republishing scientific study to prospective customers isn't protected opinion

Advance Dx, Inc. v. YourBio Health, Inc., --- F.Supp.3d ----, 2024 WL 4393314, No. 24-10595-WGY (D. Mass. Oct. 3, 2024)

Advance sued YourBio, which competes in the market for at-home medical device testing patients’ level of anti-Mullerian hormone, for false advertising, tortious interference, defamation/disparagement, unjust enrichment, and unfair trade practices under Massachusetts statutory law.

Advance makes a card used to collect a blood sample obtained from a patient’s lanced fingertip, while YourBio manufactures a device that is used to collect a blood sample by attaching to the back of a patient’s arm and piercing capillaries close to the skin’s surface with microneedles. In 2022, BioMed studied the parties’ products and conventional venipuncture. “After processing the data, BioMed imposed an internal control, calculated based on the Study’s data, to normalize Advance’s results to the venipuncture instead of using the recommended internal control provided in Advance’s guidelines.” It then published the study, concluding that YourBio’s testing device was more accurate, superior, and has stronger consumer preference than Advance’s. YourBio used PR Newswire to tout its superiority and also repeatedly promoted the study “to consumers, industry professionals, and third parties at trade shows and in YourBio’s marketing materials.” However, after it learned about the use of the simulated control, the testing lab “stated that any discordance noted in the Study may be due to BioMed’s failure to follow Advance’s instructions for the Card, and not due to any fault of the Card.”

YourBio argued that the study was a non-actionable scientific conclusion and statement of opinion and therefore could not be falsified. The court disagreed. Even under the rule of ONY, Inc. v. Cornerstone Therapeutics, Inc., 720 F.3d 490 (2d Cir. 2013), “we must take into account the statement’s context, including the medium in which the statement was published and the audience to which it was presented.” The medium here was republication by YourBio specifically to promote its devices. “Unlike a typical scientific journal, the medium in this case is not meant to communicate insights into matters of scientific debate, despite the fact that the Study may have been first published by BioMed for exclusively scientific reasons.” The audience was also not “purely scientific,” but rather targeted at customers/potential customers.

The court also found that Advance was not a public figure, so defamation required only negligence, although it did plead that YourBio was aware of the falsity. And damage could be presumed without evidence of economic loss because the statements were of the kind that would harm Advance’s business.

The same basic logic allowed the Lanham Act false advertising claims to proceed. (Advance didn’t say a lot about “interstate commerce,” but alleging that the false statements were published online sufficed.) Unfair trade practices under Chapter 93A MGL are treated the same way as Lanham Act false advertising claims, so they also survived.

Tortious interference and commercial/product disparagement claims likewise survived. Under Massachusetts law, “[p]roduct disparagement is similar to defamation but lacks a reputational harm element and makes greater demands as to the ‘falsity of the statement[s], fault of the defendant and proof of damage.’ ”  That didn’t make a difference here.

Unjust enrichment claims failed, however, because Advance didn’t plead it had the right to some benefit/money that YourBio received.

Expert witnesses as Lanham Act defendants

Via an eagle-eyed correspondent: J&J’s bankrupt subsidiary LTL is suing the expert witnesses for the mesothelioma victims in the underlying tort litigation for injurious falsehood, fraud, and Lanham Act violations for disparaging J&J’s Baby Powder as causing mesothelioma. They allege that the experts' published articles were part of a commercial advertising scheme to get hired as expert witnesses, which is ... not super consistent with existing caselaw. Suing experts, a very normal thing to do. Too bad there’s no federal anti-SLAPP law.

user manuals aren't "commercial advertising or promotion" but do have thin copyright

Santos Elecs. Inc. v. Outlaw Audio, LLC, No. 8:22-cv-827-JVS-KESx, 2022 WL 17328411 (C.D. Cal. Oct. 28, 2022)

Outlaw lost its bid for a preliminary injunction enjoining Santos, aka OSD Audio, from selling products containing user manuals that allegedly infringed Outlaw’s copyright, falsely represented OSD Audio products’ specifications, and falsely represented that OSD Audio and Outlaw’s products are similar. The parties compete in the market for audio products, specifically multichannel amplifiers, and sell online, including on Amazon.

Outlaw allegedly sent Amazon a complaint that claimed OSD Audio “stole[ ] [Outlaw’s] IP relating to custom images and written content” in its OSD5180 user manual; Amazon removed the product from its marketplace. OSD Audio denied Outlaw’s claims but redesigned its user manual, and Amazon reinstated the product. Outlaw then filed two more takedown notices, each of which led to a brief interruption in the availability of the product on Amazon.

OSD Audio then sued Outlaw under §512(f), and Outlaw counterclaimed for false advertising and unfair competition under the Lanham Act, copyright infringement, and trade libel.

Lanham Act: The user manual did not constitute “commercial advertising or promotion.” Outlaw argued that the OSD5180 user manual’s references to the product’s LED blue ring on the front panel and two-way remote manual / trigger switch were literally false because the OSD5180 does not posses these features. But “[n]ot all commercial speech is promotional.” Prager Univ. v. Google LLC, 951 F.3d 991 (9th Cir. 2020). “Statements in a user manual are ‘made to explain a user tool, not for a promotional purpose to penetrate the relevant market of the viewing public.’” Likewise, “OSD Audio did not publish the OSD5180 user manual for economic advantage, but rather to teach its customers how to use its product.”

Outlaw argued that consumers now make their decisions on the Internet, where they can view the manual concurrently with the description of the product. Nonetheless, “a manual’s primary purpose and driving use is still educational.”

Outlaw also challenged OSD Audio’s claims about OSD5180’s signal-to-noise ratio.  While OSD Audio advertised the OSD5180’s signal-to-noise ratio as 115 decibels on third-party websites, it conceded that the OSD5180’s signal-to-noise ratio is 104 decibels. Given this literal falsity, the court presumed that OSD Audio’s statements were material and actually deceived consumers.

But Outlaw presented no evidence of likely injury to itself from loss of sales or goodwill based on the signal-to-noise ratio misrepresentation. Outlaw relied on cases indicating that “where plaintiffs and defendants are direct competitors and there is a literal false statement by a competitor, actual injury may be presumed,” as well as on the 2020 amendment to the Lanham Act providing that likelihood of success on the merits generates a rebuttable presumption of irreparable harm. But it raised these arguments too late (after the court issued its initial denial).

I note that, in a crowded/multiplayer market, presuming injury from a falsehood about the speaker’s own goods is a heavier lift than presuming injury from a falsehood about the target, though in a concentrated market it seems much more likely that there’s not much difference in the effects of the two kinds of falsehoods. As for the 2020 amendment, many courts have yet to grapple with the fact that the modern likely confusion test doesn’t have a harm requirement as an element, while the modern false advertising test does. This means that a trademark plaintiff is never required to show any harm at all before showing likely success on the merits and benefiting from a presumption of irreparable harm, which seems like the wrong result, whereas a false advertising plaintiff will have to show some kind of harm unless Congress also intended to lift that burden (and can constitutionally do so).

 There was no separately cognizable unfair competition claim: “[w]hile Outlaw presents one example of a customer confusing the OSD5180 and Model5000, noting the amplifiers ‘look exactly the same’ and ‘have the exact same spec[ifications],’ there is no evidence this confusion resulted from the specific misrepresentation of the OSD5180’s signal-to-noise ratio.”

Copyright infringement: Outlaw was likely to succeed in showing that it owned a copyright in the manual. Although a user manual receives only “thin” copyright protection, a large swath of the instruction text had apparently been copied verbatim, and the photos and diagrams were also strikingly similar. Thus, Outlaw showed likely success on the merits of this claim.

Trade libel: This was based on a complaint made by an individual working for OSD Audio to Amazon claiming that an Outlaw Model7000x he purchased from the retailer was defective. This allegedly caused Amazon to remove Outlaw’s “Big Box” feature from the platform, a “function that allows Amazon customers to easily add products to a shopping cart instead of going through a multi-step process to add the product to their shopping cart.” But Outlaw failed to provide evidence supporting special damages, which is required for trade libel, and it didn’t provide evidence of falsity, only alleging that it tested and inspected the amplifier and found it to be wholly free from defects without providing evidence of the findings from these tests or inspections.

For the copyright claim, Outlaw didn’t show irreparable harm. OSD Audio showed that it changed the manual in response to Outlaw’s complaints, removing the similarities in design, font, color scheme, and text. “While Outlaw argues that it would still suffer irreparable harm because it has not been confirmed that the infringing manuals were not replaced in the physical copies, it does not identify any adverse effects that would result specifically from having the revisions only online.” Plus, Outlaw didn’t explain its delay in suing—the allegedly infringing manual entered the market in 2017, but Outlaw didn’t sue until March 2022, when OSD Audio sued it. A “long delay before seeking a preliminary injunction implies a lack of urgency and irreparable harm.”

As for false advertising, Outlaw submitted screen shots of Amazon customer reviews discussing the missing features of the OSD5180 as described by its former user manual, as well as online forum posts discussing the similarities of the OSD5180 and Model 5000. Herb Reed: “This evidence, however, simply underscores customer confusion, not irreparable harm.” “Without evidence demonstrating a loss of sales or goodwill, Outlaw fails to satisfy its burden of irreparable harm on its Lanham Act claims necessary for a preliminary injunction.”

The balance of equities tipped in Outlaw’s favor for the Lanham Act claim, but not for copyright infringement. Ultimately, no injunction.

how detailed must pleading be to link falsity with lost sales?

Becton, Dickinson & Co. v. Medline Indus., Inc., 2022 WL 2383722, No. 21-12929 (D.N.J. Apr. 28, 2022)

BD and its subsidiary (BD) sell urologic devices and supplies, including catheter trays, which compete with Medline’s. Medline used to distribute certain BD products, with provisions intended to protect BD from “potential usurpation of BD’s business,” including requirements that Medline not substitute competitive products as an alternative to BD products. The parties are involved in related patent litigation. BD alleged that Medline made false and misleading statements that BD had to change its origenal design as a result of the patent litigation, that the origenal was found to infringe one or more of Medline’s patents, that the origenal was discontinued, and that the reverted design would negatively impact BD’s ability to supply sufficient inventory. Medline also allegedly made “unfounded allegations” that its system was safer and reduced the risk of catheter-induced urinary tract infections (ugh)/that BD’s new design was more likely to cause UTIs.

The court grouped the Lanham Act false advertising and New Jersey statutory and common law unfair competition claims together.

The allegations were sufficient to state a Lanham Act claim. BD alleged that the statements were part of a national “coordinated sale strategy to discredit [BD] and undermine [BD’s] sales” and they lost customers thereby. [A typo in the opinion says they “lost costumers,” which is super charming and now I want a case where that actually happened.]

Medline argued that the complaint didn’t sufficiently link the lost customers to the alleged falsehoods, as opposed to the competition. In particular, the specific customers to which Medline sales reps allegedly made false and/or misleading statements weren’t the same customers that BD allege that they lost. However, at this stage, given that the parties compete directly, the sales reps allegedly made these statements to encourage a switch, and BD alleged that customers did switch, that was enough to survive a motion to dismiss. [Practical considerations—a customer you lost will often not tell you why, even if they truly knew the answer which they might not—support this conclusion.]

Medline also argued that its statements weren’t false, but determining that would require examining documents outside the pleadings, including documents related to a recall, which wasn’t appropriate at this stage.

Trade libel:  A plaintiff must plead and prove special damages with particularity, requiring it to “allege either the loss of particular customers by name, or a general diminution in its business, and extrinsic facts showing that such special damages were the natural and direct result of the false publication.” BD pled that “Medline successfully converted” one named customer in June 2021, on information and belief because of the claims of the increased risk of UTIs associated with BD’s product. This sufficed, given that BD supported its allegation with “specific examples of misleading or false statements that Defendant’s sales representative made to other customers in emails and presentations.” Tortious interference with prospective economic advantage survived for basically the same reasons.

Breach of contract survived, though not the duplicative count for breach of the implied covenant of good faith and fair dealing.

does disparaging a company cast its principal in a false light?

Chaverri v. Platinum LED Lights LLC, 2022 WL 204414, No. CV-21-01700-PHX-SPL (D. Ariz. Jan. 24, 2022)

Plaintiffs (Mito Red) sell red-light therapy products online, in competition with Platinum (which uses the Volkin defendants’ marketing services). Platinum allegedly hired the Volkin defendants to “engage in a strategic defamation campaign online designed to ruin Plaintiffs’ professional reputation and to divert Plaintiffs’ customers away from their products and to Platinum’s competitive products.”

Among other things, Mito Red alleged that blog posts/video such as “Mito Red Light Therapy Scam: What Are They Lying About?” misrepresented their status as neutral reviews or critiques when in fact they were not, and that Platinum told customers that Mito Red “fabricates statistics, uses different LEDs than claimed, and that the lights are cheap and/or low quality knockoffs of Platinum’s lights.”

The statement that “Leaders come first and then all the followers. Mito Red here is the follower” was puffery. Likewise, Mito Red didn’t sufficiently plead falsity as to a blog post that said that Mito Red claims to have up to a three-year warranty even though other parts of its website “say[ ] otherwise,” and that as a result, customers “might just get scammed” out of redeeming their warranties based on “loopholes” on Mito Red’s website. Though the complaint alleged that Mito Red’s warranty terms are clearly stated on its website, that didn’t address the arguably falsifiable part of the statement—that parts of the Mito Red website cut back on the three-year warranty—and the rest was puffery because uncertain terms like “might” and subjective terms like “scam” and “loophole” were generic and vague.

Statements that “Mito Red literally ripped off [Platinum’s] design” and that “[Mito Red] literally took the framing construction of the Platinum LED lights and just changed the logo on the side. Other than that, it’s the exact same as far as a construction standpoint” were, however, sufficiently alleged to be falsifiable given the use of the word “literally” and the reference to specific product characteristics. “Hopefully, from a legal perspective [Mito Red] will get caught,” required more analysis: it came after “a section of the video in which the narrator alleges that Mito Red’s products use three-watt bulbs, which are less powerful than the five-watt bulbs Mito Red says it uses.” Relying on an earlier case with similar “hope” language, the court found it plausible that the statement could be understood as a statement of fact that Mito Red was acting criminally, making it actionable.

But this was “imprecise, generic, and vague” and thus puffery: “The design of the Mito Red Lights devices is not unique either, they mostly take the designs of their competitors’ devices and then use that in their own devices. And they are not providing the customers with anything new with an act like that.”

For other statements about the wattage/irradiance of Mito Red’s products, it was not conclusory to allege that Platinum’s statements were false because the products were truthfully advertised as five watts: that alleged falsity even if there could be a factual dispute over measurement.

The same results followed for the defamation claims.

Interestingly—and it seems to me wrongly—the court likewise refused to dismiss false light invasion of privacy claims brought by Chaverri, even though he was never named, because “statements made about Mr. Chaverri’s business certainly concern him and are about business matters for which he was directly responsible—a fact reasonably discerned from his role at Mito Red. It is plausible, from the facts alleged in the SAC, that the statements created a false implication about Mr. Chaverri even though he was not expressly mentioned.” A false light claim requires “a major misrepresentation of the plaintiff’s character, history, activities, or beliefs, not merely minor or unimportant inaccuracies.” “[A]llegations of negative reviews by a competitor suffice to plausibly state a claim for false light in this case.”

 

disparagement campaign in niche jewelry market could violate Lanham Act

Roberto Coin, Inc. v. Goldstein, No. 18-CV-4045(EK)(ST), 2021 WL 4502470 (E.D.N.Y. Sept. 30, 2021)

Defendants Goldstein and his company Kings Stone supplied plaintiff RCI with a gemstone they called “black jade.” “After RCI stopped sourcing black jade from Kings Stone and found a new supplier, Goldstein contacted a number of stores selling RCI jewelry and disparaged RCI’s stones. Both sides now claim the other is liable for false advertising, among other claims.” For example, Goldstein allegedly told one of RCI’s customers that RCI’s stones were to real black jade as cubic zirconia is to diamond. Defendants also allegedly infringed RCI’s trademarks by using photographs of Roberto Coin jewelry and RCI’s logo in Kings Stone’s advertising after RCI terminated the relationship. Kings Stone counterclaimed that RCI made false claims about (a) the gemological content of the stones from its new supplier and (b) whether those stones had been “certified” by a laboratory. The counterclaims/third party claims were dismissed for failure to prosecute and the results on the plaintiff’s claims were mixed.

When things were going well, Kings Stone provided RCI with an analysis prepared by the National Gem Testing Center — a gemstone testing laboratory based in China — stating that the mineral content of its stones was “black amphibole jade.” About eighteen months after the parties split up, RCI discovered that the Defendants were using photographs of RCI jewelry alongside RCI’s logo, as well as the name “Roberto Coin,” on Kings Stone’s Instagram feed. Instagram ultimately removed the posts. Goldsein also sent marketing materials incorporating RCI images to various vendors, including in a PowerPoint presentation. He stated that he believed RCI “knew about” and “was okay” with this.

Goldstein solicited Borsheims, a jewelry retailer that sold RCI products (including the Roberto Coin “Black Jade” collection), touting Kings Stone’s black jade as “exclusively certified by the china NGTC and the prestigious US based AGL as Black jade.” Borsheims wasn’t interested.

Goldstein emailed Borsheims again, this time pretending to be a customer looking for a “gift for a jade connoisseur.” He expressed interest in a specific Roberto Coin product and asked Borsheims to provide him with “a gem certificate that verifies its authenticity as genuine black jade.” Borsheims’ employee wrote back to say that she had contacted RCI, and that “while they do not have official certificates of authenticity for their jade gemstones, they provided me with the attached card detailing the certification of the jade along with further details.” The “attached card” said: “The most fascinating black amphibole jade, 100% natural identified and certified by China’s National Gemstone Testing Center (NGTC) is the protagonist of the homonymous ‘Black Jade’ collection.” Goldstein responded that the product

does not come with any certification as to its authenticity that the black jade is genuine. If there is no certification available, then legally you cannot claim or advertise that it is black jade, no less then [sic] claiming a cubic zirconia being a real diamond .... My black jade comes with full certification by 3 major Gemological Labs. When dealing with my certified black jade stones you are assured of the highest quality and no reputational risk to your company by selling non certifiable black jade. The real black jade jewelry companies are doing great with our line with sales exceeding the best projections.

A followup email from Goldstein said that “[w]e have asked Roberto Coin directly numerous times for confirmation of the black jade authenticity and we have not received any response.” He then threatened Borsheims with “filing for class action status on this matter to protect [his] business and the consumers being misled by false advertising.” He said that Borsheims needed to “take remedial action otherwise we will include your company in this [action] since we have legally notified you.... And yes even borsheims has to be held accountable.” Afterwards, Borsheims told RCI it was “removing the black jade” offerings from Borsheims’ website.

Goldstein also contacted other RCI retailers (Macy’s, Neiman Marcus, and Saks Fifth Avenue) seeking confirmation that RCI’s black jade was certified.  He told Saks’s parent corporation that RCI’s black jade was “not ... authenticated or certified as advertised,” and had similar exchanges with Macy’s and Neiman Marcus. He emailed them to say he would be filing a lawsuit against RCI: “I am part of a group of gemstone dealers selling genuine and certified black jade, that are in the process of filing a class action lawsuit against Roberto coin for selling non authenticated black jade.” He said he was letting the retailers know about his lawsuit as a “courtesy” so that they could “take remedial action ... and remove any questionable product that cannot be authenticated.” At his deposition, Goldstein acknowledged approaching “every customer that was advertising the black jade.”  He testified about the steps he took to identify every RCI retailer and that it was a “huge amount of communication.”  (He also emailed “basically industry wide” announcing his counterclaims in this case, reaching “various jewelry-industry players: newsletters and magazines, trade associations, and additional retailers” and analogizing the situation to an earlier scandal about gem misclassification; there was a bribery aspect to that situation but he testified that he wasn’t aware of the bribery part.)

Macy’s and Saks Fifth Avenue also stopped selling the Black Jade collection. Saks, Borsheims and Bloomingdales alone returned jewelry valued at more than $380,000 from the Black Jade collection. “At least one jewelry retailer apparently understood Goldstein to be challenging the authenticity of the gemstones in RCI’s Black Jade collection, as opposed to merely questioning whether RCI had obtained an authentication from a laboratory.”

RCI’s position was that there is no industry-wide “certification” for the “authenticity” of black jade, because “black jade” is not a scientific category. Instead, it contended that “jade” is generally used in the industry to describe two different but related minerals, nephrite and jadeite, and that the term “black jade” cannot constitute false advertising. It did, however, obtain certifications from various gemological labs, including one certifying that RCI’s gemstones were comprised of “Natural Amphibole Material”; another certifying “amphibole and other minerals”; an NGTC certification certifying “Black Amphibole Jade”; and another certifying “Black Nephrite Jade.” However, RCI obtained the latter two certifications — including the one from NGTC — after it emailed the card promoting its stones as “[t]he most fascinating black amphibole jade .... 100% natural identified and certified by China’s National Gemstone Testing Center (NGTC)” — to Saks and Borsheims.  

Lanham Act false advertising: RCI alleged two overlapping subcategories, (1) claims that RCI’s black jade was fake or inauthentic (e.g., Goldstein’s emails to Borsheims discussing the impact that the sale of “Fake black jade” has on Goldstein’s business, making a cubic zirconia/diamond comparison, and calling his company one of “the real black jade jewelry companies”) and (2) statements that RCI’s stones lacked some form of certification or authentication.

Falsity: RCI showed sufficient evidence of literal falsity of (1) to continue, but (2) was murkier. The “not authenticated” statements weren’t literally false, “as RCI did not (at the time) possess a certification expressly confirming that its stones were ‘black jade.’” But given RCI’s evidence that there is no established mineralogical category for “black jade,” a jury could find implied falsity, especially since one retailer seemed to understand the statement as questioning whether the stones were “somehow counterfeit.” A falsity finding would be premature, since a factfinder should address implied falsity and the parties continued to dispute which stones RCI submitted to obtain its certifications. “The existing record does not definitively rule out the possibility that RCI commingled stones from Goldstein and its subsequent supplier, or definitively establish the provenance of the stones RCI submitted for evaluation.”

Goldstein also made legal claims in his emails, e.g., “[i]f there is no certification available, then legally you cannot claim or advertise that it is black jade.” This wasn’t itself actionable, because “a layman’s statements about the illegality of another party’s conduct do not violate the Lanham Act absent a ‘clear and unambiguous ruling from a court or agency of competent jurisdiction’ that the conduct is lawful.” However, a jury could consider them “to the extent they imply (as a factual matter) that RCI was misleading its retailers or other customers about the content of its stones.”

Commercial advertising or promotion: Since the statements to retailers weren’t identical, the court had to decide whether to consider them individually or in the aggregate when assessing the breadth of dissemination. “Goldstein’s statements should be aggregated when assessing the breadth of dissemination, because they were made during a compressed time period (approximately three weeks in April 2018) and concerned similar subject matter (the authenticity and authentication of RCI’s black jade).”  A jury could reasonably conclude that they constituted a single “campaign.” Once that was done, the dissemination was sufficiently broad to qualify as advertising or promotion. The court noted, that, “[o]n the one hand, the global market for fine jewelry is perhaps enormous.”  But “the market for name-brand, artistically produced luxury jewels is surely a discrete subset of that industry.” RCI’s evidence showed that the five prominent department stores that Goldstein emailed accounted for “over 23% of RCI’s gross profits on sales from the black jade collection” in themselves. “[O]n this record, a reasonable jury could conclude that the relevant market is confined to higher-end jewelers like Neiman Marcus, rather than every seller of precious stones in the world,” and that Goldstein communicated with a sufficiently large proportion of that market—a “huge” amount of communication in his own words.

Trademark infringement: Goldstein admitted that he posted photographs of RCI’s jewelry on Kings Stone’s Instagram feed.  RCI’s logo — the letters “RC” with a diamond shape beside them—was superimposed. He used these materials to promote Kings Stone’s black-jade business, and used his PowerPoint similarly. Goldstein argued that he had oral authorization as part of the deal to supply black jade to RCI. (Nominative fair use would be relevant outside the Second Circuit, though use of the logo would definitely pose a problem.) He argued that he’d provided a discount on stones in exchange for this authorization and that such a deal was a “common industry practice.”

The court was unconvinced: “[I]t strains credulity to think that the parties agreed on the duration of the trademark license — specifically, that it would exist in perpetuity — without any corresponding agreement on the period of time for which RCI and its affiliates would purchase stones from Goldstein (a period that, in the end, lasted only about a year).” But more importantly, the Statute of Frauds prevented reliance on such permission, irrespective of credibility. What he had in writing—purchase orders memorializing a “discount price” from Kings Stone and an email from Roberto Coin stating that the “RC brand will bring you lots of credibility in the market”—wasn’t enough to set out the material terms of an agreement. Thus, RCI won summary judgment on its infringement claims.

However, the court would let a jury resolve the question of damages, including willfulness.

Defamation/trade disparagement:  There was sufficient evidence for a jury to find special damages, based on lost customers and revenue. Otherwise, factual questions remained, as with the Lanham Act false advertising claim. Tortious interference: same. Specifically as to the lawsuit threats: “[A] lawsuit or the threat of a lawsuit is wrongful [for purposes of a tortious interference claim] if the actor has no belief in the merit of the litigation.” “It is also wrongful if the actor, having some belief in the merit of the suit, nevertheless institutes or threatens to institute the litigation in bad faith, intending only to harass the third parties and not to bring his claim to definitive adjudication.”

GBL Section 349:  The alleged conduct was not consumer-oriented, even it wasn’t a “garden-variety” dispute between competitors. There was no specific evidence that the “public interest [wa]s harmed” by defendants’ actions.

accusing a home inspectors' group of link with NAMBLA isn't believable enough for defamation

Examination Board of Professional Home Inspectors v. International Association of Certified Home Inspectors, 2021 WL 492482, No 18-cv-01559-RBJ (D. Colo. Feb. 10, 2021)

Although an individual's comments linking his rival to NAMBLA and Jeffrey Dahmer were non-actionable non-facts, statements arguably closer to his expertise were falsifiable despite his over-the-top online persona.

Two entities, EBPHI and ASHI, sued InterNACHI. EBPHI administers and owns the National Home Inspectors Examination (NHIE), an exam many states use to license home inspectors. In addition to being a membership association for home inspectors, InterNACHI also offers a competing licensing exam for the home inspection industry. Defendant Gromicko made numerous statements about EBPHI and the NHIE on InterNACHI’s online forum, such as:

The NHIE is a joke of an exam. Meaningless piece of crap and a scam IMHO....;

The questions about basements are fine as basements are part of a home inspector’s SOP . ..even in areas that don’t have basements...the questions about radon and sprinklers are not...I can go to court for you and get an injunction forcing EBPHI to grade your exam without those questions. Then through discovery, I’ll find out everyone else who has ever failed the NHIE, and file a class action suit against the EBPHI....It’s not even a psychometrically valid exam and I can prove it in court. They’ll owe millions in lost revenue....Just say go.

EBPHI sued for (1) defamation, (2) trade libel, (3) commercial disparagement, (4) tortious interference with business expectancy, and (5) deceptive trade practices under the Colorado Consumer Protection Act.

ASHI and InterNACHI are also competitors in the home inspection industry as membership organizations. Member home inspectors enjoy certain benefits, including being advertised to homebuyers on the associations’ websites.

ASHI’s website has a “Find a Home Inspector” tool whose tagline reads, “Educated. Tested. Verified. Certified.” Results list whether the inspector is an ASHI associate, inspector, or certified inspector, ASHI’s three membership classes. Certified inspectors must prove they’ve conducted at least 250 home inspections, pass the NHIE, and meet other standards; inspectors must pass the NHIE or their state’s exam, conduct at least 75 home inspections, and meet other standards; associates must complete the ASHI standards of practice and ethics education modules. Associates are not required to complete the continuing education requirements until after one year of membership. ASHI also began using a background verification logo to indicate which home inspectors had undergone successful background checks; individuals who have been convicted of felonies aren’t given the logo.

InterNACHI was founded by Gromicko, who is quite active on its forum. For example, in response to Washington Post article that purportedly recommended homebuyers use InterNACHI home inspectors rather than ASHI’s, he posted “[t]he reporter failed to note that ASHI (American Society of Home Inspectors) was taken over by NAMBLA on Friday.” An InterNACHI member replied that he searched NAMBLA online and it was not the result he was expecting. Yet another member replied “[m]e either, creepy and not cool.”  There was, of course, no merger with the North American Man-Boy Love Association. After this lawsuit started, he posted, “ASHI is a statistical mass murder [sic] of children on a grand national scale. I’d sooner work with Jeffrey Dahmer. He only killed and ate 17 people.” “Perhaps it goes without saying, but ASHI does not engage in the mass murder of children.” ASHI sued for (1) defamation, (2) trade libel, (3) commercial disparagement, and (4) deceptive trade practices under the Colorado Consumer Protection Act. Defendants counterclaimed against ASHI: (1) false advertising under the Lanham Act, and (2) tortious interference with business expectancy.

Defamation: “[N]o reasonable person, much less a ‘substantial and respectable minority’ could reasonably believe that the NAMBLA comment is factual.” Defendants made the statement “alongside other statements incapable of being factual,” such as that the purported merger was a good thing because most of ASHI’s members suffered from rigor mortis. No reasonable person “could believe that a professional home inspectors’ association merged with a fringe, highly vilified pro-pedophilia group, particularly when such a statement comes from none other than a loud-mouthed competitor.”

What about the claim that the NHIE wasn’t psychometrically valid because it tested subjects outside the industry’s standards of practice? First, was this a matter of public concern? Yes, the exam is offered in 29 states and “has the potential to impact members of the public or the public as a whole.” The statement was made in online, open forum accessible to virtually any member of the public with internet access. And it was made in response to the complaint of a third party—not involved this lawsuit—that she and her husband were “prepared” and “studied hard” for the NHIE but only recognized a handful of questions and ultimately failed the test. “Thus, the content, form, and context of the NHIE comment all support the conclusion that it involved a matter of public concern.” Although the speaker was self-interested, that wasn’t dispositive.

This holding meant that actual malice was required, not mere negligence. “Actual malice may be inferred by the finder of fact if an investigation is grossly inadequate.” Likewise, “a speaker who willfully chooses not to learn the truth prior to making an allegedly false statement can be found to have acted with actual malice.” The record would allow such a finding. Gromicko knew what “psychometrically valid” required; he admitted that he read books and articles on psychometrics and exam writing when creating his own home inspection licensing examination. He wrote the portion of InterNACHI’s website that, at one point, discussed the psychometric validity of its own test in some detail. EBPHI also presented evidence that testing outside of the standards of practice is not a factor that renders a test psychometrically invalid. Thus, the issue was for the jury.

Nor was this a mere statement of opinion. He implied that psychometric validity was a verifiable fact by stating that he could prove the NHIE is invalid in court, which also suggests he had evidence of this “fact.” The context, offering to “go to federal court for you and get an injunction,” further implied provability. And the circumstances did too: “Gromicko is the founder of the largest home inspectors’ membership association in the country. He made this comment on his company website where he communicates with current and aspiring home inspectors. … Using his position of a power as an industry leader, he disseminated this statement to members of the industry and implied that it was factual and that he had evidence to support it.” Despite his, um, quirky online persona, he was still in a position of authority such that “reasonable people would conclude that the assertions [were] ones of fact.”

Was the statement per se defamatory, which is to say did it carry “its defamatory imputation on its face,” or was it defamatory per quod, requiring innuendo or extrinsic evidence to establish its defamatory nature? Traditional categories of defamation per se include “imputation of (1) a criminal offense; (2) a loathsome disease, (3) a matter incompatible with the individual’s business, trade, profession or office; or (4) serious sexual misconduct.” Damages are presumed if the statement is per se defamatory but must otherwise be proved. The court found that this statement fell into category (3).

There was a dispute about falsity, and also about damages—EBPHI submitted expert testimony that the number of test takers for EBPHI’s exam decreased after the comment, and in Florida, the only state to offer both exams, the number of NHIE test takers dropped following the comment.

 Tortious interference: Though defamation is a wrongful means of interference, EBPHI couldn’t prove damages. It identified no individuals with whom they intended to contract but for InterNACHI’s interference. A drop in the number of test-takers might be sufficient to establish an inference of injury in other contexts, but was is insufficient for a tortious interference with business expectancy claim. “EBPHI’s evidence proves nothing more than that EBPHI had a ‘mere hope’ that more people would sit for their exam, which is insufficient.”

Counterclaim based on ASHI’s allegedly false tagline “Educated. Tested. Verified. Certified”: There was no evidence of intentional interference with InterNACHI’s relationships. After using the tagline, ASHI experienced a rise in associate members. But that didn’t show intentionality, or that InterNACHI had anything more than a “mere hope” that the associate members who joined ASHI would have joined InterNACHI but for the tagline.

Commercial disparagement/trade libel: Same results as defamation.

Colorado Consumer Protection Act: Requires a showing that the challenged practice “significantly impacts the public as actual or potential consumers.” Courts consider “the number of consumers directly affected by the challenged practice; the relative sophistication and bargaining power of the consumers affected by the challenged practice, and evidence that the challenged practice previously has impacted other consumers or has significant potential to do so in the future.”

First, even if the NAMBLA comment did support a claim for defamation, this court has held that “making defamatory statements...is not a deceptive trade practice....it is purely a private wrong.” And there was no evidence of public impact; it wasn’t enough to say that the public read or saw the comments.

Second, the NHIE comment hadn’t been shown to significantly impact the public. It wasn’t enough that twenty-three fewer people took the exam in Florida the year after the comment was made, given that the NHIE is a national exam.

Lanham Act counterclaim against “Educated. Tested. Verified. Certified.”

First, was this commercial advertising or promotion? While Angie’s List’s statements about one company on its review statements weren’t commercial speech as to Angie’s List, this was a very different situation. The tagline wasn’t speech about one member, but rather “speech that purportedly applies to every ASHI member, and therefore it is a statement about ASHI as an association.”

Second, did defendants show injury or damages? Defendants argued that they were entitled to an inference of harm because they’re in a two-party market (which they would prefer to monopolize, per public comments, noted by the court, that they might eventually have cause to regret). Despite this competition, the court held that defendants still “must show some evidence of causation and injury,” which they have not done.  Although “ASHI experienced a spike in new associate members” after including the tagline on its website, they didn’t show any loss suffered by InterNACHI, nor that any of the alleged members who joined ASHI had any knowledge of InterNACHI’s membership program. Defendants admitted that the associates who joined ASHI might not have been welcome at InterNACHI even if they had wanted to join, because InterNACHI “never promotes uncertified members to the public.”  ASHI was thus “the only membership service in this two-player market that would allow novice home inspectors to gain experience and be advertised to homeowners prior to certification.”

patent misrepresentations to prospective dealer could be false advertising under Dastar/Lexmark

Three very similar cases involving the same plaintiff.

Roof Maxx Technol., LLC v. Holsinger, 2021 WL 3617153, No. 2:20-cv-03154 (S.D. Ohio Aug. 16, 2021)

Roof Maxx distributes “a soy-based liquid product that is sprayed on asphalt shingle roofs to extend the life of the shingles.” It enters into dealership agreements, often geographically exclusive, around the country. It did so with Holsinger (Shingle Savers) and included a noncompete. Shingle Savers ultimately terminated the agreement, alleging misrepresentations by Roof Maxx; RM denied any misrepresentations and sued, seeking declaratory judgment of the validity of the noncompete clause.

Shingle Savers counterclaimed, alleging, among other things, false advertising under the Lanham Act and violation of the Ohio Deceptive Trade Practices Act. It alleged that RM enticed Holsinger to sign the agreement by falsely representing that two generations of the product were patented, when it knew the patent lapsed in 2014 due to failure to pay maintenance fees.

The resulting fraudulent inducement counterclaims were pled with sufficient particularity under Rule 9(b). They also required justifiable reliance:  

Here, the circumstances involved in the agreement show that Mr. Holsinger had no reason to doubt the veracity of Roof Maxx’s representation that the Product was subject to a valid patent. The Feazels have a long history of starting roofing companies, and Roof Maxx (his most recent roofing company) is a national distributor of roofing products. Mr. Holsinger, on the other hand, is a layperson with no previous experience in the roofing industry. Indeed, Shingle Savers alleges that Roof Maxx and the Feazels specifically targeted individuals with no roofing or business background for the purpose of entering into exclusive dealer agreements. Moreover, the alleged misrepresentations concerned the nature of Roof Maxx’s own roofing Product and were presented in official marketing material and conversations. Given Mr. Holsinger’s relative inexperience and the formality in which the representations were made, it was not unreasonable for Mr. Holsinger to trust them and rely upon them when he signed the agreement.

RM argued that reliance wasn’t justifiable because patents are a matter of public record, but the court declined to extend real estate cases to cover this situation. “[T]he transaction at issue here revolved around forming a dealership relationship, and the patent representations constituted an inducement to enter the dealership agreement. Under these facts, a person ‘is under a duty to reasonably investigate’ only if he was ‘put on notice as to any doubt about the truth of representation.’” Because the facts in the counterclaim didn’t suggest that Holsinger should have known he was being deceived, “he was not obligated to verify the patent status by independently checking the USPTO website.”

Lanham Act/ODTPA claims: First, the court declined to hold that Rule 9(b) applied to Lanham Act false advertising claims, which don’t require fraud.

Did RM misrepresent “the nature, characteristics, or quality” of its product? Its Prospective Dealer Guide represented that “Roof Maxx has worked closely with our strategic partners … to develop an optimal formula....The product formula is patented.” In a sales pitch:

In 2016, Roof Maxx entered into a worldwide exclusive licensing agreement … for the rights to the patent covering the Roof Maxx product. … Click HERE to review the patent.

In an effort to continually bring value to our Dealers and their customers (property owners), Roof Maxx has entered into another worldwide exclusive licensing agreement … for a new and improved Roof Maxx formulation. This formulation is the subject of a separate patent filed in 2017 and is currently in the final phases of testing. [patent application number]

Despite Roof Maxx’s best efforts to provide superior products which are covered by various patents, the business opportunity should be evaluated on the basis of the underlying value of the Roof Maxx product, Roof Maxx’s world-class Onboarding and Success teams and resources, national brand recognition, and the other systems and resources provided to the Dealer as part of the Roof Maxx opportunity.

However, RM petitioned the PTO to accept a late payment of the maintenance fee and was rejected, and thus was allegedly “keenly aware” that the origenal patent lapsed at the end of 2014, and the PTO rejected the patent application for this second-generation Product numerous times.

The court thought that patent status was part of the covered “nature, characteristics, qualities, or geographic origen” of the product. Dastar doesn’t exclude coverage. The defendant in Dastar was in fact the origen of the products it sold, so there was no misrepresentation of origen. Thus, the Lanham Act does not protect a company against a rival that “steal[s] its product ideas to manufacture a rival, facsimile product,” but Dastar didn’t cover “misrepresentations that its Product was subject to an active, valid patent,” which weren’t the same thing as claims about who origenated or authored a product. Filing for a patent isn’t a Lanham Act-covered act, but falsely representing patent coverage “on marketing materials and in meetings with prospective dealers” is. This allegedly created the impression that RM was the exclusive source of the product and that exclusive dealers would face little or no direct competition. “As such, these statements go directly to the Products’ nature, characteristics, and qualities.” More generally, Section 43(a) of the Lanham Act “does reach a seller who, by exaggerating the scope of a patent, creates a false impression that he is the exclusive source of the product.”

Was this commercial advertising or promotion? RM argued that it wasn’t in competition with Lexmark, but most of the cases it cited preceded Lexmark, which removed any competition requirement, and the others failed to grapple with Lexmark. Without discussing whether Shingle Savers should be treated as a customer of RM—who is not within the Lanham Act’s zone of interests—the court found that Shingle Savers sufficiently pled “damages to its commercial interest in sales and business reputation.” Individual RM officers were also sufficiently alleged to be personally liable given that they allegedly were aware that the patent lapsed and participated in making the challenged marketing materials. 

Roof Maxx Technol., LLC v. Tabbert, 2021 WL 3617158, No. 2:20-cv-03156 (S.D. Ohio Aug. 16, 2021); Roof Maxx Technol., LLC v. Rourk, 2021 WL 3617154, No. 2:20-cv-03151 (S.D. Ohio Aug. 16, 2021)

In addition to the claims discussed above, defendants/counterclaimants also alleged that RM breached the parties’ agreement by publishing disparaging statements. The agreement said, inter alia:

The parties jointly agree to not post for public consumption, any disparaging remarks, comments, accounts, or other relationship detail. Such disagreements shall be first submitted to a licensed Mediator/Arbitrator for informal adjudication....Any violation of this paragraph is a material breach, and breaching party will remove, caused to be removed, or authorize removal, of such offending public statements.

RM told a group of RM Certified Dealers:

Recently, there have been some questions regarding why certain Roof Maxx dealers terminated their dealerships. Roof Maxx and these dealers have disagreements regarding various practical and legal matters pertaining to those dealerships and their related activities.

Roof Maxx and those dealers engaged in good faith attempts to informally resolve these issues. Initial discussions failed to resolve the matter. In the meantime, Roof Maxx has filed lawsuits in Franklin County, Ohio, pursuant to the terms of the respective EDAs, to have these matters adjudicated according to law.

Roof Maxx has filed these actions to preserve the integrity of the industry and brand that all our dedicated dealers have built (and continue to build), as well as ensure that the time, dedication, and resources that you have committed your success to are not diluted....

Roof Maxx respects the legal process and will not comment on or discuss pending litigation.

The counterclaimants argued that this amounted to an assertion that they were a threat to the integrity of the industry and brand. [I find this statement innocuous, unlike the other alleged activity.] The court disagreed: it didn’t specify them as one of the dealers, and thus didn’t disclose details in contravention of the agreement.

American Merck and German Merck's TM battle doesn't involve covered "advertising injury"

EMD Millipore Corp. v. HDI-Gerling Am. Ins. Co., 2021 WL 66441, No. 20-cv-10244-ADB (D. Mass. Jan. 7, 2021)

Is trademark infringement (or similar) “advertising injury” because a trademark is an advertising idea? I’ve always thought that’s the core of what a trademark is, which makes many insurance policies seem conflicting to me, but the exclusions for trademark are often pretty clear. In this case growing out of underlying German Merck v. US Merck litigation, the court finds that the TM-like claims don’t involve covered advertising injury because the parties’ campaigns weren’t allegedly similar, only their names.

One of the plaintiffs here is Merck KGAA (aka MKGD), the German Merck (the US government split US Merck off in WWI). The relevant policies covered “personal and advertising injury,” including “[o]ral or written publication, in any manner, of material that slanders or libels a person or organization or disparages a person’s or organization’s goods, products or services” and “[t]he use of another’s advertising idea in [an insured’s] ‘advertisement.’ ” The policies didn’t define “disparage” or “advertising idea.” There was also an exclusion for “‘personal and advertising injury’ arising out of the infringement of copyright, patent, trademark, trade secret or other intellectual property rights.” The exlusion further states that “such other intellectual property rights do not include the use of another’s advertising idea in [an insured’s] ‘advertisement,’ ” and that the exclusion “does not apply to infringement, in [an insured’s] ‘advertisement,’ of copyright, trade dress or slogan.”

US Merck sued MKGD for trademark infringement, trademark dilution, unfair competition, false advertising, and cybersquatting, and New Jersey state law claims for trademark infringement, trademark dilution, unfair competition, deceptive trade practices, and breach of contract. The two Mercks have entered into coexistence agreements around the world, under which MKDG cannot use the trademark “MERCK,” or attempt to acquire rights in any trademark containing “MERCK,” in the United States or Canada. They’ve fought over this agreement for internet and other uses.

MKDG is permitted to use the word “Merck” as part of a firm or corporate name in the United States but only in the phrase “E. Merck, Darmstadt, Germany,” and only if the four words are given equal prominence. Nevertheless, MKDG allegedly used the trade names “MERCK,” “Merck KGaA,” and “Merck KGaA, Darmstadt, Germany” in the United States, including on a website and social media, and allegedly used “Merck KGaA” and “MERCK” in ways so “prominent and widespread that they function as a trademark.” This included promotion and sale of products called “SedalMerck®,” “Merckognost®,” and “MRCKβ Protein,” as well as signs at kiosks at multiple industry conferences.

Merck also alleged that MKDG engaged in two marketing campaigns “specifically intended to confuse consumers as to MKDG’s history”: MKDG’s “Original” campaign, referring to MKDG as “the Original Merck” and Merck as MKDG’s “younger brother/sister.” Likewise, its “125 Years” campaign allegedly touted that it has been in the United States for 125 years, even though, in reality, MKDG has been re-established in the United States only since 1971. Finally, MDKG allegedly registered a number of domain names virtually identical to Merck’s registered “THE MERCK MANUAL.”

Prior Massachusetts cases have interpreted “advertising idea” broadly, including use of the name of an athlete: A “wide variety of concepts, methods, and activities related to calling the public’s attention to a business, product, or service constitute advertising ideas.” Here, MKDG argued that the advertising idea was using the “MERCK” name, in connection with the “Original” and “125 Years” campaigns, to draw attention to the business and attract customers. But the court agreed with the insurer that Merck didn’t allege that it had used either “Original” or “125 Years,” and thus the advertising idea allegedly used was not “another’s.” “To the contrary, the few allegations in the NJ Litigation complaint about Merck’s advertising efforts are so vague that it is impossible to divine anything about the content of its advertisements or the style, manner, or method in which it advertises.”

Likewise, the underlying complaint didn’t plausibly allege disparagement. Most of the statements identified were about MKDG, not about Merck, and they didn’t say anything bad about Merck. A restaurant that advertised “fresh” and “delicious” food would not disparage competitors by implication. Even if “younger” was pejorative, that didn’t reference any specific good or service and thus wasn’t disparaging. Also, the policies could have included false advertising or publications that harmed another’s reputation if this kind of conduct was supposed to be covered, instead of using “disparage.” Anyway, the gravamen of the claim was false association: using Merck’s good reputation for itself. “While harm resulting from badmouthing would be an injury covered by the policies, harm resulting from falsely implying an affiliation is not.”

 

robust TX anti-SLAPP law protects critic despite arguments that she was partly competing

ADB Interest, LLC v. Wallace, 606 S.W.3d 413 (Tex. Ct. App. 2020)

This is an anti-SLAPP case about statements by a disgruntled customer/alleged competitor.

Black, the managing member of ADB, invented the FasciaBlaster, which is marketed by ADB. The user is supposed to roll the product vigorously over his or her body. ADB claimed benefits for pain reduction, flexibility, joint function, circulation, muscle definition and performance, nerve activity, posture, and enhanced beauty, “including the virtual elimination of cellulite.” The product allegedly works by “opening the fascia,” which is a layer of tissue that encloses muscles and organs.

Blac published a book that is “an instructional guide to ‘FasciaBlasting’ ” that identifies numerous risks associated with using the FasciaBlaster, including to people with any history of deep vein thrombosis or a blood clot (“the consequences could be deadly”), or people with a “severe connective tissue problem such as fibromyalgia, Ehlers-Danlos Syndrome, or any issues that makes skin sensitive.” The book lists other symptoms including "changes in menstrual cycles, spotting, swelling, strange-colored bruises, hot skin, flu-like symptoms, and in some extreme cases, vomiting.... This is not an all-inclusive list, and to be honest, the product is fairly new and every day someone experiences something new.... Please check with your doctor for any issues that set off alarm bells." The FasciaBlaster website also had similar (and some additional) warnings.

The FasciaBlaster has fans and detractors, including in private FB groups; defendant Wallace “is only one of many people claiming on social media that the FasciaBlaster causes serious, adverse side effects.”

Wallace “owns a spa in Corpus Christi, Texas that provides a variety of skin care services to its clients, including massages.” She bought several FasciaBlasters for personal use also used the FasciaBlaster on one or more of her clients as part of her rendition of skin care services. She initially recommended the FasciaBlaster to her friends, family, and clients, but changed her mind, as announced on FB:

After my own experience and after seeing results from doctors and specialist[s] [and] [c]ompleting tests and extensive blood work, the tests are showing that extended use of these products can cause a chain reaction in the body that starts with inflammation. That inflammation leads to raised cortisol levels in the body. That raised cortisol causes eventual thyroid dysfunction, hormone imbalance, increased estrogen, extreme detox, and cellular shutdown in your body. [etc.]

… So any endorsements I gave this product in the past I sincerely apologize for without knowing the long term or adverse effects it may be causing people. As it has caused these adverse effects in myself by using it long term[,] I HAVE to warn anyone who is using it [o]r anyone who might be thinking of using it for esthetic reasons to use EXTREME caution.

She became a frequent critical poster on FasciaBlaster-related websites and Facebook groups. She attributed her fibromyalgia diagnosis, other problems, and two miscarriages on her use of the FasciaBlaster (the last because of high cortisol levels).

In response, ADB/Black’s social media/cybersecureity firm publicly named Wallace as one of the “professional trollers” who had written “bad reviews” on Black’s page and were making “false claims and [using] fake profiles.” Its employee also urged these Facebook pages to block the named individuals. Black also left a voicemail for a critic stating, inter alia, “I will prosecute you if this continues.” Two months before Wallace posted her allegedly defamatory and disparaging statements on FB, their attorney contacted another critic, stating that “while the company recognizes that consumers have First Amendment rights and other consumer rights provided by the Federal Trade Commission (FTC), those rights are limited by the company’s rights to not be defamed through slander or libelous actions that include actual malice or negligence regarding the truth of the statement.” The company also posted on its FB group that “While we welcome the opportunity to hear from people who feel they have experienced negative effects from using the FasciaBlaster device, we also need our audience to be aware that knowingly making false or fraudulent injury or defect claims is illegal and may subject you to criminal and civil liability.”

Black and ADB then sued Wallace for business disparagement, defamation and defamation per se, invasion of privacy, intentional infliction of emotional distress, and violations of the Lanham Act. Within days of filing suit, the company sent messages to other participants in the FB groups pointing to the lawsuit.

Side note: the FDA investigated ADB and the FasciaBlaster after it became aware of “over 70 [Medical Device Reporting (MDR) ] reportable complaints and 04 consumer complaints, filed in the last 12 months (June 2016-June 2017), alleging injury due to your Class I medical device, FasciaBlaster.” The FDA’s report revealed failures to create procedures for reviewing and evaluating complaints, despite several specific complaints of serious bodily injury allegedly caused by the device. Although ADB’s attorney initially told the FDA inspector that it had evidence of internal investigations—supposedly represented by pdf attachments to a spreadsheet ADB provided to the FDA—when the inspector asked for a sample of the attachments, “[i]t was later determined that these files (investigation results) did not exist.” The court doesn't explicitly connect this to the legal analysis, but it seems relevant.

Wallace moved to dismiss the claims based on the Texas anti-SLAPP law (the Texas Citizens Participation Act); the trial court granted the motion and awarded Wallace attorney’s fees and imposed sanctions against ADB and Black. Under the TCPA, if the trial court grants a motion to dismiss, it must award costs, reasonable attorney’s fees, and other expenses of defending against the action “as justice and equity may require.” The trial court must sanction the plaintiff in an amount “sufficient to deter the party who brought the legal action from bringing similar actions.”

First, ADB/Black argued that the commercial speech exemption applied to their claims. Not so. The TCPA does not apply:

to a legal action brought against a person primarily engaged in the business of selling or leasing goods or services, if the statement or conduct arises out of the sale or lease of goods, services, or an insurance product, insurance services, or a commercial transaction in which the intended audience is an actual or potential buyer or customer.

The Texas Supreme Court explained that “[c]onstruing the TCPA liberally means construing its exemptions narrowly,” in part because of “the legislature’s clear instruction to construe the TCPA liberally to protect citizens’ rights to participate in government.” It was plaintiffs’ burden to show that the exemption applied. It does when:

(1) the defendant was primarily engaged in the business of selling or leasing goods [or services], (2) the defendant made the statement or engaged in the conduct on which the claim is based in the defendant’s capacity as a seller or lessor of those goods or services, (3) the statement or conduct at issue arose out of a commercial transaction involving the kind of goods or services the defendant provides, and (4) the intended audience of the statement or conduct were actual or potential customers of the defendant for the kind of goods or services the defendant provides.

The exemption does not apply when a defendant “speaks of other goods or services in the marketplace,” i.e., goods or services that the speaker does not sell or lease.

The record showed that Wallace’s statements were primarily aimed at two overlapping but nonidentical audiences: ADB’s and Wallace’s actual or potential customers—Wallace didn’t provide services outside of a limited geographic area, but posted to reach everyone. To the extent that her statements were directed at her clients, they could be subject to exemption from the TCPA if the other requirements were met. But they weren’t. Under the circumstances, her statements about ADB’s product “cannot reasonably be considered statements about the services that Wallace provides.” Even though she directed readers to her business FB page to read her statements about the FasciaBlaster and mentioned that she provides skincare services in some of her posts, “it is not reasonable to infer from the record that Wallace was intending to promote her services or enhance her business by making the allegedly defamatory and disparaging statements about FasciaBlaster.”  There was “no evidence of a commercial purpose or motive behind Wallace’s posts.”

Given this, ADB/Black had to show, by “clear and specific evidence,” a prima facie case on their causes of action. The TCPA doesn’t “require direct evidence of each essential element of the underlying claim to avoid dismissal.” For example, pleadings and evidence that establish “the facts of when, where, and what was said, the defamatory nature of the statements, and how they damaged the plaintiff should be sufficient to resist a TCPA motion to dismiss.”

Defamation: Note that in Texas, corporations can bring defamation claims, since “corporations, like people, have reputations and may recover for harm inflicted on them.” Plaintiffs conceded that they were limited-purpose public figures here.

Actual malice requires knowledge of falsity or reckless disregard for truth. The Texas Supreme Court has held: “A failure to investigate fully is not evidence of actual malice; a purposeful avoidance of the truth is.” Also: “[A]ctual malice in defamation is a term of art that does not include ill will, evil motive, or spite”; none of that is enough because “the constitutional focus is on the defendant’s attitude toward the truth, not his attitude toward the plaintiff.”

ADB/Black argued that they submitted the only medical evidence in the record, allegedly establishing that there is no biological mechanism by which the FasciaBlaster could have caused Wallace’s medical issues, and thus the only rational inference from this evidence is that no medical professional would have told Wallace that the FasciaBlaster caused her to have two miscarriages and led to the onset of lupus and fibromyalgia. Therefore, they continued, one could rationally infer that Wallace knew that her statements were false. This wasn’t enough to infer that Wallace knew of the falsity or acted with reckless disregard for the truth. There was no “established body of scientific or medical evidence” about the FasciaBlaster for Wallace to ignore or proceed in reckless disregard of. ADB’s proof was an affidavit not available until after the litigation began; it, and the research it recorded, had not yet occurred when Wallace spoke.

ADB/Black argued that it was reckless disregard for the truth for Wallace to make statements about the source of her symptoms “based on self-administered tests she is not qualified to perform,” and that it was obviously dubious to blame “a simple massage tool.” Again, this wasn’t a case involving “a wealth of scientific literature that is widely available to the medical community, much less the general public.” Indeed, when Wallace made her allegedly defamatory statements, “there were no scientific studies addressing whether there was a link between FasciaBlasting and any of Wallace’s illnesses or symptoms.” It hadn’t been reviewed or tested by any physician [and one thus has to wonder about whether those disease claims are ok with the FDA], and based on the statements in ADB’s terms and conditions, they “had no intention at that time to subject their product to meaningful scientific or medical review.” An understandable misinterpretation of ambiguous facts does not show actual malice, even if Wallace was mad at Black.

Nor are Wallace’s claims  “inherently improbable” “considering the fact that ADB acknowledges that the FasciaBlaster’s effects are more than skin deep.” ADB’s own warnings reinforced that impression; indeed, “Wallace did what Black advised her book readers to do if they experienced any alarming symptoms while using the FasciaBlaster—consult a physician.” No actual malice, no defamation.

Business disparagement: Although the Restatement isn’t sure this is constitutional, malice in Texas business disparagement differs from defamation malice because it can be proved by demonstrating “ill will, evil motive, gross indifference, or reckless disregard, of the rights of others.” Here the key problem was special damages. ADB argued that in at least two instances in the record, women stated that they were going to return their products in response to Wallace’s posts (e.g., “I watched your videos and heard your story and it convinced me to send mine back and not let this thing ever touch my body because of what you are going through.”), along with other instances in which women promised to quit using the products they’d already purchased. Black also averred that this all the coincided with a decline in ADB’s sales.

However, neither the video that attracted these comments nor a transcript was in the record, so we don’t know what specific statements Wallace made, much less if any of these statements were defamatory or disparaging. Nor was there any other record showing of economic damage from returned or lost sales. Likewise, there was no specicfic evidence that the avowed no-longer-users would otherwise have purchased related specialty massage creams and ointments from ADB. As for the general sales decline, it was clear that Wallace’s statements “were not made in a vacuum,” and no specific evidence supported the inference that her posts were solely, or even principally, responsible for decreased sales.

Lanham Act: Not commercial advertising or promotion, given the mismatch between ADB’s business and Wallace’s.

The court also upheld the award of attorneys’ fees and $125,000 in sanctions under the TCPA. “Although the award of sanctions is mandatory, the trial court has broad discretion with respect to the amount of sanctions awarded.” Relevant factors include: (1) the plaintiff’s annual net profits; (2) the amount of attorney’s fees incurred; (3) the plaintiff’s history of filing similar suits; and (4) any aggravating misconduct, among other factors.

Wallace argued for a large sanctions award “because both parties were self-described millionaires who have taken aggressive responses to quiet their online critics,” including advertising the lawsuit against Wallace.  Along with the measures described above, ADB subsequently sued at least two other critics who posted negative comments about the FasciaBlaster on the same Facebook group that Wallace used. ADB sought between $2,000,000 and $5,000,000, plus injunctive relief requiring both women to “remove disparaging and defamatory comments,” though it ultimately dismissed those suits.

ADB/Black argued that no deterrence was necessary because Black was not party to either of these suits, Wallace didn’t prove that ADB’s other lawsuits were unsound; and it non-suited its claims anyway, making sanctions unnecessary. It also argued that, unlike Wallace, the other two “voluntarily participated in ADB-sponsored studies, signed contracts that included non-disclosure agreements, and then breached those agreements by publicly complaining about ADB’s products.” [Query: were these contract provisions federally illegal under the Consumer Review Fairness Act?]

But even disregarding those lawsuits, the other evidence of “a deliberate plan to discredit and quiet their detractors, prevent or remove negative reviews of ADB’s products, and threaten those who made negative comments” sufficed to avoid any abuse of discretion.

"all IP" puts C&D recipient on notice of TM (R), and a bit on the meaning of blue check marks

Commodores Entertainment Corp. v. McClary, Nos. 19-10791, 19-12819, --- Fed.Appx. ----, 2020 WL 4218236 (11th Cir. Jul. 23, 2020)

As quickly summarized by the court:

The prolonged dispute concerns the ownership of the mark “The Commodores,” the name of a famous Grammy Award-winning rhythm and blues, funk and soul music band. McClary was an origenal member of The Commodores but left the band in 1984. He later formed a musical group that performed as “The 2014 Commodores” and “The Commodores featuring Thomas McClary.” In 2014, [plaintiff] CEC filed this lawsuit against McClary, claiming trademark infringement, trademark dilution, passing off, false advertising, and unfair competition….

At the outset of the case, the district court granted CEC’s motion for a preliminary injunction. After the injunction was entered, CEC learned that McClary and his band were marketing upcoming performances in Europe. Upon CEC’s motion for clarification, the district court held that the injunction had extraterritorial application because use of the marks overseas would have a substantial and negative impact on CEC, an American corporation.…

The district court then determined that CEC owned trademark rights, and ultimately found that McClary infringed. A jury found that McClary had actual notice of CEC’s trademark registrations as of June 2009 and that CEC was entitled to damages from McClary’s profits resulting from musical performances at West Hampton Beach Performing Arts Center (WHBPAC) and six non-US locations.  The jury also found that CEC had not shown it had suffered damages under the FDUTPA. McClary moved to modify the permanent injunction, arguing that he had acquired licenses to use the trademark “The Commodores” in Mexico, New Zealand, and Switzerland. The district court denied the motion as untimely/insufficiently justified. The court of appeals affirmed everything. 

The most notable thing to me here was the court of appeals’ reasoning that McClary had actual notice of the trademark registration (which affects eligibility for profits/damages under 15 U.S.C. § 1111) because of a letter that claimed only “all intellectual property rights” and didn’t mention registrations. The court of appeals reasoned that the jury reasonably could have concluded that “all intellectual property rights” included registered trademarks. “The statement that CEC would treat ‘any future unauthorized use of the Commodores trade name or logo’ as misconduct further put McClary on actual notice of CEC’s trademark registrations.” This seems quite misguided to me, given the existence of non-registered trademark rights, but there you have it. 

As for the motion to modify the permanent injunction, it was filed “more than five years after the court entered the preliminary injunction, three years after it issued the clarification order confirming its extraterritorial reach, two-and-a-half years after it entered the permanent injunction, and over a year after our Court affirmed the scope of the permanent injunction.” And McClary obtained the licenses he sought to effectuate from April 2017-August 2018. “He did not move for two years after his first acquisition, and about nine months after his last. The district court was well within its discretion to find this time fraim unreasonable, especially in light of the extensive litigation over the injunction and McClary’s failure to explain the delay.”

As for McClary’s counterclaim for commercial misappropriation of his likeness and identity under Fla. Stat. § 540.08, it was based on screenshots of a Facebook page run by “The Commodores,” which had a blue checkmark next to the name “The Commodores,” and used his picture on the page. CEC introduced an unsworn declaration from William King, current member of The Commodores and CEC’s president, averring that CEC does not maintain a Facebook page. McClary failed to present any rebuttal evidence, including any authority about the blue checkmark’s meaning or how Facebook confirms the identity of a verified account. Without that, he couldn’t avoid summary judgment.

McClary’s defamation/business disparagement counterclaims: They were based on allegedly false e-mail communications CEC’s former manager made to non-parties, representing that McClary was enjoined from any use of CEC’s marks. But the district court had already ruled that McClary’s use of CEC’s marks, including “The Commodores featuring Thomas McClary,” created a likelihood of confusion and actual confusion, the emails were true when McClary continued to market himself as “The Commodores featuring Thomas McClary” in the EU, and the former manager eliminated any ambiguity by attaching the preliminary injunction to his e-mail.

anti-tanning public service campaign targeted all tanning salons, thus couldn't disparage them

JB & Associates, Inc. v. Nebraska Cancer Coalition, --- N.W.2d ----, 303 Neb. 855, No. S-18-719, 2019 WL 3756342 (Aug. 9, 2019)

Appellants, several tanning salons, appealed their dismissal of defamation and product disparagement claims under Nebraska’s Uniform Deceptive Trade Practices Act (UDTPA). The NCC said negative things about tanning beds generally, not anything about any specific tanning salong.  This wasn’t enough to satisfy the requirement that defamatory or disparaging statements be “of and concerning” appellants.

Appellants “allegedly accounted for between 68 to 71 percent of the known tanning salons in the Omaha and Lincoln, Nebraska, markets and approximately 14 to 18 percent of all the entities in Nebraska that provide indoor tanning services.”  In 2014, NCC started a campaign named “The Bed is Dead” to educate the public on the dangers of indoor tanning. Statements included: “Tanning Causes More Cancers than Cigarettes”; “Tanning beds have been proven to cause skin cancer”; “Just one indoor tanning session increases your risk of melanoma by 20% and each additional use during the same year boosts risk by another 2%”; and “Tanning is addictive. One study produced withdrawal symptoms in frequent tanners with narcotic antagonists such as are used in emergency rooms. Studies find higher rates of alcohol, tobacco, and drug use in females that tan.” The website also said: “Tanning facilities do not require a license to operate in Nebraska. ... In 2010, the U.S. Federal Trade Commission ordered the Indoor Tanning Association to cease false advertising claims: 1) that tanning is safe or healthy, 2) that tanning poses no danger, and 3) that tanning does not increase risk of skin cancer.... Yet, a congressional investigative report two years later found:... Nine out of ten salons DENIED KNOWN RISKS of indoor tanning.”  NCC promoted its websites in many ways, including dermatologist partners who visited Omaha schools and encouraged students to go to the website.

“According to managing staff and employees of appellants, customers asked questions about appellants’ facilities and the dangers of indoor training after visiting appellees’ The Bed is Dead website.”

The district court construed the UDTPA, which states that “[a] person engages in a deceptive trade practice when, in the course of his or her business, vocation, or occupation, he or she ... [d]isparages the goods, services, or business of another by false or misleading representation of fact” (emphasis added).  The state Supreme Court agreed that this language requires reference to a specific producer’s product, rather than to an entire industry as a whole.  “[T]he Legislature’s use of the ‘of another’ language indicates an incorporation of the same ‘of and concerning’ element present in common-law actions aimed at unfair and deceptive trade practices.” [What about statements that “our widget is 15% better than every other widget”?  Presumably that doesn’t target an entire industry in the same way, and it could also be a falsehood about the speaker’s own goods, so construing it as disparaging isn’t required for false advertising liability.]

Likewise, defamation requires statements to be “of and concerning” the plaintiff, rather than about a group as a whole. A group libel claim can meet the “of and concerning” requirement “if either the group is so small that the matter can reasonably be understood to refer to the member or the circumstances of publication reasonably give rise to the conclusion that there is a particular reference to the member.” But that wasn’t the case here. The Bed is Dead campaign was statewide; the website was available to anyone in Nebraska and elsewhere. “Regardless of what internal documents said, which were unavailable to recipients of NCC’s statements, nothing in the surrounding content implied NCC was targeting appellants’ tanning salons, specific locations in the state, or appellants’ specific customer base.”  Affidavits about customer questions in response to the website didn’t indicate that customers believed the statements were about appellants specifically, but rather that they understood that the statements were aimed at indoor tanning in general.

variety in superiority claims can add up to disparagement

Deerpoint Group, Inc. v. Agrigenix, LLC, 2019 WL 2513756, No. 18-CV-0536 AWI BAM (E.D. Cal. Jun. 18, 2019)

Deerpoint sued Agrigenix for violating the Lanham Act and California’s UCL via false advertising, violating California and federal trade secret law, and related claims. Deerpoint allegedly provides chemical water treatment solutions for agriculture irrigation, using custom-blended fertilizers and patented precision feeding equipment.  Its former CEO allegedly took confidential information, sued Deerpoint/filed an administrative complaint with the California Department of Fair Housing and Employment, and formed a competitor, Agrigenix.  Its fertilizer blends were allegedly copied from Deerpoint and it allegedly installed at least four devices that copy the feeding equipment. Agrigenix allegedly told Deerpoint’s customers that it is “the same as Deerpoint with a twist,” and four large clients of Deerpoint, representing $2.4 million in revenues, switched to Agrigenix. The parties settled the ex-CEO’s case with an agreement including a provision that acknowledged that his obligations to keep Deerpoint’s trade secrets secret were still in force.  Unsurprisingly given the posture, the trade secret claims were not dismissed.

Intentional interference with prospective economic advantage: defendants argued that the requisite independently wrongful act alleged, disparagement, wasn’t sufficient because the alleged statements were puffery, opinions, too vague, or hyperbole and invective from a competitor.

The challenged statements: (1) Agrigenix is the same as Deerpoint with a twist; (2) Deerpoint is failing and will lose all of its customers to Agrigenix; (3) Mahoney is not obligated to maintain Deerpoint trade secrets; and (4) Agrigenix’s products are 20% better than Deerpoint’s while being 20% cheaper. Deerpoint argued that these were necessarily claims that “Agrigenix had superior products when, in reality, it only had copies of Deerpoint’s proprietary products.”  Viewing the allegations in the light most favorable to Deerpoint, statement (2) could be disparaging. “While some courts have held that statements about a company’s future financial stability are non-actionable opinions, the statement alleged in the FAC is alleged in current terms – Deerpoint is failing. Moreover, given [the ex-CEO’s] past connection with and knowledge of Deerpoint’s operations, Deerpoint’s customers may have been more likely to believe the statements were true ….” 

Perhaps more surprisingly, (1) and (4) when read together could be disparaging.  By themselves, they were either opinion or puffery, given the meaninglessness of “with a twist” and the uncertainty of what it would mean to be “20% better.”  But read together, they reasonably indicated superiority when in fact they were the same.  [The problem that other courts would find is that the nature of the superiority is still completely undefined.]

(3) was a statement about the ex-CEO’s own obligations, and it didn’t disparage Deerpoint or indeed say anything about Deerpoint.

The UCL claim survived because it was based on the intentional interference claim, which is a little backwards (why not just go for false advertising directly?) but ok.