Proskauer on Advertising Law
Proskauer on Advertising Law

Class Certification Denied in Juice Dispute

Recently, a New Jersey federal district court judge refused to certify a class of consumers claiming an orange juice product was mislabeled as “pasteurized.”  In re: Tropicana Orange Juice Marketing and Sales Practices Litigation, 2018 WL 497071 (D.N.J. Jan. 22, 2018).  According to plaintiffs, Tropicana’s “Pure Premium” orange juice contained added natural flavoring in violation of FDA pasteurization standards.  The court denied the class certification motion because plaintiffs failed to prove that common issues predominated under Rule 23(b)(3) of the Federal Rules of Civil Procedure.  Since multiple named plaintiffs testified that they did not even see the word “pasteurized” on the product label, much less rely on it, class certification was put out to pasture.

At the certification stage, the evidence showed that plaintiffs considered various factors when buying orange juice, including price, vitamin content, taste, reduced sugar content and name recognition.  However, only one of seven named plaintiffs cited the product being pasteurized as a factor in her purchasing decision.  One plaintiff did not recall seeing the word “pasteurized” on the label, and another admitted she did not even look at the label.  Additionally, plaintiffs’ own survey showed that over twenty percent of respondents would purchase the product even with knowledge it did not conform to the FDA’s pasteurization standard, which “suggest[ed] a great variation in how putative subclass members would react to the knowledge that [Tropicana’s Pure Premium] did conform to the standard.”  Id. at *8.  On this evidence, the court held that questions of fact predominated over common issues with respect to all of plaintiffs’ remaining claims for relief.

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.

New York Federal Court Latest to Dismiss Outlet Pricing Class Action

Last month, Judge Valerie Caproni of the Southern District of New York dismissed with prejudice a putative deceptive pricing class action filed against Burberry.  This is the first decision within the Second Circuit to determine whether shoppers claiming to have been victimized by discount price advertising in outlet stores have suffered actual injury for purposes of Article III standing.

During the past few years, there has been a virtual explosion of consumer class action lawsuits asserting claims against retailers for allegedly fraudulent outlet store price discount advertising.  The crux of these claims is that the retailer, through the use of “Was,” “MSRP,” “Compare at” or similar terms on price tags or in store signage, usually at outlet stores, has misled shoppers into believing they are getting a bargain, when they are not.  The lawsuits generally do not claim the items purchased were not worth the price paid for them.

Federal courts across the country have grappled with the question of whether the plaintiffs in these cases suffered any actual injury.

Most of these cases have been brought in California, and the answer to that question both from California state appellate courts and the Ninth Circuit has been yes.  These decisions hold that if deceptive price advertising caused an individual to purchase an item that he or she otherwise would not have purchased, or would have purchased elsewhere, there is an actual Article III injury.

But last year, the First and Sixth Circuits came out the other way.  In Shaulis v. Nordstrom, 864 F.3d 1 (1st Cir. 2017), and Mulder v. Kohl’s Department Stores, 865 F.3d 17 (2017), the First Circuit held that a consumer’s subjective belief that he or she got a “bad deal” is not an actual injury where there are no allegations that the product was deficient in an objectively identifiable way.  In Gerboc v. ContextLogic, 867 F.3d 675 (6th Cir. 2017), the Sixth Circuit similarly held that the plaintiff suffered no injury where an item not alleged to be worth $27 was offered as a $27 item and worked like a $27 item, even if a struck-through “$300” price appeared next to the purchase price.

Recently, In Belcastro v. Burberry, Judge Caproni in the Southern District of New York followed the approach of the First and Sixth Circuits, finding that the plaintiff failed to allege any injury.

Belcastro’s initial complaint asserted that Burberry’s outlet pricing misled him into thinking he was purchasing goods at bargain prices.  The Court, holding that subjective disappointment was not actual injury, dismissed plaintiff’s claims.  Belcastro then filed an amended complaint adding two new injury theories.  Belcastro alleged that deceptive pricing caused him to overpay for the outlet goods.  He also claimed that he was tricked into purchasing products he believed were manufactured for “real” Burberry stores, but which were actually made-for-outlet products.

The Court rejected both new theories.  The “price premium” theory failed because Belcastro did not allege he overpaid for the goods by any objective measure (as would be required to state a claim under such a theory).  Instead, Belcastro claimed that he paid a premium because he did not get a shirt worth objectively more than the price he paid.  This, the Court ruled, was not an injury.

Although the Court found Belcastro’s allegations of injury based on the quality of the goods purchased to be “more promising,” she dismissed them as inadequately pleaded.  Belcastro did not explain how the outlet-only goods differed from the “mainline” goods plaintiff believed he was purchasing.

As noted, most of the supposed phantom discount outlet pricing suits have been brought in California, where state and federal district courts are constrained by state and federal appellate decisions rejecting Article III standing challenges.  But, there now is a contrary emerging trend in other circuits.  Given the conflict between the circuits, and because there is no sign that plaintiffs plan to stop filing these actions any time soon, whether plaintiffs in outlet pricing cases have standing to sue is an issue now ripe for Supreme Court review.

Watch this space for further developments on this issue.

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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.

Justice (and Lunch) is Served: Second Circuit Holds that Food Truck Branded with Ethnic Slurs is Entitled to First Amendment Protection

In a recently issued decision, the Second Circuit held that a food truck could not be excluded from a New York State lunch program solely because the truck and the food it sells was branded using ethnic slurs.  Wandering Dago, Inc. v. Destito et al, 2018 WL 265383 (2d Cir. 2018).  This case is an early example of how the Supreme Court’s 2017 decision in Matal v. Tam (which involved an Asian-American band’s trademark application for “The Slants”) may impact advertisers who wish to engage in controversial branding in connection with a government-related activity or event.

The “Wandering Dago” food truck (“WD”) offers sandwiches with names such as “Dago,” “Goombah,” “Guido” and “Polack.”  According to its owners, WD’s ethnic slur branding is a nod to their heritage, “signaling an irreverent, blue collar solidarity with its customers” and “signal[ing] to . . . immigrant groups that this food truck is for them.”  WD contended that using the slurs in a mocking way would “weaken [their] derogatory force.”  In 2013 and 2014, WD applied to participate in New York’s annual “Summer Outdoor Lunch Program,” which was organized by New York’s Office of General Services (“New York” or “OGS”) and took place in Albany’s Empire State Plaza.  Those applications were denied.

It was undisputed that the sole basis for denial was OGS’s view that WD’s branding was offensive.  WD alleged that this amounted to a violation of its free speech and equal protection rights under the United States Constitution and the New York State Constitution.  The district court disagreed, holding that the First Amendment did not apply to WD’s speech because WD’s speech must be considered either (1) government speech, (2) speech by a government contractor, or (3) private speech in a government-owned forum.  The district court also rejected WD’s federal equal protection claim and its state law claims.  New York was awarded summary judgment on all of WD’s claims.

A unanimous Second Circuit panel reversed on all counts.  As an initial matter, the Second Circuit rejected the district court’s forum analysis as legally irrelevant, holding that “we would apply the same level of scrutiny whether WD sought to speak in a public forum (as WD contends) or a nonpublic forum (as defendants contend).”  Applying Matal, the Second Circuit concluded that WD’s use of ethnic slurs reflected a viewpoint “about when and how such language should be used,” and that New York engaged in viewpoint discrimination by denying WD’s applications based solely on this viewpoint.  The Court further held that whether New York denied WD’s applications because of how consumers might react to the slurs—as opposed to because of WD’s intended message—was inconsequential to its decision.

The Second Circuit also disagreed that New York’s denial of WD’s application could be construed as government speech.  The Court “[found] it implausible that OGS, by permitting WD’s full participation in the Lunch Program, would be viewed by the public as having adopted WD’s speech as its own.”  Although the Court did not doubt that New York wanted to make the lunch program family friendly, the record did not reflect any effort to communicate a particular message through the program.  On these facts, the Court “[was] unable to conclude that OGS was aiding the transmission of a government message by denying WD’s Lunch Program applications.”

Nor were New York’s actions justified as a condition on a prospective government contractor’s speech.  OGS merely provided access to a forum for food trucks.  In exchange for this access, the food trucks paid OGS.  Accordingly, WD and other food vendors were not government contractors, but rather were “private entities that pay to access public benefits and, in using those benefits to their economic advantage, secondarily satisfy a government purpose.”

Having concluded that WD’s food truck branding was private speech and that New York engaged in viewpoint discrimination by denying WD’s applications, the Court then considered whether that discrimination was narrowly tailored to achieve a compelling government interest.  The Second Circuit found that no compelling government interest existed in the record for New York to deny WD’s applications to participate in the lunch program.  Thus, not only did the Second Circuit reverse the district court’s grant of summary judgment to New York, it also awarded WD summary judgment on its First Amendment claim.  The Second Circuit also reversed on WD’s federal equal protection claim and state law claims and awarded WD summary judgment on those claims too.

WD’s complete victory before the Second Circuit suggests that advertisers taking part in a government program have substantial leeway to brand their products—and may even engage in speech that many would consider to be offensive—so long as the government lacks a compelling interest that justifies limiting the advertiser’s speech.

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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.

New Trial Ordered Where Jury’s Verdict Didn’t “Gel”

Last summer, we reported on a bizarre verdict in which an Illinois jury levied a $150 million punitive damages award against AbbVie, Inc., the drug company behind AndroGel, without awarding any compensatory damages.  As predicted, the punitive damages award was recently vacated.  Finding that the jury’s findings were “logically incompatible,” the Court vacated the punitive damages award, and ordered a new trial on plaintiff’s claim for fraudulent misrepresentation and damages relating to that claim.

As previously reported, this case is one of thousands in which plaintiffs have alleged that AndroGel caused heart attack or other injury, that AndroGel was not safe and effective for treating low testosterone, and that AbbVie promoted AndroGel to men who did not actually have low testosterone.  In this particular case, AbbVie’s defense was that AndroGel could not have been linked to plaintiff’s heart attack because the scientific studies relied on by plaintiff did not show an associated risk of heart attack in plaintiff’s age group, and plaintiff’s heart attack could have been caused by his weight, smoking habit, high blood pressure and cholesterol, and family history of heart disease.

After trial, the jury found that AbbVie was liable for fraudulent misrepresentation, but awarded zero dollars in compensatory damages.  The jury also rejected plaintiff’s claims for strict liability and negligence.  Nevertheless, the jury awarded $150 million in punitive damages.

The Court found that the jury’s verdict was internally inconsistent because it found that AbbVie was liable for fraudulent misrepresentation, which includes damages as an element of that claim, yet awarded no compensatory damages.  However, the Court declined to enter judgment as a matter of law in favor of AbbVie because, among other things, the jury’s findings could not be harmonized with the jury instructions, which clearly conveyed that damages were a necessary element of fraudulent misrepresentation.  Thus, the Court ordered a new trial on this claim and related damages.  In doing so, the Court noted that its decision was based on the verdict’s inconsistency, and thus it did not need to decide whether a punitive damages award could stand in the absence of an award of compensatory damages.

The new trial is set for March 2018.  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.

Third Circuit Splits with the Seventh Over Standing To Sue For Alleged Inefficient Design of Eye Drop Dispenser

In a surprising decision and split with the Seventh Circuit, the Third Circuit recently held that plaintiffs have standing to sue for unfair trade practices under the theory that a manufacturer is obligated to optimize the number of eye drop doses in a container of a fixed volume, even if there is no alleged misrepresentation as to the number of doses in the product.  Cottrell v. Alcon Labs., 874 F.3d 154 (3d Cir. 2017).  The Third Circuit suggested that claims based on such a theory may be addressed in a 12(b)(6) motion, or on preemption grounds, but that such grounds are separate from a standing analysis.

Plaintiffs in Cottrell alleged that defendants are manufacturers of FDA-approved eye drop medications for serious medical conditions such as glaucoma.  According to the complaint, defendants deliberately designed and manufactured the tips of the droppers to dispense a dose of medication that exceeds the capacity of the eye and is expelled from the eye, thus conferring no benefit and possibly causing unwanted side effects.  Plaintiffs alleged violations of consumer protection laws of New Jersey and five other states, seeking damages corresponding to the “wasted” portion of medication.

The U.S. District Court for the District of New Jersey dismissed the complaint for lack of standing under Article III of the U.S. Constitution, which the Supreme Court has held requires a plaintiff to have suffered (and at the pleading stage to have plausibly alleged) an injury in fact to a legally protected interest.  The district court held that plaintiffs failed to allege such an injury because plaintiffs’ pricing theory was too speculative, i.e., that it assumed (without support) that eye drop manufacturers price their medication solely based on the volume of fluid contained in the bottles, regardless of other factors.  The district court also held that plaintiffs’ theory of damages did not give rise to standing because consumer fraud claims under a benefit-of-the-bargain or out-of-pocket theory normally require allegations that the product at issue failed to perform as advertised or was somehow defective, which was not alleged here.  The court noted that defendants’ dispenser design was approved by the FDA and that defendants never promised a certain number of doses.

On appeal, a panel of the Third Circuit reversed in a 2-1 decision.  The majority held that plaintiffs adequately alleged an injury in fact to a legally protected economic interest because they were allegedly forced to spend money on medication that was impossible for them to fully use due to defendants’ business practices in alleged violation of state consumer protection statutes.  The majority determined that the district court overcomplicated plaintiffs’ pricing theory, which in the circuit court’s view posited that a smaller drop size—with no other changes to the product’s design or price—would provide more doses per bottle.  (The dissent faulted as implausible the majority’s assumption that therapies are priced by volume rather than by number of doses in light of contrary evidence).

The majority also criticized the lower court’s treatment of plaintiffs’ reimbursement theory as one sounding in fraud only.  The majority concluded that the district court failed to appreciate that the state statutes asserted by plaintiffs provide legal protection against “unfair” business practices, not just fraudulent ones, and that plaintiffs’ allegations satisfied the injury requirement.  The court acknowledged that the Seventh Circuit had reached the opposite conclusion on similar allegations but opined that the Seventh Circuit improperly based its standing analysis on a finding that the complaint failed to state a cause of action on the merits, which the majority argued is a separate inquiry from whether plaintiffs claim an injury in fact to a legally protected interest.

The Third Circuit noted that the district court’s reading of the asserted state consumer protection statutes could potentially provide a basis for dismissal under a 12(b)(6) motion, which the district court never reached.  Nor did the trial court consider defendants’ preemption arguments, having ruled on the issue of standing.  It remains to be seen whether other circuits will follow the Third or Seventh Circuit’s approach in subsequent cases, or whether the clear split between these Circuits will find its way to the Supreme Court.  Watch this space for further developments on these issues.

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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 Dismisses Claims of Would-Be Ad-Blockers

On November 22, 2017, the Second Circuit in Heskiaoff v. Sling Media affirmed the dismissal of a class action complaint against Sling Media that alleged deceptive business practices in connection with Sling’s introduction of advertisements into its television streaming service.  In a summary order, the panel affirmed the district court’s holding that the complaint and proposed amendments to the complaint failed to plausibly allege a violation of New York General Business Law Section 349 because plaintiffs failed to point to any affirmative statement or omission made by Sling Media that would have misled a reasonable consumer into believing that the service would never include advertisements.

Sling Media produces the Slingbox, a device that attaches to a television and, in conjunction with software installed on a computer or mobile device, allows the user to stream television programming remotely on that computer or mobile device.  Aside from advertisements inherent in the underlying television programming, the Slingbox service was offered free of advertisements until 2014.  At that time, Sling Media began transmitting its own ads to subscribers in the form of videos that played upon opening the software and banners displayed alongside the streamed content.  The complaint alleged that by failing to disclose to consumers its plans to introduce advertising content, Sling Media had engaged in deceptive business practices.

The district court held that plaintiffs failed to state a claim because there was no plausible allegation that Sling had knowledge of a plan to disseminate advertising and failed to disclose its plan to plaintiffs when they purchased their Slingboxes prior to 2014.  Nor did plaintiffs plausibly allege that this information, if disclosed, would have been material to a reasonable consumer’s purchasing decision because, among other things, the complaint failed to allege that plaintiffs expected an ad-free experience or were even aware that Slingbox was ad-free when purchased.  In affirming, the Second Circuit held that the complaint failed to allege why a reasonable consumer would have been led to believe that Slingbox would always be an ad-free product.

The Second Circuit also affirmed the district court’s denial of plaintiffs’ motion to replead because the proposed misrepresentations or omissions—such as an alleged failure to explicitly warn consumers in advance of the advertising—would not have caused a reasonable consumer to believe that Slingbox was, and always would be, ad-free.

The case serves as a reminder that a false advertising claim based on an alleged omission of information cannot survive dismissal under New York law unless the alleged omission plausibly would mislead a reasonable consumer.  The decision also gives comfort to media companies that plan to introduce advertising into their services, though additional disclosures may be necessary if they ever affirmatively represented that their products would remain ad-free.

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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 Says “Lights Out” on UL Certification Lanham Act Claim

Last week, a federal judge in Manhattan examined the intersection of false advertising and trademark infringement law in connection with the alleged misuse of a certification mark, and found the plaintiff to be entitled to neither body of law as a means to stop a competitor from advertising its products as “UL Certified.”  The court granted a motion to dismiss a Lanham Act claim that alleged the defendant’s light switches were falsely labelled as meeting the Underwriters Laboratories (“UL”) safety certification standard.  Board-Tech Elec. Co. v. Eaton Elec. Holdings LLC, No. 17-cv-5028 (KBF).  This case sheds light on how courts treat false advertising claims based on alleged non-compliance with an awarded certification marking.

Underwriters Laboratories registered the UL certification under Section 1054 of the Lanham Act as a “mark [that] is used by persons authorized by [UL] to indicate that representative samplings of the products conform to the safety requirements of [UL].”  Eaton, the defendant, labeled its light switches as having been certified by Underwriters Laboratories as meeting a safety standard for “General Use Snap Switches.”  According to plaintiff Board-Tech, it tested eight samples of six models of Eaton’s light switches that bear the UL certification mark and found that none of them complied with the UL safety standard.  Board-Tech alleged based on its testing that several of Eaton’s product lines—which included at least 30 different models in total—were falsely labeled as meeting the UL standard.

The Court snuffed out Board-Tech’s claims on two independent grounds.  First, Board-Tech’s complaint failed to identify with any specificity the defendant’s products at issue in the lawsuit, thus failing to meet Rule 8(a)’s specificity requirements.  Although Board-Tech alleged in general terms that it tested six different light switch models, it failed to specify which models it tested and failed to allege any plausible basis on which one could extrapolate that all of Eaton’s other light switch models failed to comply with the UL standard.  Board-Tech’s failure to identify to the Court and Eaton which particular light switches failed to meet the UL standard in Board-Tech’s testing was especially inexcusable since it had twice amended its complaint and this issue had been raised previously by the Court.

The second and more noteworthy basis for dismissal was that Board-Tech failed to plausibly allege that Eaton’s advertising was false.  The Court drew a distinction between a claim alleging that a product is advertised as UL certified without authorization, versus a claim that a product permitted to use the UL certification fails to actually comply with the UL standard.  Board-Tech conceded that Eaton’s light switches were UL certified and that Eaton was authorized to display a UL certification mark on its light switches, but nonetheless contended that Eaton was deceiving consumers by using the UL mark.  While Board-Tech acknowledged that UL tested a representative sample of Eaton’s light switches and found that they conformed to the safety standard, Board-Tech alleged it had tested Eaton’s light switches itself and found the devices did not meet the UL standard, rendering Board-Tech’s advertising that its switches met the UL standard false.

The Court held that allowing Board-Tech to allege a false advertising claim on this basis would be nothing less than allowing it (and future plaintiffs) to police the UL mark.  That, Board-Tech was not entitled to do, and the court wisely considered the implications of allowing these types of claims to proceed.  To the extent Board-Tech believed that the certification itself was unwarranted, the court recognized that plaintiff could seek to cancel the mark under Section 1064(5) of the Lanham Act.  However, Board-Tech’s Section 1125(a) Lanham Act false advertising claim was extinguished.

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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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