Thursday, December 18, 2014

you can't a accuse competitor of lawbreaking when courts have ruled against you

Paul Davis Restoration, Inc. v. Everett, No. 14–C–1534, 2014 WL 7140038 (E.D. Wis. Dec. 12, 2014)

Following a series of unsuccessful lawsuits with Paul Davis Restoration, Inc., Matthew Everett, a former franchisee, began running a radio ad:
This is a business advisory. Paul Davis Restoration, Inc., a national operator of fire and water restoration franchises, is seeking a judgment of 25 percent commission on certain prior sales, which constitutes an unenforceable penalty in violation of Wisconsin state statutes and case law governing such restrictions and practices. In addition, they are seeking to impose several other terminations and conditions that are in direct violation of Wisconsin’s Fair Dealership laws, those Wisconsin laws which are designed to protect all Wisconsinites. To learn more, please visit pdr-wi.com. This ad paid for by Paul Davis Restoration of NOWI.
The court enjoined Everett from using “Paul Davis Restoration” as a trade name; he was no longer a franchisee.  Although he agreed to remove that reference from the ad, given the litigation history between the parties, the court found that he hadn’t mooted the claim.

Paul Davis also argued that the rest of the ad was false and misleading; Everett argued that suppressing it would violate the First Amendment. Jordan v. Jewel Food Stores, Inc., 743 F.3d 509 (7th Cir. 2014), used a test for identifying commercial speech assessing whether (1) the speech is an advertisement; (2) the speech refers to a specific product; and (3) the speaker has an economic motivation for the speech.

The speech was undoubtedly in the form of an ad, and presumptively had an economic purpose: “advertising costs money, and most private citizens do not buy ad time merely to express their personal or political views.”  Also, Everett was a competitor of Paul Davis, and the content addressed topics of economic import.  And Everett’s own emails showed a purpose to divert business from Paul Davis to Everett: “This began running today in the markets we serve. It will begin running Statewide next week. …”  Running the ad in “the markets we serve” limited the ad to areas where Everett had an economic interest in driving business away from Paul Davis. “The threat implied by the ad is that Paul Davis’ business from the state and insurance carriers will dry up (and migrate to Everett’s business).” Also, the ad labeled itself a “business advisory,” which the court found to be “an effort to make the communication sound official, rather than something based on a citizen’s private views.” 

The ad didn’t refer to a specific product, but it did refer to a specific company and that company’s services. In context, it was clearly commercial speech.

In addition, the court found that the ad was false.  The ad claimed that Paul Davis was seeking “an unenforceable penalty in violation of Wisconsin state statutes and case law governing such restrictions and practices.” That is, the ad said that Paul Davis was breaking the law.  But it was merely seeking to enforce an arbitration award against Everett.  Even if the arbitrator got it wrong, “the fact that questions of law may be arguable does not mean a competitor can accuse a company of illegal conduct merely for seeking to enforce a lawfully obtained arbitration award. If Paul Davis’ CEO were tried and exonerated for a crime, a competitor would not be able to claim that the CEO committed criminal acts merely on the basis that it was the competitor’s opinion that the jury erred.”  (I should note that this rule must be limited to commercial speech.  If I, acting as a private citizen, opine that OJ Simpson is a murderer, the jury’s verdict of acquittal can’t be dispositive, and couldn’t be even before the civil verdict agreeing with me.)  There was no reasonable argument that Paul Davis was breaking any law by seeking to enforce an arbitration award, making the claim misleading and false.

The next statement, accusing Paul Davis of “direct violation of Wisconsin’s Fair Dealership laws,” also simply took issue with the rulings of the arbitration panel and the courts.  The claim of “direct violation” was not just an opinion but implied that the Paul Davis’s liability was clear, “when just the opposite is true.”  Accepting that many legal questions are arguable, and thus unfalsifiable, “would allow anyone’s subjective legal views to insulate them from liability simply on the basis that they disagreed (for whatever reason) with the rulings of a court.” Everett was free to run an ad expressing disagreement with the arbitration or the courts and arguing why he believed they erred.  “But here, the ad makes the preposterous claim that there is something illegal about attempting to enforce an arbitration award. The only conceivable purpose of such an assertion is to mislead consumers and others into thinking that the Plaintiff has engaged in illegal activity.”

Thus there was a strong likelihood of success on the merits. The parties didn’t much discuss the other factors, but “[g]iven the difficulty of calculating damages due to false accusations of illegal activity, the Plaintiff would suffer irreparable harm and would have no adequate remedy at law.”  So an injunction against the ad issued.

irreparable harm is permissible inference, Third Circuit rules

Groupe SEB USA, Inc. v. Euro-Pro Operating LLC., No. 14-2767 (3d Cir. Dec. 17, 2014)

District court opinion discussed here.  Euro-Pro appealed the preliminary injunction against it based on Lanham Act false advertising claims against its advertising for its steam irons.  The court of appeals treated this as primarily a case about “how courts should interpret an advertising claim when the packaging or label unambiguously defines a claim term.”  The court agreed with the district court that if a claim is false by the advertiser’s own definition, then consumer survey evidence can be disregarded and literal falsity is established.  In addition, while bound by the circuit’s earlier rejection of a presumption of irreparable harm, the court of appeals found that the evidence before the district court justified an inference of irreparable harm.

SEB’s Rowenta models 5080 and 9080 compete with Euro-Pro’s Shark 405 and 505.  The Shark 405 packaging claims that the Shark 405 offers “MORE POWERFUL STEAM vs. Rowenta®†† at half the price.” The “††” characters refer to a fine-print footnote on the bottom of the packaging, which states that the claim is “††[b]ased on independent comparative steam burst testing to Rowenta DW5080 (grams/shot).” The front of the packaging also says that the Shark 405 delivers “#1 MOST POWERFUL STEAM*.” The asterisk refers to another footnote on the bottom saying the Shark 405 “*[o]ffers more grams per minute (maximum steam setting while bursting before water spots appear) when compared to leading competition in the same price range, at time of printing.” The Shark 505 packaging makes substantially the same claims, except with a comparison to the Rowenta 9080.  Packaging hang tags claimed “MORE POWERFUL STEAM vs. Rowenta . . . at half the price,” with a reference claiming “[b]ased on independent comparative steam burst testing” to the respective Rowenta  steam irons in “(grams/shot).”

SEB ran tests to check these claims, and found that the Rowenta 9080 performed the same as the Shark 505 in grams per minute.  In grams per shot of steam, the Rowenta 9080 was superior.  SEB then commissioned an independent lab to do more tests, which found that the 5080 and 9080 outperformed the Shark 405 and 505, respectively, in grams per minute and grams per shot, on average.  (The district court made a calculation error that led it to conclude that the Shark 405’s average performance was slightly higher than the Rowenta DW5080’s average performance.)  

Euro-Pro introduced testimony and a study from its scientific expert, Dr. Abid Kemal, who calculated steam power based on the kinetic energy of a steam burst divided by the duration of the burst. Using this measurement, Kemal concluded that the Sharks outperformed the Rowentas on steam power, and that the grams per shot results were comparable between the products.  Euro-Pro also submitted a consumer survey from Dr. Gary Ford showing that consumers do not have a uniform understanding of the meaning of the phrase “more powerful steam.”

SEB’s marketing director, Scott Pollard, testified that “SEB had invested substantial resources to promote Rowenta as  the best brand of steam irons in  the eyes  of retailers and consumers. According to Pollard, the direct reference to Rowenta on the lower-priced Shark steam irons likely would erode the Rowenta brand’s reputation in the eyes of retailers, current consumers, and future consumers.”

The key dispute on appeal was whether the Shark claims were literally false.  Literal falsity analysis must consider the message in context.  The first interpretive step is figuring out whether the challenged claim conveys an unambiguous message, which is then evaluated for falsity.  Only unambiguous claims can be literally false.  The standard of review for a determination of ambiguity/unambiguity is clear error.

The district court found that the “more powerful than Rowenta” was unambiguous, given the footnote reference to grams per shot.  The “#1 most powerful” claim was also unambiguous by necessary implication because of the proximity to the other claim’s comparison to Rowenta.  This was false, given SEB’s evidence and the fact that the Kemal report didn’t measure steam power in grams/shot or grams/minute.

The court of appeals agreed that the “more powerful vs. Rowenta” claim was unambiguous.  “When a product’s packaging includes an advertising claim and unambiguously defines a claim term, the packaging’s definition of the claim term applies to the claim’s explicit message.”  (As we’ll see, there are some qualifications to come.  I don’t think this is license to advertise “$40/day every day*” and define “day” in a footnote as Monday-Friday.)

The court of appeals reasoned that “[t]o make something explicit is to state it clearly and precisely.”  So, when Euro-Pro “took the affirmative step to include a reference on the Shark packaging that clearly defined the key term in its claim—that steam power is measured in grams per shot—it made an explicit claim.”  This was also unambiguous because grams/shot was a unit of measurement used by the leading independent standard-setter for relevant technologies.  There was only one plausible meaning: “the claim means exactly what the reference on the packaging says it does.”

This conclusion was supported by the rule that courts must view claims in the context of the entire ad.  “[I]gnoring the reference in our analysis would be not only to read the claim out of  context, but also to ignore part of the claim itself denoted by the symbol.” 

This conclusion was also consistent with other areas of the law where courts engaging in interpretation must apply an author-provided definition, as in statutory interpretation, patent claim construction, insurance contracts, and other contracts.

What about the fact that the symbol referred to fine-print footnotes that consumers are “presumably” less likely to read?  “We understand that other courts have held that footnote disclaimers purporting to make a false or misleading claim literally true cannot cure the claim’s false or misleading message. We have not addressed this issue, and we do not decide it today.”  (Really?  I hope not, but I don’t see why the logic wouldn’t cross over to make a footnoted claim at least ambiguous, except for the fact that such a conclusion would be a terrible idea, which is why the court of appeals tries to dodge it.)  Instead, the court of appeals said, its holding was “analytically distinct” from such no-takebacks cases. Its holding was that “what a product’s packaging says a claim term means is in fact part of the claim’s explicit message.  If that explicit message is both unambiguous and false, the claim is literally false.”  (But what about my “day” example above?  Wouldn’t the footnote alone require a plaintiff to provide a consumer survey to show misleadingness by making the definition of “day” “ambiguous”?)

Furthermore, Euro-Pro’s consumer survey purporting to show alternative meanings for “steam power” wasn’t relevant.  Euro-Pro invoked Pernod Ricard USA, LLC v. Bacardi U.S.A., Inc., 653 F.3d 241 (3d Cir. 2011), for the proposition that courts had to consider consumer surveys in determining whether a message was unambiguous.  That case actually approved the use of the name “Havana Club” for rum despite consumer survey evidence indicating that many consumers thought the rum came from Cuba, even though the label stated “Puerto Rican Rum.”  There’s got to be a point at which we stop arguing over what a claim means and turn to the legal consequence of that meaning, and that point was reached with the label at issue.  But the Pernod Ricard court cautioned that judges should not “lightly disregard” consumer surveys because they  may reveal “potential ambiguities in an advertisement” that show reasonable consumers may in fact be misled by the advertisement. Plus, “a district court’s decision to disregard survey evidence is reviewable de novo, since it is founded on a legal conclusion based on underlying facts, that is that no reasonable consumer would be misled by an advertisement.”

However, this case, unlike Pernod, involved literal falsity, so evidence of actual consumer deception wasn’t required.  Consumer surveys don’t need to be used to define the meaning of words that are plain enough and have “baseline meanings such that consumer survey evidence is irrelevant.”  Here, Euro-Pro explained what it meant on the packaging; the court wasn’t substituting its own perception for consumer perceptions, but rather using the definition Euro-Pro provided. 

Likewise, the court of appeals agreed that the “most powerful steam” claim was unambigously comparative to Rowenta.  True, the relevant message wasn’t “explicit,” because the corresponding footnote referred to “leading competition in the same price range,” and the parties agreed that Rowenta steam irons are in a different price range.  But this was still false by necessary implication, because consumers would unavoidably receive a false message given that the “most powerful steam” claim appeared directly above the “more powerful vs. Rowenta” claim.  (Note that here we may have an answer to the question whether a footnote definition can convert a claim to ambiguous: at the very least, not in this instance, which means not all the time.  If the main holding is just a version of estoppel, it’s not that significant.)

Since there was no clear error in finding the messages unambiguous, the next question was falsity, and there was also no clear error in that determination.  The district court reasonably relied on SEB’s tests, which used the relevant measurements, and even the Kemal report didn’t find a grams/shot difference.  Euro-Pro argued that the district court improperly shifted the burden of proof to Euro-Pro.

But the Third Circuit held in Novartis that “a court may find that a completely unsubstantiated advertising claim by the defendant is per se false without additional evidence from the plaintiff to that effect.” Euro-Pro argued that this exception only applied when a defendant refused to present any evidence, whereas it provided the Kemal report.  Novartis was not so narrow.  (This is probably the much bigger holding.)  The Kemal report was “mostly irrelevant” to the messages actually conveyed by the ads. Thus, Euro-Pro’s claims were entirely unsubstantiated.  Anyway, the district court also had affirmative evidence of falsity; it didn’t shift the burden of proof at all.

Now, irreparable harm: the district court didn’t have the benefit of Ferring Pharmaceuticals, Inc.  v. Watson Pharmaceuticals, Inc., 765 F.3d 205 (3d Cir. 2014), which applied eBay to Lanham Act cases and barred presumptions of irreparable harm in place of a “clear showing” thereof.  But it said it wasn’t applying a presumption, regardless.  Portions of the district court opinion do read that way, and the district court cited repeatedly to a case relying on the now-disallowed presumption.  Other parts are consistent with Ferring, so it was unclear whether the wrong standard affected its analysis.  But anyway, the district court could be affirmed if there was sufficient record evidence of irreparable harm.

The record here did contain such evidence of “likely harm to the Rowenta brand’s reputation and SEB’s goodwill. See S & R Corp. v. Jiffy Lube Int’l, Inc., 968 F.2d 371, 378 (3d Cir. 1992) (‘Grounds for irreparable injury include loss of control of reputation, loss of trade, and loss of goodwill.’).”  [Note that this too is pre-eBay.]  SEB’s marketing director testified to Rowenta’s strong reputation; the products compete side by side; and the marketing director testified that false comparative claims would likely harm Rowenta’s reputation, especially since the Sharks were lower-priced.

This was not a “veiled” presumption of irreparable harm.  Ferring does not bar drawing fair inferences from facts in the record. Indeed, a key lesson from Ferring is that courts considering whether to grant injunctive relief must exercise their equitable discretion in a case-by-case, fact-specific manner.”  The inference of likely irreparable harm to brand reputation and goodwill was supported “not by a general rule or presumption but by the literally false comparative advertising claims at issue, the competitive relationship between the parties and products, and the judgment of Pollard that the harm to SEB’s brand reputation and goodwill is impossible to quantify.”  

Chief Justice Roberts’ eBay concurrence noted that the trend to grant injunctions in patent suits shouldn’t be forgotten entirely when applying the four-factor test—a page of history is worth a volume of logic; Justice Kennedy agreed.  (Compare actual results post-eBay in patent cases—a lot of injunctions, but a lot of denials too.)  The same was true here, for reasons particular to false advertising.  Ferring distilled two justifications for the traditional presumption:
(1) a misleading or false comparison to a specific competing product necessarily causes that product harm by diminishing its value in the mind of the consumer, similar to trademark infringement cases; and (2) the harm necessarily caused to reputation and goodwill is irreparable because it is virtually impossible to quantify in terms of monetary damages.
“Although we no longer apply a presumption, the logic underlying the presumption can, and does, inform how we exercise our equitable discretion in this particular case.”  So basically, it’s up to the district court: a permissible inference rather than a presumption. “Logic” seems to be another word for “no individualized evidence of harm required.” Thus, any error by the district court was harmless.

Finally, Euro-Pro challenged the scope of the injunction on First Amendment grounds.  Injunctions against false or misleading commercial speech must be narrowly tailored to cover only the speech most likely to deceive consumers and harm the plaintiff. The injunction here required Euro-Pro to put stickers over the two claims at issue and remove the hang tags.  Given that false commercial speech is unprotected, and that SEB showed likely success on the merits, the court of appeals saw no First Amendment problems. 

Euro-Pro argued that the injunction was overbroad because it required Euro-Pro to cover the ad claims rather than only the references, which were critical to the literal falsity analysis—without the references, the claims might be ambiguous.  No such luck.  The references plus the claims together comprised the literally false message; the injunction was properly limited to literally false claims.  And Euro-Pro’s reasoning would be unworkable: district courts can’t be expected to parse each part of a literally false claim “to see if the removal of a word or a portion here and there would render the remainder true.”  (Not to mention that the plaintiff would then have to be prepared to show falsity and deceptiveness for every imaginable redaction of the claim.)

Wednesday, December 17, 2014

Soul survivor: publicity and TM claims against recorded performance fail

Cummings v. Soul Train Holdings LLC, 2014 WL 7008952, No. 14 Civ. 36 (S.D.N.Y. Dec. 12, 2014)

This right of publicity/trademark case based on use of recorded performances to which the plaintiff didn’t own the copyright could’ve gone a lot of ways—statutory exclusion, First Amendment/Rogers, copyright preemption, Dastar—the important thing is that it goes nowhere.

Jeremiah Cummings was a member of the rhythm and blues music group, Harold Melvin and the Blue Notes from 1973 to 1980.  On several occasions, the Blue Notes appeared on Soul Train, including an interview where group members were asked to introduce themselves by name.  Cummings alleged that he didn’t sign any release or grant of rights for future use of his performance.  (In the Ninth Circuit, he should’ve brought copyright claims!)  Footage from the Blue Notes’ performances has been used in (1) DVD compilations called “Best of Soul Train” and (2) TV ads and Internet videos marketing these DVDs. The trademarks Soul Train and Time Life (used under license) were prominently displayed on the DVD packaging and contents.  The complaint also alleged that certain defendants licensed stock footage of the Soul Train shows.  Cumming alleged that this violated Cummings’ rights of publicity and privacy, as well created a false assocation.

The NY right of publicity claim failed on choice of law grounds, since NY applies the law of the plaintiff’s domicile to such claims—here, that’s Illinois.  The materials in question were clearly exempt from Illinois law, given its explicit provision that the statutory right of publicity didn’t apply to “use of an individual’s identity in an attempt to portray ... [an individual] in a live performance, ... musical work, film, radio, television, or other audio, visual, or audio-visual work,” as long as the performance “does not constitute in and of itself a commercial advertisement for a product, merchandise, goods, or services.” Naturally, “promotional materials, advertisements, or commercial announcements” for such use are also exempt.  (And the statute supplanted any common law right, also explicitly.)  That’s that.

The claim was also independently preempted by copyright law:
[O]nce a performance is reduced to tangible form, there is no distinction between the performance and the recording of the performance for the purposes of preemption under § 301(a). Thus, if a baseball game were not broadcast or were telecast without being recorded, the Players’ performances similarly would not be fixed in tangible form and their rights of publicity would not be subject to preemption. By virtue of being videotaped, however, the Players’ performances are fixed in tangible form, and any rights of publicity in their performances that are equivalent to the rights contained in the copyright of the telecast are preempted.
Nat’l Basketball Ass’n v. Motorola, Inc., 105 F.3d 841, 849 (2d Cir. 1997).

Nor could Cummings bring a successful NY right of privacy claim, since his likeness wasn’t used for advertising or for purposes of trade, as required by N.Y. Civ. Rights Law § 50. (The court doesn’t make very clear what separate NY “right of publicity” claim it was dealing with above, since NY has no common law right of publicity.)  The New York Court of Appeals has “underscored that the statute is to be narrowly construed,” and excludes publications on newsworthy events or matters of public interest, which go well beyond “hard news.” Gautier v. Pro–Football, Inc., 304 N.Y. 354 (1952), involved an animal trainer who consented to perform during the halftime show of a pro football game.  Because he consented to perform in front of 35,000 spectators in a game attracting wide and legitimate public interest, he had no claim against having his performance televised.  Even without a release, he consented to perform live on national television; using the recordings of those performances doesn’t invade his right of privacy, even if he wasn’t paid.  And the promotional materials advertising the DVDs were protected by the doctrine of incidental use, allowing advertising of otherwise protected materials.

The Lanham Act claim was dismissed for failure to plead anything explicitly misleading, per Rogers v. Grimaldi.  The DVD sets were artistic works, “and the Complaint does not allege facts that could possibly show that consumers are likely to be confused about the source or ownership of those works because of the depiction of Plaintiff, among many other artists, in and on the DVD sets.”  The risk of confusion was outweighed by the First Amendment interests at stake, particularly given that Cummings was depicted along with many other artists and that the Soul Train and Time Life trademarks were prominently displayed.

Cummings’ state law deceptive business practices and common law trademark infringement claims suffered the same fate because Illinois courts apply the same analysis to Lanham Act claims as to coordinate state law claims.  (Interesting choice of law question: do they apply Rogers, after all a Second Circuit case?  The Fortres Grand district court used Rogers without discussion, and the Seventh Circuit has cited its First Amendment prioritization favorably; smart money says yes to Rogers, but it’s always possible that the iconoclasts on that court would make up their own test, which Illinois would then presumably follow.)  In addition, these claims were also preempted by §301 as not qualitatively different from copyright claims.

the intersection of FTC US origin guidelines and the Lanham Act

A.P. Deauville, LLC v. Arion Perfume and Beauty, Inc., No. C14-03343, 2014 WL 7140041 (N.D. Cal. Dec. 12, 2014)

Deauville sued Arion for false advertising and unfair competition, and Arion counterclaimed.  This opinion granted in part Deauville’s motion to dismiss.

Deauville makes Power Stick deodorant, antiperspirant, body spray, and body wash through “value-priced retailers.”  Arion sells European American Design products that compete with Power Stick products.  Deauville alleged that EAD product labels “contain false and misleading statements or otherwise fail to meet the requirements for product labeling in the United States.”

Arion counterclaimed with similar allegations, arguing that the Power Stick product labels were misleading because the statement “Made in the U.S.A. of U.S. and/or imported ingredients” was ambiguous—because of the and/or, there was no guarantee that any ingredients would be domestic.  Deauville also advertises online with languages such as “Why we are made in America?” without clarifying whether the product ingredients are domestic or foreign.

Deauville argued that its products contained no more than a de minimis amount of foreign content (something Arion contested) and that its unqualified and qualified statements weren’t misleading.  Moreover, Deauville argued, whether it complied with the FTC’s guidelines wasn’t provably false and there was no private right of action under the FTCA.  Arion relied on the FTC’s analysis of US origin claims to show the element of deceptiveness, arguing that the FTC had conducted significant research on consumer understanding of such claims; Deauville didn’t disagree with that part of the argument, but did contend that only the FTC could evaluate compliance with its guidelines and resulting deception.

The FTC permits unqualified statements of U.S. origin only when “all or virtually all” of the ingredients are domestic.  The final assembly must take place in the US, but other factors also matter, including “the portion of the product’s total manufacturing costs that are attributable to U.S. parts and processing” and “how far removed from the finished product the foreign content is.” To the FTC, “there is no single ‘bright line’ to establish when a product is or is not ‘all or virtually all’ made in the United States.”  

Power Stick products used a qualified U.S. origin statement (“of U.S. and/or imported ingredients”) and its ads used unqualified statements (“manufactured in the USA”).  Arion didn’t contest that the products were manufactured domestically, but argued that the use of a qualified statement justified an inference that the products contained more than a de minimis amount of foreign content, requiring a better qualification to avoid confusion. 

The court disagreed: the FTC says there’s no bright line, and so even if Deauville was forced to provide all available information about Power Stick ingredients, “neither the parties nor the Court would be in a position to determine whether there was sufficient foreign content to satisfy the FTC’s standard.”  Thus, whether Deauville was in compliance with FTC policy was not provably false.  Query: Would it be provably false if the FTC relied on it in FTC-initiated proceedings?  That is, is this really a falsity holding, or a delegation of this particular question to the FTC even if private false advertising claims can proceed on other theories? Perhaps this sentence suggests an answer:  “The Court does not wish to become the handmaiden of the FTC, nor does it imagine that the FTC would welcome the help.”

The court further clarified that, although the use of both statement types and “and/or” language could be confusing, Arion made those arguments only in the context of FTC policy. The US origin statements could be misleading if the products indeed contained more than a de minimis amount of foreign content, but Arion need to allege some evidence suggesting that confusion could be proven.  It didn’t, other than by arguing about what the label implied about the ingredients, and therefore it failed to state a claim.  (Thus, presumably, if there were sufficient facts alleged, a jury could use the FTC findings as evidence that false statements about US origin were deceptive and material to consumers.  This is not a preclusion case but a pleading case.)

However, some counterclaims under California statutory law survived. Deauville argued that Arion lacked standing to claim that Deauville’s products violated FDA labeling requirements, because their products also violated those requirements.  At the pleading stage, general allegations of injury were sufficient.  Arion alleged that Power Stick Cool Blast violated numerous FDA requirements for over-the-counter drugs, in violation of California’s UCL.  Deauville was allegedly able to charge less than Arion for similar products by “skirting labeling requirements[,]” thus diverting consumers and retaining greater profit.  This was a plausible chain of injury, given Arion’s allegation of direct competition.

Deauville’s argument that Arion too violated FDA rules was essentially an unclean hands argument that the court couldn’t assume to be true for purposes of a motion to dismiss, as was its claim that the products didn’t really compete.