Proskauer on Advertising Law
Proskauer on Advertising Law

Athletic Tape Maker Feels the Pain, Settles Misleading Advertising Suit

Proskauer’s sports law newsletter, Three Point Shot, recently covered a proposed $1.75 million settlement in a false advertising case involving athletic tape.  The case is Vuckovic v. KT Health Holdings, LLC, No. 15-cv-13696 in the U.S. District Court for the District of Massachusetts, and Proskauer’s coverage may be found here.

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Want to talk advertising? We welcome your questions, ideas, and thoughts on our posts. Email or call us at lweinstein@proskauer.com /212-969-3240 or akaplan@proskauer.com /212-969-3671. We are editors of Proskauer on Advertising Law and partners in Proskauer’s False Advertising & Trademark practice.

Game Over: Supreme Court Denies Plaintiff’s Class Certification Appeal after Voluntary Dismissal in Xbox 360 Lawsuit

Recently, the Supreme Court in Microsoft Corp. v. Baker, 137 S. Ct. 1702 (2017), held that the plaintiff in a putative class action involving Xbox 360 game consoles could not appeal from the District Court’s denial of class certification after plaintiff voluntarily dismissed his claims with prejudice.  While 28 U.S.C. § 1291 allows appeals from final decisions as a matter of right, the Supreme Court held that plaintiff’s voluntary dismissal did not qualify as an appealable final decision.  The Court determined that allowing such an appeal would undermine § 1291’s finality principle and subvert the discretionary nature of interlocutory class certification appeals under Rule 23(f).  Gamers, in other words, could not be allowed to hack § 1291 in this way.

The underlying lawsuit began in 2011 when plaintiff Seth Baker filed a putative class action lawsuit in the Western District of Washington, alleging that Microsoft’s Xbox 360 gaming console scratched and destroyed his game discs during game play.  The District Court denied the class certification and struck plaintiff’s class allegations.  Generally, the denial of class certification is not a final decision that triggers the right to appeal under § 1291.  Plaintiff therefore filed an interlocutory appeal from the denial of class certification under Fed. R. Civ. P. 23(f), which allows for discretionary interlocutory appeals.  The Ninth Circuit, however, denied plaintiff’s petition.  At this point, instead of proceeding with the litigation or settling his individual claims, the plaintiff chose to voluntarily dismiss his case with prejudice in an attempt to finagle a “final decision” and the right to immediately appeal to the Ninth Circuit under § 1291.  On appeal, the Ninth Circuit determined that the voluntary dismissal constituted a final decision under § 1291, and held that the district court abused its discretion in striking the plaintiff’s class allegations.

The Supreme Court granted certiorari and addressed the following question: Do federal courts of appeals have jurisdiction under § 1291 to review a district court order striking or denying class certification after the named plaintiffs voluntarily dismissed their claims with prejudice?  The Court, in an 8-0 opinion authored by Justice Ginsburg, answered in the negative: the plaintiff’s voluntary dismissal did not constitute a final decision that gave him the right to appeal under § 1291.

First, the Court noted that the plaintiff’s voluntary dismissal tactic would invite protracted litigation and piecemeal appeals.  The Court envisioned a scenario in which the District Court denies class certification on certain grounds, the plaintiff appeals this issue and the Court of Appeals reverses and remands to the District Court.  On remand, if the District Court denies class certification on different grounds, the plaintiff could again seek to voluntarily dismiss the case and receive another appeal as of right.  Because the plaintiff could exercise this voluntary dismissal tactic for each class certification denial, the tactic would lend itself to multiple interlocutory appeals, in contravention of § 1291’s attempt to minimize such appeals by permitting them as of right only for final judgments.

Second, the Court explained that the plaintiff’s tactic would allow for indiscriminate appellate review of interlocutory orders, thereby undercutting the discretionary scheme of Rule 23(f).  Rule 23(f) authorizes permissive interlocutory appeals from adverse class certification orders at the discretion of the Court of Appeals.  By allowing plaintiff an appeal as of right under § 1291 through his voluntary dismissal, the Ninth Circuit would have no discretion to deny the appeal once jurisdiction was established.  This would undercut the circuit court’s discretion over class certification appeals under Rule 23(f), the Supreme Court noted.

Third, the Court took issue with the one-sided nature of the plaintiff’s right to appeal if a voluntary dismissal were considered a final decision under § 1291.  Because only a plaintiff can initiate a voluntary dismissal, it follows that only a plaintiff could force an immediate appeal.  The inability of defendants to initiate a voluntary dismissal and force a right to appeal in this way provided further justification for denying appellate jurisdiction after the plaintiff’s voluntary dismissal.

In short, the Court found that the plaintiff’s voluntary dismissal maneuver contravened the “final decision” requirement of § 1291.  If the Court allowed plaintiff to game the system by appealing after voluntary dismissal, it would turn Congress’ final decision rule into a “pretty puny one.”  With this ruling, the Court shut down a potential plaintiff-only appellate ‘cheat code’ to ‘skip a level’ and get automatic appellate review of adverse class certification rulings.

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Want to talk advertising? We welcome your questions, ideas, and thoughts on our posts. Email or call us at lweinstein@proskauer.com /212-969-3240 or akaplan@proskauer.com /212-969-3671. We are editors of Proskauer on Advertising Law and partners in Proskauer’s False Advertising & Trademark practice.

Eleventh Circuit Does Not Skim Over First Amendment Concerns in Labeling Milk

Be careful not to skim over potential First Amendment challenges to commercial speech regulations in labeling cases. By ‘whey’ of example, the Eleventh Circuit recently found that the actions of the Florida Commissioner of Agriculture and the Chief of the Florida Bureau of Dairy Industry violated Ocheesee Creamery LLC’s First Amendment rights related to the labeling of its products. Ocheesee Creamery LLC v. Putnam, 851 F.3d 1228 (11th Cir. 2017).

Ocheesee Creamery is a dairy company that produces milk and other dairy products. One such product is an all-natural, additive-free 100% skim milk, which Ocheesee Creamery labels as “skim milk” on the product packaging.

Florida law restricts the sale of milk and other milk products not classified as “Grade A” products. A “Grade A” designation requires that any vitamin A that is lost or removed from a product during the skimming process be replaced. Because Ocheesee’s product did not qualify for this Grade A designation, the state of Florida notified Ocheesee that its all-natural skim milk did not meet the definition of milk and, thus, Ocheesee could only sell this product if it was labeled as “imitation skim milk.” Ocheesee refused since the only ingredient in its product was, in fact, skim milk. Ocheesee also refused to add vitamin A back into its all-natural product.  Ocheesee Creamery filed a lawsuit challenging this restriction in the Northern District of Florida, which found in favor of the State.

On appeal, the Eleventh Circuit applied the Supreme Court’s test for evaluating restrictions on commercial speech, which was set forth in Central Hudson Gas & Electric Corp. v. Public Service Commission, 447 U.S. 557 (1980). Under Central Hudson, a court considering a restriction on commercial speech must first determine whether the speech is protected under the First Amendment. The First Amendment protects commercial speech unless it 1) concerns unlawful activity or 2) is false or inherently misleading. The Eleventh Circuit found that neither of these exceptions applied to Ocheesee in this case.

First, the Eleventh Circuit held that Ocheesee’s use of the term “skim milk” on its product label was not unlawful because the state’s position was that under Florida law Ocheesee could call its product “skim milk” as long as the label also indicated that the product was “imitation” milk.  Second, the Eleventh Circuit held that Ocheesee’s use of the term “skim milk” was not inherently misleading—or even, according to the Court, potentially misleading—because it was a statement of objective fact. As a result, the Court concluded, Ocheesee’s commercial speech on its all-natural skim milk label was constitutionally protected.

The Court then proceeded to apply Central Hudson’s three-pronged intermediate scrutiny test. Under this test, the Court must determine: 1) “whether the asserted governmental interest is substantial”; 2) “whether the regulation directly advances the governmental interest asserted”; and 3) “whether it is not more extensive than is necessary to serve that interest.”

The Eleventh Circuit focused its analysis on the third prong of the test, finding that Florida’s restriction “is clearly more extensive than necessary to achieve its goals.” The Eleventh Circuit noted that there had been extensive negotiations between Ocheesee and the State concerning the language used on Ocheesee’s all-natural skim milk label, and pointed out that “numerous less burdensome alternatives existed and were discussed by the State and the Creamery during negotiations that would have involved additional disclosure without banning the term ‘skim milk.’” Consequently, the Court concluded that the restriction was more extensive than necessary to achieve the goals of preventing deception and ensuring adequate nutritional standards. The Court thus concluded that Florida’s restriction of Ocheesee’s commercial speech violated the First Amendment and vacated the district court’s grant of summary judgment in favor of the State.

The Eleventh Circuit’s decision offers some reassurance to companies that the First Amendment provides some protection for objectively truthful descriptions of their products, even in the face of restrictions imposed by various state labeling laws, although this protection continues to be balanced against the state interests served by these laws.

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Want to talk advertising? We welcome your questions, ideas, and thoughts on our posts. Email or call us at lweinstein@proskauer.com /212-969-3240 or akaplan@proskauer.com /212-969-3671. We are editors of Proskauer on Advertising Law and partners in Proskauer’s False Advertising & Trademark practice.

Court Dismisses “Phantom Markdown” Suit against Saks

Our colleagues at Proskauer’s commercial litigation blog, Minding Your Business, recently covered a dismissal of a discount advertising suit asserted against Saks. The case is Nunez v. Saks Inc., 2017 WL 1184058 (S.D. Cal. Mar. 22, 2017), and Proskauer’s coverage may be found here.

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Want to talk advertising? We welcome your questions, ideas, and thoughts on our posts. Email or call us at lweinstein@proskauer.com /212-969-3240 or akaplan@proskauer.com /212-969-3671. We are editors of Proskauer on Advertising Law and partners in Proskauer’s False Advertising & Trademark practice.

#SocialMedia #Endorsement #Disclosures #Sponsored (notthispost): FTC Warns Social Media Influencers and Advertisers about Failure to Disclose Relationships

Recognizing the growing role of social media and influencers in marketing today, the Federal Trade Commission announced on April 19 that it sent more than 90 letters to social media influencers and marketing executives reminding them to disclose relationships between brands and endorsers when promoting products on social media.  Although the FTC has taken action against brands and marketers for endorsement-related violations before, the letters mark the first time the FTC has directly contacted influencers.

The letters follow on the FTC’s  Final Guides on Endorsement and an updated FAQ document titled “The FTC Endorsement Guides: What People are Asking.” Under the Guides, an endorsement is defined as “any advertising message . . .  that consumers are likely to believe reflects the opinions, beliefs, findings, or experiences of a party other than the sponsoring advertiser, even if the views expressed by that party are identical to those of the sponsoring advertiser.” Simply posting a picture of a product on social media without any text can constitute an endorsement if it conveys that the poster likes and approves of the product.

The Guides make clear that an endorsement “must reflect the honest opinions, findings, beliefs, or experience of the endorser,” and if the advertisement represents that the endorser uses the endorsed product, the endorser must have actually used the product. Additionally, if there is a “material connection” between an endorser and an advertiser (a connection that might affect the weight or credibility that consumers give the endorsement), the connection must be “clearly and conspicuously” disclosed. Examples of a material connection can include a business or family relationship, monetary payment or providing the endorser with free products.  If such a connection is not disclosed, or if false or unsubstantiated claims are made in an endorsement, liability may attach to both the advertiser and the endorser.

The FTC’s recent wave of letters reminds both influencers and marketers of the need to “clearly and conspicuously” disclose any material connection between the endorser and advertiser, unless it is already clear from the context of the communication.  The letters explain how Instagram posts can meet the “clear and conspicuous” standard for disclosures, instructing influencers to make this disclosure above the “more” button on Instagram. The FTC demonstrated its familiarity with Instagram, explaining that many consumers “viewing posts in their Instagram streams on mobile devices typically see only the first three lines of a longer post unless they click ‘more.’” The FTC recognized that consumers on Instagram sometimes may not click “more” or may skip over multiple tags, hashtags or links at the end of a long post.  Also, simply saying “#sp,” “Thanks [Brand],” or “#partner” does not constitute a sufficiently clear disclosure, according to the FTC.

The letters emphasize the FTC’s position that brands and influencers are responsible for ensuring that adequate disclosures regarding endorsements are made. In the letters to marketers, the FTC advised that they inform endorsers of their disclosure responsibilities and monitor endorsements to ensure that appropriate disclosures are made. The FTC also encouraged marketers to implement a social media policy to address disclosure of material connections by endorsers, or if marketers have an existing social media policy, to evaluate how this policy applies to posts by endorsers.

The FTC did not publicly identify the influencers and marketers to whom it sent the letters, but did say that the list of recipients was developed from petitions filed by Public Citizen and affiliated organizations, as well as the FTC’s own browsing of Instagram.

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Want to talk advertising? We welcome your questions, ideas, and thoughts on our posts. Email or call us at lweinstein@proskauer.com /212-969-3240 or akaplan@proskauer.com /212-969-3671. We are editors of Proskauer on Advertising Law and partners in Proskauer’s False Advertising & Trademark practice.

Foreign Importer Hanging by a Thread, but International Trade Commission Cuts It Off

The International Trade Commission recently issued a general exclusion order barring the importation of bed sheets with falsely advertised thread counts as a remedy for Section 337 violations.  The decision in In re Certain Woven Textile Fabrics and Products Containing Same demonstrates the potential reach of Section 337, which prohibits unfair practices related to the importation of foreign goods into the United States.  While violations ordinarily involve intellectual property infringement, the underlying unfair act can also include false advertising.

The ITC institutes investigations pursuant to Section 337 of the Tariff Act of 1930 (19 U.S.C. § 1337), which forbids the following practices in connection with the importation or subsequent sale of goods in the United States: infringement on a U.S. patent, copyright, or registered trademark, as well as “unfair methods of competition and unfair acts” that cause harm to a U.S. industry.  Once a Section 337 violation has been found, the statute authorizes the issuance of exclusion orders and cease-and-desist orders to prevent the offending goods from entering the United States.  An exclusion order is typically limited to specifically identified persons or entities found in violation of Section 337, but a general exclusion order may be issued if the ITC finds it necessary to prevent circumvention of an exclusion order limited to products of named persons, or if there is a pattern of Section 337 violations and it is difficult to identify the source of infringing products.  In making this determination, the ITC must consider whether a general exclusion order would negatively affect the public health and welfare.

The complainant in this matter alleged violations of Section 337 by fifteen respondents, and all but one settled.  The remaining respondent was accused of overstating the thread count of bed sheets made in India and imported and sold in stores in the United States.

Concluding that the sheet labeling was false, misleading, deceptive and material to consumers in determining sheet quality, the Administrative Law Judge found that respondent falsely advertised its products in the United States in violation of the Lanham Act, and that it imported and sold the products in the United States.  This caused substantial injury to complainant, who is a developer and licensor or woven textile technology and sole owner of a textile design studio.

The ALJ recommended issuance of a general exclusion order barring from importation not only respondent’s, but all falsely advertised bed sheets, due to a widespread pattern of Section 337 violations and difficulty identifying the source of the goods.  With respect to the pattern of violation, the ALJ cited evidence that foreign-made bed sheets with a lower thread count than advertised are widespread in U.S. stores.  Indeed, the ALJ cited evidence that some imported sheets sold in a major retail chain were advertised as having a thread count of 1000 but had a true thread count of 236. As for difficulty identifying the source, the ALJ explained that the seller’s identity is often absent from import records and product packaging, and U.S. retailers are also unable to identify the products’ source.  Moreover, a general exclusion order would impose no undue burden on the public health and welfare or competition in the U.S. economy.

The ITC upheld the ALJ’s findings and issued the general exclusion order, demonstrating that false advertising can fall squarely into the type of unfair act or method underlying such an order.  Unlike a Lanham Act litigation, however, the complainant’s remedy was even stronger than an injunction against the false advertising—the product at issue can no longer be sold in the United States.

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Want to talk advertising? We welcome your questions, ideas, and thoughts on our posts. Email or call us at lweinstein@proskauer.com /212-969-3240 or akaplan@proskauer.com /212-969-3671. We are editors of Proskauer on Advertising Law and partners in Proskauer’s False Advertising & Trademark practice.

Fourth Circuit Tells District Court Not to Abstain in False Ad Holy War

At the heart of this unique Lanham Act case is a dispute between the Episcopal Church (the “Church”) and one of its “disaffiliated” districts, the Diocese of South Carolina (“Diocese”).  In 2012, led by its Bishop Mark Lawrence, the Diocese withdrew from the Church, but the Church did not recognize the withdrawal, and appointed Bishop Charles vonRosenberg to replace Bishop Lawrence as the head of the Diocese.  Lawsuits ensued, and the dispute raised an interesting question:  when a federal court confronts false advertising claims that are related to issues of intellectual property ownership that are being litigated separately in state court, should the federal court abstain from hearing the false advertising claims?

The Diocese fired the opening salvo by suing the Church in state court, and seeking a judgment resolving the ownership of various property rights, including intellectual property rights.  The Episcopal Church counterclaimed for, among other things, trademark infringement and dilution.

Thereafter, the newly appointed Bishop vonRosenberg filed a federal lawsuit claiming that Bishop Lawrence falsely advertised himself as the Bishop of the Diocese despite having been removed from that post after the Diocese withdrew from the national church.  Bishop Lawrence maintained that he acted properly in continuing to represent himself as the Bishop of the Diocese  because the Diocese existed as an independent entity following its withdrawal from the Church.

Initially, the federal court agreed to abstain under the Brillhart/Wilton doctrine, which provides that when a complaint seeks only declaratory relief, federal courts have broad discretion to decline jurisdiction.  Bishop vonRosenberg appealed. While the federal appeal was pending, the state court held that the disassociation was valid and that the Diocese, not the Church, owned the property at issue, including trademarks.  The Church then appealed the state court order.

On the appellate front, the Fourth Circuit acted first, holding that the district court applied the wrong abstention doctrine.  Because the federal complaint sought both declaratory and non-declaratory relief, the Fourth Circuit held that Colorado River, not Brillhart/Wilton, was the appropriate doctrine.  Under Colorado River, a federal court may decline jurisdiction only under exceptional circumstances.  The Fourth Circuit remanded for a determination of whether such exceptional circumstances existed.

On remand, the district court abstained again, and Bishop vonRosenberg appealed again.  The Fourth Circuit once again ruled that the district court had erred, and that abstention was not appropriate under Colorado River because the state and federal cases, while raising overlapping issues, were not duplicative.  Because neither vonRosenberg nor Lawrence (the federal parties) was a party to the state action, resolution of the state court case would not resolve all claims at issue in the federal litigation.  Additionally, the false advertising claims were not in front of the state court.  Thus, the Court determined that abstention was inappropriate.  The Court did acknowledge, however, that both proceedings involved the same central issue – the validity of the Diocese’s withdrawal – and remanded the case again for the district court to determine whether the federal claims were collaterally estopped by the state court’s decision.

The state court decision remains on appeal and Bishop vonRosenberg’s case is back in federal district court for the third time.  Last month, he filed an amended complaint in the federal action, and Bishop Lawrence has answered.  The district court cannot abstain this time, but could apply collateral estoppel if it wants to stay out of the religious fray.  Whatever the outcome, the Fourth Circuit may not have seen the last of these dueling bishops.

The case is vonRosenberg v. Lawrence, 849 F.3d 163 (4th Cir. 2017).

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Want to talk advertising? We welcome your questions, ideas, and thoughts on our posts. Email or call us at lweinstein@proskauer.com /212-969-3240 or akaplan@proskauer.com /212-969-3671. We are editors of Proskauer on Advertising Law and partners in Proskauer’s False Advertising & Trademark practice.

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