Entries in False advertising (5)

Washington's Anti-SLAPP Statute Protects Dishonest Businesses

New York reportedly is cracking down on fake online reviews.

It’s about time. Others should follow suit.

Let’s say you’re an honest business owner, but your biggest competitor is not. It writes negative reviews about your company and glowing reviews about itself. And it pays others to do the same. Now anyone who visits Yelp or Amazon or eBay thinks your business is terrible and your competitor’s is great. That puts you at a massive disadvantage.

It’s totally unfair. In fact, the law has a name for it: unfair competition. Fake reviews also constitute false advertising, another form of unfair competition. Yet, by many accounts, it is common.

Washington’s anti-SLAPP statute makes fighting back even more difficult. Our statute aimed at punishing Strategic Lawsuits Against Public Participation is supposed to protect the exercise of our First Amendment rights, such as the right to exercise one’s freedom of speech. Unfortunately, it can be applied not only against plaintiffs who sue newspapers or politicians for defamation. It threatens to stop legitimate lawsuits about unfair competition.

The statute, RCW 4.24.525, says if a defendant can show it was sued because of its “public participation and petition,” the plaintiff must show by “clear and convincing evidence” that will win its claim. If it cannot do so, the case will be dismissed, the defendant wins its attorney’s fees, and the court awards it $10k to boot as punishment for the plaintiff’s having tried to stifle the defendant’s constitutionally-protected activity. This all happens within 60 days after the plaintiff filed suit — long before any discovery has changed hands.

How much chance does this give the honest business owner who sues over fake reviews? Not much, and it’s not fair.

It doesn’t take much imagination to envision the honest business owner rightfully suing over the damage it has sustained because of a dishonest competitor’s fake reviews. The dishonest competitor says it’s all sour grapes and speculation, and the plaintiff is just trying to silence free speech. Without the benefit of any discovery, the honest business owner has a real uphill battle at the outset of its case to show not only that it will likely win — but that it can do so with “clear and convincing evidence,” a much more difficult showing than the 50.1% “preponderance of the evidence” standard. The dishonest business owner ends up being the anti-SLAPP statute’s biggest fan.

The honest business owner needs help. Either the legislature needs to carve out a large enough exception from the anti-SLAPP statute to avoid perverse results, or government regulators need to do what New York did and go after those who traffic in fake reviews. 

The consuming public and the honest business owner alike depend on reviews being legitimate. Neither can afford to let dishonest businesses continue to benefit from fake reviews.

Ninth Circuit Sides with FDCA over Lanham Act in False Advertising Claim

The Lanham Act governs false advertising, including information contained on a product’s label.

The Food, Drug, and Cosmetic Act governs governs information contained on a product’s label when the product involves food, drugs, or cosmetics.

So which statute applies when they overlap and the standards conflict?

The Ninth Circuit addressed that question on May 17, when it decided Pom Wonderful LLC’s claim that Coca-Cola Co.’s “Pomegranate Blueberry” drink was deceptively named and labeled when the product consists of 99.4% apple and grape juices, and only 0.3% pomegranate juice and 0.2% blueberry juice.  (The remaining 0.1% consists of raspberry juice.)

Pom asserted a claim under the Lanham Act. Coca-Cola responded that the FDCA preempts the Lanham Act because it comprehensively regulates the labeling of food.

The Ninth Circuit agreed with Coca-Cola.

“In concluding that Pom’s claim is barred, we do not hold that Coca-Cola’s label is non-deceptive,” the court found. “Pom contends that the words ‘Pomegranate Blueberry’ appear in larger, more conspicuous type on Coca-Cola’s label than do the words ‘Flavored Blend of 5 Juices.’ If the FDA believes that this context misleads consumers, it can act. But the FDA has apparently not taken a view on whether Coca-Cola’s labeling misleads consumers — even though it has acted extensively and carefully in this field. (The FDA has not established a general mechanism to review juice beverage labels before they reach consumers, but the agency may act if it believes that a label in the market is deceptive.) As best we can tell, Coca-Cola’s label abides by the requirements the FDA has established. We therefore accept that Coca-Cola’s label presumptively complies with the relevant FDA regulations and thus accords with the judgments the FDA has so far made. Out of respect for the statutory and regulatory scheme before us, we decline to allow the FDA’s judgments to be disturbed.

“We do not suggest that mere compliance with the FDCA or with FDA regulations will always (or will even generally) insulate a defendant from Lanham Act liability. We are primarily guided in our decision not by Coca-Cola’s apparent compliance with FDA regulations but by Congress’s decision to entrust matters of juice beverage labeling to the FDA and by the FDA’s comprehensive regulation of that labeling. To give as much effect to Congress’s will as possible, we must respect the FDA’s apparent decision not to impose the requirements urged by Pom. And we must keep in mind that we lack the FDA’s expertise in guarding against deception in the context of juice beverage labeling. In the circumstances here, ‘the appropriate forum for [Pom’s] complaints is the [FDA].’”

The case cite is Pom Wonderful LLC v. Coca-Cola Co., __ F.3d. __, 2012 WL 1739704, No. 10-55861 (9th Cir. May 17, 2012).

That's Not Fair! What Your Competitor Can't Do in Competing with You

Yesterday’s post was about false advertising, which got me thinking…. What are things a competitor can’t do in competing with you to make a sale?

Here’s a quick rundown:

  • It can’t create a likelihood of confusion with you, if you came first. This is the essence of trademark infringement. A later-adopter can’t come into your market with a name or brand that is likely, i.e., probable, to confuse consumers into thinking that its goods or services come from you, are approved by you, or are affiliated with you. It doesn’t matter if your trademark is registered, since trademark rights automatically arise from use. It doesn’t even matter if your competitor was innocent in creating the likelihood of confusion. If its brand, company name, product name, or other marketing tool tends to mislead customers into thinking your competitor’s goods or services come from you, you may be able to put a stop to it. Caveats exist, but this is where the inquiry starts.
  • It can’t misrepresent its product or your product. The right to free speech isn’t unlimited. Just like you can’t yell “fire” in a crowded theater, your competitor can’t lie about the qualities of its product or make a false comparison to your products. That means Honda can say Toyota’s cars are wimpy (in its humble opinion), but it can’t say its cars get twice the gas mileage Toyotas get when that’s not true (since it’s a statement of fact that’s provably false). 
  • It can’t use your trademark in its domain name. This is cybersquatting. It means no one — regardless of whether they’re a competitor — can register your trademark (or a confusingly similar variation) as part of its domain name in the hopes of either ransoming the domain name to you or profiting from Web traffic that was meant for your site. The Lanham Act provides for statutory damages that begin at $1,000 and go up to $100,000 per infringing domain name, as well as an award of attorney’s fees. Again, there are caveats, but the Anticybersquatting Consumer Protection Act gives trademark owners a big stick to use against bad actors that hope to take wrongful advantage of your brand in their domain names.
  • It can’t use your brand as a search engine keyword. Maybe. This is still up in the air. But the Central District of California last year slapped one law firm from buying its competitor’s trademark as a search engine keyword, finding its doing so constituted willful trademark infringement. The court doubled the trademark owner’s lost profits to $292k and awarded it attorney’s fees. See Binder v. Disability Group, Inc., 772 F. Supp. 2d 1172 (C.D. Cal. 2011). It’s still a gray area, but Binder might get traction. It’s certainly gotten some courts’ attention.
  • Other things your competitor can’t do. If your brand is a household name, no one (competitor or not) can use it in a way that would tend to lessen the impact your brand has on consumers. That’s trademark dilution. If you manufacture goods, no one can put your trademark on goods that aren’t made by you. That’s counterfeiting. A competitor can’t say its goods — most commonly agricultural products — come from your special part of the world if they don’t. (This means a shellfish company can’t say its oysters come from pristine Penn Cove when they were grown in less favorable waters.) That’s a false designation of origin. 

This list isn’t exhaustive, and there are a lot of gray areas. But hopefully this will help you put a label on your competitor’s bad acts when you know in your gut what they’re doing isn’t fair.

Next time: You mean they can get away with that? Things competitors can say about your products and you in the course of honest competition.

Ninth Circuit Affirms False Advertising Finding Against Skydiving Marketer

Skydive Arizona, Inc., has sold skydiving services under its SKYDIVE ARIZONA trademark since 1986.

Cary Quattrocchi, Ben Butler, and others, d/b/a 1800SkyRide (“Skyride”), operate an advertising service that makes skydiving arrangements for customers and issues certificates that can be redeemed at a number of skydiving drop zones.

Skydive Arizona sued Skyride in the District of Arizona for false advertising, trademark infringement, and cybersquatting. On its false advertising claim, it alleged that Skyride misled consumers wanting to skydive in Arizona by stating that Skyride owned skydiving facilities in Arizona when it did not. It also alleged that Skyride deceived consumers into believing that Skydive Arizona would accept Skyride’s skydiving certificates when it would not.

Following partial summary judgment and a trial, a jury awarded Skydive Arizona $1 million in actual damages for false advertising, $2.5 million in actual damages for trademark infringement, $2,500,004 in profits resulting from the trademark infringement, and $600,000 for statutory cybersquatting damages.

Skyride appealed the court’s finding of liability for false advertising on summary judgment on the ground its false statements were not material to consumers’ purchasing decisions. In particular, Skyride argued that customer James Flynn’s declaration that supported the materiality element was ambiguous and fell short of survey evidence that courts often accept as proof.

The Ninth Circuit wasn’t convinced. “Skydive Arizona’s decision to proffer declaration testimony instead of consumer surveys to prove materiality does not undermine its motion for partial summary judgment. Although a consumer survey could also have proven materiality in this case, we decline to hold that it was the only way to prove materiality. Indeed, as we held in Southland Sod [Farms v. Stover Seed Co., 108 F.3d 1134, 1140 (9th Cir.1997)], consumer surveys tend to be most powerful when used in dealing with deceptive advertising that is ‘literally true but misleading.’ Here, Defendants’ advertisements were both misleading and false. Flynn’s declaration proved that consumers had been actually confused by SKYRIDE’s websites and advertising representations. The district court’s materiality finding was further supported by Skydive Arizona’s evidence of numerous consumers who telephoned or came to Skydive Arizona’s facility after having been deceived into believing there was an affiliation between Skydive Arizona and SKYRIDE.”

The case cite is Skydive Arizona, Inc. v. Quattrocchi, __ F.3d. __, No. 10-16196, 2012 WL 763545 (9th Cir. Mar. 12, 2012).

False Advertising Claim Over Surf Boards Rides Litigation Wave to Seattle

Whose board is it, anyway? 
The catalog photo plaintiffs say defendants altered

A false advertising claim over competing stand-up paddle boards has ridden the litigation wave all the way to Seattle.

On March 9, plaintiffs Jimmy Lewis and Fuacata Sports LLC filed suit against competitors Trident Performance Sports Inc. and Starboard World Limited, alleging that defendants included a photo in their catalog showing one of plaintiffs’ custom, high-performance boards in competition — altered, so it appers to depict one of defendants’ production boards.

Plaintiffs’ complaint states that “[d]efendant Starboard World Limited created a 2011 Starboard SUP [Stand Up Paddleboard] product catalogue which incorporates a picture of a Starboard-sponsored athlete riding a Jimmy Lewis custom ‘gun’ board in extremely challenging Maui surf conditions. This photograph was placed on the same page as the Starboard Pro Wave ‘gun’ board, which was a new edition to the Starboard SUP product line. The photograph, found on page 52 of the 2011 Starboard SUP catalogue, was digitally altered to add Starboard Pro Wave pin [striping], carbon brush markings and a faint impression of the Starboard logo in order to lead consumers to believe the Jimmy Lewis custom board was the 2011 Starboard Pro Wave board. The depicted board was undeniably custom made by Jimmy Lewis and delivered as a blank board to the Starboard team rider.”

The complaint alleges that defendants used a similar photo in a national advertising campaign as well.

Plaintiffs allege defendants’ acts amount to “reverse passing off,” a legal theory in which the defendant “passes off” the plaintiff’s product as its own.

Defendants have not yet answered plaintiffs’ complaint.

The case cite is Jimmy Lewis v. Trident Performance Sports, Inc., No. 12-415 (W.D. Wash.).