Friday, September 22, 2017

It stinks to high heaven: knockoff fragrances infringing, diluting, falsely advertised, but not counterfeit

Coty Inc. v. Excell Brands, LLC, No. 15-CV-7029, 2017 WL 4155402 (S.D.N.Y. Sept. 18, 2017)

Coty and a number of other producers and distributors of well-known fragrances sued Excell, which produced cheap “versions” of Coty’s fragrances, with similar names and “nearly identical packaging.” “Compounding matters, Excell prominently included on its packaging Coty’s own marks, albeit under words to the effect of “Our Version Of” in comparatively smaller text.”  Guess what Judge Furman found as to infringement and dilution after a bench trial? There was also false advertising, but not counterfeiting. Coty was entitled to injunctive relief and to recover Excell’s profits, but not to enhanced damages, and the case wasn’t “exceptional” for the purpose of attorney’s fees and prejudgment interest.

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To give some idea of the scope of Coty’s branding efforts, “between 2002 and 2015, Coty spent over $658 million advertising and promoting its Calvin Klein fragrances, over $114 million advertising and promoting its Vera Wang fragrances, over $14 million advertising and promoting its Lady Gaga fragrances, and over $13 million advertising and promoting its Joop! fragrances.”  Its net sales over that period for Calvin Klein fragrances were over $2.2 billion, for its Vera Wang products over $296 million, for its Lady Gaga products over $28 million, and for its Joop! line over $188 million. Some are successful enough to have subbrands, or “flankers” –Dark Obsession, Eternity Aqua, CK One Shock, and CK Free Blue.

Excell sought to copy expensive fragrances in a way that would be “understood by its customer base of ‘lower income, sometimes ethnic customers.’ ” Excell then chose a product name to evoke the name of the original fragrance. “Excell did not make any meaningful effort to replicate the scent of Coty’s products. Instead, using only their own noses and reviews of the original fragrances, Excell employees made broad recommendations to the company’s supplier in India, which then manufactured the alternative fragrances and packaging,” though Excell often supplied the original fragrance (or a picture of the fragrance) it sought to emulate along with instructions on how to emulate it. Excell also frequently made changes to the products so that the packaging would more closely resemble Coty’s original branded fragrances. Excell nonetheless lacked any meaningful quality assurance program. 

On the front of each fragrance box at issue, Excell included a legend stating that the fragrance was “Our Version Of” the relevant Coty product. On the back was “Not Associated With The Makers Of,” followed by reference to the relevant Coty product.  But Coty’s marks were depicted more prominently than the other text. “On the top of each box, in comparatively smaller lettering, Excell included its own brand name: Diamond Collection Luxurious Fragrances.”

Excell didn’t advertise or market directly to consumers, but sold primarily to traditional retailers and discount chains, such as Kmart, Dollar General, and Ross Stores, and its products were also available on Amazon and eBay.  

In 2015, several of Excell’s principals and employees were indicted on money laundering and other offenses. Given the pending proceedings, three such individuals invoked their privilege against self-incrimination in these proceedings. Excell shut down its business operations and ceased selling its fragrances in December 2016, unrelated to the present lawsuit.

The court rejected Excell’s laches defense.  Laches is no defense against injunctive relief when the defendant intended the infringement, which the court found to be the case here. Also, Coty didn’t delay unreasonably; it sued in 2015, “well within the applicable six-year statute of limitations” given that Excell was founded in 2010. Further, Excell’s sales were relatively insignificant during its first few years of operation and Excell’s marketing efforts to its retailers were less focused on the Coty knockoffs during that time.  Moreover, even if Excell could show unreasonable delay, it didn’t show evidence of prejudice. By Excell’s own admission, the filing of the lawsuit had no effect on its operations: it continued to sell its knockoffs long after Coty filed suit, and was “winding down” due to the pending criminal charges. “[A]ny conceivable prejudice was mooted when Excell decided, for reasons unrelated to this case, to cease its operations and stop using its brands.”

Unfortunately, the court decided that HOMME was suggestive for cologne.  It reasoned that, even if the general consumer knows that “homme” means “man,” it still “requires imagination, thought and perception to reach [the] conclusion” that HOMME is not just a cologne, but a cologne targeting men. Of course, that’s not the traditional framing of the conceptual distinctiveness inquiry, though courts increasingly have (wrongly) changed their approach to this question; the PTO would ask whether, knowing the mark and the goods, imagination is required to connect the two.  Cologne for men?  Not so much.  This didn’t matter much here, given the secondary meaning of the marks.

The court also found that the packages and bottles were product packaging, and thus capable of inherent distinctiveness as trade dress.  Excell argued that the bottles were product design, an argument the court found no support for; I’d be more sympathetic, since part of the point of these bottles is to have beautiful things on one’s dresser, unlike soda or alcohol bottles.  Again, though, Coty also showed secondary meaning.

Similarity: “Excell’s products copy, with only slight differences, the names, typefaces, packaging, design, coloring, and bottle shapes of Coty’s fragrances,” and also include two exact replicas of Coty’s house mark (e.g., Calvin Klein) and product mark (e.g., ETERNITY AQUA) as part of the “Our Version Of” and “Not Associated With” legends.  As the court noted, the City Girl and Love Story fragrances were “[a]t the less infringing end” of the similarity spectrum; the names evoked similar associations and the packages had notable differences.  By contrast, Excell’s OK ROCK and SERENITY fragrances were “remarkably similar” to Coty’s CK SHOCK and ETERNITY, in both name and trade dress. But even the “less infringing” fragrances had significant similarities in color, shape, and layout.  As a whole, each allegedly infringing product was quite similar to its counterpart.
 
similar, but not shockingly so (though still infringing)

way too similar

see more below

Excell argued that its “Our Version Of” and “Not Associated With” disclaimers made clear that the company’s products weren’t associated with Coty. But Coty’s marks were “significantly more prominent and accentuated on Excell’s fragrances than both the supposedly disclamatory language … and Excell’s own marks. In similar circumstances, courts have held that disclaimers are not only ineffective, but actually cut against the allegedly infringing party.”  Based partly on the survey evidence, the court found the same here.

Competitive proximity: price differences/retail channels had “little or no bearing on post-sale confusion as to the source of the goods,” and might even enhance the likelihood that a consumer would buy the accused product, to obtain the same prestige for less money.  Plus, the fragrance market is “somewhat fluid” and some retailers have sold both parties’ fragrances, including K-mart, CVS, Amazon, and eBay. Some Coty fragrances have been “diverted” and sold at CVS and Dollar General, both of which sell Excell products.  The price difference was  “also largely immaterial” to initial interest confusion; “most purchasers of fragrances in a retail setting are likely to view the packaging before checking the price label.”  Finally, the price difference wasn’t huge.

Actual confusion: because “evidence of intentional copying gives rise to a presumption of actual confusion,” the burden was on Excell to demonstrate a lack of confusion, which it failed to do.  Excell’s own survey found that 19.5% of respondents in an Internet survey identified Calvin Klein as the source of Excell’s POSSESSION fragrance, and 15.1% identified Calvin Klein as the source of Excell’s SERENITY fragrance.  And this survey was limited to people who had recently shopped at a discount store, flea market, rummage sale, or bazaar, even though Excell’s products were marketed more broadly. And the survey didn’t measure initial interest or post-sale confusion.  The survey was also flawed because it allowed respondents to see all faces of the packaging at once.  And there were coding errors: people coded as not confused said things like, “What a bargain for a Calvin Klein product”; “It’s made by Calvin Klein, I like it”; and “Just the fact that it was made by Calvin Klein is worth the $4.99.”  Recoded, 25% of the respondents actually identified Calvin Klein as the source of Excell’s POSSESSION and 20% identified Calvin Klein as the source of Excell’s SERENITY.

Anyway, Coty’s survey was more reliable.  Coty used an Eveready format, which is the gold standard for cases involving strong marks.  Coty used a mall intercept survey of “people 18 years old and older who ha[d] purchased a fragrance product for themselves, or for someone else, in the past six months” and showed them versions of the Excell packages. Neither the participants nor the interviewers were exposed as part of the survey to the genuine Calvin Klein OBSESSION or ETERNITY fragrances; the expert concluded that an average of 54% of the respondents misidentified the source of Excell’s products as Calvin Klein.

Excell argued that the survey erred by not excluding higher-end consumers to ensure that respondents were actual or potential purchasers of Excell’s products, and the court noted some justice to the argument.  The relevant market was the junior user’s customers.  But there was overlap, and it isn’t uncommon for higher-end fragrance companies, including Coty, to create less expensive versions of their products — those “flankers” — for sale at lower price points or in lower-end retail markets. Thus, the survey still had probative value.  Nor was the survey flawed for failing to provide respondents with relevant sales channel and price information about the products, which is in fact irrelevant to initial-interest and post-sale confusion.  It’s also true that the survey only tested two fragrances, and the survey itself indicated that the levels of consumer confusion would likely vary among the fragrances, with a 22% difference in confusion levels between the two Excell products tested.  But the results were still relevant to the other fragrances, given their shared “common and prominent features.”

There was no evidence of actual confusion. But that wasn’t important: (1) the employees’ invocation of the Fifth Amendment limited Coty’s ability to obtain evidence, meaning that it would be unfair to hold the absence of evidence against Coty; (2) Coty and Excell are manufacturers and distributors of fragrances, not retailers, “and thus less likely to hear directly from a duped consumer”; (3) consumers are less likely to complain about a relatively inexpensive product; and (4) the survey was good alternative evidence.

Intent: The record was “replete” with evidence of bad faith. Excell’s business model “involved little more than ‘capitalizing on plaintiff’s reputation and goodwill.’” Excell then “meticulously mimicked the external trappings of those fragrances and used Coty’s protected marks on its packaging in a way that, even with the disclamatory language, could only have been calculated to capitalize on Coty’s goodwill.” Excell kept going “in the face of a slew of complaints from third-party brand owners,” and chose its business model shortly after a company that used to employ various Excell employees entered a Consent Judgment with Calvin Klein and other fragrance producers about infringing alternatives to CK fragrances. Excell argued that Consent Judgement indicated approval of the use of the “Our Version” phrase, but (among other things) the consent judgment didn’t allow anyone to indiscriminately sell “Our Version Of” fragrances, but merely reserved the parties’ rights with respect to fragrances containing the “Our Version Of” legend that weren’t “unlawful under the Lanham Act” and that weren’t “Counterfeit” or “Knock-Off” products.

Excell noted that there is a difference between intending to compete by imitating successful features and intending to deceive purchasers as to source. This is true, “but Excell’s intent falls squarely in the latter category. The company’s intent to deceive can be inferred from the remarkable similarities between the fragrances’ trade dresses, the prominent use of Coty’s legends on Excell’s products, and the uncanny resemblance between the fragrance names chosen by Excell and Coty’s products.” Anyway, an intent to copy “creates a presumption of an intent to deceive, unless there is evidence to the contrary.” [Ugh—does that mean that house brands imitating national brands are presumptively intentionally deceptive?]

Quality, the Second Circuit outlier factor: Favored Coty, because Excell’s products are cheap and use synthetic oils, rather than the natural oils used in Coty’s fragrances.  They don’t smell the same as Coty’s perfumes and colognes. Unlike Coty’s fragrances, many of Excell’s Diamond Collection products were found to contain DEHP, a potential carcinogen.

Consumer sophistication: As now-Justice Sotomayor wrote, “even sophisticated buyers are not always careful buyers, and their very awareness of status brand names and designs may make them more vulnerable to confusion.” Great similarity, as here, reduces the ability of sophistication to resist confusion.  And “it could be argued” that Excell’s target demographic, “lower income, sometimes ethnic customers” was likely to be less sophisticated about the differences between and among fragrances and more easily confused upon seeing Excell’s cheaper knockoffs. This factor was a draw.

Excell argued that it was making nominative fair use of Coty’s marks.  But the Second Circuit just held that nominative fair use isn’t a defense; it instead provides additional factors to consider alongside the Polaroid factors.  “[T]he manner in which Excell displays Coty’s source identifiers belies its argument that it is merely using the marks to inform consumers that it is not the manufacturer of the original fragrance.” The fair use argument “would be on firmer ground if it sold its fragrances in generic bottles and cartons, picked fragrance names that were unrelated to any of Coty’s, included its disclaimers without prominently displaying Coty’s typesetting or marks, and marketed its own brand on the packaging in a noticeable manner.”  But it didn’t do any of that.

Having found likely infringement, the court turned to trademark dilution, federal for the registered Calvin Klein, Vera Wang, and Lady Gaga marks, and New York law for the remaining marks.  The court found dilution by blurring.  Excell didn’t contest the fame of the Calvin Klein, Vera Wang, and Lady Gaga marks. The the similarity between the marks as well as the distinctiveness and degree of recognition of the plaintiff’s mark favored Coty, as did Coty’s otherwise substantially exclusive use and Excell’s intent to create an association.  The court apparently misread the sixth statutory factor, “actual association,” as something like “truthful association,” finding that it favored Coty because Excell had no “actual association” with Coty, but this really can’t have mattered.  The court found state law blurring for the same reasons.

Tarnishment: Yep. “Excell uses inferior oils, employs cheaper packaging components, lacks any quality assurance program, and produces fragrances with potentially harmful ingredients.” The ongoing criminal case also arguably risked tarnishment, but there was “no reason to believe that the average consumer would know about the criminal charges, let alone link them to Coty.”

False advertising: yes.  “Our version of” was misleading.  Coty didn’t have to show literal falsity, because the words implied that the products were “similar, if not equivalent.”  [If the surveys show that people aren’t reacting to the disclaimers by understanding the difference, are they even reading the disclaimers, and can there be material deception without reading?]  The duality of contrast and equivalence was inherent in the use of the word “version.”  “But Excell indisputably does not produce fragrances of a similar quality to those of Coty; nor does it produce anything that could reasonably be called a ‘version’ of Coty’s products.”  [This is consistent with caselaw indicating that, even if there are possible ambiguities, when the defendant isn’t telling the truth under any of the different possibilities, literal falsity may be found.]  In context, along with the infringing marks/packaging, the court found an intent to connote a false equivalence (citing necessary implication cases).

Coty’s survey also found that 20% of respondents believed the legend communicated the message that Excell’s fragrances were substantially equivalent to Coty’s fragrances on formula and longevity of scent. Excell criticized the survey for asking “closed-ended questions of whether the two fragrances were ‘the same or different,’ rather than giving respondents the option to indicate that the products were ‘similar.’ ” But participants were asked a series of open-ended questions, including, “does the wording on these two products communicate or imply anything to you” about whether certain qualities of the products “are the same or different?” Participants then responded using their own language and explained what the wording communicated to them. Plus, surveys crafted to test comparative advertising claims sometimes call for “a more defined option set,” even if closed-ended questions aren’t as good.  Excell’s survey also was closed-ended, but added a third option, “similar.” This didn’t add clarity; anyway, given the significant differences between the companies’ fragrances, the Excell survey’s finding that “[a]pproximately two-thirds of consumers view[ed] the Excell and Calvin Klein products to be ‘similar’ ” only strengthened the court’s falsity conclusion.

Materiality: consumers “undoubtedly care about the quality and longevity of their perfume or cologne.” Because it was a false comparative ad, no further proof of likely injury was necessary.

Injunctive relief: with no mention of eBay, the court reasoned that likely confusion establishes irreparable harm. Money alone couldn’t compensate for the company’s unquantifiable “losses of reputation and goodwill and resulting loss of customers.” The balance of hardships favored Coty, because Excell wasn’t selling any products and was a newcomer to the market anyway.  Coty’s request wasn’t moot, because Excell hadn’t dissolved as of the time of trial.  “Because Excell could simply resume operations directly or indirectly — and because its directors, officers, and employees have demonstrated such tendencies in the past— Excell has not shown that it is ‘absolutely clear that [its] wrongful conduct will not recur.’”  Coty’s request for injunctive relief was granted with respect to Excell and its “officers, agents, servants, employees ... [and] other persons who are in active concert or participation” with them.

The court also awarded an accounting of profits.  This equitable remedy requires courts to consider “(1) the degree of certainty that the defendant benefited from the unlawful conduct; (2) availability and adequacy of other remedies; (3) the role of a particular defendant in effectuating the infringement; (4) plaintiff’s laches; and (5) plaintiff’s unclean hands.” All of these factors favored Coty. Excell’s business model depended on creating customer confusion, making it certain that it benefited from the infringement. Excell’s sales of the accused fragrances from July 2010 through April 2016 totaled a bit over $6.5 million, and it didn’t submit reliable evidence of its costs, only spreadsheets with totals that witnesses couldn’t adequately explain.  Thus, Coty was awarded all Excell’s revenue for the relevant time periods.

Coty argued that it should get treble damages because its marks were counterfeited. A counterfeit mark must be “substantially indistinguishable” or “spurious,” which requires more than a mere similarity between the marks or a “colorable imitation.”  Excell’s infringing products weren’t countefeits.  None used the exact same name, nor the same/“substantially indistinguishable” combination of colors, designs, and shapes. Though Excell did use Coty’s own marks as part of its disclaimers, the existence of those disclaimers and Excell’s (admittedly less prominent) use of the Diamond Collection mark on its bottles “creates enough of a contextual difference that [Excell’s fragrances] cannot be considered counterfeits of [Coty’s].”  The court was unwilling to conclude that Excell was trying to trick buyers into thinking they were actually buying Coty fragrances.  [Note how much implicit weight this gives to the IIC/post-sale confusion theories.]

The court refused to find the case “exceptional” for fees/prejudgment interest purposes. “Exceptional cases” involve fraud, bad faith, or willfulness, but bad faith isn’t an automatic entitlement to attorneys’ fees or prejudgment interest.  Excell’s litigation conduct, “while certainly not commendable, falls short of the ‘the sort of misconduct that supports an attorney fees award.’”  Plus, Coty didn’t show that it suffered “ascertainable damage”: “the fact is that, despite several years of competition with Excell’s infringing products, Coty failed to produce demonstrable evidence of actual confusion.”  Plus, the outcome of the case “was by no means a foregone conclusion,” especially as to fragrances at the less infringing end of the “similarity spectrum.”  Coty did get its costs, though.





















False advertising case stomped by ambiguity of "original"

Not Dead Yet Manufacturing Inc. v. Pride Solutions, LLC, 2017 WL 4150720, No. 13 C 3418 (N.D. Ill. Sept. 19, 2017)

Patent case with a side order of false advertising.  NDY owns patents concerning ‘quick connect and disconnect’ apparatuses for the assembly of devices known as ‘stalk stompers.‘ A stalk stomper “attaches to the front of a combine or tractor and flattens cornstalks after they have been cut, thereby protecting the tires of the combine or tractor from damage caused by the sharp remains of the stalks.” The ‘quick connect and disconnect apparatus’ enabled faster, easier, tool-free attachment and removal of stalk stompers.

NDY challenged Pride’s advertising for its products as ‘The Original Quick Disconnect Stalk Stomper‘ even though Pride knew that NDY and another manufacturer had sold quick-disconnect stalk stompers before the the Pride QD1 was commercially available. Pride also began a campaign for its QD2 stating ‘This design change replaces a major change we introduced three years ago with the earliest quick disconnect.’  NDY sued under the Lanham Act, the Illinois Uniform Deceptive Trade Practices Act, and the Illinois Consumer Fraud and Deceptive Business Practices Act.

Pride argued that all of their stalk stomper products, regardless of the products’ individual features, were marketed as ‘THE ORIGINAL’ because Pride was the first company to introduce stalk stompers, decades ago, and was the first to refer to their stalk stomper products using the term ‘quick disconnect,’ whereas NDY used ‘quick release.’ Thus, the ‘The Original’ was not literally false, and the QD2 ad just said that the QD1 was Pride’s earliest quick-disconnect product. [This last seems like an implausible reading of that claim.]

The court concluded that ‘The Original Quick Disconnect Stalk Stomper’ was ambiguous. On its face, the ad didn’t indicate that whether the phrase means that the QD1 was the first product to contain a quick connect-disconnect feature, whether it was the first product to be marketed as a ‘quick disconnect‘ device, or whether the product was just one in a line of stalk stompers branded as ‘The Original.’ NDY failed to provide evidence of consumer confusion, so the Lanham Act claim failed.


Interestingly, the court noted that the ICFA and IUDTPA didn’t have a falsity/misleadingness divide: likely deception or capacity to deceive was sufficient, without evidence of consumer perception.  However, the claims still failed because NDY didn’t show it was likely to suffer or actually suffered any harm from the alleged falsity. There was no evidence that the ads would confuse consumers about whether the QD1 was the first stalk stomper product to incorporate a quick connect-disconnect feature, “let alone evidence demonstrating that any such confusion would have an adverse effect on Plaintiff’s sales or otherwise cause harm.”  NDY argued that it didn’t need to prove actual damages because it sought only equitable relief, including redress for unjust enrichment. But there was no evidence that Pride was unjustly enriched by its claim.  

Thursday, September 21, 2017

9th Circuit is sour on sugar-sweetened beverage disclosure

American Beverage Association v. City and County of San Francisco, No. 16-16072 (9th Cir. Sept. 19, 2017)

Plaintiffs challenged a SF ordinance requiring warnings about the health effects of certain sugar-sweetened beverages (SSBs) on certain fixed advertising (e.g., billboards) in the city. The court of appeals reversed the district court’s refusal to preliminarily enjoin the ordinance, on the grounds that the required disclosure was controversial/misleading and unduly burdensome.

The ordinance required ads to contain this warning: “WARNING: Drinking beverages with added sugar(s) contributes to obesity, diabetes, and tooth decay. This is a message from the City and County of San Francisco.”  Covered ads excluded, inter alia, ads in periodicals, television, electronic media, SSB containers or packaging, menus, shelf tags, vehicles, or logos that occupied an area less than thirty-six square inches.  SSBs were defined to include soda and other non-alcoholic beverages that contain one or more added sweeteners and more than twenty-five calories per twelve fluid ounces of beverage, but not milk, milk alternatives primarily consisting of plant-based ingredients, 100% natural fruit juice, natural vegetable juice, infant formula, medical food, supplements, and certain other products.  The warning had to occupy 20 percent of a covered ad and be set off with a rectangular border. San Francisco’s purposes included the desire to “inform the public of the presence of added sugars and thus promote informed consumer choice that may result in reduced caloric intake and improved diet and health, thereby reducing illnesses to which [sugar-sweetened beverages] contribute and associated economic burdens.”

Zauderer applies to mandatory disclosures, whether or not they are designed to remedy deception.  A “purely factual and uncontroversial disclosure that is not unduly burdensome will withstand First Amendment scrutiny so long as it is reasonably related to a substantial government interest.” The government has the burden of showing that a disclosure is purely factual and uncontroversial, not unduly burdensome, and reasonably related to a substantial government interest.  “[U]ncontroversial” here “refers to the factual accuracy of the compelled disclosure, not to its subjective impact on the audience,” and a “literally true but nonetheless misleading and, in that sense, untrue” disclosure is not purely factual under Zauderer.

The majority concluded that “the factual accuracy of the warning is, at a minimum, controversial.” he unqualified statement that “[d]rinking beverages with added sugar(s) contributes to obesity, diabetes, and tooth decay” “conveys the message that sugar-sweetened beverages contribute to these health conditions regardless of the quantity consumed or other lifestyle choices.” This message contradicted FDA statements that added sugars are “generally recognized as safe,” and “can be a part of a healthy dietary pattern when not consumed in excess amounts.” SF’s experts concluded that “there is a clear scientific consensus” that sugar-sweetened beverages contribute to obesity and diabetes through “excessive caloric intake” and “by adding extra calories to the diet,” but didn’t directly challenge the conclusion of the plaintiffs’ expert that “when consumed as part of a diet that balances caloric intake with energy output, consuming beverages with added sugar does not contribute to obesity or diabetes.” Because SF’s warning wasn’t about overconsumption, and it said “contributes” instead of “may contribute,” “the accuracy of the warning is in reasonable dispute.”

Furhtermore, the warning was “misleading and, in that sense, untrue.” By focusing on a single product and not on others with an equal or greater amount of added sugars and calories, “the warning conveys the message that sugar-sweetened beverages are less healthy than other sources of added sugars and calories and are more likely to contribute to obesity, diabetes, and tooth decay than other foods.”  Borrowing an example from plaintiffs, the court reasoned that “If car dealers were required to post a warning only on Toyota vehicles that said: ‘WARNING: Toyotas contribute to roll-over crashes,’ the common-sense conclusion would be that Toyotas are more likely to cause rollovers than other vehicles.”

[Note: not all courts will apply this interpretive standard, which relies on the ordinary rules of implicature, to false advertising cases. They should.  Second note: under false advertising precedents, misleadingness is a matter of extrinsic evidence, not simple reading.  If the government’s burden is to show that the disclosure is nonmisleading, should it have to provide expert or survey evidence of this?  If the government does provide such evidence of nonmisleadingness, can it rebut the court’s conclusions about the meaning of the disclosure?  I have my own conclusions about this, but more overarchingly I believe that judicial reasoning about how consumers react to information should be consistent across cases, adjusting appropriately for who has the burden of proof.]

The current state of research on this issue indicated that this message was deceptive. According to the FDA, “added sugars, including sugar-sweetened beverages, are no more likely to cause weight gain in adults than any other source of energy.” The American Dental Association likewise cautioned against the “growing popularity of singling-out sugar-sweetened beverages” because “ the evidence is not yet sufficient to single out any one food or beverage product as a key driver of dental caries.” SF argued that an underinclusive warning is okay because it was entitled “to attack problems piecemeal.” But the problem was that the warning was potentially misleading, not because it “does not get at all facets of the problem it is designed to ameliorate.”

SF argued that people were more likely to over-consume sugar-sweetened beverages than other foods. “But even if it were undisputed that consumption of sugar-sweetened beverages gives rise to unique behavioral risks, the warning does not communicate that information”—it didn’t mention behavioral risks, “and thus clearly implies that there is something inherent about sugar-sweetened beverages that contributes to these health risks in a way that other sugar-sweetened products do not, regardless of consumer behavior.”  [This is an example of how “inherent” is usually an unhelpful concept when people are involved.]   The district court erred in finding that it would be unreasonable to interpret the warning to mean that sugar-sweetened beverages are uniquely or inherently unhealthy.

Separately, the warning imposed an undue burden because it required a black box, bold warning covering 20 percent of the ads, making it impractical to advertise on covered media.  The court of appeals agreed that “the black box warning overwhelms other visual elements in the advertisement,” thus imposing an undue burden.  Although the district court reasoned that a commercial speaker could use the remaining 80 percent of its advertising space to engage in counter-speech, that wasn’t enough—the speaker was being forced “to tailor its speech to an opponent’s agenda,” and to respond to a one-sided and misleading message when it would “prefer to be silent” (which sounds like it’s going back to point one).  “[C]ountering San Francisco’s misleading message would leave them little room to communicate their intended message. This would defeat the purpose of the advertisement, turning it into a vehicle for a debate about the health effects of sugar-sweetened beverages.”
 
sample ad submitted by plaintiffs
Plaintiffs submitted unrefuted declarations from major companies manufacturing sugar-sweetened beverages stating that they’d remove advertising from covered media if San Francisco’s ordinance went into effect. Effectively ruling out advertising in a particular medium was evidence of undue burden (consider the effect of this holding on FTC/FDA disclosure rules and Twitter ads).   The district court erred in rejecting this evidence because the declarations were “self-serving,” which alone isn’t enough reason to disregard an affidavit.  The district court also reasoned that tobacco and pharmaceutical companies continued to advertise despite being compelled to provide similar warnings. But SSBs don’t have “the same physiologically addictive qualities as tobacco, nor are they prescribed by doctors to treat health conditions like pharmaceutical products. There is no evidence in the record that advertisers have continued advertising products analogous to sugar-sweetened beverages in the face of compelled disclosures of the sort required here.”  

[While I understand why the payoff from addiction might be enough to get tobacco companies to continue to advertise despite the warnings, I don’t get the second distinction.  If anything, the availability of an alternate means to get to the consumer—advertising to doctors who prescribe drugs—makes it even clearer that the benefits of advertising directly to consumers induce pharmacos to continue to advertise despite onerous disclosure requirements, thus not chilling their speech.  Is the distinction one of care exercised by consumers in choosing?  The profit margin on drugs/payoff per ad dollar, on which no factual findings have been made?  That’s all I can come up with at the moment.]

Though SF had a substantial government interest in the health of its citizens, it failed to meet its burden for these reasons, though the court commented in a footnote that SF might not even be able to establish that providing misleading information through an unduly burdensome disclosure was reasonably related to its substantial interest in the health of its citizens. Indeed, San Francisco “has no legitimate reason to force retailers to affix false information on their products.”

Judge Nelson concurred in the judgment because of the warning’s size.  “[T]he City has not carried its burden in demonstrating that the twenty percent requirement at issue here would not deter certain entities from advertising in their medium of choice.” She wouldn’t have ruled on the “tenuous” ground that the disclosure was misleading.

Tuesday, September 19, 2017

"Herbal" doesn't include animal products

VBS Distribution, Inc. v. Nutrivita Laboratories, Inc., --- Fed.Appx. ----, 2017 WL 4118381, No. 17-55198 (9th Cir. Sept. 15, 2017)

VBS makes a commercial television live auction show named “DAU GIA TREN TRUYEN HINH” (“Fight Price on Television”). It primarily auctions jewelry, particularly diamonds. VBS claimed a unique trade dress made of: a) the unique style and format of the show, b) its time slot and date selection, each week on alternate weekdays, from 5 to 7 p.m., on Tuesdays and Thursdays, c) the price range for its auctioned items, ranging from about $300 to $3000, d) its ‘least to most expensive’ format in which the least expensive items are sold first, ascending to the most expensive items at the end of the show, e) the length of the show, 2 hours, f) its focus on live TV auctions of jewelry, particularly diamonds, g) its carefully selected vendors, who appear on the show with the show’s host, h) unique and proprietary camera angle and special lighting techniques developed by Plaintiffs using an Apple ipad tablet, [and] i) the number and selection of items sold, usually about 30 items.”

VBS sued over a co-host’s activities advertising on KVLA, VBS’ competitor, for a show entitled “Diamond at a Surprise Low Price,” using the same hostess, some of the same vendors, the same style as provided by the same technician, the same time slot of 5:00 pm–7:00 pm, but on Mondays, Wednesdays and Friday instead of Tuesdays and Thursdays, the least to most expensive format, the same auctioning of approximately 30 items each show, the content is virtually identical, and the price range of products is virtually identical ($300–$3,000). KVLA also advertises a supplement, Arthro–7, on its show.

The court of appeals reversed and remanded the denial of a preliminary injunction in this trademark infringement, trade secret, and false advertising case.  TM: Although the overall configuration of VBS’s live auction television show was functional, it could still claim protectable trade dress in its “overall look and feel of VBS’s live auction show, regardless whether individual elements that constitute part of the claimed trade dress are functional.” (Looking at the initial decision, it appears to me that the real problem is the failure to describe the trade dress with reasonable specificity--I don't think anyone could have a TM on the idea of a two-hour timeslot with products presented in order of increasing price; it's possible that other elements in the show might, maybe, be protectable in the presence of secondary meaning, but saying that there are unique camera angles doesn't give enough information about what those angles are to see, not just whether all the claimed aspects are functional, but also if there's a real trade dress at issue, and not just a set of unprotectable ideas.  I think this one might be ripe for re-dismissal with more explanation on remand, though the "same hostess" thing is very interesting--query whether the public policy favoring free job mobility should affect the scope of any rights VBS might have.)

Trade secret: VBS’s customer list contains identifying information that wasn’t readily accessible to the public or to other businesses, including purchase histories, methods of payment, and amounts of payment. Because VBS had the names of people who had already expressed an interest in purchasing jewelry from an auction television show, the customer list had independent economic value o VBS’s competitors. Thus, the district court shouldn’t have rejected trade secret misappropriation claim on the ground that VBS failed to show that a reasonably diligent competitor couldn’t readily get the information in the customer list.

False advertising: The district court erred in failing to find literal falsity for two statements.  Nutrivita advertised that Arthro-7 was “100% herbal,” but its own ingredient list includes animal products, and animals aren’t made of herbs.  (The reasoning below was that both sides just asserted: Ps that herbal isn't animal products, and Ds that the industry accepts animal products as herbal.  At some point, we have to figure out what words mean, and the court of appeals seems right on this point: without anything but the dictionary, you can identify literal falsity.)  Nutrivita’s CEO also admitted that there was no basis for its claim “8 Million Bottles Sold,” making it literally false, though “Doctor Recommended” was not literally false and VBS didn’t put in evidence of misleadingness.  (On the 8 million bottles, the reasoning below was that falsity was plausible but there wasn't evidence of likely success on the merits, which appears to have been too opaque for the court of appeals and is for me as well.)

Remanded for further consideration of the remaining PI elements.




Adding clickbait title isn't false advertising or fraud on author

Dankovich v. Keller, 2017 WL 4081852, No. 16-13395 (E.D. Mich. Sept. 15, 2017)

Interesting dispute: the pro se litigant didn’t like the editing of his essay, including the clickbaity headline added by the editors, and sued for various fraud/false advertising claims. The magistrate judge recommended denial of leave to amend/dismissal of various claims, and the district judge agreed.

Dankovich wrote an essay about his experience as a young prisoner in solitary confinement.  He sent a draft to defendant Eli Hager, an editor at defendant The Marshall Project, a non-profit news organization that focuses on the criminal justice system. He called the essay The Riving, which dealt with “how quickly solitary confinement can institutionalize and mess with the mind of an adolescent.” Hager requested a few alterations and stated “[j]ust like last time, my higher-up editor will have the final say, so I don’t want to make any promises. But I definitely CAN promise that if you keep working on these pieces and future submissions, you will definitely be published here.” He responded, and then Hager sent him “the latest” version and said that it had moved to the top of the queue for publication. The Marshall Project, in collaboration with defendant VICE, published the essay under the title I’m Losing My Mind after Refusing to Plead Insanity for Murdering My Mom. Dankovich also alleged other changes to the text of his essay, including that he pleaded no contest to the murder of his mother when he pleaded guilty, and that “around”—not “on” — his eleventh birthday he was taken to the hospital for physical abuse by his mother.  (The plea information was apparently later corrected.)  Dankovich objected to the published version but Hager told him that VICE Media wrote the headlines and wouldn’t be changing this one.

Dankovich sued for copyright infringement (not addressed here) and Lanham Act violations, and tried to amend the complaint to add fraud claims.  The court agreed that Dankovich couldn’t adequately plead fraud based on Hager’s statements to Dankovich about the essay: none of Hager’s statements contained a representation that the essay was returned to Dankovich in final version, and thus Dankovich couldn’t allege reliance on a false statement.  The statement, “My editor just informed me that she liked your piece (‘The Riving’) so much that she’s moving it to the top of our production queue,” wasn’t a statement that the piece would be published as submitted, nor was the statement that “[a]ll of the different parts are still yours, but they’ve shifted around a lot of lines to make things pack more of a punch” false in context, which included Hager’s statements that he wanted Dankovich to see the edits “since it’s your piece” but that “this kind of editing happens with all of our pieces.” The statement “[a]ll of the different parts are still yours” was thus, in context, not a representation about the published version would be “all his.”  Dankovich’s subjective interpretation was wrong, but that didn’t make out a fraud claim.


Lanham Act claim: Initially, Dankovich only pled §43(a)(1)(A) claims, but wanted to argue false advertising: “Defendants continue to advertise a completely false statement which Plaintiff has never written or uttered with Plaintiff’s name online, advertisement which furthers The Marshall Project’s business and political goals.”  The initial complaint argued that the headline was falsely attributed to him.  Considered as false advertising, this fell short: there were no facts alleging that any false statements were made in “commercial advertising or promotion.” Even assuming implied falsehood, he didn’t allege facts showing that a “substantial portion” of the 100,000 people who read the essay were deceived by the title, other parts of the essay, or defendants’ attribution of the essay to him, or facts showing materiality to a purchasing decision.  Also, Dastar prevented any “origin”-based claim—an interesting entry into the trend of using Dastar to resolve issues that also might be Rogers v. Grimaldi type cases of affirmative (alleged) misrepresentations of authorship.

Monday, September 18, 2017

Reading list: consequences of 1A protections for off-label promotion

Patricia J. Zettler, The Indirect Consequences of Expanded Off-Label Promotion, Ohio State Law Journal, Forthcoming 

The U.S. Food and Drug Administration’s (FDA) policies have been a battleground for litigation about First Amendment protections for commercial speech. In the last five years, the FDA’s position that “off-label” promotion of approved prescription drugs—when a manufacturer promotes a drug for a use for which the FDA has not approved it—leads to violations of the Federal Food, Drug, and Cosmetic Act has been subject to successful legal challenges. Although the merits of these off-label promotion decisions are well traversed in the literature, this Article explores the potential indirect consequences of recently-recognized protections for off-label promotion. This Article demonstrates that—as suggested in the dissenting opinion in United States v. Caronia, a high-profile 2012 case regarding off-label promotion—protections for off-label promotion might affect the FDA’s decision-making in areas other than drug promotion, and analyzes precisely what those effects could be in light of the FDA’s current statutory authority.

Reading list: the consumer in TM law

Kimberlee G. Weatherall, The Consumer as the Empirical Measure of Trade Mark Law, The Modern Law Review, Vol. 80, No. 1, pp. 57-87, 2017

Although consumer responses to signs and symbols lie at the heart of trade mark law, courts blow hot and cold on the relevance of empirical evidence – such as surveys and experiments – to establish how consumers respond to alleged infringing marks. This ambivalence is related to deeper rifts between trade mark doctrine and the science around consumer decision‐making. This article engages with an approach in ‘Law and Science’ literature: looking at how cognitive psychology and related disciplines conceptualise consumer decision‐making, and how counterintuitive lawyers’ approaches appear from this perspective. It demonstrates how, especially when proving confusion, decision‐makers in trade mark demand the impossible of empiricists and are simultaneously blind to the weaknesses of other sources of proof. A principled divergence, without seeking to collapse the gaps between legal and scientific approaches, but taking certain small steps, could reduce current problems of proof and contribute to better‐informed, more empirically grounded decisions.

Right of publicity question of the day

Restaurant: Thelonious Monkfish

Thursday, September 14, 2017

SPIRE-inspired TM suit fails to enjoin noncompetitor

Spire, Inc. v. Cellular South, Inc., 2017 WL 3995759, No. 17-00266 (S.D. Ala. Sept. 11, 2017)

Spire, a provider of natural gas fueling services, sought a declaratory judgment against Cellular South, d/b/a C SPIRE, a wireless telecommunications provider that also provides television and internet services, for noninfringement/nondilution, and Cellular South sought a TRO/PI in return. 

Cellular South began doing business as C SPIRE in late 2011.  In late 2012, the entity now known as Spire chose the Spire mark and began using it for its natural gas stations, displayed in a combination of gray, blue and white.  In 2013, LXE and Cellular South entered into a coexistence agreement; LXE used “Spire” for antennas for infrastructure, not sold to ordinary consumers.  In 2014, now-Spire’s rebranding as Spire spread, and Spire was registered for fueling stations and used on a national website.  In a 2015 trademark search, now-Spire identified C SPIRE as one of the results in 596 pages of results; now-Spire considered it irrelevant because it wasn’t in the same business.  There were over 150 active registrations for Spire, including 15 in Alabama.  In 2016, Spire began rebranding most of its operations under the Spire brand name, including for promoting, offering and rendering natural gas marketing/fueling in Alabama, Mississippi, Missouri, and South Carolina.  Cellular South then sent a C&D and opposed Spire’s pending trademark registration.  Spire’s rebranding continued; as of August 2017, employees were wearing Spire hats and ID badges but had yet to get new uniforms, and vehicles were being updated.

Cellular south cited 2016 and 2017 market surveys for Mississippi indicating C SPIRE has a “high brand preference” and the general health of the brand is “very strong,” with 88% brand awareness in that state.  The court found that the mark was at least “well known” in Mississippi, but evidence didn’t support strength claims for other states.  Spire submitted significant evidence of competing uses in many states, rendering the term “heavily diluted nationwide.” “Cellular South has not established a substantial likelihood of showing that its mark is arbitrary and thus entitled to the highest protection.” [Yes, this conflates conceptual with marketplace strength, but it doesn’t seem to make a difference.]

Mark similarity:  Cellular South’s witness testified that Cellular South’s logo will be confused with Spire’s logo because “the average consumer driving down the road at 55 miles per hour seeing a billboard will likely think Cellular South altered its logo and changed its color to orange.” The court found that the marks differed somewhat: Spire’s mark is orange, with block lettering in a specific font, and has a symbol after the lettering (two staggered semi-circles, representing a handshake). Cellular South’s mark is blue, with rounded lettering in a different font, and has a symbol before the lettering (a “c” with beams of varying lengths surrounding it). They were pronounced differently: one versus two syllables, and one using “c” while the other didn’t. Cellular South also made prior representations to the USPTO (in the Honeywell agreement) that its use of the letter “c” in its logo sufficiently distinguished it from another “spire” mark.  The context was distinguishable (businesses involved in infrastructure, not common consumers) but that argument was still relevant.  Overall, the colors differed, the fonts differed slightly, the spacing differed slightly, and the art differed, making the overall impression distinguishable. Similarity weighed slightly in Cellular South’s favor.



Product/service similarity:  Cellular South argued that local and long distance transmission of telecommunications was similar to Spire’s  “local and long distance transmission of gas”: Cellular South has 7,000 miles of fiber cable underground and Spire supplies natural gas through underground pipelines.  Also, “someone may move into a new home or office and need to set up phone, internet, television and gas. In that case, he or she could call C Spire for the first three and Spire for the last.”  Cellular South planned to expand into lighting controls, thermostats, CO2 detectors, etc. for the household, and argued that Cellular South was a utility like Spire.

The court disagreed.  “Spire’s natural gas energy services are distinct and unrelated to Cellular South’s telecommunication goods and services.” They don’t compete, and, as Cellular South told the USPTO, its buyers sign up for phone or computer services not “by mistake” nor “without full knowledge as to the source of those services.”  

There was also no evidence of actual confusion.  Jacob Jacoby did a survey and concluded that “it is highly unlikely that any consumers seeking telecommunications services would call a natural gas company for such services, or think that one is linked with the other – noting only 2.7% of consumers may think the businesses could be associated.” The lack of relation between the parties’ services made confusion less likely.  Most interesting citation: General Motors Corp. v. Cadillac Marine & Boat Co., 226 F. Supp. 716 (W.D. Mich. 1964) (rejecting plaintiff’s theory that “public confusion automatically follows the use of the trademark ‘Cadillac’ upon any other product, no matter how unrelated it may be to Cadillac automobiles” and holding “[w]hile Cadillac cars and defendant’s Cadillac boats are means for transportation....they do not possess the same descriptive properties....This differential makes them void of inherent confusing characteristics.”....).

Indeed, the court, continued, “[c]ase law also suggests that direct or actual competition with the same or similar goods/services is required for an infringement claim to survive.”  V. interesting!  The court pointed to dilution as the appropriate cause of action for unrelated goods/services.  In terms of Cellular South’s claim to its “zone of natural expansion” in services, “the senior user of a mark cannot monopolize markets that neither his trade nor his reputation has reached.”  Being utilities delivered undergraound wasn’t sufficient similarity to weigh in Cellular South’s favor.

Similarity of customers and sales outlets between the entities: Cellular South argued that it used all types of advertising you can think of and sold to the general public, leading to inevitable overlap.  Spire responded that it didn’t use retail stores (consumers have to call Spire or use its website to sign up) and that the public couldn’t select from a long list of competing natural gas providers as it can for telecom providers.  “Cellular South’s advertising and sales argument is based on a faulty premise -- that Cellular South and Spire are using the same available channels of advertising to compete against one another…. Further, apart from stating its customers are homeowners and businesses, Cellular South has not shown how a cell phone or internet customer is similar to a natural gas customer.”  [Well, they probably often are the same person, but they could be thinking about different things for different purchases.]

Similarity of advertising methods: the court found this factor neutral, given Spire’s arguments that the content of its ads were very different, despite the similar media.  “[W]hile both companies may use the same or similar advertising methods and styles, because the companies are not competitors in the telecom industry, they are necessarily communicating distinct and different advertising messages to different audiences.”

Intent: Cellular South didn’t show that Spire had a conscious intent to capitalize on its reputation/goodwill, was intentionally blind, or otherwise manifested improper intent in adopting its mark.

Actual confusion: Cellular South’s confusion arguments were linked to its future plans to “own the home” – it recently applied to register its marks for home automation and security services (alarm services – alarm systems, CO2 detectors, thermostats, garage door openers, lights, AC, door locks, lighting controls, etc). But Spire has no plans to go into the telecom and internet business.  And Cellular South couldn’t show actual confusion; there were no instances of both companies advertising in Alabama and Mississippi.  Its survey found that, after viewing the company’s logos, “just shy of 37%” of consumers were confused, thinking Spire was affiliated with Cellular South.  Spire criticized showing only the bare logos to participants, which the surveyor justified by arguing that Spire wasn’t yet in the marketplace and that isolated logos are common (e.g., on a headset or jumbotron). The surveyor also testified that there might be confusion and inconvenience with customer call centers, and that a Spire catastrophe could affect the image of Cellular South.  Jacoby responded that Cellular South’s expert used the wrong universe (testing Spire’s customer base, not Cellular South’s), wrong stimuli (logos without context), and wrong protocols (no control group!).

The court found no evidence of actual confusion, just conjecture and speculation by Cellular South. “At most, the evidence, per Dr. Jacoby, indicates that 15.3% of consumers thought a telecommunications business and a natural gas business could be associated. Association, however, is not de facto confusion.” On balance, there was no likely success on the merits.

Alabama and Mississippi Trademark dilution: 15 U.S.C. § 1125(c)(6) states that “[t]he ownership by a person of a valid registration ... on the principal register under this chapter shall be a complete bar to” a state law dilution claim.  But Cellular South is challenging the Spire registration.  While that was pending, the court wouldn’t dismiss the state-law dilution claims as preempted.

Both states protect marks that are “famous and distinctive.”  Fame meaans “widely recognized by the general consuming public of this state or a significant[ ] geographic area in this state as a designation of source of the goods or services or the business[ ] of the mark’s owner.”  For Alabama, there was no evidence that the C SPIRE was “famous” in Alabama before Spire’s first use of the “spire” mark in December 2013. For Mississippi, the evidence of fame was from 2016, years after Spire’s first use of a version of the “spire” mark in December 2013. However, since Spire used other versions of the mark in 2016, there was “some” evidence of C SPIRE’s fame at that time.  “[E]ven assuming arguendo that the C SPIRE mark was famous in Mississippi as of March 2016, Cellular South still has to submit evidence showing that the public associates (or will likely associate) the same mark with both Cellular South and Spire, and that such association infringes on Cellular’ South’s rights ‘by preventing the mark to serve as a unique identifier of the senior user alone.’” While it was a close case, the court found that Cellular South hadn’t shown a substantial likelihood of success on the merits.  (Could it be a close case overall if the Spire registration might be valid?)

Irreparable harm: eBay applied to trademark cases. Cellular South argued that the threat of lost control over its reputation was irreparable harm.  But “Cellular South and Spire do not produce/sell (or associate with) the same goods/services such that one would logically (or necessarily) ‘be at the mercy’ of the nature and quality of the goods/services of the other.”  Cellular South’s evidence was speculative: e.g., “risk of a gas leak,” theoretical “negative customer experiences,” “negative social posts” incorrectly linked to, or associated with, Cellular South. But Cellular South also emphasized the hundreds of millions of dollars and thousands of hours it has invested to to create trust in its brand. Here’s a good quote for defendants in non-competing goods cases: “The Court finds it incongruous for Cellular South to argue how famous and well known its name is and how vested it is with its customers and communities as a trusted brand, yet to simultaneously ask the Court to conclude that Spire’s use of a mark – in a different industry, with a different business, selling/providing different goods/services – is on the verge of causing the imminent loss or destruction of all of those dollars and work hours unless an immediate injunction issues.” 

Plus, Cellular South’s delay in seeking injunctive relief argued against irreparable injury; it knew of Spire’s rebranding plans at the latest in March 2016, when it sent a C&D.  Then Spire sued for declaratory relief in June 2017.  Cellular South only moved for injunctive relief in August 2017.  The potential for a slow rollout of Spire’s rebranding didn’t justify disregarding the March 2016 letter, which “indicates that Cellular South thought the harm or injury was actual or imminent at that time, not prospective, potential or possible, yet failed to seek injunctive relief.” And in February 2017, Spire notified Cellular South that it was already rebranding and that the process would finish by the end of 2017.  Whether Cellular South’s delay was a few months or 18 months, it undercut any urgency.

The balance of harms weighed in favor of Spire, given that it had already started operating under that mark and it had invested substantially in rebranding since 2016. Nor, of course, did the public interest favor an injunction.



Wednesday, September 13, 2017

Twitter news

An enterprising law student is livetweeting from the ABA's Trademark Day at the PTO, @stemlak 

Also, I'm now Twitter verified, which has yet to change my life, but I have hopes.

“Next Up In Apple/Samsung Smartphone Wars: Design Patent Remedies Following The SCOTUS Decision”

Panel at the National Press Club

RT: Huge debt to Sarah Burstein’s work, the best and most scholarly work on the subject—says things that aren’t clearly on either “side” of the present dispute, but I find persuasive.  Her conclusion based on the history and early caselaw: article of manufacture is a concept distinct from “machines” or “compositions of matter,” and the phrase “article of manufacture” should be interpreted to refer to a tangible item made by humans that has a unitary structure and is complete in itself for use or for sale, as long as it isn’t also a machine or composition of matter. The relevant question is whether anyone manufactures, uses, or sells that kind of item separately.  For example, outer shells are typically the articles of manufacture, not the entire car or other machine.  I strongly recommend her recent articles on the article of manufacture in 1887 and today, especially her description of the temptation to “aggregate different design patents into a single Frankenclaim,” which may be at issue here.  She also suggests that the article of manufacture at issue in any given case is primarily a legal question to be determined by a judge in a way similar to a Markman hearing.

Howard Hogan, Gibson Dunn & Crutcher: Filed amicus brief for Nike on neither side.  SCt decision took a lot of legal community by surprise b/c of its narrowness.  Unanimous court, narrow holding rejecting claim that design patent statute has a rule that the article of manufacture must be the complete device as sold.  Now to figure out the alternative: unlike the Lanham Act, which has an explicit burden-shifting provision, the design patent damages statute says “total profits on the article of manufacture … to which the infringing design has been applied.”  Apple +at least two other cases: courts are wrestling with burden and definition of article of manufacture.

Carl Cecere, Counsel, Hispanic Leadership Fund and the National Grange: amicus of coalition of rural/minority interest groups.  Clients recognized potential for weaponizing design patent damages as threat to competition and innovation.  Clarity is important. Apple’s proposed test is designed to ensure it gets the profits it got in the first trial, but the factors are too squishy for predictability: proposes a test that includes factors such as how the defendant sells the product and how it accounts for the profits internally, as well as visual contribution of patent to design as a whole.  [That’s the Frankenclaim aspect in this case, given the different patents in suit and the findings of infringement that differed per phone.]  Designers will tell you that cupholders are part of the overall design and flow into it/contribute to it—but Apple’s test would encourage the cupholder patent holder to claim profits from the whole.  For the phone: no one would buy the phone if it didn’t make phone calls etc; it can’t really be the whole thing.  Relatedly: the problem of partial claiming: a curve, the bezel. The designer is in the driver’s seat.  If they claim less than the whole, they think there’s functionally severable pieces; when you partially claim, you shouldn’t get the entire product, just the attached article.  Apple’s proposed test adopted most of the gov’ts proposed SCt test, but omitted the first factor: what is the design patent claiming?   If they really want to claim the entire design, they should do so, but if they do less than that, the risk of multiple awards for the same thing—3 different patents covering the front face of the phone.  Apple suggests that an award of triple Samsung’s total profit would be appropriate (at least in theory) and that makes no sense.

Charles Duan, Public Knowledge: Patents affect a lot of people, not just tech/pharma. SCt has a tradition of rejecting Fed. Cir.’s patentee-friendly rules; is there a systemic reason?  Seems unlikely it’s just b/c the Fed. Cir. keeps making mistakes; Fed. Cir. thinks patent ought to be strict rules, while SCt goes back to more foundational, flexible concepts.  History plays a role: SCt has gone back to historical sources for patent law, e.g., Impressions v. Lexmark, TC Heartland.

Josh Landau, CCIA: design patent claim serves as notice to public.  Apple says jury should decide what the article is; how does that correspond to the notice function?   Balancing defendant’s intention & other factors makes it harder to figure out what the article of manufacture is in advance.

CC: yes, also confuses parts of the test—what role does this part play in the entirety of the product?

RT: I want to emphasize that Apple’s premise has clear support in the caselaw, that the article described or illustrated in the patent does not limit the article to which an infringing defendant may apply the patented design (from that, Apple concludes that you should not look at what the design patent claims to determine the article of manufacture, a conclusion that is not logically entailed by the premise, especially where the parties are competitors). Though it’s not vitally important to the outcome here because the parties are in fact competitors, this is an interesting and important argument for two reasons: (1) design patents are currently granted on known designs applied to new objects: a rubber ducky USB.  If you get a design patent on a rubber ducky USB, should that allow you to bring an infringement claim against a manufacturer of ordinary, tub-time rubber duckies?  If the answer is no, then the novelty/anticipation inquiries should probably be very different: you shouldn’t get the design patent just for deciding to put a rubber ducky around a USB core.  (2) 2D designs, such as the icons on the screen, can be fully reproduced by many forms of reporting, including newspapers and online news sources.  Unlike ©, patent has no fair use doctrine.  Did the NYT infringe when it printed a newspaper showing the design patent Samsung was found to infringe?  If yes, we have a number of problems, not least of them a free speech one; if no, we have to somehow adapt the claim about the breadth of potentially infringing articles.

Hogan: The NYT wouldn’t infringe b/c it’s not a design applied to an article of manufacture.

RT: According to what test for article of manufacture?  The paper is definitely sold to me.

Duan: That’s the problem with overlapping IP. This is basically a © type issue.  Recently, © is even more likely to apply to these types of things—Star Athletica—you have ©, TM and patent overlapping.

CC: Samsung’s test could deal w/the NYT problems—look for a severable component.  Apple’s patents don’t cover any possible application of the 16 icons everywhere—just for a screen.  Profits attributable to NYT putting design into the paper are also minimal. The squishier/more subjective the test, the more troublesome it becomes.


Hogan: other tests protect the interests described here: there’s examination and enforcement—requires novelty/lack of anticipation.  Pretty exacting test.  Test for infringement is identical to the obviousness/anticipation test. Whether a reasonable observer would think they’re buying the same item. [but partial claiming]  There’s a difference b/t the point of novelty entitling one to the design patent and the article at issue—appropriate to look at design patent to determine the article: here a screen with a layout like Apple’s.  Might weigh against saying a newspaper can infringe.  SCt wants courts to wrestle with these issues.  Why design patents exist: to encourage design—overlapping is ok, as in the rest of the industrialized world. Most of the rest of the world has separate industrial design.  Design patent is less protective of investment/IP.  We haven’t seen the parade of horribles from design; the current statute was in reaction to a SCt case that limited damages recovery.

Tuesday, September 12, 2017

Allegedly disingenuous "not for human consumption" label can't avoid supplement false ad. claims

Nutrition Distribution LLC v. PEP Research, LLC, No. 16cv2328, 2017 WL 3972509 (S.D. Cal. Sept. 7, 2017)

Plaintiff sells natural supplements, specifically for bodybuilding.  It alleged that its natural supplements directly competed with PEP’s “Research Chemicals.”  PEP allegedly falsely advertised its “research peptides and chemicals,” including prescription-only drugs such as Sildenafil Citrate (brand name Viagra), Selective Androgen Receptor Modulators (‘SARMS’) and synthetic peptides. PEP allegedly mislabeled these products as “not for human consumption” and intended for laboratory research only.  SARMs allegedly pose significant health and safety risks to consumers, which PEP didn’t disclose, nor the fact that SARMs are specifically prohibited for use in sporting events by the World Anti-Doping Agency and the U.S. Anti-Doping Agency, even though PEP marketed its products to bodybuilders, competitive athletes, and other similar consumers for personal use.  [Interesting falsity question: if the falsehood is “not for human consumption,” but you’re not supposed to believe that, can there be any reliance on the falsehood?  It wouldn’t be a problem under California “unlawful” jurisprudence, but under the Lanham Act?  Or is the relevant falsity the alleged implication that these can be safely and legally consumed by humans? The complaint seems a little cagey, claiming that consumers were likely to be deceived “into believing that they are purchasing a product with different characteristics,” and also relies on failure to disclose the serious risks of using the substances.]

PEP allegedly advertised that its “research chemical” Sermorelin was commonly used as a “doping substance in sports,” and assures consumers of the product’s safety for personal use: “Sermorelin alone or combined with GHRP-2 and GHRP-6 is a harmless and efficient way to stimulate and enhance your body’s growth hormone production.”  Similarly, PEP advertised, “Clenbuterol has been popularized in the public mind recently by media potrayals of off-label use for fat loss, as well as some professional athlete doping scandals involving the drug.”  A contest for a free bottle ended with a bottle given to a fitness instructor—not a researcher (query whether winning your research substances in a contest is a valid/reproducible method).

PEP challenged standing, but the court accepted the plaintiff’s argument that PEP’s customers “have little incentive to use Plaintiff’s natural nutritional supplements until they are hurt or the ‘Research Chemicals’ are taken off the market.”  The "we really are competitors" argument seems quite sensible, given the allegations.

The court also declined to apply the primary jurisdiction doctrine.  Determining whether PEP’s ads were false and misleading because they market “research chemicals” for personal use and consumption despite also labeling the products as “not for human consumption” would not require the FDA’s technical and policy expertise.


The RICO claims failed because they were RICO claims.

Thursday, September 07, 2017

Panel on design patent remedies, Sept. 13

“Next Up In Apple/Samsung Smartphone Wars: Design Patent Remedies Following The SCOTUS Decision”

Wednesday, September 13th
9:00am – 10:30am

The National Press Club
Zenger Room
529 14th Street NW

Speakers include:

Carl Cecere, Counsel, Hispanic Leadership Fund and the National Grange
Charles Duan, Director, Patent Reform Project, Public Knowledge
Howard Hogan, Partner, Gibson, Dunn & Crutcher
Joshua Landau, Patent Counsel, CCIA (moderator)
Rebecca Tushnet, Frank Stanton Professor of First Amendment Law, Harvard Law School
  
Please Note: Due to National Press Club security measures, RSVPs are strongly encouraged. This will allow identification information to be entered into the system in advance of the event.


Tuesday, September 05, 2017

False indication of Hawaiian origin might violate consumer protection law, not warranty

Broomfield v. Craft Brew Alliance, Inc., No. 17-cv-01027, 2017 WL 3838453 (N.D. Cal. Sept. 1, 2017)

“Hawaii is a state as well as a state of mind. When adults want to escape the mainland, they can go to their local grocery store, purchase a package of Kona Brewing Company beer, and feel as though they are transported to the beaches of Hawaii. This case is about the importance of where that beer actually is brewed.” Defendant CBA, d/b/a Kona Brewing Co., allegedly intentionally misled consumers into believing that Kona Brewing Company beer was exclusively brewed in Hawaii.  The court granted in part and denied in part CBA’s motion to dismiss the resulting claims.

The Kona brand includes a variety of beer that references Kona’s Hawaiian origins, including “Longboard Island Lager,” “Big Wave Golden Ale,” “Fire Rock Pale Ale,” “Wailua Wheat Ale,” “Hanalei Island IPA,” “Castaway IPA,” “Lavaman Red Ale,” “Lemongrass Luau,” “Koko Brown,” and “Pipeline Porter.” Kona has a Hawaiian brewery that makes its draft beer sold in Hawaii, but all of its bottled and canned beer, as well as its draft beer sold outside of Hawaii, are brewed in Oregon, Washington, New Hampshire, and Tennessee.  Despite this, on the top of the box for twelve-packs of Kona beer there is an image of a map of Hawaii which marks the location of the Kona Brewing Co. Brewery on the Big Island. The packaging also includes the statement: “We invite you to visit our brewery and pubs whenever you are in Hawaii.” An image of the Hawaiian island chain and the phrase “Liquid Aloha” are embossed on the front of each bottle, and each variety’s packaging has its own Hawaiian-related images, including orchid flowers, volcanoes, palm trees, surfers, canoes, waterfalls, and hula dancers. The bottom of the package for the six-pack includes the image of a Hawaiian island, such as Oahu, the Big Island, or Molokai. Plaintiffs alleged that the only address listed on the packaging was “75-5629 Kuakini Highway, Kailua-Kona, Hawaii 96740,” though CBA indicated that its Island Hopper Variety twelve-pack included a list of five brewing locations next to the address in Kona.



Plaintiffs also allged that CBA misrepresented Kona as “craft beer” when it isn’t, though they argued that this claim went to CBA’s intent to deceive rather than to a deception that they relied upon.

First, CBA argued that the words and images on the packaging were “mere puffery,” and that no reasonable consumer would be misled into believing that the Kona beer he or she purchased was brewed exclusively in Hawaii. The court disagreed.  Deceptiveness is usually a question of fact.  CBA argued that none of its “references” to Hawaii was “ a specific and measurable factual statement about where the beer is made.” The labels disclosde five locations where the beer is brewed, only one of which is Hawaii, so representations on the six- and twelve-pack packaging couldn’t amount to actionable misrepresentations. While “pictures of surfboards and the vague phrase ‘Liquid Aloha’ on the beer packaging” would be insufficient, the fact that the only listed address on the outer packaging was Hawaiian, the image of the Hawaiian map identifying the location of Kona’s Big Island Brewery, and the invitation to visit “our brewery” whenever you are in Hawaii were “specific and measurable representations of fact that could deceive a reasonable consumer into believing that the six- and twelve-packs of Kona beer were brewed in Hawaii.” “[M]erely referencing Hawaii and its culture on the packaging is not enough on its own to confuse a reasonable consumer regarding the origin of the beer” (citing Pernod Ricard USA, LLC v. Bacardi U.S.A., Inc., 653 F.3d 241 (3d Cir. 2011)).  But the address, map, and invitation went beyond those references to spirit or style.

CBA argued that the disclaimer on the labels of Kona beer was enough to contradict the representations on the outer packaging. But reasonable consumers are “not required to open a carton or remove a product from its outer packaging in order to ascertain whether representations made on the face of the packaging are misleading.” There was no disclaimer identifying Kona’s brewing locations on the packaging except on the Island Hopper Variety twelve-pack.  Plus, the disclaimer on the beer label listed five locations, including “Kona, HI, Portland, OR, Woodinville, WA, Portsmouth, NH, and Memphis, TN” which encompass “all locations where the beers are brewed.” “A list of multiple locations on a product label does not amount to an explicit statement that the beer is brewed and packaged at a particular location.” A reasonable consumer could easily think that the beer was brewed in Kona—and plaintiffs alleged that no bottled or canned beer bearing the Kona label was actually brewed in Kona. Thus, even consumers who read this “vague” disclaimer could be deceived.
 
Label, with locations listed on left side
While the consumer protection claims survived, the express warranty claims failed because the representations weren’t “an unequivocal statement or promise to the consumer that Kona beer is brewed exclusively in Hawaii.” The implied warranty claim also failed without an affirmative misrepresentation; the factual claims on the label were true, albeit potentially misleading.


Injunctive relief claims were dismissed for lack of standing (noting that, even if plaintiffs would be willing to buy properly labeled beer in the future, they alleged they wouldn’t have bought it at Kona’s price/they paid extra for beer they thought was from Hawaii.)