Monday, March 25, 2024

5th Circuit allows image-based tobacco warnings in barest nod to consistency on compelled commercial speech

R J Reynolds Tobacco Co. v. Food & Drug Admin., 2024 WL 1208111, --- F.4th ----, No. 23-40076 (5th Cir. Mar. 21, 2024)

The sudden shift in the political valence of the commercial speech doctrine strikes again! The Fifth Circuit upholds mandatory cigarette warnings as acceptable compelled commercial speech under Zauderer, reversing the district court’s 2022 decision. Let’s just say that, five years ago, this would have struck me as an unlikely result, and in 2020 the decision to file in Texas would have been much less complicated; even in 2022, I would have expected the district court to be upheld. (It returns to the district court for an APA challenge, about which I express no opinion.)

The Family Smoking Prevention and Tobacco Control Act requires cigarette packages to include “color graphics depicting the negative health consequences of smoking to accompany the [updated] label statements.” These warnings “shall comprise the top 50 percent of the front and rear panels of the package” of cigarettes and “at least 20 percent of the area of [any] advertisement ....” A facial challenge was rejected by the Sixth Circuit in 2012, but the DC Circuit struck down the FDA’s first attempt on an as-applied challenge. Now it’s the 5th Circuit’s turn.

In enacting the TCA, Congress found that “efforts to restrict advertising and marketing of tobacco products,” including existing mandatory warnings, had “failed adequately to curb tobacco use by adolescents, [so] comprehensive restrictions on the sale, promotion, and distribution of such products [were] needed.” The TCA’s legislative findings included: (1) minors still often see and are exposed to tobacco product advertising; (2) the “overwhelming majority of Americans who use tobacco products begin using such products while they are minors and become addicted to the nicotine in those products before reaching the age of 18” and (3) “[r]educing the use of tobacco by minors by 50 percent would prevent well over 10,000,000 of today’s children from becoming regular, daily smokers, saving over 3,000,000 of them from premature death due to tobacco-induced disease[s]” and would “result in approximately $75,000,000,000 in savings attributable to reduced health care costs.”

Congress identified nine new warnings to rotate regularly, which must “comprise the top 50 percent of the front and rear panels of” each cigarette package and “at least 20 percent of the area of [any] advertisement ....” It further instructed the Secretary of Health and Human Services to “issue regulations that require color graphics depicting the negative health consequences of smoking to accompany the label statements.” And Congress gave the Secretary the authority to “adjust the type size, text and format of the label statements” for clarity, conspicuousness, and legibility.

When the FDA made its first attempt, the DC Circuit held that the chosen graphics were not targeted at deception; nor were they providing “‘purely factual and uncontroversial’ information” because the images “could be misinterpreted by consumers” and “are primarily intended to evoke an emotional response, or, at most, shock the viewer into retaining the information in the text warning.” It therefore applied Central Hudson instead of Zauderer and struck down the initial rule. Under Central Hudson, the FDA lacked even “a shred of evidence ... showing that the graphic warnings will ‘directly advance’ [FDA’s] interest in reducing the number of Americans who smoke.”

The FDA reasoned that its new images promoted “the Government’s interest in promoting greater public understanding of the negative health consequences of cigarette smoking” and also “dissipat[es] the possibility of consumer confusion or deception,” thereby advancing the government’s interest in preventing “consumer misperceptions regarding the risks presented by cigarettes.”

Warnings with images, such as "smoking cases head and neck cancer" with image of woman with obvious neck swelling

Plaintiffs here alleged that each of the Warnings “misrepresent[s] or exaggerate[s] the potential effects of smoking” and that, “[c]ontrary to FDA’s characterization, the peer reviewers raised serious, substantive concerns about FDA’s studies” used to support the selected Warnings.

The district court reasoned that Zauderer did not apply because the imagery was fundamentally so “prone to ambiguous interpretation” that “it is unclear how a court would go about determining whether it[ ] ... is ‘accurate’ and ‘factual’ in nature”:

In other words, the court reasoned that no photorealistic image could ever be purely factual and uncontroversial because different viewers will ascribe to it different meanings. The inherent ambiguity in any graphic warning—e.g., that viewers may interpret the heart disease warning to suggest that open-heart surgery “is the most common treatment for heart disease” or the best—means that the Warnings cannot be “ ‘purely factual and uncontroversial’ and objectively accurate as required to allow relaxed Zauderer review.” Further, the court found that the graphic portions of the Warnings fell beyond Zauderer’s reach because they are inherently “provocative.”

And the warnings weren’t narrowly tailored under Central Hudson because the government hadn’t first tried increased funding for antismoking advertisements, increased government anti-smoking communications, or “test[ed] the efficacy of ‘smaller or differently placed warnings.’ ”

(Preclusion as to RJR’s challenge to the constitutionality of the TCA itself would have been appropriate, but that didn’t resolve the case (there were other plaintiffs), so the court proceeded to the merits.)

Key holding: “The Warnings are both factual and uncontroversial, despite the emotional impact the graphics may have.”

The court—weighing in on an issue that divided the DC Circuit—concluded that Zauderer is a “carve-out” from, not an application of, Central Hudson.

Moreover (and not unrelatedly), Zauderer applies to all compelled commercial speech, not just deception-preventing speech. The Fifth Circuit held in NetChoice that the state’s interest in “enabling users to make an informed choice regarding whether to use [social media] Platforms” was sufficient to survive review under Zauderer. Similarly, Chamber of Commerce of the USA v. SEC, 85 F.4th 760 (5th Cir. 2023), recently held that “the disclosure of a company’s rationale for a stock buyback was purely factual and uncontroversial commercial speech” (although it still struck down the SEC’s action because it was the SEC, I mean because of the APA).

First, the warnings were “purely factual.” What is factual? Well, it’s not an opinion. Moreover, the government may not demand a private party “undertake contextual analyses, weighing and balancing many factors ... that depend on community standards,” to determine the speech it must “parrot.” Book People, Inc. v. Wong, 91 F.4th 318, 340 (5th Cir. 2024). “Factual” needs to involve “information” that is “[c]oncerned with what is actually the case rather than interpretations of or reactions to it” and “actually occurring.” (Lots of dictionaries invoked here.) Thus, “factual” must mean “falsifiable material and inferences fairly drawn from it, rather than one’s non-falsifiable ‘interpretations[,] ... reactions,’ or opinions.”

Crucially, “factual” does not mean “true,” because that would make “purely factual information”—the language of Zauderer—surplusage. (This seems to ignore the idea that opinions aren’t statutes, but here we are.) Thus, the required warnings would be factual if they were comprised of “only (a) information supported by facts and (b) conclusions driven by those facts, and (2) not akin to unfalsifiable statements of opinion.”

Plaintiffs argued that the new warnings “misleadingly exaggerate smoking risks” and improperly “focus on conditions that less frequently arise from smoking,” even though the existing warnings were concededly purely factual. “Consequences supported by scientific findings, even if exaggerated or non-modal, are still, by definition, factual.” The factual content of the text was undisputed.

What about the images? Images can be factual. “The addition of images to the textual warnings makes no difference to the constitutional analysis of factuality.” In the FDA’s own words: “FDA used a certified medical illustrator to design images that depicted common visual presentations of the health conditions and/or showed disease states and symptoms as they are typically experienced, and that present the health conditions in a realistic and objective format devoid of non-essential elements.” Each of the images was “a straightforward, science-based, objectively truthful depiction of the accompanying text,” “no different from those a medical student might see in a textbook.”

Merely because the images might convey “an ideological or provocative message” does not make them nonfactual:

A fact does not become “value-laden” merely because the fact drives a reaction. But even if it did, ideological baggage has no relevance to the first Zauderer prong. Any number of factual messages are, of course, ideological. Similarly, emotional response to a statement is irrelevant to its truth. That someone may have to declare bankruptcy [in order to get debt relief] is likely to engender strong emotions. But the Court never even discussed that aspect of the mandatory disclosures [in its case upholding required disclosures about bankruptcy by certain debt relief providers].

[Footnote] … We offer the following example: “The Nazis committed genocide.” That is a factual statement. It is also a statement that denounces the Nazi’s actions and beliefs as morally repugnant. That is an ideological message. Though the government may not be able to compel Volkswagen to include that message in its advertising without justification, a court would likely still review any such attempt under Zauderer.

[Somebody is thinking about abortion disclosures.]

Plus, these images were “meant to be interpreted literally.” They weren’t “primarily intended to evoke an emotional response” but instead “to draw attention to the warning and depict a possible medical consequence of smoking. Thus, at most, the emotional response of viewers is incidental to their retention of information about the health risks.”

What about the argument that the images might be subject to several different interpretations, and the FDA didn’t test for consumer takeaway? “[W]hen each image is paired with a fact-based, textual warning, any reasonable viewer interprets the image in light of the words.” It was error to ignore the words.

Also, the government need not choose only the most common side-effect or consequence of the disease or injury discussed in a warning. “People may interpret ‘debt relief agency’ in many ways, but disclosing that a business is one is still purely factual.” Nor were cigarette companies required to make difficult contextual judgments weighing multiple factors to determine the warning, since the FDA did it for them.  

For similar reasons, the warnings were uncontroversial. NIFLA says that abortion is a controversial topic, making disclosures about abortion controversial; but NetChoice said that “disclosures of social media censorship decisions” were not controversial. Thus, a factual disclosure is “controversial” under Zauderer “where the truth of the statement is not settled or is overwhelmingly disproven or where the inherent nature of the subject raises a live, contentious political dispute.” Content moderation isn’t inherently contentious, even though it was connected to “a live, contentious, political issue.” [Wow, this might be even dumber than the statements in NetChoice itself. Because it is about content that some people want and some people don’t, content moderation policy is the definition of inherently contentious—as abortion is not, even if people living in Texas today think it must be. This is a fake argument; the real reason—inconsistent with NIFLA’s dicta, which should be ignored the way all abortion-related First Amendment pronouncements should be ignored—comes next.]

There’s no good-faith debate that the warnings aren’t truthful. Thus, they are uncontroversial.

Next, the warnings must be “reasonably related to the State’s interest” and not “unjustified or unduly burdensome.” “Zauderer does not require the state to assert an anti-deception interest.” No court of appeals majority has ever held otherwise, and the Fifth Circuit has previously referred to valid interests in “promoting the free flow of commercial information”; we ruled that was “more than enough to satisfy this prong of Zauderer” and “promoting the ethical integrity of the legal profession.” “Increasing public understanding of the risks of smoking, particularly given the ‘long history of deception concerning consumer health risks in the cigarette industry,’ is a legitimate state interest.” [Now do the long history of state and private discrimination against nonwhites.]

The warnings were not unjustified. Plaintiffs argued that the interest at issue was too amorphous and that the warnings hadn’t been shown to be effective.

The images served an informational interest. Zauderer itself explained that “[t]he use of illustrations or pictures in advertisements serves important communicative functions: it attracts the attention of the audience to the advertiser’s message, and it may also serve to impart information directly.” The FDA even tested their effectiveness in raising consumer awareness and then refined them based on those results.

NIFLA says that a compelled disclosure is justified only if it will “remedy a harm that is ‘potentially real[,] not purely hypothetical,’ and ... ‘extend[s] no broader than reasonably necessary.’ ” Plaintiffs argued that current Surgeon General’s warnings are sufficient, but that ignored “significant evidence that consumers do not notice, much less internalize, the text-only warnings in the status quo. The updated warnings serve to remedy the harm that buyers might (1) not know about tobacco’s harms or (2) ignore the existing Surgeon General’s warnings.”

And here the Fifth Circuit engages in what is all too common in rejecting plaintiffs’ arguments: it makes up a contradiction that doesn’t exist. This isn’t to say the Fifth Circuit is wrong about the weighing here, but it’s a bad look to claim logical flaws that are themselves illogical: “Plaintiffs inconsistently claim that the disclosure requirements are overly emotional and ideological such that they become non-factual speech, while also asserting that FDA’s informational interest does not justify the Warnings because they will not be effective. In other words, plaintiffs suggest consumers will simultaneously notice and not notice the warnings.” But of course, consumers could both notice and not be informed or change their behavior because of the warnings. I notice a ton of stuff to which I am indifferent every day. The underlying question is whether the government ought to have to show some real likelihood of changed decisionmaking in order to justify mandatory disclosures, and I have to admit that I am leaning more towards “yes,” at least for a noticeable percentage of consumers. In the absence of any need for effectiveness, disclosure becomes a compromise where regulators/lawmakers tell themselves they’re protecting consumers while blaming the ones who continue to make “bad” decisions for the consequences of continued marketing.

Effectiveness: Plaintiffs argued that the FDA’s studies were flawed, but all that was required constitutionally was a reasonable relation to a legitimate state interest. “Whether FDA’s use of the studies survives APA review is a question we consider separately from our Zauderer review.” This move too sets up the ability to approve state mandates (not subject to the APA) like in NetChoice while still invalidating anything the Fifth Circuit doesn’t like as a policy matter.

The warnings were not unduly burdensome, despite their size and offputting content. Even if they wouldn’t survive Central Hudson review, that wasn’t enough to invalidate them. The Sixth Circuit already upheld the required size and the court here wasn’t going to revisit that. “Undue burden” means that “the regulation cannot impose a burden excessive or disproportionate to the benefits gained.” In NIFLA, the burden was undue because the disclosures were “wholly disconnected from California’s informational interest”; allowed for no consideration of “what the facilities say on site or in their advertisements”; and “cover[ed] a curiously narrow subset of speakers.” But in NetChoice, decision disclosure/appeal and biannual transparency disclosure couldn’t possibly burden protected speech, so that was ok, and the SEC’s buyback disclosures weren’t unduly burdensome because they “neither burden[ ] issuers’ protected speech nor drown[ ] out their message” given that they occurred only “within the narrow confines of SEC filings.” [Gotta admit, these don’t sound promising for disclosures that have to be a big part of every package.]

Here, the benefits were to alleviate “information asymmetry regarding the harms tobacco causes and consumers’ suboptimal awareness of and response to those harms,” and reducing those harms would be a significant benefit. [If it occurs.]

The claimed harms were to plaintiffs’ free speech rights and to their finances. But “plaintiffs can still speak on 80% of their advertisements, and they still control more than 50% of the total surface area of their cigarette packages.” That allowed “ample room for manufacturers to distinguish their products from other products” and not be “drown[ed] out” or deterred from advertising at all. And plaintiffs have at most a “minimal” interest in withholding useful and factual information; harm suffered from an infringement on that interest was limited. Thus, the burdens were not undue in comparison to the benefits.

Thursday, March 21, 2024

Nominative fair use requires D to prevail on all 3 factors in 9th Circuit, district court concludes

Axon Enterprise, Inc. v. Luxury Home Buyers, LLC, --- F.Supp.3d ----, No.: 2:20-cv-01344-JAD-MDC (D. Nev. Jan. 16, 2024)

The court grants plaintiff's motion for reconsideration of parts of this case, discussed previously. Axon alleged that LHB infringed Axon’s “Taser” mark. The court previously denied summary judgment on nominative fair use, treating it as a balancing test: LHB needed to use “Taser” to refer to Axon’s product, but used too much (it was a former distributor), and there were genuine disputes of fact on whether it did anything else to suggest endorsement. The court granted reconsideration, now holding that all three prongs weren’t satisfied. Although what constitutes “too much” varies based on circumstance—an artist may need to use Barbie’s name and trade dress to make Barbie-themed art—the “no more than necessary” element needs to be satisfied to allow the defense to foreclose further consideration of confusion.

Thus, here, LHB used more of the Taser mark than necessary when it used its distinctive lettering and logo, and Axon was entitled to summary judgment in its favor on infringement. However, whether the permanent injunction already entered to “bar LHB’s use of Axon’s Stylized Taser Mark and Logos on all its websites and advertising” should be modified raised First Amendment considerations that required further briefing. (I take it this means that the logic of NFU means that remedies should allow proper NFU rather than flat bans.)

D's consumer survey defeats class action about relevance of geographic origin of water for brewing beer

Peacock v. Pabst Brewing Co., LLC, 2024 WL 1160687, No. 2:18-cv-00568 DJC CKD (E.D. Cal. Mar. 18, 2024)

Interesting defense-side use of surveys in this consumer protection case. Peacock alleged that Pabst violated consumer protection law by marketing “The Original Olympia Beer” as using naturally filtered, artisan water from Tumwater, Washington (a suburb of Olympia, Washington) “despite the product being brewed elsewhere in the country using lower quality water and brewing methods.” The court granted summary judgment for inability to prove deceptiveness.

Peacock identified, among other things, Pabst’s “It’s the Water” slogan and the depiction of the “unique waterfalls from the (now) closed brewery from the Olympia area” on the Olympia Beer packaging, on its website, and on social media.

On deceptiveness, Pabst argued that Peacock didn’t designate any expert witnesses or other evidence to show how consumers interpreted the label, while Pabst offered an expert opining on a consumer survey. Peacock responded that the evidence of deceptiveness included Pabst’s “own testimony about the point and method of showing the label to consumers in the store on shelves, the ‘historical’ references described by Defendant’s own witness, and the labelling and marketing of the beer itself.”

To prevail under California’s UCL, the plaintiff must produce evidence that shows “a likelihood of confounding an appreciable number of reasonably prudent purchasers exercising ordinary care.” This can be done with “surveys and expert testimony regarding consumer assumptions and expectations” but these are not always necessary as in some situations “anecdotal evidence may suffice[.]” But evidence of just “a few isolated examples of actual deception” is not sufficient. A plaintiff can’t win just by “describing his or her own personal, alleged misunderstanding or confusion.”

Pabst offered two surveys: one for prior Olympia Beer purchasers to determine their reasons for purchasing Olympia Beer, and another where respondents were shown one of two versions of an Olympia Beer can with one version being as it exists now and the “control” being a version without the “challenged elements” of the label.

Of the 185 respondents to the first survey, no respondent mentioned the water used to brew Olympia Beer as their reason for first purchasing Olympia Beer. Only 10 respondents (roughly 5% of total respondents) indicated the “geographic origin of the beer” as part of their reasoning for their first purchase. The results for subsequent purchasers were similar.

In the second survey, only 4, or approximately 2%, of the 202 respondents who were shown the actual Olympia Beer packaging mentioned “the source or origin of the water used to brew the beer as a message conveyed by the product’s label.” Two of the 196 respondents in the control group, who were shown the label without the challenged elements, also “mentioned the source or origin of the water[ ]” thus indicating that “there [was] no meaningful difference between the test and control condition ....” (Id.) Similarly, a roughly equal percentage of respondents from the two groups “mentioned that the Pacific Northwest, Washington, or Olympia/Olympia Falls was a message conveyed by the label[,]” and there was only a 3% difference between the control and test groups (62% for the test group and 59% for the control group) in respondents who thought “Olympia Beer was brewed with artesian water from Olympia, Washington.”

Given this evidence, Pabst met its initial burden of establishing the absence of any genuine issues of material fact, and Peacock’s evidence wasn’t enough. The evidence from Pabst’s witnesses about “historical” references indicated that the reasons for the slogan were historical, but they also testified that they didn’t believe that consumers considered the source of the water.

Likewise, the actual content of the label and marketing might be relevant background information “but it does not create a genuine dispute over whether those elements are likelihood of those elements to confound an appreciable number of prudent purchasers exercising ordinary care.” Peacock’s own testimony was relevant, but only anecdotal and, without anything else, insufficient.

Another "buy" button lawsuit over digital licenses continues

In re Amazon Prime Video Litig., 2024 WL 1138906, No. 2:22-cv-00401-RSM (W.D. Wash. Mar. 15, 2024)

This putative class action alleged that Amazon overcharged and “[d]eceived consumers by misrepresenting that it was selling them Digital Content when, in fact, it was really only licensing it to them[.]” Plaintiffs brought claims under California, New York, and Washington consumer protection law, and common law claims for unjust enrichment.

Plaintiffs alleged that Amazon offers cheaper “rent” options for some of its content, but more expensive “buy” options as well. When consumers “buy” digital content, it’s stored in a folder called “Video Purchases & Rentals.”

But, in fact, Amazon does not cannot pass title of any of this content to consumers. “If the licensing agreement for any of the Digital Content is terminated, Amazon has to pull the Digital Content from not only its site but from all consumers’ purchased folders, ‘which it does without prior warning, and without providing any type of refund or remuneration to consumers.’”

Amazon argued that Article III standing was absent because plaintiffs haven’t lost access to their digital content, and that their claims of overpayment also rested on the mere threat of future unavailability. The court disagreed: there’s a plausible difference in value between owning outright versus purchasing a revocable license.

“Buy” was also plausibly deceptive. Amazon argued that “buy” didn’t mean perpetual ownership, and that it sufficiently disclosed the risk of losing access. Plaintiffs pointed out that Amazon also allows real, non-repossessable purchases with the “Buy” button for tangible goods.  Again, the court agreed with plaintiffs: it was plausible that “buy” could be materially misleading. The court hypothesized a consumer who paid nearly $40 for Barbie and Oppenheimer, but whose Barbenheimer (first judicial appearance?) weekend was ruined because Amazon suddenly lost one license. “Understandably, this consumer ‘might feel a little miffed [or go nuclear] if she were told that she received exactly what she paid for.’”

It was also plausible that the TOS didn’t sufficiently disclose the restrictions. Though the “buy” button manifests consent to a contract, “certain terms and policies could fail to meet statutory standards of clearness and effectiveness.”

Washington state unjust enrichment claims were dismissed, however, because that state only recognizes the tort where there’s no contract, and there was one here.

CFP: Trademark and Unfair Competition Scholarship Roundtable 2024

The Trademark and Unfair Competition Scholarship Roundtable co-hosted by Harvard, NYU, and the University of Pennsylvania will take place this year at Harvard. The Roundtable is designed to be a forum for the discussion of current trademark, false advertising, and right of publicity scholarship, covering a range of methodologies, topics, and perspectives. Five to six papers will be chosen for discussion over the course of the Roundtable, with each paper allocated an entire hour for discussion and assigned a commentator.   

The Roundtable will be held on Friday, October 18, 2024. If there is a critical mass of papers, we may also extend the Roundtable through Saturday morning, October 19. Participation at the Roundtable will be limited and invitation-only and we expect all participants to have read the papers in advance. The Roundtable will cover the travel and lodging expenses for invited authors. 

We invite submissions from academics working on any aspect of trademark, false advertising, marketing, right of publicity, or related areas of the law. Priority will be given to those who can attend the entire event and a dinner the night of Friday, October 18. Submissions must be of full drafts in Microsoft word format. The deadline for submission is May 15, 2024, and decisions on participation will be made shortly thereafter, ideally, by June 1st.   

To submit a draft paper, please fill out the form here (https://forms.gle/QAfdmH18KmgdZAxp7) and upload an anonymized version of your draft.  Please note that the maximum file size that may be uploaded is 10MB. Appendices or other supporting material can be uploaded separately; please do not submit a CV or cover letter. 

For further information about the Roundtable, please email either: Barton Beebe (NYU): barton.beebe@nyu.edu; Jennifer Rothman (Penn): rothmj@law.upenn.edu, or Rebecca Tushnet (Harvard): rtushnet@law.harvard.edu.

Thursday, March 14, 2024

Earth, Wind & Infringement: TM owner succeeds against overclaiming "reunion" band

Earth, Wind & Fire IP, LLC v. Substantial Music Group LLC, --- F.Supp.3d ----, 2024 WL 1025265, No. 23-20884-CIV-MORENO (S.D. Fla. Mar. 1, 2024)

With the ordinary multifactor confusion test, courts position themselves as looking for empirics (even though the thrust of several of the factors is normative). But with nominative fair use, courts engage in more unfair competition/normative reasoning. When a court finds that a use went beyond identifying to suggesting a connection, it often doesn’t use any of the factors that empirically we might use to figure out if that was true. Instead, it generally determines that the defendants did “too much” based on its own sense of what’s accurate. Here, though, a bit of empirics creeps in.

The facts: Earth, Wind & Fire is owned by the sons of Maurice White, founder of the well-known musical group “Earth, Wind & Fire,” and owns trademark rights in the name.

“Defendants decided to form and promote a band, in which Richard Smith would be the guitarist that would perform the music of Earth Wind & Fire. It is undisputed that Smith played with the Earth, Wind & Fire for a few years, but the size of his role during those years is in dispute.” They called the new band, “Earth Wind & Fire Legacy Reunion” and “The Legacy Reunion of Earth, Wind & Fire.” They also used plaintiff’s word mark and its “Phoenix” logo mark. After plaintiffs objected, defendants changed their name to “Legacy Reunion of Earth Wind & Fire Alumni,” made logo and color changes, and ceased using the “Phoenix” logo.

The court granted summary judgment on liability to plaintiff.

Nominative fair use: Earth, Wind & Fire wasn’t readily identifiable without use of its name. What’s “reasonably necessary” to identify it can differ from case to case. Although the initial uses seemed clearly more than reasonably necessary, defendants stopped using Earth, Wind & Fire’s distinctive font, took out the distinctive “Phoenix” logo, switched the title of its musical shows from “Earth Wind & Fire Legacy Reunion” to “Legacy Reunion of Earth Wind & Fire Alumni,” and changed the color scheme. Thus, they satisfied the second element of NFU.

However, the court put the burden on defendants to show that they did “nothing that would, in conjunction with the mark, suggest sponsorship or endorsement by the trademark holder.” This was a closer call, but the court rejected the defense.

In the Princess Diana case, Cairns, the court “found persuasive that the advertisements for the Princess Diana related products did not claim that they were sponsored or endorsed by the trademark holder, where other of the defendant’s celebrity-related products do state that they are ‘authorized’ by a trademark holder.” By contrast, the silence here was not as meaningful because there weren’t other “authorized” products. And “Legacy Reunion of Earth Wind & Fire” lacked “a clear disclaimer or limiting language about who is performing.” Plus, defendants “combined the advertising with text that discusses the Earth Wind & Fire’s legacy”: their website said that the band “dominated the 70’s with their monster grooves and high energy, danceable hits, garnering 20 Grammy Award nominations and a Hall of Fame Induction along the way.” It further states that “[t]he style and sounds of the greatest hit recordings by Earth, Wind & Fire were built by founder Maurice White and the contributions of a stellar collective of some of the best musicians in the world throughout the decades.” These ads “draw a close, unmistakable association with Earth, Wind & Fire to a degree unwarranted by the historical record.” “Regardless of if Defendants’ musicians were technically sidemen or members, the advertisement and marketing were still deceptive and misleading as to whether the main (or most prominently known) members of the band would be performing. The use of the word ‘alumni’ is not enough to dispel the notion that Defendants’ band is not sponsored.” This was close, because “some original musicians and members … are performing, [but] the advertisements are overstating the originality of the group. Plaintiff shows this through multiple consumer online posts, commenting with frustration on their expectations based on advertisements verses what they received.” This isn’t evidence of association in general, like the survey in New Kids, but rather of a material quality gap—maybe that kind of evidence is especially relevant.

The court also rejected acquiescence, estoppel, and laches defenses.

A couple of points from the confusion analysis: Third-party use didn’t weaken the mark because each third-party use identified by defendants included “tribute” somewhere in the name and most of the websites made clear exactly who was performing. E.g., “The Ultimate Earth, Wind & Fire Tribute Band” website includes information of the performers, which explicitly states that the Saxophonist Curtis Johnson “[t]oured with the original EARTH, WIND & FIRE BAND.” The “Kalimba – Earth Wind & Fire tribute” site explicitly stated that the band seeks to “accurately reproduce the infectious grooves.” Defendants’ name, by contrast, was “Legacy Reunion of Earth Wind & Fire Alumni,” “which implies not that they are ‘covering’ or ‘reproducing’ the music but were the original performers.” Even “The Earth Wind, & Fire Experience featuring The Ray Howard Band” identified itself as an “experience” and a performance by an entirely different band.

Similarity of advertising media: The fact that the parties used separate websites and social media favored defendants, by showing a distinction between the groups. It just wasn’t enough.

Bad faith: Not shown, because just knowing of the prior mark isn’t enough without an intent to misappropriate.

Actual confusion: emails said things like “I attended the [Earth, Wind & Fire] legacy reunion in Pensacola, Florida in hopes of seeing Philip Bailey, Verdine White and others from the original band. Their pictures are on the advertisement, posters, or whatever. The impression of Reunion would be original band members from various years. Why is it misleading? The pictures should be removed from advertisement. The details read friends and family or something like that.”


calling an accepted Rule 68 offer a judgment of infringement could be defamatory

Double Diamond Distribution Ltd. v. Crocs, Inc., 2024 WL 1051951No. 23-cv-01790-PAB-KAS (D. Colo. Mar. 11, 2024)

I have a long-running interest in Rule 68 offers of judgment, and this case involves an interaction with false advertising law! The parties compete in the shoe market.

In 2006, Crocs sued now-plaintiff Double Diamond and Dawgs, its affiliate. Trial was scheduled for 2022 (!), but then-defendants sent offers of judgment to Crocs. Double Diamond’s offer stated: “This offer is made for the purposes specified in Rule 68 and is not to be construed either as an admission that Double Diamond is liable in this action or that Crocs has suffered any damage.” Dawgs’ offer was similar (though it offered $6 million, where Double Diamond offered $55,000, and contemplated bankruptcy).  Crocs accepted.

Crocs then issued a press release, “Crocs secures long sought-after judgment of infringement against USA Dawgs and Double Diamond Distribution.” The press release announced

a judgment of infringement against USA Dawgs and Double Diamond Distribution as a result of both companies’ sales of imitation Crocs shoes. In conjunction therewith, Crocs also obtained $6 million and $55,000 in damages, respectively, against the companies.

This case is the culmination of years long battles between the parties after USA Dawgs and Double Diamond Distribution began selling shoes that infringed Crocs’ patents in 2006. Both USA Dawgs and Double Diamond Distribution have since conceded the validity of Crocs’ patent rights.

“We are fiercely protective of the Crocs brand and our iconic DNA. We have zero tolerance for infringement of our intellectual property rights or for anyone who tries to benefit off the investments that we have made in our brand,” said Daniel Hart, Executive Vice President and Chief Legal & Risk Officer at Crocs. “This judgment not only reinforces the validity of our patent rights, it also reinforces our unrelenting determination to take forceful steps to protect our brand equity.”

This judgment of infringement comes nearly one year to the day after Crocs filed lawsuits against 21 companies alleging infringement of its registered trademark rights in its clog designs. …

The court declined to dismiss Double Diamond’s resulting defamation claim. This was not a case where the “gist” was true on the facts alleged. A Rule 68 offer of judgment does not require an admission of liability, which may be disclaimed. If that happens, the court’s judgment does not constitute a finding of or an admission of liability against the defendant.

The statements that Crocs obtained “a judgment of infringement against USA Dawgs and Double Diamond Distribution as a result of both companies’ sales of imitation Crocs shoes” and “[t]his judgment...reinforces the validity of [Crocs’] patent rights” were plausibly false because the statements would have a “different effect on the mind of the reader” from that which the Rule 68 offer of judgment would have produced. And they were plausibly material because the statements would likely cause reasonable people to think “significantly less favorably” about Double Diamond than they would if they knew the truth. Unlike the difference between “stalking” and “harassment,” this was not “a minor, technical error in legal terminology.”

Trade libel claims survived for the same reason.

Lanham Act false advertising: Crocs argued that the press release was not “commercial advertising,” because (a) the press release was directed at investors, not the relevant purchasing public; and (b) Double Diamond never alleged that the press release promoted Crocs’ shoes to consumers. However, Crocs published the press release on its website and had the press release published to 440,000 websites, newsrooms, and direct feeds using PRNewswire. And it stated that Crocs “is a world leader in innovative casual footwear for women, men, and children, combining comfort and style with a value that consumers know and love.” This was enough to plausibly allege commercial advertising, along with the allegation that Crocs made the statement in order to obtain increased sales and brand differentiation; the press release repeatedly referred to Crocs’ brand and products and included the invitation “To learn more about our brands, please visit www.crocs.com or www.heydudeshoesusa.com or follow @Crocs or @heydudeshoes on Facebook, Instagram and Twitter.” Because the websites that posted the press release have a combined viewership of 6 billion people per month, the allegations were sufficient to show that the statements were “disseminated sufficiently to the relevant purchasing public.” This also allowed a claim under the Colorado Consumer Protection Act.

Intentional interference with contractual relations failed, however, because there was no identified specific relationship with a third party.

Friday, March 08, 2024

reasonable consumers aren't required to know collagen can't be vegan

Kandel v. Dr. Dennis Gross Skincare, LLC, 2024 WL 965621, No. 23-cv-01967 (ER) (S.D.N.Y. Mar. 5, 2024)

Similar California litigation at a later stage. Kandel alleged that Gross Skincare deceptively labeled and advertised its skincare products as containing collagen when, in fact, they do not.

“Collagen is a protein found exclusively in humans and animals that has been linked to youthful skin, hair, and nails. It is composed of thousands of amino acids intertwined in a specific, unique sequence. Without being sequenced this way, amino acids do not confer the same benefits as collagen.” The products at issue are uniformly branded with the phrase “C + Collagen.” The list of ingredients includes “Collagen Amino Acids”; some products also feature the term “collagen amino acids” in a separate section on the package titled “What It Is”/“What’s In It For You.”

one of the packages at issue: C + Collagen Deep Cream

One side of each package also contains a small symbol indicating that the product is vegan—making “collagen” content impossible. Gross Skincare allegedly knows that consumers will pay more for skincare products that contain collagen and intends for consumers to infer from the “Collagen” branding that the products do so.

C + Collagen package sides with small blue arrow pointing to small vegan symbol at bottom and blue underline of "collagen amino acids" in ingredient list
blue lines/arrows added by court to highlight relevant terms

NY GBL claims were sufficiently alleged. Gross Skincare argued that the “C + Collagen” phrase didn’t imply that the products contain collagen, but instead that the Vitamin C in the products increases natural production of collagen in the user’s skin. It claimed that the rest of the package clarified that the products contain “collagen amino acids” and are vegan. Because of the label “vegan,” it argued, a reasonable consumer would understand that they do not contain collagen.

This interpretation of “C + Collagen” was “certainly less intuitive than Kandel’s.” Even considered as a whole, the complaint alleged misleadingness. The use of “collagen amino acids” “likely only reaffirms that collagen is an ingredient” and was itself arguably confusing; the label did nothing to explain it.

Even if one accepts Gross Skincare’s definition of “collagen amino acids” as “the building blocks of collagen,” the court did not assume that a reasonable consumer understands that collagen is a protein composed of amino acids. So too with “vegan.” Even if the consumer noticed this small symbol, they’d have to know that collagen comes exclusively from animals.  This certainly couldn’t be assumed on a motion to dismiss.

Breach of warranty and unjust enrichment claims under New York law, however, failed, as well as claims on behalf of a nationwide class.

Kandel did have standing as to four products she didn’t buy but that contained the same alleged misrepresentations.

Thursday, March 07, 2024

small competitor lacks standing against big one's nondisparaging advertising

HomeLight, Inc. v. Shkipin, --- F.Supp.3d ----, 2024 WL 940089 (N.D. Cal. Mar. 5, 2024)

Sometimes, courts are very generous to competitors in presuming Lanham Act standing—as with the recent Meta ruling—and sometimes they aren’t. I have yet to detect a real pattern across facts/circuits, but suggestions welcome.

Previous ruling. Shkipin’s amended false advertising counterclaim fails again. Although Shkipin alleged commercial injuries—“network effects and ad revenues, and also … goodwill value associated with its 100% free services to real estate agents and consumers” but there wasn’t sufficiently direct causation. None of HomeLight’s statements allegedly disparaged or even referred to Shkipin’s business.

To establish that HomeLight proximately caused HomeOpenly to suffer a loss of sales, Mr. Shkipin would need to show how deceptive statements about HomeLight directed at shoppers on HomeLight’s own website necessarily caused advertisers not to buy ads from HomeOpenly. Even assuming that there is a direct relationship between the number of shoppers who use or visit HomeOpenly and its ability to sell ads, and that HomeLight’s deceptive statements resulted in some reduction in the number of shoppers visiting HomeOpenly’s website, this connection is too attenuated to establish proximate cause. This is especially true given the countercomplaint’s other plausible explanation for why online home shoppers might find HomeLight’s website but not HomeOpenly’s: HomeLight’s heavy spending on various forms of online and TV advertising that Mr. Shkipin characterizes as “highly effective.”

These causation problems also defeated his state UCL claim. The allegedly unlawful/fraudulent conduct underlying the UCL claim—that HomeLight received illegal kickbacks in violation of RESPA—wasn’t sufficiently linked to the injuries Shkipin claimed.

Wednesday, March 06, 2024

Second Circuit affirms holding that asterisk/fine print sufficiently clarifies ambiguous claim

Montgomery v. Stanley Black & Decker, Inc., 2024 WL 939151, No. 23-735-cv (2d Cir. Mar. 5, 2024)

Plaintiffs sued defendant (Craftsman) for deceptive business practice claims under both the New York General Business Law (NYGBL), and the Virginia Consumer Protection Act (VCPA), as well as asserting warranty and common law claims. They alleged that the “Peak HP” labeling on the packaging of Craftsman vacuums is misleading because the vacuums are unable to achieve the advertised horsepower. The District Court dismissed the complaint because the dagger or asterisk symbol next to the “Peak HP” label directs the consumer to fine print explaining that “Peak HP” is the horsepower achieved in laboratory testing, not ordinary use. The court of appeals affirmed.

Based on the entire packaging, a reasonable consumer would not be misled because of the fine print explanation. Plaintiffs didn’t allege the “Peak HP” label was false, and though their interpretation was one reasonable one, the fine-print meaning was also reasonable, and the dagger/asterisk “would alert a reasonable consumer to the fact that certain caveats may apply to the ‘Peak HP’ designation.” Just because it was in fine print didn’t mean it couldn’t clarify an ambiguous label. There were no allegations that a consumer couldn’t see it or that its terms were confusing.

 

local ad company has Lanham Act standing against Meta for allegedly overstating ad reach

Metroplex Communic., Inc. v. Meta Platforms, Inc., 2024 WL 940127, No. 22-cv-1455-SMY (S.D. Ill. Mar. 5, 2024)

Metroplex, a local advertising company, brought a putative class action against Meta for unfair competition. Although Meta argued that Metroplex was an ad purchaser for two of its local media properties (a news site and an FM radio station), given that it has advertised on Facebook dozens of times in the last few years, Metroplex argued that it was a Meta competitor.

Metroplex alleged that sells and places digital and targeted advertisements on its local news website, its “Best of Edwardsville” website, radio advertisements for its FM and AM radio stations, and print advertisements that are placed in local newspapers and in the “Best of Edwardsville” magazine. Metroplex also allegedly develops tools and systems for managing and optimizing advertising campaigns for businesses.

Meta allegedly drew buyers away from its local news outlets by (1) using the word “people” in statements related to advertising on Meta and (2) overestimating the number of people on Meta’s apps and reachable by ad campaigns, and contends that Meta’s users were “not actually people,” because some accounts were false and some people have more than one account. It asserted claims under the Lanham Act and the Illinois Uniform Deceptive Trade Practices Act.

Metroplex satisfied Lexmark by alleging that the parties compete directly for the same customers and Meta’s false or misleading statements were material to advertisement buyers. Lost sales could be plausibly inferred by these allegations.

As for stating a claim, Meta noted that most of the challenged statements weren’t “advertising.” They were numerical estimates taken from Meta’s SEC filings or provided to individual advertisers for particular ad campaigns, and generic references to “people” on informational webpages. But the plaintiff did enough to satisfy Rules 8 and 9(b).

A reasonable consumer could be confused despite Meta’s alleged disclaimers or qualifying statements in SEC filings or in icons that led to popup windows, given the allegations of falsity, just as the back label of a product can’t correct false statements on the front. Given allegations that Meta allegedly inflates audience estimates and reach metrics and such audience size figures can be over 30% of the actual number, it would be plausible for consumers to be deceived.

The IUDTPA claim also survived because Metroplex, an Illinois company, alleges it was damaged as a competitor in the Edwardsville and greater Metro East region in Illinois.

The court also rejected Meta’s motion to compel arbitration; these claims, asserted in its capacity as Meta competitor, were outside the scope of the agreement Metroplex signed to run its Facebook pages.
 

Bank has Lanham Act standing to assert disparagement claim against former customer (itself a service provider)

SouthState Bank, N.A. v. Qoins Technologies, Inc., --- F.Supp.3d ----, 2024 WL 911075, No. 1:22-CV-5020-MHC (N.D. Ga. Mar. 1, 2024)

“Qoins is a financial technology company that collects funds from its customers and disburses payments to designated creditors in order to help its customers pay off their debts.” Customers inform Qoins of their outstanding debts that they wish to pay and transfer money to Qoins “on a regular basis to satisfy such debts over time.” In 2019, Qoins entered into a Master Disbursement Services Agreement with Atlantic Capital Bank to establish a banking relationship, which included creating bank accounts that contained customer funds. SouthState is ACB’s successor in interest. Under the agreement, Qoins was the bank’s customer (and Qoins customers weren’t). It set up custodial accounts for holding customer funds—not to be used for operations; an operating account; and a reserve account. Qoins customers would make deposits to custodial accounts; Qoins would make payments to creditors and then reconcile deposits and payments. Qoins agreed to ensure that custodial accounts had sufficient funds to carry out the payments and to cover any fees related to the transactions, and to keep records of its transactions and provide accurate information to the bank.

In June 2022, “SouthState documented the mutual agreement” reached by Qoins and SouthState that the banking relationship between them would terminate, effective July 20, 2022. SouthState was unable to complete the transition process to a new bank partner (Evolve) because “ACH requests to SouthState for Qoins’s Customers’ funds [ ] exceeded the amounts in Qoins’s accounts with SouthState.” Qoins initiated an ACH request in the amount of $150,000 from the Custodial Accounts to Evolve; however, because the Custodial Accounts were overdrawn, SouthState denied the request. SouthState allegedly eventually had to charge off the negative balances of Qoins’s accounts in an amount in excess of $33,000.”

SouthState alleged that the custodial accounts were improperly “used in multiple instances by Qoins to fund Qoins’s other accounts at SouthState”; custodial accounts were frequently funded by the operating account; Qoins’ earnings weren’t sufficient to maintain operating capital; and funds from the different accounts were commingled.

In early December 2022, Qoins published an announcement on its website informing customers that it “recently switched to a new bank partner” in order to “provide additional services,” but “[u]nfortunately, however, some of our customers have not been able to migrate their accounts due to ongoing issues with SouthState Bank.”

The announcement included a question, “Why can’t I access my money?” and provided the following answer:

If you never attempted to migrate, or if you received an error message during the migration process (including a message that says your account is “on hold”), your funds are still at SouthState Bank. SouthState Bank is unable to release your funds, so we have been unable to migrate your account or refund your money. We continue to work with SouthState Bank to resolve this matter expeditiously. While we have seen some customers reach out to SouthState Bank directly, customers have had no luck. Some customers have also reached out to our new bank partner, but they are not in a position to help.

Qoins’s announcement also provided a link to the FDIC’s Customer Assistance Form and informed any aggrieved customers that a Qoins representative would assist in helping the customer file a complaint against SouthState with the FDIC. Qoins also referred to SouthState in its responses to customer reviews, saying it was responsible for withholding funds. This was all allegedly false and misleading (given that Qoins customers were not SouthState customers, they weren’t FDIC insured). “Numerous” Qoins customers allegedly filed complaints against SouthState “with relevant federal agencies,” even though SouthState was not responsible to Qoins’s customers and SouthState did not possess any records of the customers’ interactions with Qoins.

The court mostly denied Qoins’ motion to dismiss the resulting claims, including breach of contract and libel.

False advertising/false association: SouthState lacked standing to bring a false association claim against Qoins because there were no allegations of passing off, and in fact Qoins allegedly identified SouthState as a banking partner. Thus, SouthState didn’t fall within the zone of interests for false association. [I think what the court meant was that Lexmark’s zone of interests/proximate cause test applies to §43(a)(1)(A) claims, as I think it would have to, but that the zone of interests/proximate cause analysis differs as between false association and false advertising.]

But SouthState did have standing for a false advertising claim. “Because SouthState is alleging reputational injuries, no direct competition is required and SouthState has pleaded with sufficiency that it has standing to sue because the alleged false representations about SouthState could impact its business reputation.”

Were the Qoins statements made in commercial advertising or promotion? Qoins argued that they were answers to customer questions and not intended to influence customers away from SouthState or targeted at SouthState customers. The Eleventh Circuit has adopted Gordon & Breach’s test (probably as modified by Lexmark).

Qoins’s argument that the statements were not made to the purchasing public is unavailing because SouthState has alleged that Qoins made the representations on its website and in response to customer reviews on online application stores. Importantly, these representations are alleged to be public-facing and widely accessible. “[W]hen statements are so broadly disseminated, they are much more likely to constitute commercial advertising.”

Drawing all inferences in SouthState’s favor, “Qoins’s statements were made to pacify customer concerns and to influence customers to start or continue their relationship with Qoins. A reasonable inference also can be made that Qoins’s statements were intended to influence customers to purchase its service, because such issues were not attributable to the new banking partner.” That sufficed.

Interestingly, the court also found that SouthState sufficiently alleged materiality in two independent ways: (1) allegedly false representations that SouthState continued to hold customers’ funds concerned “the essential characteristic of its business as a bank” and (2) because consumers allegedly filed complaints against SouthState based on Qoin’s representations, it was plausible that those representations affected consumer decisions about SouthState.

Two hospitals can both be best, and use purple ads (for now at least)

NYU Langone Health Sys. v. Northwell Health, Inc., 2024 WL 898941, No. 23-CV-5032 (VEC) (S.D.N.Y. Mar. 1, 2024)

NYU Langone sued Northwell for trade dress infringement, unfair competition and false designation of origin, and false advertising under the Lanham Act, as well as related claims under the New York GBL and New York common law. The core allegation is that Northwell copied its advertising to trade off the good will and reputation of NYU Langone. The court dismissed the complaint—the false advertising claims with prejudice.

The parties are both nonprofit health systems in New York and advertise to the same market, with NYU Langone having recently expanded its presence on Long Island, where Northwell is headquartered.

NYU, including NYU Langone and other subsidiaries, has used the color purple in its signage and branding for over 100 years. NYU Langone’s 2017 style guide suggests the distinct shade of purple be “prominently feature[d]” with white font and accent colors like teal and orange, like so:

NYU Langone ad with purple background and white sans serif text

another similar ad on a billboard

NYU Langone alleged the existence of advertising trade dress (e.g., teal and orange) and photos, ... [and the] use of purple, white, and accent color combinations in words and phrases in the ad headlines.”

Before 2019, Northwell advertisements allegedly featured a logo with blue letters and multicolored arrows on a white background:

ad with patient picture on top and orange and blue text on white background

teal and white background, white and black text

In 2021, Northwell’s advertisements allegedly changed and now use white letters and arrows on a purple background:

Northwell ad with purple background and blue and white text

similar ad but some of the background is teal

NYU Langone failed to adequately allege a protectable trade dress. “To state a claim for trade dress infringement, a plaintiff must first clearly articulate the design or combination of features that make up the trade dress. The articulation must provide a ‘precise expression of the character and scope of the claimed trade dress.’” Clarity and specificity are “imperative because courts cannot ‘shape narrowly-tailored relief if they do not know what distinctive combination of ingredients deserves protection.’” Further, “[t]rade dress descriptions with too many possible combinations are not specific enough to state a claim.”

The allegations here were

confusing and expansive. The Complaint provides a laundry list of elements, some introduced by “e.g.” and some connected by “or,” that encompasses such a wide variety of features that it would be difficult for competitors to know whether their advertisement falls within the trade dress. NYU Langone defines its trade dress as follows:

the prominent use of a distinctive purple color, the use of particular accent colors (e.g., teal and orange) and photos, specific font types, colors and headline styles (i.e., all cap sans serif white headlines, as well as white font with certain words and phrases emphasized in the same or similar accent colors), use of purple, white, and accent color combinations in words and phrases in the ad headlines, and specific layouts in terms of placement and use of accent colors, all of which create a distinctive look and feel.

Photos in the complaint of the alleged trade dress “vividly illustrate how features such as font, color, and layout vary across ads. Even among ads that are predominantly purple, the shade of purple varies; some have all cap white writing; some have all white sentence case writing; and some have a mix of white and other color writing.”

subway ad as described by court

Facebook ad on purple background with white and orange text

Other ads had “just a splash of purple”:

Mostly teal background with white text and then some purple at bottom

mostly pink background with white and purple text and purple at bottom

Some ads were split between photos and text, with the text varying in color and case and with the split sometimes being vertical and sometimes horizontal:

photo of basketball players on left, purple background and white/blue text on right

purple background with white text on top, photo of runner on bottom

The court couldn’t identify specific fonts, colors, or headline styles that were part of the trade dress, other than that they were sans serif fonts. “Categories of features” were insufficient.

The current definition was too general, contained too many “or” connectors and “for example” phrases, and “overall encompasse[d] too many possible permutations and combinations to constitute a singular distinct trade dress,” though the court would allow an amended complaint.

False advertising: NYU Langone alleged that a Northwell ad falsely claimed that one of its hospitals “is NYC’s only hospital in the Nation’s Top 50” and “offer[s] the best care in Manhattan.” This claim was based on rankings from Healthgrades and included the Healthgrades logo directly underneath the claim. NYU Langone alleged that Healthgrades’ rating methodology lacks transparency and relies on inaccurate and incomplete reporting, and that the claim was false because U.S. News & World Report ranked NYU Langone “#1 in New York State and in the New York City Metro area” in its “Best Hospitals Honor Roll.”

ad as described with Healthgrades logo on bottom

The statement that Lenox Hill is the only NYC hospital in the Nation’s Top 50 wasn’t literally false because Northwell cited the Healthgrades rating. Questioning Healthgrades’ underlying rating methodology didn’t falsify the claim that Lenox Hill was the only NYC hospital rated in the Top 50 in that particular list.

Nor did NYU Langone sufficiently allege misleadingness. It was not enough to allege only that “Northwell’s false or misleading statements actually deceived or have the tendency to deceive a substantial segment of consumers.” “While proof of confusion is not necessary at the pleading stage, factual allegations that would allow the Court plausibly to infer that the advertisement caused confusion are. NYU Langone’s single conclusory sentence is insufficient.” And “best care in Manhattan” was puffery.

Under NYGBL § 350, “a disclaimer or similar clarifying language” can defeat a claim of false advertising as a matter of law, and the Healthgrades rating did so here.

Amendment would be futile because no reasonable jury could conclude that consumers were misled or confused by an add bragging about Lenox Hill’s Healthgrades rating and boasting that it offers the “best” care in the city. “Consumers are familiar with this common type of advertising, in which businesses tout that they are the best according to some newspaper, magazine, blog, Yelp or Google review, poll, or other rating system.” In fact, NYU Langone does the same:

NYU Langone ad also claiming to be #1 in outcomes with logos of rating entities

Both of these claims can be true.

Monday, March 04, 2024

“it appears difficult for a defendant, innocent or not, to defend himself in a claim for disgorgement of profits"

Newborn Bros. Co. v. Albion Engineering Co., No. 12-2999, 2024 WL 887785 (D.N.J. Feb. 29, 2024)

Previously, after a bench trial, the court found Albion liable for falsely advertising its caulk dispensing guns as “Made in the USA.” Now it’s disgorgement time.

After more evidence, the court found that Albion adequately supported its unclean-hands defense—that Newborn had also made false USA origin claims—until early 2007.

Although this wasn’t a two-player market, the evidence (including trade organization membership and Albion’s own offers to distributors) suggested that Newborn and Albion were direct competitors. Many distributors carry just one vender; many parties who sell private label products use only one manufacturer.

Albion saw a strategic advantage in presenting itself as an American manufacturer, e.g., in a meeting with an end-user/owner of a caulking company, its director of marketing noted that Newborn guns were made in China, to which the owner responded “[t]hat’s how we got into this economic mess,” and the marketing director noted in the contract management system that “Made in U.S.A. could become even more important during this economy.” A former Newborn customer switched to Albion based on its claim of US manufacture. After Albion added hard-to-remove country of origin markings, Newborn’s sales increased fifty percent.

In fighting disgorgement, Albion pointed to other factors driving sales. Many Albion caulking guns were priced forty percent higher or more; Albion argued that this was evidence that the products do not compete in the marketplace and cited survey data and testimony that consumers’ American-made preference cannot account for purchases made despite such cost disparities.

Because the court had already concluded that disgorgement was appropriate, it was Newborn’s burden to prove Albion’s sales and Albion’s burden to prove costs and other deductions from that amount.

Newborn’s expert calculated Albion’s total revenue from relevant products to be nearly $32 million, and profits a bit over $15.5 million, meeting Newborn’s burden. Although “it would be inequitable and contrary to [the court’s] responsibility under the Lanham Act to disgorge profits unrelated to Albion’s offending conduct,” the court rejected “any interpretation that places the burden of proof of the sales attributable to specific representations or consumer confusion affirmatively on Newborn.” Indeed, the court cited with approval another court’s statement that “it appears difficult for a defendant, innocent or not, to defend himself in a claim for disgorgement of profits.”

Moreover, this burden shifting

allows for, and in some instances encourages, parties to argue past one another to the collective detriment of themselves and the Court. A plaintiff’s minimal obligation to prove sales and a defendant’s heavier burden to deduct costs, demonstrate a lack of competition or confusion, and make other showings to subtract from the sales figure do not naturally result in apples-to-apples comparisons.

So, Albion didn’t focus on its costs associated with its sales, but rather whether the parties’ products competed and whether there was actual consumer confusion. The court partly agreed: customers who repurchased after the country of origin marking was corrected showed “a disregard for country of origin as a deciding factor.”

However, the court declined to rely on testimony that consumers would only pay a 15% premium for American-made products (meaning that sales of products with a greater premium weren’t attributable to the false country of origin claims).  It was “clear that Albion saw value in representing itself as an American manufacturer and sought to distinguish itself from competitors, particularly Newborn, on that basis. Finding for Albion on this issue would risk, at least in some instances, unjustly giving Albion the benefit of excluding relevant products based on markups.” Without definitive evidence quantifying the value of American manufacture, the court erred on the side of Newborn. The court also included private-label sales, because it couldn’t find that the private-label sales were unrelated to American manufacture.

The court set disgorgement at a bit over $1.6 million plus prejudgment interest. Deterrence couldn’t justify increasing the sum—that would be a penalty.

Injunctive relief was also appropriate. Albion ceased placing markings on the relevant products representing Albion’s eighty-year history of American manufacture after the lawsuit was filed. It added a “Made in Taiwan” label to handles, later replaced by a stamp on the recoil plate. Still, Albion guns stamped or otherwise marked to indicate American manufacture are presently displayed across the country. One distributor continued to advertise a relevant product as American made until October 2023, and there were other scattered similar references online.

Thus, there was continued irreparable harm. (I didn’t see discussion of the TMA’s presumption.)

And legal remedies were inadequate, since they couldn’t prevent future violations. “The inadequacy of compensation for past harm is all the more apparent, in the Court’s view, in light of the continuing misrepresentations and lack of clarity in the market despite Albion’s assertion that it has engaged in corrective efforts for more than a decade.” Thus, the balance of equities and the public interest also favored injunctive relief.

Albion was ordered to mail a letter and a copy of the court’s order to each distributor it has sold a caulking gun to within the past five years requesting that any samples, displays, or other materials referencing “Phila. PA.” or referring to Albion caulking guns being “Made in USA” be returned. Albion had to remove from the inventory of its distributors any B-line guns that bear markings describing Albion’s history as an American manufacturer and offer to replace any returned materials at its own cost. It was also required to provide notices to be displayed at each location at which Albion products are displayed:

A judge of the United States District Court for the District of New Jersey has ruled that Albion Engineering Corp. has previously misrepresented that certain products were “Made in USA,” through product mismarking and statements in advertising, promotional materials, websites, and to customers. Newborn Brothers Co. Inc. v. Albion Engineering Co., No. 12-Civ-2999 (NLH).

The Court has ordered Albion to comply with all applicable country-of-origin marking and disclosure requirements. The Court has ordered Albion to provide to its distributors copies of this notice so that they may be displayed at all distributor sales locations.

Yikes!

Also, “until such time that Albion seeks and receives confirmation from United States Customs and Border Protection as to the marking requirements of its specific manufacturing processes, the packaging of each Albion caulking gun with any foreign component shall list each component of the caulking gun and its country of origin.”