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.

Arbitral immunity doesn't extend to arbitral advertising

Hopper v. American Arbitration Association, Inc., 2017 WL 6569571, No. 16-55573 (9th Cir. Dec. 7, 2017)

The district court dismissed Hopper’s false advertising claim against AAA based on arbitral immunity, and the court of appeals reversed.  “Arbitral immunity extends to claims that arise out of a decisional act and exists to ‘protect the decision-maker from undue influence and protect the decision-making process from reprisals by dissatisfied litigants.’” But the false advertising claim was “predicated on AAA’s descriptions of its arbitrators disseminated through its website and direct mail. Commercial advertisement, designed to sway individuals to choose AAA over its competitors … is distinct and distant from the decisional act of an arbitrator.”  Allowing the false advertising claim to proceed wouldn’t lead to undue influence over the arbitration process or expose arbitral decisions to reprisals.

Tuesday, December 26, 2017

"prevailing price" consumer protection rule isn't unconstitutionally vague

Haley v. Macy’s, Inc., 2017 WL 6539825, No. 15-cv-06033 (N.D. Cal. Dec. 21, 2017)

Haley brought a typical putative class action, with the usual California claims, alleging that Macy’s mislabeled its merchandise with false or inflated “original” or “regular” prices to induce customers to purchase “on sale” merchandise based on a perceived bargain.  The court found that Haley had alleged Article III injury in fact.

Macy’s argued that several named plaintiffs couldn’t have been deceived because they had knowledge of Macy’s pricing practices before they bought.  One plaintiff worked at a Michael Kors boutique in Macy’s, and another had a close relationship with her.  At the time of the first plaintiff’s employment, Michael Kors was involved in an unrelated false advertising case. But that employment history didn’t “establish or even suggest that she had knowledge of any pricing practices.” Any inference of knowledge due to online friendship was even more attenuated.  Likewise, the fact that Haley bought an ornament from Macy’s four days before suing was “suggestive,” but didn’t establish knowledge of Macy’s pricing practices.  Nor did one plaintiff’s documentation of her purchase suggest that she was anticipating litigation.  “Consumers may research and document their purchases and compare with other items without anticipating litigation or having knowledge of the pricing practices at issue in this case.”  [The judge must know someone like my spouse.]

Among other things, Macy’s also argued that plaintiffs didn’t offer a factual basis for their allegations that Macy’s didn’t sell the products at the original or regular prices and that other merchants did not sell merchandise of like grade and quality at Macy’s advertised prices. The court found that the complaint was sufficient.  It cited “an exemplar coffee maker that was advertised with a regular price of $149.99, but which all sellers on and the manufacturer’s website offered for significantly lower prices.” Other named plaintiffs noted that the products they purchased continued to be on sale at the discounted, rather than original price, months after purchase. Macy’s pricing policy for its online merchandise also stated that “regular” and “original” prices “may not be based on actual sales of the item.” This was enough at this early stage of the litigation.

Finally, Macy’s argued that California Business & Professions Code § 17501 is unconstitutionally vague in stating: “No price shall be advertised as a former price of any advertised thing, unless the alleged former price was the prevailing market price ...within three months next immediately preceding the publication of the advertisement or unless the date when the alleged former price did prevail is clearly, exactly and conspicuously stated in the advertisement.” The statute defines “prevailing market price” as the “worth or value” at “wholesale if the offer is at wholesale, retail if the offer is at retail, at the time of publication of such advertisement in the locality wherein the advertisement is published.” The court found that this language was sufficient to provide fair warning of what is proscribed, given the context of the FAL more generally and its aim of preventing “unfair, deceptive, untrue, or misleading advertising.” The OED defines “prevailing” as “[p]redominant in extent or amount” and “most widely occurring or accepted.” That wasn’t unconstitutionally vague. 

Supplement maker can't enjoin database changes, but avoids anti-SLAPP dismissal

Exeltis USA Inc. v. First Databank, Inc., 2017 WL 6539909, No. 17-cv-04810 (N.D. Cal. Dec. 21, 2017)

This is an interesting case about the FDA/Lanham Act interaction. Exeltis sells prenatal vitamins that contain 1 mg of folic acid.  They aren’t available without a prescription and are labeled and sold “by prescription only.” First Databank publishes a database of information about pharmaceutical products, including Exeltis’s prenatal vitamins. Medicaid and insurance providers (payors) use the database to make reimbursement decisions.

Historically, the “class value” field in the database signified whether manufacturers identified their products as prescription-only. In 2016, the FDA issued guidance that medical foods cannot be properly labeled “prescription only,” and that any such label would be false and misleading; it hasn’t issued similar guidance for supplements.  (Meanwhile—this will be important later—reimbursement under Medicaid is, in most circumstances, permitted only for “covered outpatient drugs,” and all state Medicaid programs must cover “prescription prenatal vitamins.”)

As a result, First Databank amended its “class value” database field to “identif[y] a product’s prescription status” under federal law. Code “F” signifies “[d]rugs that are prohibited by federal law from being dispensed without a prescription” and code “O” signifies “[p]roducts with no federal legal prescription requirement, including medical foods, dietary supplements, non-prescription medical devices, and over-the-counter drugs.” For a while, code “F” still explicitly included “prenatal vitamins labeled as prescription.” First Databank announced that it planned to remove the reference under “F” to prenatal vitamins and change its coding for all dietary supplements and medical foods — including Exeltis prescription prenatal vitamins — to “O.”

Exeltis argued that the coding decision to categorize all prenatal vitamins as “O” instead of “F” was false and misleading, which also falsified First Databank’s statements that its database was “robust, reliable, and [offers] effective medication decision support solution[s].” The change allegedly would cause “widespread denial of Medicaid and insurance coverage for [prenatal vitamins],” thus interfering with prevention of serious birth defects such as anencephaly and spina bifida. It could also “destroy” Plaintiff’s business model, in which only 6% of its prenatal vitamins are paid for out-of-pocket. Exeltis sued for violations of the Lanham Act, California’s UCL and FAL, common-law intentional interference with prospective economic advantage, and trade libel.

The court declined to grant a preliminary injunction.  First, the request might amount to an unconstitutional prior restraint, requiring a heavy burden of justification. Even assuming that the database was commercial speech, the court still the general presumption against prior restraints, given that falsity was the key issue in dispute and the court declined to take the risk of “erroneously enjoining truthful, protected speech on the basis of an incomplete record.” Even though “commercial speech may be more durable than other kinds...[s]ince advertising is the Sine qua non of commercial profits,” the speech at issue here wasn’t advertising, but instead concerned third-party products.

Even without constitutional doubt, Exeltis wasn’t entitled to a preliminary injunction. The court wasn’t persuaded that the database constituted commercial speech, a requirement for all the claims. Considering (per Nike v. Kasky) “the speaker, the intended audience, and the content of the message,” Exeltis argued that the database was commercial because it was available for purchase and used by “commercial actors” to complete “commercial transactions” among third-parties (payors, pharmacies, and consumers). The court disagreed.  The Supreme Court hasn’t even held that false statements about another’s product or service can be commercial speech (though it’s hard for me to see why disparaging statements about a competitor wouldn’t be). Under Exeltis’s interpretation, though, “any speech could be commercial if eventually relied on by third-party actors who conduct business,” such as a newspaper that printed information on which third parties relied in making decisions.  “That a publisher compiles information, or even provides its own interpretation of that information, for commercial actors is not enough to transform it into commercial speech.”  The database wasn’t a traditional ad; First Databank wasn’t promoting any of the products identified, nor was its compensation contingent in any way on payors’ reimbursement decisions.  Thus, Exeltis didn’t show likely success on the merits.

The court also was dubious about Exeltis’s falsity theory.  Exeltis argued that payors commonly understand the codes “F” and “O” to mean prescription and over-the-counter respectively, making the change confusing to payors. But First Databank’s revised definitions of “F” and “O” weren’t binary in that way.  “F” was for “[d]rugs that are prohibited by federal law from being dispensed without a prescription” and “O” was for everything else: “[p]roducts with no federal legal prescription requirement, including medical foods, dietary supplements, non-prescription medical devices, and over-the-counter drugs.”  The court wasn’t persuaded that payors would overlook this change, even though it was subtle; First Databank sent a letter to subscribers explaining its view that neither dietary supplements nor medical foods were drugs subject to the FDCA’s prescription requirement. The letter was careful to acknowledge that “the fact that there is no federal requirement for a prescription does not mean an item cannot be prescribed by a physician.” Thus, First Databank said that it would “provide supplemental descriptive attributes for [non-drug] identify them as...‘Marketed as Prescription Prenatal Vitamin,’ etc.” The new “class value” field definition included a text box, which noting that First Databank “provides additional information regarding labeler representations” in a separate table.  Thus, in context, the statements weren’t established to be false.

Exeltis argued in the alternative that its products were in fact “subject to federal legal prescription requirements.” The Medicaid Act requires state programs to cover “prescription prenatal vitamins.” However, the Medicaid Act didn’t define “prescription prenatal vitamins,” nor did it mandate which products actually require a prescription. The Medicaid Act’s definition of “covered outpatient drugs” generally turns on the FDA’s determination of approved “prescription drugs” under the FDCA. However, the FDA sent a letter to First Databank stating that it “has been made aware of patients who are losing or have lost insurance coverage for their products marketed as medical foods” because “insurance providers belie[ve] that the products are over-the-counter (OTC) drugs.” This letter said nothing about the prescription requirements for prenatal vitamins. Anyway, the FDA clearly stated throughout the letter that the FDA “does not require [medical foods] to be dispensed by prescription” because they “are not drugs.”  

There is indeed an apparent disconnect between Medicaid policy and the FDA; if “prescription prenatal vitamins” must be covered by state programs, “it follows that some category of prenatal vitamins are properly available by prescription.” Still, there was no federal law that requires Exeltis products to be dispensed by prescription only. “That Plaintiff would prefer Defendant to organize its information or code Plaintiff’s products differently does not render the database false or misleading.”

Exeltis also failed to show irreparable harm to itself: harm to third parties (pregnant women and their fetuses) wasn’t properly considered in the irreparable harm inquiry.  Exeltis argued that it would suffer “financial loss[es]” and an “accompanying loss of goodwill.” It described goodwill as the company’s “reputation for quality and its relationships with business partners,” but when pushed to explain further, Exeltis argued that “pharmacists will stop stocking, doctors will stop prescribing, and patients will stop using [Plaintiff’s] products.” This alleged “goodwill” injury was merely “a lost revenue proxy.”  And economic injury alone does not support a finding of irreparable harm.  There’d be no competitive disadvantage because the change would affect all prenatal vitamin supplement manufacturers.  Even if the court found the injury not measurable by money damages, it was too speculative, based as it was on independent decisions made by several third-parties: Exeltis failed to explain why payors would ignore the revised definitions and additional notes, given their independent obligations to determine which products they must cover under federal law.  “Assuming payors misinterpret federal law and erroneously deny coverage for prenatal vitamins, the wrongful conduct lies with the payors, and not with Defendant. Yet an injunction against Defendant would not control payors’ reimbursement decisions.”

However, the court also declined to grant First Databank’s anti-SLAPP motion as to the state law claims.  The information was a matter of public interest, even though it was only available to paying subscribers who were sophisticated parties, given that drug coverage/pricing and the prescription status of prenatal vitamins were matters of public interest. “In the absence of clear directives from either the FDA or CMS, Defendant weighed in to express its interpretation of the ‘inconsistent if not conflicting’ legal landscape.”  Nor was the database exempt from anti-SLAPP protections, because the commercial speech exemption only covers “a person primarily engaged in the business of selling or leasing goods or services” if: (1) their speech “consists of representations of fact about that person’s or a business competitor’s business operations, goods, or services, that is made for the purpose of obtaining approval for, promoting, or securing sales or leases of, or commercial transactions in, the person’s goods or services, or the statement or conduct was made in the course of delivering the person’s goods or services”; and (2) the “intended audience is an actual buyer or potential buyer or customer, or a person likely to repeat the statement to, or otherwise influence, an actual buyer or customer....”  The database didn’t make representations about First Databank’s own products or those of a competitor, and the statements at issue contained in the database itself, not made in the course of selling or delivering the database.  (Query why results delivered to consumers don’t count as “delivering” the database, but that doesn’t really matter given part (1).)

For anti-SLAPP purposes (especially given the tension between anti-SLAPP laws and the FRCP), survival of Exeltis’s claims only required “a reasonable probability of prevailing.” This meant “only a minimum level of legal sufficiency and triability.” Significantly, “the trial court does not weigh the evidence or determine questions of credibility; instead the court accepts as true all of the evidence favorable to the plaintiff.” Under the more lenient standard than that applicable to a preliminary injunction, Exeltis showed the necessary “minimal merit” to survive a motion to strike.

Exeltis contended that the database was the linchpin of payors’ reimbursement decisions, not merely a factor—the database was used to instantly provide coverage decisions, and was designed for this use. Commercial speech status is fact dependent, and “payors’ actual use of the database and the database’s primacy in actually effectuating reimbursement decisions may suggest that the database is commercial in nature.” Likewise, Exeltis made a legally sufficient argument that the new coding was false or misleading. The coding revision was subtle, removing “prenatal vitamins labeled as prescription” from the F category.  “Even assuming a reasonable payor would review these definitions in detail, the documentation does not highlight the change on its face. It … says nothing about prenatal vitamins or the latent ambiguity in their prescription status.” The letter to subscribers said more, but “the Court cannot say that this stage that no reasonable factfinder could conclude from the legal morass described in the letter that the database misleads payors into concluding that Plaintiff’s products are available over-the-counter and that payors should withhold coverage on this basis.”  Ultimately, “this is not the kind of obviously meritless or harassing case that the anti-SLAPP statute was designed to discourage.”

Wednesday, December 20, 2017

Another consumer protection case survives despite invocation of In re GNC

Racies v. Quincy Bioscience, LLC, No. 15-cv-00292, 2017 WL 6418910  (N.D. Cal. Dec. 15, 2017)

The court granted Racies’ motion for certification of a California class against the makers of Prevagen, a supposed brain health supplement, covering the usual California claims. Racies alleged that, “contrary to the product’s labeling, Prevagen does not improve memory or brain function because its only active ingredient is digested and transformed into amino acids before it can measurably affect the brain.” Although individuals can’t bring lack of substantiation claims, and allegations that Quincy misrepresented Prevagen as “clinically tested” were impermissibly based on a lack of substantiation theory, the body chemistry allegations were sufficient to proceed.

Quincy tried to turn the original allegations into a reason that Racies’ claims weren’t typical, because he relied on non-actionable representations that Prevagen was “clinically tested” rather than on representations about Prevagen’s potential brain health benefits, and also because he didn’t take the product as directed. The court disagreed.  The evidence suggested that Racies bought Prevagen, at least in part, because of what its ingredients were advertised to deliver.  (Clinical testing could only ever be support for that basic claim.)  It was enough for a misrepresentation to play a substantial part, and so be a substantial factor, in influencing his decision.  “Because Prevagen is not marketed for uses other than improving brain health and memory, it follows that representations about these purported benefits were a ‘substantial factor’ in Plaintiff’s — and all consumers’ — purchasing decision.”  Also, the manner in which Racies took the product wasn’t at issue, because the relevant inquiry and related injury under the CLRA/UCL occurs at the time the consumer purchased the product based on the product label.

Racies also showed predominance by showing that a key question was the objective one of whether the advertising was either false or misleading.  Quincy argued that hat some putative class members may have purchased Prevagen because the product was clinically tested and not simply for its purported brain health benefits. Even if that was something other than a completely “artificial” distinction, “California’s consumer protection laws evaluate materiality under a reasonable person standard, not on an individualized basis.”  Reliance was also no barrier to certification because a plaintiff is entitled to a presumption of reliance if material representations were made to class members.

Quincy then argued that proving falsity would entail individual questions rather than common evidence about the scientific literature. Although “[t]he falsity of the advertising claims may be established by testing, scientific literature, or anecdotal evidence,” Quincy argued that the scientific literature about Prevagen was “equivocal,” and therefore incapable of establishing falsity under In re GNC. Thus, Racies would supposedly have to rely on anecdotal evidence about class members’ individual experiences.

The court was unpersuaded by In re GNC and a subsequent California federal district court case applying it, and didn’t believe that the California Supreme Court would agree either.  Unfortunately, the court still used In re GNC’s redefinition of literal falsity as a situation where “all reasonable scientists agree” that the explicit claims are false, whereas misleadingness comes when “the vast weight of competent evidence establishes that those health claims are false.”  A jury could determine whether either was the case.  [Pause to reiterate: if you were using the Lanham Act, that wouldn’t actually be the test, despite what In re GNC said.  Literal falsity/misleadingness is a distinction made about how a message is conveyed.  Literal falsity is … literal.  “This car gets 40 miles to the gallon,” when it doesn’t.  Implied falsity is where an ambiguous statement deceives a significant number of reasonable consumers, e.g., “No product is better at preserving memory,” when nobody else can do the job either.  The truth or falsity of what message is conveyed to consumers is then established in the ordinary course of proof, traditionally by the usual preponderance standard.  There is zero basis in federal or California law for the new standard invented by In re GNC, so the court should have stayed even further away.]

Regardless, while “a plaintiff may fail to carry his burden to prove falsity if the scientific evidence is ultimately inconclusive, the mere existence of an expert or experts who support the defendant’s representations should not insulate a defendant from false advertising claims or foreclose class certification.” The court couldn’t substitute itself as factfinder on a motion for class certification simply because both parties have proffered scientific evidence.  

Superiority: Quincy argued that identifying class members would be difficult because “Prevagen is primarily sold by third-party retailers,” some individuals could be satisfied with the product, and any who are dissatisfied could seek a refund. None of that mattered; “the Ninth Circuit recently rejected a similar argument that plaintiffs must identify an administratively feasible way to determine who is in the class in order to satisfy the requirements of Rule 23.” That some individuals might like the product was irrelevant; under Racies’ theory, the products were worthless and any benefit was attributable to the placebo effect.  Refunds were also not superior alternatives to adjudicating class members’ claims. 

We're not gonna need a bigger bucket: lawsuit against KFC dismissed

Wurtzburger v. Kentucky Fried Chicken, No. 16-CV-08186, 2017 WL 6416296 (S.D.N.Y. Dec. 13, 2017)

Wurtzburger sued KFC for alleged violations of General Business Law §§ 349, 350 and 21 C.F.R. § 100.100 by misleading consumers into believing that KFC’s buckets of chicken were are filled to the rim. She bought, inter alia, $20.00 “fill-up” bucket meal of chicken that was advertised as consisting of “an eight piece bucket of chicken” and “stated that the meal could feed your whole family,” but the ad displayed a bucket overflowing with chicken, and her bucket was not overflowing.

Using an objective reasonable consumer standard, the court found no plausible claim.  Wurtzburger didn’t claim that she received less than eight pieces, which was the amount she bargained for. The use of a larger than necessary bucket wouldn’t be materially deceptive or misleading “to a reasonable consumer acting reasonably under the circumstances,” especially where the consumer “ordered, purchased, and received the precise number of items requested.” Allegations that the phrase “the meal could feed your whole family” was misleading were conclusory and without merit.

Wurtzburger’s allegation that she suffered personal injury/acid reflux as a result of buying the chicken were also insufficient to establish the injury sought to be addressed by the statutes.

21 C.F.R. § 100.100 covers branding on containers, and provides that a food is misbranded “[i]f its container is so made, formed, or filled as to be misleading.” A container is misleading if its contents cannot be fully viewed and it contains “nonfunctional slack-fill,” which is further defined by the regulation.  GBL § 349 can encompass claims of excessive slack-fill, but it is a “complete defense that the act or practice is ... subject to and complies with the rules and regulations of, and the statutes administered by, ... any official ... agency of the United States as such rules, regulations or statutes are interpreted by ... the federal courts.” Alleging that the bucket Wurtzburger bought could hold more chicken was insufficient to state a claim for non-functional slack-filling; at a minimum, she needed to allege facts showing that KFC used slack-filling in a manner outside of the enumerated permissible uses under the regulation.

section 2 refusals are subject to Reed strict scrutiny, Fed. Cir. rules

In re Brunetti, No. 2015-1109  (Fed. Cir. Dec. 15, 2017)

Brunetti wanted to register FUCT; the TTAB affirmed a refusal to register on scandalousness grounds.  The Federal Circuit here deals the inevitable deathblow to scandalousness as a registration bar, but on broader grounds than I expected.  Instead of holding that scandalousness is obviously viewpoint-based (because it focuses on that which offends the majority, not others—even if you thought as I did that disparagement is not viewpoint-based, scandalousness doesn’t protect everyone equally), the court merely expresses its suspicion that the bar is viewpoint-based, but then holds that the provision is (1) content-based and (2) insufficiently justified.  So, which of the other §2 bars can survive strict scrutiny, or even intermediate scrutiny?

The court applied Reed v. Town of Gilbert’s definition of content-based laws: “a law applies to particular speech because of the topic discussed or the idea or message expressed.” “Content- based statutes are presumptively invalid” and must survive strict scrutiny.  But the government didn’t argue that scandalousness survived strict scrutiny.  Instead, it made the already-rejected arguments that trademark registration is either a government subsidy program or a limited public forum.  (Only some Justices in Tam reached these issues, but the Federal Circuit already rejected those arguments.)  The Federal Circuit characterized the bar on registration as a “restrain[t]” on the expression of private speech in commerce, thus at least triggering unconstitutional conditions scrutiny.

The court then applied strict scrutiny, not Central Hudson, because the scandalousness bar targeted the expressive content of speech, not just source identification (which the court apparently equated with  speech that does “no more than propose a commercial transaction,” though of course that's not true in many cases).  The court thinks this distinction will protect most of the remaining parts of §2, not to mention infringement law generally.  I am not so sure, though I am sure that dilution looks even worse now.  The court specifically mentions the “merely descriptive” and “geographically descriptive” bars as targeting source-identifying information, which … seems backwards.  Those bars target information that doesn’t identify source.  If denying registration deters use of this (presumptively truthful) information, as the court already held when it treated denial as a restraint on expression, then those bars need further analysis.

The court then went on to hold that the scandalousness bar also didn’t survive intermediate scrutiny: “the State must show at least that the statute directly advances a substantial governmental interest and that the measure is drawn to achieve that interest,” though it need not be the least restrictive means. There was no substantial governmental interest in “promoting certain trademarks over others” (*cough*dilution*cough*), or in protecting the public from offensive marks.  [In passing the court accidentally explains why disparagement was content-based but viewpoint-neutral under prior precedents, pointing out that many cases cited in Tam didn’t involve viewpoint-based restrictions, such as Hustler v. Falwell, where the speech was offensive but didn’t articulate particular “beliefs, ideas, or perspectives.”]  There was also no substantial interest in protecting the public from scandalousness and profanities under FCC v. Pacifica Foundation, 438 U.S. 726 (1978), which depended on the fact that radio broadcasting has “a uniquely pervasive presence in the lives of all Americans” and is “uniquely accessible to children, even those too  young to read,” confronting Americans “in the privacy ofthe home, where the individual’s right to be left alone  plainly outweighs the First Amendment rights of an  intruder.”  “A trademark is not foisted upon listeners by virtue of its being registered. Nor does registration make a scandalous mark more accessible to children.” 

Anyway, even if there were a substantial interest in protecting the public from scandalous or immoral marks, denial of registration wouldn’t directly advance the government’s interest, because §2(a) doesn’t prevent the use of marks, just bars their registration.  [Hey, did you notice that this argument applies to the other §2 bars, including descriptiveness, deceptiveness, and the others?  The only one that might survive is §(d) confusion, because of B&B v. Hargis—because the TTAB’s determination could in some circumstances be used to stop the mark’s use, perhaps that directly advances the government’s interest.  But what if, as the Court indicated in B&B would regularly be the case, the defendant’s use is relevantly different from that laid out in the rejected application?  In that case, the rejection wouldn’t prevent the use and wouldn’t directly further the government’s interest in avoiding confusion.]

Finally, the scandalousness bar wasn’t carefully tailored, given the PTO’s inconsistent application of the bar and the TTAB’s own acknowledgement that scandalousness is “vague and subjective.”  [I have some bad news about the difference between descriptive and suggestive marks, and about §2(d) confusion analysis.]  Not only did this inconsistent treatment create vagueness problems, it generated “uncertainty [that] undermines the likelihood that the [provision] has been carefully tailored.”  Even if there’s a set of trademarks “whose offensiveness cannot be reasonably questioned,” the disparate and unpredictable application of the principles of scandalousness makes the bar flunk the narrow tailoring requirement of Central Hudson.

Judge Dyk’s concurrence would have limited the invalidation of scandalousness to marks that weren’t obscene, but the majority found that no reasonable definition of the statutory terms could convert them into a bar on “obscene” marks.

Friday, December 15, 2017

Reading list: measuring the impact of user rights


International and domestic copyright law reform around the world is increasingly focused on how copyright user rights should be expanded to promote maximum creativity and access to knowledge in the digital age. These efforts are guided by a relatively rich theoretical literature. However, few empirical studies explore the social and economic impact of expanding user rights in the digital era. One reason for this gap has been the absence of a tool measuring the key independent variable – changes in copyright user rights over time and between countries. We developed such a tool, which we call the “User Rights Database.” This paper describes the methodology used to create the Database and the results of empirical tests using it. We find that all of the countries in our study are trending toward more open copyright user rights over time, but the wealthy countries in our sample are about thirty years ahead of developing countries on this measure. We find evidence of benefits that more open copyright user rights generate, including the development of high technology industries and scholarly publication. We do not find evidence that opening user rights causes harm to revenue the of copyright intensive industries like publishing and entertainment. We have released all of the data gathered in this project to the public under an open license to enable its use by other researchers. Our empirical findings are relevant to several major arguments for or against expansions of copyright user rights that one hears frequently in reform debates.

Wednesday, December 13, 2017

Allegedly false certification for competitor brings trade secret, deceptive practices claims

Duro Corp. v. Canadian Standards Assoc., 2017 WL 6326862, No. 17 CV 1127 (N.D. Ohio Dec. 11, 2017)

Duro, a distributor of high end gas ranges, sued the CSA, a nonprofit consumer product safety testing organization, for misappropriation of trade secrets, violation of the Ohio Deceptive Trade Practices Act, and Lanham Act violations.  The CSA issues a “Certificate of Compliance” to tested products that meet the requisite standards.  Duro Ranges have been CSA-certified, as Duro highlights in its advertising, allegedly contributing to its success and profitability. A non-party, Hyxion, manufactures Duro Ranges in China.  Hyxion allegedly used designs it acquired for the manufacture of Duro Ranges to begin manufacturing its own brand of “knock off” ranges which are virtually identical in design to Duro Ranges, but which use cheaper parts.  The Hyxion “knock offs” have also been certified by CSA, and this certification allegedly harmed Duro’s sales.

The main allegation of the complaint is that CSA’s certification of the Hyxion ranges was improper, and wrongly based on the belief that the Hyxion ranges were identical to Duro’s even though Hyxion used different parts. As a result, CSA allegedly used the Duro Range drawings and test results to certify corresponding Hyxion ranges instead of independently testing the Hyxion ranges. The CSA website which advertises its certification of the ranges refers to the Hyxion ranges as having the trade name “Hyxion/Duro” despite the lack of affiliation.

On the state law trade secret claim, CSA argued that, because Duro provided the Duro Range drawings to its manufacturer, Hyxion, it did not take reasonable steps to maintain their secrecy, and also that the test results didn’t belong to Duro, and therefore cannot be Duro’s trade secrets.  The court found the complaint sufficiently alleged trade secret misappropriation for the design drawings, which were to be treated as confidential under the parties’ agreement. “Disclosure of proprietary information, as necessary, to parties essential to the manufacturing and marketing of a product does not strip that information of its trade secret status if reasonable steps are taken to ensure the confidentiality of the information,” as was alleged here.  However, the test results couldn’t be trade secrets; they weren’t identified as confidential in the parties’ agreement, and they were independently developed by CSA.  The federal trade secret claim failed because there was no alleged misappropriation on or after May 11, 2016, that law’s effective date. Hyxion’s continuing use of the CSA certification might be relevant to damages, but there was no allegation that the design drawings themselves were appropriated beyond the initial misuse.

The Ohio Deceptive Trade Practices Act covers, among other things, “(1) passing off good or services as those of another (2) causing the likelihood of confusion or misunderstanding as to affiliation, connection , or association with, or certification by another; (3) representing that good or services have sponsorship, approval, characteristics...status, affiliation, or connection that they do not have; (4) representing that goods are of a certain standard, quality, or grade...if they are of another.”  Duro argued that two statements/practices were deceptive: (1) CSA’s ads for its own services, specifically the statement that its certification mark should offer “peace of mind to retailers, regulators, consumers and end users the word over by indicating that your products have been independently tested and have met the required standards for safety & performance,” and, (2) CSA’s certification of the Hyxion products.

The first statement wasn’t adequately alleged to be false; indeed, Duro’s claims relied on the “peace of mind” idea being true and therefore increasing sales.  Thus, Duro couldn’t claim any damage from CSA’s ad.  Indeed, if Duro truly believed that CSA’s independent testing claims were actually false, Duro itself “could potentially be at risk of violating of the ODTPA.”

However, CSA’s certification of Hyxion was plausibly alleged to violate the ODTPA through false certification. The complaint alleged that CSA materially represented, through its certification, that Hyxion’s products met certain safety standards, even though CSA had not properly tested the products. Further, the complaint alleged that CSA listed Hyxion’s products as having a trade name of “Hyxion/Duro” on its website, which could have caused consumer confusion over whether Hyxion was affiliated or associated with Duro.  The court also noted that “[i]t is difficult to imagine how Duro would be able to prove deception, or causation of damages if it cannot eventually prove that CSA would not have certified the Hyxion products but for the alleged misuse of Duro’s information,” which is an interesting point—the falsehoods alleged are related to, but not necessarily determinative of, the ultimate harm-causing behavior, the certification itself.

The court also dismissed the Lanham Act claims, because they weren’t alleged to be in “commercial advertising or promotion.” Duro sufficiently pled that the statement of certification was commercial speech that is disseminated to a substantial portion of the plaintiff and/or defendant’s existing customer or client base. However, the complaint failed sufficiently to allege that the statement was made for the purpose of influencing customers to buy CSA’s goods or services, as the Sixth Circuit test requires.  An out-of-circuit case allowed a claim to proceed where a statement was made to support affiliates and thus directly increase the defendant’s own profits, but “[n]o such economic incentive exists for CSA’s certification of the Hyxion ranges under the alleged facts of this case.”

Tuesday, December 12, 2017

Knit-picking right of publicity question of the day

I'm learning to knit, and at the local store I encountered this charming pin:
Does Arnold Palmer have any recourse against the "yarnold palmer"?

I'm a judge, not a media theorist, Jim: NFU doesn't protect use of Dr. Seuss font in mashup case

Dr. Seuss Enterprises, L.P. v. ComicMix LLC, No. 16-CV-2779 (C.D. Cal. Dec. 7, 2017)

Though the court dismissed the first trademark/copyright infringement complaint against this Star Trek/Dr. Seuss mashup, the amended complaint survives.

Copyright: It’s still transformative, but the complaint added information about the fourth fair use factor.  Dr. Seuss’s earlier complaint alleged that it was not uncommon for it to license its works and collaborate with other rights holders; the court presumed a potential harm to licensing opportunities, but still found that Oh, The Places You’ll Boldly Go “does not substitute for the original and serves a different market function” given that “Boldly’s market relies on consumers who  have already read and greatly appreciated Go! and Dr. Seuss’s other works, and who  simultaneously have a strong working knowledge of the Star Trek series.”  The amended complaint alleged that Dr. Seuss had published derivative works of Go! such as Oh! The Places I’ll Go and other works based on the Dr. Seuss IP such as Oh, The Things  You Can Do That Are Good for You!  “Dr. Seuss” doesn’t appear on the book covers, which include names of other authors, even though they’re recognized by the public as Dr. Seuss works.  ComicMix argued that none of these were “crossover works that integrate pre-existing characters or imagery from another  entertainment franchise, such as Star Trek, with those of Dr. Seuss.” Dr. Seuss argued that The Wubbulous World of Dr. Seuss, “a live action/puppet show produced by the Jim Henson Company featuring Dr. Seuss’s well-known and beloved  characters alongside new, Muppet-like characters created by The Jim Henson Company,” showed that Boldly was the kind of derivative work that Dr. Seuss had the right to develop and could develop or license others to develop.

The court declined to presume market harm, because of the transformativeness of Boldly.  Still, factor four weighed in Dr. Seuss’s favor.  On the allegations of the complaint, there’s a potential market for literary mash-ups, and such a market wouldn’t be unlikely based on Dr. Seuss’s past licensing programs. Motion to dismiss denied, as before.

Dr. Seuss secured an even better result on its trademark/unfair competition claims, which had previously been dismissed. Dr. Seuss claimed trademark rights to (1) the title Go!; (2)  “the stylized font used consistently on the front and back covers, spine, and title page of  the Dr. Seuss books such that this use of the styled font has come to be recognized by  consumers as a source identifier for Dr. Seuss,” and (3) “the unique illustration style of the  characters and backgrounds found throughout Dr. Seuss books.”  Dr. Seuss also claimed registrations for Go!; Go! 25th Anniversary, and for a trademark in connection with downloadable digital children’s books, among other goods, as well as a family of  common law trademarks deriving from the title of Go!

Based on the allegations of the complaint, Dr. Seuss alleged protectable marks in the Go! title, and it was unnecessary to determine whether it could claim separate rights in the fonts used on other book covers or inside the book.  Illustration style cannot be a protectable mark, even if particular characters can be.

Nominative fair use (should have gone with Rogers, as this result illustrates, no pun intended): The fact that defendants’ use wasn’t exact wasn’t disqualifying, especially given the complaint’s allegations of misappropriation/use of the marks. Likewise, NFU can apply as long a defendant uses the plaintiff’s mark to describe the plaintiff’s product, even if the ultimate goal is to describe the defendant’s own product, which is what happened year.  And the product (the underlying work) wasn’t readily identifiable without use of the mark.  And defendants didn’t do anything other than use the mark that would suggest sponsorship or endorsement; people might not read the disclaimer on the third page, but disclaimers aren’t required.

However, factor two was the problem: the use was more than reasonably necessary (I think the court is saying that this is true for purposes of the motion to dismiss, not definitively, but I’m not sure) because defendants didn’t just use the words, but also the font of the original, “down to the shape of the exclamation point. The Court finds it was unnecessary for Defendants to use the distinctive font as used on Go! to communicate their message (i.e., that Boldly is a mash-up of the Go! and Star Trek universes).”  Aviva USA Corp. v. Vazirani, 902 F. Supp. 2d 1246 (D. Ariz. 2012), applied NFU even though the defendant there used the “distinctive colors and font” of plaintiff’s mark, but that was part of a “very obvious negative  commentary directed toward [plaintiff]” that could not lead to confusion.  [Again you see the benefit of Rogers.]

DMCA exemption survey: for vidders and other remixers

Take an 8-minute survey and help make the #DMCA decryption exemptions more user-friendly for vidders:

Monday, December 11, 2017

Sazerac will pay fees for its buffalo stance

Sazerac Company, Inc. v. Fetzer Vineyards, Inc., 2017 WL 6059271, No. 15-cv-04618 (N.D. Cal. Dec. 7, 2017)

The court here awards defendants its fees for proceeding past summary judgment in this trademark infringement case. “This was an exceptionally weak case,” though Sazerac had a legitimate motive in bringing it—to avoid “loss of control over its brand.” What made this case stand out was that “Sazerac proceeded to trial—where the only available remedy was injunctive relief—with zero evidence that it had been harmed in any way. Its decision to continue litigation unnecessarily burdened the court and defendant.”  The court awarded fees incurred after the summary judgment order, over half a million dollars.

Sazerac alleged that Fetzer’s 1000 Stories red zinfandel buffalo mark and trade dress infringed Sazerac’s BUFFALO TRACE word mark, Buffalo logos, and trade dress for its BUFFALO TRACE bourbon whiskey. The court ultimately Fetzer’s request to preclude monetary damages because Sazerac failed to disclose an expert to prove damages, as it indicated it would in its initial disclosures, and the remaining injunctive relief claims were tried to the court.

The basic claim sounded in trade dress; the buffalo depicted on the Fetzer label wasn’t an imitation of the Sazerac buffalo, and Sazerac consistently argued “that it was the combination of Fetzer’s buffalo with the reference to ‘bourbon’ in ‘BOURBON BARREL AGED’ that confused consumers as to the source of Fetzer’s 1000 Stories wine.” But Sazerac failed to provide any evidence of secondary meaning.  For belt-and-suspenders purposes, the court also rejected the claim using the multifactor likely confusion test.  Among other things, Fetzer showed widespread use of buffalo marks in the alcohol market, while Sazerac presented “no evidence of a single instance of actual confusion[,]” which the court found quite compelling considering the products’ “extensive presence, coexistence, and interaction with consumers” over three years, and “the fact that the products even appeared two tables apart from each other at the 2016 Bourbon Classic.”

The court rejected Sazerac’s argument that fees were only available for improper motivation, litigation misconduct, or objective unreasonableness. Under Octane Fitness, the standard is more relaxed.

There was no allegation of improper motive, but the court highlighted that there was “zero evidence of actual confusion,” which was especially important given Sazerac’s reliance on confusion to establish harm.  Sazerac did introduce a survey, which the court rejected, but the majority of respondents who falsely believed that the products were connected “identified the buffalo logo as the source of their confusion, as opposed to other options such as ‘label’ or ‘looks similar’” – this might have supported a trademark infringement claim based on the large buffalo mark, but not an independent claim for trade dress infringement.  Importantly, the main trade dress claim failed both on protectability and on likely confusion, as well as on evidence of harm, indicating the weakness of the case.

Sazerac maintained that its incontestable rights in the Buffalo Logo obviated the need for it to establish that its trade dress had secondary meaning, but that’s a misstatement of the law under Wal-Mart and blurred the line between its trademark and trade dress infringement claims. It turned out that Fetzer had been correct in its motion for summary judgment when it argued that “[t]his case is about Sazerac’s improper efforts to exclude all others from using in commerce the generic term ‘bourbon barrel aged’ in conjunction with any image of a buffalo.” Indeed, one of the reasons Sazerac’s survey was “fatally flawed” was because the control didn’t use the word “bourbon,” because the survey expert indicated that it was his understanding that Fetzer’s use of the phrase “Bourbon Barrel Aged” was somehow wrongful.  On summary judgment, the court concluded that Sazerac might be able to prove a likelihood of confusion without asserting rights over “bourbon.” But it became clear at trial that Sazerac could not do so.

The summary judgment motion didn’t address irreparable harm, but after Sazerac survived that, it was required to present evidence to succeed at trial, but instead it relied on the “meager” disputed facts that enabled it to survive summary judgment and showed no evidence of harm. “These deficiencies effectively render its entire manner of litigation wholly unreasonable.”  Though Sazerac was precluded from introducing evidence of monetary damages, that was Sazerac’s own doing, and it didn’t prevent Sazerac from presenting evidence of reputational damage, or any other form of irreparable harm.

The case began for subjectively legitimate reasons, but “once [Sazerac] forfeited the right to pursue damages and the case ‘officially’ became about injunctive relief, it was unreasonable for it not to present any evidence of irreparable harm.” This also meant the case was litigated exceptionally.  Evidence of harm would have been uniquely within Sazerac’s possession, and it was required under Herb Reed.  Sazerac argued that it provided evidence of harm in its loss of control over its brand. But that claim relied only on the conclusory statements of its senior marketing director, and was completely speculative.

And here, the court does something I’ve long wanted to see (yay Judge Orrick): it walks through the harm scenario, showing its absurdity:

A consumer would have to purchase 1000 Stories wine—which … occupies a “double niche” market given its price point and varietal—because s/he looks at the bottle and draws an association with Sazerac’s Buffalo Trace bourbon. And, in envisioning this obscure possibility, keep in mind that Buffalo Trace represents 0.5 percent of the whiskey market. Now assume that this consumer is a bourbon drinker (because that is 1000 Stories’ target demographic) who goes to the store looking for a red zinfandel. S/he purchases 1000 Stories because s/he knows of Buffalo Trace and associates 1000 Stories with it because of the 1000 Stories trade dress. Then, for Sazerac to suffer damage to its good will, that consumer would have to dislike 1000 Stories to the point that it would impact his or her perspective of Buffalo Trace, and, by implication, Sazerac, who, as an aside, owns over 350 brands.

Among the problems with this scenario, there were no assertions that 1000 Stories was inferior, so the only potential harm to Sazerac was a speculative and remote “loss of control” over one brand. “Accepting this extremely unlikely scenario to arrive at a finding of any harm would still have been insufficient for Sazerac to succeed, considering the other elements required for a permanent injunction,” especially the harm Fetzer would suffer if forced to change its label.

Brand owners may attempt to protect their rights, but they must have “an objectively reasonable basis for believing that its rights are under attack and consumers are at risk of being confused.” Moreover, Sazerac needed to “demonstrate some harm— separate from the potential for confusion”—to win. Exceptionality was shown by Sazerac’s failure to show evidence (1) that 1000 Stories was using any colorable imitation of any of Sazerac’s asserted trademarks; (2) that it had any protectable trade dress; (3) on six of the eight Sleekcraft factors; and (4) of any type of irreparable harm. 

Friday, December 08, 2017

Roundtable: The Right of Publicity in New York, St. John’s University

An Academic Discussion of Policy Choices in Designing a Publicity/Privacy Rights Regime: Rothman, Buccafusco, & Tushnet

The roundtable is on the proposed changes to NY's ROP, which are very extensive.
[I didn't take notes early on, sorry, but Prof. Rothman discussed issues like transferability, postmortem rights/justifications thereof; Prof. Buccafusco worked through the statutory text and showed that the exception to the exception to the exception structure raised lots of questions such as the treatment of biopics]
Bankruptcy: freely transferrable rights can be transferred involuntarily in bankruptcy. OJ Simpson: faced forced transfer of his IP, including his book, released under a cover that looked like it said “I Did It” instead of “If I Did It”

Reed v. Town of Gilbert: Supreme Court announced a stringent rule applying strict scrutiny for content-based distinctions and exceptions: there has to be a compelling government interest justifying the regulation and any exceptions also have to meet stringent tests—overbreadth will get the law struck down, but so will exceptions that indicate that the law isn’t targeting enough of the issue
Consider a biography of a literary figure that includes a number of quotes from her writings that qualify as fair use, or that are licensed by the copyright owner who isn’t the ROP holder—that seems to replicate her professional activities—there seems to be different treatment for writers, composers and artists than for other creators or public figures, and that could generate first amendment problems as well as uncertainties.
Other lessons from recent challenges to new problems largely generated by the digital age: revenge porn laws—where written broadly, risk invalidation as overbroad—Anthony Weiner and now apparently a number of other congresspeople are the usual examples: if you write a law that would prevent a woman from speaking out about the explicit photo that a congressman sent her, then your law is overbroad and will probably not survive First Amendment scrutiny.
By contrast, narrow laws directed at unwanted disclosures of ordinary people’s intimate photos shared in consensual contexts can and should survive.
Publicity rights are different from revenge porn, but the lesson about being clear about the goals, especially when you go beyond regulating advertising, is very important
Recent case from the 9th Circuit: while the 9th Circuit had previously approved very expansive rights of publicity, Hurt Locker case it reversed course—applying ROP to a movie at all required the ROP to survive strict scrutiny, which it could not do at least in the circumstance of the Hurt Locker

Inextricably intertwined w/the right of publicity: definition?  Completely new concept, not borrowed from other doctrines; there is a related concept for determining what is commercial speech, but in that case when the First Amendment protected content is inextricably intertwined with unprotected content, the First Amendment wins, and this provision seems to be designed to reverse that.
Agree with professor Buccafusco about the questions about biopics.  Documentary about athlete’s sports successes? 
Vagueness and uncertainty concerns—First Amendment doctrine says that if you can’t readily determine what’s covered, the law will be void for vagueness.  Here is where a more specific labor right, similar to the special privacy rights now granted to police officers in section 50, rather than an exception to the exception might be better tailored to deal with what seems to be the concern
Another example where a court might find an invalid content based exception under Reed is the exception for the use of an individual's right of publicity for fund- raising purposes by not-for-profit radio and TV stations

Also raises copyright preemption issues: even if 1A doesn’t preclude a use, the Copyright Act may do so if it interferes w/rights to reproduce works that the performers or athletes consented to making—Dryer case in the 8th Circuit, Maloney in the 9th Circuit, 7th Circuit also—2d Circuit is unlikely to create a split by allowing a ROP claim to proceed against a work even if it is subject to the exception to the exception—focusing on the labor law components of a reanimation claim could be more likely to avoid preemption

Part 3: A Discussion With Legislative Actors About The Goals and Means of A8155-A/S5857-A: Sen. Savino, Bergin, Clenahan, & Maggs
Savino: Important to understand how we create legislation.  W/o lots of input you end up with bad law.  Fewer members of the legislature now are lawyers; we rely on counsels/staff to draft laws.  History of ROP in NY started w/a girl who saw her face on a bag of flour and sought redress. Beginning is an individual who felt aggrieved and sought redress from her gov’t— “lobbyist” began in NY where people waiting for legis. would sit in the lobby.  Views this as a labor issue—workers’ rights.  Time to update NY law.  Has heard from SAG-AFTRA and MPAA, but now hearing from IP lawyers. We don’t want trolls.

Bryan Clenahan: 99 year old law needs to be updated for the digital age. This is a fluid process w/ more drafts to come.

Robert Bergin: Represents the majority leader, lead sponsor of bill.  1902 marked first case, and also introduction of Brownie camera, opened up a new field.  Reanimation/computer generated images reach a point where changes are needed.  Fairness to deceased’s estates about benefiting from use v. other people w/no connection.

Amy Maggs: Central staff/drafter.  In the room where the inextricably intertwined language happened.  [But gets bonus points for Hamilton reference.]

Scavino: Suggestions for language changes to correct the deficiencies identified?

Jeremy Sheff: lots of parts of the draft use language with a history. But salient terms don’t have that pedigree, either not explicitly defined or not found in statute on the books w/100 years of history.  What is the impetus for including those terms in the draft?  Is there a way to either define those terms or create legislative history for interpreting those terms?

Maggs: We know inextricably intertwined is imperfect—that’s being negotiated among parties.  Partially meant to deal w/avatars and digital recreations like those in Rogue One.  [But I’d even add talk about why you have proposed protection for “gestures.”  Why is that important for those objectives?]

Bergin: What we were looking at is existing law, grafting onto it. Not trying to undo 100 years of experience.  We’re trying to add postmortem and dealing w/new tech. Trying to keep purposes of trade.

Maggs: took out the misdemeanor, b/c we were asked to get rid of that.

Scavino: Actual entities affected—what may appear to be confusing is language they’ve agreed on to protect their interest; it made sense to them.   [This isn’t a great justification for First Amendment purposes.]

Maggs: some of the language was agreed to by all parties.

RT: Rogue One wouldn’t be purposes of trade in current law.  If you leave purposes of trade where it is in the current law you are also clearly trying to cover Rogue One and thereby creating a serious interpretive issue.  This is why you might want to leave purposes of trade where it is and create a separate provision targeting avatars if that’s the specific concern.

SAG-AFTRA and MPAA may understand the language, but if other people don’t that’s still a problem. First Amendment cases are often brought by outsiders who aren’t covered, and to design a system in which insiders are protected and outsiders aren’t is pretty much a problem from the First Amendment perspective.

Rothman: leave in place what you have which is working well in most instances. Rather than complicating it with exceptions to exceptions, affirmative descriptions of narrow, precise right is a smart approach. Tech change: technical neutrality is important—need to think about whether current law actually addresses this. Reanimation is new, but recasting is not.  There’s a lawsuit about Back to the Future II, Crispin Glover sued because he was recast (they used existing footage and a prosthetic mask); old law provided an opportunity to protect his rights.  Unintended consequences: think of people who don’t have lobbyists who aren’t getting exemptions who might be affected. That’s why she is specifically concerned about transferability of rights—young actors (even minors) w/o bargaining power who will transfer their rights away.  Websites, journalists, ACLU—a more diverse base consulted. 

Maggs: several unions support the bill.

Rothman: may not understand unintended consequences.

Clenahan: how have states dealt w/intestate transfer?

Rothman: 25 states don’t have intestate rights; Illinois says creditors can’t get it; Nebraska said it’s not transferable; it’s an emerging issue not litigated very much.  More pressure likely to come.  (Bettie Page transferred her rights to CGM when she was very old, windfall for CGM and not much justification for it.)  There isn’t a great model in a statutory postmortem right, but if we really care about heirs it should be focused on inheritance by natural persons.  Could also do confusion about sponsorship requirement as some states do.

Q: Lock down the substance first, then the language.  What does “transformative” mean in the ROP context?  Borrowed from © where it’s been the most enormous controversial issue in ©.  Judicially made construct.  Would Vanna White case come out the same way under transformative standard?  What is NY’s interest in protecting noncitizens?  Only 5 states allow that, not even California.

Maggs: If it’s wrong to exploit someone’s persona it’s wrong. 

Q: what if it’s not wrong in the state where they lived their whole life and died?

Scavino: Congress might be better, but we know that’s not going to happen. States as incubators; maybe this will eventually percolate up.  As NY goes, so goes the nation. Maybe if NY says this, that will force a larger discussion.

Q: Live stage rights: Carole King, Frankie Valley/Jersey Boys. The exception seems like it covers a musical, but the exception to the exception seems to bring that back in. When clients ask whether ROP is required, what is the answer?  Create and write the musical, but the next step is reading—may be considered a solicitation under the statute.

Maggs: Exception to exception is more about avatars/create people after they’re dead.  [Then maybe it should be written that way?]  That’s part of the confusion.  That language has to do w/Zacchini and taking away someone’s job by taking whatever entity they’ve created and recreating it w/o them—recreating their persona.  [Chris Pine needs to worry about William Shatner, it seems to me!]

Q: Athletes and biopics: does the exception to the exception come in if there are reenactments of big sports scenes?

Maggs: They had someone play “Who’s on First/What’s on Second”—they’d gone too far [that’s a copyright case involving fair use—and I note that the transformative use exception is subject to the exception to the exception, so even a transformative use is unprotected if it is “inextricably intertwined” w/ performance]. Depending on how it’s done—if you put a clip from a sports event on stage v. you have someone pretending to be people, there’s a lot of variations. [Seems to suggest that one of those should be illegal?]  She’s not sure how that biopic would come out.  [Ulp.]

Q: Active debate about whether we care about the likeness being transformative or whether the work as a whole is transformative. The use has a lot of baggage.  Remedies portion: purposes of trade is in the remedies portion; is there a point of limiting the remedy more than the scope of the right?

Maggs: want to change as little as possible in the case law? 

Q: so you would have a right but you wouldn’t be able to get damages if it wasn’t for purposes of trade?

Maggs: yes. A lot of the language like transformativeness comes from other states’ legislation.

Q: if it’s wrong it’s wrong, then why would you deny this right to the estate of someone who died 10 years ago?

Maggs: Rights have vested, estates have paid taxes, etc.