebuttal. Can’t imagine how putting it in 12 point type would help.
RT: Effective disclaimer: is a great idea; now we have to convince the courts that they can’t just eyeball or imagine an effective disclaimer. On supplements being regulated differently than drugs: wait a year or so! On §5: FTC understands it still has to prove a violation of §5; if it did have rulemaking authority, and announced the native advertising guidance as a rule, should the DC Circuit uphold it under the APA? Deference would in theory be required.
Q: How is/should we draw the line between RCT-required claims and non-RCT-required claims? Is this a scientific question? A marketing question? Legal? Who should decide?
Dayal: The FTC doesn’t take enough of a practical approach. If I’m drinking a juice, I have a different expectation than a drug I got from a doctor or OTC. It’s appropriate to evaluate the claims being made requiring less proof.
Lavie: distortion of market as between Pom and orange juice.
Dayal: is that consumer protection?
Lavie: yes! Money is consumer protection too.
Greenbaum: The FTC would say they don’t make policy. Their role is §5. FTC prohibits a number of claims, like biodegradability, where consumers are more likely than not to throw it away in a place that it won’t biodegrade. Better to prevent deception by consumers who think it will biodegrade in a landfill than to encourage biodegradability claims.
RT: scientific and marketing/linguistic/psychological question: truth and perception. Supplements v. pharmaceuticals: people have no idea about the regulatory difference and think the FDA has approved it all! Food: we don’t really know. Food claims could be just as convincing as supplement claims; we need to know more about that. They can distort the market, directing people away from doctors/other treatments.
Q: most people don’t take out the little insert to read any kind of warnings on pharmaceuticals. But if you watch a TV ad, you get mixed messages.
RT: FDA required Seasonale to do corrective ads; sometimes disclaimers do serve the function of saying “this is complicated/important; you need to think hard about this” even if they aren’t comprehended in specific.
Dayal: note that other countries don’t allow TV ads for drugs. There’s only so much you can do in 15 seconds; you can give a heads-up.
Jeremy Sheff: Most of the largest advertisers in spending are DTC ads. Fact of disclosure might trigger a consumer reaction, but not necessarily one we like—the DSHEA disclosures may make supplement ads more convincing/trustworthy.
Greenbaum: the problem is that the FTC has research showing they’re so ineffective—50 years of FTC cases, never found one where a disclaimer worked. FTC endorsement guides tested print ads—tested with a “results not typical” that was big; even those still aren’t all that effective. You can’t make consumers read stuff, but is that the advertiser’s fault? [RT: Yes.]
Q: Aren’t the constitutional standards for commercial speech relatively low as for other speech? [Yes if false and misleading, no if not—that makes the question of who sets the false/misleading line and what standard of review is applied to their factual finding of misleadingness incredibly important.]
Q: Vitamin-type products often have certifications, self-certifications—how does the law deal with those?
Q: compare SEC’s standards for forward-looking statements w/the FTC’s standards.
Q: is the court separating above the line/below the line honesty?
Q: if the FTC is really aiming to protect consumers, the 1- or 2- study question misses the point if they’re sponsored by the companies. Can we standardize the studies?
Dayal: double-blind should be theoretically indifferent to sponsorship. Pom has an interesting discussion about cherry-picking evidence. Defer to what scientists think is accurate/reliable.
Dryer v. National Football League, No. 14-3428 (8th Cir. Feb. 26, 2016)
I blogged about the district court ruling and wrote an amicus brief in the appeal; now the 8th Circuit affirms the rejection of football players’ right of publicity and Lanham Act claims based on clips in which they appeared in films by NFL Films. The films depicted “significant games, seasons, and players in the NFL’s history” via compilations of game footage and interviews with players, coaches, and other individuals involved in the game. NFL Films sells copies to consumers and licenses performance rights to distributors, as well as broadcasting some films on its own TV network and website. The appellants appeared in game footage and interviews in the films; they didn’t challenge that NFL Films had consent to use the interviews, but based their claims on appearances in the game footage.
On the right of publicity claim, the court of appeals affirmed the district court’s copyright preemption holding. Appellants argued that their performances in football games were part of their identities rather than “fixed” works eligible for copyright protection. Nope—copyright specifically includes fixed recordings of live sports performances. NFL Films had permission to record those live performances, and had valid copyrights to its footage. Thus, the right of publicity claims were based on a work within the subject matter of copyright.
The remaining §301 question was whether there was any “extra element” to save the claims. The purpose of copyright is to “suppl[y] the economic incentive to create and disseminate ideas.” The purposes of the right of publicity are “the desire to provide incentives to encourage a person’s productive activities and to protect consumers from misleading advertising.” Because of the state’s consumer protection interests, a right of publicity claim based on use of a copyrighted work in an ad could have purposes unrelated to copyright’s aims (I like that “could”—there are cases in which no consumer protection purpose would be implicated, even in an ad). But for noncommercial uses, such a claim “seeks to subordinate the copyright holder’s right to exploit the value of that work to the plaintiff’s interest in controlling the work’s dissemination” and thus attempts to claim “exclusive rights within the general scope of copyright,” triggering preemption.
Appellants argued that the films were commercial speech because they were ads for “NFL-branded football,” a specific product that the films promote for the NFL’s economic benefit. But the films didn’t propose a commercial transaction; they didn’t refer to the NFL as a specific product but rather as part of historical events; and the consumer demand for the films demonstrated that they existed as “products” in their own right. “[T]he NFL’s economic motivations alone cannot convert these productions into commercial speech.”
On the Lanham Act claims for false endorsement, the court of appeals for some reason applied the §43(a)(1)(B) literal falsity/implicit falsity distinction while identifying the claims as being based on §43(a)(1)(A). It further noted circuit precedent that evidence that some consumers “misunderstood” a statement is insufficient to overcome summary judgment where the statement is not objectively “misleading [or] false.” Appellants relied on “survey evidence showing that a statistically significant number of survey participants concluded upon viewing the films that the depicted players endorsed the NFL.” But there was no evidence that the films included misleading statements about the players’ current relationship with the NFL. There was no evidence of literal falsity, and no evidence that the films “implicitly convey a false impression, are misleading in context, or [are] likely to deceive consumers.” (Um, other than the surveys, which is why you need Rogers under current trademark law; this is screwy logic for the right result, and maybe it’s better to frame it this way because it may provide a basis for a broader attack on the laughably broad concepts of false endorsement that other courts have accepted.) The films showed only their actual performances in past NFL games. “Although the films as a whole may portray the NFL in a positive light, nothing in the films implies that the appellants share that perspective,” especially not the clips of their game performances. Thus, the false endorsement claim failed as a matter of law.
Thursday, February 25, 2016
Hey, the National Review found a consumer protection lawsuit it likes: the one against Trump University. If he’s elected, do we get to call him the Conman-in-Chief?
Wednesday, February 24, 2016
USA Nutraceuticals Group, Inc. v. BPI Sports, LLC, 2016 WL 695596, No. 15-CIV-80352 (S.D. Fla. Feb. 22, 2016)
Plaintiff, here “Beast,” sells sports nutrition supplements using trademarks such as “Beast,” “Beast Sports,” “Beast Mode,” and “Train Like a Beast.” They’re packaged with the color “Beast Blue” and “a prominent ‘B’ in black lettering.” Beast has used the “B” since 2008. BPI sells competing products under the marks “BPI” and “Be Better. Be Stronger. BPI,” the former of which was registered in 2012 and used since 2009. BPI began using the Better/Stronger mark on its products in early 2015.
BPI allegedly found that Beast had been buying keywords on Amazon that included the BPI mark, along with “BPI Sports” (another BPI federally registered mark), as well as “Best BCAA,” “Best Creatine,” and “Whey HD,” products sold by BPI.
The banner redirects to a website offering Beast products (though it was contested whether this meant a Beast-operated website or an Amazon page).
In addition to its keyword buys, Beast allegedly infringed the Be Better Be Stronger mark by using a tagline incorporating the stylized “B” followed by the words “Original,” “Genuine,” and “More.” This could be interpreted to read as “B Original B Genuine B More,” allegedly confusingly similar to Be Better Be Stronger BPI.
Beast argued that BPI lacked rights in the Better/Stronger mark. BPI’s CEO attested, under penalty of perjury, that BPI had been using that mark “on all of its product labels, product packs, advertisements, billboards, videos, and other promotional materials” since April 7, 2015, which was enough to constitute evidence of adoption. Was the use sufficiently public to identify the products to the public? Yes, because BPI showed that it used the Be Better Be Stronger Mark on social media such as Facebook and Instagram, in widely distributed print media such as Men’s Fitness Magazine, as well as in other print advertisements, at trade shows, and on promotional items. Even without sales volume evidence, this was enough to show that BPI targeted the relevant public. (The mark seems clearly descriptive to me under the “general laudatory terms” rule—the use may be public use, but public use doesn’t mean the public understands a trademark meaning; but see below for the court’s conclusion.)
BPI argued initial interest confusion based on the keyword buys; the Eleventh Circuit hasn’t adopted IIC as an independent theory, so district courts in the circuit are reluctant to find it actionable. BPI argued that North American Medical Corp. v. Axiom Worldwide, Inc., 522 F.3d 1211 (11th Cir. 2008) “conclusively determined that the purchase of ‘meta tags’—a piece of code akin to the use of advertising keywords here—was actionable under the Lanham Act.” As the court explained, “Not so.” In Axiom, a search using the plaintiff’s marks “yielded a result containing not only the defendant’s competing website but, also, a description of the website which included and highlighted the plaintiff’s trademarked terms.” Thus, the Axiom court found that consumers would believe that defendant’s products had the same source as plaintiff’s, or at least that defendant distributed plaintiff’s products, so there was regular source confusion.
By contrast, the banner ads didn’t refer to any of BPI’s marks. Thus, even assuming that IIC is a valid theory, Beast’s keyword buys didn’t cause it. BPI couldn’t find any cases indicating that buying keywords, without more, suffices to cause IIC, which involves “luring” consumers via similarity to another mark. “[T]he use of a keyword encompassing a competitor’s terms does not necessarily produce an infringing advertisement; it is the content of the advertisement and/or the manner in which the mark is used that creates initial interest confusion.” The court politely referred to the Ninth Circuit’s “continued examination” of keyword ads culminating in Network Automation to bolster its conclusion.
Beast’s banner ads clearly contained Beast’s mark, “Click to Save on Fitness Supplements,” and a clear identification of the advertisement’s sponsor, “Beast Sports Nutrition.” Plus, the distinct markings of the banner ad, contrasting to search results, “alerts the consumer viewing the page to the fact that the image is an advertisement for products separate from those already listed in the website’s organic search results.” BPI even submitted evidence that keyword buys were standard in the internet advertising industry, and the court declined to adopt a premise that “logically culminates in the destruction of common Internet advertising methods and unreasonably encumbers generally accepted competitive practices.”
Turning to the Better/Stronger mark, the court found the mark suggestive because it identified the intended results of the product, not components of the product. However, the mental leap required was “minor,” so the mark was only weakly suggestive. No discussion of market strength.
Similarity: BPI argued that the B Original tagline copied the Be Better Be Stronger Mark’s cadence and sound. The first version was most logically read to incorporate a repeated “B” sound, which did create a similar impression to the Be Better Be Stronger mark, and “even the second rendition seems to require an articulation with a repeating ‘B’ sound.” Thus, the sound was “strikingly similar.” Nonetheless, other elements created dissimilarity, especially the use of each party’s house mark, with which the taglines were exclusively used. The house marks clearly identified the respective sources of the parties’ goods. Plus, the recurring syllable was just a common verb, which made the similarity less relevant. In addition, “the number of syllables present in each mark undoubtedly affects the tempo of the mark’s pronunciation, as well as the mark’s intonation, depending on the speaker, thereby altering the overall impression of the respective marks.” Thus, similarity was a neutral factor in the court’s analysis.
Channels of trade/advertising methods: The products were the same and sold in the same retail outlets to the same consumers. Favored a confusion finding.
Intent: There was no evidence of intent to capitalize on the goodwill of the Better/Stronger mark. Actual confusion: BPI had no evidence. Neither favored a confusion finding.
Overall, the court found confusion unlikely given the relative weakness of the BPI mark and the dissimilarity between the parties’ uses.
The court rejected Beast’s unclean hands defense related to BPI’s alleged purchase of Beast-related keywords, but this was a disputed factual issue.
Monday, February 22, 2016
Expressions Hair Design v. Schneiderman, 803 F. 3d 94 (2d Cir. 2015)
Somehow I missed this when it came out last September! New York General Business Law § 518 provides that “[n]o seller in any sales transaction may impose a surcharge on a holder who elects to use a credit card in lieu of payment by cash, check, or similar means.” The district court enjoined this law on First Amendment grounds, and the court of appeals reversed.
The background: merchants pay swipe fees to credit card issuers, 2-3% of a transaction. Merchants would like to pass these costs on to consumers using credit and let them know about the charge in order to convince them to pay cash, so they’d like to impose a “surcharge.” A discount for cash can also be offered, but we know behaviorally it’s less effective of a frame. It’s also plausible that people who were deterred from using credit cards would buy less (since we find it harder to spend cash than to use credit), thus dampening retail sales. (Though presumably the merchants who want to “surcharge” will take that into account for themselves.) Proponents of bans on surcharges also argue that they “tend to exceed the amount necessary for the seller to recoup its swipe fees, meaning that sellers will effectively be able to extract windfall profits from credit-card users.” By contrast, cash discounts won’t be set higher than the marginal cost of credit. (Citing my colleague Adam Levitin and spelling his name correctly this time!) Plus, because credit-card surcharges (unlike cash discounts) offer a means of increasing customers’ bills, “dishonest sellers may attempt to profit at their customers’ expense by imposing surcharges surreptitiously at the point of sale.”
Federal law used to ban surcharges; when that law expired in 1984, eleven states, including New York, enacted their own no-surcharge rules. The law wasn’t very significant for a while because of no-surcharge contracts imposed by credit card issuers, but now those aren’t in effect any more because of antitrust law, and the NY AG went after a few sellers for imposing “surcharges” to listed prices.
Plaintiff Expressions alleged that its current policy is to charge two different prices, one for credit-card customers and one for cash customers. But it was concerned that describing this difference as a “surcharge,” or “say[ing] that credit is ‘extra’ or ‘more,’” might violate § 518. Expressions would like to charge credit-card customers 3% more than cash customers, and to display a sign that “characterize[s] the price difference as a 3% credit-card surcharge on top of the listed cash price” without “displaying the total credit-card price as a dollar figure.”
The court began by noting that § 518’s use of the word “surcharge” “assumes that a seller to which the statute applies will have a ‘usual or normal’ price that serves as a baseline.” This isn’t the ultimate price charged to cash customers, but is the “regular” price. So, “if a seller’s regular price is $100, it may not charge credit-card customers $103 and cash customers $100, but if the seller’s regular price is $103, it may charge credit-card customers $103 and cash customers $100.” Sellers who post single prices are posting the “regular” price, and can’t charge credit-card customers more than the sticker price if cash customers aren’t also charged. But the state law, unlike the federal law before it, didn’t explicitly use the term “regular price,” and didn’t deal with the issue of whether a seller can post a double sticker price, one with the credit price and one with the cash price.
However, plaintiffs were seeking to invalidate the law’s prohibition on advertising a single price plus a credit-card surcharge, not just the arguable prohibition on dual sticker prices. The court concluded that §518 was constitutional as applied to single-sticker price sellers; the double-price advertising challenge failed because §518 could readily be construed to be limited to the single-sticker context.
The court concluded that §518 regulated conduct, not speech. Prices aren’t speech, though they are communicated through speech. While advertising lawful prices is protected by the First Amendment, setting prices can be regulated directly. “If prohibiting certain prices does not implicate the First Amendment, it follows that prohibiting certain relationships between prices also does not implicate the First Amendment.” Plaintiffs conceded that a flat ban on any discounts or surcharges for credit-card use wouldn’t trigger First Amendment scrutiny.
Plaintiffs responded that, because credit-card surcharges and cash discounts “ultimately amount to equivalent differences between the price charged to credit-card customers and the price charged to cash customers,” §518 burdened speech by drawing a line based on words, rather than on economic realities. But by its terms, §518 didn’t bar any referring to credit-cash price differentials as credit-card surcharges, “or from engaging in advocacy related to credit-card surcharges; it simply prohibits imposing credit-card surcharges.”
Whether a seller is imposing a credit-card surcharge can be determined without reference to the words the seller uses to describe its pricing scheme: “If the seller is charging credit-card customers an additional amount above its sticker price that it is not charging to cash customers, then the seller is imposing a forbidden credit-card surcharge.” Thus, the only relevant words and labels were (1) the sticker price and (2) the price charged to credit-card customers. Those prices aren’t speech, and regulating the relationship between them didn’t regulate speech.
[Though I can see the argument that marking the product with the (cash) price is speech, because it’s a statement “this is the price” as well as being the price (unless there’s a credit surcharge). It’s a performative speech act—but interestingly, it is only performative so long as the law says so. So we could say that the law is regulating the performative part of the price: the law is specifying what the “price” is. Without the anti-surcharge law, the seller could say “I didn’t mean to say that was the ‘price’ just because I put it on the sticker.” But that would raise pretty obvious issues of consumer deception. In consumer protection law, we generally don’t let sellers redefine words just because they would like to, even if there’s a small-print disclosure—what a reasonable consumer would take away is the measure.]
Plaintiffs erred in insisting that imposing a surcharge (an amount over sticker price) was equivalent to the words used to describe that pricing scheme, “credit-card surcharge.” The law didn’t “favor” using the term “discount.” It simply regulated the relationship of sticker price to the price charged to credit-card customers. A seller who does this could call it a “discount” or a “cabbage” and would still violate the law. A seller who offered a discount on its sticker price to cash customers could call it a “surcharge” and would be acting lawfully. Of course, it might be more natural to use more common labels, but the fact that each pricing scheme has a label doesn’t mean it is the label.
Plaintiffs argued that “credit-card surcharges” were the same thing as “cash discounts” because consumers react differently to them. (Put that way, that argument sounds counterintuitive, because you might ordinarily think that people react differently for some reason; the implicit argument is that there is a predictable cognitive error (though maybe it’s just a heuristic that is useful in many situations) and that government cannot intervene to ensure that the consumer will perceive the baseline in a particular way.) But that argument assumed that NY had regulated the labels, and not the prices. The presumption against content regulation doesn’t help answer the question of whether the law at issue regulates speech or conduct. Consumers can be made unhappy lots of ways; “the mere fact that consumers react negatively to surcharges thus does not prove that surcharges are speech.” Consumers just don’t like being charged extra, because of loss aversion. Consumers are annoyed when the sticker price is lower than the price they’re charged. If the sticker price is $103, credit-card customers won’t be particularly annoyed by having to pay $103, even if cash customers get a discount, and nothing about that “turns on any words uttered by the seller.” [Other than the sticker price, which created the initial expectation.] “[W]e are aware of no authority suggesting that the First Amendment prevents states from protecting consumers against irrational psychological annoyances.”
Moreover, it’s fine to ban certain prices because of how consumers react to them. The Supreme Court has explicitly approved price controls designed to suppress consumer demand. The First Circuit allowed Providence to ban discounts for tobacco products based on evidence that such discounts would lead “to higher rates of tobacco use among young people.” Although sellers could have lowered list prices to achieve the same dollar amounts as the discount price, that fact doesn’t change the regulation from a price regulation to a speech regulation. New York can likewise decide to spur demand for credit-card use without violating the First Amendment, as applied to single-sticker sellers.
The court of appeals also reversed the finding of unconstitutional vagueness. Section 518 plainly has a “core meaning that can reasonably be understood”: “sellers who post single sticker prices for their goods and services may not charge credit-card customers an additional amount above the sticker price that is not also charged to cash customers,” just like the lapsed federal ban.
In a footnote, the court noted plaintiffs’ argument that the surcharge ban is a naked giveaway to the credit-card lobby. However, the legislature identified a number of “public-regarding” aims as well, and anyway, “a panel of this Court has recently expressed the view (that we need not address) that even unadulterated ‘economic favoritism’ is a sufficiently rational basis to justify a state law regulating economic activity,” because we don’t like Lochner. Anyway, plaintiffs didn’t bring a rational basis challenge; the wisdom of §518 was not for the court of appeals to judge.