For decades, Plaintiffs and defendants have fought bitterly over most aspects of class-action law. One issue, however, had managed to escape serious contention: the propriety of paying “incentive awards” (also known as “service awards”) to class representatives. Broadly speaking, such awards are sums paid to named plaintiffs—above and beyond what they receive as ordinary class members—to compensate them for the time, effort, and inconvenience their role may require. According to one academic study, these awards are generally modest, averaging 0.16% of the class-wide recovery, with a median of 0.02%. Incentive awards became widespread in the 1980s and 1990s, and are now near-ubiquitous, especially in the consumer class action domain where we focus. See 1 William B. Rubenstein, Newberg and Rubenstein on Class Actions § 17:7 (6th ed., June 2022 update) (noting that courts approved incentive awards in 93.4% of consumer class actions between 2006 and 2011).
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Misbranded is Patterson Belknap’s blog covering false advertising litigation—both consumer class actions and competitor suits—with a particular focus on FDA-regulated products (foods/beverages, pharmaceuticals, cosmetics, and dietary supplements). Writing from the industry perspective, we provide timely updates on important cases, surveys of litigation trends, and in-depth analyses of “hot” legal issues. Our firm pioneered the modern practice of false advertising law more than 40 years ago, bringing the first competitor suits under the Lanham Act. In the decades since, we have continued to practice at the cutting edge, handling many of the field’s most groundbreaking cases on behalf of the nation’s best-known businesses. Today, led by Steven A. Zalesin, our team advocates creatively, strategically, and efficiently on behalf of our clients at all phases of litigation, from pre-complaint demands to Supreme Court appeals.
We’ve written before about the growing trend of “ethical sourcing” or “ethical production” class actions, which challenge manufacturers’ claims (or nondisclosures) about the humane (or inhumane) way their ingredients or materials are grown, caught, or harvested. A recent decision out of the Southern District of New York in a case involving “free range” eggs typifies this litigation trend and the danger it poses to food and beverage manufacturers.
Federal law expressly authorizes manufacturers of dietary supplements to make “structure/function” claims—that is, claims about the effect of particular nutrients on the structure or function of the human body. (Think: “vitamin C supports the immune system” or “calcium supports healthy bones”). Despite this federal authorization, consumers often attempt to bring state-law challenges to manufacturers’ structure/function claims, asserting that they are false or misleading. This type of clash between federal and state law is a classic recipe for preemption. And that is especially true where the relevant federal statute—here, the Food, Drug, and Cosmetic Act (FDCA)—contains an express preemption clause. See 21 U.S.C. § 343-1(a).
Our parents and teachers taught us that “two wrongs don’t make a right.” But in the world of Lanham Act litigation, the opposite is often true. When defending a Lanham Act claim brought by a competitor, the doctrine of unclean hands—the lawyerly version of “But they did it too!”—can be a case-dispositive argument. Last month, the Ninth Circuit made it a bit easier to establish this defense, holding that a defendant arguing unclean hands need not prove that the plaintiff’s unclean conduct caused “actual harm.” See Certified Nutraceuticals, Inc. v. Avicenna Nutraceutical, LLC, 2020 U.S. App. LEXIS 22351 (9th Cir. July 27, 2020).
Increasingly, consumers base their purchase decisions on facts about a company or its product that have nothing to do with the performance or quality of the product itself. For example, does the manufacturer treat its workforce fairly? Is it a responsible steward of the environment? What are its stances on social issues like abortion or LGBTQ rights? To which parties or candidates does it (or its officers) donate? All of these facts—and countless others—are “material” to many consumers in the sense that they affect (or even dictate) purchase decisions. Indeed, in recent years, ethical, moral, and political concerns like these have led to countless instances of boycotts and other forms of consumer speech—a welcome sign of a healthy body politic and liberal democracy.
Flushable Wipes, Take Three: The Second Circuit Gets Injunctive Standing Right, But Classwide Damages Models Wrong
As our readers know, we’ve kept a close eye on the “flushable wipes” litigation—known variously as Kurtz v. Costco and Belfiore v. Procter & Gamble—as it has bounced between Judge Weinstein’s courtroom in the Eastern District of New York and the Second Circuit. The cases raise several issues important to class-action defendants, including the necessity of a rigorous damages model at the class-certification stage; the availability of injunctive relief to customers who are already wise to the alleged deception; and the appropriateness of massively multiplied “statutory damages” in the class context. We (and others) had hoped that the Second Circuit would use the case to provide clear answers to these questions and to remedy the New York federal courts’ status as a hotbed for questionable class-action complaints. But with that court’s latest ruling—fortunately, an unpublished and non-precedential one—those hopes may have gone down the tubes.
Liability Immunity Under The PREP Act: A Potent New Defense Against COVID-Related False Advertising Claims
Our national response to the COVID-19 pandemic has been made more difficult by a shortage of personal protective equipment and lifesaving drugs and medical devices. Some evidence suggests that manufacturers’ fear of lawsuits has exacerbated these shortages. Seeking to allay these concerns, in March 2020, the Secretary of the Department of Health and Human Services (HHS) issued a Declaration providing manufacturers, distributors, health professionals, and other “qualified persons” immunity against certain claims relating to COVID-19 “countermeasures.” See 85 Fed. Reg. 15198 (Mar. 17, 2020). In mid-April, HHS followed up with an Advisory Opinion clarifying the scope of liability immunity under the Declaration.
Much has been written about the Declaration’s potential as a shield against product liability suits. But does the Declaration also provide immunity from false advertising suits, including Lanham Act, common-law, and statutory consumer protection claims? There’s not yet any judicial precedent on this question, but the answer appears to be “yes”—at least in many cases.
Seventh Circuit Rejects Court Intervention In Light Beer Ad Wars: Is A New Trend Brewing In False Advertising Law?
The last few years have seen a pitched battle for market share among the manufacturers of America’s leading “light” beers—a battle that’s been waged not only in America’s bars and on the airwaves, but in the courtroom. Earlier this month, in Molson Coors v. Anheuser-Busch, Nos. 19-2200, 19-2713, 19-2782, 19-3097 & 19-3116, 2020 WL 2097557 (7th Cir. May 1, 2020), the Seventh Circuit gave Anheuser-Busch, the maker of Bud Light, a major victory in that battle, wiping out an injunction that the district court had entered in favor of Molson Coors, the maker of Miller Lite and Coors Light. That’s newsworthy in itself—but, because of its novel reasoning, the Molson Coors ruling may have broader significance for false-advertising law.
This post originally appeared on Law360.
In Romag Fasteners Inc. v. Fossil Inc., the U.S. Supreme Court recently made it easier for Lanham Act plaintiffs to disgorge the ill-gotten profits of trademark infringers.
Naturally, the question arises: Since false advertising suits are also governed by the Lanham Act, does Romag apply to false advertising suits, too? The answer is likely yes — but there are important differences between the two types of suits that may make disgorgement awards more difficult for false advertising plaintiffs to obtain.
“Whether reasonable consumers would be deceived by a challenged advertisement is a question of fact that can’t be decided on a motion to dismiss.” This claim is one of the biggest sacred cows in false advertising litigation. But as the Second Circuit has made clear twice in the past year, it’s just a load of bull. Take, for example, Chen v. Dunkin’ Brands, Inc., --- F.3d ----, 2020 WL 1522826, which the Second Circuit decided unanimously earlier this week. In Chen, the court doubled down on its June 2019 holding that a court can decide at the pleadings stage “whether a reasonable consumer would have been misled by a particular advertisement,” Geffner v. Coca-Cola Co., 928 F.3d 198, 200 (2d Cir. 2019), affirming the dismissal of a false advertising claim involving the meaning of “steak.” In the process, the court also served up a tasty side dish of personal jurisdiction doctrine.
Grains of paradise (aframomum melegueta), are a peppery, citrusy spice indigenous to West Africa, related to ginger and cardamom. The name purportedly derives from medieval merchants’ claims that the plant grew only in the Garden of Eden. Common to West African cuisine, grains of paradise are also one of the botanicals sometimes used to give gin its characteristic flavor.
In Florida, however, an obscure 1868 law makes it a third-degree felony to “adulterate … any liquor” with certain specified substances, ranging from grains of paradise and capsicum (chili pepper) to potentially deadly opium and “sugar of lead.” Fla. Stat. § 562.455. Some have postulated that this law’s original intent was to prevent consumer deception, as the banned ingredients were once added to liquor to make it taste stronger (more alcoholic) than it actually was. That same practice spurred an 1816 law of Parliament (56 Geo. III, ch. 58) making it illegal for brewers and dealers in beer to possess grains of paradise. Unlike merrie olde England, however, the Sunshine State never got around to repealing its law.
This blog has previously examined the recent spate of so-called “slack-fill” lawsuits, in which consumers claim that a food (or other) product is misleadingly packaged because it contains excess air. We noted that the growing trend is for courts to reject such suits at the motion-to-dismiss stage, for a variety of reasons. For example, courts have found slack-fill complaints deficient for failing to allege, beyond conclusory platitudes, that the package’s empty space serves no legitimate function, or for failing to allege with plausibility that a reasonable consumer would actually be deceived. Late last year, in Benson v. Fannie May Confections Brands, Inc., the U.S. Court of Appeals for the Seventh Circuit issued an important decision affirming the pleadings-stage dismissal of a slack-fill suit, but based on a distinct justification: the failure to plausibly allege any cognizable damages associated with slack-filled packaging.
Ninth Circuit Endorses RICO Claims For Prescription Pharmaceutical Promotion
The Racketeer Influenced and Corrupt Organizations Act (RICO) was meant to help take down the Mafia. For years, however, plaintiffs have attempted to contort it into a federal false advertising regime for prescription pharmaceuticals, complete with treble damages and attorney’s fees. The Ninth Circuit recently gave plaintiffs a boost in that effort, permitting RICO claims to proceed against pharmaceutical companies based on allegedly improper labeling and promotion of their prescription medications.
Patterson partner and Misbranded contributor Jonah Knobler recently critiqued the Ninth Circuit’s decision—and pharmaceutical RICO suits generally—at Drug and Device Law. Check out that post here.
Back in May, we wrote about a package of “extreme pro-plaintiff changes” that legislators had proposed to New York’s main consumer-protection statute, Gen. Bus. Law § 349. There have been some significant developments on this front, so we figured an update was in order.
Breaking: Supreme Court To Decide Whether Willfulness Is Required To Disgorge Profits Under Lanham Act
Today, in its final orders list of the Term, the Supreme Court granted cert in Romag Fasteners, Inc. v. Fossil Inc. (No. 18-1233), to resolve a deep circuit split regarding Lanham Act remedies. The specific question in Romag is “[w]hether … willful [wrongdoing] is a prerequisite for an award of [the defendant’s] profits.” (All agree that an award of the plaintiff’s actual damages, as opposed to disgorgement of the defendant’s profits, is available irrespective of the defendant’s mens rea—but actual damages are often difficult to prove.) Romag presents this question in the context of a trademark infringement claim, but the outcome should also control in federal false advertising cases, which are likewise governed by the Lanham Act.
Another One Bytes the Dust: Court Dismisses Flash Drive False Advertising Suit Based On Back-Of-Package Clarifying Disclosures
A few months ago, we wrote about courts’ inconsistent application of the “reasonable consumer” standard when labeling statements are claimed to be false or misleading, despite clarifying information elsewhere on the product label. In Williams v. Gerber Products Co., 552 F.3d 934 (9th Cir. 2008), the Ninth Circuit (in)famously held that a “reasonable consumer” should not be “expected to look beyond misleading representations on the front of the box to discover the truth … on the side of the box.” Id. at 939-40. As we explained in our prior post, Williams is in tension with longstanding authority that “reasonable consumers” are expected to read the entire advertisement, including disclaimers and clarifying language. We observed that numerous lower-court decisions, recognizing Williams’ shaky foundation, have sought to distinguish it and narrow it to its facts.
Add to this list Dinan v. SanDisk LLC, No. 5:18-cv-5420 (BLF), 2019 U.S. Dist. LEXIS 91633 (N.D. Cal. May 31, 2019), a recent decision out of the Northern District of California. While Dinan was not a food, drug, or cosmetic case, its discussion of Williams and the “reasonable consumer” test bears directly on such cases, and should help manufacturers dispatch some false advertising claims at the pleadings stage when their packages include proper clarifying disclosures.
Last month, the Second Circuit heard oral argument in what had seemed like the most consequential consumer class-action appeal in that court in years: three consolidated cases involving “flushable” hygienic wipes. Both sides of the class-action bar were at the edge of their seat waiting for the Second Circuit’s guidance on several controversial issues of class-action law, including the appropriate standard for reviewing damages models at the class-certification stage. Earlier this week, however, the Second Circuit essentially punted, sending the cases back to the district court for “further factual development.” This is a frustrating result, but reading between the lines, class-action defendants may have reasons for cautious optimism.
It’s hard to argue that New York’s consumer-protection laws (Gen. Bus. Law §§ 349–350) are being underutilized by private plaintiffs. But, on that claimed basis, the state’s Legislature is considering a multifaceted amendment that would make those laws vastly more plaintiff-friendly—and business-unfriendly—than they already are. It’s hard to understate the impact these changes would have on the business community. We’re not sure what the bill’s odds of passage are, but given the extremity of the amendments, we’re a bit surprised they haven’t attracted more public attention.
Speak of the Devil and he doth appear. Today, it’s just a figure of speech. In medieval England, by contrast, people meant it literally—as a warning that uttering the Prince of Darkness’s name would conjure his evil presence. Maybe those Anglo-Saxons had a point. A few weeks ago, we wrote a post about a remarkable string of defense victories in “slack-fill” cases—i.e., lawsuits complaining of too much empty space in product packaging. In particular, we noted that “every slack-fill case to reach the class-certification stage ha[d] flunked Rule 23’s rigorous test for certification,” and we wondered aloud “how a slack-fill class could ever be certified.” Well, speak of the Devil: just four days later, a California court certified a class in a slack-fill case for the first time ever. We apologize for any causal role we may have had in this truly diabolical development. The good news is that the decision may not stick—and even if it does, it’s likely to remain an outlier.
Proving Retail Sales Figures In Consumer Class Actions: Different Approaches Lead To Very Different Results
To prove damages in a consumer class action, the named plaintiff must show—among other things—how many units of the defendant’s product were purchased by consumers in the relevant state (or states). This is easier said than done. Manufacturers generally keep records of their own wholesale transactions—i.e., how much product they shipped to distributors or large retail chains. But they generally don’t have direct visibility into sales at the retail level, since they aren’t a party to those transactions. If not all of the product sold at wholesale ends up being purchased by consumers, manufacturers’ records may not reflect this. Likewise, if the product that a manufacturer ships to an address in State A (e.g., a regional distribution center) ends up being moved to State B before reaching store shelves, manufacturers’ records will not reflect this either. What, then, is a class-action plaintiff to do?
As astronomer Carl Sagan famously said, “absence of evidence is not evidence of absence.” Plaintiffs have not gotten the message. They often allege that a defendant’s marketing or labeling statements are false and misleading on the sole basis that there is purportedly no evidence (or insufficient evidence) proving their truth. These so-called “lack of substantiation” claims are easy to plead because a plaintiff does not need to conduct an investigation to identify evidence that the challenged statement is false. Rather, she alleges only an absence of supporting evidence for the statement—and generally, in a conclusory manner.
Unless you were born yesterday, you know that packaged goods usually contain some empty space in the box, bottle, or bag. This has been true for as long as there have been packaged goods. What is relatively new is that consumers—or, rather, a small cadre of specialized plaintiff’s lawyers—are suing over it. But as Newton said, for every action, there is an equal and opposite reaction. And the more that lawyers have inundated courts with these suits, the more aggressively courts have responded to shut the silliness down. This post examines the regulatory underpinnings of these so-called “slack-fill” suits and the many bases that courts have found for letting the air out of them.
All’s Not Well(er) in Pennsylvania: Court Sanctions Defendant For Contact With Putative Class Members
There is nothing inherently wrong with outreach to putative members of an uncertified class—whether by the named plaintiff’s counsel or by the defendant’s counsel. As the ABA has recognized, “[b]oth plaintiffs’ counsel and defense counsel have legitimate need to reach out to potential class members regarding … information that may be relevant to whether or not a class should be certified.” ABA Formal Op. 07-445 (2007); see also Austen v. Catterton Partners V, LP, 831 F. Supp. 2d 559, 567 (D. Conn. 2011) (“Both parties need to be able to communicate with putative class members … from the earliest stages of class litigation.”). Thus, as the Supreme Court has unanimously held, restrictions on pre-certification communication with putative class members must be justified by a “clear record and specific findings” of actual “abuses.” Gulf Oil v. Bernard, 452 U.S. 89, 101-04 (1981). And even then, any limitations must be “carefully drawn … [to] limit speech as little as possible.” Id.
The rise of social media has redefined advertising, giving businesses exciting new ways to reach consumers and deliver their messages. To no one’s surprise, it has also provided new fodder for advertising class actions. However, as one plaintiff recently learned the hard way, these social-media class actions can founder on the same shoals as their traditional-media counterparts.
In Comcast v. Behrend, 569 U.S. 27 (2013), the Supreme Court held that a plaintiff cannot obtain class certification with an inadequate damages model. In the years since, courts have diverged over how much a plaintiff must do to satisfy this requirement. Often, plaintiffs seek class certification with nothing more than a skeletal proposal to develop and perform an analysis at some future point, using information they do not—and might never—possess. While some courts have found such adumbrative “models” sufficient at the class certification stage, the better decisions require more. As Comcast recognizes, Rule 23 “does not set forth a mere pleading standard.” Rather, a plaintiff “must affirmatively demonstrate” through “evidentiary proof” that damages are measurable on a class-wide basis through a common methodology. Faithful application of that principle obligates plaintiffs and their experts to offer a detailed methodology that is tailored to the facts of the case, and to show that any data that the model requires in fact exists and can be obtained.
Over the last few years, “conjoint analysis” has become the methodology du jour for false advertising plaintiffs seeking to demonstrate they can calculate class-wide damages. Conjoint analysis is so named because it is used to study the joint effects of multiple product attributes on consumers’ choices. At bottom, conjoint analysis uses survey data to measure the strength of consumers’ preferences for particular product features. Or, put differently, it tries to isolate how much people care about an individual product attribute in a multi-feature product (in a more scientific manner than just asking them directly).
This is an exciting time for manufacturers on guard against compelled disclosures in their product labeling or advertising. Late last June, the Supreme Court decided National Institute of Family & Life Advocates v. Becerra, 138 S. Ct. 2361 (2018) (“NIFLA”), an abortion case with potentially far-reaching effects on the law of compelled commercial speech more generally. However, as lower courts begin to interpret and apply NIFLA in the context of product disclosures, major uncertainties remain.
By law, packaged foods and beverages must bear an accurate list of their ingredients “in descending order of predominance by weight.” 21 C.F.R. § 101.4. Consumers routinely sue food and beverage companies alleging that they were misled about the presence or absence of particular ingredients—even though a mere glance at the ingredient list would have averted any confusion. Do such plaintiffs have a plausible claim for relief under false advertising laws, or should these claims be dismissed at the threshold?
Many statutes, including the Lanham Act, impose strict liability for false advertising. Business may therefore incur liability even if a third party was partially or wholly at fault for the challenged inaccuracy. For example, a cosmetics company that advertises its products as “all natural” may be held liable to a competitor through no fault of its own if an unscrupulous supplier substitutes synthetic pigments for the more expensive natural pigments that the company ordered and paid for. Similarly, a food company that labels a product as containing “50 grams of protein per serving” may incur liability to consumers if the laboratory it retained to assay its products’ nutritional content botched those tests.
In the olden days, the law was content to leave whichever tortfeasor the plaintiff chose to sue on the hook for the whole tab—even if the chosen defendant was not the truly blameworthy party. However, “[i]t is now widely recognized that fundamental fairness demands a sharing of the liability” in these situations.