Wednesday, January 17, 2018

CFP: Yale/Stanford/Harvard Junior Faculty Forum

Request for Submissions
Yale/Stanford/Harvard Junior Faculty Forum
June 13-14, 2018, Harvard Law School

Yale, Stanford, and Harvard Law Schools are soliciting submissions for the 19th session of the Yale/Stanford/Harvard Junior Faculty Forum, to be held at Harvard Law School on June 13-14, 2018. Twelve to twenty junior scholars (with one to seven years in teaching) will be chosen, through a blind selection process, to present their work at the Forum. One or more senior scholars will comment on each paper. The audience will include the participating junior faculty, faculty from the host institutions, and invited guests. The goal of the Forum is to promote in-depth discussion about particular papers and more general reflections on broader methodological issues, as well as to foster a stronger sense of community among American legal scholars, particularly by strengthening ties between new and veteran professors.

TOPICS: Each year the Forum invites submissions on selected topics in public and private law, legal theory, and law and humanities topics, alternating loosely between public law and humanities subjects in one year, and private law and dispute resolution in the next. For the upcoming 2018 meeting, the topics will cover these areas of the law:

- Administrative Law
- Constitutional Law—theoretical foundations
- Constitutional Law—historical foundations
- Criminal Law
- Critical Legal Studies
- Environmental Law
- Family Law
- Jurisprudence and Philosophy
- Law and Humanities
- Legislation and Statutory Interpretation
- Public International Law
- Race/Gender Studies/Antidiscrimination
- Workplace Law and Social Welfare Policy

A jury of accomplished scholars, not necessarily from Yale, Stanford, or Harvard, will choose the papers to be presented. There is no publication commitment. Yale, Stanford, or Harvard will pay presenters' and commentators' travel expenses, though international flights may be only partially reimbursed.

QUALIFICATIONS: Authors who teach at a U.S. law school in a tenured or tenure-track position and have not have been teaching at either of those ranks for a total of more than seven years are eligible to submit their work. American citizens or permanent residents teaching abroad are also eligible provided that they have held a faculty position or the equivalent, including positions comparable to junior faculty positions in research institutions, for fewer than seven years and that they earned their last degree after 2008. International scholars are not eligible for this forum, but are invited to submit to the Stanford International Junior Faculty Forum.
We accept co-authored submissions, but each of the coauthors must be individually eligible to participate in the JFF. Papers that will be published prior to the Forum are not eligible. There is no limit on the number of submissions by any individual author. Junior faculty from Yale, Stanford, and Harvard are not eligible. 


Electronic submissions should be sent to Rebecca Tushnet at, with the subject line “Junior Faculty Forum.” The deadline for submissions is March 1, 2018. Remove all references to the author(s) in the paper. Please include in the text of the email and also as a separate attachment a cover letter listing your name, the title of your paper, your contact email and address through June 2018, and which topic your paper falls under. Each paper may only be considered under one topic. Any questions about the submission procedure should be directed both to Rebecca Tushnet and her assistant, Andrew Matthiesen (

FURTHER INFORMATION: Inquiries concerning the Forum should be sent to
Matthew Stephenson ( or Rebecca Tushnet ( at Harvard Law School, Richard Ford ( at Stanford Law School, or Christine Jolls ( or Yair Listokin ( at Yale Law School.

Richard Ford
Christine Jolls
Yair Listokin
Matthew Stephenson

Rebecca Tushnet

Tuesday, January 16, 2018

That's swell: court rules that NY doesn't impose "use in commerce" limit on unfair competition

Can’t Live Without It, LLC v. ETS Express, Inc., --- F.Supp.3d ----, 2018 WL 401778, No. 17-cv-3506 (S.D.N.Y. Jan. 15, 2018)

Plaintiff S’well sued ETS for trademark infringement and related claims based on its sales of the Force and Swig Bottles, which have the exact same shape as plaintiff’s S’well and S’ip Bottles, respectively. The court denied ETS’s motion for summary judgment, among other things holding that §349 and §350 don’t incorporate whatever is left of the Lanham Act’s “use in commerce” requirement, which meant that ETS’s partial motion for summary judgment as to its use of the S’well name was only partly granted.

S’well has a registration for the shape of its S’well bottle, on the Principal Register as of 2017. “The S’well Bottle has been very successful, obtaining substantial amounts of free, unsolicited media coverage, selling millions of bottles and an increasing number each year, and generating millions of dollars in income.”  (Turns out I own a bottle with this shape, whose maker I don’t know; I didn’t buy it on the basis of the shape, either as source indicator or as an especially aesthetic shape, though it is pleasantly curved.)  S’well sells to consumers, retailers, and a custom program in which an imprint of a company’s name or logo is added to the bottle and the company then resells or gives away the bottles.

The S'ip and the S'well

ETS is a drinkware company that sells various water bottles, including ones that are “patterned after” retail brands. The Force Bottle is one of ETS’s most popular products and is shaped identically to the S’well Bottle. ETS operates in the “promotion products market” rather than the retail market, meaning it fulfills orders placed by intermediaries for custom-printed products and the intermediaries then sell those products to businesses that give them away as promotions, though ETS does sell Force Bottles directly to some retailers — including, at least, college bookstores and a coffee shop chain with locations throughout California. Some distributors also sell to retailers who sell Force Bottles to end-users either online or in retail stores.

The Force

The Swig

ETS’s argument against the distinctiveness of the S’well bottle was that consumers couldn’t possibly associate the bottle shape here at issue with any single source because so many different businesses manufacture similarly shaped bottles. Declarations from various ETS employees stated that they purchased S’well-like bottles from various stores and websites, providing pictures, descriptions, and receipts, and ETS identified 130 different sources of water bottles that had the same shape. There’s no numeric rule about how many other sources prevent distinctiveness.  “If, for example, one source has such a large market share and strong brand awareness that the public strongly associates its mark with that brand, consumers will likely assume that products bearing that mark are associated with that brand, regardless of the number of ‘knockoff’ manufacturers. The number of manufacturers is therefore a relevant, but not determinative factor.”  [NB: This reasoning, which I accept, puts the lie to trademark owners’ claims that they have to enforce their trademarks to the hilt to avoid losing them. As long as the trademark retains trademark significance, it’s not going to be a problem.]

S’well submitted “substantial evidence suggesting that the public in fact does associate this particular shape with S’well, including undisputed, significant levels of advertising expenditures, sales success, and unsolicited media coverage.” ETS salespeople in emails with distributors themselves referred to the Force Bottle as a “S’well knockoff,” a “swell like option,” “S’well-like,” and “the ones that look like Swell,” and online retailers advertised Force Bottles similarly.  “These comparisons would be meaningless if the audience did not associate the shape with the brand.”

Nor did ETS show functionality.  S’well submitted material to the PTO indicating that the S’well and S’ip contain “mouths” that are big enough for ice cubes but small enough for “drip-free sipping” and are located in the center of the bottle, so users never need to rotate the bottle to begin drinking. ETS also argued that the circular shape is the “strongest and the easiest to make,” and that the bottles’ “smooth tapering at a relatively shallow angle from the base to the mouth permits the bottles to be emptied completely with relatively minor tilts.” The alternative, straight sides with a sharp angle just before the mouth, creates “a ‘catch basin,’ so that the liquid in the bottle, rather than smoothly flowing out, is trapped in the depression where the angle changes until the bottle is tilted further, at which point it comes rushing out all at once, leading to spills and other dangers.” [As a certified spiller of things, I can testify to the truth of this.]  However, ETS didn’t submit evidence on its claims, and it wasn’t self-evident that they were true—for example, a rectangular shape might likely be easier to stack and ship. S’well’s founder also declared that she made several aesthetic choices when she designed the bottles that she knew would be more expensive.

ETS also offered no evidence suggesting that no other designs could have these same functional benefits; S’well hadn’t registered “all water bottles with gently sloping sides.” In fact, ETS’s argument that “both the S’ip and S’Well Bottles have ideal shapes, despite the two being shaped differently, suggests that these benefits may be available in other shapes as well.” Nor did ETS make arguments about the distinctive bottle cap, which is part of S’well’s trade dress.

Likely confusion: again, summary judgment was unavailable, given the evidence of distinctiveness/strength and the similarity of the parties’ products.  Though ETS argued that the products
were sold in separate markets to sophisticated consumers who would not confuse them, ETS submitted
no empirical research or data analysis. S’well submitted evidence of distributors specifically requesting “S’well Bottles” from ETS, which appeared to fill the orders with Force Bottles without correction. And 10-15% of S’well’s business was in the promotional market, while ETS sold directly to at least some retailers and some distributors, who then sell Force Bottles to retailers or directly to end-users online, so there was some market overlap.  In addition, post-sale confusion among end consumers was still possible.

And listen to this take on status goods: “Nor does it matter, as ETS argues, that the two bottles are of the same physical quality, particularly where, as here, there is evidence that they are not of the same expressive quality” (citing magazine article describing S’well Bottles as “suddenly a feverish must-be-associated-with-thing among a certain stylish, in-the-know set”). “The purchase of one product under the mistaken belief that it is another product is a prototypical harm against which the Lanham Act protects.”

There was also evidence of actual downstream confusion. “At least one retailer mislabeled Force Bottles as ‘Swell Bottles’ on its shelves, and several consumers have contacted S’well customer service in the mistaken belief that they had S’well Bottles, when in fact they had Force Bottles or, perhaps, similar bottles from other brands.” An internet survey indicated that 59% of S’well’s target demographic — female potential purchasers of stainless steel water bottles — associated the shape at issue with S’well, and calculated an overall net confusion rate of 26.6% between the S’well and Force Bottles.

ETS argued that it didn’t know about S’well before it decided to make the Force bottle, and learned about it only after researching the bottle shape requested by customers.  Given S’well’s success, that was a disputed issue, and anyway ETS learned of S’well before the Force bottle was actually produced.  Evidence also suggested that ETS “made changes to the Force Bottle for the express purpose of making it more similar to the S’well Bottle.”  ETS’s “Retail Brands Guide” compared its products to retail products, which was distributed to at least some customers.  A jury could find bad faith.

Under §§ 349 and 350 of the NY GBL, a plaintiff must show “that a defendant has engaged in (1) consumer-oriented conduct that is (2) materially misleading and that (3) plaintiff suffered injury as a result of the allegedly deceptive act or practice.”  Consumer-oriented conduct must threaten an injury “to the public interest over and above ordinary trademark infringement or dilution.”  However, the court rejected federal district court precedent that something like “potential danger to the public health or safety” is required, reasoning that the New York courts interpret these laws broadly. “New York courts distinguish not between minor economic harms and threats to public safety, but between disputes that are essentially between two parties, such as contract disputes, and “acts or practices [that] have a broader impact on consumers at large.”  However, the court still granted ETS’s motion for summary judgment on those claims, because S’well didn’t show a genuine dispute about whether Force bottles were inferior to S’well bottles. Though there had allegedly been complaints “from time to time” about customer misuse leading to leaks and the “imprint” on Force Bottles coming off, but even setting aside hearsay problems with this evidence, S’well might have shown that Force bottles weren’t perfect but did not show that its bottles were any better.

S’well also argued that ETS’s plastic Impact bottle was not made of stainless steel and argued that this would harm consumers, but S’well didn’t address the Impact bottle in its complaint, and anyway no reasonable consumer boying plastic Impact Bottles would think she was buying a stainless steel S’well Bottle, nor would she infer that S’well’s steel bottles were somehow worse simply because a plastic version existed.  She might think there was a link to S’well somehow, “but that consumer confusion is insufficiently consumer-oriented to state a claim under New York’s deceptive practices and false advertising statutes.”

False designation/unfair competition under federal and state law: S’well moved for summary judgment in its favor based on claims that ETS (1) misleadingly suggested to its customers that Force Bottles were a type of S’well Bottle, and (2) sold Force Bottles to customers who requested S’well Bottles without informing them of the difference. ETS argued that there was no relevant “use in commerce.”  The court disagreed with 1-800 Contacts, but Rescuecom didn’t overrule it, so there is still some “use in commerce” requirement for infringement.  The use of a mark in the sale of products, as opposed to services, where the mark isn’t attached to the product/associated with it physically, doesn’t fall within the §1127 definition of “use in commerce.”  The only “printed” version of the S’well mark was in ETS’s Retail Brands Guide, but that use was more like use “in the sale or advertising” of the product than it was to a sales display. Anyway, no reasonable juror could find that this guide could confuse a distributor into thinking that the Force Bottle was a version of the S’well Bottle, as it clearly stated that the two were simply similar, and the Guide had dozens of other retail brands along with their ETS analogues.

Because of 1-800 Contacts, “even if ETS employees actually provided Force Bottles to distributors seeking S’well Bottles without informing them, and even if ETS representatives really did suggest in emails to distributors that Force Bottles were a type of S’well Bottle, ETS nonetheless did not violate Section 43(a) of the Lanham Act because of an absence of applicable ‘use in commerce.’” This ended the Lanham Act claims, but the court didn’t belive that New York courts would impose a similar limit on common law unfair competition claims, which are “adaptable and capacious.”  “Palming off — that is, the sale of the goods of one manufacturer as those of another — was the first theory of unfair competition endorsed by New York courts, and has been extended to situations where the parties are not even in competition.”

Because ETS was allegedly using S’well’s exact mark, Polaroid analysis was not required; “[u]se of the exact same mark is inherently confusing.”  So the key question was how ETS employees had actually used the S’well name.  S’well identified multiple emails in which various distributors asked for “S’well” or “Swell” bottles and ETS employees didn’t clarify in those email threads that they only sold Force Bottles. In one email, a distributor requested S’well Bottles, and asked that ETS “try to get these exact brands and items!” Another email involved a new customer who asked for a quote and sample of S’well Bottles.

ETS rejoined that these requests were in fact for Force bottles, and “a lot of people call it just ‘the S’well shape.”’ ETSs CEO testified that “they “try” to train their sales staff to correct customers who ask for S’well Bottles, but repeat customers consistently respond that they know they are getting the Force Bottle and are just referring to the shape, sometimes growing frustrated by being corrected.”
Another employee similarly testified that repeat customers “get upset sometimes if you keep asking them to confirm what item they’re looking for,” saying things like, “’Dang it, Jen. You know what I’m looking for. Stop asking me. You know it’s the Force.”’  A reasonable juror could find either way.

S’well also argued that ETS told customers that its Force bottle was a version of the S’well bottle specific to the promotional products market. In one email chain, a distributor asked, “What is the retail brand that looks like this?” and the manager responds, “The S’well bottle is the retail version of this bottle.” The distributor’s question suggested that he understood the lack of affiliation, and that the Force just “looked like” the S’well; a reasonable juror could find that the employee meant only to convey the similarity.  Other email chains were similarly ambiguous.  Interestingly, the court indicated that the success of S’well’s claim would turn on “the credibility of the ETS witnesses regarding what they meant to communicate in these emails,” rather than the messages their interlocutors received; I would have gone the other way.

Beyond Belmora: foreign TM owner proceeds under Lanham Act and Inter-American Convention

S.A.S. v. Latinfood U.S. Corp., Civ. No. 16-6576, --- F.Supp.3d ----, 2017 WL 6940696 (D.N.J. Dec. 29, 2017)

Industria, a Colombian food corporation and Colombian owner of the Zenú and Ranchera marks, sued Latinfood, for reasons you can guess when you learn that they are doing business in the US as Zenú Products Co.  Applying Belmora, the court allows the various Lanham Act claims to proceed, and cites Christine Haight Farley’s work in also allowing claims under the Inter-American Convention for Trademark and Commercial Protection (IAC).  Copyright claims weren’t discussed in the motion to dismiss.

The Zenú mark “has been used for more than sixty years to identify meat, sausage, beans and other packaged food products in Colombia and elsewhere,” while the Ranchera mark “has been used extensively in Colombia and elsewhere for more than 25 years, and is among the most well-known trademarks for sausages and meat products.” Industria claimed fame across Latin America and alleged that people “residing in Colombia, individuals who have travelled to Colombia and individuals who have moved from Colombia to the United States are familiar with the [Zenú] and Ranchera trademarks and [Industria’s] food products sold under the [Zenú] and Ranchera marks.” (Id.)

Industria Ranchera

Part of Industria website

Industria’s Zenú products include “the [Zenú] mark in a red stylized font underlined by a brush-stroke type line against a white background.” Words indicating the type of food contained in the packaging are “often written diagonally underneath the [Zenú] mark.” Canned products an additional “thick colorful band at the bottom of the label where additional information such as the weight or quantity of the product is conveyed in white type.” Industria maintains a website “that is accessible by the public, including consumers in the United States, at”

Industria’s Ranchera mark is “always displayed in a red ‘western’ or ‘rancher-inspired’ font which is then outlined first in white and then in black.” It “curves slightly upward in the middle of the word.” A “rancher theme” is used across the Ranchera packaging.  

Industria has numerous relevant trademark registrations in Colombia, and an International Registration from 2014 from WIPO; it filed an application to extend the IR at the PTO in 2014.  Prior US registrations have lapsed.  In 2014, Industria also filed a 44(e) application for “ZENÚ (Stylized)” for various food products which was barred by Latinfood’s US-registered Zenú mark.  Industria also applied in the US for “RANCHERA (stylized)” for various meats, based on Sections 1(b) and 44(e), in 2016.

Latinfood allegedly began copying Industria’s marks around 2011.  Latinfood allegedly touted its possession of “ ‘an exclusive distribution and importing rights agreement for the tri-state area’ with a major product manufacturer in Colombia.” Latinfood allegedly uses the identical stylized logo and trade dress for Zenú, as well as its trade dress, and its website,, “closely mimics both the domain name and trade dress presented on [Industria]’s website,” The labels were also allegedly substantially similar to Industria’s copyrighted labels.  Indeed, Latinfood allegedly attempted to buy 400,000 Zenú labels from Industria’s own Zenú label provider in Medellin.

Latinfood website: note Ranchera listing 3d row left

Latinfood applied to register the Zenú mark for various meats in the US in 2013, claiming 2011 as its year of first use. Industria alleged that this was fraudulent and in bad faith, and that Latinfood’s claimed specimens were in fact Industria products. Latinfood’s Zenú registration has been cited by examiners under 2(d) in Office Actions blocking Industria’s applications, allegedly preventing it from offering its goods for sale in the US under the Zenú mark.  (It’s legal to sell stuff without registering the marks, but I see why there’s a problem.) In 2014, Industria began a cancellation proceeding before the TTAB, which is still pending.  (One suspects that Belmora played a role in encouraging Industria to move to litigation.) 

A similar story can be told for the Ranchera mark, though Latinfood’s application for registration was ultimately denied by the PTO because of a third-party registration. However, Latinfood is allegedly still selling products bearing the mark.

Industria further alleged that the Latinfood product labels falsely suggested affiliation with Industria’s business in Colombia, for example by identifying the company as “Zenu Products US Inc.” instead of Latinfood, suggesting that it’s a US-based Industria affiliate. The labels also include a “linea de exportation” designation, meaning “export line” in English, further implying “that Latinfood products are produced outside of the United States, much like [Industria]’s products from Colombia would be.” Latinfood products are allegedly often “featured in the import/foreign sections of the groceries in which they are sold and are sold alongside products from other Latin American companies.”  Latinfood sales representatives allegedly advised store owners that Latinfood has full rights to the distribution of ZENÚ- and RANCHERA-marked products, misleading them into believing that they’re dealing with Industria.  The suggestion that the products are imported was allegedly also false because a majority of the goods were manufactured and labeled in the US. 

In addition, was allegedly “confusingly similar” to Industria’s, and described Latinfood’s products as being part of “una deliciosa tradición,” suggesting an affiliation with Industria’s sixty year old brand.

Under Belmora, the Lanham Act claims were ok even though Industria didn’t allege its own use in commerce in the US of the Zenú and Ranchera marks.  Belmora wasn’t binding on this court, but the judge found its reasoning persuasive; there was no “use in commerce” requirement in §43(a), only the Lexmark requirement of standing to bring false advertising, trade dress infringement, and false association claims, which was sufficiently pled, even if it might ultimately be difficult to prove.  So too with the claims for cancellation of Latinfood’s registered mark for fraud.  Industria sufficiently alleged that Latinfood’s sale of allegedly “sub-par and noninspected products” harmed Industria by altering consumers’ estimation of products using the mark and damaging its reputation.  Proximate cause was sufficiently alleged by allegations that Latinfood targeted Colombians and other consumers familiar with Industria’s mark, damaged Industria’s goodwill by selling subpar/different products, and foreclosed Industria’s registration and use of the Zenú mark in the United States.

Separately, the court specifically rejected any attempt to impose any more rigorous pleading standard on a Lanham Act false advertising claim than Iqbal/Twombly requires.  A 1985 case in the Third Circuit was probably no longer good law.  But regardless of the standard, Industria satisfied it. Industria’s allegations about Latinfood’s use of “Zenu Products US Inc.,” its use of, its labeling of its products as imported and representations to have an exclusive distribution and importing rights agreement with a major product manufacturer from Colombia, and its allegedly false importation labels for food from manufacturers in the United States sufficed to state a claim.

The court also held that the IAC creates private rights of action.  Though there is a presumption that treaties, even those labeled as “self-executing,” do not create private rights, the Supreme Court has already held that the IAC is self-executing, and the court proceeded to examine the terms of the treaty itself, which “was the culmination of the efforts of many years to secure the cooperation of the American States in uniform trade mark protection.”  Beneficiaries under the Convention are defined as (1) nationals of contracting states, and (2) domiciled foreigners who own a manufacturing or commercial establishment or an agricultural development in any of the contracting states. The language of the IAC strongly supported the conclusion that it was intended to create private rights to those benefited parties.  Even if knowledge of the other mark were a required element under the IAC, which was not supported by any authority, Industria sufficiently alleged such knowledge.

Latinfood also made a number of arguments about the interplay between the IAC and Section 44 of the Lanham Act.  In particular, the last clause in Article 7 of the IAC says “the opposer may claim for himself the preferential right to use such mark in the country where the opposition is made or priority to register or deposit it in such country, upon compliance with the requirements established by the domestic legislation in such country and by this Convention” (emphasis added).  Latinfood argued that Industria couldn’t bring an Article 7 claim because it didn’t comply with §44(b) and (d).  However, international treaties “may grant rights broader than those granted by domestic law, including the Lanham Act. Contrariwise, Section 44(d) is not the only potentially applicable section of the Lanham Act.”  In addition, Section 44(h) of the Lanham Act limited remedies to those “appropriate in repressing acts of unfair competition,” and Latinfood argued that Industria’s claims didn’t fall within Chapter IV of the IAC, which is the Chapter devoted to “Repression of Unfair Competition.” “The resolution of these Section 44 issues will depend on the development of the facts and the precise contours of the overlapping (or not overlapping) claims under U.S. law and the treaty. This case is going forward in any event. These may turn out to be redundant claims, alternative claims, or supplementary claims; it simply is not clear at present.” 

Another IP plaintiff fails to show irreparable harm (false advertising/trade secret)

Impax Media Inc. v. Northeast Advertising Corp., No. 17 Civ. 8272, 2018 WL 358284 (S.D.N.Y. Jan. 10, 2018)

Impax, which provides digital video screens that show ads (mostly in supermarkets), sought to enjoin defendants (AdCorp) from competing with Impax by installing or contracting to install new digital signage platforms at supermarket checkout counters during the term of the parties’ Commission Sales Agreement in the northeastern United States and Washington D.C. AdCorp pays supermarkets and other venues to permit the installation of digital and print advertising platforms.  

Impax initially talked to AdCorp about providing services in the northeast, especially for introductions to supermarkets with which AdCorp had relationships, including Wakefern, a large grocery store cooperative.  AdCorp told Impax that AdCorp would pitch Wakefern on Impax, but then Wakefern terminated its discussions with Impax, and Impax learned that Wakefern had entered into an agreement to have AdCorp install AdCorp’s own digital signage. AdCorp then told Impax that it would limit digital media screen sales going forward, focus on print advertising, and would continue to serve as Impax’s exclusive agent for the sale of local advertising.   The parties then executed a Commission Sales Agreement granting AdCorp an exclusive right to sell ads on Impax’s behalf in the relevant territory for 3 years.  AdCorp promised to use its best efforts to sell ads, in return for a commission.  The agreement also covered Impax’s trade secrets.  Before the agreement was signed, the phrase that Adcorp “may not sell Advertising under his own or any other name” was removed, and a statement that AdCorp was “mandated” to sell 15-second ads was changed to “allowed.” An addendum allowed Impax to sell local ads in the territory.  In 2017, Impax began to develop a relationship with Foodtown, a large supermarket cooperative, then found that Foodtown had decided to install AdCorp digital screens at its checkout counters.

Impax sued for false advertising and related claims.  The court addressed only the issue of irreparable harm, finding it wanting. Impax argued that it “faces the very real possibility of losing the benefit of two years of hard work developing its product and its market opportunity and being driven out of this market altogether.”  Impax argued that it had identified “strategic gaps and opportunities in the U.S. market for digital signage and advertising at supermarkets,” and AdCorp’s alleged misappropriation of its information would keep it from effectively marketing its own platform, losing out on incalculable future profits.

However, Impax didn’t show evidence of potential clients with whom Impax was currently contracted, in talks with, or even planning to negotiate, and the sum of whose potential business revenue was incalculable. Impax’s claim was “even more speculative because of [its] own admission that its digital platform program is in its ‘infancy.’” It was speculative to claim, without more evidence, that Impax would have to drop out of the market.  The misappropriation also didn’t threaten irreparable harm because AdCorp wasn’t threatening to disseminate Impax’s trade secrets, only to use them; no presumption of irreparable harm was warranted because “damages will often provide a complete remedy for such an injury.”

Industria de Alimentos Zenú 

Thursday, January 11, 2018

There's only one master of The Commodores: the group itself

Commodores Entertainment Corp. v. McClary, 2018 WL 327302, No. 16-15794 (11th Cir. Jan. 9, 2018)

McClary was an original member of the award-winning Commodores, but, by his own admission, he “split from the band” in 1984 to strike out on his own in the world of music. He later formed a musical group that performed as “The 2014 Commodores” and “The Commodores Featuring Thomas McClary.” CEC, a corporation run by two original Commodores who remain active with the group, found out about McClary’s group, sued for trademark infringement, trademark dilution, passing off, false advertising, and unfair competition. The court of appeals affirmed a permanent injunction against McClary, who left behind his common-law rights to the marks when he left the band.

The original members of the Commodores “are generally regarded as William King, Ronald LaPread, Thomas McClary, Walter Orange, Lionel Richie, and Milan Williams,” who formed a general partnership with their manager in 1978. The agreement said: “Upon the death or withdrawal of less than a majority of the Partners, the remaining majority of the Partners shall continue to have the right to use the name THE COMMODORES for any purpose.”  Its agreement with Motown Records also restricted use of the name: band members could perform as “sidemen” for other artists and groups, but “in no event” could they use the name “Commodores” in connection with that engagement.  Richie left the group and the manager passed away.  A revised 1984 agreement stated: “Upon the death or withdrawal of less than a majority of the Partners, the remaining majority of the Partners shall continue to have the right to use the Group Name for any purpose.”  Later that year, McClary “split from the band” to pursue his own solo career. J.D. Nicholas joined the group, while LaPread and Williams departed from the group, leaving King and Orange as the only remaining original members. At some point, King and Orange transferred their common-law trademark rights in The Commodores’ name and logo to plaintiff CEC, which registered four COMMODORES trademarks in 2001.

In 2009, McClary performed with Richie and LaPread at the Superdome in New Orleans. McClary’s wife sent an email advertising the show as a Commodores reunion, and CEC objected. In 2010, McClary was asked to fill in as a guitar player when The Commodores’ regular guitar player became ill. McClary appeared with The Commodores two or three times and signed autographs with The Commodores’ members. In 2013, McClary formed the group “Commodores Featuring Thomas McClary.” His group began performing under the names “Commodores Featuring Thomas McClary” and “The 2014 Commodores,” and he scheduled a performance at a New York venue on July 6, 2014. On June 5, 2014, a friend called King to ask about the performance, thinking that it was an official Commodores show. King and Orange’s manager contacted the executive director of the venue, who said he thought he had booked the Grammy Award–winning Commodores—not a tribute or cover band featuring a former member.  (McClary had no involvement in the single that won the Grammy.)  A few days later, McClary’s wife sent a C&D claiming that McClary’s band name constituted fair use and asserted that CEC was interfering with McClary’s ongoing business relationships.

The district court enjoined McClary from “using any of the Marks at issue in a manner other than fair use, including performing under the name ‘The Commodores featuring Thomas McClary’ or ‘The 2014 Commodores’ ” based on the trademark infringement claim. The district court clarified that the injunction covered upcoming extraterritorial performances in the United Kingdom and Switzerland because use of the marks overseas would have a substantial and negative impact on CEC.

The court of appeals agreed with the district court that McClary walked away from his common law rights to the marks when he left the band in 1984.  Those rights remained with the group, then were validly assigned to CEC.

McClary offered the testimony of an attorney, Wolfe, on the validity and value of the marks, the goodwill associated with the marks, the validity of the assignment to CEC, the difference between statutory and common-law trademarks, and whether CEC breached duties owed to its shareholders.  After reviewing Wolfe’s report and hearing his testimony outside the presence of the jury, the district court excluded the testimony entirely, and the court of appeals found no abuse of discretion.  Wolfe’s expert was “replete with legal opinion,” offering the legal view that the original members “owned the underlying marks jointly as tenants in common, owning an undivided interest in the totality of the partnership assets” and similar legal conclusions, invading the court’s exclusive prerogative to determine the law.  His proposed trial testimony was no better: he said, inter alia, that a hiatus from a band is not enough to relinquish ownership in the band; and that “[t]here are multiple ways in which an owner of a mark can continue to participate and exploit that mark even though they may not be standing up on stage and performing.”  Opinions on music industry customs and norms weren’t offered in his expert report and he was also properly excluded from discussing those topics.  Although an attorney was allowed to testify for CEC, he was offered as a fact witness who testified about McClary’s interactions with the group, the letter he received from McClary, and whether any group member had formally voided his shares in the corporation.

There were no contested facts that would lead a reasonable juror to say that McClary should properly be termed the legal owner of the trademarks and allowed to use them to identify the source of his separate services.  The court of appeals found two distinct but reinforcing reasons for this: “First, the common-law trademark rights were initially jointly owned, could not be divided for simultaneous use by multiple independent parties, and remained in the group continually known as ‘The Commodores.’” Second, the parties’ various contractual agreements “confirm the group members contemplated that the marks were to be jointly but not severally owned and, in addition, that a member leaving the group would cease using the group’s name as an identifier.”

The court of appeals reasoned that, once trademark meaning was established, the original group, including McClary, had common-law rights to the marks.  But ownership was joint—leaving was like dying in a joint tenancy; McClary carried no rights with him when he left. “[O]wnership of the marks began in, remained in, and could not be divided from the group, as opposed to its individual members.” King and Orange were the only original members of “The Commodores” who maintained continuity with the performing group since McClary’s departure, and that group continued to perform as “The Commodores” in the years after he left.  McClary lacked control over that group.  Though he performed with The Commodores in 2010, there was no evidence that at he was being invited to rejoin the group as a permanent or otherwise ongoing member; instead he performed “with The Commodores.” “Even if the evidence could support a finding that McClary rejoined the group—and in no way does it afford that inference—it could not support the conclusion that McClary should be able to use the group’s name while performing separately from the group.”  Collecting royalties didn’t indicate that McClary retained rights to the marks, because he only collected royalties for the songs he wrote with the band before his departure; if anything, that temporal distinction supported the contention that he no longer had rights in the marks.

Even if McClary never formally left the partnership, none of the relevant agreements allowed him the right to use the marks in connection with his own musical performances.  That isn’t meant to diminish his contribution or that of other founding members.  Lionel Richie said that he would “always be a Commodore,” but when asked if he “identif[ied] with being in the group now,” he said he didn’t. “While an individual might identify with a name, he still might not have the right to use that name to identify himself in commerce.”

McClary argued that the injunction was overbroad because it prevented him from “hold[ing] himself and his music out to the public in an historically accurate way.” But CEC didn’t object to McClary billing himself as “Thomas McClary, founder of The Commodores” and other fair uses.  They objected to names like “The 2014 Commodores” or “The Commodores featuring Thomas McClary.” Thus, McClary “could either perform under a different band name without causing any confusion, or, to uphold his notoriety as a Commodore, he could make fair use of the Marks.”  The court of appeals declined to further enumerate which fair uses would be appropriate; that would be an advisory opinion.

Nor was the injunction overbroad because of its extraterritorial reach. The parties were citizens of the US; McClary’s booking agent operated from the US; and “use of the marks extraterritorially w[ould] have an effect on CEC, a United States corporation.” And “given the actual confusion that was experienced in the United States in connection with the New York performance, it is likely that McClary’s use of the marks abroad would create confusion both abroad and in the United States.” Though this was a closer question, there was no interference with the sovereignty of other countries because McClary didn’t have final approval for registrations in other countries, even though McClary’s corporation filed for a CTM in the EU, and OHIM denied CEC’s opposition. CEC appealed the denial of its opposition, so the opposition hadn’t yet been “rejected by a definitive decision,” and no CTM had yet issued.

McClary also argued the federal registrations of the marks were fraudulent and defective. But this had no relevance to the common-law rights to the marks. And it was wrong anyway: McClary’s claims of fraud failed for want of any evidence that CEC knowingly made false representations of fact; his burden was to show fraud by clear and convincing evidence.  Nor did challenges to the stated dates of first use and first use in commerce matter. “A misstatement of the date of first use in the application is not fatal to the securing of a valid registration as long as there has been valid use of the mark prior to the filing date.”

Finally, McClary’s laches defense failed. He claimed to have used the marks with CEC’s knowledge since 1984, but offered no facts or details about any use between 1984 and 2010.  In May 2009, when McClary’s wife sent a blast email advertising a Commodores reunion, CEC promptly sent a C&D to which McClary never responded. When CEC learned about of McClary’s “The 2014 Commodores” or “The Commodores Featuring Thomas McClary,” CEC promptly filed suit two months later. Moreover, McClary didn’t show prejudice from any delay. 

"I'm your lawyer" might be false advertising when lawyer's firm won't do the work

Rosenbaum & Assoc., P.C. v. Morgan & Morgan, 2018 WL 327167, No. 17-4250 (E.D. Pa. Jan. 8, 2018)

A Philadelphia personal injury law firm that advertises extensively on TV and billboards alleged that a national personal injury law firm’s expansion into Philadelphia caused it to lose potential personal injury clients through TV and billboard ads when the national law firm didn’t, and never intends to, represent Pennsylvania personal injury clients. Instead, it allegedly referred all or a vast majority of potential local clients to other law firms in exchange for a referral fee if the client eventually recovers.  The court allowed plaintiffs to proceed against the national firm, its managing global partner and (for one statement) the national firm’s senior partner for four possibly false, deceptive or misleading statements in TV commercials.   In one TV ad, John Morgan, a founding Morgan & Morgan attorney, states “I’m not just any lawyer, I’m your lawyer,” though he’s not licensed in Pennsylvania.  Another ad says “we’re all here for you,” and, “our family is here for your family.” In addition, an ad says “you don’t pay us unless we’re successful.” Although this is true, Rosenbaum argued that it could be deceptive because it suggests Morgan & Morgan needs to be successful when, in fact, Morgan & Morgan has no role in the success.  Ads used to include a written disclaimer claiming not to be “a referral service.” After the lawsuit was filed, Morgan & Morgan revised this disclaimer to remove that statement and add “Cases may be referred to and handled by another law firm as co-counsel.”

The complaint stated a plausible claim that “I’m your lawyer” was misleading or literally false because it could deceive Pennsylvania consumers into believing John Morgan would personally represent then when in reality he wouldn’t represent, and arguably couldn’t represent, them in a Pennsylvania personal injury matter. Unidentified members of the Morgan family also appeared in a television ad and a voice states “We’re all here for you” and “Our family is here for your family.” This also plausibly stated a claim for misleading or literally false advertisingbecause Morgan & Morgan didn’t employ attorneys licensed to practice in Pennsylvania and the members of the Morgan family appearing in the advertisement allegedly weren’t licensed to practice in Pennsylvania and didn’t intend to ever represent clients in the Philadelphia area.

“You don’t pay us unless we’re successful”: Similarly, this could be misleading or literally false insofar as Morgan & Morgan would never represent the clients in the Philadelphia area, meaning a client could never owe fees to Morgan & Morgan because Morgan & Morgan could never be successful. [This seems to be necessary implication: the necessary implication of "unless" is that "we might be successful" and further "it will be 'we' representing you."] “Not a referral service” and the revised disclaimer “may be referred to and handled by another firm as co-counsel”: Morgan & Morgan argued Rosenbaum couldn’t claim to be a “referral service” without implicating Pennsylvania Rule of Professional Conduct 7.2(k), but there’s an absence of authority defining referral service. The comments to Rule 7.2 (k) say that it’s “misleading to the public for a lawyer or law firm, with knowledge that the lawyer or law firm will not be handling a majority of the cases attracted by advertising, to nonetheless advertise for those cases only to refer the cases to another lawyer whom the client did not initially contact.”  Because this question “involves both a fact investigation of the extent of these referrals as opposed to retained matters and eventually a determination of whether telling potential clients of your interest in being their lawyer when, in fact, you do not intend to be their lawyer is unfair competition,” it couldn’t be resolved at the motion to dismiss stage.

Rosenbaum also pled a claim against individual attorneys who allegedly “authorized and approved the acts of unfair competition,” and as to which he alleged “some specific role in the statements which equate to unfair competition,” whereas merely being a senior officer of the advertiser wasn’t enough.  Being a spokesperson in the ad, unsurprisingly, was enough.  So was the allegation that the global managing partner “approved” and “authorized” the advertisements to be shown in the Philadelphia area.  Other named defendants, however, weren’t sufficiently alleged to be personally involved, even if they were Morgan family members who appeared in an ad; the “family” statements were made by voiceover and it wasn’t clear who said it.  Appearing in a commercial where an alleged misrepresentation is also stated “without more detail is not sufficient to show they ‘actively participated in or personally directed or actively supervised or approved of or sanctioned’” the allegedly false ads.

Monday, January 08, 2018

Finding of willful infringement still doesn't merit injunction under Herb Reed

A.C.T. Prods., Inc. v. W.S. Indus., Inc., No. 16-0476, 2017 WL 4708152 (C.D. Cal. Jul. 14, 2017)

Herb Reed strikes again.  The jury found that defendant had engaged in willful trademark infringement and false advertising, but also that the four-year statute of limitations had run. The court found that there was sufficient evidence before the jury to so hold, because of evidence that the defendant was infringing before the limitations period by being willfully blind to infringement: it was aware that it was buying the products at issue from a manufacturer that did not own the mark.

The plaintiff argued that the jury’s findings were irreconcilably inconsistent, but that wasn’t the case. It was possible to reconcile the jury’s conclusion as to liability with the factual finding establishing the affirmative defense because there was evidence that willful infringement and advertising occurred only from 2010 to 2011.  Once the jury found that the plaintiff knew before the relevant timeframe, the court could conform the determination of liability to the factual finding.

In addition, a permanent injunction was unwarranted, because the plaintiff didn’t show irreparable injury.   The plaintiff argued that the infringement (1) damaged its reputation and goodwill because its witness testified during trial that its customers called to complain about the defendant’s inferior goods that they thought were manufactured by the plaintiff; and (2) caused the loss of business opportunities because the parties competed.  Economic injury won’t suffice to show irreparable harm, but intangible injury like loss of customers or damage to a party’s goodwill can do so, as can lost control over a business.  Here, the allegations of harm to business, goodwill, and reputation were in the past tense, and there was no evidence of continued infringement or an inclination to restart, nor any evidence of continuing customer complaints, making continuing reputational harm speculative. The jury’s finding of the affirmative defense of statute of limitations also weighed against an injunction. 

"pregnancy center" wasn't commercial speaker and couldn't be forced to disclose anti-abortion stance via mandatory label

Greater Baltimore Center for Pregnancy Concerns, Inc. v. Mayor of Baltimore, 2018 WL 298142 (4th Cir. Jan. 5, 2018)

The court of appeals affirmed the invalidation of an ordinance requiring pregnancy clinics that do not offer or refer for abortions to disclose that fact through signs posted in their waiting rooms: “The City has considerable latitude in regulating public health and deceptive advertising. But Baltimore’s chosen means here are too loose a fit with those ends, and in this case compel a politically and religiously motivated group to convey a message fundamentally at odds with its core beliefs and mission.”

As applied to the Center at issue, the ordinance didn’t regulate commercial speech.  Its speech didn’t propose a commercial transaction, certainly not “in the waiting room where the disclaimer would appear. Even if pregnancy-related services are discussed there, the Center collects no remuneration of any kind, including referral fees from physicians. A morally and religiously motivated offering of free services cannot be described as a bare ‘commercial transaction.’” The fact that the Center advertised its services, some of which had commercial value in other context, didn’t itself transform the Center’s ideological and religious advocacy into commercial activity.  This distinguished the ordinance from the application of general false advertising laws to actual advertising by similar clinics; the ordinance applied to pregnancy centers regardless of whether they advertised at all. The record didn’t show that the Center had an economic motivation for its speech; even if its fundraising depended on the ability to attract clients, speculation about that fact, without more, was too attenuated to be an economic motivation.

The court of appeals also rejected the attempt to defend the ordinance as a regulation of professional speech.  Professional speech regulations are subject to sliding-scale review, depending on where the speech is placed on the continuum from public dialogue on one end to regulation of professional conduct on the other.  This review “applies to traditional occupations, such as medicine or accounting, which are subject to comprehensive state licensing, accreditation, or disciplinary schemes,” and at its core is when “the speaker is providing personalized advice in a private setting to a paying client.”

The Center wasn’t like that.  Maryland doesn’t require pregnancy centers to be licensed or otherwise subject to a state regulatory scheme.There was no medical or professional board that certified the Center’s employees, nor any disciplinary panel that regulates their conduct. The Center had a volunteer “medical director” who was a licensed physician, but she was “very rarely” on site and didn’t meet directly with clients. Thus, no one in the Center practiced a “profession” “in the traditional sense contemplated by our First Amendment jurisprudence.” Although the Center “provid[es] personalized advice in a private setting,” its clients weren’t paying.  [I take it that the court of appeals isn’t saying that pro bono medical/legal services couldn’t be regulated by professional licensing bodies—but now how do we decide what is unauthorized practice of law/medicine in individual consultations?]

In a footnote, the court of appeals distinguished the Ninth Circuit’s decision in Harris, 839 F.3d 823, cert. granted, No. 16-1140 (U.S. Nov. 13, 2017). That law, which was upheld by the Ninth Circuit, required only licensed clinics to post a notice informing women of the availability of state-sponsored services, including abortion, and a phone number to call for more information.  That disclaimer was “markedly” different in who it covered, and thus in the scrutiny that it received, as well as in content.  Unlicensed clinics simply had to post a notice stating that their facilities weren’t licensed by the state; because that compelled speech didn’t mention abortion, “the burden on the speaker—and therefore the First Amendment analysis—was different in kind.”

Anyway, because of this noncommercial/nonprofessional context, the disclosure requirement was subject to strict scrutiny, and failed. Although the compelled speech was “essentially factual,” that didn’t “divorce the speech from its moral or ideological implications.” Here, the compelled speech was particularly troubling because “the disclaimer portrays abortion as one among a menu of morally equivalent choices. … The message conveyed is antithetical to the very moral, religious, and ideological reasons the Center exists.”  [Of course, this reasoning will not regularly be applied to mandatory disclosures of facts/non-facts by clinics that provide abortion services, because abortion doesn’t get ordinary First Amendment treatment.]  The court of appeals cautioned that the Center’s anti-choice mission gave it “no license at all to lie to women, … [b]ut it does provide some latitude in how to broach a sensitive topic.”  

Baltimore’s interests in fighting deceptive advertising and preventing the health risks that can accompany delays in abortions were “plainly important.” However, the court of appeals agreed with the district court that “there is insufficient evidence to demonstrate that deception actually takes place and that health harms are in fact being caused by delays resulting from deceptive advertising.”  After seven years, Baltimore didn’t identify “a single example of a woman who entered the Greater Baltimore Center’s waiting room under the misimpression that she could obtain an abortion there.” [Note the implicit suggestion that the evidence must be about the particular entity at issue.  Query whether the same logic could be applied against a clinic just starting up?  What about against the FTC’s Franchise Rules, which require a lot of disclosures based on experience with franchises in general?  Commercial speech doctrine presently should distinguish that last example, though rumblings from the DC Circuit suggest otherwise.  My own opinion is that one could coherently say “generalization from a record of bad behavior within this field is allowed where the speech is commercial, but must be individualized where the speech is noncommercial.”]

Plus, Baltimore wasn’t using the most narrow means:

It is scrutiny of means that helps identify the point on the spectrum where valid disclosures slip silently into the realm of impermissible compelled speech. Particularly troubling in this regard is (1) that the ordinance applies solely to speakers who talk about pregnancy-related services but not to speakers on any other topic; and (2) that the ordinance compels speech from pro-life pregnancy centers, but not other pregnancy clinics that offer or refer for abortion.

Thus, the regulation was neither content nor viewpoint neutral.  [Compare: the Franchise Rules apply solely to speakers who offer franchises, but not speakers on any other topic, and the ordinance compels speech from franchisors, but not other businesses that refuse to franchise/sell things that aren’t franchises.  Without commercial speech doctrine, these are the same situations, and it seems that only generic fraud law would be constitutional, even if there are specific industries in which prophylactic and information-providing measures would be helpful.]

The court of appeals was also unpersuaded that less restrictive means were unavailable. The government itself could inform citizens about the scope of services offered at various facilities “through a public advertising campaign,” and it could enforce laws against misleading advertising. More fundamentally, there was “only a loose fit between the compelled disclosure at issue and the purported ills identified by the government.”  If the problems are deceptive advertising and consequent delays in abortion services. In that respect the ordinance is quite overinclusive, it’s overinclusive to apply to pregnancy centers “without regard to whether their advertising is misleading, or indeed whether they advertise at all.”

In what one might read on commentary on present matters beyond abortion, the court of appeals concluded, “[w]eaponizing the means of government against ideological foes risks a grave violation of one of our nation’s dearest principles: ‘that no official, high or petty, can prescribe what shall be orthodox in politics, nationalism, religion, or other matters of opinion or force citizens to confess by word or act their faith therein.’” 

Friday, December 29, 2017

Natural/organic cigarette claims might be deceptive (with bonus First Amendment talk)

In re Santa Fe Natural Tobacco Co. Mkting & Sales Practices & Prods. Liab. Litig., 2017 WL 6550897, No. MD 16-2695 (D.N.M. Dec. 21, 2017)

Lots of claims here against Natural American Cigarettes. Ultimately, the court allows consumer protection claims to proceed against the use of the terms “natural,” “organic,” and “additive-free” for cigarettes, on the theories that they could mislead a reasonable consumer into believing that the cigarettes were healthier or safer than other cigarettes, because decades of marketing have equated those terms with healthy products; and that the menthol cigarettes had no additives, because menthol is a substance that a reasonable consumer would not know much about; the court rejected a deception theory based on the processing of the cigarettes.  In the process, it rejected some First Amendment defenses.

Natural American advertisements from 2013 through 2015 included images of water and plants, along with statements like: “When you work with the best materials, you don’t need to add anything else. That’s why we use only tobacco and water. We stick with premium quality, whole leaf natural tobacco that’s 100% additive-free for a very simple reason -- it’s all we need.” Ads also stated in large bold writing, “100% ADDITIVE-FREE NATURAL TOBACCO,” and included, in smaller writing, “No additives in our tobacco does NOT mean a safer cigarette.” Natural American cigarettes are the most expensive major brand of cigarette; despite this sales increased eighty-six percent from 2009 through 2014, while cigarette sales in the US declined overall by seventeen percent. Its market share more than doubled, increasing over twenty-one percent between 2014 and 2015 alone. 

Numerous studies have examined the popularity and consumer perceptions of cigarettes branded as “natural,” and in 2015 the FDA sent a letter to Santa Fe Tobacco asserting that some of its labeling practices “explicitly and/or implicitly” represent that Natural American cigarettes pose less of a risk than other tobacco products. Santa Fe Tobacco had previously entered into a Consent Order with the FTC regarding its advertising practices, requiring the display of the disclaimer: “No additives in our tobacco does NOT mean a safer cigarette” “[i]n the same style and type size as that required for health warnings for tobacco cigarettes.” A later “Assurance of Voluntary Compliance” added, for organic products, “Organic tobacco does NOT mean a safer cigarette.”

Nobody contends that Natural American cigarettes are in any way safer than other cigarettes. Santa Fe Tobacco also adds menthol to certain varieties; the cigarettes are also “flue-cured,” meaning processed with heat to secure the sugars, which synthetically lowers the cigarette smoke’s pH and makes it easier to inhale. The tobacco is allegedly artificially blended and modified, much like other cigarettes in the industry.

The court applied the reasonable consumer standard to the consumer protection laws of fourteen states.  Defendants argued that it was implausible for consumers to expect a safer cigarette, because a reasonable consumer would read the disclaimer stating that “no additives does NOT mean a safer cigarette.” Likewise, they argued that a reasonable consumer knows that menthol cigarettes contain menthol, so would understand that the no-additive term didn’t cover menthol. Finally, they argued that a reasonable consumer would know that Natural American cigarettes are subjected to engineering processes.

The first theory (safer cigarettes) survived.  The court didn’t rely on the plaintiffs’ submitted studies, though one concluded that “[n]early 1 million US adult smokers prefer” Natural American cigarettes and they “are 22 times more likely than other smokers to believe that their brand is less harmful than other cigarette brands,” leading the study authors to conclude that Natural American smokers may choose that brand because of the “descriptors organic, natural, and additive free on product packaging and advertising.” “As surely as a Ph.D. cannot be swapped for an Article III commission, an academic study cannot take the place of the Court’s judgment on a rule 12(b)(6) motion.” Maybe all of the consumers studied were unreasonable consumers, and “the subjective beliefs of the consumers studied, even if those consumers are generally reasonable, cannot blindly be swapped for the reasonable consumer’s beliefs.” (What does that even mean?  If a substantial number of reasonable consumers receive a message, that message is conveyed to a substantial number of reasonable consumers—and if a substantial number of consumers receive a message, that’s good evidence that it’s reasonable for them to receive it.  Substituting one’s own judgment about what consumers should do, when confronted with evidence of what they actually do, is dangerous business.)

Still, the allegations made the safer cigarette theory plausible. “The terms natural and organic have long been used across the country to convey products’ health benefits” (citing, inter alia, a court relying on its own “common sense,” so I guess an Article III commission can indeed be swapped for a Ph.D. in some circumstances). Likewise, additives “have also long been known to or believed to potentially increase health risks.” Under these circumstances, “the reasonable consumer is not expected to defy decades of marketing, which has conveyed that natural, organic, and additive-free products are healthier.” Similarly, the FDA and the FTC both determined that the defendants’ descriptors conveyed a message that their cigarettes were less harmful than other cigarettes.

The defendants didn’t fight this conclusion, but argued that the disclaimer cured any deception.  The plaintiffs responded that the disclaimer was hidden from consumers and unhelpful.  However, the disclosure wasn’t buried in an ingredients list, and, “unlike an ambiguous ingredient term, the disclosure is a clear statement that ‘no additives does NOT mean a safer cigarette.’” A reasonable consumer would look on the packages’ sides and top for this type of disclosure, since product packaging commonly has additional information about the product on the back and sides.  Even though a reasonable consumer isn’t expected to understand every piece of information disclosed on a package’s sides, there was no ambiguity here.  The court partially agreed with plaintiffs that the disclosure was hidden: though representative packages in the record contained legible disclaimers, in appropriate colors, not buried in other text, cigarettes are often sold in a way that prevents consumers from inspecting the packaging in detail before purchase. However, reasonable consumers wouldn’t miss the disclosures on the ads—in the ads, the disclaimer was in a prominent location boxed over the Surgeon General’s Warning.

Despite that, the disclaimer only addressed the lack of additives; it said nothing about “natural” or “organic,” which independently connoted health/safety. The defendants argued that “the disclosure plainly disclaims any notion that Natural American cigarettes are safer than alternatives,” but that asked for “a hefty inference in light of the disclosure’s specificity…. Specific language communicates a specific meaning and a reasonable consumer interprets it with that specific meaning.”

“Additive-free” on menthol cigarettes also plausibly misled a reasonable consumer. Defendants’ contrary argument assumed “that a reasonable consumer is so secure in her knowledge that menthol is an additive that an express representation to the contrary, on a heavily regulated product, does not mislead her.”  But the evidence indicated that “[m]enthol’s properties are not commonly known, even among cigarette users.” Before this case, the judge didn’t know much about menthol, including whether it was a natural substance or additive.  It was plausible that consumers wouldn’t know whether it naturally occurred in tobacco, especially given that many goods have “naturally occurring qualities that are prominently labeled separately on the good,” such as caffeine. Even if a reasonable consumer knew that menthol was an additive, it was still plausible that an additive-free descriptor “undermine[d] her knowledge,” because menthol is an uncommon substance, compared to products such as almond milk (with no dairy milk) and veggie bacon (no pork). Menthol’s inherent qualities weren’t well known; faced with defendants’ descriptors, a reasonable consumer could conclude that menthol is a type of tobacco or tobacco grown in a specific location. 

Nor did the ingredient list on the back, which listed menthol separately, dispel the deception, because the package lacked an unambiguous signal (like the FTC-mandated disclosure) that the ingredients list contradicted another representation on the package.  “[T]he reasonable consumer is not hyper-vigilant and does not expect the product’s packaging to deceive her.” Moreover, a reasonable consumer could conclude that there was no contradiction in the ingredients list: she might presume that the FDA requires separate labeling of menthol.  “Moreover, faced with conflicting representations, one clear and the other ambiguous, the reasonable consumer follows the clear one.”

However, “natural” didn’t plausibly mislead a reasonable consumer into believing that Natural American tobacco was less processed than tobacco in other cigarettes.  “Natural” has many meanings, dependent on context, and a reasonable consumer “comes to the market with a degree of background knowledge,” here that “tobacco undergoes engineering processes before it is sold in cigarettes. Such awareness is clear from visually comparing a tobacco leaf to a cigarette.” “Natural” wasn’t enough to undermine that knowledge or suggest that the tobacco went through less processing than other cigarettes’ tobacco. Also, since it modified “tobacco,” the natural descriptor “says little, if anything, about the engineering processes; it says something about the type of tobacco.”

Finally, on trademarks: the use in the brand name Natural American Spirit would “carry less persuasive impact on a reasonable consumer than other product labeling.  The underlying rationale is that reasonable consumers know that brand names are often creative and that substantive information about the product is less likely to be located there.”  I love how well courts understand the psychology of ordinary consumers without needing evidence other than citing other courts.  (I don't.)

The defendants argued that the First Amendment precluded liability.   First, as to plaintiffs’ contract-related claims, consensual contractual relations didn’t count as state action (nor did court enforcement thereof) and couldn’t trigger First Amendment scrutiny.  Although Shelley v. Kraemer “held that court enforcement of an agreement between private parties can, in some circumstances, be considered governmental action,” that’s been limited to the context of racial discrimination.  The basic rule is that “state action exists if the dispute is tort-related or if the rights arise from a state statute, but does not exist if the dispute arises from a contractual relationship or involves common-law property rights, unless a non-judicial state actor is involved or if racial discrimination is implicated.”  [If you want a way to make Shelley seem less weird, Carol Rose has a great explanation of why enforcing some contracts implicates the state in unconstitutional positions, e.g., that racial discrimination is acceptable; this one wouldn't have that problem.]

Thus, plaintiffs’ state statutory tort claims involved state action, as did the unjust enrichment claims, which arise from the absence of a consensual contractual relationship. But plaintiffs’ express warranty claim arose from a consensual contractual relationship and the First Amendment could provide no defense.

The court then said it applied Central Hudson scrutiny to the unjust enrichment and statutory claims because they were based on defendants’ commercial speech, but the claims survived because the descriptors were (plausibly) inherently or actually misleading. 

The Central Hudson First Amendment framework, with its distinction between outright bannable false/misleading commercial speech and merely potentially misleading speech, has little relationship to false advertising doctrine as it developed either in the Lanham Act or consumer protection context.  The court here framed Central Hudson as providing that states can regulate speech that is merely potentially misleading if the government (1) has a substantial state interest in regulating the speech, (2) the regulation directly and materially advances that interest, and (3) the regulation is no more extensive than necessary to serve the interest.  Perhaps because of the private action context, the court didn’t point out that the other option states have with potentially misleading speech is to mandate disclosure; the majority of circuit judges to consider the issue have found that disclosure regulations don’t need to survive this three-step scrutiny.

My commentary: The private cause of action, by its nature, targets an existing practice that it argues is deceptive.  The potentially/inherently deceptive distinction, however, asks whether a complementary disclosure, instead of an outright ban on the deceptive speech, can sufficiently cure the deceptiveness of the speech standing alone. In a private cause of action, that is a question of remedy, not of the inherent nature of the deceptiveness. 

Anyhow, inherently misleading speech is “incapable of being presented in a way that is not deceptive.” If the speech could possibly be truthful, the court reasoned, it could not be inherently misleading. Thus, the “natural,” “organic,” and “additive-free” descriptors here weren’t inherently misleading as to the safety theory, because none of them “inherently” meant healthy or safe, and likewise the processing claims weren’t inherently misleading.  (Insert distant anguished screams of linguists about “inherent” meaning in language—even onomotopoeia varies across languages.)  It would be possible for another manufacturer to truthfully produce natural, organic, and additive-free tobacco, by picking it, rolling it up, and selling it.  (Note the absence of any explanation about how the advertising would make different claims.)  But the menthol theory involved inherent misleadingness, because “additive-free’s meaning exists in direct conflict with the menthol’s presence in the cigarette.… It is not possible for some other cigarette manufacturer to produce a menthol cigarette that is additive free and truthfully advertise it as such” (emphasis added).

Defendants argued that the menthol was added to the cigarette filters, and not the tobacco, so the additive-free natural tobacco label was truthful, but when the cigarette is smoked, inevitably the menthol intermingles with the tobacco, making the claim inherently misleading. “The Defendants’ final argument that any misunderstanding could be dispelled through a new disclosure misapprehends the inherently misleading test. The Court cannot assume in new disclosures otherwise no speech would be inherently misleading. Any assumed disclosure could cure deception with a simple explanation that the inherently misleading speech is a lie.”  [Again, both a good point about the unworkability of the current “inherently” misleading test under First Amendment doctrine and a good demonstration that the test isn’t set up to judge tort claims.]

However, the rest of the Central Hudson test can also be skipped, and the speech at issue banned outright, if the speech is “in fact, misleading.” The standard here is not that of a reasonable consumer, but a subjective standard.  The plaintiffs alleged that the products’ labeling was uniform, justifying the inference that they saw the claims, and they also alleged the existence of a study showing that “smokers ... frequently concluded that ‘natural’ cigarettes must be healthier or safer than cigarettes containing chemicals.” Another study concluded that over sixty percent of Natural American smokers believed their brand was less harmful than other cigarette brands. Thus, it was plausible that consumers actually were deceived.  The disclosures didn’t correct this problem for reasons discussed above.

[In the court’s formulation of the reasonable consumer test as an objective one not based on actual consumers, state consumer protection laws have apparently decided to allow some commercial speech that is (1) completely unprotected by the First Amendment and (2) actually deceptive, simply because (3) the court concludes that reasonable consumers shouldn’t be fooled by it.  I respectfully submit that this idea is inconsistent with the history and logic of consumer protection law, which was designed to remove many of the traps for the unwary of the old caveat emptor regime.  The better way to harmonize the idea of an “objective” standard with the idea of what consumers actually believe (which the court seems to think of as “subjective” on an individual basis) is the venerable concept of a “substantial number of reasonable consumers.”  The fact that a substantial component of the customer base is deceived is evidence that their conclusions are reasonable (as opposed to idiosyncratic), and objective things can be said about the aggregate of consumers.]

Likewise, even if the menthol representations weren’t inherently misleading, they were plausibly in fact misleading. So too with the unprocessed cigarette theory: it was plausible that these plaintiffs, though not reasonable consumers, would believe that the term natural meant that Natural American cigarettes were subjected to fewer engineering processes than other cigarettes.

Even if the plaintiffs’ theories of deceptions didn’t involve inherently or actually misleading speech, their theories satisfied Central Hudson’s remaining three prongs.  Marching through: there’s a substantial governmental interest in protecting consumers from misleading speech.  Defendants argued that “natural” had no ascertainable meaning, but “the government has an interest in regulating a word with an underdeterminate meaning. Although perhaps less dangerous than representations that are demonstrably false, words with many meanings or unclear meanings have a capacity to mislead, because consumers can interpret them in ways that do not reflect reality.” 

Does the speech restriction directly and materially advances the asserted government interest?  This step requires more than just “mere speculation or conjecture” that the speech restriction will advance the interest: “[R]ather, a governmental body seeking to sustain a restriction on commercial speech must demonstrate that the harms it recites are real and that its restriction will in fact alleviate them to a material degree” (emphasis added).  There doesn’t need to be a “surfeit” of empirical background, however; studies and anecdotes can suffice, as well as history, consensus, and “simple common sense.” The evidence of deceptiveness alleged by plaintiffs was sufficient, meaning that enjoining use of the challenged terms or awarding money damages, which would likely cause defendants to remove or change their ads, would advance the government’s interest in protecting consumers from deceptive speech.  Defendants argued that this wasn’t true because of the already-existing disclosures, but see above; “in light of the disclosures’ placement underneath the barcode and divorced from the Surgeon General’s warning, money damages or an injunction would materially advance the state’s interest even as to the ‘additive-free’ term, because a substantial number of consumers would not think to look there for that disclosure, or would not even see the disclaimer until after they were deceived into paying a premium for Natural American cigarettes.”

Was the regulation no more extensive than necessary?  Money damages satisfied this requirement, because they’d “encourage” defendants to improve disclosures; but moving or adding disclosures might not be enough to protect consumers, so an injunction might also meet this requirement. Certainly you can’t tell from the pleadings alone.

The court also ruled on a slew of other state- and claim-specific issues, which I will not go over.

Injunctive relief wasn’t moot, even though a Memorandum of Agreement with the FDA required them to cease using those terms, except for the natural term in their brand name. But the plaintiffs wanted to enjoin the Natural American brand name, and the Memorandum of Agreement was subject to an ongoing lawsuit in federal district court which could vacate the agreement. Still, defendants represented that “Santa Fe is no longer utilizing the phrases ‘Additive Free’ and ‘Natural’ in the NAS cigarette product labels, labeling, advertising, and promotional materials ... and Santa Fe is in compliance with the [Memorandum of] Agreement.”  Given the ongoing challenge to the MOA, defendants’ promise to remove the terms was only a promise, and they didn’t carry the “formidable burden of showing that it is absolutely clear the allegedly wrongful behavior could not reasonably be expected to recur.”  So injunctive relief claims could proceed.