Proskauer on Advertising Law
Proskauer on Advertising Law

California Court Issues Surprising Decision in Discount Advertising Case

On December 15, 2016, the California Court of Appeals in Los Angeles came to a surprising summary judgment decision in Sajid Veera et al. v. Banana Republic, LLC.  The court held that plaintiffs who claimed they were misled by 40% off signs raised a triable issue of whether they suffered an injury-in-fact even though they knew that the items they were purchasing were not on sale before purchasing them.

The Banana Republic plaintiffs alleged that they were “lured” into Banana Republic stores by window signs advertising a 40% off discount, without apparent limit.  However, plaintiffs alleged that the discount was actually limited to certain goods in the store, not all goods, and that Banana Republic store personnel did not inform the plaintiffs that the items they had chosen were not 40% off until plaintiffs reached the register, although before plaintiffs purchased the goods.  “Embarrassed” by the long line at the register and “humiliated,” one plaintiff claimed to have purchased at full price a new outfit her daughter had worn out of the dressing room, while electing not to purchase other items to which the 40% off sale did not apply.  Another plaintiff claimed to have purchased a sweater at full price after learning it was not on sale, while choosing not to go ahead with the purchase of other previously-selected items, because he was “annoyed and very embarrassed” and felt that “to leave with nothing would be a complete and utter waste of energy and time.”

Banana Republic moved for summary judgment, arguing that plaintiffs could not establish that they were economically injured as a result of the allegedly misleading advertising, due to their discovery of the true facts prior to purchase, and therefore lacked standing.  The trial court granted Banana Republic’s motion.

To establish standing under California’s Unfair Competition Law (UCL) or False Advertising Law (FAL), a plaintiff must have suffered “economic” injury – “lost money or property” – as a result of the defendant’s allegedly unfair business practice or false advertising.  In addition, a UCL claim that argues that the defendant “engaged in misrepresentations and deceived consumers” requires a showing of reliance on the allegedly deceptive or misleading statements.

The appeals court reversed the trial court’s dismissal of the case and found that plaintiffs had raised triable issues of fact as to (1) whether they suffered economic harm, and (2) whether reliance on the allegedly misleading advertising caused their claimed economic harm.  If plaintiffs’ claims were true, the court reasoned, Banana Republic illegally sold them items using “a type of ‘bait and switch’ advertising,” luring consumers toward a decision to buy and revealing the deception only after the consumer was “invested in the decision to buy and swept up in the momentum of events.”  The plaintiffs’ economic harm would be the difference between the advertised sale price and the full price paid.

Presiding Judge Tricia Bigelow dissented, disagreeing that plaintiffs’ allegations constituted a bait-and-switch scheme and stating that the plaintiffs could not establish causation, economic injury, or reliance on the 40% off representation.  She wrote that she was “aware of no legal authority” suggesting that a plaintiff’s embarrassment or frustration is relevant to a determination of reliance, where the plaintiff knew the true facts before consummating the allegedly injurious transaction.  While she was “sympathetic to the concern” that some misleading advertising claims would go unprosecuted under this standard, the “law as it stands” did not permit any other conclusion.  “I expect the court’s decision will invite exhaustive litigation,” she wrote.

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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.

Proskauer’s Larry Weinstein Discusses Implications of Bautista v. Cytosport in Legal NewsLine Article

Last week, this blog covered the slack-fill decision in Bautista v. Cytosport, Inc., 2016 WL 7192109 (S.D.N.Y. Dec. 12, 2016), in which the court dismissed the putative class action complaint for failure to allege non-conclusory facts. Larry Weinstein, co-head of Proskauer’s False Advertising & Trademark practice, was quoted at length in Legal NewsLine discussing the implications of the decision. The article may be read 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.

When the Strength of the Facts Cannot be Lifted – SDNY Dismisses Muscle Maker Slack-Fill Class Action

The Southern District of New York recently dismissed a putative class action against Cytosport, the maker of Muscle Milk protein powder. The plaintiff, Orlando Bautista, alleged that he bought a container of Muscle Milk protein powder for $28 but was “surprised and disappointed” to discover that the package contained roughly 30% empty space. The suit claimed violations of New York state consumer fraud laws, fraud, negligent misrepresentation, and unjust enrichment for allegedly selling Muscle Milk protein powder with “nonfunctional slack-fill.”

The plaintiff alleged that the empty space in Muscle Milk containers constituted nonfunctional slack-fill under the federal Food, Drug, and Cosmetic Act (“FDCA”) regulations, and claimed a violation of the New York Deceptive Trade Practices Act. Judge Seibel dismissed the case without leave to amend because the plaintiff’s conclusory allegations provided no factual basis to state such a claim. The court cited the Northern District of California’s recent dismissal of another slack-fill case, Bush v. Mondelez Int’l, for the point that merely reciting the FDCA’s safe harbors is insufficient to state a consumer deception claim. The court found that plaintiff’s assertion that the 30% empty space was not used “to protect product, necessary for enclosing the product, or because of settling,” was unsupported by facts and stated in a conclusory fashion.

The plaintiff’s fraud claims were similarly dismissed because he failed to plead facts about the “materially false and misleading representations regarding the size, volume, and contents of the product” with particularity and sufficient plausibility. Additionally, the negligent representation claim was dismissed because the transaction between Cytosport and the plaintiff did not establish a “special relationship” and the complaint failed to plausibly allege that the slack-fill was nonfunctional. Finally, the court dismissed the unjust enrichment claim as being duplicative of the other causes of action.

Plaintiff filed his initial complaint in November 2015 and subsequently twice amended. Judge Seibel declined to grant leave to amend again sua sponte because the plaintiff failed to cure deficiencies in prior pleadings, did not ask to amend again, and did not appear to be in possession of facts that would cure the pleading deficiencies.

The Muscle Milk suit is the latest in a series of slack-fill lawsuits that have arisen in the past few years. Judge Seibel’s decision highlights the need to allege non-conclusory facts to state a plausible claim at the pleading stage in these slack-fill suits to avoid being crushed by the weight of dismissal.

The case is Bautista v. Cytosport, Inc., 2016 WL 7192109 (S.D.N.Y. Dec. 12, 2016).

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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.

Update on Second Circuit Ruling in Church & Dwight v. SPD Swiss Precision Diagnostics “Weeks Estimator” Home Pregnancy Test Litigation

Last month we summarized the Second Circuit’s important decision in a dispute between plaintiff-appellee Church & Dwight and its principal competitor, defendant-appellant SPD Swiss Precision Diagnostics, concerning SPD’s false advertising of its Clearblue Weeks Estimator Home Pregnancy Test.  As we reported, a Second Circuit panel in September unanimously affirmed rulings by Judge Alison Nathan of the Southern District of New York (i) that SPD was liable for “intentional” and “egregious” false advertising, and (ii) ordering permanent injunctive relief that included a nationwide recall of Weeks Estimator packaging that the district court found to be misleading.  Following the panel’s decision, SPD petitioned the Second Circuit for rehearing by the panel or, in the alternative, rehearing en banc.

In its petition, SPD argued that the panel erred by declining to hold that Church & Dwight’s Lanham Act claim was precluded by the FDA’s regulation of the Weeks Estimator’s labeling through the Food, Drug & Cosmetics Act (FDCA) § 510(k) process.  SPD contended that a 2011 Supreme Court decision called PLIVA v. Mensing was the controlling authority on this issue, not the Supreme Court’s subsequent 2014 decision in POM Wonderful v. Coca-Cola on which the panel relied, despite that POM Wonderful expressly held that Congress did not intend for the FDCA to preclude Lanham Act false advertising claims, whereas PLIVA concerned state tort law preemption, not federal preclusion.  SPD also argued that the panel decision was inconsistent with the decision of another Second Circuit panel in Apotex v. Acorda Therapeutics, 823 F.3d 51 (2d Cir. 2016), decided a few months before the panel decision in the SPD case.  Finally, SPD’s rehearing petition also disputed the panel’s agreement with the district court’s reliance on a survey Church & Dwight offered concerning the messages communicated by SPD’s current Weeks Estimator package.

None of SPD’s rehearing arguments proved successful, as earlier this month, SPD’s petitions for panel and en banc rehearing were denied without reported dissent.

Shortly after the rehearing petition was denied, the panel amended its earlier opinion to specifically address the Apotex decision, which SPD never raised while its appeal was pending before the panel. The panel first noted that Apotex had recently settled the Circuit’s materiality standard to require a showing that deception resulting from a false advertisement is “likely to influence purchasing decisions.”  The panel explained that Apotex had “no effect on [the panel’s] determination, as [the panel’s] analysis [in the original appeal decision] assume[d] that the standard [was] exactly as Apotex decided.”

The panel also added a footnote explaining why Apotex, which held that “representations commensurate with information in an FDA label generally cannot form the basis for Lanham Act liability,” was entirely compatible with its decision that Church & Dwight’s Lanham Act claim was not precluded by the FDCA.  First, the panel noted that Apotex expressly left open that “Lanham Act liability might arise if an advertisement us[ing] information contained in an FDA-approved label . . . [is] literally or implicitly false.”  As the district court found and the panel affirmed, SPD’s advertising was literally and/or impliedly false.

Second, the panel observed that Apotex assumed the ability in a Lanham Act case to determine whether certain FDA-approved factual assertions were false, whereas this case concerned Church & Dwight’s right to challenge SPD’s FDA-cleared messaging in the first place, and that the Supreme Court’s POM Wonderful decision, which Apotex did not cite, made clear that Church & Dwight had that right.  Finally, the panel pointed out that Apotex implicated a different aspect of the FDA’s competence than the case at hand.  In Apotex, the Court deferred to the FDA’s expertise concerning and exhaustive review of whether a drug had certain pharmacological effects.  This case, on the other hand, involved “the question of whether the phrasing of advertising messages might be misunderstood by consumers,” which was not an issue where the FDA’s competence vastly exceeds that of courts.

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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.

 

Second Circuit Affirms Preliminary Injunction of “Identical” Gray Goods

The Second Circuit recently affirmed a district court’s grant of a preliminary injunction halting the alleged sale of gray-good diabetes test strips made by Abbott Laboratories under the “Freestyle” trademark.  The decision is notable because the authentic test strips were identical to the gray-good versions.

Read more 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.

IntenseX False Advertising Claims Lack Power and Performance

Last month, in Kanfer v. Pharmacare US, Inc., U.S. District Judge Marilyn Huff of the Southern District of California dismissed on what were essentially puffery grounds a consumer suit styled as a class action alleging that defendant PharmaCare falsely advertised its nutritional supplement, IntenseX, as an aphrodisiac that “would improve. . .sexual power and performance.” This decision contrasts with another decision we covered two years ago in which a judge in the Central District of California held that claims for a sex enhancement pill were not mere puffery.

The IntenseX packaging at issue contained statements including “Sexual Power and Performance,” “Fast Acting!” and “designed to intensify your endurance, stamina, and sexual performance.”  PharmaCare moved for summary judgment asserting that these statements were too vague and generalized to be actionable.

The court agreed, finding that it was simply not plausible that a significant portion of the public would be misled by the vague claims on the IntenseX label.  In reaching its decision, the court emphasized that a “[p]laintiff has a claim for false advertising only to the extent the product claims are false or misleading, as opposed to merely unsubstantiated.”  The plaintiff’s own expert admitted that the “vague language” regarding the effects of IntenseX “remain[ed] scientifically undefined and therefore untestable.”  The court determined that this “untestability” presented an insurmountable hurdle to plaintiff’s advertising claims.

The court also rejected the plaintiff’s claims related to statements on the IntenseX website because the plaintiff admitted that he did not look at the IntenseX website before purchasing the product.

Judge Huff previously denied PharmaCare’s motion to dismiss the lawsuit.  Then in June, the court denied class certification finding problems with the proposed nationwide class, including difficulties with reliance, standing, statute of limitations, and damages.  Just last week, plaintiff filed a notice of appeal of the court’s latest decision to the Ninth Circuit. Watch this space for further developments.

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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.

Second Circuit Affirms Ruling that SPD Swiss Precision Diagnostics Falsely Advertised Clearblue Weeks Estimator Home Pregnancy Test and Did so Intentionally and Egregiously

In an important recent false advertising decision in a suit brought by home pregnancy test manufacturer Church & Dwight against its principal competitor SPD Swiss Precision Diagnostics, a Second Circuit panel unanimously affirmed orders by Judge Alison Nathan of the Southern District of New York, following a bench trial on liability, (i) holding that SPD labeling and other advertising for its Clearblue Advanced Pregnancy Test with Weeks Estimator (the “Weeks Estimator” or “Product”) constituted intentional and egregious false advertising in violation of the Lanham Act, and (ii) granting permanent injunctive relief that included a nationwide recall of all Weeks Estimator packaging, a prohibition on all Weeks Estimator advertising that was the subject of the complaint, and a corrective advertising campaign. Proskauer represented Church & Dwight.

When SPD launched the Weeks Estimator in the U.S. in August 2013, it unleashed an extensive advertising campaign that the trial court found “was intentionally designed to mislead consumers” by communicating the false message that the Product “provides an estimate of weeks pregnant that is consistent with a doctor’s estimate of weeks pregnant.” In truth, the Weeks Estimator estimates the number of weeks that have passed since a woman last ovulated.  Doctors, by contrast, use a “universal [] convention for expressing pregnancy duration” in terms of “the number of weeks since a woman’s [last menstrual period],” which generally occurs approximately two weeks before ovulation. “Thus, the Weeks Estimator provides an estimate of ‘weeks’ that is expressed differently from the standard convention for expressing pregnancy duration,” contrary to the message communicated in SPD’s advertising for the Product.  On this basis, Judge Nathan found that SPD’s advertising – including the packaging, television advertising, in-store advertising, and other promotional materials – was false and misleading, and ordered the injunctive relief described above, setting the stage both for the damages phase of the case and SPD’s appeal.

On appeal, a unanimous Second Circuit panel affirmed the District Court’s liability and injunction orders in their entirety. The Second Circuit first agreed with Judge Nathan that SPD’s original (or “launch”)  advertising for the Weeks Estimator was literally false in that it unambiguously communicated “the false message that the Product provides a measurement of weeks-pregnant that is consistent with the measurement a doctor would provide.”  The Court of Appeals also agreed that the District Court “correctly found the launch advertising to be impliedly false,” as supported both by survey and other evidence of actual consumer confusion and by the “extensive evidence in the record” of “Defendant’s intent to deceive,” which was “sufficient to support a presumption of consumer confusion.”  Second, the Court of Appeals affirmed the District Court’s finding that SPD’s revised Weeks Estimator packaging, which SPD began using after the FDA expressed concerns about the launch package, was also impliedly false.  Like the launch package, the revised package “did not adequately communicate that its measurement was not consistent with the metric used by doctors.”  The Second Circuit noted “the ample evidence that [SPD] was aware of [the] widespread consumer ignorance” about the conventional medical practice of dating the beginning of pregnancy from a woman’s last menstrual period, and that SPD nevertheless “took no effective steps to guard against misunderstanding of [its] messages attributable to that ignorance.”

Noting that the evidence supported the conclusion that the falsity of SPD’s advertising was both material and likely to cause injury to Church & Dwight, the Second Circuit affirmed the District Court’s finding that Church & Dwight had met its burden of proving each of the elements of a Lanham Act false advertising claim, and was entitled to the District Court’s award of injunctive relief. The Court of Appeals also rejected SPD’s argument that Church & Dwight’s Lanham Act claim was precluded by the FDA’s regulation of the Product through the Food, Drug & Cosmetics Act § 510(k) process, and the FDA’s acceptance of the revised package.  Citing the Supreme Court’s 2014 decision in POM Wonderful v. Coca-Cola, the panel noted “that a Lanham Act claim is not precluded by FDA regulation under the FDCA because the two statutes serve distinct and complementary purposes.”

The Second Circuit also affirmed the permanent injunction that, among other things, enjoined SPD from communicating in any advertising that the Weeks Estimator provides an estimate of weeks pregnant that is the same as a doctor’s estimate; required SPD to remove all Weeks Estimator packaging from points of sale; enjoined SPD from using certain phrases, such as “weeks pregnant,” in the marketing of the Product; and required SPD to distribute corrective advertisements and notices acknowledging, among other things, that it had been found to have engaged in false advertising. The panel rejected SPD’s argument that the terms of the injunction were excessively harsh and that the District Court had abused its discretion.

The damages phase of the case is now proceeding, with trial scheduled to take place next year. In the meantime, SPD has petitioned the Second Circuit for rehearing or rehearing en banc, despite the unanimity of the panel decision.  We will let you know of future developments.

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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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