Stay ADvised: What's New This Week, March 1
In This Issue:
- Clothing Retailer Fails to Put Deceptive Pricing Suit on Clearance
- Coca Cola Tells Plaintiffs They Can't Beat the Real Thing in Decertification Bid
- Bayer's Remedy for Lanham Act Time Limitations May Create Headaches
- Court Finds "Independent Reviews" Are a Load of Bullion
Clothing Retailer Fails to Put Deceptive Pricing Suit on Clearance
A federal court judge has refused to throw out a suit alleging that upscale preppy clothing brand Vineyard Vines misled consumers about the pricing of clothing sold in its outlet stores.
Putative class complainants who purchased Vineyard Vines clothing at the brand's outlet store allege that the company sold them clothes of lesser quality than the brand's retail offerings but, nonetheless, passed them off as the real deal. It did so, they say, by deceptively pricing the fashion.
Calling the alleged wrongdoing a "deceptive marketing scheme used to make consumers believe they are receiving retail quality goods, when they are receiving goods of lesser quality," plaintiffs aver that defendants falsely represented the clothes sold at their outlet stores as of "identical" quality as those sold for higher prices at their retail locations.
As evidence that the clothes sold at Vineyard Vines outlet stores are inferior in quality, plaintiffs point to the clothing "care" tags, which are allegedly different for Vineyard Vines outlet and retail clothing. A difference in care indicates a difference in fabric, according to plaintiffs. As one example, the complaint references a bathing suit "care" tag listing the various percentages of the fabrics it contains, (polyester and spandex), versus the purportedly same outlet product that just says made of "100 percent polyester."
The price tags, however, give the impression that consumers are getting the same product. In the bathing suit example, the price tag lists the suggested retail price—the same price the item goes for at the retail store—just above a lower outlet price. The implication created by this retail "reference" price, say plaintiffs, is that consumers are getting the same item for less. "Where the seller offers product manufactured exclusively and intended solely" for the outlet stores, the "use of the term 'retail' is deceptive," note plaintiffs.
Judge Joan M. Azrack of the Eastern District of New York was unable to get on board with Vineyard Vines' bid to dismiss the case, finding it too early in the proceedings to make the determinations sought by defendant. Addressing defendant's argument that the reasonable consumer would understand that outlet stores are stocked with merchandise created especially for outlets, the court agreed that might well be the case, but it could not make the determination regarding the reasonable consumer's perception of price tags at this juncture.
The court found plaintiffs had adequately alleged that the retail terminology could be misleading. It did not help defendant's case that other courts had also made a distinction between outlet and non-outlet stores. Indeed, the court did not agree with defendant that the word "retail" was "clear and unambiguous" and that the reasonable consumer would understand the word "retail" as a reference to an outlet store as a "kind of 'retail' store". The court also disagreed with defendant that "no reasonable consumer would find the word 'retail' to mean or imply that products of the same quality … are sold in the outlet stores" as are sold in retail stores.
As to the brand's argument that its outlet and retail stores offer the same quality goods, the court noted that it could not at the motion to dismiss stage make what was a largely factual determination having to do with product quality. Although it allowed the case to survive the motion to dismiss, the court however did indicate that defendant was "likely to prevail later in the case."
Though plaintiffs' suit moves forward, the court indicated it will be an uphill battle for plaintiffs. The court appeared to side with plaintiffs at this stage based solely on what it considered sufficiently pled allegations. The court's pessimism about plaintiffs' chances is no surprise. Deceptive pricing suits are often uphill battles for plaintiffs.
Coca Cola Tells Plaintiffs They Can't Beat the Real Thing in Decertification Bid
Coca Cola is urging the 9th Circuit to decertify a class of consumers in longstanding litigation alleging that the cola was falsely advertised as containing no artificial flavors.
The multidistrict litigation concerns allegations that Coca Cola contains phosphoric acid, which plaintiffs say is at odds with the statements "no artificial flavors" and "no preservatives added." Plaintiffs allege that the drink's label is misleading because it fails to identify phosphoric acid as an artificial flavor or preservative. For its part, Coca Cola asserts both that phosphoric acid does not qualify as an artificial flavor under FDA regulations, and that plaintiffs have no standing to sue for injunctive relief.
On the latter argument, Coca Cola contends phosphoric acid has been included in Coca Cola drinks for over a century, undercutting any claims that consumers' injuries are "imminent." They assert that any injunction would not "protect" plaintiffs "from future deception, because no risk of future deception exists" since plaintiffs know the drink has phosphoric acid and believe it is an artificial flavor, and since Coca Cola's formula is unlikely to change. Any injuries are "speculative," counsel for Coca Cola argued at the hearing seeking to decertify the class.
U.S. Circuit Court Judge Marsha S. Berzon also noted that plaintiff consumers are not arguing that the ingredient itself is unacceptable but, rather, about "abstract" labeling that should comply with federal regulations. Consumers are "saying it'd only be acceptable if they had the right label… They would buy if it was properly labeled. They don't seem to be caring about what's actually in it. They only care about the label," Judge Berzon added.
But counsel for plaintiffs countered that 9th Circuit precedent has held that "labels matter." Counsel argued that accurate labels will influence future consumer purchases of Coca Cola.
"[No] plaintiff stated that they never intended to purchase Coke again, and several stated that they have continued purchasing or drinking it on occasion, but wish to know whether it contains artificial flavors or chemical preservatives of any kind so that they can make appropriate purchasing or consumption decisions, including how much to buy, or how frequently to buy it," noted plaintiffs in their brief.
"What they are deprived of as we sit here today is adequate information so they can make those decisions and whether their purchasing habits need to change," added counsel.
"No artificial flavors" and "no preservatives" have become lighting rods for putative consumer class actions in the last several years. However, plaintiffs have faced more hurdles in asserting their claims as the 9th Circuit and other courts become increasingly skeptical of whether those plaintiffs assert the type of imminent harm required for injunctive relief. Companies in the food and beverage space should watch this case closely.
Bayer's Remedy for Lanham Act Time Limitations May Create Headaches
The 4th Circuit has ruled that the equitable doctrine of laches—and not state statutes of limitations—dictates the limitations period applicable to false advertising and false association claims under Section 43(a) of the Lanham Act, remanding the case to the district court.
The dispute between drug maker Bayer and Belmora concerns the pain reliever naproxen sodium, sold by Bayer in the United States under the brand name ALEVE and by Bayer in Mexico under the name FLANAX since the 1970s. In 2005, Belmora began selling the same drug under the brand name FLANAX in the United States using packaging similar to Bayer's FLANAX Mexico and touting the drug's popularity in that region.
When Belmora sought a U.S. trademark on the name FLANAX, Bayer filed a competing application and petitioned the U.S. Trademark Trial and Appeal Board (TTAB) to cancel Belmora's application under the Lanham Act, alleging Belmora had misused the mark to capitalize on the popularity of Bayer's Mexican product. In April 2014, the TTAB ruled in Bayer's favor and canceled the registration. Bayer then sued Belmora for false advertising under Lanham Act Section § 43(a) and for other state law claims.
The lower court dismissed the case, agreeing with Belmora that it was time barred by the statute of limitations, and finding Bayer's argument of laches did not apply. Bayer appealed, questioning whether and which appropriate limitations period to apply to Section § 43(a) false advertising claims, since this section of the Lanham Act is silent on the limitations period issue.
Addressing the issue, the 4th Circuit held that the appropriate limitations period in a case for false advertising under the Lanham Act should be based on the doctrine of laches. The court reasoned that the district court had erred in applying state law as the most analogous limitations statute. Rather, a "§ 43(a) is one such federal law for which a state statute of limitations would be an unsatisfactory vehicle for enforcement."
Laches, which applies to equitable claims, "provides a closer analogy than available state statutes," held the court. Because it provided that § 43(a) claims are "subject to the principles of equity," the text of the statute itself supported this conclusion, as other circuits had also found. The appeals court also instructed the lower court to address on remand Bayer's argument that state law claims in the suit should be subject to tolling due to the trademark proceeding, which the court had not done initially.
If the 4th Circuit's determination holds up in other courts, this ruling could prove a double-edged sword for Lanham Act defendants: While laches offers far more flexibility than strict statutes of limitations, the fact-intensive defense promises to create potentially discovery-heavy litigation that is nearly impossible to use for disposing of cases early, such as at the motion to dismiss stage.
Court Finds "Independent Reviews" Are a Load of Bullion
A recent decision from a New York District Court echoes the National Advertising Division (NAD) and the Federal Trade Commission's (FTC) concerns that fake review websites may deceive consumers who believe the reviews contained therein reflect independent, third-party ratings—and not self-interested self-promotion.
Beyond 79, LLC v. Express Gold Cash, Inc., concerns two companies that purchase gold and related metals and/or jewelry from the public for cash. The plaintiff in the cases alleges that Express Gold Cash, Inc., acting with a pair of digital marketers, created websites with fake reviews lauding the defendant's services and criticizing those of the plaintiff.
Plaintiff sued the marketing agencies and the client competitors who hired them for false advertising under the Lanham Act, as well as under New York's General Business Law and for other causes of action.
According to the plaintiff, these reviews were meant to appear as if they were independently posted by consumers, thereby boosting the defendant's credibility and disparaging the plaintiff. Another site passed itself off as the "review site from a disgruntled" jewelry industry—except he was entirely fictional, down to the stock photo of the supposed author, claimed plaintiff. Both Express Gold and its marketers were named as defendants. Defendants further allegedly deleted any positive reviews posted on the sites.
Defendants moved to dismiss, arguing that the content of the fabricated reviews lauding defendants were "general claim[s] of superiority" and an "exaggeration" which no reasonable consumer would fall for—in other words, non-actionable puffery under the Lanham Act.
The court denied the motion, stating that the issue was not the falsity of the reviews, but the misrepresentation that those reviews came from independent sources—as in real, live customers. In denying the motion, the court noted that "Plaintiff's Lanham Act claims are premised on the falsity of the websites' claims of independence, not merely on a claim that the websites at issue promoted" defendant Express Gold.
Moreover, the court was not persuaded by the marketers' arguments that they could not be held liable for merely "enhancing the visibility of an entity" or simply registering, creating, and maintaining the deceptive websites at issue. Here, too, the court noted that the claims were "premised on the falsity of the websites' claims of independence."
The court further found that the plaintiff had adequately alleged that the marketers "actively participated" by creating the fake sites. In reaching this conclusion, it looked to the "'handful' of district court cases that have considered the liability of advertising and public relations agencies for Lanham Act false advertising violations."
This is not the first case to take issue with purportedly independent review sites, and it won't be the last. It is most importantly a cautionary tale for entities that help clients to create content that contains what can be alleged to be blatant misrepresentations regarding its independence.