Search results for: Lanham Act

A federal jury in Illinois recently awarded Dyson, Inc. over $16 million in damages after finding that SharkNinja falsely advertised that its Rotator Powered Lift-Away vacuum was better than Dyson’s best-performing vacuum, the DC65.  SharkNinja ran ads that claimed that independent testing showed that the Rotator Powered Lift Away vacuum was proven to have “more suction” and “deep-cleans carpets better than Dyson’s best vacuum.”

The commercial also featured a graph that purported to measure each machine’s cleanability, but Dyson alleged that the results were not actually from referenced independent tests but rather internal tests.  Dyson further alleged that the tests failed to comply with industry standards for vacuum cleaning testing in the first instance and that SharkNinja effectively rigged the third-party tests by directing the testing company on how to test the machines.  The jury found that SharkNinja’s advertising of results from unsound tests was an intentional act to mislead consumers and awarded significant damages accordingly.

The case underscores the importance of conducting objective and reliable testing and carefully tailoring ad claims to accurately convey the results of tests.  The decision also is striking in terms of the size of the award, particularly as the jury found it appropriate to disgorge nearly all of the $18 million in profits that SharkNinja made from its vacuum during the time the commercial aired.

Summer associate Vishwani Singh contributed to this post. Ms. Singh is not a practicing attorney and is practicing under the supervision of principals of the firm who are members of the D.C. Bar.

On March 25, 2014, a unanimous Supreme Court ruled that a manufacturer of components for use in refurbished toner cartridges has standing under Section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a) to sue the maker of printers in which the cartridges could be used for false advertising.  Static Control Components, Inc., the component manufacturer, alleged that Lexmark International, Inc., the printer company, falsely told consumers that they could not lawfully purchase replacement cartridges made by anyone other than Lexmark, and falsely told companies in the toner cartridge remanufacturing business that it was illegal to use Static Control’s components.

The question before the Court was not whether Static Controls has constitutional standing under Article III, but whether it has so-called “prudential standing.”  The Court initially noted that “prudential standing” is a misnomer, and that the real question “is whether Static Control falls within the class of plaintiffs whom Congress authorized to sue under § 1125(a).”  Slip Op. 8-9.  If it does, a court “cannot limit a cause of action that Congress has created because ‘prudence’ dictates.”  Slip Op. 9.  Rejecting the various approaches of the lower courts—from the competitor-only test, to antitrust standing, to the reasonable interest inquiry—the Supreme Court instead adopted a two-party inquiry.

First, a plaintiff must “fall within the zone of interests protected by the law invoked.”  Slip Op. 10.  That is, under § 43(a) of the Lanham Act, “a plaintiff must allege an injury to a commercial interest in reputation or sales.”  Slip Op. 13.  This would exclude consumers and “[e]ven a business misled by a supplier into purchasing an inferior product.”  Id.

Second, a plaintiff must show injuries “proximately caused by violations of the statute.”  Slip Op. 13.  “[T]he proximate-cause requirement generally bars suits for alleged harm that is ‘too remote’ from the defendant’s unlawful conduct.”  Slip Op. 14.  Under the Lanham Act, then, a plaintiff “ordinarily must show economic or reputational injury flowing directly from the deception wrought by the defendant’s advertising; and that occurs when deception of consumers causes them to withhold trade from the plaintiff.”  Slip Op. 15.  “That showing,” the Court pointed out, “is generally not made when the deception produces injuries to a fellow commercial actor that in turn affect the plaintiff.”  Id.

Applying this two-part test, the Court held that Static Controls has standing to sue for false advertising under the Lanham Act.  The Court observed that Static Control’s alleged lost sales and damage to business reputation “are injuries to precisely the sorts of commercial interests the Act protects.”  Slip Op. 19.  The Court also concluded that Static Controls sufficiently alleged that Lexmark’s misrepresentations proximately caused those injuries, because injury flows directly from the audience’s belief in the disparaging statements even if the parties are not competitors, and because Static Control plausibly alleged lost sales resulting from the false statements despite the fact that the causal chain linking the injury is not direct.

At bottom, the Court held “that a direct application of the zone-of-interests test and the proximate-cause requirement supplies the relevant limits on who may sue” for false advertising under the Lanham Act.  Slip Op. 16.  This new will open the doors to new plaintiffs in some Circuits and should provide standards for more consistent application of the Lanham Act nationwide.

A panel of the Ninth Circuit Court of Appeals ruled May 17 on an appeal from summary judgment in a case filed by pomegranate juice maker POM Wonderful against the Coca-Cola Company’s Minute Maid division. The dispute was over a Minute Maid pomegranate-blueberry juice blend that POM alleged misrepresented itself on its label as containing a far higher proportion of pomegranate juice than was present in the beverage. According to POM, this overselling of pomegranate falsely communicated to consumers that the juice blend conferred the unique health benefits of pomegranate juice — benefits which, themselves, have been heavily advertised by POM but called into question by the FTC and litigants. POM’s deceptive labeling claims against other marketers of juice products touched off a network of related competitor, class action, and FTC cases that have become known as the "Juice Wars".

Coca-Cola successfully moved for summary judgment on the ground that FDA regulations issued under the Food, Drug & Cosmetic Act comprehensively govern the content of juice labeling, including permitting marketers of juice blends to identify the products through the juice name and pictures by the juices that provide their characterizing flavors, regardless of whether these juices predominate by volume. Affirming, the Ninth Circuit panel concluded that "Pom’s challenge to the name ‘Pomegranate Blueberry Flavored Blend of 5 Juices’ would create a conflict with FDA regulations and would require us to undermine the FDA’s apparent determination that so naming the product is not misleading" and that " forc[ing] Coca-Cola to alter the size of the words on its labeling so that the words “Pomegranate Blueberry” no longer appear in larger, more conspicuous type on Coca-Cola’s label than do the words ‘Flavored Blend of 5 Juices’ … would again undermine the FDA’s regulations and expert judgments." Under the preclusion doctrine, the challenge was therefore barred.
 

Continue Reading Ninth Circuit Pulps POM Wonderful’s Lanham Act Claims Against Coca-Cola, Affirming FDA Preclusion of Challenge to Regulated Food Labeling

A recent article, “Insurance Coverage for False Advertising Claims,” which was published in the March 2012 issue of Insurance Coverage Law Bulletin, discusses some of the caselaw holding that insurance companies are obligated to provide coverage for false advertising claims, particularly under the advertising injury section of a CGL policy.

Companies in a wide variety of industry sectors increasingly face lawsuits by competitors and customers alike under Section 43(a) of the Lanham Act, and similar statutes, based upon false advertising claims. These lawsuits typically allege that the defendant’s representations about its own product or a competitor’s products are false, misleading, or disparaging, and frequently include additional common law or statutory claims for unfair competition and disparagement.

It is vital that companies look to their standard liability insurance policies as a potential source of payment not only for judgments or settlements that might be incurred, but also for the legal fees and related costs of defense. Insurers frequently contend that no coverage exists by claiming that their policies do not cover business risks such as “false advertising,” and further contend that if there is any doubt whether the insuring clauses cover such claims, then policy exclusions eviscerate coverage in any event. All too often, policyholders accept the insurer’s position at face value and fail to pursue coverage. This is a costly mistake, as courts have often found coverage for these types of claims for companies who have chosen to fight the insurers’ denials. The only way to determine whether a particular false advertising claim is covered is to examine closely the underlying lawsuit, the policy, and the caselaw in the relevant jurisdiction. The article referenced above discusses the general framework for advertising injury coverage under CGL policies, arguments in favor of coverage, and arguments against the applicability of the exclusions most frequently asserted by insurers to deny coverage.

For additional information on insurance recovery issues, don’t miss the session, "Insurance Coverage for Data Privacy Liability — Do You Already Have It, and If Not, Can You Buy It?", which will be presented at the Kelley Drye Privacy Law Symposium: Enforcement, Litigation and Risk Management event on April 23 in Los Angeles and via webinar.

On Tuesday, the FTC joined the Department of Justice and several other federal agencies in announcing numerous recent and ongoing actions against dietary supplement marketers. The FTC, in its discussions, highlighted a case that it filed earlier this year against marketers of green coffee products. That case is closely related to another case involving the unpaid appearance of a health foods commentator, Lindsay Duncan, on the Dr. Oz show. The FTC has alleged that the appearance by Duncan on the television program constituted commercial speech that is subject to the FTC’s advertising jurisdiction. That allegation appears to be part of a growing trend at the FTC to attempt to reach unpaid media interviews and appearances. This trend is troubling in that it is at odds with Supreme Court precedent and threatens companies’ ability to participate in news interviews, talk shows, or other media interactions.

Four main principles emanate from the Supreme Court precedent defining commercial speech.

  1. Early cases like Virginia Bd. of Pharmacy and Bates provided the foundation that commercial speech is “speech proposing a commercial transaction.”
  2. Cases like Bolger and Zauderer built on that foundation, finding that whether a publication “proposes a commercial transaction” depends on circumstances such as the speaker’s potential economic motivations and whether a specific product is identified.
  3. Cases like Bolger and Zauderer also found that if speech  proposes a commercial transaction, it will normally remain commercial speech even if it touches on matters of public debate. In Zauderer, for example, the Court held that a print advertisement by a law firm remained commercial speech even though it discussed the potential hazards of an intrauterine device.
  4. Finally, two later cases, Riley and Fox provided the caveat that if commercial speech is “inextricably intertwined” with fully protected speech, it will be treated as fully protected. The “inextricably intertwined” standard will likely not be met by an advertiser voluntarily choosing to mix product information and discussions of matters of public debate. Rather, the mixing of types of speech likely must be something more akin to the facts of Riley in which a state law interjected a mandatory commercial disclosure into charitable solicitations, which are otherwise fully protected speech. The Court, in that instance, treated the whole of the speech as fully protected.

Continue Reading The FTC Pressures Press Interactions, Defies Commercial Speech Doctrine

Last week, Lands’ End tried a second time to dismiss a “Made in U.S.A.” class action with the novel argument that, because the company had already reimbursed the plaintiff for the necktie she purchased, she is not injured and lacks standing.

As background, in October 2014, plaintiff Elaine Oxina filed the putative class action in the U.S. District Court for the Southern District of California, alleging that Lands’ End falsely represented that the necktie she purchased, which label states “Made in China,” was “Made in USA,” in violation of the Lanham Act and California’s Consumer Legal Remedies Act, Unfair Competition Law, and “Made in U.S.A.” statute. In June 2015, the court granted Lands’ End’s motion to dismiss the first amended complaint (which omitted the Lanham Act claim), concluding that Ms. Oxina lacked standing to bring the case under California’s “Made in U.S.A.” statute because Lands’ End made the alleged “Made in U.S.A.” representation online, and the statute applies only to “Made in U.S.A.” claims that appear on the merchandise or the merchandise’s container.

Not easily discouraged, Ms. Oxina filed a second amended complaint at the end of July, alleging that Lands’ End violated California’s consumer protection statutes in general by deceptively advertising a product labeled as “Made in China” as “Made in U.S.A.” Additionally, she claims that she sent Lands’ End a letter in June demanding that the company initiate a corrective advertising campaign and alert affected customers, but it did not comply with her request.

In the motion to dismiss filed last week, Lands’ End argues that, because the company sent Ms. Oxina a refund check for the purchased necktie, plus interest, eight days before she filed the second amended complaint, she lacks the injury necessary to file an action for damages, and therefore lacks Article III standing. Although “Made in U.S.A.” class action lawsuits are popular in California right now, it will be interesting to see whether Lands’ End’s argument passes muster, and whether companies can avoid an alleged violation – of California’s “Made in U.S.A.” statute or its consumer protection statutes in general – by simply reimbursing the aggrieved consumer.

Because consumer reviews are so important in today’s marketplace, many companies go to great lengths to increase their number of favorable reviews. Sometimes, they go too far. We’ve written about FTC and NAD cases in which companies incentivized reviews without proper disclosures and even about cases in which companies solicited fake reviews. (Click here, for an example.) Recently, a federal court considered similar issues in the context of a Lanham Act case.

NatureWise sells supplements on Amazon. Vitamins Online, a competitor, found that many of the reviews for the NatureWise supplements appeared to be suspicious. For example, several early five-star reviews were posted by unverified purchasers within minutes of each other and had similar patterns in their text, suggesting a common author. And a number of reviews – some of which spoke about great results after weeks of product use – were posted before the product even launched.

The problems didn’t stop there. Even though NatureWise denied doing so, the court found that the company offered Reviewspeople free products in exchange for writing reviews, in violation of Amazon’s policies. (Undisclosed incentives also violate the FTC’s Endorsement Guides). And to make matters worse, NatureWise directed its employees to “up vote” good reviews and “down vote” bad reviews. This directly affected which reviews appeared at the top of the products’ pages and those that did not.

The court held that “as a result of NatureWise’s practice of block voting, the number of helpfulness votes on certain NatureWise reviews were artificially inflated and literally false” and that “NatureWise’s representations that it did not offer free products in exchange for reviews were literally false” under the Lanham Act. Further, the court noted that Vitamins Online had demonstrated that the manipulated reviews were material to customers, who rely on them when making purchasing decisions.

After concluding that NatureWise’s conduct violated the Lanham Act, the court turned its attention to remedies. The court ordered NatureWise to disgorge $9.5 million of its profits from the two-year period during which NatureWise and Vitamins Online were the sole competitors in their segment. (The case also involved allegations that NatureWise made false claims about its ingredients, which may have affected the remedy, but that’s beyond the focus of this post.)

Readers of this blog already know that they shouldn’t manipulate reviews or engage in the other types of problematic behavior alleged in the complaint, so we won’t highlight those lessons. Instead, we’re focusing on this case because it provides good news for companies who think their competitors are engaging in these types of problematic behaviors. This decision will provide a good precedent for companies that want to consider a Lanham Act claim.

Supreme Court Confirms Profits Remedy in Trademark Cases is Not Conditioned on Proof of WillfulnessYesterday, the Supreme Court issued a much-awaited opinion holding that a plaintiff is not required to prove willful infringement in order to seek a trademark infringer’s profits under the Lanham Act. This decision resolved a split among the Circuits and changes the law in a number of Circuits, including the Second and Ninth Circuits, where a high volume of trademark infringement cases are heard.

Romag Fasteners, Inc. v. Fossil, Inc. et al., Case No. 18-1233, involved an interpretation of Section 35 of the Lanham Act (15 U.S.C. § 1117(a)) which reads in relevant part:

When a violation of any right of the registrant of a mark registered in the Patent and Trademark Office, a violation under section 1125(a) [for trademark infringement] or (d) [for cybersquatting] of this title, or a willful violation under section 1125(c) [for dilution] of this title, shall have been established in any civil action arising under this chapter, the plaintiff shall be entitled, subject to the provisions of sections 1111 and 1114 of this title, and subject to the principles of equity, to recover (1) defendant’s profits, (2) any damages sustained by the plaintiff, and (3) the costs of the action.

Prior to today’s decision, the rule in several Circuits, including the First, Second, Ninth and Tenth, was that a plaintiff must first prove willful infringement before it could seek an award of defendant’s profits for trademark infringement. This rule was based upon case law holding that the principles of equity require a demonstration of willful wrongdoing to justify the harsh remedy of a disgorgement of defendant’s profits — as opposed to an award of actual damages a plaintiff may prove it suffered as a result of the infringement.

In the underlying action, Romag Fasteners, Inc. (“Romag”), a seller of handbag fasteners, sued defendant Fossil, Inc. (“Fossil”) claiming that Fossil infringed its registered ROMAG trademark by using counterfeit fasteners on its Fossil products. The jury found infringement, but in response to a special interrogatory, found that Romag had not proven that Fossil’s infringement was willful. However, the jury still awarded a disgorgement of defendant’s profits on the infringement claim because they found it necessary to deter future infringement. The District Court later struck the award of defendant’s profits because the jury did not find willful infringement, as was required by the law of the Second Circuit. The Federal Circuit, applying Second Circuit law, affirmed, and the case was appealed to the Supreme Court.

The Supreme Court found that a “categorical rule” requiring a threshold showing of willful infringement could not be “reconciled with the statute’s plain language.” Despite holding that willfulness is not a prerequisite to awarding defendant’s profits, the Court made clear that a defendant’s mental state remains highly relevant to fashioning appropriate remedies for trademark violations. In essence, the holding counsels that while defendant’s state of mind is a “highly important consideration” in determining whether profits should be awarded, willfulness is not a precondition to the availability of such an award in the first instance.

The elimination of the willfulness prerequisite may lead to more opportunistic plaintiffs and windfall damage awards. It will certainly change the manner in which defendants in some circuits assess the prospects of litigation and may affect the likelihood that an award of defendant’s profits will be precluded prior to trial. However, particularly given the difficulty in recovering attorneys’ fees in most trademark infringement cases, a plaintiff will still need to carefully consider whether the potential merits of its case justify the significant costs of litigating a matter to a decision. Moreover, even after the Supreme Court’s decision, courts will have broad discretion as to how to weigh the state of mind of a defendant in each particular case in determining both the available remedies, and the amount of any award.

Ad Law Access Podcast

In the 2010s, Kelley Drye’s Ad Law Access blog posted approximately 1500 entries. Below are the most popular by year. To give you a sense of beginning to end, the first post came one month after Apple announced the iPad and the last just days before the first all-female spacewalk by astronauts Christina Koch and Jessica Meir:

Wishing you a happy new year and decade. We hope you will continue following the Ad Law Access blog and podcast in 2020 and into the next decade.

 

The decision in Kwan v. Sanmedica International, 854 F.3d 1088 (9th Cir. 2017) in April, has occasioned a lot of discussion about the apparent demise of the establishment claim “standard” in California.  What the Kwan decision should have done, but did not, is provoke some hard thinking about what this “standard” is and how we use it.  From the Kwan decision, it is apparent that the Ninth Circuit does not understand where the establishment claim principle came from and what it means.  But its error is understandable, because attorneys and judges have been careless with the principle and arguably have made much more of it than it should be.                                                                                                                                             

Kwan has been accepted as standing for two propositions.  The first, which should be non-controversial and unsurprising, is that in private suits brought under California’s Unfair Competition Law (UCL) and Consumer Legal Remedies Act (CLRA), a plaintiff must allege and ultimately prove that the offending advertising claim is false, not merely unsubstantiated.  There has been no serious dispute about this since the California Court of Appeal (Second District) decision in National Council Against Health Fraud, Inc. v. King Bio Pharmaceuticals, Inc., 107 Cal. App. 4th 1336, 133 Cal. Rptr. 2d 207 (2003).  What made Kwan news was that the court also rejected plaintiff’s allegations that defendant’s dietary supplements were “clinically tested to boost [human growth hormone] by a mean of 682%,” is provably false, and in so doing refused to “incorporate Lanham Act provisions into California’s unfair competition and consumer protection law by distinguishing between ‘establishment’ and ‘non-establishment’ claims.”  854 F.3d at 1097.    Continue Reading Is It Time to Rethink Establishment Claims?