“Humanely Raised” Chicken Label Might Violate New Jersey Consumer Fraud Act

This posting was written by John W. Arden.

Allegations that Perdue "Harvestland" chicken products misled consumers regarding the "humane" treatment of chickens, a purported endorsement by the U.S. Department of Agriculture, and the difference between the treatment of "Harvestland" chickens and those of competitors stated claims for violation of the New Jersey Consumer Fraud Act, fraud in the inducement, negligent misrepresentation, and breach of express warranty, according to the federal district court in Newark (Hemy v. Perdue Farms, Inc., March 31, 2013, Shipp, M.). The court denied Perdue Farms’ motion to dismiss.

From September 2009 to the present, Perdue Farms, Inc. has labeled its Harvestland chicken products as "humanely raised" and "USDA Process Verified." These labeling claims were false and deceptive and induced the purchase the "premium priced" products, according to a lawsuit filed by a proposed class of consumers. Plaintiff Nadine Hemy alleged that she would not have purchased the products if she knew that the chickens were not in fact treated humanely or differently from other chickens on the market.

Plaintiffs alleged that Perdue’s "humanely raised" claim was based on an industry standard that necessitates inhumane treatment and allows non-compliance by way of "huge loopholes." They claimed that Harvestland chickens are shackled by their legs, upside-down, while fully conscious; electrically shocked before being rendered unconscious; cut ineffectively or partially while fully conscious; downed and scalded while conscious; stored in trucks for hours in excessive temperatures; subjected to lighting conditions that result in eye disorders; injured in the process of being removed from their shells; subjected to health problems and deformities resulting from selective breeding; and provided no veterinary care.

The industry guidelines forming the basis of the "Humanely Raised" label are followed by "virtually every other mass chicken producer in the nation" and sanction many cruel practices, the plaintiffs charged. The plaintiffs themselves believed that "Humanely Raised" meant that chickens were treated humanely throughout their lives and given a quick and painless death. These beliefs were shown to be reasonable by a survey of 209 members of an online consumer panel, they said.

Based on these claims, the plaintiffs brought an action against Perdue Farms and other parties in the New Jersey Superior Court, alleging violation of the New Jersey Consumer Fraud Act, fraud in the inducement, negligent misrepresentation, and breach of express warranty. The case was removed to the federal district court, which issued an opinion and order dismissing certain claims with prejudice but allowing the plaintiffs to replead allegations regarding the "Humanely Raised" and "USDA Process Verified" claims. Upon the filing of a third amended complaint, Perdue Farms made a motion to dismiss, and plaintiffs filed a motion to file a supplemental brief.

Motion to file supplemental brief. As a preliminary matter, the motion for leave to file a supplemental brief was denied. While plaintiffs argued that the motion was the result of their receipt of "new information" from a Freedom of Information Act request, the court found that the attempted injection of new information, or facts, runs afoul of the Third Circuit precedent holding that a complaint may not be amended by the briefs in opposition to a motion to dismiss.

New Jersey Consumer Fraud Act. In order to state a claim under the New Jersey Consumer Fraud Act, plaintiffs must demonstrate (1) unlawful conduct by Perdue Farms, (2) an ascertainable loss to the plaintiffs, and (3) a casual connection between the unlawful conduct and the ascertainable loss.

Regarding the "Humanely Raised" claims, the court held that plaintiffs pled sufficient facts that the audit checklist Perdue utilized in its PVP program was analogous to that of the industry standard; pled a plausible claim that Perdue Harvestland Chickens were treated in a similar manner as other mass produced chickens; properly limited their claims to reflect only Harvestland chicken products; and showed a plausible claim that a reasonable consumer may believe that the slaughtering process is encompassed by Perdue’s Humanely Raised label.

Plaintiffs also sufficiently alleged that the USDA Process Verified label, in concert with the "Humanely Raised" label, created the impression that an unbiased third party certified Perdue’s claims. An Internet survey referenced in the complaint supported the contention that the Havestland chickens were "approved and endorsed" by the U.S.D.A. The survey contended that 58% of consumers believed that the U.S.D.A. Process Verified shield meant that the company met standards for the treatment of chickens developed by the U.S.D.A.

Fraud in the inducement. Perdue moved to dismiss the fraud in the inducement claim, arguing that common law fraud involves a more onerous standard than a claim for fraud under the New Jersey Consumer Fraud Act. The elements of common law fraud are (1) a material misrepresentation of a present or past fact; (2) knowledge of falsity; (3) an intention that the other person rely on it; (4) reasonable reliance by the other person; and (5) resulting damages.

In this case, plaintiffs alleged that statements regarding the humane treatment of chickens were material misrepresentations, that Perdue was aware of their falsity, that Perdue intended consumers to rely on these statements and pay more for the "premium" brand; and that they themselves relied on the misrepresentations to their detriment in paying the higher price for humanely raised chickens.

For purposes of the motion to dismiss, the court held that the plaintiffs sufficiently pled fraud in the inducement.

Negligent misrepresentation. A claim for negligent misrepresentation requires a plaintiff to establish that the defendant made an incorrect statement, which was justifiably relied upon, causing economic loss. For the same reasons supporting the New Jersey Consumer Fraud Act and fraud in the inducement claims, the court found that the plaintiffs pled sufficient facts for their negligent misrepresentation claim to withstand a motion to dismiss.

Breach of express warranty. The elements of breach of express warranty are (1) a contract between the parties, (2) a breach of contract, (3) damages flowing from the breach, and (4) the party stating the claim performed its own contractual obligations. The court found that the plaintiffs sufficiently alleged that the Humanely Raised label on the Harvestland products created an express warranty; that the treatment given the chickens breached the contract; that the plaintiffs paid more for the Harvestland chicken; and that plaintiffs performed their obligations by paying the purchase price of the chicken.

Grass Seed Sellers Could Not Enjoin Each Other’s Allegedly False Ads

This posting was written by E. Darius Sturmer, Editor of CCH Business Franchise Guide.

Competing sellers of grass seed and plant food products—Scotts and Pennington—were not entitled to preliminary injunctive relief against each other’s allegedly false advertising, the federal district court in Richmond, Virginia has held (The Scotts Co., LLC v. Pennington Seed, Inc., November 30, 2012, Gibney, J.).

Neither could show that it was likely to prevail on the merits of its claims, that it suffered irreparable harm, that the balance of equities tipped in its favor, or that injunction would serve the public interest, the court decided. The companies’ cross-motions for preliminary injunctions were denied, as were Pennington’s motions to strike supplemental filings submitted by Scotts.

The present dispute between the competitors arose in early March, when Scotts filed suit against Pennington over its claim that Pennington’s Smart Seed grass seed products contain “twice the seed” as Scotts’ Turf Builder products. By the end of the month, the court had dismissed Scotts’ Lanham Act and state law false advertising claims, as well as its common law unfair competition claims, finding that the advertising claims at issue were covered under the terms of a confidential settlement agreement previously entered into by the parties. That settlement agreement mandated that the parties attempt alternative dispute resolution before such an action could be filed. The parties completed this procedure in April without success, and Scotts again pursued an injunction against Pennington’s advertising.

In the interim, however, Pennington had fired back with its own lawsuit, asserting false advertising under federal and state law, common law unfair competition, and violation of the Georgia Uniform Deceptive Trade Practices Act stemming from Scotts’ descriptions of Pennington’s “1 Step Complete” combination grass seed products as “a bunch of ground-up paper” and Scotts’ superiority claims with respect to its own EZ Seed products.

“Twice the Seed” Claims

Scotts was unable to show a likelihood of success on its Lanham Act suit based on Pennington’s “twice the seed” claims, the court found. Whether Pennington’s ads were literally false was debatable. While Pennington’s products did not contain twice the number of seeds as Scotts’ grass seed products, the claim was literally true on a weight basis, which Pennington attested was the industry standard to measure seed count. A consumer survey produced by Scotts, however, suggested that, even if literally true, the ads misled potential purchasers.

On the other hand, Pennington established that the equitable doctrine of laches could apply to prevent Scotts from obtaining relief, given that Scotts had waited until Pennington’s promotional materials had been public for over a year before challenging them.

Scotts also failed to make a necessary showing of irreparable harm, the court added. As most consumers purchase their products at the beginning of the brief spring grass seed season, the need for urgency had already been removed. There was “no reason that a full trial on the merits [could not] be had prior to the time the parties’ claims could again become crucial,” the court said.

Considering the balance of the equities, the court observed from the parties’ “tit-for-tat” litigation strategy that each party’s hands appeared “slightly soiled, which weigh[ed] against injunctive relief.”

Finally, the court stated, while the public interest was “undoubtedly served by a marketplace fee of consumer confusion as to the nature, quality, and characteristics of companies’ products,” Scotts had not made a clear showing that Pennington’s claims were “likely to substantially cause consumer confusion such that the public interest factor decidedly tips in Scotts’ favor.”

1 Step Complete vs. EZ Seed

The likelihood of success on the merits of Pennington’s claims against Scotts was similarly uncertain, the court determined. Pennington failed to show that Scotts’ “bunch of ground-up paper” claim was literally false, in light of undisputed evidence that the mulch component in 1-Step Complete contained paper. Further, it could hardly be argued that a reasonable consumer seeking to buy a grass seed product would understand Scotts’ claim to convey the message that Pennington’s 1 Step Complete was comprised entirely of a bunch of ground-up paper. Consumer survey evidence did not support Pennington’s argument that Scotts’ advertising deceived consumers into believing that 1 Step Complete was made entirely of a bunch of ground-up paper.

As to Scotts’ superiority claims, preliminary assessment of product testing conducted by a Scotts research specialist led the court to conclude that the testing reasonably supported Scotts’ germination and seedling establishment claims.

Because Pennington failed to show that Scotts’ claims were false, misleading, and thus likely to harm Pennington’s sales, reputation, or goodwill, it could not establish that it would suffer irreparable harm from their continuation, the court held. Likewise, Pennington’s failure to show false or misleading claims, or resultant competitive harm, precluded a finding that the balance of equities or public interest tipped in its favor.

The case is Civil Action No. 3:12-CV-168.

Cassandra Carol Collins (Hunton & Williams LLP) for Scotts Company LLC. Charles Bennett Molster, III (Winston & Strawn LLP) for Pennington Seed, Inc.

Energy Shot Producer’s Distribution of Recall Notice Could Be False Advertising

This posting was written by E. Darius Sturmer, Editor of CCH Trade Regulation Reporter.

The producer of a two-ounce energy shot drink known as "5-Hour ENERGY" could have engaged in false advertising in violation of Sec. 43(a) of the Lanham Act by distributing a letter, entitled "Legal Notice," to retailers notifying them of a court-ordered recall of a competing "6 Hour" energy shot product, the U.S. Court of Appeals in Cincinnati has decided. Summary judgment in the producer’s favor was reversed as the false advertising claim, although it was affirmed as to a competitor’s monopolization and attempted monopolization claims.

False Advertising

The complaining company, which marketed one of several "6 Hour" energy shots not subject to the recall, offered sufficient evidence to create a genuine dispute as to whether the notice was misleading and tended to deceived its intended audience, the court held. The language of the recall notice "teeter[ed] on the cusp between ambiguity and literal falsity" both descriptively and grammatically. A statement in the contested letters that the 5-Hour maker "won a decision against a "6 Hour" energy shot" was not literally true, as the 5-Hour maker had actually won a decision against a particular "6 Hour" competitor’s use of an overall product image, the court explained.

Moreover, confusion could ensue from the recall notice’s uses of the prefatory words "a" and "any" to refer to a 6 Hour energy shot—incorrectly suggesting that any shot bearing the name 6 Hour was subject to recall. Also problematic was a subsequent use of "the," which implied that there was only one specific product at issue, though the statement as a whole failed to specify exactly what product.

A lower court’s exclusion, on hearsay grounds, of documentary and testimonial evidence from the complaining company, distributors, and brokers showing confusion as to whether 6 Hour POWER had been recalled was erroneous, the appellate court said. Phone calls from retailers to distributors were not relied on to show the content of the conversations, but to show that the conversations occurred and the state of mind of the declarants. That so many people called the complaining company immediately after receiving the notice at the very least raised a genuine issue of material fact as to whether a significant portion of the recipients were misled, in the appellate court’s view.

The defendant’s characterization of the calls as "non-actionable customer inquiries" could be rejected by a jury, in light of testimony that many distributors had called to stop buying the complaining company’s product after the notice was issued, that sales growth for the product dropped significantly, and that the company lost an estimated $3.4 million in sales as a result of the recall notice. All of the calls evidenced a belief that 6 Hour POWER had been recalled; had the called lacked such a mistaken belief, the calls would not have occurred, the court reasoned.

Monopoly, Attempt

The producer of "5-Hour ENERGY" did not engage in monopolization or attempted monopolization in violation of Sec. 2 of the Sherman Act through its actions against the competitor, the court also ruled. The producer allegedly undertook a broad anticompetitive scheme that included: (1) asserting a fraudulently obtained supplemental trademark registration for its product; (2) false advertising in connection with its distribution of the Legal Notice letter to retailers; (3) offering incentives to retailers for superior product placement, (4) requesting that retailers sell its product at the exclusion of other energy shot products, and (5) registering certain Internet domain names similar to the names of a competitor’s product.

Because the complaining competitor specified damages resulting only from the recall notice, only the anticompetitive effects of the recall notice could lead to antitrust liability. However, there could be no harm to competition from the recall notice, even if the notice amounted to false advertising. The complaining competitor was able to—and did—counter that information by sending notices that its product, 6 Hour POWER, had not been recalled.

The decision is Innovation Ventures, LLC, v. N.V.E., Inc., 2012-2 Trade Cases ¶78,053.

Supplement Manufacturer May Be Liable for Nutrition Claims Under California Consumer Protection Law

This posting was written by Jody Coultas, Editor of CCH State Unfair Trade Practices Law.

A supplement purchaser stated California consumer protection law claims against a supplement manufacturer for allegedly making false and misleading advertising statements, the federal district court in Oakland, California, has held.

The majority of the purchaser’s first amended complaint that the manufacturer falsely advertised its Muscle Milk Ready–To-Drink and Muscle Milk Bars was dismissed (CCH State Unfair Trade Practices Law ¶32,442).

The court found that the manufacturer’s use of the term “healthy” in its advertising was difficult to define and there was no evidence that the products actually contained unhealthy amounts of fat.

Healthy Energy, Good Carbohydrates

In the amended complaint, the purchaser presented statements made on the manufacturer’s products and website and television advertisements, specifically that the products contained healthy energy and good carbohydrates.

The second amended complaint contained allegations that relied on the Food, Drug, and Cosmetic Act and Food and Drug Administration (FDA) regulations. The borrowing from the regulations did not impose any unfair burden on the manufacturer and were allowed.

Statements made by the manufacturer that its products contained “Healthy, Sustained Energy” and “25g PROTEIN for Healthy, Sustained Energy” were actionable, according to the court. Although a healthy product is hard to define, the purchaser provided objective standards, such as the FDA requirements, that could be used as evidence that certain contents in the product were not healthful.

However, the statements “good carbohydrates” and “0g Trans Fat” were not actionable. There was no evidence that added sweeteners and sugar were not good carbohydrates or that the amount of trans fats was not in fact 0 grams.

The purchaser also met the reliance requirements of the consumer protection statutes by alleging that she saw and relied on the alleged misrepresentations on the manufacturer’s website and in its television ads.

The decision is Delacruz v. Cytosport, Inc., CCH State Unfair Trade Practices Law ¶32,500.

False Ad Claims Based on Letter, E-Mail Proceed

This posting was written by William Zale, Editor of CCH Advertising Law Guide.

Organ Recovery Systems (ORS), a manufacturer of organ preservation solutions, stated a claim of false advertising under the Lanham Act and Illinois consumer protection statutes by asserting injury from an allegedly misleading letter sent by Preservation Solutions, Inc. (PSI) to organ procurement organizations (OPOs), the federal district court in Chicago has ruled.

ORS also stated a claim of false advertising under the Lanham Act and Illinois consumer protection statutes against BTL Solutions for allegedly sending to organ procurement professionals a broadcast e-mail falsely stating that BTL enabled FDA approval of a label change for the room-temperature storage of ORS’s UW solution.

Commercial Advertising or Promotion

PSI contended that “actionable advertising must be anonymous” and ORS alleged only person-to-person statements by PSI. However, PSI’s letter allegedly was received by potential ORS customers throughout the country, the court observed. The fact that the letter was addressed “Dear OPO Administrator” rather than to a named individual or business supported ORS’s suggestion that it was a mass unsolicited communication.

Even if the letter was specifically targeted to OPOs known by PSI, ORS alleged that the letters were a generalized solicitation rather than an individualized communication. For this reason, ORS’s allegations satisfied the “commercial advertising or promotion” element of a Lanham Act false advertising claim, the court determined. ORS’s claims that three OPO employees expressed confusion about the letters could support a finding that ORS was likely to be injured by allegedly misleading statements in the letters.

BTL’s statements could constitute commercial speech, and its e-mail was an anonymous communication to a large group that would satisfy the Lanham Act’s test for commercial advertising or promotion, the court added. Contrary to BTL’s contention that ORS failed to allege a significant connection between the conduct at issue and Illinois, which both the Illinois Uniform Deceptive Trade Practices Act and Consumer Fraud Act required, it was likely that the disputed communications originated in Illinois and that ORS felt harm in Illinois.

Counterclaims

BTL could pursue a Lanham Act false advertising counterclaim against ORS for posting on its website allegedly false statements that it had FDA approval to sell its SPS-1 solution with a label indicating that the solution does not need to be filtered before use, the court also decided. ORS presented documents consistent with its assertion that the FDA had approved the practices at issue.

Even were these documents to be considered on a motion to dismiss, however, neither the counterclaim nor these documents contained sufficient details about FDA practice for the court to say that the letter constituted “approval” for purposes of the false advertising claim, according to the court.

PSI failed to state a claim of “passing off,” under the Lanham Act and Illinois consumer protection statutes, by making conclusory allegations that ORS led customers to believe that ORS-sold solution was PSI’s product, the court concluded.

The decision is Organ Recovery Systems, Inc. v. Preservation Solutions, Inc., CCH Advertising Law Guide ¶64,733.

Further details regarding CCH Advertising Law Guide appear here.

Rejection of Lanham Act Juice Blend Labeling Challenge Upheld; California Law Claims Revived

This posting was written by William Zale, Editor of CCH Advertising Law Guide.

Pom Wonderful, a seller of pomegranate juice and juice blends, was precluded from asserting Lanham Act false advertising claims based on Coca Cola's naming and labeling of “Pomegranate Blueberry Flavored Blend of 5 Juices,” the U.S. Court of Appeals in San Francisco ruled yesterday. The product contained about 99.4% apple and grape juices, 0.3% pomegranate juice, 0.2% blueberry juice, and 0.1% raspberry juice, according to the court.

A ruling that Pom Wonderful failed to assert an injury in fact under the California Unfair Competition Law (UCL) and False Advertising Law (FAL) was vacated and remanded for further proceedings. Not considered on Pom’s appeal from the decision of the federal district court in Los Angeles (CCH Advertising Law Guide ¶63,889) was a ruling that Pom can pursue Lanham Act claims that consumers were confused by Coca Cola's intentionally misleading marketing and advertising (apart from naming and labeling) of the pomegranate-blueberry flavored blend.

Food Labeling Regulation

Pom’s challenge to the name “Pomegranate Blueberry Flavored Blend of 5 Juices” would create a conflict with Food and Drug Administration regulations and would undermine the FDA’s apparent determination that so naming the product is not misleading, the court determined. As to labeling, Pom apparently wanted to force Coca-Cola to alter the size of the words on its label so that the words “Pomegranate Blueberry” would no longer appear in larger, more conspicuous type on Coca-Cola’s label than did the words “Flavored Blend of 5 Juices.”

Congress and the FDA had considered and spoken to what content a label must bear, and the relative sizes in which the label must bear it, so as not to deceive. Despite speaking extensively to how prominently required words or statements must appear, the FDA had not required that all words in a juice blend’s name appear on the label in the same size or that words hew to some other standard. Coca-Cola’s label presumptively complied with the relevant FDA regulations and thus accorded with the judgments the FDA had so far made, the court held.

California Law

In rejecting the claims under California law, the district court had interpreted statutory “lost money or property” language to require a plaintiff to show that it is entitled to restitution from the defendant—even if the plaintiff seeks only injunctive relief. That was error in light of California Supreme Court rulings making it clear that standing under UCL Section 17204 of the Unfair Competition Law and FAL Section 17535 did not depend on eligibility for restitution, the court concluded.

The May 17 decision in Pom Wonderful LLC v. Coca-Cola Co., No. 10-55861, will be reported at CCH Advertising Law Guide ¶64,708 and CCH 2012-1 Trade Cases ¶77,892.

Jury Award for False Advertising, Trademark Infringement, Cybersquatting Upheld

This posting was written by John W. Arden.

An Internet and telephone-based advertising service for skydiving customers (Skyride) was properly held liable for trademark infringement, cybersquatting, and false advertising against a skydiving center (Skydive Arizona, Inc.), justifying a total award of $6.6 million, according to the U.S. Court of Appeals in San Francisco.

The court of appeals upheld jury awards of $2.5 million in actual damages for trademark infringement, $2.5 million in disgorged profits from trademark infringement, $600,000 for cybersquatting, and $1 million in actual damages for false advertising. It overturned the district court’s doubling of actual damages.

Skydive Arizona, Inc. has operated under the SKYDIVE ARIZONA mark sine 1986, becoming one of the most well known skydiving centers in the world. It hosts between more than 145,000 skydives per year, furnishing airplanes and personnel for skydiving events in 30 states outside Arizona. The company has been featured in television programs and advertises on the Internet and in Yellow Pages, magazines, and newspapers.

Skyride essentially acts as a third-party advertising and booking service for skydiving centers, providing national telephone and Internet promotional services to skydiving “drop zones” around the U.S. Customers pay Skyride for certificates that can be redeemed at various drop zones around the country. Upon redemption, Skyride must pay the skydiving facility used by the customer.

Skyride owned and operated numerous websites, describing skydiving opportunities in multiple locations without reference to specific drop zones, in addition to websites referencing Arizona, including PhoenixSkydiving, ScottsdaleSkydiving, TucsonSkydiving, skydivearizona.net, skydivingarizona.com, and skydivingarizona.com.

Skydive Arizona brought an action against Skyride, asserting claims of (1) false designation of origin and unfair competition under Section 43(a) of the Lanham Act; (2) trademark infringement, and (3) cybersquatting. Skydive Arizona alleged that Skyride misrepresented ownership in skydiving facilities in Arizona in order to attract customers and sold skydiving certificates by trading on Skydive Arizona’s goodwill and misleading customers into believing that Skydive Arizona would accept its certificates.

The federal district court in Phoenix entered summary judgment in favor of Skydive Arizona for false advertising. A jury subsequently found in favor of Skydive Arizona on the remaining claims, awarding the $6.6 million in damages. The district court doubled the actual damages for false advertising and trademark infringement, resulting in $5 million for trademark infringement and $2 million for false advertising.

False Advertising

On appeal, Skyride challenged the summary judgment ruling on the false advertising claim, contending that the evidence on materiality was ambiguous. The Ninth Circuit disagreed, finding that a declaration of consumer James Flynn constituted direct evidence that Skyride’s statements were likely to influence consumers’ purchasing decisions. Flynn stated that he purchased Skyride certificates based on false representations that he could redeem them at Skydive Arizona. Skyride’s advertisements were misleading and false and had actually confused a consumer, the court held. Skyride further challenged the award of damages.

Actual Damages

In awarding actual damages for infringement, the jury considered “an array of customer service evidence and three different financial record exhibits.” The district court referred to “voluminous evidence” concerning Skydive Arizona’s stellar business reputation and the hundreds of thousands of dollars it spent in developing and advertising its business. Its failure to provide a specific mathematical formula for the jury to use in calculating actual harm to its goodwill did not undermine the jury’s finding, according to the appeals court..

Disgorgement of Profits

When reviewing an award of lost profits, a court does not ask whether the substance of the evidence was correct or even credible, but only whether the award was based on reasonable inferences and a fair assessment of the evidence. Questions of evidentiary admissibility or credibility must be raised before or during trial, the court held.

In the lost profits analysis, Skydive Arizona’s expert estimated Skyride’s revenues from Arizona by calculating the number of Arizona residents in Skyride’s records, increasing that number to account for files missing residence information, and multiplying that number by an average transaction amount. He added an interest factor of 10 percent as allowed by Arizona law.

On appeal, Skyride alleged that the calculations were clearly erroneous because they did not deduct vendor payments or overhead costs. However, Skyride did not raise these arguments until after trial. The district court held these untimely, and the appellate court agreed.

Damages Enhancement

The Ninth Circuit did reverse the award of double damages for the trademark infringement and false advertising claims. Although the Lanham Act permits a district court to enter damages not exceeding three times the amount, such an enhancement must constitute compensation rather than a penalty.

In this instance, the district court emphasized the purposefully deceitful nature of Skyride’s conduct. “Instead of discussing the appropriate award to compensate Skydive Arizona or to deter SKYRIDE, the district court focused on the need for SKYRIDE to ‘appreciate’ and ‘accept the wrongfulness of their conduct’ ”

Accordingly, the award of twice actual damages was reversed and the jury’s original award was reinstated.

The decision is Skydive Arizona, Inc. v. Quattrocchi, No. 10-16196, March 12, 2012.

Commercial Based on Unreliable “Lab Test” Enjoined

This posting was written by William Zale, Editor of CCH Advertising Law Guide.

Cat litter manufacturer Clorox was preliminarily enjoined by the federal district court in New York City from airing a television commercial making comparative claims about cat litter odor reduction.

Competitor Church & Dwight (C & D) was likely to succeed on the merits of its Lanham Act false advertising suit that the commercial made literally false claims based on an unreliable “lab test,” and was likely to suffer irreparable harm, the court held.

Clorox’s litter used carbon as an odor fighting ingredient while C & D’s litter used baking soda. In Clorox’s test, 11 panelists gave a malodor rating of zero to cat excrement treated with carbon in sealed jars but found that baking soda reduced odor only 32%—the same decrease represented in the demonstration shown in Clorox’s commercial.

Necessary Implication of Falsity

The commercial was literally false because the “jar test” could not reasonably support the necessary implication that Clorox’s litter outperformed C & D’s products in eliminating odor, the court determined. The test was unreliable because its unrealistic conditions said little, if anything, about how carbon performs in cat litter in circumstances highly relevant to a reasonable consumer, and it could not possibly support Clorox's very specific claims with regard to litter, according to the court.

Another reason given by the court for rejecting the test results was the implausible uniformity with which panelists found that cat excrement treated with carbon contained “zero” malodor. When 11 panelists stick their noses into jars of excrement and report 44 times that they smelled nothing unpleasant, the result more likely reflected flaws in their in-house training or objectivity than any reliable result, the court said.

Irreparable Harm

C & D proved a likelihood of irreparable harm. One of the beakers in Clorox's commercial bore the label “baking soda,” and C & D was the only major manufacturer of cat litter that used baking soda as a deodorizing ingredient. Consumers shopping for cat litter overwhelmingly identified baking soda with C & D’s Arm & Hammer cat litter products, according to the court.

The court concluded that the comparisons were at least as direct as those in Time Warner Cable, Inc. v. DIRECTV, Inc. (CCH Advertising Law Guide ¶62,620), where the court found that viewers of a DIRECTV commercial that disparaged “cable” in an area in which Time Warner served as the exclusive cable provider would “undoubtedly understand” that criticism to apply to Time Warner specifically.

The January 4 opinion in Church & Dwight Co. v. Clorox Co. will be reported at CCH Advertising Law Guide ¶64,533.

Reebok Settles FTC Claims That It Misrepresented Benefits of “Toning” Shoes

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

The Federal Trade Commission announced yesterday that Reebok International Ltd. agreed to resolve charges that the company deceptively advertised its “toning shoes,” including EasyTone walking shoes, RunTone running shoes, and EasyTone flip flops.

According to the FTC, ads for the shoes claimed that sole technology featuring pockets of moving air created “micro instability” that toned and strengthened muscles as you walked or ran.

In one television commercial, Reebok represented that the EasyTone toning shoes were proven to strengthen hamstrings and calves by up to 11 percent, and that they toned the buttocks “up to 28 percent more than regular sneakers, just by walking,” the FTC alleged.

Consumer Redress

As part of a settlement, Reebok has agreed to pay a $25 million judgment to be used for consumer redress distributed either through the FTC or through a class action lawsuit. Reebok also will be required to change its marketing for the relevant products, as it continues to sell the footwear.

Strengthening, Toning Claims

Reebok has agreed to refrain from making the challenged claims. A proposed consent decree would prohibit the company from representing that toning shoes and other toning apparel are effective in strengthening muscles, or that using the footwear will result in a specific percentage or amount of muscle strengthening or toning, unless the claims are true and backed by scientific evidence.

Future health or fitness-related efficacy claims for toning shoes and other toning apparel would have to be true and backed by scientific evidence. The proposed consent decree also would require Reebok to refrain from misrepresenting any tests, studies, or research results regarding toning shoes and other toning apparel.

Reebok has agreed to notify retailers and instruct them to remove marketing materials and cover portions of boxes making the challenged claims.

Reebok’s Reaction

Although Reebok agreed to settle the FTC’s allegations, it issued a statement defending its advertising practices.

“Settling does not mean we agreed with the FTC’s allegations; we do not,” Reebok said in a statement posted on the company’s web site. We fully stand behind our EasyTone technology – the first shoe in the toning category inspired by balance-ball training. We have received overwhelmingly enthusiastic feedback from thousands of EasyTone customers, and we remain committed to the continued development of our EasyTone line of products.”

The FTC filed the complaint and proposed consent decree on September 28 in the U.S. District Court for the Northern District of Ohio. A news release, complaint, and stipulated final judgment and order appear here on the FTC website.

Further details regarding Federal Trade Commission v. Reebok International Ltd., will appear in the CCH Trade Regulation Reporter.

Internet Provider’s Fast Service Claims Did Not Violate State Unfair Trade Practice Laws

This posting was written by Jody Coultas, Editor of CCH State Unfair Trade Practices Law.

A New York Internet subscriber could not state a New York deceptive business practices law claim against Time Warner Cable for allegedly misrepresenting the speed of its “Road Runner” Internet service, according to the federal district court in New York City.

A California Internet subscriber also failed to state a California Unfair Competition Law (UCL) claim based on violations of the California False Advertising Law (FAL) and Consumer Legal Remedies Act (CLRA).

Time Warner advertised its Road Runner Internet service as having “blazing speed,” being “always on connection,” and the “fastest, easiest way to get online.” These representations allowed Time Warner to charge up to more than 100% of the fees charged by competitors, according to the subscriber.

However, Time Warner failed to disclose that it interfered with and limited subscribers’ access to their Internet connections and their attempts to engage in peer-to-peer communications.

New York and California subscribers sought to represent a class of all Road Runner service customers.

In response, Time Warner argued that the service agreement included express provisions permitting the network management practices at issue. The company further argued that the statements at issue were mere puffery and not actionable under either the New York or California laws.

To state a claim under the New York law (New York General Business Law Sec. 349), the subscriber had to show that the challenged advertising was directed at consumers, the advertising would mislead a reasonable consumer in a material way, and that the subscriber suffered an injury as a result of the advertising. To state a UCL claim under the unlawful prong, the subscriber needed to show that the company violated another law.

While some of the statements were puffery, others could be actionable. However, the claims failed because there was no evidence that the Internet connection was not always available or that the speed of the service was slower than competing services, according to the court.

The decision in Fink v. Time Warner Cable will appear at CCH State Unfair Trade Practices Law ¶32,322.

Further information about CCH State Unfair Trade Practices Law appears here.

Labeling Puerto Rican Rum as “Havana Club” Not False Advertising

This posting was written by William Zale, Editor of CCH Advertising Law Guide.

A liquor distributor (Bacardi U.S.A.) did not engage in false advertising under the Lanham Act by labeling a rum not produced in Cuba as “Havana Club,” the U.S. Court of Appeals in Philadelphia has ruled.

Pernod Ricard USA filed a false advertising suit under Section 43(a)(1)(B) of the Lanham Act, asserting that the labeling of Bacardi’s bottle, particularly the use of the words “Havana Club,” misleads consumers to believe that the rum is produced in Cuba. In a three-day trial, Pernod presented unrebutted survey evidence that approximately 18 percent of consumers who looked at the Havana Club rum bottle were left thinking that the rum was made in Cuba or from Cuban ingredients.

The trial court ruled in favor of Bacardi (CCH Advertising Law Guide ¶63,805).

Geographic Origin

The phrase “Havana Club™” appears in large letters on the front of the rum bottle at issue, the court noted. Below that, in letters of prominent though smaller size and in a different font, the words “PUERTO RICAN RUM” appear. “Havana Club™” appears elsewhere on the bottle, including a statement that the product “is a premium rum distilled and crafted in Puerto Rico using the original Arechabala family recipe … [d]eveloped in Cuba …”

In order to determine whether advertising was false or misleading, the court looked at the words “Havana Club” in the context of the entire advertisement—the label of the rum. Viewed in that context, any thought a consumer might have that the words “Havana Club” indicate the geographic origin of the rum must certainly be dispelled by the plain and explicit statements of geographic origin on the label, according to the court.

Survey Evidence

The trial court properly disregarded the survey evidence as immaterial, because the Lanham Act does not forbid language that reasonable people would have to acknowledge is not false or misleading, the court concluded.

The August 4 opinion in Pernod Ricard USA, LLC v. Bacardi U.S.A.,LLC will be reported in CCH Advertising Law Guide.

Consumer Suit Proceeds Against Donald Trump and Trump University

This posting was written by William Zale, Editor of CCH Advertising Law Guide.

Individuals who paid $35,000 apiece to enroll in Trump University seminars, hoping to “Learn from the Master,” can pursue common law fraud and California consumer protection law claims against Donald Trump and Trump University, the federal district court in San Diego has ruled.

The court separately addressed claims against Trump and the university in two opinions issued the same day.

Fraud

The fraud claims against Trump himself focused on the allegation that he lied about “hand picking” instructors. Trump maintained that the named plaintiffs in the class action complaint did not sustain any damages in reliance on the alleged misrepresentation.

To the extent that the plaintiffs did rely on Trump’s alleged misrepresentations, they may have sustained damages of up to $35,000 apiece, the court determined and declined Trumps motion to dismiss.

In claims against the university, three of four named plaintiffs stated claims of fraud by alleging that they signed up for seminars in reliance on university speakers’ statements that included a misrepresentation about providing exclusive access to a list of properties handpicked by Donald Trump.

False Advertising, Consumer Protection Laws

One plaintiff stated a claim of false advertising under California law by alleging that she purchased a $35,000 seminar based on misleading statements at a $1,500 seminar made for the purpose of inducing her purchase, according to the court.

California Unfair Competition Law (UCL) and Consumers Legal Remedies Act (CLRA) claims based on the fraud allegations survived, although the court dismissed the California statutory claims brought by two of the four named plaintiffs who were not California residents. Claims under the New York deceptive acts and practices statute were rejected because none of the plaintiffs took classes in New York.

Puffery

The court agreed with Trump’s contention that his alleged statement “no course offers the same depth of insight, experience and support as the one bearing my name” constituted mere puffery and thus could not support claims under the UCL or CLRA.

The May 16 opinions in Makaeff v. Trump University LLC will be reported in CCH Advertising Law Guide.

Further information about CCH Advertising Law Guide appears here.

Infant Formula Maker’s Ads About Store Brands Barred

This posting was written by William Zale, Editor of CCH Advertising Law Guide.

Infant formula manufacturer Mead Johnson was properly enjoined from publishing any advertisement containing a false representation about store brand infant formula produced by PBM Products, the U.S. Court of Appeals in Richmond has ruled.

In addition to affirming the permanent injunction (CCH Advertising Law Guide ¶63,672), the court upheld the trial court’s rejection of Mead Johnson’s defamation and Lanham Act counterclaims (CCH Advertising Law Guide ¶63,764).

The injunction expressly barred Mead Johnson from making the following claims:

“It may be tempting to try a less expensive store brand, but only Enfamil LIPIL is clinically proven to improve brain and eye development,” and

“There are plenty of other ways to save on baby expenses without cutting back on nutrition.”

Irreparable Harm, Inadequate Remedy at Law

PBM suffered irreparable harm, the court held. Mead Johnson’s advertising misled customers. PBM’s reputation was, and potentially continued to be, damaged. The entire goal of Mead's 2008 mailer was to deter mothers from considering a switch to store brand formula.

The remedies at law were inadequate, the court determined. While the jury awarded PBM $13.5 million in damages, the damages judgment compensated PBM for harm that flowed directly from the mailer. The injunction prevented Mead Johnson from infecting the marketplace with the same or similar claims in different advertisements in the future.

Balance of Hardships, Public Interest

The balance of hardships favored PBM, and the public interest heavily favored injunctive relief, the court said.

The general public interest in preventing false and misleading advertising was perhaps heightened when, as in this case, the misleading information pertained to issues of public health and infant wellbeing. The injunction was not overbroad because it only reached the specific claims that the district court found to be literally false, according to the court.

PBM’s “Compare to” Ad Claims

Mead Johnson's Lanham Act false advertising counterclaims were properly rejected because they were untimely under the analogous two-year Virginia statute of limitation and the doctrine of laches, and because Mead Johnson failed to establish that PBM's “Compare to” ads were impliedly false.

Defamation

Because false advertising was substantially synonymous with lying, in the court’s view, Mead Johnson could not establish defamation under Virginia law based on a press release issued by the CEO of PBM Products declaring that “Mead Johnson Lies About Baby Formula . . . Again.” Mead Johnson was held to have engaged in false advertising in this case, and it did not dispute that it had distributed false statements about PBM's formulas on prior occasions, the court observed.

The decision is PBM Products, LLC v. Mead Johnson & Co.,CCH Advertising Law Guide ¶64,264.

Further information about CCH Advertising Law Guide appears here.

Appraisers Have Standing to Sue Software Developer for False Advertising

This posting was written by William Zale, Editor of CCH Advertising Law Guide.

Real estate appraisers had standing to sue the software developer FNC, Inc. under the Lanham Act for falsely advertising that appraisal-report data submitted for FNC's AppraisalPort was accessible only by client lending institutions, when FNC allegedly used the data to build its National Collateral Database, which lending institutions consulted instead of commissioning new appraisals, the U.S. Court of Appeals in New Orleans has ruled.

The case fell just within the outer limits of the zone of interests protected by the Lanham Act, the court held, applying a five-factor test for determining prudential standing.

Nature of Injury

The nature of the injury weighed in favor of standing because the alleged false advertising about AppraisalPort injured the appraisers' interest in generating new business as competitors of the National Collateral Database. Deterioration of competitive position was precisely the kind of injury the Lanham Act was intended to redress, the court said.

Directness of Injury

The relatively indirect relationship between the alleged misconduct and injuries weighed against prudential standing. The appraisers were injured by the allegedly false advertising about AppraisalPort because FNC allegedly made the decision to misappropriate the data it received from the appraisers, the court noted.

Proximity to Injurious Conduct

The proximity of the appraisers to the allegedly injurious conduct weighed in favor of standing. No identifiable class of persons could be more immediate to the misappropriation of work product than the persons to whom the work product rightfully belonged, according to the court.

Speculativeness of Damages

That the damages claim was not speculative weighed in favor of standing, the court determined. The appraisers alleged that they suffered damages in the form of lost business and profits as a result of lenders' use of the National Collateral Database and that FNC earned substantial profits on the database that it would not have been able to earn in the absence of the misrepresentations it made in its advertisements for AppraisalPort.

Risk of Duplicative Damages

Finally, there was little risk that allowing the suit to proceed would subject FNC to a risk of duplicative damages or require a complex process of damages apportionment, according to the court. To the extent there was a risk that difficulties might arise with allocating damages between the members of the alleged class of appraisers, those difficulties were to be addressed in deciding the request for class certification.

Because FNC’s allegedly false advertisements were not, of their own force, injurious to the plaintiffs’ commercial interests, the plaintiffs’ injury was less direct than was typical under Sec. 43(a), the court observed. Critically, however, there was no participant in the market who was more directly injured by FNC’s anti-competitive conduct.

Each additional step in the asserted chain of causation involved a wrongful act by FNC, the court found. FNC’s alleged decision to couple its false advertisements with other forms of anti-competitive conduct did not make the false advertising any less unfair as a method of competition, the court concluded.

The February 24 opinion in Harold H. Huggins Realty, Inc. v. Torres will be reported at CCH Advertising Law Guide ¶64,185.

Salons Can Pursue False Ad Suit Against Makers of “Salon Only” Products

This posting was written by William Zale, Editor of CCH Advertising Law Guide.

Hair salon operators have standing to pursue a Lanham Act false advertising suit against manufacturers of “salon-only” hair products alleged to be widely available at mass retailers, the federal district court in New York City has ruled.

Constitutional Standing

The salon operators’ class action complaint satisfied the case-or-controversy requirement under Article III of the U.S. Constitution by asserting (1) a concrete and particularized injury, (2) causally connected to the conduct complained of, and (3) likely to be redressed by a favorable decision, the court held.

The manufacturers argued that any injury caused by the diversion of salon-only products to mass retailers did not flow from the false “salon-only” advertising.

The salon operators identified an injury separate from the injury created by the diversion, the court found. They asserted that their reputation was damaged because customers associated the “salon-only” advertising with the salons and therefore may stop patronizing the salons when they discover the falsity of the statements at issue.

The claimed causation was fairly straightforward: it was plausible that consumers would associate false advertising claims with the seller of the product, in addition to (or instead of) the product’s manufacturer, according to the court. Although the consumer’s decision ultimately caused injury to the salon operators, the manufacturers’ allegedly false statements had a “determinative or coercive effect” on the consumer’s decision.

If the manufacturers had engaged in false advertising, it was unlikely that they could successfully defend this action by showing that the salon operators could have avoided the effect of that violation of law by exiting the market for the manufacturers’ hair products. In any event, the operators sufficiently alleged the existence of a causal connection between the false advertising and the injury to their reputation based on past practices to establish standing, the court determined.

Statutory Standing

The salon operators had statutory standing under the Lanham Act because they had a reasonable interest in protecting themselves from the reputational damage allegedly resulting from the manufacturers’ advertising.

In Famous Horse Inc. v. 5th Avenue Photo Inc. (CCH Advertising Law Guide ¶64,046), the Second Circuit had held that a retail chain had alleged a “reasonable interest” and a reasonable basis for believing that its interest could be harmed by the supplier’s false advertising; the chain had an interest in maintaining its customers’ perception that its branded jeans, though discounted, were genuine, and the supplier’s false statements tended to undercut that perception.

Materiality

The salon operators stated a Lanham Act false advertising claim because the allegedly false statements related sufficiently to an inherent and material characteristic of the product to be actionable, the court decided. The claim that the products were sold only in salons went directly to a highly relevant aspect of the product. The “salon-only” claim differentiated these products from products sold at mass retailers and also indicated the superiority and cachet of the professional products.

Consumers might be willing to pay a premium for products sold exclusively through salons because they associated these products with professional expertise. The salon operators alleged facts sufficient to show that the false advertising claims were material to consumers’ purchasing decisions, the court concluded.

The decision in Salon FAD v. L’Oreal USA, Inc. appears at CCH Advertising Law Guide ¶64,162.

California Class Certified in Suit Over Dell Price Advertising

This posting was written by William Zale, Editor of CCH Advertising Law Guide.

In a suit against Dell Inc. under California consumer protection laws, a class was certified consisting of all citizens of the State of California who on or after March 23, 2003 purchased Dell-branded products advertised with a “Slash-Thru” price—a discount from a former sales price—via the Home & Home Office segment of Dell's website, the federal district court in San Jose has ruled.

Reliance

A key question was whether class members' reliance on Dell's allegedly false representations was susceptible to common proof.

In California, “a presumption, or at least an inference, of reliance arises wherever there is a showing that a misrepresentation was material,” under the California Supreme Court's 2009 decision In re: Tobacco II Cases (CCH Advertising Law Guide ¶63,423).

There was no dispute that the alleged misrepresentations were communicated to all class members, because the representations were made at the point of sale as part of a standardized online purchasing process, the court observed.

Dell's marketing expert contended that while some purchasers might attach importance to a discount off Dell's list price, others would base their decision on wholly unrelated factors. But, under California law, the purchasers did not need to establish that each and every class member based his or her decision on the represented discounts.

The purchasers' common evidence that the representations were material satisfied California's reliance presumption, as well as the federal class action requirement that issues of law and fact common to class members predominate over individual issues, the court determined.

Exclusions from Class

The court excluded from the class purchasers exposed only to Dell's starting “Starting Price” promotions and purchasers through the Small and Medium Business (SMB) segment of Dell's website.

The two named plaintiffs' exposure to alleged misrepresentations regarding a former sales price were not typical of the purchases made after Dell changed to “Starting Price” promotions in mid-2007, the court found. The named plaintiffs failed to satisfy the class action typicality requirement with respect to the later purchases.

As to purchases made through Dell's SMB segment, a purchaser of a large number of computers for a business, or even the purchaser of a single $20,000 commercial server, was unlikely to have a substantially similar purchasing experience as the purchaser of a single laptop for personal use.

It would be difficult to make the same inference of reliance regarding the relevant offers and alleged falsity in the context of Dell's SMB segment, the court said.

The opinion in Brazil v. Dell Inc. will be reported at CCH Advertising Law Guide ¶64,130.

eBay's Advertising of Tiffany Jewelry Not Proven Misleading

This posting was written by William Zale, Editor of CCH Advertising Law Guide.

The famous jeweler Tiffany failed to establish that online marketplace eBay engaged in misleading advertising under the Lanham Act in connection with the sale of counterfeit “Tiffany” jewelry on its site, the federal district court in New York City has ruled.

eBay advertised the sale of Tiffany goods on its website in various ways. Among other things, eBay provided hyperlinks to “Tiffany,” “Tiffany & Co. under $150,” “Tiffany & Co.,” “Tiffany Rings,” and “Tiffany & Co. under $50.” eBay also purchased advertising space on search engines, in some instances providing a link to eBay's site and exhorting the reader to “Find tiffany items at low prices.”

Prior Decisions

Following trial in 2008, the court rejected Tiffany’s false advertising claims (CCH Advertising Law Guide ¶63,019). The court found that eBay’s advertising was not literally false and or likely to mislead consumers because authentic items were offered for sale, and inauthentic items were only listed on eBay due to the illicit acts of third parties.

On appeal, the U.S. Court of Appeals in New York City agreed that eBay’s ads were not literally false but ordered the trial court to take a fresh look at whether eBay’s advertising was likely to mislead or confuse consumers, in light of evidence that eBay knew that “Tiffany” products advertised and sold on eBay often were counterfeit (CCH Advertising Law Guide ¶63,792).

Likelihood of Confusion

On remand, the trial court noted that Tiffany had not produced extrinsic evidence of deception such as a consumer survey typically required to prove that a substantial portion of consumers in fact were misled by advertising.

Instead, Tiffany relied on (1) declarations of three eBay customers who believed that they bought counterfeit Tiffany goods on eBay, (2) testimony from a Tiffany employee that Tiffany had received numerous emails complaining of counterfeit Tiffany goods on eBay, and (3) 125 emails sent by customers to eBay complaining of counterfeit Tiffany goods.

Because none of the complaining customers referred to any eBay advertisements, the court held that no extrinsic evidence indicated that the ads were misleading or confusing.

Intent to Deceive

An exception to the extrinsic evidence rule exists, according to the court. When an advertiser has intentionally set out to deceive the public, and the conduct is of an egregious nature, a presumption arises that consumers are, in fact, being deceived.

Tiffany contended that eBay’s intent to deceive was proven at trial by the fact that eBay continued advertising the availability of Tiffany products on its website after it had been notified that a sizable portion of the products were counterfeit. The court held that Tiffany waived this argument by failing to raise it before, during, or after trial, or on appeal.

eBay’s conduct could not be found egregious because there was no proof that eBay was aware those consumers were being misled by its advertisements, the court concluded. In addition, eBay took substantial steps to prevent and detect the sale of counterfeit goods on its website.

The opinion in Tiffany (NJ) Inc. v. eBay, Inc., filed September 13, 2010, will be reported at CCH Advertising Law Guide ¶63,967.

Baseball Rooftop Club Promoter Faces Suit Over Internet Ads

This posting was written by William Zale, Editor of CCH Advertising Law Guide.

The proprietor of a “rooftop club” for viewing Chicago Cubs baseball games (Wrigley Done Right) stated Lanham Act claims of false advertising and false designation of origin against a promoter of competing venues (Ivy League Club and Wrigley Rooftop Club), the federal district court in Chicago has ruled.

False Advertising

An Internet advertisement that promoted the availability of services at the Ivy League club when it was under construction and not operating could constitute false advertising, the court held. From January 2008 until some time in 2009, the promoter allegedly advertised the availability of services at the Ivy League Club on its website, despite the fact that the facility was closed for renovation through the 2009 baseball season and lacked a license required for hosting patrons.

The promoter allegedly deceived consumers into booking reservations for inferior services by accepting reservations and later providing tickets at other facilities with less favorable viewing locations than the Ivy League Club’s.

The Ivy League Club allegedly booked a significant number of reservations as a result of these misleading advertisements, and the diversion of sales allegedly injured Wrigley Done Right’s business.

The promoter contended that construction delays did not amount to fraud and that website disclaimers were posted. However, the advertising and selling of seats at a nonoperating venue for a more than a year and a half went beyond mere “construction delay,” according to the court.

False Designation of Origin

The promoter’s advertising for the Wrigley Rooftop Club could constitute a false designation of origin, the court ruled.

The promoter and the Wrigley Rooftop Club allegedly sponsored an advertisement on the website ballparkrooftops.com featuring a photo of Wrigley Done Right’s building next to a link to the Wrigley Rooftop Club’s website. Wrigley Done Right allegedly was injured as a result of the misrepresentation because sales were diverted to the Wrigley Rooftop Club.

State Law

Claims under the Illinois Deceptive Trade Practices Act and Illinois Consumer Fraud Act would stand or fall based on the outcome of Lanham Act claims of false designation of origin and false advertising, the court added.

The July 12 opinion in Bluestar Management LLC v. Annex Club, LLC will be reported at CCH Advertising Law Guide ¶63,916

Further information about CCH Advertising Law Guide appears here on the CCH Online Store.

Kellogg Agrees to Tougher Restrictions to Resolve FTC Ad Claims

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

After resolving an FTC complaint last year that it had engaged in false advertising by claiming that eating a bowl of Frosted Mini-Wheats cereal would improve childrens’ attentiveness, the Kellogg Company has agreed to settle agency allegations that it made questionable immunity-related claims for its Rice Krispies cereal. The cereal maker has agreed to new advertising restricts.

Under the FTC consent order resolving the 2009 complaint, Kellogg was barred from making claims about the benefits to cognitive health, process, or function provided by any cereal or any morning food or snack food unless the claims were true or substantiated.

The modified consent order prohibits Kellogg from making claims about any health benefit of any food unless the claims are backed by scientific evidence and are not misleading.

On product packaging, Kellogg claimed that Rice Krispies cereal “now helps support your child’s immunity,” with “25 percent Daily Value of Antioxidants and Nutrients—Vitamins A,B,C, and E.” The back of the cereal box stated that “Kellogg’s Rice Krispies has been improved to include antioxidants and nutrients tht your family needs to help them stay healthy.”

Concurring Statements

FTC Chairman Jon Leibowitz and Commissioner Julie Brill issued a concurring statement, expressing their concern “that at the same time that Kellogg was making promises to the Commission regarding Frosted Mini-Wheats, the company was preparing to make problematic claims about Rice Krispies.”

The statement noted that “[i]n light of the timing of the launch of the Rice Krispies campaign, it is reasonable to conclude that planning for the new `immunity’ claims was well underway while Kellogg was negotiating and finalizing its agreement with the FTC to not make unsubstantiated `cognitive ability’ claims about Frosted Mini-Wheats.”

The case is In the Matter of Kellogg Co., FTC File No. 082 3145, June 3, 2010. A news release on the case appears here on the FTC website. An order to show cause and order modifying order appears here. Further details will appear in CCH Trade Regulation Reporter.

Evidence That eBay’s Ads Misled Consumers Merits Another Look

This posting was written by William Zale, Editor of CCH Advertising Law Guide.

In light of evidence that online marketplace eBay knew that “Tiffany” products advertised and sold on eBay often were counterfeit, the U.S. Court of Appeals in New York ordered a trial court to take a fresh look at whether eBay’s advertising was likely to mislead or confuse consumers in violation of the Lanham Act.

The court remanded the case to the federal district court in New York City, which had held that the evidence at trial did not support Tiffany’s claims that eBay’s advertising violated the Lanham Act (CCH Advertising Law Guide ¶63,019).

Advertising of "Tiffany" Goods

eBay advertised the sale of Tiffany goods on its website in various ways. Among other things, eBay provided hyperlinks to “Tiffany,” “Tiffany & Co. under $150,” “Tiffany & Co.,” “Tiffany Rings,” and “Tiffany & Co. under $50.” eBay also purchased advertising space on search engines, in some instances providing a link to eBay's site and exhorting the reader to “Find tiffany items at low prices.”

Yet the trial court found, and eBay does not deny, that “eBay certainly had generalized knowledge that Tiffany products sold on eBay were often counterfeit,” the appellate court observed.

eBay did not infringe or dilute Tiffany’s trademarks, and the advertising was not literally false because some genuine Tiffany merchandise was offered for sale on eBay. However, the reasons given for rejecting the claim that the advertising was misleading were inadequate, the court held.

Fair Use

Even if eBay’s use of Tiffany's mark was a nominative fair use, it did not follow that eBay did not use the mark in a misleading advertisement, the court reasoned. The mere fact that the incorporation of another’s brand in an advertisement may be a permissible fair use under trademark law did not preclude a claim that the advertisement was false or misleading.

Knowledge

eBay could not rely on its lack of knowledge as to which particular listings on its website offered counterfeit Tiffany goods. This fact, while relevant to the question of contributory trademark infringement, shed little light on whether the advertisements were misleading insofar as they implied the genuineness of Tiffany goods on eBay's site, the court said.

Sellers’ Fraud

Finally, the court was unconvinced by the theory that eBay's advertisements were misleading only because the sellers of counterfeits made them so by offering inauthentic Tiffany goods. This consideration was relevant to Tiffany's direct infringement claim, but less relevant, if relevant at all, to the question of whether the advertising was likely to mislead or confuse consumers.

It was true that eBay did not itself sell counterfeit Tiffany goods. Only the fraudulent vendors did, and that in part was why eBay did not infringe Tiffany's mark.

But eBay did affirmatively advertise the goods sold through its site as Tiffany merchandise. The law required that eBay be held accountable for the words that it chose insofar as they misled or confused consumers, the court concluded.

The April 1 opinion in Tiffany (NJ) Inc. v. eBay Inc. will be reported in CCH Advertising Law Guide.