Friday, December 30, 2016

Contracts can last longer than headaches: 1990 consent decree bars comparisons today

Pfizer Inc. v. McNeil-PPC, Inc., 183 F. Supp. 3d 491 (S.D.N.Y. 2016)

A twenty-six-year-old consent decree resolving false advertising claims bans certain comparisons between Advil (Pfizer) and Tylenol (McNeil). Several years after the decree’s entry, Pfizer introduced Advil products designed for children and infants. The court determined that the consent decree barred claims comparing the newer Advil products to Tylenol.

The initial lawsuits involved both parties’ comparative claims about Tylenol and Advil’s side effects and safety, as well as Advil ads that claimed, “Like Tylenol, Advil doesn’t upset my stomach.” Am. Home Products Corp. v. Johnson & Johnson, 654 F.Supp. 568 (S.D.N.Y.1987) (Advil I); McNeilab, Inc. v. Am. Home Products Corp., 675 F.Supp. 819 (S.D.N.Y.1987) aff’d, 848 F.2d 34 (2d Cir.1988) (Advil II).  The relevant consent judgment enjoined Pfizer’s predecessor (and Pfizer, as a party in privity) from “stating in words or substance in any advertisement that ADVIL is ‘like TYLENOL’ in the respect of adverse effects on the stomach ....”

After signing that order, Pfizer’s predecessor conducted a study titled the Children’s Analgesic Medicine Project. The CAMP study compared the safety of Advil’s active ingredient, ibuprofen, and Tylenol’s active ingredient, acetaminophen, in over 41,000 children suffering from fever and pain, over 14,000 of whom were infants under the age of two.  The parties now disputed the meaning of the word “ADVIL” in the order. Pfizer argued that it meant only the 200 milligram adult Advil tablet on the market at time the order was drafted, allowing Pfizer to run comparative stomach safety advertisements for pediatric Advil products. McNeil argued that the order covered all Advil products that contain the drug ibuprofen, including pediatric Advil.

Consent decrees are contracts, and interpreting them is a matter of ordinary contract interpretation, which allows consideration of documents expressly incorporated in the consent judgment, as well as of extrinsic evidence of the parties’ intent where a term is ambiguous.  However, “because consent decrees are normally compromises in which the parties give up something they might have won in litigation and waive their rights to litigation, it is inappropriate to search for the ‘purpose’ of a consent decree and construe it on that basis.”

On its face without including incorporated documents, the order was ambiguous: “ADVIL” could plausibly mean all Advil products, including later-created ones.  The order contained “no limitation on the word Advil or reservation of rights in relation to specific dosages or variations of Advil products.” Still, it was also plausible to read the order as limited to the “ADVIL” that existed at the time of drafting.  However, the court concluded that the Advil II order incorporated the opinions from the Advil I and Advil II cases.  Given that incorporation, the order unambiguously included all Advil products whose active ingredient is ibuprofen.  The Advil I opinion spent a lot of time discussing the side effects caused by the products’ active ingredients, not just the brand name/specific formulation: the Advil I findings were findings about ibuprofen the drug.  The Advil II court then equated “ADVIL” with ibuprofen. Because the Advil II court used “Advil” and “ibuprofen” interchangeably, the court here found that the term “Advil” “encompasses not just the specific Advil products contemporaneously on the market, but any Advil product whose active ingredient is ibuprofen.”

McNeil’s interpretation didn’t expand the plain meaning of the word Advil to include all Advil products that contain ibuprofen: it was the plain meaning. Plus, allowing Pfizer to interpret the order to include only 200 milligram adult Advil, which was what was on the market at the time, “would make it virtually meaningless, because it would allow Pfizer to escape its application merely by manufacturing and selling slightly modified versions of the 200 milligram tablet.”

Nor did the language of the consent decree in Advil I change things: that consent decree included broad language that enjoined Pfizer from making certain advertising claims related to “Advil, any other ibuprofen products, or ibuprofen in general.”  But, even if extrinsic evidence could be considered, that language referred to a specific claim that “ibuprofen interacts with fewer drugs than acetaminophen or that ibuprofen is comparable or superior to acetaminophen with respect to adverse drug-drug interactions.” And the Advil II court later used the terms Advil and ibuprofen interchangeably with respect to that claim.

Friday, December 23, 2016

Does this image evoke the Starbucks logo?

Circles and colors and coffee: is that enough for dilution?

Hamilton, the gift that keeps on giving ...

Apparently this shirt is available at Ash Lawn, Monroe's home.  I desperately want one:
Young man I'm from Virginia, so watch your mouth
Too short a phrase for copyright?

Thursday, December 22, 2016

MOB receives early Xmas present: 2d Circuit affirms LV's loss

Louis Vuitton Malletier S.A. v. My Other Bag, Inc., 16-241-cv (2d. Cir. Dec. 22, 2016)

Contrary to my expectations for the Second Circuit, this is a quick summary affirmance—testament to Judge Furman’s careful reasoning below (which one would hope supports MOB's fee application). Even assuming de novo review of each Polaroid factor, the court of appeals agreed on infringement. “Specifically, obvious differences in MOB’s mimicking of LV’s mark, the lack of market proximity between the products at issue, and minimal, unconvincing evidence of consumer confusion compel a judgment in favor of MOB on LV’s trademark infringement claim..”

Dilution: MOB’s bags mimic LV’s designs and handbags “as a drawing on a product that is such a conscious departure from LV’s image of luxury—in combination with the slogan ‘My other bag’—as to convey that MOB’s tote bags are not LV handbags.”  Although “the joke on LV’s luxury image is gentle, and possibly even complimentary to LV,” it’s still a parody, reminding us we’re free to laugh at the mark’s meaning.  That’s the “very point of MOB’s plebian product,” as opposed to using a mark just to promote goods or services, “which is impermissible.”  [Unfortunately, citing the Charbucks case despite the fact that Charbucks was ultimately found non-diluting, as well as Harley Davidson, Inc. v. Grottanelli, 164 F.3d 806, 813 (2d Cir. 1999) (enjoining use of altered version Harley-Davidson logo to advertise motorcycle repair shop on confusion grounds).]

LV argued that MOB used LV’s marks as a designation of source, precluding dilution fair use.  The district court found that this wasn’t so, and the court of appeals agreed.  “[T]he nature of MOB’s business—it sells quite ordinary tote bags with drawings of various luxury-brand handbags, not just LV’s, printed thereon—and the presence of ‘My other bag,’ an undisputed designation of source, on one side of each bag, independently support summary judgment for MOB on this designation-of-source issue.”

State law: though there’s no explicit fair use defense in state law, “the manifest parodic use here precludes the requisite finding that the marks are ‘substantially similar.’”  [We all know this makes no sense, right?  How about: at the very minimum, free speech limits on dilution lead to reading this defense into state law.]

Copyright: MOB’s parodic use of LV’s designs produces a “new expression [and] message” that constitutes transformative use. The remaining fair-use factors either weighed in MOB’s favor or were irrelevant.  [Judge Calabresi at oral argument was really interested in the question of the relevance of “intent” to parody, but that didn’t translate to any commentary in the opinion.]

Wednesday, December 21, 2016

Update on my suit against ICE

Today my lawyer Michael Kirkpatrick had oral argument before Judge Cooper of the DDC.  One of the highlights, for me, was the government's lawyer's concession that he couldn't imagine a situation in which "Yankees Suck" would be counterfeit or infringing.  It's good to hear the government say as much, given that this whole thing started with an ICE representative saying that mocking a team was counterfeiting; that at least some of the manuals provided by the leagues to enforcers use parodies as examples of infringing material; and that parodies/critical versions that couldn't possibly cause confusion are, we've found, at least occasionally swept up in seizures.  One thing that more information may help us learn is whether these instances of overreaching against non-counterfeits are accidents or whether they reflect a defect in practices or training.

Tuesday, December 20, 2016

kefir confusion: court finds definition of little-known product to be up for grabs

Lifeway Foods, Inc. v. Millenium Products, Inc., No. CV 16-7099-R, 2016 WL 7336722, -- F. Supp. 3d – (C.D. Cal. Nov. 17, 2016)

Before the case was dismissed on statute of limitations/laches grounds, the court denied a preliminary injunction. Lifeway makes kefir products, while defendants make a non-dairy beverage that they called kefir made with coconut water. Typically, kefir is a dairy-based beverage.”  Lifeway argued that kefir was, by definition, dairy-based and thus defendants’ CocoKefir was falsely advertised.  Lifeway sent the relevant defendant a C&D in 2010, and again in 2012.  In 2011, the FDA also sent the defendant a warning letter stating that it believed the CocoKefir name may mislead customers because it could imply that the product was a dairy-based beverage. But, after CocoKefir’s response, the FDA in 2013 issued a close out letter stating that CocoKefir had addressed its concerns.

The court declined to grant a preliminary injunction.  Although Lifeway cited “a wide range of dictionary definitions and websites supporting its argument that kefir must contain dairy,” the court found these sources “minimally convincing,” given that kefir only recently rose to popularity. Because the market for kefir was relatively small and not yet fully developed, “these websites’ and dictionary’s definitions do not provide a convincing definition of kefir, but rather, a surface-level understanding of a relatively new product. No regulatory body, including the FDA, had agreed; the FDA decided not to take regulatory action.  Lifeway argued that kefir has a more historical and specific definition as a dairy-based drink than soy milk,” but also argued that it had spent “millions” of dollars branding its kefir as a dairy-based drink. If the meaning of kefir was so clear and ‘enshrined,’ it would seem unnecessary to spend millions of dollars specifically branding kefir as a dairy-based beverage.

Even if kefir was by definition dairy-based, making CocoKefir misleading, Lifeway didn’t show that a substantial number of consumers were likely to be misled.  A survey created by counsel wasn’t convincing, and neither were social media comments.

Nor could Lifeway show irreparable harm.  Lifeway argued that, because the market for kefir was relatively new and small, CocoKefir would cut into Lifeway’s sales. The court was unconvinced: CocoKefir is advertised as a vegan beverage, while Lifeway Kefir is a dairy product. This type of speculative evidence offered by Plaintiff regarding a possible loss of market share is insufficient to establish irreparable injury under Herb Reed.

The balance of equities didn’t favor Lifeways: forcing defendants to pull the product would be a serious harm, while Lifeway has survived seven years of competition with CocoKefir.

Court finds Lanham Act laches on the pleadings given p's delay

Lifeway Foods, Inc. v. Millenium Products, Inc., No. CV 16-7099-R, 2016 WL 7336721, -- F. Supp. 3d – (C.D. Cal. Dec. 14, 2016)

Lifeway sued defendants under federal and state false advertising law for allegedly selling a product that didn’t contain the ingredients represented on the label. The court found that, on the pleadings and the facts subject to judicial notice, the claims were time-barred by the applicable statutes of limitations and the doctrine of laches.  Here, the key documents of which the court took judicial notice were a June 3, 2013 “Close Out Letter” from the FDA to defendant CocoKefir; CocoKefir’s trademark application; a declaration filed earlier in the case by Lifeway’s Vice President of Communications, stating that Lifeway was aware of CocoKefir in 2011; and social media posts by CocoKefir, offered for the fact that Lifeway could have observed CocoKefir’s public activity from 2011 until now.

Under California law, the statute of limitations for claims of false advertising is three years, and for unfair competition under § 17200 it’s four years. Statutes of limitations accrue when a plaintiff discovers the wrongful conduct or a reasonable person in plaintiff’s position would have discovered the wrongdoing.”  Lifeway discovered CocoKefir in 2011, at which point the statute of limitations accrued, meaning that the limitations period expired long before Lifeway sued.  Lifeway argued that its delay was justified because CocoKefir withdrew from the market “not long after the FDA’s warning letter” in November 2011, but that allegation was directly contradicted by evidence subject to judicial notice: the FDA continued to pursue action against CocoKefir after its initial warning letter in November 2011; CocoKefir applied to register a mark in October 2015; and its social media pages contained consistent posts promoting and advertising the company from 2011 until present day…. This Court makes no determination as to the substance of these posts, but their mere existence renders the allegation that CocoKefir withdrew from the market implausible.  A reasonable company concerned with a competitor’s erosion of its market share would have discovered CocoKefir’s continued marketing.

That took care of the state law claims.  What about laches under the Lanham Act?  Without another explanation to justify Lifeway’s delay, the court found the delay unreasonable.  Lifeway’s only response to defendants’ argument that they were prejudiced by the delay was that they hadn’t been active in the market since 2011, but that was contradicted by the judicially noticed evidence.  Defendants have relied on the FDA’s Close Out Letter approving of their labels and proceeded to develop their business accordingly. They would not have continued to invest in their brand had they known that Plaintiff would bring suit five years after discovery of their brand.”  Thus, laches barred the claim.  [I appreciate the reasoning here but I’m not entirely sure about the finding of prejudice based on the pleadings.  Were defendants prejudiced as a matter of law? The court’s statements about investment in the brand sure sound like factual findings, but maybe they are really policy statements.  Or maybe this is what plausibility means post-Twiqbal--even though I'm not sure anything about prejudice was alleged in the pleadings either way.]

Monday, December 19, 2016

The NYT on Frederik Colting's latest endeavor

I'm quoted in the story, though not in full--I think this is a very hard case that could go either way.  One real issue is whether the kiddie versions take any more of the expression of the works than a standard, reasonably detailed review--they recount the key elements of the plot, that's for sure, but I'm not sure that suffices for substantial similarity in expression.  I think we should not too easily move to using fair use to defend reviews and summaries; though fair use is capacious, substantial similarity should have its own role to play.  And then, for fair use, I think the transformativeness inquiry could be quite interesting--does sanitizing On the Road for children inherently comment on it?  Does the fact that 2001: A Space Odyssey makes no sense in summary work as comment on it?

SCOTUSblog symposium on Tam

My contribution is here.

Facebook, Twitter fans could substitute for sales to show secondary meaning, 6th Cir. rules

Kibler v. Hall, No. 15-2516 (6th Cir. Dec. 13, 2016)

Lee Jason Kibler, a disc jockey, sued Robert Bryson Hall, II, a rapper, and professional entities supporting Hall’s work for trademark infringement and dilution.  Kibler has performed and released several albums under the name “DJ LOGIC” since 1999 though he currently has no record deal. Kibler registered “DJ LOGIC” as a trademark in 2000, allowed the registration to lapse in 2003, and re-registered the name in 2013. He’s also been known as just “LOGIC.”

Hall has performed under the name “LOGIC” since 2009. His 2014 album sold over 170,000 copies.

The court found that the strength of the mark favored defendants.  DJ LOGIC was moderately strong conceptually, but lacked commercial strength.  “A mark cannot be strong unless it is both conceptually and commercially strong.”  (American Airlines?  Disney?  OK, 6th Circuit, whatever.)  Conceptual strength requires inherent distinctiveness, and courts presume that incontestable marks are conceptually strong.  [This is one of the worst games of telephone played in the courts in the trademark area.  (1) Incontestability goes to precluding arguments based on mere descriptiveness, and descriptiveness (even with secondary meaning) is conceptual weakness, (2) no, most circuits don’t presume strength of any kind from incontestability, and the key one that did recently expressed discomfort with doing so.  Sovereign Military Hospitaller Order of Saint John v. Florida Priory of the Knights Hospitallers of the Sovereign Order of Saint John, 809 F.3d 1171, 1183 (11th Cir. 2015) (“The law in this Circuit is almost certainly incorrect. The incontestability of a mark, by itself, says nothing about its strength.”).]

The district court found that “DJ LOGIC” is moderately strong conceptually because “DJ” is descriptive but “LOGIC” is arbitrary. Kibler argued that the court erred in not considering the mark’s incontestability—wait, what?  The expired registration lost its incontestability and the new registration is at most three years old. The court of appeals didn’t address this argument because the district court’s finding “renders ‘DJ LOGIC’ at least as conceptually strong as a finding of incontestability would.”  [I feel a little sick to my stomach.]

Anyway, “a mark can be conceptually strong without being commercially strong, and thus weak” for the purposes of likely confusion.  Plaintiffs without survey evidence need other evidence of “broad public recognition” to show strength, and Kibler didn’t have it.  Kibler sold fewer than 300 albums in the past three years and fewer than 60,000 albums in the past sixteen years; he currently lacked a recording contract; and he’d never had a recording contract with a major label. Third parties weakened the mark even further by marketing music under nearly ninety variations of “logic.”

Not sufficient evidence of strength: a sworn declaration that Kibler advertised in print and online, including on MySpace (!), Twitter, and Facebook; a 2006 Downbeat article featuring him, a 2001 New York Times review mentioning him, and a 1999 Gig article featuring him; and appearances on television shows such as The Tonight Show Starring Jimmy Fallon, The Today Show, and Good Morning America.  Kibler failed to provide the number of his Facebook “likes” or Twitter followers, and he testified that appeared on the television shows to support other, headlining artists.  Kibler’s evidence of Twitter/Facebook promotion was marketing, and magazine and TV appearances were evidence of commercial strength, but “some proof is not enough.” Kibler didn’t offer evidence that would permit a reasonable jury to determine that “wide segments” of the public recognize “DJ LOGIC” as a mark. “This means ‘extensive’ marketing and ‘widespread’ publicity around the music and mark.” The number and kind of Kibler’s Twitter followers could have provided such evidence.  “A large number of followers, or celebrities likely to re-tweet Kibler’s messages to their large number of followers, for example, would suggest that many types of people know his work and mark.”  Ditto with Facebook.  [The court of appeals does not say the same for MySpace.]  Nor did Kibler provide the circulations or target audiences of Downbeat and Gig, “which appear to be niche publications,” and he was only a supporting musician mentioned in the NYT review focusing on two other artists. Plus, these were over fifteen years old, and continuing awareness is required.

The court of appeals found that it was correct that Kibler enjoyed limited commercial success, but commented that “[a]lbum sales and even recording contracts are less critical markers of success than before because of widespread internet use.”  Thus, “web-based indicators of popularity, e.g., YouTube views” could also suffice to show commercial success, but Kibler didn’t.

The court of appeals also found that third parties hadn’t weakened the mark, because “[d]efendants identify the parties’ marks as trademarks in their brief, but do not show they are registered.”  [Of course, registration isn’t evidence of commercial strength, and the PTO applies the opposite—and probably more appropriate, for a use-based system—rule, which is that what people in the market are doing is more important for assessing similar uses than the existence of registrations without evidence about use.]  Anyway, the defendants didn’t show use in the relevant market.  “Music sold in the US on Amazon and iTunes” was too broad a market, as was hip-hop: it should have been “DJ music.”

Product relatedness: “Products belonging to the same industry are not necessarily related. To be related, they must be marketed and consumed in ways that lead buyers to believe they come from the same source.”  Here, this factor was neutral because the products were related but not directly competitive—only Hall used his vocals, and Hall markets himself as a rapper while Kibler markets himself as a disc jockey.

Similarity of marks: based on the anti-dissection rule, this factor favored defendants because “DJ” changed the look and sound of the mark, as well as its meaning.  Kibler was wrong to argue that the court should “focus on the dominant features of each mark and disregard the non-dominant features”; that’s precisely what the anti-dissection rule forbids. Although Kibler argued that he’d used “LOGIC” alone as a trademark, he hadn’t registered it (which the court of appeals thought ended the matter).

Actual confusion: This is the strongest proof of likely confusion, but its weight depends on the amount and type of confusion, in context. Persistent mistakes and confusion by actual customers is really important, but inquiries rather than purchases aren’t.  Kibler’s evidence was of at most ten instances of actual confusion. These include tweets and webpages advertising a performance by “DJ Logic,” but meaning Hall; an email offering to book “DJ Logic,” but meaning Hall; and inquiries about whether Kibler would be performing somewhere advertising “logic” and referring to Hall. But “[i]f ‘LOGIC’ really threatened to confuse consumers about the distinctions between Hall and Kibler, one would see much more than ten incidents throughout 170,000 album sales, 1.7 million album downloads, and 58 million YouTube views.”  Plus, none of the incidents were purchases.  Kibler failed to present the quantity or type of proof that would tilt the actual confusion factor substantially in his favor.

Marketing channels: Most entities advertise online today. In determining whether that matters, the court of appeals asked: “First, do the parties use the internet as a substantial marketing channel? Second, are the parties’ marks used with web-based products? Third, do the parties’ marketing channels overlap in any other way?” The court of appeals found that the district court was right that this factor was neutral, but underestimated the impact of the internet.  There’s overlap in terms of Twitter and Facebook promotion, and Amazon and iTunes sales, but “the popularity of these channels makes it that much less likely that consumers will confuse the sources of the parties’ products. There are just too many other contenders.”  So widespread use decreases likely confusion—which might actually mean something about the expected sophistication of internet users, not so much “marketing channels” per se.  Even though they performed at some of the same venues, so did thousands of artists, making it less likely that any one attendee encountered them both, let alone confused them.

Likely degree of consumer care: varies greatly among music consumers; the appropriate pool was not just fans of each artists, but a wide variety of people.  This factor was insignificant here.

Intent: the court of appeals followed the common, but unfortunate, rule that (1) likely confusion can be inferred from intent to confuse, and (2) (the bad part) evidence that the defendant knew of the plaintiff’s trademark can be sufficient circumstantial evidence of intent to confuse.  The court explicitly rejected defendant’s argument that intent to usurp goodwill is required for bad intent.  Lack of intent is irrelevant.  Kibler argued that a Google or YouTube search for “logic music” or “logic musician” yielded “DJ LOGIC” and Kibler’s picture or music before Hall adopted “LOGIC.” Hall testified that he ran Google, Facebook, and Twitter searches for “any other rappers” using “LOGIC” before adopting it, “[t]o see if [any rapper] with this name was already at a level where it wouldn’t make sense for two people to coexist with the same name.”  This factor was neutral.  While evidence that defendants knew of “DJ LOGIC” while using “LOGIC” would be sufficient circumstantial proof of intent, there was no proof that Hall searched for “logic music” or “logic musician,” no reason to believe he had to, and thus no evidence he knew of “DJ LOGIC” before adopting “LOGIC.”

Likely expansion: the district court properly found this factor neutral, concluding that it was “unlikely that the parties will expand their markets to put them in competition.” Kibler offered no proof that the parties would expand their businesses, which was his burden.

Balancing the factors, confusion was unlikely.  Evidence of actual confusion favored Kibler “only marginally” and strength of plaintiff’s mark and similarity of the marks favored defendants; these were the most important factors.

Federal dilution: a famous mark is a “household name.” That is, “when the general public encounters the mark in almost any context, it associates the term, at least initially, with the mark’s owner.” “It is difficult to establish fame under the Act sufficient to show trademark dilution.” No reasonable jury could find “DJ LOGIC” famous.

Can bait & switch cause actionable harm even though the consumer knows the price at checkout?

Veera v. Banana Republic, LLC, --- Cal.Rptr.3d ----, 2016 WL 7242539, No. B270796 (Ct. App. Dec. 15, 2016)

This decision, over a dissent, finds standing under the usual California statutory claims to challenge an alleged bait-and-switch scheme by Banana Republic, even though the plaintiffs knew the non-discounted prices of the items when they bought them. Cherilyn DeAguero, Sean Bose, and Rakhee Bose alleged that signs in Banana Republic store windows advertising a 40 percent off sale were false or misleading because they did not disclose that the discount applied only to certain items. “Having waited in line to purchase the selected items, and out of frustration and embarrassment, they ultimately bought some (but not all) of the items they chose even though the discount did not apply.” The trial court found that they hadn’t suffered injury in fact and lost money or property.  The court of appeals majority found that there was a triable issue of whether they suffered economic injury caused by the false advertising.  I agree—the dissent’s idea of what constitutes bait and switch is far too limited, ignoring the sunk costs problem that includes time and embarrassment (or other social pressures).

For example,  DeAguero recounted that when she got to the front of the line, the clerk told her that her items weren’t discounted.  When she replied that the sign indicated everything was 40 percent off, the clerk said the discount did not apply to the items she chose.  She “became embarrassed, noticing that the line behind her was getting long…. [S]he was trying to remain in a budget but did not want to make her daughter return to the dressing room to remove the outfit she was wearing.”  Her daughter was embarrassed and asking her to stop complaining, and she ultimately bought the items her daughter was wearing to avoid further embarrassment, but left behind other non-discounted items.

Likewise, Sean and Rakhee found out that the discount didn’t apply to their items only at the register.  “According to Sean, there were at least 15 people in line and he was annoyed and very embarrassed. He ultimately purchased one item (a sweater) because ‘we had invested all that time and effort, and just to leave with nothing would be a complete and utter waste of energy and time.’”

Medrazo v. Honda of North Hollywood (2012) 205 Cal.App.4th 1, involved a case in which the defendant dealership offered motorcycles for sale without complying with certain sections of the Vehicle Code that require a motorcycle dealer to disclose dealer-added costs on tags hung on motorcycles available for purchase.  The court of appeals found a triable issue on injury in fact because she wasn’t informed of the dealer-added charges or the total price of the motorcycle until she was presented with the sales contract, after the decision to purchase had been made.  The UCL and FAL prevent misleading advertising; the CLRA specifically bars “[m]aking false or misleading statements of fact concerning reasons for, existence of, or amounts of price reductions”:

These provisions are designed in part to protect consumers such as plaintiffs by requiring businesses to disclose the actual prices of items offered for sale, and prohibiting businesses from using false and deceptive advertising to lure consumers to shop. In short, plaintiffs had a legally protected interest in knowing from the outset, when they started to shop, the true prices of the items they chose to buy. Assuming plaintiffs’ version of Banana Republic’s advertising occurred, there is a triable issue whether that legally protected interest was violated in the same way as the legally protected interest of the plaintiff in Medrazo, who had a right to know dealer-added charges as stated on a required hanger tag when deciding to buy a motorcycle.

Medrazo also indicated that the plaintiffs suffered economic harm because that case found economic injury in that plaintiff bought a motorcycle the defendant wasn’t legally allowed to sell. The economic harm here was the difference between the advertised 40% off price plaintiffs should have been charged, and the full price plaintiffs actually paid.  It’s true that plaintiffs need to show reliance, but there was a triable issue of whether plaintiffs’ reliance resulted in their economic loss—misrepresentation need not be the only or even the predominant cause of the injury-producing conduct.  It is enough if a plaintiff shows that “in [the] absence [of the misrepresentation] the plaintiff ‘in all reasonable probability’ would not have engaged in the injury-producing conduct.”

Isolating the moment of purchase isn’t determinative of reliance and causation:

Their reliance on the advertising informed their decision to buy, which culminated in the embarrassment and frustration they felt when, as the items were being rung up, they learned that discount did not apply. And it was the temporal proximity of that chain of events, and the pressure the events brought to bear on plaintiffs’ judgment, that played a substantial role in leading them to purchase the items they did, even though they knew the discount did not apply.

This reasoning was especially important given the implications of a contrary result, which would be to legalize bait and switch advertising: “when the deception is revealed, the consumer, now invested in the decision to buy and swept up in the momentum of events, nonetheless buys at the inflated price, despite his or her better judgment.”  If the consumer is able to resist, she has no cause of action because she’s suffered no economic injury, as required by Proposition 64.  But Banana Republic’s argument would mean that, if the scheme is successful, she’d also have no standing unless the inflated price was surreptitious.  That can’t be what Proposition 64 intended.

The evidence also suggested that at least some of the Banana Republic signs lacked asterisks or any other indications of exclusions.

Bigelow, P.J., dissented.  The basic argument:

Whether or not the store window signs were ambiguous or misleading, it is undisputed that before the plaintiffs incurred any economic injury, they learned the clothes they had selected were not 40 percent off. They then changed their purchase decisions, choosing to buy only some of the items they had selected, fully aware they were not discounted.

Thus, plaintiffs couldn’t show that they relied even in part on the truth of the misrepresentation in consummating the sale.  [I agree with the majority that this slices the transaction too finely.  The misrepresentation can be a substantial cause of the transaction in the first place, because they relied on it to take key initial steps representing significant sunk costs, without that reliance extending to the actual purchase—that’s the whole point of bait and switch.]  The dissent would find the long-standing principle of fraud cases that reliance isn’t reasonable if the recipient learns the real facts before purchase.  Embarrassment or frustration isn’t relevant to reliance as long as the plaintiff learns the true facts “before consummating the transaction that causes the injury.” [There is a reason that state consumer protection laws, and not just California’s, depart from traditional fraud principles, which are mainly caveat emptor.]

The dissent worried that the “momentum to buy” analysis couldn’t be applied consistently.  Suppose the consumer was drawn into the store by a misleading discount advertisement and  was told as soon as he picks up an item in the store that it wasn’t in fact discounted. If he bought anyway, would he be covered?  What if he learned in line, but not yet at the front of the line? What if the consumer was shopping on the internet from home and learned that the discount wouldn’t apply before she buys the items in her virtual “shopping cart”?  [Substantial cause analysis seems relevant here; once you leave predominant cause behind, these inquiries are necessary, but not fatal.  Also, why is the store running misleading discount ads, and shouldn’t it bear the risk that these will lure consumers in if they don’t say “select” items?]  This decision, the dissent feared, would invite exhaustive litigation.  [It seems to me that the legislative choice to ban bait and switch has largely answered these questions: don’t engage in that practice.  There’s no efficiency payoff/consumer benefit to telling consumers that there will be a discount and then not giving it to them.  This conclusion does, of course, mean that advertisers’ clear signals that not all items will be discounted should also be taken into account.]

The dissent said this wasn’t classic bait and switch, when the seller had no intention of delivering the product advertised.  [What about lacking intention to deliver the price advertised?]  “In a classic bait and switch, the merchant actively conceals the fact of the misrepresentation from the consumer, resulting in the consumer buying an item he did not enter the store to purchase.” And the consumer continues to rely on misrepresentations because he believes that “the advertised item is not actually available, or that it is inferior in a meaningful way to the item the merchant actually wants to sell to reap greater profit margins.”  In such situations, the consumer’s understanding that she [now the consumer is she] is buying a different product doesn’t necessarily mean that her reliance on the deception has ended.  [This is equivocation about which representations must trigger reliance. What brought the consumer in was the offer of X item at Y price, which includes the necessarily implied claim that X item is available for purchase.  If she’s not buying X item, then she has ceased “relying” on the availability of X item, and her continued presence is either from sunk cost reasons, same as the theory here, or because she’s been persuaded to buy Z item instead.]  “[H]ere, there was no evidence any salesperson attempted to convince the plaintiffs to purchase items they did not want.”  [Again, equivocation about the “convincing.”  Salespeople need not be involved—the pressure of the line here does the same work of social pressure to leave off one’s initial preference.]

The dissent was sympathetic to the similarity to traditional bait and switch, but thought that the law here just didn’t cover the situation.  The plaintiff must consummate the relevant transaction relying on the mistaken belief that a misrepresentation was true, absent legislative change to the contrary.  Because of the congruence between consumer protection law and traditional fraud claims, “[w]e must ‘isolate’ the point in time at which money was exchanged because that is the moment at which the plaintiffs were injured in a legally cognizable way under the consumer protection laws.”

Friday, December 16, 2016

Trademark/(c)/ROP question of the day, Stephen King edition

This is a book bag.  Get it?  I wish it were a little bigger, but boy does it look nice.  What's the appropriate rights analysis?

Falsely claiming TM ownership isn't false advertising, court rules

Dille Family Trust v. Nowlan Family Trust, No. 15-6231, 2016 WL 7202073 (E.D. Pa. Apr. 21, 2016)

There’s a pattern in the ED Pa where they put all the legal analysis in a big footnote in the order granting a motion to dismiss.  I don’t know why.

Anyhow, Dille alleged Lanham Act violations including false designation of origin and false advertising, relating to claims over who owned the “Buck Rogers” trademark.  Intangible property rights, such as trademark rights, are not “goods or services” for Lanham Act purposes, and this is consistent with Dastar

Nowlan made allegedly false statements about the ownership of the Buck Rogers mark, but never produced any products or granted any licenses.  Thus, there was no false designation of origin claim or false advertising claim.  Note: the latter conclusion ignores the quite relevant phrase “commercial activities” in §43(a)(1)(B), as well as Dastar’s explicit reservation of false advertising claims, though there’s nothing new about the latter.  Anyway, the court found that Nowlan’s letters contained “nothing more than statements asserting Defendant’s legal rights,” and thus couldn’t be commercial advertising or promotion.

Also, the claim for trademark cancellation for lack of bona fide intent to use wasn’t sufficiently fleshed out, and appeared contradicted by the allegations of the complaint that Nowlan was offering to license other parties.  [Would that be a naked license?]

Second Circuit will trust FDA on drug facts, not on misleadingness

Church & Dwight Co., Inc. v. SPD Swiss Precision Diagnostics, GmBH, 2016 WL 7131177, No. 15-2411, -- F.3d – (2d Cir. 2016) (as amended on denial of reh’g Dec. 5, 2016)

Original opinion discussed here; the court amended the opinion to deal more explicitly with a couple of issues.  In particular, the original opinion said that the Second Circuit hadn’t settled on a definition of materiality, but presumed that materiality required that the deception be “likely to influence [consumer] purchasing decisions.” Apotex Inc. v. Acorda Therapeutics, Inc., 823 F.3d 51 (2d Cir. 2016), recently adopted that very standard, so there was no need to grant rehearing on this issue.

SPD argued that Apotex couldn’t be reconciled with the opinion here, but the panel found that any “tension” was “only a tension of emphasis, not content.”  First, while Apotex said that “representations commensurate with information in an FDA label generally” (emphasis added) wouldn’t be actionable under the Lanham Act, it went on to acknowledge (in a footnote) that “Lanham Act liability might arise if an advertisement us[ing] information contained in an FDA-approved label... [is] literally or implicitly false.” Such was the case here.

Second, this case involved a different question of law.  Apotex presumed that the court could consider the claim, and the issue was “whether aspects of the defendant’s advertising incorporating FDA-approved factual assertions about pharmacological effects of its product were nonetheless false.”  But here, SPD was arguing that the court couldn’t even entertain a claim of falsity relating to FDA-approved messaging, without consideration of whether the advertising or labeling was in fact misleading, and that argument was rejected by Pom Wonderful.  [This distinction makes my head hurt, especially as to whether it can be distinguished from the first reason given by the court.]

Third, “the Lanham Act claims in the two cases relate to significantly different aspects of the FDA’s competence.”  And here we have one of my main questions/concerns about Pom Wonderful coming to the fore, perhaps unsurprisingly in the Second Circuit that also decided Caronia.  “The inquiry here does not relate to the truth or falsity of an FDA-approved factual assertion about the effects of a medical product, but rather to the question of whether the phrasing of advertising messages might be misunderstood by consumers.”  Apotex involved whether “a fact about the pharmacological effects of a drug, which the FDA had determined to be true, should nonetheless be found by the court to be false.”  The FDA’s job is to figure that out, and the court wouldn’t second-guess it “on matters as to which its competence vastly exceeds that of courts.”  Misleadingness was another matter. 

Exposure to false advertising doesn't create Article III standing v. Dish Network, LLC, No. 8:16–cv–2366, 2016 WL 7230955 (M.D. Fla. Dec. 14, 2016)

Pro se plaintiff is a website solely owned by Gerald Collette, who received the advertisements at issue at his residence. Defendants include five internet service providers and two sales agents for those service providers.  Truth alleged that defendants’ ads claimed that high-speed internet services were available at lower prices than were actually available to consumers in Collette’s county.  E.g., “HIGH SPEED INTERNET Starting at $19.99 month No Matter Where You Live! No TV Service Required!”

The court found that Truth lacked Article III standing because there was no injury in fact.  Truth didn’t allege that it bought more expensive services because of defendants’ bait-and-switch.  The injury was merely that the advertised prices weren’t available.  Bare violations of false advertising laws don’t create Article III standing.  That’s not a concrete injury, just a personal disappointment.  (Wonder whether the Florida AG agrees?)  Thus, the court lacked subject matter jurisdiction and remanded to state court.

Thursday, December 15, 2016

When does a false advertising case create a right to a jury trial?

Ferring Pharmaceuticals, Inc. v. Braintree Laboratories, Inc., --- F.Supp.3d ----, 2016 WL 7223279, No. 13–12553 (D. Mass. Dec. 13, 2016)

The parties compete for the market in products used for bowel preparation before colonoscopies, and each alleged that the other had engaged in false advertising. Braintree’s moved to strike Ferring’s demand for a jury trial.  “Parties have the right to a jury trial when a statute or the Seventh Amendment so requires.” The Lanham Act does not create such a right if a plaintiff seeks “the remedy of an accounting of defendant’s profits,” nor does Massachusetts Chapter 93A, the coordinate state false advertsing law.

The key to the Seventh Amendment analysis here was whether the remedy sought was legal or equitable in nature.  If legal, then there would be a right to a jury trial; an equitable remedy can also be “of a legal nature” sufficient to entitle a party to a jury trial.  “For instance, an accounting of profits can act as a proxy for a legal claim in some circumstances.” The court determined that it would apply the proxy rationale “if 1) the case involves similar products, 2) there is no adequate remedy at law and 3) the products compete directly.”

Braintree argued that its requested disgorgement remedy was equitable. Ferring was entitled to a jury trial with respect to its defenses to Braintree’s counterclaims, which the parties agreed were legal in nature. But the proxy argument was closer—the first two factors weighed in favor of finding that Ferring’s claim was a proxy for legal damages. The competing treatments were very similar, and there was no alternative legal remedy, because Braintree’s purported false advertising began as soon as Ferring’s treatment entered the market, “making it impossible for Ferring to measure its alleged losses by decreased sales.”

However, it wasn’t clear if there was direct competition.  Though the two products perform the same function and were prescribed by the same doctors, and though Braintree’s advertising directly targeted Fering’s product, there were other colonoscopy preparation drugs on the market during the time period at issue.  [They’re direct substitutes.  They may be in head-to-head-to-head competition, but reading an extra requirement of being the only two competitors on the market into the standard for “direct competition” seems to need more justification.  I guess the justification would have to be that “direct competition” is a poor shorthand for the actual standard: you have to be relatively sure that any of defendant’s sales were taken from plaintiff’s hands, and that isn’t as clear when there are other competitors in the market.  But then, if there might well have been other victims, is disgorgement likely to be appropriate?  I’m not sure how the underlying standard for recovery interacts with the Seventh Amendment argument.]

The court decided to go ahead and have the jury trial first, as required no matter what.  “If Ferring has failed to show that it is entitled to a jury trial at that time, the Court will treat the jury’s verdict as advisory.”

Business betrayal isn't false advertising, could be TM infringement

Kische USA LLC v. Simsek, 2016 WL 7212534, No. C16-0168JLR (W.D. Wash. Dec. 13, 2016)

Kische alleged that former employees—Mr. Simsek and Ms. Walker—abused their positions to misappropriate Kische’s assets and found JD Stellar, a competing business. Kische accused Costanza, its former attorney, of participating in this misconduct, though he gets out of the case because Kische’s allegations did not dispel the reasonable inference that the ex-employees had apparent agency to do what they allegedly did.

Kische “design[s] and import[s] fashionable clothing from manufacturers in Turkey and [sells] them under the mark ‘KISCHE’ to prominent retailers in the U.S., including Nordstrom, T.J. Maxx, Marshalls, Ross[,] and others.” Mehmet Uysal is the owner and sole member of Kische. Simsek and Walker “served as managers and employees of [Kische] for over six years.”  While still employed by Kische, they allegedly (1) formed JD Stellar, a competing company; (2) assigned one of Kische’s registered trademarks—“Marseille”—to JD Stellar without Uysal’s approval; (3) registered the trademark “Dantelle,” which Kische alleges directly competed with Kische, on behalf of JD Stellar; (4) dissuaded Kische’s customers from doing business with Kische; (5) purposefully delayed Kische’s payments to manufacturers and vendors; (6) stole furniture, equipment, and clothing from Kische; (7) made payments from Kische to JD Stellar without authorization; and (8) otherwise improperly utilized Kische’s resources. Kische alleged that its annual revenue of $13 million from the “Kische” mark dropped to zero as a result.

The court found that Kische sufficiently pleaded infringement of the Kische mark, but not the Marseille or Dantelle marks. Even if Marseille was fraudulently transferred, Kische didn’t allege that it still owned the mark, and though Kische alleged ownership of Dantelle, it didn’t allege infringement.  As for Kische the mark, Kische properly alleged that the Stellar defendants sold identical products with an identical mark, supporting the claim of likely confusion.

False advertising claims did not fare so well. First, they’re subject to Rule 9(b), unlike trademark claims subject to Rule 8, because courts have said so.  The court found that Kische’s allegations, including use of the Kische mark as a keyword, use of the Kische address as JD Stellar’s address, and use of Kische’s clothing designs as JD Stellar’s, were not statements of “fact.”  There were no allegations of specific assertions that describe testable, “absolute characteristics” of the products.  [Stellar’s address is certainly a verifiable fact about Stellar’s services, though perhaps at some point it wasn’t false as to customers even if it represented a betrayal of Kische.]  At most, Kische was recycling its Dastar-barred reverse passing off claim, alleging that Stellar sold clothing embodying Kische designs under a different mark.

Kische also alleges that the Stellar defendants made false statements to Kische’s clients and cited the declaration of Lorraine Hooshyar, “[s]ales representative for specialty stores.” But the declaration stated only what buyers—not the defendants—told her: that Uysal “had shipped substandard product,” that Uysal and Kische “were closing their business,” and that a buyer had to “cancel [an order] because [Uysal and Kische] couldn’t meet the delivery or produce the garments.” Hooshyar’s statement “[e]ach and every buyer that I have reached out to has had a bad taste due to the ending and the untruths that have been spoken by [Walker and Simsek]” was about the, but was too conclusory to plead false statements of fact.  Also, the facts as pleaded didn’t justify the inference that the statements constituted advertising or promotion.

Trademark dilution: allegations that Kische’s marks were famous  “due to [Kische’s] reputation for high quality women’s fashion” were insufficient. These included allegations about a video in which a commentator calls Kische a “luxurious line,” customer ratings, purchase orders to “major women’s fashion retailers,” and an email in which “Taste of Eden show[ed that] it thought that [the] Kische cardigan was famous.” That wasn’t enough to show wide recognition by the general consuming public. 

The evidence on which Kische bases its factual allegations shows at most that fashion purchasers recognized Kische’s marks—not that the general consuming public widely recognized the marks. Similarly, the fact that a commentator called the Kische brand a “luxurious line” or that a few customers gave high ratings to Kische’s clothing do not lead to the reasonable inference that the marks are widely recognized by the consuming public.

As for the Washington Consumer Protection Act, Kische insufficiently alleged an unfair or deceptive practice, and separately failed to allege an impact on the public interest. There was no reason to think that the defendants deceived “a substantial portion of the public,” or that additional persons in the same situation would be injured in the same way.  Likewise, fraud claims failed because the relevant misrepresentations were made to the PTO and to Kische’s suppliers, retailers and customers, not to Kische—thus Stellar couldn’t have intended Kische to rely on them, and Kische would have known that the statements were false and couldn’t have relied on them.  As to allegations that the defendants made false representations to Kische about Kische’s financial status, Kische also failed to state a claim.

Allegations for breach of fiduciary duty and conversion of Kische’s assets, including “trademarks, money, and equipment,” did survive, and Kische was allowed leave to amend against the Stellar defendants.

Announcing the Open Source Property Casebook

Straight from Jeremy Sheff:

On behalf of myself and my co-authors (Steve Clowney, James Grimmelmann, Mike Grynberg, and Rebecca Tushnet), I am pleased to announce the immediate availability of Open-Source Property, a completely free casebook for the 1L Property Law course. We would like to ask you to share this announcement with readers of the PropertyProf Blog, and spread the word among your colleagues who teach Property Law.

Open-Source Property is a comprehensive, high-quality teaching resource with substantial advantages over commercial casebooks:

It’s Free. Open-Source Property is distributed completely free online, in multiple formats.

- It’s Easy to Use. Open-Source Property comes with teacher’s manuals and slides. We also encourage adopters to submit their own teaching materials to be shared on the instructors page of our website. (The instructors page is password protected; please email me  from your institutional email account to request a password).

It’s Flexible. You can choose to download a complete casebook that has already been tested in the field by the authors. Or you can mix, match, and edit chapters, right in Microsoft Word, to achieve your preferred coverage profile. Our individual chapters cover all the basics, from Finders to Future Interests to Takings, as well as more specialized topics such as Intellectual Property and Property Rights in Human Beings.

It’s Open-Source. Open-Source Property is licensed under a CC-BY-NC 4.0 license. You are free to copy it, use it, redistribute it, and edit it under the terms of the non-commercial license. In fact, we encourage adopters to submit their own contributions and their own builds of the casebook to be posted on the casebook website.

We hope you will visit us at to check out Open-Source Property and consider adopting it as your casebook. If you do, please let us know! And if you have any questions or comments regarding the casebook, or if you just need some encouragement and support to make the switch, feel free to email us at, or to find me at the AALS Annual Meeting in San Francisco next month. We are here to make it easy for you to do your students and yourself a favor by moving to a free, open-source course text.

In the meantime, you can watch for updates by following us on Twitter  or liking us on Facebook.

As a personal note, I enjoyed writing the zoning chapter a lot.  It's a bit unusual--it focuses on the history of St. Louis and its suburbs as a way of telling the story of zoning; it includes several actual zoning codes and plans of various types, to give students a sense of what they're like; and it is deeply concerned with explaining how, in America, property law is racially inflected.  Feedback is welcome, on this or any other part of the casebook.

Wednesday, December 14, 2016

Reading list: why search engines shouldn't implement the right to be forgotten

Note structural similarity to arguments about copyright takedown notices.


European privacy law currently implements the ‘right to be forgotten’ by positioning commercial search engine operators as the initial site of decision-making regarding its exercise. This is problematic for a number of reasons. First, there are a number of structural flaws in the mode of this decision-making that make it unclear that search engines are capable of (or interested in) incorporating a robust account of competing interests. Second, right to be forgotten requests are not susceptible to the same kind of algorithmic techniques search engines use to deal with other kinds of removal requests, meaning large numbers of decisions must be made rapidly and primarily by staff lacking formal legal qualifications. When compounded with the possibility of heavy penalties for failure to comply with the right under European law, these two issues suggest there is a significant potential for bias toward deletion rather than preservation of borderline links. A third problem is that the simple online forms provided by search engines for European data users making a deletion request mask a complicated legal analysis, meaning those who properly structure their requests in an appropriately technical and legal manner may have a higher chance of success in their claims. This threatens to open up a new digital divide along the axis of reputation. Finally, the massive compliance costs associated with this new right may serve as a form of anti-competitive lock-in, preventing the emergence of innovative new companies in ‘search’. In sum, if the right to be forgotten is to have real meaning in European law, search engines are not the correct vector for its implementation.

Monday, December 12, 2016

NYIPLA IP writing competition

For current law students.  $1500/$1000 awards for the winners.  Deadline March 3, 2017.  Details here.

Trademark questions of the day, pictorial edition

Some photos I found in my end-of-year cleanup:
wine caddy in form of black shoe with red sole: infringement or dilution?

petco label, "because I'm worth it"

Friday, December 09, 2016

Copyright question of the day, Colting edition

Frederik Colting and his partner have a new line of books, KinderGuides, which are children's versions of classics like On the Road and Breakfast at Tiffany's.  Fair use?

Tuesday, December 06, 2016

Fifth Circuit reverses multimillion-dollar antitrust verdict based on false advertising, remands

Retractable Technologies, Inc. v. Becton Dickinson & Co., No. 14-41384, 2016 WL 7046601, -- F.3d – (5th Cir. Dec. 2, 2016)

Regardless of the merits, courts don’t want plaintiffs bringing false advertising claims as antitrust claims.  Thus, they have imposed a number of empirically dubious, essentially random preconditions to treating false advertising as an antitrust violation; it is basically impossible for any plaintiff to show that all of the preconditions apply.  My usual approach is to say “the antitrust claims failed because they were antitrust claims,” but here the jury awarded RT treble damages for an antitrust claim based mostly on BD’s false advertising, so I’m going to say more.  This judicial hostility is enough to make me wonder whether antitrust law could be revived merely by making treble damages optional rather than mandatory, as they are in false advertising.

BD and RT are competitors in the market for safety syringes. A jury awarded $340 million (after trebling) against BD for its alleged attempt to monopolize the United States safety syringe market in violation of § 2 of the Sherman Act. The jury also found BD liable for false advertising under § 43(a).  The court of appeals reversed and vacated on §2, necessitating a remand for redetermination of whether disgorgement was now appropriate (given the disappearance of the antitrust damages) and whether injunctive relief should be reconsidered.

There are four main products in the safety syringe market: shielding needles, pivoting needles, sliding sleeve needles, and retracting needles, each of which is appropriate in specific hospital, clinical, or office settings. BD produced all four types and was also the major manufacturer of conventional syringes. RT’s principal product was the VanishPoint retractable syringe, which had a fixed, albeit retracting needle.  This protects against accidental injections but doesn’t work for other hospital and clinical uses.

In 2002, about five years after RT introduced the VanishPoint, BD created its own retractable syringe, the Integra. BD’s Integra suffered from design flaws such as leaking and failing to deliver a full dose of medicine. RT outsold BD in the retractable syringe sub-market: BD had a 1/3 share of the market, while RT’s market share was 2/3. By 2010, in the “relevant product market” for all safety syringes, BD’s market share was 49%, Covidien 30%, Smiths 10%, and RT 6%.

RT sued BD in 2001 for antitrust violations and product disparagement (based on the same advertising issues litigated here). The suit settled in 2004 and BD paid RT $100 million, with the parties releasing claims “which accrued on or at any time prior” to the agreement’s signing.

Three years later, RT filed the instant suit alleging patent infringement and antitrust and Texas common law violations. The district court tried the patent case first, and rendered judgment for RT (including “a mere $5 million in damages”) based on two BD versions of the Integra. On appeal in 2011, the Federal Circuit upheld the judgment only as to one model, which BD then removed from the market.

The non-patent claims continued.  RT argued that BD: monopolized and attempted to monopolize the markets for hypodermic syringes, safety needles and syringes, IV catheters, and safety IV catheters in violation of § 2 of the Sherman Act; excluded RT from these markets in violation of the Clayton Act §§ 1 and 3; violated the Lanham Act; and violated coordinate Texas law (later dismissed).

RT’s evidence “emphasized BD’s contract practices that allegedly foreclosed competition by offering customers sole source contracts, loyalty discounts, and market share rebates.” RT also invoked BD’s false advertising, patent infringement, and unfair competition.  The court submitted twelve separate antitrust interrogatories to the jury covering four liability theories—monopolization, attempted monopolization, contractual restraint of trade, and exclusive dealing—each relevant to three products—safety syringes, conventional syringes, and safety IV catheters. Antitrust damages went to the jury on two bases—“anticompetitive contracting damages” (for each product) and “deception damages” (only safety syringes). The Lanham Act false advertising claim went to the jury on representations that BD produced the “world’s sharpest needle” and its syringes have “low waste space.”

The jury held BD liable only for attempted monopolization in the market for safety syringes. It rejected all damages for “anticompetitive contracting,” but found that RT suffered “deception damages” over $113.5 million, and it found liability on all the misrepresentations.  The district court trebled the damages, added statutory attorneys’ fees, declined on equitable grounds to award disgorgement of profits for BD’s false advertising, and enjoined BD.

To prevail on an attempted monopolization claim, a plaintiff must show: “(1) that the defendant has engaged in predatory or anticompetitive conduct with (2) a specific intent to monopolize and (3) a dangerous probability of achieving monopoly power.”  BD didn’t challenge specific intent, and the court of appeals assumed that (3) was satisfied, meaning that BD had market power in the relevant US market for safety syringes.

The jury verdict “significantly narrowed the factual predicate for potential antitrust liability” by rejecting RT’s claims about exclusionary contracting practices by BD. BD offered the testimony of over a dozen purchasers of safety syringes that BD’s practices did not foreclose their ability to choose among competing products. Thus, the monopolization claim had to rest on three types of “deception”: patent infringement; two persistent false advertising claims; and BD’s alleged “tainting the market” for retractable syringes in which it alone competed with RT.

Exclusionary conduct must not only impair rivals’ opportunities but also not further competition.  “If the conduct has no rational business purpose other than its adverse effects on competitors, an inference that it is exclusionary is supported.”  But not all unfair conduct violates §2, and even aggregating a bunch of unfair competitive practices doesn’t turn into legally predatory conduct for §2 purposes unless it’s especially egregious. As the Supreme Court has said, “[e]ven an act of pure malice by one business competitor against another does not, without more, state a claim under the federal antitrust laws; those laws do not create a federal law of unfair competition or ‘purport to afford remedies for all torts committed by or against persons engaged in interstate commerce.’ ”

Patent infringement isn’t a basis for imposing antitrust liability, since patent infringement is actually procompetitive (patent law conflicts with antitrust law to an extent). 
False advertising: BD falsely advertised throughout the period under litigation that BD needles were the “world’s sharpest” (a proxy for patient comfort) and had “low waste space” (allowing more medicine to be dispensed from the syringe), and that BD’s data proved the claims.  By about 2003, BD’s tests began to show that competitors were equalling or surpassing BD needles on sharpness, and it didn’t change its ads.  Likewise, while the claim “lower waste space” than RT’s needles (the only competitor) was true when made, BD’s tests in 2003, 2005, and 2008 showed that the waste space measurement was no longer accurate. BD removed the inaccurate measurement from some materials but not from all, and showed erroneous waste space comparisons on its website. BD also applied the false claim to customer-specific comparative spreadsheets, and imbedded it in a “cost calculator” that sales representatives could use to demonstrate how much money customers would allegedly save with Integra syringes. Some distributors and resellers continue to use BD’s false claims in their promotional materials.

The bar to calling false advertising an antitrust violation is high because—um, because courts don’t like antitrust claims.  Previously, the Fifth Circuit said that sales pitches “may have been wrong, misleading, or debatable,” but they were all “arguments on the merits, indicative of competition on the merits,” as opposed to, say, bribes.  If a competitor loses out on a debate on the merits, the “natural remedy would seem to be an increase in the losing party’s sales efforts on future potential bids, not an antitrust suit.”  Similarly, the Seventh Circuit rejects Sherman Act claims based on false advertising because of what the court here called “traditional free speech principles”: “If [a competitor’s statements about another] should be false or misleading or incomplete or just plain mistaken, the remedy is not antitrust litigation but more speech—the marketplace of ideas.” False advertising “hardly ever operates in practice to threaten competition” because it “simply ‘set[s] the stage for competition in a different venue: the advertising market,’” and the victim can advertise right back to expose the dishonest competitor and “turn the tables.”  “Far from restricting competition, then, false or misleading advertising generally sets competition into motion.”  Also, it’s hard to determine whether falsity induced reliance, “or whether the buyer attached little weight to the statements and instead regarded them as biased and self-serving.” The latter was more likely where, as here, the relevant consumers were sophisticated, and though RT had surveys about materiality of sharpness & waste space, “not a single buyer’s representative came forward to testify to a purchase motivated by the ‘world’s sharpest needle’ and ‘lower waste space’ claims.”

Pause to note that the empirics are all against this: corrective advertising, especially by an inherently-less-credible-because-self-interested competitor, is unlikely to fix all the damage of false advertising.  [Now that we’re post-truth, is this problem worse?  Or is it not a problem because no factual claim would be believed in the first place?]  Also, the First Amendment doesn’t protect false or misleading commercial speech; if it did, it would threaten the Lanham Act even more than the Sherman Act, but the same Seventh Circuit that said “the remedy is more speech” accepts Lanham Act false advertising claims.  Similarly unpersuasive are the claims about reliance and materiality, which we consider ordinary matters capable of factual proof in the Lanham Act context (and which the jury found were proven here).  If the court were serious about its arguments, it wouldn’t allow Lanham Act false advertising claims either.  This is about the remedy, not the right, and it would be a lot more honest to admit that.

Still, the court here says, the broader point is that there’s a difference between business torts, which harm competitors, and “truly anticompetitive activities,” which harm the market. So an antitrust plaintiff has to show that a competitor’s false advertisements had the potential to eliminate, or did in fact eliminate, competition.  “RT may have lost some sales or market share because of BD’s false advertising, but it remains a vigorous competitor, and it did not contend that BD’s advertising erected barriers to entry in the safety syringe market.”

Moreover, there were no facts showing that BD’s ads in fact harmed competition, because RT remained dominant in the retractable syringe sub-market, selling up to 67% of all retractable syringes. Further, competition within the overall safety syringe market—particularly between BD, Covidien, and Smiths—remained robust. Some customers increased their purchases of RT syringes after being shown BD’s erroneous “waste space” comparisons.

“Tainting the market”: this theory was that BD produced flawed Integra retractable needles during the years covered by this litigation in order to persuade purchasers that all retractable syringes—including those of RT—were inherently unreliable, until RT’s patent expired and BD could take over the market.  The beginning of this theory had some record support, but the rest was illogical and incoherent (why would BD destroy its own future market?); even if true, the last part wasn’t anticompetitive, because “it is precisely the type of activity to be expected from competitors when valuable patent rights expire.”  The flaws in Integra needles, while apparently real, didn’t prevent them from getting 33% of the market, while RT’s market share increased and its sales nearly doubled. 

Bye-bye antitrust claim.

Lanham Act claim: BD sought judgment as a matter of law based on the affirmative defenses of res judicata and laches. The district court was correct that res judicata didn’t bar the claim because RT didn’t release claims for conduct post-settlement, and there was no indication that RT was on notice before the 2004 settlement that BD would continue to utilize the “sharpest needle” and “waste space” comparative advertisements in sales pitches and marketing materials.  

Laches: Without opining on the right statute of limitations to borrow, the court of appeals found that the district court didn’t abuse its discretion in concluding BD suffered no undue prejudice. “BD obviously knew from the parties’ just-concluded litigation that RT objected to the needle sharpness and waste space claims, and BD had every reason to know that its ongoing advertisements of the same claims, which continued through 2011, were inaccurate.”

Disgorgement under the Lanham Act: Also reviewed for abuse of discretion.  In the Fifth Circuit, willfulness isn’t required, but courts consider: “(1) whether the defendant had the intent to confuse or deceive, (2) whether sales have been diverted, (3) the adequacy of other remedies, (4) any unreasonable delay by the plaintiff in asserting his rights, (5) the public interest in making the misconduct unprofitable, and (6) whether it is a case of palming off.”  Even if disgorgement is appropriate, a plaintiff “is only entitled to those profits attributable” to the false advertising.

There was no clear error in the district court’s conclusion that at least some portion of BD’s profits were attributable to the false advertising. There was an expert witness’s opinion that $7.2 million in profits—netting to $560,000 after deductions for costs and expenses—could be attributable to the waste space advertisements. Nor was there clear error in the finding that BD had the intent to confuse or deceive by continuing to use advertisements it knew were false. Anyway, willfulness is not a prerequisite.

The district court declined to impose disgorgement because RT was adequately compensated by a $340 million antitrust award. This required remand “for a thorough re-weighing of the remaining factors and the entirety of the record to determine whether and how much profit BD should disgorge to compensate for the Lanham Act violations.”  The court cautioned that, in assessing sales diversion, “speculative and attenuated evidence of diversion of sales will not suffice.”

BD finally objected to the injunction requiring BD to “notify customers, distributors, and other market participants” that it “wrongfully made false and misleading advertising claims” in its “needle sharpness” and “waste space” advertisements. BD didn’t object to bans on use of the relevant advertisements or to required implementation of a training program to instruct employees and distributors not to use the old marketing materials.  Given that the district court’s order suggested that injunctive relief was granted to remedy antitrust violations, it was an abuse of discretion.  “It remains theoretically possible, while bearing in mind that equitable relief is normally appropriate only in the absence of an adequate remedy at law (i.e., money damages), that a viable injunction might still be an appropriate remedy for the Lanham Act violations.”  So remand on that too.

Monday, December 05, 2016

Mardi Gras bead dogs live

At least the trademark registration does.  Remember the Mardi Gras bead dog case, Nola Spice, in which the PTO accidentally accepted a Section 15 incontestability statement during the pendency of an appeal of an order cancelling the mark, even though the notice of suit was on file?  The PTO rescinded the acceptance after I blogged about it, but there's really nothing in place preventing other mistaken acceptances.

I was writing a bit about incontestability and I decided to check in on the bead dogs.  The district court ordered the marks cancelled in 2012--an order reflected in the form it sent to the PTO in 2012.  The court of appeals affirmed in April 2015.  After remand, the district court dismissed the case with prejudice that same month.

As of today, the marks still show as live in TESS and TSDR.

What went wrong, and can it be fixed?  I can think of a couple of possibilities for improvement, but I seek the input of registration experts.  I see why it makes sense to have the form for filing and resolving a TM case be the same.  ("Report on the Filing or Determination of an Action Regarding a Patent or Trademark," FYI.)  But is there some way they could be entered differently into the system depending on whether they were about filing or determination?  That could make it easier to flag the ones that need attention for human review, like this one.  How does the patent side do this?  Are there better mechanisms for catching cancellations ordered by a court?  I know they're rare, but that very rarity may mean that getting it right isn't resource-intensive once a proper procedure is in place.

Do most courts send a separate order along with the Report?  If so, do most courts know that the PTO wants them to do that?  I can't imagine that this order from an Article III court is not effective even if merely transmitted in the Report.

Just to look at another notable case, I looked at the TSDR history of the Louboutin red sole, Reg. No. 77141789.  A couple of observations: (1) No Notice of Suit Incoming (which is how they display regardless of whether they're about filing or resolution) showed up for the underlying litigation that led to the partial cancellation of the Louboutin mark.  I understand that this failure is not uncommon, though I'm also interested to learn of others' experiences.  (2) Because this was a partial cancellation, the parties in the underlying litigation engaged in some dispute over how the PTO should implement the 2nd Circuit's mandate, which seems likely to be unusual.  (3) The Second Circuit did forward notice of its order separately, and it's marked as "paper correspondence incoming" in TSDR.  I'm not sure if that's standard for cancellation orders, since most don't come from courts of appeal.  More information or thoughts would be appreciated.