Wednesday, October 29, 2014

Just in time for Halloween: this should make TM owners shiver

The Ninth Circuit is not kidding about not presuming irreparable harm in trademark cases.

Titaness Light Shop, LLC v. Sunlight Supply, Inc., No. 13-16959 (9th Cir. Oct. 9, 2014)

Sunlight uses “Titan Controls” for devices that control indoor gardening equipment. Titaness Light Shop (TLS) began marketing indoor grow lighting systems under the mark “Titaness.”  The court of appeals reversed the district court’s grant of a preliminary injunction as an abuse of discretion, given that such an injunction is an extraordinary remedy that requires a clear showing of entitlement to such relief.

The problem was irreparable harm, as to which conclusory or speculative allegations are not enough.  Irreparable harm can include harm to reputation and goodwill, but evidence is required, not mere platitudes.  Here, Sunlight “Sunlight simply asserted to the district court that its goodwill and reputation would be irreparably harmed because TLS’s Titaness products were being sold by a website that supposedly catered to marijuana growers, while Sunlight had worked hard to ensure that its products were not marketed to marijuana growers.”  Yet Sunlight didn’t show actual or likely harm.  It didn’t show that its customers were aware of the relevant website; would associate products sold by the site with marijuana; or disliked marijuana enough to stop buying Sunlight products if they mistakenly perceived a link to marijuana.  Indeed, Sunlight was, at the time the appeal was argued, actually selling on that site as well.  

 Money quote: “The fact that Sunlight’s reputation might be harmed by the marketing of TLS’s products did not establish that irreparable harm to Sunlight’s reputation is likely.”

Case against allegedly contaminated jerky treats proceeds

In re Milo’s Dog Treats Consolidated Cases, 9 F.Supp.3d 523 (W.D. Pa. 2014)

The court adopted the magistrate judge’s recommendation to grant defendants’ motion to dismiss unjust enrichment claims, but to deny the motion as to the consumer protection and warranty claims in this dog jerky contamination case.

Plaintiff Funke sued on behalf of a class of purchasers of chicken and beef jerky dog treats from Milo’s Kitchen, owned by Del Monte.  She alleged that defendants misrepresented the quality of the treats, that they contained contaminants, and that after she fed the treats to her dog it became sick and ultimately had to be euthanized.  Among the allegedly false/misleading claims on the products’ packaging and associated websites: “100% Real—Wholesome and Delicious;” the ingredient list; “Milo’s Kitchen Home–Style Dog Treats are 100% real jerky, sausage slices, and meatballs;” each piece of Milo’s Kitchen Chicken Jerky “is made with whole fillets of 100% real jerky and the quality and care your dog deserves,” without any artificial chicken flavors or filler ingredients; and claims that their products comply with USDA, FDA and other food safety rules.

The FDA released numerous cautions to consumers about illness in dogs after consuming jerky treats made in China, as defendants’ were.  Defendants’ statements that neither the FDA nor the American Veterinarian Medical Association have been able to identify the cause of the illnesses or a connection between the illnesses and the jerky treats and that no contaminants have been found despite extensive testing were allegedly deceptive.  Funke further alleged that Milo’s safety process was deficient and that the FDA investigation failing to detect contaminants was fundamentally flawed.  Moreover, defendants allegedly failed to respond adequately once the contamination was found.

Funke brought the usual statutory California claims.  Defendants argued that the alleged misrepresentations were mere puffery.  Along with those listed above, plaintiff identified other alleged misrepresentations: that defendants started making Milo’s Kitchen dog treats because they believed dogs deserve treats made with the same quality of ingredients and care that their owners want in their food; the jerky treats are good for pets; and dogs deserve only the best with your food and deserve to enjoy snacks that not only look like jerky, sausage slices and meatballs, but actually are 100% real jerky, sausage slices and meatballs.

Other than the statements about defendants’ motivations for making the treats and the claim that they’re “good for pets,” each of these appeared verifiable and sufficiently specific to induce reliance. Moreover, even the statements that were puffery standing alone could contribute to the deceptive context of the packaging as a whole.

Funke also satisfied Rule 9(b) by alleging that defendants “engaged in a continuous course of conduct since 2007 (the when), whereby they have made misrepresentations on the jerky treat packaging and on their websites (the where), that their products are wholesome, safe, and that they otherwise have characteristics and qualities that they do not have which is likely to mislead the public (the what), and that these misrepresentations are false because many of the packages of jerky treats contain contaminants (the how).”  Funke also adequately alleged reliance.

Plaintiff Ruff’s claims fared similarly.  (Her dog also died.)  She challenged similar claims, including statements that the product is “100% REAL”; that it was made with “the quality and care your dog deserves”; and that the jerky treats are “wholesome natural treats.”  She also challenged Milo’s response to the FDA’s warnings as misleadingly downplaying the evidence and failing to warn consumers of the dangers.  She contended that neither she nor any reasonable person would have bought the jerky treats if they had known of the material risk of serious harm to their pets.  Along with the usual California claims, she alleged negligence and strict product liability.

The court found that Ruff adequately alleged a defect and proximate cause.  While an accident alone isn’t sufficient to prove a defect, defects can be alleged by circumstantial evidence such as that present here: Ruff bought a package of treats which she fed to her healthy dog; with no other material changes to its diet, it fell ill; it died from kidney failure within one week of consuming the treats; since Nov. 2011, the FDA has logged over 900 reports of illness and death from kidney failure in pets after consumption of jerky treats.

The court also found that Ruff could represent a nationwide class for her California UCL and CLRA claims, even though she wasn’t a California resident.  California law may be applied when the defendant is a California corporation, as here, and some or all of the alleged misconduct emanated from California, as alleged here, where Ruff pled that California was the headquarters for Del Monte’s US marketing and that the California location provides all customer support and makes all corporate decisions regarding marketing.  She could also bring a North Carolina UDTPA claim, because she lived there.

Ruff’s Magnuson-Moss Warranty Act claims for breach of the implied warranty of merchantability survived even though there was no privity.  The rule requiring privity has an exception for “foodstuffs,” and there was no reason to limit that exception to human food.

Monday, October 27, 2014

Whole Foods' not wholly natural foods are ok

Gedalia v. Whole Foods Market Services, Inc., 2014 WL 5315030,  No. 4:13–CV–3517 (S.D. Tex. Sept. 30, 2014)

Gedalia sued on behalf of a putative class of people who bought Whole Foods’s private-label 365 Organic and 365 Everyday Value products allegedly falsely labelled as being organic, natural, and/or GMO-free.  Plaintiffs brought claims under various state consumer protection laws as well as common-law theories.  The claims encompassed hundreds of different products; the court expressed doubt about plaintiffs’ standing to represent consumers of products they didn’t purchase, but didn’t resolve the issue because it ruled on lack of plausible reliance. Likewise, the court was skeptical that plaintiffs could bring claims based on online and in-store representations not present on the actual packages, because they didn’t allege they saw those representations.

The court did reject preemption arguments; the Organic Foods Production Act (OFPA) does not clearly indicate a purpose to occupy the field, nor did it conflict with relevant California law.  Nor were “natural” claims impliedly preempted by the FDCA/NLEA.  Reliance on the primary jurisdiction doctrine “would likely be unfruitful due to the agency’s long-standing reluctance to officially define the term ‘natural.’”

The sticking point was a misrepresentation that would be likely to deceive a reasonable consumer.  This is usually a fact question unsuited for a motion to dismiss, unless “the advertisement itself made it impossible for the plaintiff to prove that a reasonable consumer was likely to be deceived.”  Other cases have noted that there’s not much reason to think that consumers know or understand federal definitions of things like “organic” or “synthetic.”  Williams v. Gerber, 552 F.3d 935 (9th Cir. 2008), held that consumers aren’t required to read the ingredient label to correct misleading impressions from the front of a package. In particular, a claim to be made with fruit and “other all natural ingredients” could reasonably be interpreted to mean “all the ingredients in the product were natural.”  Subsequently, courts have generally held that the definition of “natural” is a question of fact, to be determined based on “contextualized evidence regarding consumer perceptions.”  However, courts have also required pleadings to specify which ingredients are unnatural.  And some healthy-sounding terms have been held to be puffery.

Here, the allegations were that 365 Brands deceptively include (1) non-organic ingredients in organic products, (2) GMOs and (3) Unacceptable Ingredients. Plaintiffs submitted hundreds of product label images, but none of the labels said “100% organic,” though they did have USDA and third-party certification seals. Plaintiffs alleged that the products include “synthetic ingredients that are not permitted in organic foods” and that “have not been approved to be used in any food at all, much less in organic food.”  But they didn’t allege that the certifications were invalid or that the labels violated USDA regulations.  OFPA allows non-organic ingredients in “organic” food, depending on the label.  There was no reason to believe that “the reasonable consumer would assume 365 Brands organic products are any more organic than what organic certifying agencies require.”

GMOs: many of the labels stated that “365 Everyday Value products are formulated to avoid genetically engineered ingredients.” However, lab test results showed 365 Everyday Value Corn Flakes contained 57% GMO corn.  The Whole Foods website directed consumers to buy 365 Everyday Value products if they wanted to avoid GMOs and stated that “[a]ll ingredients derived from plants are sourced to avoid GMOs, and hundreds of those products are verified by the Non-GMO Project.”  However, another page on the website distinguished “enrolled” and “verified” non-GMO products. “While the website is not a model of clarity, the lab results and other evidence do not show 365 products were not ‘sourced to avoid’ GMOs, nor that verified non-GMO products contained GMOs.”  None of the labels and literature stated that 365 Brands products were “GMO free.”  (Really?  Because that seems pretty misleading to me; the implicit message is clearly that there aren’t GMOs, even if it’s carefully worded to avoid making that explicit claim.)

As for Unacceptable Ingredients, that came from a list on the Whole Foods website. That list started with a bold disclaimer that Whole Foods reserved the right to change the list at any time, and appeared to be written for producers hoping to sell their products to Whole Foods.  Plaintiffs alleged that they bought products containing Unacceptable Ingredients, including “irradiated foods” (cholecalciferol, ergocalciferol), “nitrates” (thiamine mononitrate), “artificial colors,” and “artificial flavors.” Whole Foods disputed the definition of “irradiated foods,” arguing that it targeted “the use of ionizing radiation in meat, produce, seafood and freestanding spice products, not obscure nutrient, vitamin, and mineral ingredients.”

Also, plaintiffs argued that all food coloring was “artificial,” even those made of “natural” ingredients, according to the FDA definition of “color additive.” They alleged that these ingredients didn’t meet the reasonable consumer’s understanding of the term “natural,” which “comports with federal law and Whole Foods’ proffered definition.” Whole Foods elsewhere defined natural foods as “foods that are minimally processed, largely or completely free of artificial ingredients, preservatives and other non-naturally occurring chemicals and as near to their whole, natural state as possible.” The USDA allowed “natural” on meat and poultry labels, as long as the products didn’t contain “any artificial flavor or flavoring, coloring ingredient, or chemical preservative, or any other artificial or synthetic ingredient” and provided that “the product and its ingredients are not more than minimally processed.”  Elsewhere, regulations define synthetic as “[a] substance that is formulated or manufactured by a chemical process or by a process that chemically changes a substance extracted from naturally occurring plant, animal, or mineral sources.”  While the FDA has no official “natural” definition, as a matter of policy it treats the term “as meaning that nothing artificial or synthetic (including all color additives regardless of source) has been included in, or has been added to, a food that would not normally be expected to be in the food.”

Because the FDA definition incorporated normal consumer expectations, it didn’t help with the reasonable consumer standard. The Whole Foods definition circularly defined “natural” as “not artificial” and “as near to [a] natural state as possible.” The USDA definition was more stringent, but was limited to meat and poultry.  Still, Whole Foods didn’t offer an alternative definition that might include all the allegedly “artificial” ingredients plaintiffs challenged. Instead, it argued that the proffered interpretation was “based on arcane and technical regulatory definitions, not what a reasonable consumer would consider the terms to mean.”  While whether reasonable consumers would consider an ingredient “natural” is a fact question, plaintiffs weren’t challenging the label “all natural” but were alleging misrepresentations based on the Unacceptable Ingredient list, from a page that plaintiffs didn’t show reasonable consumers would visit or rely on.

Plaintiffs also relied on images of advertising and signage that state, e.g., “Nothing artificial ... ever, ever, ever.”  But none of the labels referred to the Unacceptable Ingredient list.  The court couldn’t find references to “natural” or “artificial” ingredients on the submitted labels, though it was possible that they existed but weren’t legible on the submitted images. “Based on the images submitted, a reasonable consumer would not consider such drawings to be more than decorative graphics and would not rely on them in purchasing the products.”  Plaintiffs argued that Whole Foods’ broad representations on its signs etc. belied the “dizzying array of ingredients” listed on its products. “But that is the purpose of requiring ingredient lists on every product label.” 

Plaintiffs’ argument reduced to the idea that, “since Whole Foods has developed a successful brand as a provider of natural foods, it should be obligated to guarantee every molecule in every product it sells under its in-house brand is natural,” and likewise with “organic,” in spite of OFPA’s tiered labeling regime.  Although the court commented that there’s an argument that organic labeling is inherently misleading, plaintiffs didn’t show how Whole Foods’ use of the term was any different from that of other organic producers, and the same was true of “natural.”

“Natural” cases allowing claims to proceed required “contextualized evidence regarding consumer perceptions,” but the claims here were far too broad.  “The only common representation on the actual labels of 365 Products is a logo stating ‘365 EVERYDAY VALUE.’” This didn’t plausibly suggest natural ingredients, but rather suggests that the products were less than premium quality.

TM, advertising claims excluded from LivingSocial's arbitration agreement

Faegin, v. LivingSocial, Inc., No. 14cv00418, 2014 WL 5307186 (S.D. Cal. Oct. 15, 2014)

Plaintiffs (A.T. Your Service Cleaning and Janitorial) sued defendants for trademark infringement and related business torts.  ATYS is a cleaning service in San Diego.  LivingSocial is a national online marketing company that advertises deals and discounts on behalf of merchants. Plaintiffs signed an agreement with LivingSocial allowing it to advertise and sell vouchers for ATYS in San Diego; there was an arbitration provision covering “any dispute, claim, or disagreement arising from or relating to this Agreement or the breach thereof.”  This advertising relationship lasted a few months in 2012.

 In April 2013, plaintiffs contacted LivingSocial again, but was told there was a 2-3 month wait time in San Diego.  In May, plaintiffs heard from an existing customer that the customer had bought a voucher for ATYS through LivingSocial.  The voucher was not for ATYS, however; it was another company, At Your Service Housekeeping, also in the San Diego area.  LivingSocial didn’t include a phone number for AYSH on the vouchers it sold; customers who searched for “At Your Service San Diego” found plaintiffs’ web site and telephone number.  Plaintiffs received calls from customers who mistakenly thought they bought vouchers for ATYS. The complaint also alleged that AYSH failed to honor its vouchers, causing confused consumers to give negative reviews to ATYS on Yelp, Google, etc., harming ATYS.

LivingSocial argued that this dispute had to be arbitrated, since plaintiffs’ trademark claims “related to” the agreement.  Plaintiffs pointed out that they made no allegations relating to the terms and conditions of the parties’ agreement. The court found that the arbitration was worded broadly, reaching “every dispute between the parties having a significant relationship to the contract and all disputes having their origin or genesis in the contract.” Nonetheless, arbitration may only be ordered when the parties agreed to arbitrate their dispute.

LivingSocial argued that plaintiffs’ trademark claims depended explicitly on the prior contract, and pointed to plaintiffs’ allegation that LivingSocial helped plaintiffs’ mark “become famous and distinguished” through LivingSocial’s assistance with promoting and strengthening the mark.  (Comment: Aaargh.  On the facts alleged, ATYS has suffered significant harm, but there is no way they have a famous mark and alleging dilution should be understood as meriting an award of fees to defendants in cases like this.) 

But claims “arise from” an agreement or breach when the claims relate to “the interpretation and performance of the contract itself.”   Resolution of the infringement claims wouldn’t require interpretation of the contract or of the parties’ performance thereunder.  The agreement didn’t say anything about LivingSocial’s rights or obligations with respect to ATYS’s mark. The infringement claims “constitute independent wrongs” and didn’t “arise from” the agreement.  Similarly with false advertising and unfair business practices claims: the agreement didn’t refer to LivingSocial’s right to advertise competing business, and nowhere in the agreement did LivingSocial agree to refrain from providing advertising services to companies with similar names.  The claims here weren’t based on LivingSocial’s relationship with ATYS; they were based on LivingSocial’s relationship with AYSH.

Which false advertising claims are barred by Dastar?

A.H. Lundberg Associates, Inc. v. TSI, Inc., No. C14–1160, 2014 WL 5365514 (W.D. Wash. Oct. 21, 2014)

The parties compete to make and supply equipment to various processing industries. Defendant TSI specializes in wood and biomass, and began purchasing plaintiff Lundberg’s products in 2007.  In 2012, Gary Raemhild, a Lundberg employee with design and engineering knowledge, left Lundberg to work for TSI.  TSI then began offering products that Lundberg alleged were copied from Lundberg based on information and drawings from Raemhild.  Lundberg alleged (1) false designation of origin/reverse passing off; (2) false advertising of the authorship of the design of the products; and (3) false advertising based on TSI’s claim to have made “improvements” to the products.

Dastar barred the false designation of origin claim.  TSI physically made the goods it sold, so that’s it.  Courts have also (wrongly) held that false claims of authorship can’t be false advertising under §43(a)(1)(B), and the court here joined them—misrepresenting authorship isn’t misrepresenting “nature, characteristics, or qualities” covered by §43(a)(1)(B).  An actionable misrepresentation has to relate to something that would “change the user’s actual experience of the product”:

[T]he origin of the design of a product, like licensing status, is not a “characteristic” of that good. A difference in the original author of the design would not change a pollution compliance product user’s experience because the features and function of the product would be identical in both instances. TSI’s alleged misrepresentation that it designed its own pollution control products amounts to a false designation of authorship and does not implicate any “physical or functional” attributes of the pollution compliance products.

The Lanham Act isn’t a device for perpetual patent protection any more than it is for perpetual copyright.

Comment: this result makes sense in this particular context, but it ought to be a materiality determination, not an interpretation of “characteristics.”  As stated, for example, a misrepresentation that goods were “union made” would arguably be excluded from §43(a)(1)(B) coverage.  Yet the precise reason that producers advertise “union made” or “dolphin safe” etc. is to generate sales from consumers who strongly believe that such products are better than products not produced under the relevant conditions.  (By contrast, producers make authorship claims almost inherently when selling: “our product does X” could at least be alleged to be a representation of creation.)  See Kwikset v. Superior Court (California consumer protection case discussing, among other things, the irrelevance of physical differences when meat has been misrepresented as kosher).

If we read “product user’s experience” to include the hedonic experience—the satisfaction the consumer receives from buying the product—then “union made” would be a “characteristic” even if authorship isn’t, despite the lack of physical effects on the product.  But why tap dance in this way instead of using materiality?  The court cited a Ninth Circuit case, Sybersound, that held that a misrepresentation about a song’s copyright licensing status wasn’t actionable under §43(a)(1)(B), but indicated that a misrepresentation about who performed a song would change the user’s experience and thus count as a misrepresented “characteristic”—but that’s not about the physical characteristics of the recording; it’s about how consumers perceive the value of different performers.)

Finally, the allegation that TSI falsely claimed improvements in the product design was dismissed because a claim that a product is “improved” is mere puffery, and the complaint alleged that TSI failed to state what the improvements were. However, Lundberg might be able to replead to include potential claims that TSI’s press release claimed “improvements to both construction and gas flow that enhance overall productivity and maintenance.”  But the court noted that it would require Lundberg to satisfy Rule 9(b), as the 9th Circuit has done for other types of false advertising claims.  Lundberg’s complaint sounded in fraud because it alleged that Raemhild stole its trade secrets (I don’t know why that alleges fraud, given the purposes of Rule 9(b)), and because the complaint alleged that TSI was “falsely describing and misrepresenting [TSI’s] products” (“false” doesn’t necessarily mean “intentionally false,” but the court so reads it here even though stating a claim under §43(a) does not require intentional falsity).  Further, the court expressed skepticism that even claimed improvements in “construction and gas flow” would be more than puffery in the absence of anything quantifiable or measurable.  But it would allow leave to amend anyway.