Another API (c) case with false advertising and contract claims too

Trackman, Inc. v. GSP Golf AB, 2024 WL 4276497, No. 23 Civ. 598 (NRB) (S.D.N.Y. Sept. 24, 2024)

Trackman makes the golf simulator game Perfect Golf, which offers users the ability to virtually play some of the most famous golf courses in the world. Defendants allegedly copied key components of Trackman’s copyrighted software and falsely suggested, in promotions and advertisements, that defendants were authorized to use the well-known courses in their game.

Although the court dismissed a contract claim, copyright and false advertising claims survived.

Plaintiff’s Perfect Golf simulator allows users to design golf courses; has “an API4 for external tournament sites to be able to fully integrate into Perfect Golf for online real-time scoring and tracking”; and allows users to play each other on courses designed in the simulator. Using a combination of radars and cameras, plaintiff’s launch monitors track the full trajectory of a golf shot. Launch monitors incorporated into plaintiff’s simulator technology, which allows users to play golf indoors using real clubs and balls in front of an “impact screen” that displays the simulation and keeps golf balls from ricocheting back at the player after they are hit.

Perfect Golf has a EULA that bans reverse engineering.

Although Perfect Golf used to be compatible with third-party launch monitors, as of August 2020, Perfect Golf users had to buy plaintiff’s launch monitors to play the game.

Defendant saw the compatibility-breaking as an opportunity to replace Perfect Golf and be compatible across a number of launch monitors.

This first required developing golf simulator software, eventually called GSPro. GSPro allegedly copied Perfect Golf’s course-creating code as well as copied Perfect Golf’s ‘combine’ feature,” which “enables golfers to identify strengths and weaknesses in their game.” Defendants also allegedly developed an online platform to host tournament play by GSPro users that copied Perfect Golf’s API data structures for simulating golf competitions. And they allegedly copied golf courses created on Perfect Golf’s course design platform.

In addition, defendants allegedly claimed that course selection included “iconic, branded courses like St. Andrews in Scotland and various PGA Tour Tournament Players Club courses throughout the United States” without having the licenses “required” to offer those courses, while plaintiff had “diligently sought and obtained permission[ ], including trademark licenses, from the owners of branded golf courses,” including St. Andrews and various PGA Tour courses. “Eventually, in 2023, the trademark owners of the St. Andrews and PGA Tour courses sent cease-and-desist letters to defendants, after which defendants ‘removed, disabled access to, or renamed the St. Andrews and PGA Tour courses,’” but plaintiffs argued that the damage had been done.

The court refused to hold on a motion to dismiss that the API data structures at the center of the dispute (which sound like they’re needed for interoperability) were not copyrightable, relying on the Federal Circuit’s decision in Google v. Oracle. The structures at issue include “shared naming conventions that allows a simulated golf tournament site … both to communicate with [client] software … and to process data, like how many shots it takes for a player to complete a hole in the golf simulation.”

The court found that plaintiff sufficiently pled the “modest” requirements of originality by alleging that it spent “years” developing the program, which provides, among other things, “an immersive experience centered on high-resolution visuals” and “hyper-realistic gameplay.” (Why does this make the API protectable?) It also alleged that it “built” an API. (That very verb signals the issue.) But: “Such allegations, at this stage, are more than sufficient to demonstrate that Perfect Parallel both independently developed the subject API structures and made numerous creative decisions in doing so.” Anyway, questions of originality are generally inappropriate for determination on a motion to dismiss. Likewise, whether plaintiff’s API structures were a protectable process or method of operation couldn’t be determined on a motion to dismiss.

Estoppel/license defenses were also premature, and the complaint satisfied the discovery rule on its face for statute of limitations purposes.

However, the court dismissed the breach of contract claim, finding the EULA’s anti-reverse engineering provisions preempted by copyright law. “Put simply, plaintiff claims that defendants breached the [reverse engineering] Provision by ‘studying and analyzing’ plaintiff’s software as part of its efforts to develop its own competing golf simulator software that would be compatible with Course Forge courses and third-party hardware.”

The disputed work was clearly within the scope of copyright—software/literary work. For express preemption to apply, “the state law claim must involve acts of reproduction, adaptation, performance, distribution, or display.” That was true here. But a claim isn’t preempted if it has an extra element that makes it qualitatively different. Unlike other circuits, the Second Circuit has instructed that the “extra element” inquiry is not “mechanical” but instead “requires a holistic evaluation of the nature of the rights sought to be enforced, and a determination whether the state law action is qualitatively different from a copyright infringement claim.”

While some courts have held that the promise element of a contract claim suffices, categorically exempting contract claims from preemption, the Second Circuit hasn’t. (And in an age of unavoidable contracts of adhesion, saying that as a matter of law there’s an actual “promise” and then that the promise avoids preemption seems wrong.) In the Second Circuit, “a breach of contract claim is preempted if it is merely based on allegations that the defendant did something that the copyright laws reserve exclusively to the plaintiff (such as unauthorized reproduction, performance, distribution, or display).”

Plaintiff argued that its contract claim was distinguishable because it is specifically (and carefully) “directed to the non-copying acts of studying and analyzing copyrighted works.” But, evaluating the nature of the rights sought to be enforced “holistically” showed that the contract claim was centrally about copying (or studying) in order to create competing works. Defendants’ “studying and analyzing” were “part and parcel of their broader infringing conduct that is at the heart of plaintiff’s copyright claims (i.e., unlawfully developing, producing, and distributing plaintiff’s software).”

Then, in a footnote revealing a fundamental misunderstanding, the court noted the strategic reasons for a breach of a contract claim, if the API structures turn out not to be copyrightable—in that case plaintiff would be “wholly or partly without a remedy.” Thus, the court dismissed the contract claim without prejudice if there are “substantial changes in the law.” This is a flat-out mistake about 301’s scope, which doesn’t just apply when there are valid © claims. It applies when the subject matter is the same as ©’s subject matter, whether or not the material at issue is protectable. That’s why you can’t use state law to protect works whose copyright has expired, or the facts in a work. If it’s a claim whose gravamen is copying a fixed work, then the unprotectability of the copied material doesn’t matter.

And then the court upheld a false advertising claim that seems quite problematic to me. Plaintiff alleged that defendants “sought to commercially advertise and promote the availability of iconic branded golf courses for simulator play on the SGT platform,” which misleadingly suggested that they were “authorized to offer genuine, trademarked courses,” when, in reality, defendants “lacked the rights to offer these branded courses.” The court agreed that plaintiff didn’t allege literal falsity, but found that implied falsity was plausible.

The claims weren’t literally false because “iconic, branded golf courses” were available for play. But they might have falsely implied licensing/endorsement, and plaintiff didn’t need to provide extrinsic evidence of deception at this stage. Also (ugh), intentional deception might obviate the need for evidence of confusion, and the facts here might allow that theory: Defendants allegedly

(1)  knew that they did not have the requisite authorization to make available the trademarked courses; (2) made a litany of statements on social media and elsewhere suggesting that they had such authorization; and (3) made these statements with the intention of influencing “a significant number of users” to purchase SGT subscriptions and GSPro downloads on the basis that they could play “at some of the most coveted courses around the world.”

Even though (3) was true, that was enough for the court.

What about materiality? It was plausible that consumers would care about whether the courses endorsed defendants, because the courses are official partners of plaintiff, which was plausibly related to plaintiff’s success.

What about Dastar? Some courts have rejected Lanham Act claims premised upon false representations of licensing status.” E.g., Sybersound Records, Inc. v. UAV Corp., 517 F.3d 1137 (9th Cir. 2008), rejected the plaintiff’s argument that “the licensing status of each work is part of the nature, characteristics, or qualities of the karaoke products” because they weren’t characteristics of the goods themselves. But the court found this line of cases to be irrelevant to the false advertising claim here. “Dastar and the like are concerned about impermissibly blurring the lines between trademark and copyright law.” The claims here were “based solely on the SGT Defendants’ misleading statements regarding the licensing of trademarked courses, not the licensing of expressive copyrighted (or copyrightable) material…. [T]he misrepresentations at issue have nothing to do with claims of authorship of an expressive work or creation of an invention.” Plaintiff wasn’t suing over copying the simulated version of the course.

This is a little weird given that the representations of the courses were copyrightable representations—the license was a license to represent the courses, not to play on them or replicate them in the physical world. More to the point, though, the analysis does not fit well with today’s textualism. Dastar says that is about the meaning of “origin” in the Lanham Act, even if that interpretation was motivated in significant part by avoiding a TM/© conflict. Dastar says that “origin” does not include the origin of intangible content—including who “stands behind” that intangible content. It specifically addresses the argument that intangible origin could well matter to consumers for “communicative” goods. You can get there textually by saying that “nature, characteristics or qualities” is broader than “origin,” for sure. But I think these days you have to take that step.

It’s also worth noting that the TM claim here is based on the representation of golf courses in the game, which shouldn’t require permission any more than a book about the golf courses would—there are pretty significant Rogers issues as well, and the trademark claimants aren’t even actually here to make their claims.

challenge to Sirius XM's (huge) junk fees survives

Carovillano v. Sirius XM Radio Inc., 2024 WL 450040, No. 23 Civ. 4723 (PAE) (S.D.N.Y. Feb. 6, 2024)

Among other things, this opinion features very effective use of images from this case and others!

Plaintiffs alleged that Sirius XM promises its telephonic subscribers a particular monthly price, only to charge them an undisclosed 21.4% fee (the “U.S. Royalty Fee”) on top, in violation of NY GBL §§ 349 and 350 (along with breach of the implied covenant of good faith and fair dealing and unjust enrichment). Sirius responded that it clearly disclosed the fee and that no reasonable consumer would be confused. The court declined to grant the motion to dismiss except as to unjust enrichment (duplicative) and the request for injunctive relief (lack of standing).

As alleged:

Sirius XM satellite radios are pre-installed in 84% of all new automobiles, with each buyer automatically provided a free trial. These free trials are critical to Sirius XM’s business model, which “relies on converting these millions of vehicle buyers from free trial users into paid subscribers of automatically renewing music plans.”

Once the car-buyer’s free trial ends, Sirius offers a lot of plans, often at a promotional price (for instance, “3 mos. for $1 then $23.99/mo.”). However, the advertised rates don’t include the “U.S. Music Royalty Fee,” a flat-rate charge imposed at Sirius XM’s sole discretion that has increased over time. Right now, it’s a “uniform additional 21.4% charge.” So, a customer promised “3 mos. for $1” will, in fact, pay $1.21 per month, and then $29.12 per month.) The Fee is a key profit center for Sirius XM, responsible for $1.36 billion in revenue—122% of Sirius XM’s net profits for the year.

The complaint alleged that Sirius XM didn’t adequately disclose the Fee in its ads, such as this one:

 

mailer

The promotional rate is prominently displayed, but there’s no express reference to the Fee. At the end of the mailer, the paragraph beginning “OFFER DETAILS” says “[f]ees and taxes apply.” That paragraph also says in bold: “Please see our Customer Agreement at www.siriusxm.com for complete terms.”

The customer agreement then says, in relevant part “We may charge you one or more of the following fees, all of which are subject to change without notice: … Packages which include music channels may be charged a U.S. Music Royalty Fee. See www.siriusxm.com/usmusicroyalty.” That page says “The current U.S. Music Royalty Fee is 21.4% of the price of satellite plans* that include music channels. … based on the entire subscription price of the plan you purchase that includes musical performances.”

Like its mailers, Sirius XM’s promotional materials also don’t expressly refer to the Fee. The email shown in the complaint doesn’t mention fees at all; “See Offer Details” (rendered in white text against a pink backdrop [ed. note: bad practice!]) is a hyperlink that goes to a webpage that also doesn’t expressly refer to the fee, though it does state that “Fees & taxes apply,” and it directs customers to “our Customer Agreement,” as quoted above.

email

webpage to which email links

For subscribers who sign up by phone, the complaint alleges, Sirius XM never “disclose[s] ..., at any time before or when they signed up, that it [will] charge them a U.S. Music Royalty Fee in addition to the advertised and promised price.” “At most, agents may say the cost is the advertised or quoted price plus unspecified ‘fees and taxes.’ ”

New subscribers receive a confirmation email, which is allegedly the sole billing document that mentions the Fee. Because Sirius XM does not send any “periodic billing notices or invoices to its subscribers,” plaintiffs alleged that its subscribers often learn of Sirius XM’s hidden fees by inspecting their bank or credit card billing statement. Sirius XM customer-service agents are allegedly instructed to tell those subscribers who do find out about the Fee “that the Fee is a government-related fee and/or that [it] is outside of Sirius XM’s control.”

Whether an act is “materially misleading” under New York law is an objective inquiry, and “generally a question of fact not suited for resolution at the motion to dismiss stage.” The court was not persuaded by Sirius XM’s (terrible) argument that it “fully disclosed” the Fee. “New York courts have rejected the argument that a generalized disclaimer as to ‘additional fees’ bars claims asserting the non-disclosure of fees that a reasonable consumer would not expect” (collecting cases).  Its “shorthand and inconspicuous disclosure” that “fees and taxes apply” couldn’t suffice on a motion to dismiss.

Some cases dismiss claims where defendants gave plaintiffs the tools “necessary to understand” a challenged fee, but those cases involved fees “so commonplace or small that the reviewing court held that a reasonable consumer would not have been surprised to first learn of them by reviewing the final receipt,” such as sales tax or other government-imposed fees.

The court also pointed to Second Circuit decisions addressing, in contract law, when a party can be found to have been on inquiry notice of claimed terms during contract formation. That court has found that reasonable consumers would not be on notice of terms where the “small-print disclaimer” was “dwarfed by the surrounding colorful text and imagery.”

E.g., the ad in Soliman v. Subway Franchisee Advertising Fund Trust, Ltd., 999 F.3d 828 (2d Cir. 2021):  

Subway ad

One reason the Second Circuit found Subway’s disclaimer inconspicuous was its “mixed-media incorporation of contractual terms” requiring a consumer to go from a print advertisement to a website. “[W]hen a consumer must type in a thirty-seven-character URL to their cellphone or computer, it is more difficult to navigate to the terms of use in order to confirm” just what she has been asked to agree to. Id

Nicosia v. Amazon.com, Inc., 834 F.3d 220 (2d Cir. 2016), involved an order page like this:

 

Amazon ad

Whether Amazon provided sufficient notice, the Second Circuit held, could not be resolved as a matter of law. The key “message itself—‘By placing your order, you agree to Amazon.com’s ... conditions of use’—is not bold, capitalized, or conspicuous in light of the whole webpage.” The webpage’s many links, in “different colors, fonts, and locations,” “generally obscure” the notification that Amazon’s terms and conditions apply to the transaction. “Given the breadth of the range of technological savvy of online purchasers,” the Circuit stated, “consumers cannot be expected to ferret out hyperlinks to terms and conditions to which they have no reason to suspect they will be bound.”

On the pleadings, it was plausible that Sirius XM’s “mixed-media incorporation of contractual terms” in its mailer—requiring a prospective customer to “type in” a “URL to their cellphone or computer” and then navigate through at least three webpages to determine the amount of the additional fee—“obscure[d] th[at] message” so as not to give a reasonably prudent consumer notice of it, and that the disclaimer about other “[f]ees & taxes” was “not bold, capitalized, or conspicuous in light of the whole” mailer, and was “generally obscure[d]” by other “distracting” elements such as the prominently touted sticker price of “$5/month.” The “duty to read” terms properly “called to [a consumer’s] attention” does not imply a “duty to ferret out contract provisions ... contained in inconspicuous hyperlinks.” And, under Mantikas v. Kellogg Co., 910 F.3d 633, 637 (2d Cir. 2018), a reasonable consumer is not “expected to look beyond misleading representations” in one part of an advertisement “to discover the truth ... in small print” online.

It was also plausible that, had they known of the Fee, plaintiffs “would not have been willing to pay as much for their music plans” or “would not have purchased music plans at all.” A price premium-like theory was plausible given the allegations that, had Sirius XM revealed the all-in price of its subscriptions, it would have faced downward price pressure from competitors, such as “Apple Music, Spotify, Amazon Music, [and] Google Play Music,” all of which offer similar music-streaming services but do not “charge any separate music royalty fee.”

The claim for breach of the implied covenant of good faith and fair dealing also survived, because Sirius XM’s argument that the contract allowed it to charge the Fee “assumes a disputed conclusion: that there is a binding enforceable contract between Sirius XM and the plaintiffs that encompasses a customer obligation to pay the U.S. Royalty Fee.”

 

Are Burger King menu boards whoppers?

Coleman v. Burger King Corp., No. 22-cv-20925-ALTMAN (S.D. Fla. Aug. 25, 2023)

Plaintiffs alleged that Burger King, through its advertisements and in-store ordering boards, “materially overstates” the size of (and the amount of beef contained in) many of its burgers and sandwiches. Allegedly, “[a] side-by-side comparison of Burger King’s former Whopper advertisement to the current Whopper advertisement shows that the burger increased in size by approximately 35% and the amount of beef increased by more than 100%. Although the size of the Whopper and the beef patty increased materially in Burger King’s advertisements, the amount of beef or ingredients contained in the actual Whopper that customers receive did not increase.”

Burger King responded that it makes very clear how much beef the Whopper contains. Its website says: “Our Whopper Sandwich is a ¼ lb* of savory flame-grilled beef topped with juicy tomatoes, fresh lettuce, creamy mayonnaise, ketchup, crunchy pickles, and sliced white onions on a soft sesame seed bun,” with the asterisk after the burger’s weight referring to the “[w]eight based on a pre-cooked patty.”

The court first refused to consider the consumer protection laws of 50 different states without a named plaintiff from every state. Although the named plaintiffs had Article III standing to assert claims on behalf of absent class members from other states—they had alleged a redressable injury—they couldn’t assert claims under the laws of states that did not apply to them because they hadn’t made their purchases in those states. Plaintiffs were directed to file an amended complaint for only those states in which they’d purchased products. They could eventually seek certification to assert materially identical consumer-protection claims on behalf of class members from other states, and they could even list the states whose consumer-protection statutes (they believe) are similar enough to justify certification. They could also try a nationwide FDUTPA claim based on allegations that, from its headquarters in Florida, Burger King disseminated throughout the whole country its allegedly deceptive communications.

Side note: “in deciding whether a named plaintiff has standing to pursue the claims of out-of-state class members, some of our colleagues have tried to distinguish between state common-law and state statutory claims.” That doesn’t work because (1) many states have codified the traditional common-law claims, and it doesn’t make much sense to think of traditionally common-law claims as distinct from statutory law. And (2) regardless, the cause of action is still “a creature of state law,” not some 50-state blanket.  

Breach of contract: Burger King argued that its ads weren’t binding offers.  Generally, ads are merely “solicitations to bargain,” not offers, and so here with the TV and online ads. But in-store “menu ordering boards” were different. An ad can become an offer if a “reasonable person” would have thought that “the advertisement or solicitation was intended as an offer.” These in-store ordering boards—unlike BKC’s TV and online ads—list price information and provide item descriptions. “Their whole purpose is to present to the potential customer an offering of the available menu items (and their prices). They’re thus very different from the advertisements one might see on the Internet or on TV—which cannot constitute offers precisely because they cannot promise that the item will still be available when, at some future date and time, the customer finally elects to walk into the store.” Although it’s not reasonable to believe that an ad promised that inventory would always be available, the menu boards, “by definition, are only subject to acceptance by the handful (or so) of customers who are actually in the store looking to purchase a sandwich.”

Burger King argued that a sandwich’s appearance isn’t an essential term of a contract. But the court wouldn’t “lightly suppose that a proprietor can offer to sell you a certain amount of food at a specified price only to provide you with less food for the same price.” Although a 1% exaggeration wouldn’t be a problem, the court wouldn’t impose its own judgment about whether “a seemingly substantial difference between what was promised and what was sold was (or was not) enough to alter the purchasing preferences of reasonable American consumers.”

Negligent misrepresentation survived (for now) because Florida doesn’t require a special relationship; unjust enrichment survived as an alternative claim.

Online contracts, government website edition

 The terms of service for this state site are interesting. Query what happens when they're barred by the law of another state (I see no forum selection clause) or by copyright misuse. And given the specific reference to "coffee table books," what is "any medium" doing and would a non-coffee table nonfiction book using a single photo as an illustration be covered?

Terms:

 You are required to expressly accept the following Terms and Conditions of Use, without any modifications, prior to each use of this website. The State of Hawaii Department of Transportation Airport Division (the “HDOTA”) may revise the Terms and Conditions of Use without any specific notice to you. The Terms and Conditions of Use posted at the time of your use of this website governs that use. If you do not agree with any part of the following Terms and Conditions of Use, you will not be permitted to use this website.

The images and other content, (the “Media”), on this site, https://aviation.hawaii.gov, are protected under applicable intellectual property laws. Unless otherwise stated, intellectual property rights in the website are administered by HDOTA on behalf of itself and the State of Hawaii.

FOR MEDIA USE PLEASE NOTE:

You are prohibited from using the Media for any commercial purpose. Any use, whether or not commercial, that may tend to degrade, tarnish the reputation of, or embarrass the content creator (photographer, videographer etc.), the State of Hawaii, or HDOTA is strictly prohibited.

FOR ALL USE:

The following are general examples of what Media may not be used for or in connection with. The following list is not exhaustive.

• Taking or attempting to take Media for commercial, marketing, self-promotion, or novelty applications;
• Taking or attempting to take any action that results in editing or altering images -cropping is acceptable;
• Taking or attempting to take any action that compromises the website;
• Taking or attempting to take any action that involves reprinting on coffee table books, garments, posters, mugs, or any medium.

You agree that, upon notice from HDOTA, you will immediately cease all use of the Media and, to the extent possible, remove all Media from any and all materials in which they appear.

Credit is required for each of the Media as specified on this website. Credit must be placed adjacent to any use of the Media.

You, your successors and assigns, agree to release, indemnify and defend HDOTA and the State of Hawaii from and against all costs, liability, loss, damage, and expense, including all attorneys’ fees, and all claims, suits, and demands therefor, arising out of or resulting from your acts or omissions under these Terms & Conditions of Use and your use of the Media.

Another digital "buy" button case survives motion to dismiss

McTyere v. Apple, Inc, 2023 WL 2585888, No. 21-CV-1133-LJV (W.D.N.Y. Mar. 21, 2023)

Plaintiffs alleged that Apple made false representations when it “sold” them digital content on the iTunes Store only to later remove their access to that same digital content. They claimed violation of sections 349 and 350 of the New York General Business Law, as well as unjust enrichment. Consumers can “rent” movies from Apple on the iTunes Store for about $5.99, but the “buy” option costs much more. “Regardless of which device is used to access digital content, or which ‘iTunes’ app is used to buy or rent the digital content, the app provides a tab or folder labeled ‘purchased.’ ” But when third parties terminate their licensing agreements with Apple, Apple “must revoke [a] consumer[’s] access” to purchased digital content “without warning.” Plaintiffs alleged that if they had known about the possibility that Apple might later revoke access to already-purchased content, “they would not have bought [ ] digital content from [Apple] or would have paid substantially less for it.”

Apple was not collaterally estopped from raising arguments against liability that were rejected in Andino v. Apple, Inc., 2021 WL 1549667 (E.D. Cal. Apr. 20, 2021), given that the claims arose under “completely different state laws.”

Apple argued that it wasn’t misleading to say “buy,” because to “buy” something means to “acquire possession, ownership, or rights to the use or services of by payment especially of money.” Apple argued that plaintiffs in fact received the “right to the use of” the digital content at issue here, so its advertising was not misleading regardless of whether their ability to access that digital content later disappeared.

But that “right to use” argument cannot carry the water that Apple asks it to carry. The right to use something may last but a moment or forever. And by ignoring that issue, Apple’s argument begs the question.

Take, for example, two consumers who each pay $19.99 to “buy” two different movies on the iTunes Store, each planning to watch the movie the next night. The following night, the first streams his movie purchase without a hitch. But when the second sits down on the couch and opens the iTunes Store, she finds that the movie has disappeared from her “purchased” folder. As it turns out, Apple lost the rights to that movie minutes before. Both consumers had the “right to the use of” their movie purchases for the twenty-some hours between the time they purchased them and the time they sat down to watch them. But the second would-be movie watcher understandably might feel a little miffed if she were told that she received exactly what she paid for.

In a footnote, the court noted that Apple’s argument would mean that both the consumer who “rented” the movie and the one who “bought” it would receive the “right to the use of” that digital movie. Someone who plans to rewatch a movie might not pay the enhanced price to “buy,” and just rent instead, if they know that “buying” is no guarantee of continued access.

Thus, “reasonable consumers might have been misled when they purchased digital content with the mistaken impression that the content could not later be removed from their libraries.”

Apple also argued that its iTunes Store terms and conditions alerted the plaintiffs (and other consumers) to the possibility that they might lose access to purchased digital content and should download digital content to prevent that possibility. The parties disputed whether Apple’s terms and conditions were equivalent to front-of-package clarifications, which was a factual issue. Also, it wasn’t clear that the T&C were sufficient. The earliest applicable terms and conditions that Apple has submitted warn consumers only that “Apple and its licensors reserve the right to change, suspend, remove, or disable access to any iTunes products, content, or other materials comprising a part of the iTunes service at any time without notice.” A reasonable consumer “might read those terms and conditions and nevertheless believe that once he or she has ‘purchased’ digital content and that content is saved to his or her ‘purchased’ folder, Apple cannot at that point suspend or terminate access to it, notwithstanding whether it otherwise could do so to other material in the iTunes Store before purchase.”

Apple argued that the plaintiffs were warned to download digital content “to ensure continued access to it”; once consumers download content, Apple said, they can in fact continue to stream that content even if Apple terminates its licensing agreement with another party. But the plaintiffs argued that not all content can be downloaded and that the “right to download” does not fully protect against the possibility that a consumer will lose access to digital content. This couldn’t be resolved on a motion to dismiss.

Although the unjust enrichment claim could ultimately be deemed duplicative of the other theories of recovery, the court also declined to dismiss it at this stage.

Sweepstakes rules trump arbitration agreement, 9th Circuit affirms

Suski v. Coinbase, Inc., --- F.4th ----, 2022 WL 17726673, No. 22-15209 (9th Cir. Dec. 16, 2022)

Affirming the district court, the court of appeals agreed that Coinbase’s arbitration agreement didn’t cover claims based on a sweepstakes it ran, which had a separate set of rules that didn’t compel arbitration. As the court described it:

When plaintiffs created their Coinbase accounts, they agreed to the “Coinbase User Agreement,” which contains an arbitration provision. They later opted into the Sweepstakes’ “Official Rules,” which include a forum selection clause providing that California courts have exclusive jurisdiction over any controversies regarding the sweepstakes. Plaintiffs brought claims under California’s False Advertising Law, Unfair Competition Law, and Consumer Legal Remedies Act against Coinbase and Marden-Kane, Inc., a company hired by Coinbase to design, market, and execute the sweepstakes.

First, the User Agreement did not delegate to an arbitrator the question of whether the forum selection clause in the Sweepstakes’ Official Rules superseded the arbitration clause in the User Agreement. Arbitrability “is an issue for judicial determination unless the parties clearly and unmistakably provide otherwise.” Issues of contract formation may not be delegated to an arbitrator. The relevant delegation clauses gave the arbitrator the ability to decide disputes related to scope/interpretation of the agreement.

But the “scope” of an arbitration clause “concerns how widely it applies, not whether it has been superseded by a subsequent agreement.” Thus, the district court properly decided the issue, and was correct that the forum selection clause superseded the prior arbitration agreement. Under California law, “ ‘[t]he general rule is that when parties enter into a second contract dealing with the same subject matter as their first contract without stating whether the second contract operates to discharge or substitute for the first contract, the two contracts must be interpreted together and the latter contract prevails to the extent they are inconsistent.’ ” The integration clause of the earlier User Agreement didn’t preclude a superseding contract from being formed in the future. “By including the forum selection clause … the Official Rules evince the parties’ intent not to be governed by the User Agreement’s arbitration clause when addressing controversies concerning the sweepstakes.” Cases in which there was an arbitration clause and an arguably inconsistent forum selection clause in the same contract were inapposite.

Moreover,

as the district court explained, the Official Rules cannot be reconciled with the User Agreement. The Official Rules apply to all Sweepstakes entrants, including entrants who are not subject to the User Agreement because they used an alternative mail-in procedure. Despite Coinbase’s arguments, the Official Rules make no distinction between entrants who are Coinbase users subject to the User Agreement’s arbitration clause and those who are not because they used an alternative mail-in entry procedure.

Interesting question: can you make free entries subject to an arbitration agreement too? Or would that come too close to conferring a benefit on the sweepstakes provider, removing the free alternate means of entry that prevents the sweepstakes from being an illegal lottery?

Another pandemic university fees claim fails

Yodice v. Touro College, 2021 WL 5140058, No. 21cv2026 (DLC) (S.D.N.Y. Nov. 4, 2021)

It’s now been long enough that there are a couple of cases finding potentially valid claims based on Covid closures, but this is not one of them. Touro allegedly promoted its campus facilities and campus experience as part of the benefits of its non-online-only degree programs, including “New York Medical College research facilities, an anatomy lab, a simulation training center, classrooms and auditoriums, as well many amenities including a cafeteria and café, a bookstore, a Health Sciences Library, sports facilities, and many common spaces”; it promoted “Suburban Living with Easy Access to New York City”; etc. The mandatory fees that Yodice paid included, among others, a “Campus Fee,” “Tech Fee,” and “Materials Fee.” Touro’s online program was allegedly marketed and priced as a “separate and distinct product[ ]” and bore no fees for in-person services.

Because of the NY governor’s orders closing schools, Yodice was “forced from campus” and did not have access to “facilities such as libraries, laboratories, computer labs, and student rooms,” “the myriad of activities offered by campus life,” and “networking for future careers.”

Breach of contract: The complaint failed to allege specific promises sufficient to form an implied contract to provide on-campus services. It didn’t identify any specific promise to provide live, in-person instruction.  Past practice of providing in-person instruction wasn’t a promise to continue to do so, nor was listing classes with meeting times and locations. Likewise, “[t]hat an online program had been offered by Touro with its own format and with a lower tuition before the pandemic does not constitute an implicit promise that TCDM would provide exclusively in-person instruction in a separate program it offered prospective students.”

So too with claims based on fees; the complaint didn’t explain which services were connected to specific fees or whether related academic or extracurricular services were subsequently unavailable to Yodice.

Unjust enrichment: Unlike some treatments of this type of claim, the opinion here dismissed unjust enrichment as duplicative of the breach of contract claim. “Yodice cannot fill this gap [in pleading relevant contractual provisions] through pleading an unjust enrichment claim as an alternative route of recovery.” With an actual contract to interpret, quasi-contract theories were inappropriate.

N.Y. General Business Law §§ 349, 350: No materially misleading act or omission was pled. “No reasonable consumer would be misled into believing that, in the event of a global pandemic and under government shutdown orders, TCDM would remain open to deliver in-person instruction to students.”

 

Contract remedies again prove broader than false advertising for pandemic-related suits

In re Columbia Tuition Refund Action, No. 20-CV-3208 (JMF) & 20-CV-3210 (JMF), --- F.Supp.3d ----, 2021 WL 790638 (S.D.N.Y. Feb. 26, 2021)

These are two putative class actions against Columbia and Pace based on allegedly broken promises due to the pandemic. “The cases are not formally consolidated, but the Court addresses the two motions together because they raise similar issues.” The claims survive only to the extent that they plausibly alleged violations of specific contractual promises for particular services or access to facilities.

Thus, some but not all breach of contract claims survived. For example, plaintiffs failed to plead that Columbia made a specific promise of exclusively in-person instruction. “[R]eferences to classroom locations and physical attendance requirements in Columbia’s syllabi, departmental policies and handbooks, and course registration portal … merely memorialize the pre-pandemic practice; they offered no guarantee that it would continue indefinitely.” References in Columbia’s marketing materials to “the on-campus experience” were often mere puffery “too vague to be enforced as a contract,” such as a statement in a University publication that “Columbia is an in-person kind of place.”

However, the instructional format claim against Pace survived because the plaintiff alleged that the course registration portal on Pace’s website stated that “[o]n-campus” courses would be “taught with only traditional in-person, on-campus class meetings.” On a motion to dismiss, it was ambiguous whether Pace’s disclaimer that “unforeseen circumstances may necessitate adjustment to class schedules” and that “[t]he University shall not be responsible for the refund of any tuition or fees in the event of any such occurrence .... Nor shall the University be liable for any consequential damages as a result of such a change in schedule” applied to a shift online.

And the Columbia plaintiffs did plead that Columbia breached a contract to provide access to certain campus facilities and activities in exchange for mandatory student fees. Resolving this claim involved no intervention into academic judgment, and bad faith was not an element. So too for similar Pace claims. But unjust enrichment wasn’t available where it merely duplicated the contract claims, and conversion also wasn’t available.

NYGBL 349 and 350:  Plaintiffs failed to allege that the universities’ representations were materially misleading. “Plaintiffs cite, and the Court has found, no case holding that a plaintiff can state a claim under Section 349 or 350 where the defendant neither knew nor could have known that its commercial acts or practices were false.” [A reversal of the usual result: contract claims are usually much narrower than unfair trade practices claims.]

Pandemic ski resort closures allow both contract and advertising claims

Goodrich v. Alterra Mountain Co., 2021 WL 2633326, No. 20-cv-01057-RM-SKC (D. Colo. Jun. 25, 2021)

Unlike the education cases so far, this pandemic case sustains both consumer protection and contract claims. “Plaintiffs purchased Ikon ski passes for the 2019-20 ski season but, due to the COVID-19 pandemic, Defendants closed their ski resorts on March 15, 2020.” Defendants declined to refund their money. The passes were allegedly offered as offering “unlimited access” to “ski or ride as many days as you want” with (in some instances) some blackout dates at covered resorts during the 2019/20 ski season.

California UCL, CLRA, FAL: First, defendants argued that under Sonner v. Premier Nutrition Corp., 971 F.3d 834 (9th Cir. 2020) and its progeny, everything but the CLRA claim for damages should be dismissed because these equitable claims were only available if legal claims failed. Plaintiffs argued that they were allowed to plead in the alternative, but the court found that they had failed to do so. Thus, Sonner “dooms the claim for equitable relief at any stage.”

Did the CLRA damages claim survive? Defendants first argued that passes didn’t not qualify as “goods or services” under the CLRA, but were only temporary licenses, with services provided only ancillary to the license. The court found that plaintiffs plausibly showed that ski passes were encompassed within the definition of “services.” Ski pass holders plausibly purchased more than just a license to be on the slopes, including services such as providing groomed trails and ski lifts and gondolas to reach the trails, which were “at heart of what a ski pass holder purchased.”

Deception: Assuming Rule 9(b) applied, plaintiffs satisfied it. Defendants argued that the alleged promise of “unlimited access” for a “complete season” (the 2019/20 ski season) was not a “ ‘specific and measurable claim, capable of being proved false or of being reasonably interpreted as a statement of objective fact’ ” because they made no representations about the length of the 2019/20 ski season. But “a reasonable consumer would understand this was a promise for a definite period: the period of the 2019/20 year ‘during which snow conditions allow for skiing and when people typically go skiing.’”

Defendants argued that their statement wasn’t deceptive when made because they couldn’t have known about the pandemic or ensuing governmental closure orders. The court was persuaded that plaintiffs were plausibly misled about what would happen if the resorts closed, for whatever reason: defendants kept all their money. Defendants argued that they disclosed the payments were “non-refundable,” but that plausibly didn’t apply to these circumstances.

Was there an actionable omission? Previous cases hold that “to be actionable the omission must be contrary to a representation actually made by the defendant, or an omission of a fact the defendant was obliged to disclose,” in particular a safety hazard/physical defect going to central functionality. With services, though, matters were less clear, and the court found that omission claims shouldn’t be dismissed. And the relevant knowledge, for the omission claim, is knowledge that they’d keep the money if they had to close before the end of the “ski season,” that is, the period “during which snow conditions allow for skiing and when people typically go skiing.”

Loss causation: Plaintiffs alleged that they wouldn’t have purchased the ski passes on the terms offered had they known that, if defendants did not provide the promised resort access during the 2019/20 ski season, they would nonetheless retain all pass fees. That was sufficient. Illinois and Wisconsin consumer claims shook out similarly: no equitable relief, but where damages were available, those claims survived.

unconscionability prevents enforcement of arbitration agreement for consumer claims

Cabatit v. Sunnova Energy Corp., No. C089576, --- Cal.Rptr.3d ----, 2020 WL 8365909 (Ct. App. Dec. 31, 2020)

California isn’t fond of mandatory consumer arbitration. Here, the court finds the arbitration agreement unconscionable and refuses to enforce it against a claim relating to the solar power lease agreement between the Cabatits and Sunnova. The rule of McGill v. Citibank, N.A., 2 Cal.5th 945 (2017)—that an arbitration agreement waiving statutory remedies under California consumer protection law is unenforceable—was unnecessary to the decision. Because Sunnova didn’t argue in the trial court that the arbitrator had to determine the unconscionability issue, that issue was waived; the arbitration clause was procedurally and substantively unconscionable under general principles independent of McGill. Some details:

The salesperson said the Cabatits did not need to read the agreement language because he would go over the details, but the Cabatits would need to sign the agreement and initial certain parts before any work could be done. The salesperson scrolled through the agreement language quickly, indicating where signatures or initials were needed.

Indiana Cabatit speaks and understands English fairly well, but she does not understand complicated or technical terms. As the salesperson scrolled through the agreement language, Indiana Cabatit signed or initialed where the salesperson indicated, even though she did not understand most of what he was saying. The salesperson did not explain anything about arbitration.

The Cabatits had no computer and no internet access. They did not receive a copy of the agreement until this dispute arose and their daughter obtained a copy.

This was a procedurally unconscionable contract of adhesion, with no opportunity to bargain over terms, which were not explained anyway. It wasn’t enough that Indiana Cabatit signed a statement that she had read the terms of the agreement, and even if the arbitration provision was “conspicuous” in the abstract, the evidence was that the salesperson scrolled through the agreement, and the arbitration clause was not called to the Cabatits’ attention. And any right to cancel within 7 days “was meaningless because Sunnova did not give them a copy of the agreement during the relevant time period and there is no evidence such a right was explained to the Cabatits.” The context indicated oppression and surprise, resulting in “a high degree of procedural unconscionability.”

Substantively, this was a one-sided agreement which required the Cabatits to arbitrate their claims, but allowed Sunova to file in court if the Cabatits defaulted (defined as failure to make a payment, failure to perform an obligation under the lease, providing false information, or assigning the lease without prior authorization). “In other words, Sunnova reserved the right to take most of its claims to court but purported to deny the Cabatits the same opportunity.” Although the Cabatits were allowed to go to court to seek (1) injunctive relief for any threatened conduct that could cause irreparable harm, (2) a judgment confirming the award, or (3) a small claims judgment, that was still too one-sided given the breadth of “default” favoring Sunnova. Sunnova didn’t show it had special need for this one-sidedness.

Another pandemic education case: false advertising fails, contract claim survives

Bergeron v. Rochester Inst. of Technology, No. 20-CV-6283 (CJS), 2020 WL 7486682 (W.D.N.Y. Dec. 18, 2020)

Different district, same result as this case involving Rensselaer Polytechnic. Contract/unjust enrichment claims survive based on allegations that RIT promised in-person learning, but conversion and false advertising claims go. Also: Parents of adult students lack Article III standing; paying the fees isn’t enough to make them the injured parties.

Objectively,

[N]o reasonable prospective student could consider him- or herself “deceived” or “misled” where the school’s normal course of on-campus instruction was altered mid-semester by an unforeseen global pandemic that prompted the Governor of New York to issue an unprecedented executive order prohibiting on-campus, in-person instruction. Whatever the merit of Plaintiffs’ breach of contract or unjust enrichment claims, there is nothing in the complaint that plausibly alleges that RIT’s publications would lead a reasonable prospective student to believe that the institution would so risk student safety and defy the Governor’s orders.

The pandemic may give us a new line of cases holding that “reasonable consumers” understand something like the contract doctrine of impossibility. If that’s true, are there other exceptions that reasonable consumers understand must apply?

Of note: plaintiffs argued that RIT’s online degree program was relevant to the plausibility of the claims/ascertainability of damages, since the programs are marketed separately, and tuition for the online program is “significantly less.” Given this, they argued that no subjective evaluation of the quality of in-person versus online instruction would be required: Expert testimony could establish the price premium for an in-person education, based on the hundreds or thousands of universities that offer online and in-person programs.

 

reasonable consumer wouldn't expect advertised in-person classes in pandemic (but contract claims survive)

Ford v. Rensselaer Polytechnic Institute, No. 20-CV-470, 2020 WL 7389155 (N.D.N.Y. Dec. 16, 2020)

This is a putative class action against RPI for breach of contract, false advertising, and related claims based on the mid-semester pandemic shutdown of early 2020. The court dismisses false advertising and conversion claims but declines to dismiss the contract/unjust enrichment claims at this stage. One question of more general import: How many institutions had something like the following:

Plaintiffs allege that they were drawn to defendant in part because of “The Rensselaer Plan 2024” (the “Plan”), a framework of programs, some enacted, some yet hypothetical, designed to afford its students a unique educational experience. The language of the Plan has a flavor of commitment, and most of its substantive clauses begin with the phrase “we will.”  

Of particular relevance, RPI claims in the Plan that it “will ... [o]ffer a complete student experience, highlighted by[ ] Clustered Learning, Advocacy, and Support for Students” (“CLASS”). Defendant’s CLASS program, which it has actively incorporated into student life, is designed to improve counseling, academic skill development, community building, and other purported benefits that “originate within the residential setting.” Defendant’s catalog defines the CLASS program as “built around a time-based clustering and residential commons program.” To help facilitate CLASS, defendant mandates that all first- and second-year students, as well as transfer students, live on campus.  

However, after the pandemic began, RPI cancelled all university-sponsored events, required students to move out of on-campus housing, and moved classes online. RPI issued refunds for Spring 2020 room and board fees, but reduced these reimbursements by the net of a reimbursed student’s financial aid. 

Contract: For a student contract claim, “only specific promises ... in a school’s bulletins, circulars[,] and handbooks, which are material to the student’s relationship with the school,” are enforceable.” In other words, “[g]eneral policy statements and broad and unspecified procedures and guidelines will not suffice.” The court therefore refused to recognize “an implied promise for on-campus education based on the nature of defendant’s dealings with the school,” but did consider the CLASS program to qualify based on the allegations. RPI’s catalog claims that the CLASS program provides a “time-based clustering and residential commons program” touted as an “award-winning First-Year Experience” that “extends learning across the spectrum of student residential life,” which “fits the bill of a specific promise,” at least for Rule 12 purposes. Generic and vague terms such as “fair and equal treatment” “are of an entirely different character than the specific programs the Plan formulates.”

Although Paynter v. New York University, 319 N.Y.S.2d 893 (Sup. Ct. App. Div. 1st Dep’t 1971), dismissed a breach of contract claim after the defendant university completely shut classes down in response to civil unrest, “there is a world of difference between canceling some classes—in the absence of any affirmative guarantee on the number of classes to be held—and not affording students services and benefits for an extended period of time despite such a promise.” And in Chong v. Northeastern University, which dismissed a similar pandemic breach of contract claim against a university, “the plaintiffs in that case failed to provide any promise more concrete than a document that amounted to an agreement to pay tuition in exchange for classes,” though, notably, the court allowed plaintiffs’ claims alleging a breach of contract for not refunding those plaintiffs’ activity fees to proceed.

Nor was this a disguised and prohibited “educational malpractice” claim. Plaintiffs were arguing that, “regardless of fault, the value of the on-campus experience defendant plausibly promised them is greater than the value of the remote experience they received. That can be true even if defendant made every choice reasonably, or even perfectly…. [M]uch as defendant would make of the fact that it was forced to shut down, that does not answer whether it or its students should bear the cost of that outcome.” True, RPI also lost from shutting down, but maybe it should bear more of the loss.

As for the refunds-minus financial aid, plaintiffs sufficiently alleged that this was unfair because financial aid was paid in a flat amount based on family income regardless of whether they live on campus or purchase a meal plan:

Because plaintiffs have plausibly alleged a promise of room and board in exchange for their payment of the associated fees, RPI is saddled with an ongoing duty of good faith and fair dealing in carrying out that promise. Withholding repayment to plaintiffs for a service that they did not receive because of an entirely unrelated consideration could plausibly violate that duty, and thus plaintiffs’ claims must survive for now. In addition, the Court is concerned that defendant’s policy in fact seems to directly target the students most in need of a refund.

Unjust enrichment claims, pled in the alternative, and promissory estoppel claims likewise survived (despite uncertainty about the ultimate validity of promissory estoppel given the actual contract), but conversion failed because there was no way to identify plaintiffs’ specific money in the pool of RPI funding.

GBL §§ 349 and 350: It was not enough to allege that RPI advertised on-campus learning. Even without an intent requirement, “[n]o reasonable consumer would expect a university to remain open for in-class instruction in the face of a pandemic and a state-mandated shutdown, regardless of whether the school advertised on-campus learning as a strength.” In a footnote, the court pointed out that §350 doesn’t have a distinct reliance requirement, contrary to the Second Circuit’s “frequent imputation …, which the New York Court of Appeals has specifically identified as an error.”

 

another advertiser's Google click fraud suit is revived

Singh v. Google LLC, 2020 WL 5202081, --- Fed.Appx. ----, 2020 WL 5202081 (9th Cir. Sept. 1, 2020)

The court of appeals reverses the dismissal of Singh’s California FAL/UCL claims against Google for allegedly charging for fraudulent clicks despite its promises. While the district court found that Singh lacked statutory standing, the economic injury requirement “demands no more than the corresponding requirement under Article III of the U.S. Constitution.” It was sufficient for Singh to allege that he purchased some number of clicks from Google via its AdWords program; that Google misrepresented the general efficacy of its fraudulent click filters; and that he would not have purchased clicks but for his reliance on the allegedly erroneous fraud filter rate. Indeed, Singh alleged that he hired a company to analyze some of his ad campaigns, which showed that Google’s filters caught fewer fraudulent clicks than advertised, and that numerous studies prior to 2016 on third-party ad campaigns found that Google’s filters did not catch as many fraudulent clicks as Google advertised. “At the pleading stage these allegations together are sufficient to draw the reasonable inference that Singh’s ad campaigns prior to 2016 similarly suffered higher-than-advertised rates of fraudulent clicks not caught by Google’s filters, and that he accordingly paid for more fraudulent clicks than Google advertised he would.”

Google also argued that its AdWords Agreement expressly precluded Singh’s claims, but the court of appeals agreed with the district court that a reasonable jury could find that Singh was reasonable in relying on Google’s extra-contractual statements about the general effectiveness of its click filter system, notwithstanding the “no guarantee” provision in the AdWords Agreement.

 

UCL claim against Twitter survives where advertiser allegedly was charged for bot activity

DotStrategy Co. v. Twitter Inc., 2020 WL 4465966, No. 19-cv-06176-CRB (N.D. Cal. Aug. 3, 2020)

Twitter “promises advertisers on its platform that they will only be charged when “people” interact with the accounts or Tweets they are paying to promote.” DotStrategy alleged that it was charged for interactions with automated accounts and that Twitter failed to refund it for those interactions even after it learned that the truth. The court partially granted and partially denied denied Twitter’s motion to dismiss—granted to the extent that DotStrategy complained about “fake” accounts that were nonetheless controlled by people, denied to the exent that the complaint concerned bots.

As an example of its representations, in 2013, Twitter represented to advertisers that they would “only be charged when people follow your Promoted Account or retweet, reply, favorite or click on your Promoted Tweets.” DotStrategy is a marketing company; between October 2013 and December 2016, it placed thirty-four ads on Twitter for which it paid a total of $2,220.76.

Twitter’s Advertising Terms state that Twitter “[t]o the fullest extent permitted by law ... disclaim[s] all guarantees regarding ... quality ... of ... any User Actions....” and state that “[c]harges are solely based on [Twitter’s] measurements for the Program.” 

“A large number of accounts on Twitter are primarily controlled by bots rather than human beings.” Around the time that Twitter deleted 70 million accounts “it had deemed spammy, inactive, or which were displaying ‘erratic’ behavior that indicated they were likely bots,” 480 of dotStrategy’s Twitter followers were deleted. After a Twitter account has been deleted, it is allegedly “as if the account never existed,” making it difficult or impossible to find information about the account. DotStrategy sued for violation of the UCL.

Twitter argued that the complaint failed to satisfy Rule 9(b) because dotStrategy alleges that Twitter wrongfully charges for “fake,” “false,” or “spam” accounts without adequately defining those terms. The court agreed to the extent that the complaint alleged that a broader category of human-controlled Twitter accounts are fake, without identifying the outer boundaries of this group. DotStrategy argued that the terms “fake,” “false,” and “spam” cannot be insufficiently precise, because Twitter itself has used those words to describe activity forbidden on its platform. “But the fact that Twitter knows what it means when it uses these terms does not excuse dotStrategy’s obligation to identify the categories of interactions it was wrongfully charged for.”

Also, any theory of liability premised on interactions with human-controlled accounts failed because Twitter never promised not to charge advertisers for interactions with “fake” accounts that were controlled by people. “A reasonable advertiser would understand that achieving its goals might require some interaction with Twitter users who use the platform to disseminate spam, violate Twitter’s terms of service, or otherwise qualify as ‘fake’ despite being human. This is especially true because according to dotStrategy’s own allegations, Twitter is rife with such users.” Likewise, no reasonable advertiser “would understand the word ‘people’ to mean people who abide by Twitter’s rules.”

“However, dotStrategy adequately alleges that Twitter falsely represented that advertisers would not be charged for interactions with bots.” And the complaint adequately alleged that such charges were imposed. The allegations that dotStrategy lost 480 (roughly 17%) of its followers in the twenty-eight days preceding July 20, 2018, during Twitter’s bot purge, and the allegations that a large number of automated accounts are active on Twitter, plausibly alleged that at least some of the 480 deleted accounts must have been bots, that dotStrategy most likely paid for interactions with some of those bots, and that Twitter failed to reimburse the money paid for those interactions despite knowing they involved automated accounts.

Though dotStrategy didn’t identify what interactions with the 480 deleted accounts it was charged for or which deleted accounts were bots, that was “matter[ ] within the opposing party’s knowledge.” Only Twitter—not dotStrategy—has access to information about deleted accounts.

DotStrategy also adequately alleged reliance, even though it agreed to the Advertising Terms in October 2013. The complaint adequately alleged that Twitter misrepresented in 2013 that advertisers would not be charged for interactions with botsso even if statements made after that point were irrelevant, dotStrategy would still adequately allege reliance. And dotStrategy allegedly continued to place ads, thereby incurring additional charges, after that time; it could have relied on the misrepresentations when deciding to place additional ads at additional cost, distinguishing this situation from one in which misrepresentations were only made after the plaintiff’s purchase was complete. And dotStrategy’s reliance was reasonable. A reasonable consumer would understand statements such as “You’ll only be charged when people follow your Promoted Account or retweet, reply, favorite or click on your Promoted Tweets” to mean that Twitter would refund charges for those interactions if it later learned they involved a bot.

Twitter’s contractual disclaimers weren’t sufficient. First, a UCL fraud claim can be based on misleading representations in a solicitation even when the plaintiff later signed a contract with provisions contradicting the earlier falsehoods. “The question, then, is not whether Twitter’s contractual terms corrected the false statements in its advertising, but whether dotStrategy’s reliance on the false advertising was reasonable even in light of the contractual disclaimers.” And it was. The contractual provisions weren’t irreconcilable with dotStrategy’s understanding. “Disclaiming the ‘quality’ of ‘User Actions’ is not a clear warning that those users might not be people,” but could just be about whether they’d be nice or naughty. “That understanding would be particularly reasonable given Twitter’s other representations guaranteeing that advertisers would not pay for interactions with automated accounts. … An advertiser could reasonably believe that Twitter would determine the amount of advertising charges in a manner consistent with its other representations.”

DotStrategy also sufficiently alleged injury by alleging that it “paid for ads for which it would not have agreed to pay anything at all had it known the truth about Twitter’s misconduct.” Twitter argued that dotStrategy received the benefit of its bargain because it gained more Twitter followers, but “a public[ly] visible increase in ... follower count” isn’t the only goal an advertiser might have in promoting its products on Twitter. “Presumably human followers are more valuable to advertisers than automated ones, because humans, unlike bots, sometimes purchase goods and services. If anything, that difference seems more meaningful than, for example, a product’s domestic origin.” [Well, that surely depends on one’s goals; there’s no need to disparage the materiality of a claim in one purchasing context in another totally different context.]

 

Reading list: Cheating Pays

Emily Kadens, Cheating Pays, 119 Columbia Law Review 527 (2019)

Common private-ordering theories predict that merchants have an incentive to act honestly because if they do not, they will get a bad reputation and their future businesses will suffer. In these theories, cheating is cheating whether the cheat is big or small. But while reputa­tion-based private ordering may constrain the big cheat, it does not necessarily constrain the small cheat because of the difficulty in discover­ing certain types of low-level cheating and the consequent failure of the disciplining power of reputation. Yet the small cheat presents a signifi­cant challenge to modern contracting, both between businesses and in the contracts of adhesion imposed on consumers. To encourage private law scholars to address the unique governance challenges posed by low-level cheating, this Essay describes the conditions under which low-level cheating can flourish and become widespread. It demonstrates this so-called “Cheating Pays” scenario using a historical case study in which a seventeenth-century London grocer, trading under precisely those condi­tions that private-ordering theories predict will incentivize honesty, not only cheated extensively but also successfully remained in business after having been caught and publicly punished. Identifying the scenarios in which cheating pays has implications for how firms use contracts and how consumers might use the courts to try to reduce opportunistic behavior.

failure to disclose vaping's extra risks over smoking could be deceptive; no arbitration for Juul

Colgate v. Juul Labs, Inc., 2019 WL 3997459, No. 18-cv-02499-WHO (N.D. Cal. Aug. 23, 2019)

Juul makes e-cigarettes and nicotine cartridges/pods. “Plaintiffs seek to represent a nationwide class and numerous subclasses in claims for false advertising, fraud, unjust enrichment, several forms of product liability, several types of negligence, violation of Magnuson-Moss Warranty Act, breach of express and implied warranty, and violation of the unfair and unlawful prongs of various state consumer protection statutes.” A lot goes on here; the court partially grants and partially denies Juul’s motion to dismiss and denies its motion to compel arbitration because plaintiffs did not have inquiry or actual notice of the arbitration provision.

Previously, the court had found that some but not all of the plaintiffs’ claims were preempted by the FDCA as amended by the Tobacco Control Act: claims based on the allegation that Juul’s labelling fails to warn consumers that its nicotine formulation is more addictive than other methods of nicotine ingestion were expressly preempted. Claims based on the mislabeling of the percentage of nicotine per pod were not preempted because the plaintiffs had sufficiently alleged that Colgate relied on Juul’s representation that the pods contained 5% nicotine when they allegedly contained 6.2% nicotine. Also, a clause in the TCA expressly excepts advertisements from preemption, so claims based on ads’ failure to warn consumers about the potency and addictiveness of Juul’s formulation or the amount of nicotine could be repleaded.  Many of the previous consumer protection claims didn’t satisfy Rule 9(b), but claims based on identified state consumer protection statutes, unjust enrichment, design defect, manufacturing defect, breach of implied warranty of merchantability, and negligent misrepresentation were sufficiently pled. This new complaint added allegations in an attempt to satisfy Rule 9(b).

At the base of the claim: Juul’s formulation is allegedly more addictive and dangerous than a normal cigarette because it delivers more nicotine up to four times faster, and causes less throat irritation, which in cigarettes slows consumption and inhibits use.  Juul’s formulation allegedly “delivers doses of nicotine that are materially higher than combustible cigarettes,” producing “higher nicotine absorption than expected for the advertised formulation,” or about 30% more nicotine per puff than a traditional cigarette. Juul allegedly touted data to claim that it delivered approximately 25% less nicotine to the blood than a cigarette, creating the false impression that it is less addictive. Advertising claims that a “JUULpod is designed to contain approximately 0.7mL with 5% nicotine by weight at time of manufacture which is approximately equivalent to 1 pack of cigarettes or 200 puffs” was therefore false and misleading because (as Juul allegedly knew) what is important is the amount of nicotine that enters the bloodstream, which is as much as twice as much as that delivered via a pack of cigarettes. Worse, each cigarette in a pack must be separately lit, but Juul can be inhaled continuously and used indoors without detection, eliminating the need for smoke breaks.

The court ruled that plaintiffs satisfied Rule 9(b) with respect to named plaintiffs who remembered which ads they’d seen, but not as to named plaintiffs who didn’t.  Without identifying specific ads, they didn’t properly plead the “where” required by 9(b).  Attaching representative ads to the complaint wasn’t enough, as it would be for the FTC as plaintiff.

Juul next argued that plaintiffs didn’t plausibly allege misleadingness, in part because the risks of nicotine have been well known for decades. The court found that plaintiffs sufficiently stated both an omission claim and an affirmative misrepresentation with regards to Juul’s advertising that one pod has as much nicotine as a pack of cigarettes. “Although the dangers of nicotine are known to the community, it would go too far to say that JUUL need not to warn consumers that using JUUL’s product will cause their bodies to absorb twice as much nicotine as they would from a pack of cigarettes. It is also irrelevant that certain plaintiffs were smokers before using JUUL. Being a smoker of combustible cigarettes would not impart knowledge that JUUL’s liquid nicotine formulation might be twice as potent.”

Thus, claims related to Juul’s pharmacokinetics survived, though the aesthetics of its marketing (“bright” colors, “clean lines,” “minimal text,” “eye-catching graphics,” FDA-regulated flavors, attractive adult models, and other common advertising practices) wouldn’t themselves constitute misrepresentations, and “claims based on themes and vague terms in JUUL’s advertising are, as JUUL argues, nothing more than non-actionable puffery.” Nor did plaintiffs state a claim based on Juul’s statement that a user may cancel the autoship service at any time (which allegedly misrepresented their ability to cancel given the likelihood of addiction) because none of the plaintiffs alleged that they used the service.

Some products liability/warranty claims also survived, as did UCL unlawfulness and unfairness claims (the latter based on alleged targeting of minors).

The analysis in Sperry is both analogous and persuasive. Plaintiffs have stated an “unfair” claim under state consumer protection law because they have sufficiently alleged that JUUL’s targeting of minors meets the requirements of Sperry. The allegations also state an unfair claim under the tethering test because the public policy at issue is tethered to state laws prohibiting the sale of e-cigarettes to minors.

The court found that the complaint didn’t successfully plead that Juul was vicariously liable for the acts of third party @JUULnation on Instagram. @JUULnation “posted tips on how to conceal JUUL devices in school supplies; ridiculed efforts to combat use in schools; promoted videos of JUUL influencers; sold JUULpods directly through its Instagram account; and promoted other sites selling JUUL products to its 650,000 mostly teenage followers.” The complaint alleged that, because @JUULnation used JUUL’s hashtags in its posts, “JUUL, which monitors its hashtags, was aware of @JUULnation’s conduct and could have stopped and condemned @JUULnation’s youth-targeted activity. Id., CAC at Instead, JUUL repeatedly promoted @JUULNation’s hashtag (“#JUULnation”) through its own social media accounts, giving an externally observable indication that it consented to @JUULnation’s activities and reaped the benefits of free marketing and increased sales.”  That wasn’t enough when the third party wasn’t an agent and didn’t purport to be one.

Juul also argued that the minor plaintiffs’ claims should be dismissed because of the intervening unlawful acts of third parties who sold Juul products to them. The court pointed out that some of the claims didn’t stem from Juul’s allegedly minor-targeted ads (theories of product liability, implied warranty, and failure to warn). Anyway, at this stage, the acts of the third parties here were plausibly alleged to be foreseeable and therefore did not constitute an intervening cause were Juul allegedly specifically targeted minors and had reason to know that its conduct would encourage illegal use and trade of its products.

As for arbitration for plaintiffs who signed up using Juul’s website, the signup page had a hyperlink to the terms and conditions, but it was too inconspicuous to say that plaintiffs had gotten proper inquiry notice. The link wasn’t in a “different color, underlined, italicized, or in any way visually distinct from the surrounding text…. Users cannot be reasonably expected to click on every word of the sentence in case one of them is actually a link.”  Prior cases have found more conspicuous links to be insufficient. A later version of the signup page changed the color of the links, but that wasn’t enough without more (underlining, highlighting, all caps, or in a separate box), especially given the greater prominence of the “forgot password?” link on the same page:

A reasonable user scanning the page would first see the “Forgot Password?” hyperlink and would observe that it is a different color, underlined, and of a particular font size. That user would not then see the “Terms and Conditions” and “Privacy Policy” hyperlinks and conclude that they were clickable. They are not underlined, they are the same size as the sentence they are in, and the color is different from the initial hyperlink they would see.

claim to bring original formula of another's brand back wasn't nominative fair use

GlaxoSmithKline LLC v. Laclede, Inc., 2019 WL 293329, No. 18-CV-4945 (JMF) (S.D.N.Y. Jan. 23, 2019)

Judge Furman gets another TM case; in his close adherence to precedent he demonstrates some of the current weak points in TM doctrine, here the Second Circuit’s incoherent treatment of nominative fair use and its handwaving around irreparable harm.

GSK bought the rights to Biotene, a line of OTC medicines for treating dry mouth, from Laclede.  Laclede later launched Salivea, a competing line.  GSK sought an injunction on trademark and breach of contract grounds.  The court denied the motion to the extent that it was based on the contract claims and granted a limited injunction on trademark grounds.

The noncompete agreement GSK signed with Laclede provided that Laclede agreed not to compete in the dry-mouth enzyme-based-treatement market for three years, and its sole shareholders also agreed not to so compete. GSK subsequently reformulated Biotene, removing certain enzymes.  Over three years after the closing date of the agreement, Laclede introduced Salivea, sending “approximately 100,000 mailers ... to [healthcare professionals] and others based on contacts generated at conventions and rebate recipients.” In the first, a green banner announces: “Back Again! Salivary Enzymes and Components – Essential for Dry Mouth Care.” Just below that banner, the advertisement reads — in smaller typeface — “From the Creators of ORIGINAL biotene,” with “biotene” appearing in a stylized font and featuring a water droplet in the center of the “o.” Just below that, the largest text on the flyer declares: “SALIVEA utilizes the same ingredients as the ORIGINAL Biotene. The Proven and Loved Formula!” In mouseprint on the side is: “Biotene is trademark [sic] owned by GlaxoSmithKline.”

In the second flyer, a header in all capital letters reads: “DID YOU KNOW BIOTENE HAS CHANGED?” It continues: “Over 35 years ago, Laclede developed Biotene enzyme toothpaste and mouthwash that became the #1 brand for dry mouth. Biotene was acquired by the GSK Company and was reformulated. After years of perfecting formulas, we now introduce SALIVEA mouthwash and toothpaste that utilizes the Proven Enzyme Technology as in the ORIGINAL Biotene.” Highlighted in red, the flyer lists “CURRENT Biotene Changes,” including “ENYZMES (Removed),” and “PARABENS (Added),” alongside a picture of a Biotene oral rinse bottle. [One would think that this negative information would dispel likely confusion about source.]  A footer states: “Back Again! Salivary Enzymes and Components – Essential for Dry Mouth Care.” Above the footer, the flyer compares “SALIVEA Mouthwash Utilizing ORIGINAL Biotene Formula” with the “ORIGINAL Biotene Formula / The #1 Recommended Brand for Dry Mouth.” It has the same disclaimer.

On Salivea’s website, it declared: “It’s Back! The Original Formula that made Biotene #1 for Dry Mouth.” Below that: “From the Creators of biotene,” with “biotene” once against appearing in stylized script and featuring the water droplet. It continues with similar claims: “Over 35 years ago, our researchers developed an enzyme technology system that became The #1 Treatment in The World for Dry Mouth Care. Now, after years of perfecting formulas, we’re proud to introduce the New SALIVEA Dry Mouth Care Products.” Another page reads: “Proven Enzyme Technology / Over 35 years ago, Laclede developed Biotene enzyme toothpaste and mouthwash that became The #1 Brand for Dry Mouth. Biotene was later acquired by the GSK Company and was reformulated. / We Listened! We brought back salivary enzymes ....” The same disclaimer appeared.

In Mohawk Maintenance Co. v. Kessler, 419 N.E.2d 324 (N.Y. 1981), the New York Court of Appeals identified an “ ‘implied covenant’ to refrain from soliciting former customers following the sale of the ‘good will’ of a business.” This implied covenant isn’t time-limited.  It bars targeted solicitation of former customers but not advertising to the general public.  “[A]lthough the issue is a close one, the Court concludes that Defendants’ actions are nearer to the permissible public-advertising end of the spectrum than to the impermissible specific-targeting-of-former-customers end of the spectrum.” GSK didn’t identify any specific former customers that were solicited after the express noncompete clause lapsed; instead, the complaint alleged that ads were mailed “to health care professionals, including dentists, throughout the United States.” NY holds that a seller may “advertise to the public” so long as the advertisement is “general in nature ... and not specifically aimed at the seller’s former customers.” Targeting a “class” of customers isn’t enough.

The court also rejected GSK’s argument that the second part of the express covenant—the part binding Laclede’s owners—didn’t expire after three years.  Though the first part of the covenant expressly had a three-year term, and the second part didn’t, that wasn’t dispositive. First, “New York courts adhere to a strict approach to enforcement of restrictive covenants.” Thus, a non-compete provision that is “vague and unspecific” will be deemed unenforceable.  And the language here—that the owners “also agree” to the noncompete—indicates that the prior provision governing Laclede was what was supposed to apply to the owners.  And it wouldn’t make sense for Laclede and its owners to be governed by different non-compete durations. Anyway, “the Court has some doubts that a time-unlimited non-compete would be enforceable under New York law.”

Trademark claims: because the Second Circuit said so, nominative fair use is tacked onto the end of the Polaroid factors, even though (1) that makes the test an even more incoherent mix of normative and empirical parts, and (2) the Second Circuit acknowledged that a number of the Polaroid factors don’t fit well with nominative fair use situations.  The court here thus runs through the list. Strength and competitive proximity favored GSK; similarity is of course identical because you can’t consider the “comparative purpose” of the use under the similarity factor, and anyway the materials here prominently featured the Biotene mark in equal or larger size/prominence to the Salivea mark, so that favored GSK.

There was some anecdotal evidence of confusion: declarations from GSK stated that healthcare professionals expressed confusion about the relationship (e.g., a conversation with an oral hygienist in which the hygienist stated “that she understood SALIVEA was a GSK product that was replacing BIOTENE”) and declarations from healthcare professionals themselves claiming that they were confused (e.g., declaring that, after receiving “a total of three mailers,” a dental hygienist was “immediately confused as to whether [SALIVEA] was made by [Plaintiffs], because the mailer referenced that GSK had reformulated the BIOTENE formula”). The total was seven declarations recounting around twenty instances of actual confusion.  This favored GSK, but only slightly, given that Laclede sent approximately 100,000 mailers. “Measured against that number, twenty reported cases of actual confusion are not a lot. And none of the declarations address confusion stemming from SALIVEA’s website …. Nevertheless, even a small number of declarations can be revealing.”

There was also some evidence of bad faith intent to profit from Biotene’s goodwill.  One mailer referenced Biotene more often than Salivea. Another said at the top: “DID YOU KNOW BIOTENE HAS CHANGED?” The main text was “phrased in a way that leaves a reasonable reader confused about whether Laclede or GlaxoSmithKline manufactures SALIVEA”: “Biotene was acquired by the GSK Company and was reformulated. After years of perfecting formulas, we now introduce SALIVEA ....” The court concluded that,

taken together, the heading and the main text could be easily be read to suggest that GlaxoSmithKline had reformulated BIOTENE and was repackaging it as SALIVEA. Nowhere on the Mouthwash Mailer is it evident that SALIVEA is a Laclede, and not a GlaxoSmithKline, product. And while the depiction of the SALIVEA bottle is indeed larger than the depiction of the BIOTENE bottle, the overall impression of the advertisement suggests an untruthful association between SALIVEA and BIOTENE, on the one hand, and between Laclede and GlaxoSmithKline, on the other.

The other mailer also “purposefully obscured” the relationship between the parties, prominently declaring that SALIVEA is “From the Creators of ORIGINAL biotene,” (with “biotene” in its distinctive, stylized typeface), and states that “SALIVEA utilizes the same ingredients as the ORIGINAL Biotene – The Proven and Loved Formula.” It didn’t clarify that Laclede and GlaxoSmithKline are separate entities or that SALIVEA is not related to BIOTENE. “Instead, the advertisement leaves the inevitable impression that SALIVEA is a follow-on to, or an improved version of, BIOTENE made by the same manufacturer as ‘the ORIGINAL Biotene.’”

Quality favored neither side, because it is a garbage factor that should be eliminated from the current test, and consumer sophistication favored Laclede.

Nominative fair use factors: in the Second Circuit, the first one is “whether the use of the plaintiff’s mark is necessary to describe both the plaintiff’s product or service and the defendant’s product or service, that is, whether the product or service is not readily identifiable without use of the mark.” Here the court bobbles: “First, it is plainly not ‘necessary’ for Defendants to use Plaintiffs’ mark to describe SALIVEA.”

This a bad result aided by the Second Circuit’s mashup of the nominative fair use test from multiple circuits with the usual Polaroid factors.  In the non-Third Circuit version, the question is not (as it is with descriptive fair use) whether the use of the mark is necessary to describe the defendant’s product; it’s whether it’s necessary to describe the plaintiff’s product/service to identify it for purposes of discussion. The Third Circuit limited nominative fair use to the hybrid situation where the defendant needed to explain its genesis/experience in order to explain the reason consumers might trust it (which, not for nothing, seems relevant here), but that makes nominative fair use captive to a variant of descriptive fair use.  The better treatment, which seems acceptable under the Second Circuit standard would be to evaluate the necessity of the reference to the specific claim being made (e.g., “Salivea uses the original, good formulation that Biotene has abandoned”).  Here, however,  the court reasoned, because Salivea could easily describe itself as “dry mouth care” etc., there was no need to mention plaintiff’s mark. [So if I’m an architect who worked for another firm for three decades, there’s no need to mention that firm because I can just describe myself as an “architect”?  That seems … restrictive, and in tension with the First Amendment. The ultimate result here may be right, but it’s not because of any lack of necessity—it’s because of what comes next.]

Next, Laclede used more of the Biotene mark than is necessary to identify SALIVEA. This factor requires courts to evaluate whether the defendant used the mark “too prominently or too often, in terms of size, emphasis, or repetition.” As discussed above, it did.

Third, Laclede “suggest[ed] sponsorship or endorsement by the plaintiff holder” and obscured “the true or accurate relationship between plaintiff’s and defendant’s products.” The ads suggested that Salivea was “a replacement for, or a follow up to,” Biotene, most evidently in the headlining text “DID YOU KNOW BIOTENE HAS CHANGED?”  [I’m guessing that the result is different for a headline “DID YOU KNOW BIOTENE HAS CHANGED FOR THE WORSE?”]  The ambiguous “we now introduce …” language also hurt.

On balance, GSK showed likely confusion.

It also showed irreparable harm through showing “loss of reputation and goodwill.” Irreparable harm “ ‘exists in a trademark case when the party seeking the injunction shows that it will lose control over the reputation of its trademark pending trial,’ because loss of control over one’s reputation is neither ‘calculable nor precisely compensable.’ ”  As framed, this is equivalent to a finding that likely confusion automatically means irreparable harm, since it would always be true by definition.  This result is inconsistent with eBay, and it wrongly conflates the idea of lost control with the idea of harm from the lost control materializing, which is (in the absence of further evidence, say of the inferiority of the defendant’s product) not shown merely by showing the existence of the risk.  In other words, the logic of “lost control” is that irreparable harm is possible, but possibility is not likelihood, which is the standard in other cases.

With that out of the way, it wouldn’t be a hardship to refrain from overreliance on GSK’s marks in advertising, especially since Laclede already discontinued the mailers at issue.  And a preliminary injunction limited to enjoining trademark violations would not disserve the public interest.

However, GSK sought relief that was too broad, including “all use of the words ‘#1 Brand for Dry Mouth, It’s Back, ‘Back Again,’ ‘Brought Back’ or variations thereof,” and “the dissemination of any and all claims referencing Laclede’s prior ownership of the BIOTENE brand.”  GSK’s request for a laundry list of prohibitions was inconsistent with its focus in the likely confusion analysis on the totality of the advertising, and the court agreed that the proper approach was to look at the total impact of the uses. GSK’s proposed injunction could “sweep in instances of nominative fair use.”  Thus, the preliminary injunction issued by the court covered: all use of the registered blue-and-red Biotene logo, or any confusingly similar variation thereof; all use of any images of the packaging for Biotene products; and the dissemination of any advertising or packaging materials declaring that Salivea is a successor of, or replacement for, Biotene; and any ads substantially similar to the two prior mailers. [In many ways, the limited scope of the injunction makes up for the narrowness of the nominative fair use reasoning, except insofar as other claimants will cite only the narrow reasoning against other comparative advertisers.]