Lanham Act False Advertising Cases

Fifth Circuit Latest to Redefine "Exceptional Case" Test for Attorney's Fees Recovery Under Lanham Act  

Baker v. DeShong, --- F.3d ---, No. 14–11157, 2016 WL 2342963 (5th Cir. May 3, 2016)   

The Lanham Act allows a court to award attorney's fees to a prevailing party “in exceptional cases.” 15 U.S.C. § 1117(a). Until recently, the Fifth Circuit — like many other courts of appeal — required a showing that a case had been brought in bad faith in order to deem it “exceptional.” But this month in Baker v. DeShong, the Fifth Circuit joined the Third and Fourth Circuits in adopting the more flexible standard announced by the Supreme Court in the patent context in Octane Fitness, LLC v. Icon Health & Fitness, Inc., 134 S. Ct. 1749 (2014). There, the Supreme Court considered the identically worded fees provision of the Patent Act, 35 U.S.C. § 285, which the Federal Circuit previously had interpreted to require either (i) misconduct in the course of the litigation or in securing the patent, or (ii) a showing that the litigation was both brought in bad faith and was “objectively baseless.” Rejecting this “rigid and mechanical formulation,” the Supreme Court held that “an ‘exceptional’ case is simply one that stands out from the others with respect to the substantive strength of a party’s litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated.” In Baker, the Fifth Circuit “merge[d] Octane Fitness ’s definition of ‘exceptional’ into [its] interpretation of § 1117(a)” of the Lanham Act “and construe[d] its meaning as follows: an exceptional case is one where (1) in considering both governing law and the facts of the case, the case stands out from others with respect to the substantive strength of a party’s litigating position; or (2) the unsuccessful party has litigated the case in an ‘unreasonable manner.’” View the decisions for Baker v. DeShong and Octane Fitness, LLC v. Icon Health & Fitness, Inc

Owner of Foreign Trademark Can Sue for False Advertising Under Lanham Act 

Belmora LLC v. Bayer Consumer Care AG, --- F.3d ---, No. 15-1335, 2016 WL 1135518 (4th Cir. Mar. 23, 2016) 

The Fourth Circuit held that Bayer, the owner of the foreign trademark FLANAX (used for the sale of naproxen sodium in Latin America) may sue Belmora (which sells naproxen sodium as FLANAX in the U.S.) for false advertising and false association under the Lanham Act even though Bayer did not use the FLANAX mark in U.S. commerce. The court found that the plain language of Lanham Act § 43(a) contains no requirement that a plaintiff possess or use a trademark in U.S. commerce. The court explained that “[S]ection 43(a) stands in sharp contrast to Lanham Act § 32, which is titled as and expressly addresses ‘infringement’” and requires the “use in commerce” of “any reproduction, counterfeit, copy, or colorable imitation of a registered mark.” In contrast, “[u]nder § 43(a), it is the defendant’s use in commerce ... that creates the injury under the terms of the statute.” (Emphasis added.) The court then moved through the Supreme Court’s Lexmark analysis and determined that Bayer had plausibly alleged causes of action for false advertising and false association.  View the decision

Fake Online Reviews May Be Actionable as False Advertising 

Romeo & Juliette Laser Hair Removal, Inc. v. Assara I LLC, No. 08 CV 442 (DLC), 2016 WL 815205 (S.D.N.Y. Feb. 29, 2016) 

Plaintiff Romeo & Juliette and defendant Assara are competing laser hair-removal businesses. Beginning in early 2006, negative online reviews about Romeo & Juliette began appearing on websites such as Yelp.com, CitySearch.com, HairTell.com and ConsumerBeware.com, including many reviews that promoted Assara’s services after disparaging Romeo & Juliette’s. Evidence linked these disparaging reviews to an Internet protocol address associated with Assara’s place of business, and many were attributed to Yelp and HairTell usernames registered to Assara employees. In denying Assara’s motion for summary judgment, the court held that Assara’s “anonymous comments ... constitute[d] commercial advertising or promotion” under the Lanham Act. “In pursuit of their commercial interests, the defendants repeatedly posted disparaging comments to public fora used by consumers to select laser hair-removal services. By anonymously disparaging the plaintiff’s business and simultaneously promoting Assara, the defendants acted in pursuit of their economic interests.” And because many of the reviews “described persons who were not Romeo & Juliette customers and experiences with the plaintiff’s services that those fictitious customers did not have,” the reviews were literally false. The court did grant summary judgment to a handful of Assara employees whose disparaging comments were limited to statements that could not be proven true or false, such as that Romeo & Juliette’s “service was slow” or that its “employees were rude,” finding that these statements were “largely matters of opinion” and without more were not “actionable as false statements of fact.”  View the decision

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Consumer Fraud Class Action Developments

Ninth Circuit Closes Door Left Open by Supreme Court: Depositing Payment Does Not Moot Class Action  

Chen v. Allstate Ins. Co., --- F.3d ---, No. 13–16816, 2016 WL 1425869 (9th Cir. Apr. 12, 2016)

In Campbell–Ewald Co. v. Gomez, 136 S. Ct. 663 (2016), which was summarized in a prior Advertising Litigation Report, the U.S. Supreme Court held that a defendant cannot moot individual or putative class action claims by making an offer of full relief to individual plaintiffs. In so holding, the Court did not “decide whether the result would be different if a defendant deposits the full amount of the plaintiff’s individual claim in an account payable to the plaintiff. . . .” In Chen, the Ninth Circuit reached this unanswered question. Defendant Allstate “deposited $20,000 in full settlement of [plaintiff’s] individual monetary claims in an escrow account ‘pending entry of a final District Court order or judgment directing the escrow agent to pay the tendered funds to [plaintiff]’” and also offered injunctive relief. Allstate argued that its actions mooted plaintiff’s claims, requiring dismissal. The Ninth Circuit disagreed, holding that “a claim becomes moot when a plaintiff actually receives complete relief on that claim, not merely when that relief is offered or tendered. Where, as here, injunctive relief has been offered, and funds have been deposited in an escrow account, relief has been offered, but it has not been received.” Thus, the court held, Allstate’s actions did not moot plaintiff’s claims. Further, the court held plaintiff could still seek certification on behalf of the class even if the district court mooted his claims by entering judgment in his favor. View the decision

Reasonable Consumers Cannot Be Misled as to the Quantity of Product in Cosmetic 

Ebner v. Fresh, Inc., --- F.3d ---, No. 13–56644, 2016 WL 1056088 (9th Cir. Mar. 17, 2016)

Plaintiff alleged that the “vastly oversized tubes and boxes” of Fresh’s Sugar lip balm deceived consumers about the quantity of product that each tube contained because only 75 percent of the product actually advances up the tube. Plaintiff asserted that the omission of a statement about product accessibility rendered the otherwise-accurate net weight statement deceptive. The Ninth Circuit affirmed an order dismissing the complaint, finding plaintiff’s claim implausible. “It is undisputed that the Sugar label discloses the correct weight of included lip product. Dispenser tubes that use a screw mechanism to push up a solid bullet of lip product are commonplace in the market. The reasonable consumer understands the general mechanics of these dispenser tubes and further understands that some of the product may be left in the tube to anchor the bullet in place.” (Footnote omitted.)  View the decision

Claim Based Solely on Government Investigation Is Not Actionable 

In re Whole Foods Mkt. Grp., Inc. Overcharging Litig., --- F. Supp. 3d ---, No. 15 CV 5838 (PAE), 2016 WL 852796 (S.D.N.Y. Mar. 1, 2016)

The court dismissed with prejudice a pair of consolidated putative class actions premised on a press release issued by the NYC Department of Consumer Affairs describing “‘system[ic] overcharging’ for pre-packaged foods” at Whole Foods stores in New York City. The court ruled that plaintiffs failed to establish Article III standing because although plaintiffs alleged “generally that over-weighting, and hence inflated pricing, was common at Whole Foods stores in New York City,” they “d[id] not allege that any particular purchase they made was affected by this practice.” Nor could plaintiffs premise an Article III injury on the press release, which “[did] not provide any basis on which to infer across-the-board overcharging so as to embrace, other than by conjecture, plaintiffs’ purchases.” View the decision

Courts Cannot Resolve Class Certification Doubts in Favor of Certifying a Class

Brown v. Electrolux Home Prods., Inc., --- F.3d ---, No. 15–11455, 2016 WL 1085517 (11th Cir. Mar. 21, 2016)

Plaintiffs sought certification of two statewide classes of purchasers of defendant’s Frigidaire front-loading washing machines, alleging that defendant falsely advertised the machines by failing to disclose in marketing materials that a defective seal left its machines prone to mildew. The trial court certified the classes, finding that every element of plaintiffs’ consumer fraud claims was susceptible to classwide proof. Concluding that the trial court “articulated the wrong standard for class certification” and that the named plaintiffs could not “satisfy the predominance requirement of Rule 23(b)(3),” the Eleventh Circuit reversed. Relying on the Supreme Court’s decision in Comcast v. Behrend, 133 S. Ct. 1423 (2013), the Eleventh Circuit rejected the view that courts are to “resolve[] doubts related to class certification in favor of certifying the class,” explaining that “[a]ll else being equal, the presumption is against class certification because class actions are an exception to our constitutional tradition of individual litigation.” As to predominance, the panel held, plaintiffs could not satisfy the causation elements of the state consumer fraud statutes at issue because they failed to adduce evidence that any member of the putative classes had seen the advertising in question before purchasing one of defendant’s washing machines, and they did not establish a common misrepresentation made to members of either class.  View the decision.

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National Advertising Division (NAD) Update 

Bausch & Lomb Inc. (ULTRA Contact Lenses With MoistureSeal Technology), NAD Case No. 5944 (Apr. 4, 2016)

NAD recommended that Bausch & Lomb (B&L) discontinue its professional claims that ULTRA lenses have “significantly more” wetting agent (known as PVP) than do the competitor’s ACUVUE OASYS lenses. NAD found the scientific method used to quantify the level of PVP in B&L’s lenses insufficiently reliable. NAD also recommended that B&L discontinue its claim that ULTRA lenses have “best-in-class properties for best-in-class performance,” finding that it conveys a message that B&L’s lenses objectively perform better than other lenses and that the “advertiser’s subjective preference evidence was insufficient to support ... [this] objective comparative performance” claim. NAD further recommended that B&L discontinue related “BETTER COMFORT” and “BETTER VISION” claims that were based on a lens “refit” study that NAD determined was “materially flawed” and “insufficiently reliable to support the advertiser’s comparative preference claims.” Kramer Levin successfully represented the challenger, Johnson & Johnson Vision Care Inc. View the decision.

LEI Elecs. (Eco Alkaline Batteries), NAD Case No. 5927 (Feb. 5, 2016)

NAD evaluated a challenge to environmental claims about “Eco Alkaline” batteries — specifically, that the batteries and packaging were recyclable. NAD recommended discontinuance of claims about the recyclability of the batteries, given the absence of evidence that most consumers would have access to recycling facilities for batteries. NAD also recommended that the advertiser discontinue its unsupported claims of degradability, nontoxicity, carbon neutrality, general environmental benefits, comparative environmental benefits and comparative performance. NAD referred certain of the challenged claims to the FTC for further review, following the advertiser’s assertion that it would not comply with NAD recommendations.  View the decision.

Rust-Oleum Corp. (Painter’s Touch Ultra Cover 2X Spray Paint), NAD Case No. 5934 (Feb. 23, 2016)

NAD recommended that Rust-Oleum Corp. discontinue claims that state or suggest its “Painter’s Touch Ultra Cover 2X Spray Paint” provides twice as much coverage as competing spray paint products and recommended the company change the product name. The product packaging featured a prominent “2X” adjacent to a gold seal and the statement “made with double cover technology.” NAD concluded that the “Ultra Cover 2X” product name is an express performance claim because “2X” follows directly the claim “Cover.” NAD further determined that the product name, product packaging, product brochure, and Internet and broadcast advertisements reasonably conveyed the unsubstantiated message that Painter’s Touch Ultra Cover 2X spray paints deliver twice the coverage of competing brands. Rust-Oleum is appealing. View the decision.

Comcast Cable Commc’ns (Xfinity Cable Television Serv.), LLC, NAD Case No. 5926 (Feb. 5, 2016)     

In this challenge by DirecTV, NAD looked at broadcast spots comparing Xfinity to DirecTV, including ads conveying the message that DirecTV’s performance is affected by bad weather but that “Xfinity delivers reliable entertainment — rain or shine.” Although NAD approved some spots, it determined that one ad conveyed a broader message that the challenger’s satellite television service does not function during any wet weather, and it recommended that the ad be discontinued for lack of support. NAD determined that the claim “best-in-class support” was an unsupported objective performance claim and recommended that it be discontinued. NAD allowed Comcast to continue ads describing its policy regarding its customer service visit time windows as a “guarantee,” but it recommended that the advertiser disclose the material terms of the guarantee in direct proximity to the claim and not via hyperlink.  View the decision

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Federal Trade Commission (FTC) Enforcement Actions

FTC v. Volkswagen Grp. of Am., Inc., No. 3:16-cv-01534 (N.D. Cal. Mar. 31, 2016)   

The FTC has charged that Volkswagen Group of America Inc. deceived consumers with its advertising campaign to promote supposedly “clean diesel” vehicles that were fitted with illegal emission defeat devices designed to mask high emissions during government tests. The FTC is seeking a court order requiring Volkswagen to compensate American consumers who bought or leased an affected vehicle between late 2008 and late 2015, as well as an injunction to prevent Volkswagen from engaging in this type of conduct again. View the decision

Lord & Taylor, LLC, No. 152-3181 (F.T.C. Mar. 15, 2016)

National retailer Lord & Taylor settled FTC charges that it deceived consumers by failing to disclose that the social media posts of “fashion influencers” and native advertisements placed in the online publication Nylon actually were paid promotions for the company’s 2015 Design Lab clothing collection. The FTC complaint charged that as part of the Design Lab rollout in 2015, Lord & Taylor paid 50 online fashion bloggers to post Instagram pictures of themselves wearing the same paisley dress from the new collection, but failed to disclose that Lord & Taylor had given each influencer the dress, as well as thousands of dollars, in exchange for the endorsement. In settling the charges, Lord & Taylor entered into a 20-year cease and desist order prohibiting it from misrepresenting that paid ads are from an independent source, and the retailer is required to ensure that its influencers clearly disclose when they have been compensated in exchange for their endorsements. The FTC’s enforcement action against Lord & Taylor was the first such action brought by the Commission after the release of its December 2015 Enforcement Policy Statement on "Native" Advertising and Deceptively Formatted Advertisements. View the decision.

Consumer Privacy and Data Security

Seventh Circuit Finds Article III Standing in Restaurant Credit Card Data Breach Case  

Lewert v. P.F. Chang’s China Bistro, Inc., --- F.3d ---, No. 14–3700, 2016 WL 1459226 (7th Cir. Apr. 14, 2016)   

The Seventh Circuit, reversing the dismissal of a putative class action complaint arising from a data breach, held that plaintiffs had Article III standing. The case arose from the theft of consumer credit- and debit-card data in a breach of the P.F. Chang restaurant chain’s computer system. The court held that both the increased risk of fraudulent charges and identity theft that plaintiffs faced due to the data breach and the time and expense incurred to prevent and monitor fraudulent charges and identity theft were concrete and particularized injuries sufficient to support standing. The court cited P.F. Chang’s post-breach statements and actions to reject the company’s arguments that there was no threat of identity theft — only of fraudulent charges — and that the named plaintiffs were not injured, because a later analysis determined that only 33 stores were affected and the plaintiff’s data was not exposed in the breach. The court also pointed to P.F. Chang’s post-breach encouragement of consumers to monitor their credit reports as suggesting that identity theft was a potential risk of the breach. In addition, P.F. Chang’s earlier post-breach statement was addressed to all its U.S. customers, and the company temporarily switched to manual card processing in all its stores, suggesting the possibility that more than 33 stores were affected. View the decision.

Data Breach Class Action for Third-party Contractors’ Alleged Poor Security Practices  

Dolmage v. Combined Ins. Co. of Am., No. 14 C 3809, 2016 WL 754731 (N.D. Ill. Feb. 23, 2016)   

A federal district court denied defendant insurance company’s motion to dismiss a putative class action suit arising from a data breach allegedly caused by poor data security practices of one of defendant’s third-party service providers. The defendant hired a third-party company called Enrolltek to perform administrative tasks related to insurance applications and regularly granted Enrolltek access to customers’ personal data. Enrolltek sometimes stored that information on an unsecured external hard drive, and the proposed class members’ personal information was allegedly posted online, unsecure and unprotected for a 16-month period. The court found that the plaintiff stated a plausible claim for relief under the theory that defendant had breached its Privacy Pledge by failing to “require” its vendor to comply with its privacy standards. View the decision.

CFPB Brings Its First Data Security Enforcement Action

Dwolla Inc., CFPB No. 2016–CFPB–0007 (Mar. 2, 2016)

In its first enforcement action related to data security, the Consumer Financial Protection Bureau (CFPB) took action March 2, 2016, against Dwolla Inc., an online payment platform with 650,000 users that transfers $5 million per day through its service. Dwolla collects and stores consumers’ sensitive personal information in the course of operating its online payment system. The company had claimed to protect consumer data by keeping the information “securely encrypted and stored” and advertised its data security practices as exceeding or surpassing industry security standards. Contrary to these claims, the CFPB found Dwolla failed to employ “reasonable and appropriate measures” to protect consumer data, did not encrypt some sensitive information and did not test applications for security before their public release. The CFPB ordered the company to fix its security practices and pay a $100,000 penalty. View the decision.

California Data Breach Report and Recommendations Establishing Minimum Standard of Care  

In February 2016, California’s attorney general released a comprehensive analysis of data breaches reported to her office from 2012 to 2015 and issued recommendations to improve privacy and security practices. The recommendations establish a minimum standard of care for safeguarding personal information. The California recommendations state that “[t]he failure to implement all the Controls that apply to an organization’s environment constitutes a lack of reasonable security.” In addition, the report recommends the use of multifactor authentication, strong encryption of data in transit, and fraud alerts on credit files for victims of data breaches involving Social Security or driver’s license numbers. View the report

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