Use of competitor’s photo in comparative ads caused no (c) damage, appeals court holds

Posted on April 15, 2024 by rtushnet

I Dig Texas, LLC v.
Creager, — F.4th —-, 2024 WL 1590590, No. 23-5046 (10th Cir. Apr. 12, 2024)

The district court
found that use of a competitor’s photos in comparative
advertising was fair use; the court of appeals affirms on the alternative
ground that no copyright damages can be traced to the use of the photos,
holding that a plaintiff seeking defendant’s profits must show a nexus between
the use of the copyrighted works and the profits. It also affirms the
conclusion that it was not literally false to claim that machinery was American-made
when it was assembled in the US from materials including foreign-sourced components.

Appellee I Dig Texas
tried to appeal to consumers’ preference for American-made products; it used
Creager’s photographs of its China-made Montana Post Drivers as part of its
advertising.

Rather than ruling
on fair use, the court reached the alternative ground of lack of any nexus to damage,
which was fully briefed below.

Profits can be either
direct or indirect; indirect profits would include “enhance[ing] operations by
infringing on a copyright or “add[ing] sales because [defendant’s]
advertisements included copyrighted images. Appellant Creager “bore the initial
burden to show a nexus between I Dig Texas’s infringement and making of a
profit.” Once the nexus has been established, the burden would be on defendant to
show which profits didn’t come from infringement, but that first step still
exists. Showing a nexus requires more than speculation.  

Although the photos
depicted Creager’s products, “there’s no evidence that I Dig Texas sold any
more products because the advertisements had included these photographs.” [I
will note there’s a subterranean fair use rationale, still, since if the photos
hadn’t been used for critical purposes but to show the appeal of defendant’s
lookalike products no one would have failed to infer a nexus. This might be
another knock-on effect of Goldsmith: courts now afraid to say that
anything is transformative, even straight-up criticism.] There was no showing
that I Dig Texas “made any money from the advertisements bearing the
copyrighted images.” The existence of the ads wasn’t “evidence that anyone had
bought something from I Dig Texas because of these advertisements. And even if
someone had bought something from I Dig Texas based on these advertisements,
there’s no reason to believe that the two photographs would have made a difference
to any consumers.”

Nor were the ads
literally false (again, an alternative ground: the district court found that
the components were disclosed, but the court of appeals noted that at least
some of the ads didn’t contain all the relevant information). “[A]n ambiguous
statement can’t be literally false.”

Some I Dig Texas
products were assembled in the United States, others in China. “Even for the
products that I Dig Texas had assembled in the United States, some components
had come from overseas. For example, I Dig Texas had used a nitrogen power cell
made in China. And some of the nuts and bolts had come from Canada.” The court
of appeals reasoned that “make” “could refer either to the origin of the
components or to the assembly of the product itself.” Since some of the
products were assembled in the US, the ads were ambiguous and not literally
false.

What about the ones
assembled overseas? Well, the ads didn’t say “all.”  I Dig Texas said on its website: “We Provide
100% American Made Skid Steer Attachments.” And a statement can be literally
false by necessary implication. But that 100% was still ambiguous: it could
mean “that only some of the products consist entirely of domestic components
assembled in the United States. Or 100% could refer only to assembly of the
final product rather than the origin of the components.” [Not discussed: were
either of these true?] Nor could the court rely on FTC standards in a
Lanham Act case, especially when the FTC noted that there was no bright line.

Likewise, patriotic
symbols like the American flag could imply US manufacture, but they couldn’t “objectively
be verified as true or false,” so they couldn’t be literally false. [Actually,
that suggests they couldn’t be misleading, either, but the court seems a bit
unclear about that.]

from Blogger http://tushnet.blogspot.com/2024/04/use-of-competitors-photo-in-comparative.html

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Hospital’s use of Meta’s Pixel, despite promise to keep data private, plausibly deceptive

Posted on April 15, 2024 by rtushnet

Mekhail v. North
Memorial Health Care, — F.Supp.3d —- , 2024 WL 1332260, No. 23-CV-00440
(KMM/TNL) (D. Minn. Mar. 28, 2024)

Mekhail alleged that
North’s use of a piece of hidden software on its websites (a pixel developed by
Meta) surreptitiously tracked, collected, and monetized various aspects of her
online activity, including sensitive medical information protected by law. Although
she alleged violations of the federal and Minnesota wiretap statutes and the
Minnesota health records statute (which all survived the motion to dismiss), I’ll
focus on claims under the Minnesota consumer fraud statute, the Minnesota
deceptive trade practices statute, and common law claims of invasion of privacy
and unjust enrichment.

Mekhail alleged that
North’s public-facing website, which publicly offers information about medical
issues and the health care resources provided by North, and its
password-protected “patient portal,” which contains personal medical
information, including patient records, appointment booking, and test results, both
used the pixel to surreptitiously track, collect, and transmit her online
activity, including page views, clicks, search terms, and so forth. This
information was then allegedly collated by Meta and eventually used to craft
targeted advertising to Mekhail related to her web activity.

Minnesota Consumer
Fraud Act: The MCFA prohibits the “act, use, or employment by any person of any
fraud, false pretense, false promise, misrepresentation, misleading statement
or deceptive practice, with the intent that others rely thereon in connection
with the sale of any merchandise.” Mekhail has failed to allege a
misrepresentation in connection with merchandise, as required by the statute.
The alleged misrepresentation was North’s statement that it “protect[s] health
and medical information as required by federal and state privacy law.” At oral
argument, counsel offered the theory that the “exchange of data” between Mekhail
and North represented an intangible good or commodity, but the complaint only
referred to North’s medical services. And Mekhail didn’t allege that there was
a misrepresentation made by North in connection with its provision of any
medical services. She alleged a misrepresentation related to data privacy, “but
North is not in the business of providing data privacy services.”

The Minnesota Unfair
and Deceptive Trade Practices Act  prohibits the use of “deceptive trade
practices” in the course of business, vocation, or occupation, which include
“caus[ing] likelihood of confusion or of misunderstanding as to …
certification of goods or services,” “engag[ing] in (i) unfair methods of
competition, or (ii) unfair or unconscionable acts or practices,” and
“engag[ing] in any other conduct which similarly creates a likelihood of
confusion or misunderstanding.”

North allegedly made
numerous statements that it protected patients’ medical privacy and health
data. North disputed that anything shared with Meta was protected health data
and also argued that some of allegedly deceptive statements are linked to the
Privacy Policy, which (allegedly) states that North “may disclose information
to third parties who act for us or on our behalf.” But that wasn’t enough at
the pleading stage to overcome the allegations of the complaint.

Article III
standing: MUDTPA’s only remedy was injunctive relief for a “person likely to be
damaged by a deceptive trade practice.” This showing of likely future harm that
is seemingly “indistinguishable from Article III’s threat-of-future-harm
requirement for injunctive relief.”

Mekhail alleged that
there were two likely future harms: where new data is taken from her by the
Pixel, and where the data already taken by the Pixel is used in newly harmful
ways. This first scenario was “in obvious tension” with the fact that she was,
by her own allegation, a “former patient” of North. However, she argued that
she could become a patient again, especially in an emergency situation. This
was somewhat tenuous, but nonetheless,

there are real and undeniable scenarios in which Ms. Mekhail, despite
her best efforts, becomes a patient again of North. And it is not clear to the
Court that Ms. Mekhail could ever truly quantify the likelihood of such a
scenario. After all, a medical emergency, like that contemplated in the
pleadings, can arise as real and immediately as tomorrow or, with any luck, may
never occur. It is simply not within Ms. Mekhail’s capacity to plead the kind
of concrete likelihood typically required by our standing cases.

In addition, because
she was once a patient, North allegedly has records of past treatment and
appointments. Thus, she may have to use the patient portal even if she does not
return as a patient. “If she needs to obtain or review her own medical records
from North using the portal (surely the quickest and least burdensome way) she
would once again be exposed to harm from the allegedly deceptive practices.”

But the second
theory was stronger: “her data, already collected by the Pixel, remains beyond
her control and may be used in harmful ways.” The complaint sufficiently pled a
likelihood of future harm, if not a likelihood of future deception. To find no
standing would deprive federal plaintiffs of the remedy the statute set out.
Nonetheless, she would need to do more to actually obtain injunctive relief.

Invasion of privacy
based on publication of private facts and intrusion upon seclusion: There wasn’t
a sufficiently public dissemination of her health data for the first theory. But
an intrusion by North cannot be plausibly alleged because Mekhail conceded that
it was Meta (or Meta’s Pixel), rather than North, that made the interception.

Unjust enrichment
claims survived.

from Blogger http://tushnet.blogspot.com/2024/04/hospitals-use-of-metas-pixel-despite.html

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Good Meat is descriptive for sustainable meat-related services, plausibly deceptive for lab-grown meat

Posted on April 15, 2024 by rtushnet

Good Meat Project v.
GOOD Meat, Inc., — F.Supp.3d —- , 2024 WL 1083462,  No. 23-cv-04145-RFL (N.D. Cal. Feb. 12, 2024)

GMP is a nonprofit
focused on sustainable butchery and meat production practices. It provides
farmers, ranchers, and butchers with marketing education and technical
assistance; incubates “Meat Collectives” across the country; and educates
consumers about responsible meat production and consumption practices. GMP owns
two federally registered trademarks: the “GOOD MEAT” standard character mark
and the “GOOD MEAT BREAKDOWN” design mark.

GMI is a food
company which produces and sells cultivated, lab-grown meat from extracted
animal cells.  GMI removes embryonic
fertilized chicken eggs, minces the tissue and places the cells in culture,
grows cells in culture, and then 3D prints the cells into shapes resembling
cuts of chicken. Eat Just, GMI’s parent company, filed an ITU for a stylized
GOOD Meat mark in 2020; in 2021, defendants entered into agreements granting
their security interests in the intent-to-use application to a third party, and
also Eat Just assigned the entirety of its business having an interest in the GMI
mark to GMI. A notice of allowance issued in 2022.

The court denies a
preliminary injunction on the trademark claims based on lack of likely success
on the merits, but declines to dismiss either infringement or false advertising
claims. The false advertising claims are based on the allegation that the
defendants falsely advertise and promote their cultivated meat products as
“real meat, made without … taking a life” by “painlessly extract[ing] cells
from an egg or living animal.”

Likely success on
the merits: Strength was the sticking point. GMP was entitled to a strong but
rebuttable presumption that the GOOD MEAT mark is inherently distinctive
because the PTO registered the mark without requiring GMP to show secondary
meaning. GMI successfully rebutted this presumption by showing, by a preponderance
of the evidence, that the mark was merely descriptive, putting the burden back
on GMP to show secondary meaning.

Under both tests
used by the Ninth Circuit—the imagination test and the competitive need test—“good
meat” was descriptive of GMP’s services:

Customers do not need to exercise their imaginations to understand that
the term “GOOD MEAT,” as applied to educational services, refers to education
concerning “responsible” consumption of animal meat: that is, meat that
consumers can feel good about eating. There is little-to-no mental leap
required to understand that GOOD MEAT describes GMP’s services. Indeed, the
evidence shows that, in ordinary parlance, the term “good meat” is used
routinely to refer to the concept of sustainably sourced meat.

The court noted that
the fourth Google result for “good meat” is a book titled Good Meat: The
Complete Guide to Sourcing and Cooking Sustainable Meat. This title was
probative of how the term “good meat” is used in ordinary speech and
demonstrated the descriptive nature of the term. So too with the competitors’
needs test. GMI identified, two LinkedIn pages run by international companies
selling food products, GoodMeat and Good Meat Co.; the aforementioned book; and
USPTO records showing over 570 live registered trademarks using the term “good”
to describe meats and processed foods. Though registrations and foreign uses
aren’t use in the US, “these examples are not being used to show a crowded
trademark field or the extent of use in the term in the domestic market; they
are used to show how difficult it is to market goods and services that support
sustainably or responsibly sourced meat without using the term ‘good meat.’”

With the burden back
on GMP to show secondary meaning, it didn’t do so. There was no evidence that
consumers viewed the term “good meat” as referring a single source: that is,
GMP. This actually should have ended the inquiry: no mark, no trademark
infringement. But the court treated it as weighing against likely confusion.

GMP argued that it
had organized Meat Collectives in numerous states and has promoted its services
in various states, but didn’t offer evidence of how its efforts have been
received in the actual marketplace. Its evidence was insufficient to gauge the
mark’s commercial strength.

GMP then argued a
reverse confusion theory, but there the important question is “whether the
junior mark is so commercially strong as to overtake the senior mark.” [Again,
reverse confusion shouldn’t be available where there’s no mark, and probably
not even for a descriptive mark, given the risk that the adopter took on of
choosing a descriptive term.] But there wasn’t evidence that the “mark” had
been completely overtaken. For example, GMP was the sixth result in a Google
search for “good meat,” behind two results unrelated to either GMP or GMI. [Query
how personalization of search results affects this metric.]

Proximity of the
goods: They were similar at a high level of abstraction. But GMP offers
services, while GMI sells goods. “GMP focuses on butchering, slaughter, and the
development of Meat Collectives. It provides educational services to butchers,
ranchers, farmers, and consumers interested in sustainable meat production.
GMI, by contrast, sells a food product that explicitly avoids butchering,
ranching, and farming.” Disfavored confusion.

Mark similarity: “Visually,
the marks are similar. Aurally and semantically, they are identical.” Favored
confusion.

Actual confusion: A
GMP board member claimed to have received a LinkedIn message from students at
an Italian university who mistakenly believed they were contacting GMI. “The
Ninth Circuit has found mistakes made by a single retailer and single customer
insufficient to support a showing of actual confusion. Other courts in this
District have also found even stronger evidence of this type to be similarly
unpersuasive.” This was even weaker evidence, given that the alleged confusion
wasn’t among “industry journalists or the vendors that are GMP’s target
customers.” Moreover, the evidence was even less compelling in light of the
passage of time: if GMI had, as GMP alleged, flooded the online market with
advertising, only one example of actual confusion disfavors a finding of likely
confusion.

Marketing channels: “Merely
showing that both businesses advertise on the internet is insufficient to show
marketing channel convergence.” The marketing was otherwise quite distinct: GMP
markets principally to ranchers and farmers, while GMI markets cultivated meat
products made without ranching or farming. Disfavors confusion.

Degree of customer
care: The record was mixed.

Ranchers and farmers are likely to exercise high levels of care in
seeking out training programs and networking opportunities, but members of the
public interested in sustainable meat practices may be less discerning.
Likewise, GMI’s products are relatively cheap — its cultivated meat product is
served as part of a tasting menu that costs only $70 despite being offered by a
famous chef — but also cater to a relatively niche group of consumers who may
exercise greater care in their meat consumption.

Neutral.

GMI’s intent: There
was no evidence that GMI intentionally selected its mark to capitalize on GMP’s
goodwill or to “palm off” its goods as that of GMP, or intended to flood the
market (or that GMI should have known of the mark and disregarded the risk of
reverse confusion).  

Likely expansion of
product lines:  “Given their antithetical
targets, it seems unlikely that the GMP and GMI would expand into each other’s
marketing channels.…There is little risk that GMP will begin creating any
lab-based meat product, and it is equally unlikely that GMI will begin
providing educational services related to farmed and butchered meat.”

In essence, the same
analysis applied to the GOOD MEAT BREAKDOWN mark, except that that mark was
more dissimilar to GMI’s mark, which outweighed the greater conceptual strength
of “good meat breakdown” and design.

Also, the length of
time that GMP waited before seeking relief undercut any finding of imminent
harm. GMI sent a C&D to GMP in April 2022 (whoops!) but did GMP didn’t
sue until sixteen months later, then waited two more months before filing for
preliminary relief. Also, GMI recently withdrew its application to sell its
cultivated meat products in the domestic marketplace, further undercutting the
idea that harm is imminent. The court also considered GMI’s investment of millions
in its branding and advertising as weighing against relief.

Nonetheless, the
complaint sufficiently alleged infringement. For purposes of a motion to
dismiss, GMP alleged that its mark was valid and infringed.

False advertising: GMP
plausibly alleged that consumers could understand “GOOD Meat” and “real meat”
to mean meat from a once-living animal, or that consumers could believe that
GMI’s cultivated meat products are developed entirely from chemical or
plant-based sources, not from the use of an embryonic, fertilized egg. GMP also
sufficiently alleged competitive injury “as its consumers may mistakenly
believe that GMP endorses GMI’s statements and approach to food production, and
resultingly decide to stop using GMP’s services.” [Notably, while false
advertising doesn’t require competition, this particular theory of competitive
harm seems parasitic on the infringement claim, and would have to fail if there
was no likely confusion even if there was falsity.]

GMP also stated a
plausible claim for declaratory judgment that GMI’s mark was deceptively
misdescriptive. However, it didn’t plausibly allege that the mark violated the
Lanham Act’s anti-ITU-trafficking rule. Even if the ITU was used as collateral
for a loan, “[a] security interest in a mark, as collateral for a loan, does
not fall within the plain language of section 1060(a). It also does not raise
the policy concerns that underlie the Lanham Act’s anti-trafficking provision.”
With no allegation of actual default or transfer to a lender, the claim was
dismissed with leave to amend.

 

from Blogger http://tushnet.blogspot.com/2024/04/good-meat-is-descriptive-for.html

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Cal. appeals court affirms use of statistical sampling to calculate # of FAL/UCL violations in AG action

Posted on April 12, 2024 by rtushnet

People v. Ashford
University, LLC, 100 Cal.App.5th 485, 319 Cal.Rptr.3d 132, D080671 (Feb. 20,
2024)

Defendants Zovio and
Ashfort are the former owners and operators of an online university. The trial
court found that for more than a decade, defendants violated the UCL and FAL by
making false and misleading statements to prospective students for a total of
1,243,099 UCL and FAL violations. It imposed $22,375,782 in civil penalties.

The court of appeals
reduced the penalty for violations outside the FAL’s statute of limitations (a
decrease of under $1 million), but approved of the trial court’s general
approach to calculating damages, including its use of sampling and its
consideration of solicitations from California to out-of-state prospective
students.

The court explains:

Ashford University was founded in 2005, when Zovio, which had never
offered any degree programs, purchased a small campus-based religious
university located in Iowa. Zovio needed this university’s accreditation
because only students attending accredited institutions are eligible for
federal financial aid. Zovio renamed the school Ashford University (Ashford)
and transformed it into an enormous online institution that was marketed as a
traditional university. [It has now been rebranded as the University of Arizona
Global Campus.]

A typical bachelor’s degree from Ashford cost between $40,000 and
$60,000. At its peak, Ashford had more than 80,000 students and generated
hundreds of millions of dollars annually, the vast majority from
taxpayer-funded sources such as Title IV loans, income-based grants, and G.I.
Bill funds.

As Ashford knew, its
students led “complex” and “difficult lives” whose vulnerability “heighten[ed]”
the need for accurate college advising. They were typically older than
traditional college students with an average age of 35 to 37; of low income
(between 55 and 76 percent received Pell Grants); around half identified as
minorities. Of note, only a quarter of Ashford students graduated, and many
defaulted on their student loans.

Despite Ashford’s knowledge
of these facts, defendants “created a high-pressure admissions department whose
‘north star’ was enrollment numbers rather than truthful advising. Ashford
called its salespeople “admissions counselors” and trained them to build trust
and rapport with prospective students. Managers would threaten to fire those
who failed to enroll enough students. It was clear to defendants that the
boiler-room atmosphere put pressure on salespeople. “[A]dmissions counselors
succumbed to the pressure and made deceptive statements to prospective students
in order to boost their enrollment numbers and keep their jobs.”

The AG filed an
enforcement action alleging that defendants had violated the UCL and FAL by
making “myriad misrepresentations to prospective Ashford students regarding the
costs of attending Ashford, the availability of financial aid, the ability of
Ashford programs to prepare students for careers in certain professions, and
the likelihood that academic credits would transfer into and out of Ashford.”

The trial court found
in favor of the AG, relying on (1) the testimony of nine student victims who
experienced the misrepresentations and relied on them in deciding to enroll at
Ashford; (2) the testimony of former Ashford employees who explained how the
pressure to meet enrollment numbers, instructions from managers, and other
guidance led them to deceive students in order to promote enrollment; (3) the
testimony of an expert in college admissions with over 40 years of experience
setting industry standards for college advising and leading the admissions,
financial aid, and registrar departments of four major universities; and (4)
internal company documents and testimony of witnesses affiliated with
defendants.

I’m omitting infuriating
and tragic details of the misrepresentations, but to get the flavor, one woman testified
that she withdrew from a degree program at a different school that would have
led to teacher licensure because she was told Ashford’s program was equivalent
to the one she was attending. “Only after graduating did she discover this was
not the case and her Ashford education did not qualify her to take the state
teaching exam.” There were also financial misrepresentations about debt, costs
of attendance, and so on.

Defendants’
compliance department used scorecards to assess calls between employees and prospective
students; the AG’s expert found relevant deceptive statements in over 20% of
scorecards. A compliance director responsible for admissions call monitoring
observed that there were “areas where the level of negligence is astonishing.” Defendants
received “mystery shopper reports” documenting specific misrepresentations
about financial aid and transfer credits. Their response was to discontinue the
mystery shopper program. They also didn’t respond meaningfully to student complaints.
Instead, they promoted a substantial number of repeat offenders who made
relevant statements in at least half of their monitored calls, which encouraged
further noncompliance.

Between 2013 and
2020, there were 1,573,400 phone calls between defendants and California
students. The AG’s expert drew a random sample of 2,234 calls, of which 561 discussed
at least one relevant topic within this sample. Twenty-two percent contained at
least one misrepresentation. Defendants retained and produced only California
calls, but, based on the testimony in the case, the court concluded that the
total number of misleading calls placed by defendants from March 2009 through
April 2020 was 1,243,099.

Public prosecutor,
including the AG, can seek civil penalties of up to $2500 for each violation of
the UCL and FAL; the statute doesn’t specify how violations to be counted, but  “[c]ivil penalties ‘are mandatory once a
violation of [the UCL/FAL] is established, and a penalty must be imposed for
each violation.’ ” UCL and FAL penalties are cumulative. The statute specifies:
“In assessing the amount of the civil penalty, the court shall consider any one
or more of the relevant circumstances presented by any of the parties to the
case, including, but not limited to, the following: the nature and seriousness
of the misconduct, the number of violations, the persistence of the misconduct,
the length of time over which the misconduct occurred, the willfulness of the
defendant’s misconduct, and the defendant’s assets, liabilities, and net
worth.”

Some of the penalties
imposed were for calls beyond the statute of limitations, so the court reduced
the penalty ($9/call) by the relevant amount.

However, it was
generally appropriate to use statistical methods to estimate the number of
violations. Defendants argued that the trial court found 1,243,099 violations
by extrapolating from a “set of just 126 calls,” but “[w]hether any particular
statement was misleading is a highly individualized inquiry that should have
been evaluated in the context of the specific coursework and degree programs,
financial aid and debt issues, and professional aspirations under discussion
(not to mention the follow-up calls made and written materials provided to the
same prospective students that were never considered).” However, “[r]epresentative
testimony, surveys, and statistical analysis all are available as tools to
render manageable determinations of the extent of liability.” The court relied
on the People’s experts, a subject matter expert in college admissions and a
statistician.  It followed appellate
guidance: “If sampling is used to estimate the extent of a party’s liability,
care must be taken to ensure that the methodology produces reliable results.
With input from the parties’ experts, the court must determine that a chosen
sample size is statistically appropriate and capable of producing valid results
within a reasonable margin of error.” Defendants could have tried to develop
evidence that this extrapolation was invalid at trial; they didn’t.

Each misleading call
could be appropriately counted as a separate statutory violation, even if, as defendants
asserted, admissions counselors spoke to each victim on average “a ‘half-dozen’
times.” Counting each call was not arbitrary and capricious.  “Each phone call in the violation count was
found to contain at least one deceptive statement,” and it wasn’t even clear
that the sample included repeat encounters. Even if it did, the individualized
solicitations justified counting each call as a violation.

Nor did the trial
court wrongly apply California law “extraterritorially” when it counted
statements that caused harm outside of California. The misconduct “emanated
from California,” and it’s well-established that the UCL/FAL extend to conduct
that emanates from California even if victims reside out of state. The AG is
not (just) a representative of injured California citizens; the AG acts “under
his constitutional authority as the chief law enforcement officer of the state.”

Finally, the penalty
wasn’t constitutionally excessive. Nine dollars per violation isn’t excessive
even if they committed a lot of violations. Defendants argued that the total
was excessive in comparison to the People’s request for $222,119 in restitution
on behalf of the nine testifying student victims, and there should only be a single-digit
multiplier. This wasn’t a punitive damages case, but a civil penalty, which is
fundamentally different: it’s sought by public law enforcement, not private officials;
there’s no jury trial and thus no risk of jury passion or prejudice; and the
underlying action doesn’t require proof of actual damages. More generally, the
harm wasn’t disproportionate to the penalty, considering both monetary and
nonmonetary harm.

“The court credited
the testimony of the nine student victims, each of whom described how their
admission counselors’ misrepresentations led them to make decisions that
frustrated their goals, deprived them of years of lost time, cost them
financially, and had other detrimental consequences.” It further found
significant similarities between the deceptions identified in the sample and
the stories of the testifying victims.

Defendants also didn’t
show that Zovio was unable to pay. Among other things, “[i]n exchange for
paying $54 million to ‘sell’ Ashford to UAGC, Zovio will now receive 15.5-19.5%
of UAGC’s tuition revenue for the next 7-15 years.” Even if 10% of net worth is
a maximum for punitive damages (which wasn’t clear), that didn’t apply to civil
penalties. And, in this case, Ashford earned Zovio “hundreds of millions of
dollars … annually.” Its voluntary depletion of its assets—in order to get a
future income stream—couldn’t count in its favor.

 

from Blogger http://tushnet.blogspot.com/2024/04/cal-appeals-court-affirms-use-of.html

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RAW power: over dissent, 9th Circuit orders trial on infringement, cancellation of TM applications

Posted on April 5, 2024 by rtushnet

BBK Tobacco &
Foods LLP v. Central Coast Agriculture, Inc., — F.4th —-, 2024 WL 1356981, Nos.
22-16190, 22-16281 (9th Cir. Apr. 1, 2023)

Over a dissent, the
panel reverses the grant of summary judgment on noninfringement, reasoning that
the overlap in the use of the (descriptive) word RAW between the parties’ somewhat
related products was enough to avoid summary judgment—which should rarely be
granted in trademark cases (ugh), despite major visual differences and the lack of actual confusion evidence
and low confusion rates shown by the parties’ surveys.

plaintiff’s RAW

defendant’s Raw Garden

Also over a dissent,
the panel finds that a court can order trademark applications
cancelled, not just registrations. (The panel did affirm the refusal to cancel defendant’s
registrations on grounds of unlawful use, since they weren’t for unlawful
items.)

BBK sells smoking-related products with RAW branding; CCA
allegedly infringed by selling cannabis
products with the mark “Raw Garden.” BBK sought to cancel several of CCA’s
trademark applications for lack of bona fide intent to use the mark in
commerce. “We hold that, under 15 U.S.C. § 1119, when an action involves a
claim of infringement on a registered trademark, a district court also has
jurisdiction to consider challenges to the trademark applications of a party to
the action. We also hold that lack of bona fide intent to use a mark in
commerce is a valid basis to challenge a trademark application.”

The dissent
disagreed, given that the statutory language is:

In any action involving a registered mark the court may determine the
right to registration, order the cancelation of registrations, in whole or in
part, restore canceled registrations, and otherwise rectify the register with
respect to the registrations of any party to the action.

But, the majority
reasoned, the Lanham Act refers to an “[a]pplication for use of trademark” as a
“request [for] registration of [a] trademark on the principal register.” “A
challenge to an application thus necessarily affects the applicant’s right to a
registration…. Indeed, some of the dissent’s own examples use the term ‘right
to registration’ when adjudicating an opposition to an application.” Adjudicating
applications in a single action was good for speed and efficiency.

The dissent would
have allowed the PTO’s iterative registration process to go forward. The
dissent would have interpreted “right to registration” in the relevant
provision to mean “the court’s authority to adjudicate the ownership, scope,
priority, and use of trademarks, which may entitle a party to registration of
the mark.” That is, courts could determine who has rights to a trademark, but
that’s not the same thing as cancelling pending trademark applications, as the
use of “otherwise” in the final phrase of § 1119 indicates. “Of course, the
right to registration may affect the applications’ adjudication. But that
doesn’t alter Congress’s choice to leave decisions over trademark applications
to the PTO.” Noscitur a sociis also supported excluding the authority to cancel
trademark applications from § 1119. “Given the neighboring terms, we should
likewise read ‘right to registration’ as only a power over completed
registrations.” (The section title—“Power of court over registration”—also suggested
that federal courts lack jurisdiction to cancel pending trademark applications.
“Though a statutory title may never ‘limit the plain meaning of the text,’ a
title may sometimes be a helpful interpretative tool.”)

from Blogger http://tushnet.blogspot.com/2024/04/raw-power-over-dissent-9th-circuit.html

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Dueling surveys don’t defeat class certification in supplement suit

Posted on April 5, 2024 by rtushnet

Corbett v.
PharmaCare U.S., Inc., 2024 WL 1356220, No. 21cv137-JES (AHG) (S.D. Cal. Mar.
29, 2024)

The court partially
grants class certification and rejects motions to exclude experts. Plaintiffs
allege consumer protection and breach of warranty claims based on PharmaCare’s
Sambucol product, a dietary supplement that is advertised to “support immunity”
and contain a proprietary extract of black elderberry. Sambucol comes in
various forms, including syrup, tablets, capsules, and gummies. The challenged
labels include some combination of the following statements: “Supports
Immunity”; “Scientifically Tested” (xkcd is,
as always, excellent on this); “Supports the immune
system”; “Virologist Developed”; “provides strong immune system support to help
you and your family stay healthy throughout the year. … conveniently arms you
with some of the best protection nature has to offer”; “only Sambucol® can
guarantee consistent, immune supporting properties in every serving”; “Developed
by a world renowned virologist, Sambucol®’s unique manufacturing process
preserves and maximizes the naturally occurring health benefits of the Black
Elderberry”; “used in published scientific studies. No other elderberry brand
can make the same claim”; “Developed by a world renowned virologist, Sambucol®
has been trusted by millions worldwide. Sambucol can be taken every day for
continuous immune support.”

Plaintiffs had two
theories: first, the products contain a new unreported dietary ingredient and
therefore, were illegal to sell as dietary supplements. Second, the products
were labeled and marketed in a way that claims that they mitigate or prevent
disease.

The court allowed
the parties’ experts and their dueling consumer perception surveys, plaintiffs’
materiality survey, and dueling conjoint analysis/damages opinions.

One of the
plaintiffs was a fine representative; he testified that he wouldn’t have bought
the products if he’d known of the illegality, which didn’t make him atypical.
The other testified that he only bought products that didn’t make the alleged
misrepresentations at the core of the disease claim, so wasn’t a typical
representative for the disease claims. On the other hand, it didn’t matter that
he didn’t recall seeing the “dietary supplement” label because the crux of the
argument was that plaintiffs wouldn’t have bought the products if they’d known
they were illegal, which didn’t depend on reading the phrase “dietary
supplement.”

Because of state-law
differences, a nationwide class couldn’t be certified, but a California one
could be. The court declined to find the drug theory preempted at this time,
noting that California’s Sherman Law adopts the FDCA’s provisions; this isn’t
obviously an attempt to directly enforce the FDCA.

Predominance for the
drug claims was satisfied based on the theory that an illegal unapproved
ingredient would render the products illegal for sale, and that a jury could
find that illegality would be material to a reasonable consumer. “Plaintiffs’
unfair or deceptive business practice NDI claim may rest upon a theory that
even putting the products for sale on the marketplace is an implicit
representation that they are being legally sold and comply with the FDA.”
Further, this finding could be supported at the certification stage “based on
evidence such as the perception of the named representatives and does not
require survey evidence.”

Predominance for the
disease claims: PharmaCare argued that the labels varied between products, and
while the majority of packaging contains the statements “support immunity” and
“scientifically tested” on the front of the package, the statement “virologist
developed” varies in its location, including on other sides of the package and
in varying font sizes. Courts don’t require uniformity, only “sufficiently
similar representations.” The question was whether differences were “materially
different.”

There was no dispute
that the phrases “scientifically tested” and “supports immunity” appeared on
the front of the packaging of all products and in largely the same format and
prominence. As for “virologist developed,” it appeared variously on the back,
side, and top panels, which the court didn’t find materially different from one
another (as front placement might have been).  The text also differed, in that mostly
“virologist developed” appeared as part of a bulleted list, but for several of
the products, it appeared in a paragraph on the package. Still, the text wasn’t in a smaller or
finer print; “this difference in how this one phrase appears on packaging is
not ‘materially’ different to preclude class certification, particularly in
light of the other statements that do appear consistently amongst all the
packaging for the products.”

variants of “virologist developed”

PharmaCare argued
that disclaimers on the packaging precluded a disease claim: “[t]his product is
not intended to diagnose, treat, cure or prevent any disease” on the back or
the side, but not on the front. Whether disclaimers avoid deception is
typically a question of fact.

Plaintiffs’ consumer
perception survey showed people products with and without the challenged
representations, modified to be “brand neutral”—that is, removing mentions of
Pharmacare and Sambucol, botanical imagery, and modified the background color
so that participants could not use that to determine the brand.

The results showed
that test group respondents shown the challenged representations were 2.2 times
more likely to perceive the surveyed health benefits (51.9% versus 24.2%, or 27.7%
net deception).  Defendants’ expert
criticized the survey universe as overbroad—nearly half hadn’t purchased any of
the products at issue in the past. He also argued that the survey didn’t test
the theory of liability, and that the survey should have tested individual
representations individually; used open-ended rather than closed-ended
questions; and used actual packaging instead of modified packaging.

Defendants’ expert’s
survey used respondents that shopped at supermarkets and drugstores who’d made
a recent purchase in the product category of nutritional supplements/vitamins.

After being shown one
of defendants’ products, respondents were asked open-ended questions, including
1) “please list all the reasons that you would or would not purchase this
product;” and 2) “if you were to purchase [the product], would you have any
expectations about specific benefits it would provide” and if answered yes,
asked to explain their beliefs. Respondents were also asked a close-ended
question on how likely it was that the product would deliver these specific
benefits, being able to choose between “very likely,” “somewhat likely,”
“neither likely nor unlikely,” “somewhat unlikely,” “very unlikely,” and “don’t
know/no opinion.”

Then respondents
were shown actual labels and asked to select any of 24 options of statements on
the packaging that appealed to them, which included the challenged representations.
If they did, they got a follow-up: 

In this survey, only
39.8% of respondents identified health-related reasons for why they would purchase
the product, and only 21.2% identified immunity support. Only 71.2% of
respondents answered that they would expect the product to provide benefits; 49.2%
reported some health-related benefit, with 33.9% identifying immune
support/boost immune system. Id. Dr. Keegan’s survey further tested attributes
that consumers found appealing, including the following:

Further questions found that consumers varied in their certainty:

Defendants’ surveyor
concluded that consumers provide a wide range of reasons for purchasing the
products, without a unified or predominant reason driving their decision, that
they had wide expectations of the benefits the product would provide, that
there was wide variation in what consumers found appealing based on the
statements on the packaging, and that consumers did not uniformly understand
the statements to mean what plaintiffs assert they mean.

Plaintiffs’ expert
had his own criticisms, mostly about use of open-ended questions for most of
the survey, and a close-ended question with a ton of options. He contended that
using such questions in a self-administered online survey tends to
underestimate phenomena, and that survey experts believe that close-ended
questions are “more appropriate for scientifically rigorous, quantitative
survey research.” In his view, the survey encouraged respondents to answer “I
don’t know” to his open ended questions, while providing 24 options for the
close-ended question encouraged “under selection” of options.

Moreover, to plaintiffs’
expert, the responses actually supported the claim: “5 of the 7 most
“appealing” claims were related to the Plaintiffs’ challenged claims: ‘Supports
your immune system’ (62.7 % of respondents); ‘Supports immunity’ (59.0%);
‘Strong immune system support to help you and your family stay healthy
throughout the year’ (48.9%); ‘Immune supporting properties’ (48.9%); and
‘Scientifically tested’ (41.0%).”

The dispute didn’t
defeat predominance, because it could be resolved classwide.

So too with the
dispute over plaintiffs’ materiality survey (and defendants’ expert’s modified
version thereof). The materiality survey was a referendum: it tested consumers’
preference for buying the products with or without the challenged representations.
Consumers were 11 times more likely to choose the product with the
representations (8.1% versus 91.9%).

Defendants’ expert argued that this was
dumb, because the format drew attention to the only difference between the
products, and the product packaging in the control left open space that, in the
real world, would be filled with other product benefit claims. He conducted a survey
showing only Sambucol with the claims to one group and Sambucol without to the
other, and found “no statistically significant difference between respondents’
likelihood of purchasing products with and without the Considered
Representations.” 

Again, this “amounts to a disagreement on survey methodology,
rather than suggestions that a survey could not be designed to test materiality
in the first place.”

Damages: Plaintiffs
first argued that a full refund model could be used to measure damages where a
plaintiff’s theory of liability is that the product is valueless (which an
illegal or useless product would be). The court disagreed on uselessness,
because plaintiffs didn’t show that the products had no other benefits at all. Plaintiffs
also argued that a product might actually be worthless if it was illegal to be
sold as it was, but the cited cases involved a greater degree of illegality (illegal
nicotine sales to youth, or poison sold as food, or a Schedule III controlled
substance).

But a price premium
model could work, and it was enough at this stage to propose, in detail, how
that would be done.

from Blogger http://tushnet.blogspot.com/2024/04/dueling-surveys-dont-defeat-class.html

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My latest acquisition

Posted on April 4, 2024 by rtushnet

A small "Diet Brick" soda machine made out of Legos

 My son informs me that this is an “illegal build” but I like it anyway.

from Blogger http://tushnet.blogspot.com/2024/04/my-latest-acquisition.html

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failure to properly allege falsity dooms FedEx at 6th Circuit

Posted on April 3, 2024 by rtushnet

Fedex Ground Package
System, Inc. v. Route Consultant, Inc., No. 23-5456, — F.4th —-, 2024 WL
1364707 (6th Cir. 2024)

The court of appeals
affirmed the dismissal
of FedEx’s false advertising claims (under the Lanham Act and Tennessee
Consumer Protection Act), albeit on somewhat different grounds. The district court had focused on FedEx’s harm story; the court of appeals turns on falsity.

FedEx (here called
FXG) alleged that Route Consultant made disparaging statements to foster
discontent between FXG and its contractors, which would damage FXG and benefit
Route Consultant.

FXG doesn’t deliver
packages directly; it has a network of independent service providers
(confusingly for me, ISPs) that provide pickup and delivery within neighborhoods,
and transportation service providers (TSPs). Collectively they’re called
“contracted service providers” (CSPs).

Spencer Patton owns
several ISPs that work with FXG and also owns Route Consultant, a consultancy
business for current CSPs and those that are looking to get into the business.
Route Consultant advises CSPs on “buying and selling FXG routes, ISP and TSP
ownership and operations, and fleet strategy.” It also provides brokerage
services for CSPs interested in selling their business or otherwise assigning
their CSP contracts, and it provides instructional courses and programs for
CSPs.

FXG asserts that
Route Consultant launched a promotional campaign premised on a “fictionalized
crisis” between FXG and its CSP network, claiming that the CSPs were
“financially collapsing under the weight of … dramatic cost changes”
resulting from global economic trends, and that these changes had “gone
unaddressed by FXG in 2022.”. The alleged aim was to motivate CSPs to
renegotiate their contracts with FXG, which would in turn allow Route
Consultant to position itself as the intermediary for the renegotiations.

FXG identified nine
specific claims relating to FXG’s alleged failure to make financial adjustments,
including that the “average FXG business run by a CSP currently operates on
profit margins below 0%”; “the current CSP financial model is collapsing due to
substantial increases in the cost of fuel, labor, and vehicles over the past 12
months”; pointing to “soaring levels of CSP default rates as evidence of the
current financial stress within the network”; and “Almost all of the other
contractors that had renegotiation requests were also denied.”

For purposes of a
motion to dismiss, “a complaint may not baldly assert that a challenged
statement is false or misleading. It must explain why and how it is so.”

Statements that FXG
had made “no financial adjustments” for CSPs: These were factual claims, but not
plausibly alleged to be literally false. The complaint alleged literal falsity
because “ISPs [ ] requested mid-contract renegotiations for only about 10% of
their agreements in 2022; FXG has consented to approximately 40% of
renegotiation requests since July 1, 2022; and over 90% of those renegotiations
led to agreement on new terms that resulted in higher contractual payments to
the ISPs.” But, in the context in which they were made, Route Consultant was
not describing a failure to make financial adjustments on an individualized
basis, but contrasting the “flat, across-the-board” CSP pay increases that FXG
made in 2020 “in order to overcome the extraordinary conditions of” the
COVID-19 pandemic and also asserting that FXG refused to properly address the
issues raised by a “group of FedEx contractors” who wrote letters of concern. “The
surrounding context of the statements makes no mention of individual
renegotiation requests being denied.”

On a motion to
dismiss, only “reasonable inferences” are drawn in the plaintiff’s favor. “And
under the circumstances present here, it would be unreasonable to divorce [the
statements] from their context.” Without literal falsity, the complaint didn’t
allege misleadingness.

Statements that the
“average FXG business run by a CSP currently operates on profit margins below 0%”
and that “since [ ] Q4 of 2020, the industry has seen ‘a 15% pullback on the
value of routes ….’” These were also statements of fact, but the complaint didn’t
actually plead that they were false or misleading. Alleging that these
businesses generated an operating margin of 16%, based on FXG’s calculations
from Route Consultant’s appendix, didn’t go to profit margin. Likewise,
alleging that an “industry analyst …
noted that ‘these ISP businesses are being sold for an average multiple of 0.8x
Sales and over 2x their fleet value’ ” does not “explain how the sales value of
an ISP at one point in time demonstrates whether there has been a ‘pullback’ in
a route’s value over a period of time.”

Financial model
collapsing/soaring levels of CSP default rates: These were not statements of
fact but loose, hyperbolic terms. Even if “soaring” just meant rising, FXG didn’t
plead falsity, “because its complaint refers only to the financial health of
ISPs, not CSPs, and says nothing about defaults at all.” Anyway, collapsing/soaring
couldn’t be measured to be falsified.

“Almost all of the
other contractors that had renegotiation requests were also denied.” This was a
statement posted in August 2022; the allegation that “FXG has consented to
approximately 40% of renegotiation requests since July 1, 2022; and over 90% of
those renegotiations led to an agreement on new terms that resulted in higher
contractual payments” did not make this statement literally false, because it
wasn’t limited to the period starting in July 2022; in context, it referred to
requests over the past year and was not “unambiguously deceptive.”

from Blogger http://tushnet.blogspot.com/2024/04/failure-to-properly-allege-falsity.html

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The People’s Joker

Posted on April 1, 2024 by rtushnet

 Interesting NYT story, in which I am quoted.

from Blogger http://tushnet.blogspot.com/2024/04/the-peoples-joker.html

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Podcast on Bass Notes and Base Rates

Posted on April 1, 2024 by rtushnet

 I’m on Excited Utterance with Ed Cheng discussing my article with Chris Buccafusco.

from Blogger http://tushnet.blogspot.com/2024/04/podcast-on-bass-notes-and-base-rates.html

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