Source: http://tushnet.blogspot.com/2017/11/
Timestamp: 2019-04-20 03:16:50+00:00

Document:
Susana Silva operated Estates on the Bay, which advertised itself as a professional real estate company, while her real estate broker’s license was revoked. Defendants’ activities included grossly overstating a borrower’s income on mortgage loan applications. After a bench trial, the court found violations of the FAL and UCL and awarded civil penalties, restitution, and injunctive relief. The court of appeals upheld the liability finding but remanded on the remedies.
Likely deception is generally a question of fact. The court of appeals found that the website wasn’t too vague to be actionable: “a reasonable consumer would expect that a corporate entity holding itself out as a professional real estate company and offering real estate services requiring a license would in fact have the necessary license(s) to carry out those services, and specifically that all its agents/employees who were carrying out those services would be licensed to the extent necessary to lawfully conduct those services.” Given the trial court’s findings that Silva violated the licensing law, and that Estates on the Bay permitted this, substantial evidence supported the liability finding.
What a “violation” is must be determined case by case, and can be calculated per victim or per act. The amount is reviewed for abuse of discretion. The court assumed that it would have been proper for the court to determine that there were two violations based on income misrepresentations in loan applications that induced the funding of two loans, or that there were three violations based on three victims (Rosa and the two lenders), or that there were four violations based on income misrepresentations affecting Rosa and a lender as to each of the two properties. However, the evidence didn’t support the conclusion that false income representations were made to one or more victims on a daily basis for 86 days. Thus, the court remanded for recalculation.
An order of restitution to Rosa was affirmed, in the amount of $29,575, based on the commissions defendants received for brokering the loans and for a “yield spread premium” they received for getting her to take a higher interest rate than her credit entitled her to. Though defendants argued that she got what she paid for—refinancing—the court accepted the argument that the loans were only issued because of the misrepresentations. However, Rosa was not entitled to recovery of a prepayment penalty in connection with paying off the existing mortgage that she refinanced through defendants. The UCL allows recovery of restitution, not compensatory damages, and the prepayment penalty went to the bank, not to the defendants. However, the court pointed out that this could potentially be considered in setting the amount of the civil penalty.
In terms of injunctive relief, the court of appeals affirmed the imposition of recordkeeping requirements on defendants. The court also ordered “Silva and [her codefendant and sister] Gobert shall not jointly engage in the sale (this specifically includes acting as real estate agents or brokers) or financing (specifically including, but not limited to, originating, negotiating or soliciting loans) of real estate.” Defendants argued that this interfered with their constitutional rights to engage in lawful work and their constitutional rights to association as sisters. But they didn’t have a constitutional or statutory right to work with each other in real estate. They could individually work in real estate, if they complied with the rest of the injunction, and they could associate with each other; along with the ability to modify the injunction over time, that was enough. Defendants’ argument that they’d already dissolved the business didn’t matter, given their past behavior of violating the law after Silva’s license revocation (of which Gobert knew). Even assuming that the injunction burdened the constitutional right of association, it was no more than necessary to serve the compelling interest in protecting the public.
Sidney B. Williams scholarship for law students from underrepresented minority groups interested in IP law.
Jan Jancin award for law students with a demonstrated record in the study of IP.
Moot Court on patent issues.
Robert C. Watson award for best student paper on IP.
Schutte Bagclosures Inc. v. Kwik Lok Corp., No. 16-2767 (2d Cir. Nov. 2, 2017): In a summary opinion, the Second Circuit affirmed a district court finding that the design of Kwik Lok’s bag closures, albeit registered as a mark by the PTO, was functional and thus unprotectable by trademark law, as well as the belt-and-suspenders finding that no confusion was likely. Thanks to an eagle-eyed correspondent who should probably buy this vase as a reward for learning so much about bag closures.
The parties (NX and ATI) compete in the market for solar tracking devices, which “adjust the positioning of solar panels...to increase the efficiency of their solar power capture.” In September 2017, TUV, “which appears to be a non-governmental testing and assessment organization,” issued a report comparing the operational costs of two different solar tracking architectures and concluding that “Architecture 1” -- a tracker “driven by a single motor linked by a rotating driveline to multiple tracker rows” -- is associated with lower lifetime operational costs than “Architecture 2” -- “a system where each row operates as a self-contained unit with...dedicated tracker system components.” NX alleged that “Architecture 1” is ATI’s technology and that “Architecture 2” shows an NX product.
Apparently in response to NX’s objections, TUV retracted the report, but NX alleged that ATI widely disseminated the report both before and after the retraction. NX sought a TRO based on its false advertising, trade libel, and defamation claims, which the court denied.
First, NX didn’t show falsity or misleadingness; the TUV report didn’t mention NX or its products by name, and though it showed an NX product, NX didn’t provide evidence that the relevant claimed trade dress (NX’s “signature gold-colored paint” and “distinctive curve-shaped tube”) had acquired secondary meaning such that consumers would perceive a reference to NX systems in particular, rather than “Architecture 2” systems in general.
Even assuming that the association existed, NX still failed to show likely success on the merits. NX argued that the report was false or misleading because “Architecture 2” was a three-year-old NX design, whereas the system described as “Architecture 1” was ATI’s latest tracker. But the report didn’t purport to compare systems of the same generation or age, and it wasn’t false or misleading just because it compared systems of two different vintages. “Such a comparison may even be useful in the solar industry because, as NX itself argues, ‘Solar trackers are a long-term investment -- they can remain operational for many decades.’ It also seems possible that solar industry participants savvy enough to identify ‘Architecture 2’ as an NX system might also recognize that the featured device was not necessarily the latest model.” Nor did the record justify a finding that the report falsely described the NX system, as NX alleged. NX claimed that the report made false statements about its gears, its positioning of solar modules, and its use of struts, but never clarified whether those statements were false only as to current NX products or as to the prior ones too. ATI argued in opposition that the statements were true for the tested NX products, which was uncontested in NX’s reply brief.
The court also declined to find irreparable harm likely; much of the harm alleged by NX likely already occurred because of the report’s alleged wide dissemination. Although NX argued that a TRO could help at the margins, NX “fail[ed] to quantify the reputational injuries it will suffer if ATI continues to distribute the report” and thus failed to show irreparable injury.
Yeldo brought a putative class action alleging that MusclePharm used misleading marketing practices to promote its glutamine dietary supplement, whose label and online ads indicate that it “enhances muscle growth and recovery, supports rebuilding and recovery from the toughest workouts, reduces catabolism and supports an anabolic environment, aids in muscle growth, causes faster recovery, and helps consumers rehydrate, rebuild, and recover faster and more efficiently.” Although glutamine naturally found within the body plays a role in muscle growth, recovery, and immunity support, Yeldo alleged that “glutamine supplementation has been found to be completely ineffective at mimicking these physiological responses.” Yeldo based his claims on nine scientific studies finding no benefit from glutamine.
The court found that Yeldo plausibly alleged falsity. Although the court accepted that a plaintiff must plead the existence of a study that tests the combination of ingredients used in a given product, that means the active ingredient/s in combination. Here, the product at issue relied only on one active ingredient. The studies alleged “support the proposition that glutamine supplementation has no effect on muscle performance or strength, muscle growth, recovery, or performance during exercise,” even if they didn’t test MusclePharm’s specific products or dosages.
Nor did Yeldo need to plead how and when he consumed the product or whether he experienced the advertised benefits; he alleged that he bought and consumed the product and either would not have done so or would not have paid as much for the product if he’d known defendant’s representations were false. That monetary harm was sufficient. However, his negligent misrepresentation claim was barred by the economic loss doctrine.
Yeldo also had Article III standing to seek injunctive relief, because consumer protection statues, which provide for injunctive relief, could never be invoked to enjoin deceptive practices if the complaining consumer’s standing dissipated the moment she discovered the alleged deception and could no longer be fooled.
Yeldo’s claims weren’t preempted by the FDCA, since that statute deems food misbranded when the label contains a statement that is “false or misleading in any particular,” and so Yeldo’s claims paralleled the FDCA’s requirements; the conduct at issue would also give rise to liability under Michigan common law even if the FDCA had never been enacted. Nor did the doctrine of primary jurisdiction bar these claims.
After OmniGen successfully moved for a default judgment in its favor due to spoliation of evidence, the court awarded damages on OmniGen’s trade secret, false advertising, and related claims. Default means that the factual allegations of the complaint, other than those about damages, will be taken as true.
While working for OmniGen, which makes feed addditives that improve the health of dairy cows and other animals, defendant Wang breached his contracts by secretly creating an OmniGen-clone Chinese business based on stolen OmniGen research and information, forming at least two entities, Bioshen and Mirigen. He also applied for a Chinese patent that covers a knockoff of an OmniGen product, and had fellow individual defendant Zheng—who is Wang’s wife and ... does not have a background in biological sciences—listed as an inventor in his place, and employed similar tactics with the contact information for Bioshen and Mirigen. He presented an OmniGen Research slide presentation (whose copyright OmniGen registered) as if it was his own at a large scientific conference in China, with many slides altered only to add the Mirigen logo. At the conference, which was attended by over a thousand people, including academics, government officials, and business leaders, defendants’ marketing materials claimed to employ “the most advanced modern green agricultural technology from the United States.” Wang represented the material copied from OmniGen’s slides as Mirigen’s and Bioshen’s, as well the innovations described therein. [This seems to be Dastar-barred at least as a §43(a)(1)(A) claim, but in a default situation, don’t expect that to matter.] His acts also led to the dissemination of confidential OmniGen research notes at the conference and elsewhere. Bioshen and Mirigen also submitted a paper falsely describing research as part of their participation in the conference: the paper described a study conducted with pigs by Bioshen and Mirigen using their feed additive, when in fact the studies were conducted by OmniGen on sheep and dairy cattle using its feed additive.
The court also found that Wang breached his fiduciary duties to OmniGen, including, along with the above acts, intentionally sabotaging an OmniGen study he was assigned to work on, and fabricating or falsifying data. OmniGen therefore repeated the work he was assigned to do.
As to damages, they must be proved to a reasonable degree of certainty, but where a defendant’s conduct makes damages difficult to determine, courts allow “broad latitude” in quantifying damages. Defendants’ $821,000 initial investment in Mirigen reflected OmniGen’s expectation interest under its agreements with Wang: if Wang had fully performed, “the Chinese patent would have been assigned to OmniGen and the investment garnered by that patent and other confidential information would have accrued to Plaintiffs rather than Wang’s competing business entity. These are concrete, certain, and quantifiable injuries under a contractual theory of recovery.” OmniGen didn’t seek a separate award for the intentional interference with economic relations.
On the trade secret claim, $821,000 was likewise reasonably certain and a conservative valuation of what was misappropriated. OmniGen was also entitled to punitive damages due to Wang’s willful and malicious misappropriation, to a maximum of twice actual damages; the court determined that this was warranted, resulting in a total award of $2,463,000. For copyright infringement, the court accepted that infringement occurred post-registration, entitling OmniGen to statutory damages. Although the court was required to accept that infringement occurred post-registration, it wasn’t required to accept that the infringement was willful, as this wasn’t alleged in the complaint, and thus the court awarded the statutory minimum of $750.
Under the Lanham Act, OmniGen was entitled to damages, including profits, but defendants’ discovery abuse and spoliation of evidence related to damages prevented a precise calculation of Defendants’ profits. The court found it equitable to award OmniGen the $821,000 as the value of Mirigen. Treble damages could be awarded “if the allegations in the complaint support it.” OmniGen was harmed by defendants’ knowingly false statements, and “[a]s is common in such false advertising cases, quantifying damages is difficult (especially where evidence has been systematically destroyed by the defendant).” The court nonetheless declined to award OmniGen an estimated $80,000 based on defendants’ head start/avoided costs of conducting its own studies, finding them an improper measure of actual damages, and one that would be punitive rather than compensatory. Nonetheless, the $821,000 was a conservative proxy of damages, and so the court enhanced it to $2,463,000, as justified by defendants’ intentional/willful conduct, especially in destroying evidence. Enhancing damages would capture otherwise evanescent measures of goodwill, as well as deter defendants and others similarly situated from engaging in unfair and deceptive behavior.
Damages from Wang’s breaches of fiduciary duty were the costs to re-create or repeat research projects because of Wang’s breaches of fiduciary duty, or $252,000, as well as the recovery of all compensation paid during his period of disloyalty as damages, or $92,000.
The court likewise granted a permanent injunction. The disclosure or threatened disclosure of trade secrets or even non-trade secret confidential information was sufficient to meet the irreparable injury requirement for a preliminary injunction, as was the consumer confusion, loss of good will, and increased market place barriers which can result, and, in this case, did result, from false advertising. [Not clear whether this is entirely consistent with Herb Reed.] Damages/legal remedies were also inadequate because the injuries were difficult to quantify, and they were also ongoing and could worsen without an injunction.
However, the court would not enjoin defendants from working for certain types of feed industry businesses; that was too much of a restraint on trade, as well as unfairly limiting defendants’ ability to satisfy the judgment in this case. The defendants were enjoined against further use of confidential information and false advertising, and also required to assign to OmniGen all their interest in the Chinese patent and application, as well as register the assignment with the Chinese government.
The court’s injunction was worldwide, given that defendants’ wrongful actions included conduct in China.
The court also awarded attorneys’ fees and costs pursuant to the Lanham Act, the Oregon Trade Secrets Act, and Fed. R. Civ. P. 37(b)(2)(C) (relating to spoliation of evidence). As for the Lanham Act, the complaint’s allegation of intentional and willful false advertising was, “on its own, sufficient to establish the substantive weakness of Defendants’ litigation position.” Defendants also litigated in an unreasonable manner, including Wang’s attempt to evade service by lying to the process server, an initial default, discovery violations, and a destruction of evidence “beyond anything previously witnessed by this Court.” The award of attorneys’ fees pursuant to the Oregon Trade Secrets Act and Lanham Act applied to the entire action and not just the individual claims under which the fees are authorized, because the claims all involved a common core of facts and were interrelated. Fees awarded were nearly $990,000.
“Empire Distribution, founded in 2010, is a well-known and respected record label that records and releases albums in the urban music genre.” Then came Fox’s TV show Empire, “which portrays a fictional hip hop music label named ‘Empire Enterprises’ that is based in New York” and “features songs in every episode, including some original music.” Columbia Records releases music from the show, and Fox promotes the show and its music through live musical performances, radio play, and consumer goods such as shirts and champagne glasses bearing the show’s “Empire” brand. Fox sought a declaratory judgment of noninfringement and Empire counterclaimed for infringement and dilution. The district court granted summary judgment to Fox, relying on Rogers v. Grimaldi, and the court of appeals affirmed.
A footnote in Rogers says that Rogers’ limiting construction of the Lanham Act wouldn’t apply to titles that are confusingly similar to other titles, because the public interest in sparing consumers this type of confusion outweighs the slight public interest in permitting authors to use such titles. But appellate courts haven’t cited this footnote, and even the Second Circuit applied Rogers in the subsequent Cliffs Notes case involving conflicting titles. Any such exception might be “ill-advised or unnecessary,” and was anyway inconsistent with Ninth Circuit precedent speaking of Rogers as the test that applies when expressive works are accused.
Applying Rogers: Empire argued that, in order for Rogers to apply, the mark must have attained a meaning beyond its source-identifying function. [Which, not for nothing, “empire” does—it just had that meaning before Empire entered the scene.] But that’s merely a consideration—expressive uses often, but not always, occur “when a brand name enters common parlance and comes to signify something more than the brand itself,” and Rogers is broader. Then, unfortunately, the court commented that “a mark that has no meaning beyond its source-identifying function is more likelyto be used in a way that has ‘no artistic relevance to the underlying work whatsoever,’ because the work may be “merely borrow[ing] another’s property to get attention’” (citing Dr. Seuss Enters. v. Penguin Books, sigh)—which of course is inconsistent; if the mark didn’t have some sort of meaning beyond source identification, it wouldn’t make sense to use it to get attention for an expressive work.
The title wasn’t explicitly misleading. Empire Distribution argued that the “relevant inquiry . . . is whether the defendant’s use of the mark would confuse consumers as to the source, sponsorship or content of the work.” But that’s the general likelihood-of-confusion test, which applies outside the Rogers context of expressive works. Likely consumer confusion wasn’t the key, but rather whether there was “an ‘explicit indication,’ ‘overt claim,’ or ‘explicit misstatement’ that caused such consumer confusion.” Fox’s Empire show contained no overt claims or explicit references to Empire Distribution, and thus wasn’t explicitly misleading; game over.
State law claims, however, were mostly preempted, including tortious interference claims. The partial exception was deceptive trade practices under the Illinois Uniform Deceptive Trade Practices Act, which covers “pass[ing] off goods or services as those of another” and “caus[ing] likelihood of confusion or of misunderstanding as to the source ... of goods” as deceptive trade practices. The claim that publishers passed off the copyrighted songs as their own, so that consumers would license them, “falls squarely within the Copyright Act and is therefore preempted.” However, allegations that the defendants “misrepresented that they owned the copyrighted songs in advertising material without infringing copyrights to the songs” were sufficient, since “[m]aking misrepresentations about a copyrighted work in advertising material—short of licensing the copyrighted works at issue or taking any other action in connection with a copyright owners exclusive rights—is not among the exclusive rights enumerated in § 106 of the Copyright Act.” This doesn’t seem right under Dastar—the interpretation of “source” is usually the same under state and federal law, and Dastar’s reasoning should justify conflict preemption of state law anyway.
Defendants allegedly falsely advertised products containing 2,4-Dinitrophenol (DNP) to body builders, gym users, and the like. Defendants allegedly promote it as an ingestible fitness supplement that increases fat loss, despite the health dangers it poses. The plaintiff sells its own competing supplement, and sued for false advertising and RICO violations. The court found that there could be no preliminary injunction because the plaintiff hadn’t shown irreparable harm. After eBay, the court declined to presume irreparable harm from falsity and materiality. Health harm to the public was third-party harm, relevant to the public interest but not to whether the plaintiff had shown irreparable harm to itself. The plaintiff’s claim of lost sales since the introduction of DNP into the market didn’t show a causal connection between the two, and anyway lost sales could be remedied by money damages.
At least two lines of Trojan brand male condoms have the words “Made in U.S.A.” printed on the packaging. This statement allegedly violates California law because more than ten percent of the condoms’ wholesale value allegedly derives from natural latex material produced outside of the United States. Claiborne alleged that the condoms state that they contain natural latex, and that US domestic production of natural latex is minimal, with 90% of the global supply coming from Southeast Asia. Further, the US is allegedly the largest consumer of natural latex—accounting for approximately 20% of global consumption. In addition, the natural latex is allegedly the only substantial component of the Condoms.
The court found that Claiborne plausibly alleged that more than ten percent of the condoms’ wholesale value comes from outside of the United States, which would make it unlawful to market as “Made in U.S.A.” in California. It was true that Claiborne didn’t allege exactly what percentage of the wholesale value comes from abroad, but all he needed to do was plausibly allege that the foreign wholesale value was greater than ten percent, rather than an exact percentage above that.
Church & Dwight argued that, even under this approach, the allegations of the complaint established that it is not possible for a natural latex condom to carry a lawful “Made in U.S.A.” label because of insufficient domestic natural rubber production. That wasn’t true; it merely alleged that, because of the current domestic supply/demand imbalance, C&D uses imported natural latex. If C&D changed its sourcing, it could keep the label.
Zango, Inc. v. Kaspersky, 568 F.3d 1169 (9th Cir. 2009), indicated that “companies that provide filtering tools,” such as Kaspersky, are eligible for immunity under § 230(c). It found that Kaspersky qualified as a service provider, and “has ‘made available’ for its users the technical means to restrict items that Kaspersky has defined as malware.” Thus, Kaspersky qualified for immunity under § 230(c)(2)(B) “so long as the blocked items are objectionable material under § 230(c)(2)(A).” Kaspersky properly classified malware as “objectionable” material.
Enigma argued that Zango was distinguishable because malware, as defined by Malwarebytes’s criteria, wasn’t material that is “obscene, lewd, lascivious, filthy, excessively violent, harassing, or otherwise objectionable” because it is “not remotely related to the content categories enumerated.” Zango did not address whether an anti-malware provider has discretion to decide what is “objectionable” because that argument was waived. However, Zango clearly held that § 230(c)(2)(B) immunity applies to “a provider of computer services that makes available software that filters or screens material that the user or the provider deems objectionable.” Thus, Zango was factually indistinguishable.
Enigma then argued that Malwarebytes was entitled to § 230(c)(2)(B) immunity only if it acted in “good faith.” Subsection (A) protects “any action voluntarily taken in good faith” to restrict access to objectionable material, but subsection (B) has no good-faith requirement. The court refused to imply one; Congress knew how to put one in if it wanted, especially given that subsection (B) includes an explicit reference to subsection (A) with respect to the types of material to which immunity applies.
Finally, Enigma’s Lanham Act claim didn’t entitle it to use the IP exclusion; a false advertising claim is not a trademark claim for §230 purposes.
A rare case discussing Lexmark’s proximate cause requirement in some detail. Congoo operates an online ad business as Adblade, an aggregator that serves as an intermediary between advertisers and publisher websites that display native ads on their pages. Revcontent competes with Adblade. Advertisers pay aggregators a fee based on the numbers of clicks on their ads. Publishers usually contract with the aggregator who “pays the higher rate, higher guaranteed minimums, or greatest revenue.” An aggregator may pay a publisher a fee calculated by multiplying a negotiated display rate, CPM/cost per 1000 impressions of an of an ad, by the number of times the aggregator’s advertising unit is displayed on the publisher’s website. In the alternative, an aggregator may pay a publisher a percentage of the revenue the aggregator received from advertisers for the display of the ads on the publisher’s website.
Adblade alleged that it avoids business with advertisers using false and deceptive ads, such as negative option membership charges or undisclosed automatic enrollment in expensive membership programs. This is an issue in direct response advertising, “a subset of native advertising that seeks consumer action, e.g., an online purchase.” When a user clicks on a direct response ad, she navigates to a “landing page” that endorses the good or service, followed by an “order page” where she can buy.
For purposes of their motion for summary judgment, Revblade didn’t contest that Congoo’s interests fell with in the zone of interests protected by §43(a)(1)(A), or that there was a causal connection between deceptive native ads and Congoo’s loss of publisher clients. However, the court agreed that the purportedly false advertising didn’t have a sufficiently close causal link to Congoo’s alleged harm.
Congoo’s expert stated that false and misleading advertisements deceive consumers into clicking on the advertisements and/or making purchases, thereby “enabl[ing] the unscrupulous advertiser to make high cost-per-click bids to an advertising aggregator, such as Revcontent, who in turn offers higher rates to a publisher to obtain its business. … In addition, native ads that are deceptive and misleading likely have higher click-through rates that also translates into a greater revenue to the publishers.” But this was a too-long chain of causation from higher sales/higher revenues to Revcontent’s ability to pass on more money to publishers.
Congoo’s state common law unfair competition claim also failed because standing wasn’t broader than under Lexmark. To the extent, however, that any allegations of fraudulent representations didn’t relate to consumer products but instead to statements to publishers, such claims survived.
Board-Tech accused its competitor in the light switch market, Eaton, of false advertising because, while Eaton was authorized to apply the “UL” certification mark to certain products (as Board-Tech was), those Eaton products allegedly didn’t comply with the requisite safety standards. For the parties’ light switches, the prevailing standard is UL 20, required by the National Electric Code for new buildings; the NEC is state or local law in all 50 states, and even where its use is voluntary, consumers rely on UL 20 labeling for safety information; many retailers also require UL 20 labeling before they’ll sell a switch.
Board-Tech alleged that tested samples of UL 20-labeled switches sold by Eaton from the 7500, 7600, and 7700 series, and that all eight sets of six light swiches, 48 in total, failed the UL 20 standards. However, the court dismissed the complaint for failing to specify the precise products at issue from the relevant series. Board-Tech alleged that it had sufficiently alleged testing of a sample, but the court disagreed, because Board-Tech failed to specify what it had sampled. Nor had it explained why it was plausible to extrapolate from a few non-specific switches to entire product lines—more than 125 of them. Failure to provide any allegations as to which product(s) within a broader product line failed was also necessary in order for defendants to investigate the claim and prepare a defense. “If allowed to proceed in such a broad manner, plaintiff would no doubt seek access to the internal design of competitive products as well as highly sensitive technical data. Damages discovery would involve all of defendants’ sales of this series of products.” The court wasn’t willing to let that happen without more specifics.
Separately, the court didn’t think Board-Tech could bring claims based on failure to meet the UL’s standards when the UL certification concededly existed. “[P]laintiff’s claim is that even if defendants are authorized to use the mark, they are deceiving customers by using it.” But Board-Tech didn’t allege there had been post-certification changes to the product, or that the UL had found Eaton non-compliant. The authorized use of the mark was not “capable of being a deceptive use.” The mark was limited by the scope of its registration, and it certified merely that (manufacturer-designated) representative samples conformed to UL’s safety requirements. [Do consumers know this? Why would they?] Board-Tech conceded that Eaton’s switches had been through that process. “[I]f defendants are authorized to apply the mark (which plaintiff concedes they are), then plaintiff is simply policing the mark. It is up to United Laboratories to police the mark.” Board-Tech could only challenge UL’s policing by seeking to cancel the mark for failure to police.
The court was unwilling to allow a competitor to police the use of a certification mark by a competitor, because “[p]rivate testing of a product against standards could be used to commence a lawsuit that could expose competitive design and information to precisely the entity that should not have it. While there are many cases in which competitors are proper plaintiffs – and do obtain discovery – one should not open the floodgates to such litigation without careful consideration.” Comment: Compare to the cases finding that claims requiring interpretation of FDA rules, or policing of compliance with the “organic” standard, can’t be brought under the Lanham Act because the enforcement of those rules has been delegated to an entity other than the court.
Disclosure: I consulted on this case.
EP Henry and Cambridge compete in the market for concrete pavingstones. Cambridge made superiority such as “only Cambridge pavingstones have ArmorTec - a unique process that guarantees the color will never fade, backed by our fully transferable, lifetime guarantee.” Cambridge also claimed that ArmorTec pavers would “always look like new,” they’d would “look like new forever,” and that their color “will never fade.” EP Henry alleged that consumers had told EP Henry distributors that they were misled, and that after purchase they discovered that the pavingstones didn’t continue to look like new and weren’t fade-proof.
With that out of the way, the New Jersey Consumer Fraud Act claim (if any) failed because the NJCFA only grants standing to consumers and commercial competitors “who are acting as consumers” or who are involved in a “consumer transaction,” but not to commercial competitors generally. Negligent misrepresentation and common law fraud claims failed because EP Henry couldn’t allege reasonable or justifiable reliance on the alleged misstatements. Though EP Henry argued that it reformulated its advertising campaign in response to Cambridge’s alleged misrepresentations, it didn’t allege that it relied upon or believed Cambridge’s alleged misstatements in doing so. The common law unfair practices claim wasn’t recognized by New Jersey, which limits common law unfair competition to (1) the “passing off” of goods or services; (2) unprivileged imitation; and (3) tortious interference.
The Lanham Act false advertising claim, however, survived. EP Henry didn’t allege “a specific instance of a consumer choosing to purchase pavers from Cambridge over EP Henry because of Cambridge’s false advertising statements,” but that wasn’t required before discovery. It sufficiently pled that, as a direct competitor, it suffered harm to its reputation and sales by losing customers as a result of Cambridge’s alleged misstatements. Without evidence from third parties and discovery, however, Cambridge could still be entitled to summary judgment.

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