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Avoiding Trade Secret Misappropriation, False Advertising & Unfair Competition Claims

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On Wednesday, January 23, Knobbe Martens Partners Jeff Van Hoosear, Susan Natland, Diane Reed and Lynda Zadra-Symes participated in the Association of Corporate Counsel (ACC) - Southern California In-House Counsel Conference. This all day CLE program was just for in-house counsel and panels included: Social Media & Privacy; New Developments in California Employment Law; Lawful Interception; Millennial Engagement in the Workplace; and Helping Sales & Marketing Avoid Defamation/Unfair Competition.
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2013 ACC-SoCal In-House Counsel Conference #IHCC13 Swimming With Piranhas: Hiring Competitor’s Top Talent & Being Fiercely Competitive Without Exposing Your Company Avoiding Trade Secret Misappropriation, False Advertising & Unfair Competition Claims January 23, 2013 Los Angeles, California Moderator: Harrison Perla, Esq. Panelists: Lynda Zadra-Symes, Jeff Van Hoosear, Susan Natland and Diane Reed @KnobbeMartens at Twitter #IHCC12 The recipient may only view this work. No other right or license is granted.
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Page 1: Avoiding Trade Secret Misappropriation, False Advertising & Unfair Competition Claims

2013 ACC-SoCal In-House Counsel Conference #IHCC13

Swimming With Piranhas: Hiring  Competitor’s  Top  Talent  &  Being  Fiercely  Competitive Without Exposing Your Company

Avoiding Trade Secret Misappropriation, False

Advertising & Unfair Competition Claims January 23, 2013

Los Angeles, California

Moderator: Harrison Perla, Esq. Panelists: Lynda Zadra-Symes, Jeff Van Hoosear,

Susan Natland and Diane Reed @KnobbeMartens at Twitter

#IHCC12 The recipient may only view this work. No other right or license is granted.

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Swimming with Piranhas: Avoiding False Advertising & Unfair

Competition Claims

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“The Set-Up”  - Marketing Proposal:

– “Get  tanner faster with no burn!”    With picture of bikini model throwing her bottle of Hawaiian Tan into the trash)

– “Get  30% tanner with Golden Glow over the leading sunscreen!”

– “#1  recommended  sunscreen  by  dermatologist”

– “For  a healthier looking tan!”

– “Get  more. Use Less.”

– “Get  more. Use 50% Less.”

GOLDEN GLOW Sunscreen 2013 Marketing Campaign

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Comparison to competitors: – Direct: “Get  tanner  faster  with  no  burn!”

– Implied: “Get  30%  tanner  with  GOLDEN  GLOW  over  the  leading  sunscreen!”

GOLDEN GLOW Sunscreen 2013 Marketing Campaign

GET TANNER FASTER WITH NO BURN!

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General claims about GOLDEN GLOW product:

– “#1  recommended  sunscreen  by  dermatologist”

– “For  a  healthier  looking  tan!”

– “Get  more.    Use  less.”

– “Get  more.    Use  50%  less.”

GOLDEN GLOW Sunscreen 2013 Marketing Campaign

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False Advertising

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Lanham Act Section 43(a)(1)(B):

“Any person who, on or in connection with any goods or services, uses in commerce any false or misleading representation of fact, which . . . in commercial advertising or promotion, misrepresents the nature, characteristics, qualities or geographic origin or his or her  or  another  person’s  goods,  services  or  commercial  activities.”

False Advertising – Federal Statutory Basis

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Elements:

A false statement of fact by defendant in a commercial advertisement  about  its  own  or  another’s  product;

The statement actually deceived or has a tendency to deceive a substantial segment of the audience;

The deception is material; Defendant caused its false statement to enter interstate

commerce; and

Plaintiff has been or will likely be injured as a result.

False Advertising – Lanham Act Claim

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Under Section 43(a) of the Lanham Act, a false statement of fact occurs when the statement is either: Literally false; or Literally true but likely to mislead or confuse

*HOWEVER, “puffery”  (general, vague statements of superiority understood as opinion and not facts) is NOT actionable

False Advertising – Lanham Act Claim

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Literally false statements may be: A statement that is or appears to be based on testing

(30% tanner)

A statement that is not based on testing but makes a claim as to some specific or absolute characteristic of  the  product  (“#1  sunscreen  recommended  by  dermatologist”  or  “organic”)

Visual elements in the ad can change implication

False Advertising Statement

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Proving that a statement is literally false:

If based on testing, the Plaintiff must – Attack  the  validity  of  Defendant’s  testing

directly: Test not sufficiently reliable Test did not support the claim or implication made

– Show  the  Defendant’s  tests  are  contradicted  by  other scientific tests Rely on other testing Conduct own testing

False Advertising Statement

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Proving that a statement is literally false:

If NOT based on testing –Need evidence to prove literally false –Example: Ad showing orange squeezed

directly into orange juice carton was held to be literally false

False Advertising Statement

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What does the ad imply? Is the claim true? Fact: Tests were conducted only on people with

olive skin over a 3 hour period in March: – Does the data support the claim? – Was the test appropriate? Is the testing faulty? – Was the test sufficiently reliable? – Does it help to qualify the claim?

Legal Analysis Of GOLDEN GLOW Campaign

Get tanner faster with no burn!

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Plaintiff must produce evidence (survey, survey, survey!) of the message consumers take from the ad

Issue must be material (does it pertain to an inherent quality or characteristic of the product or service?)

Commercial advertising or promotion required (this may not cover salespeople statements)

Legal Analysis Of GOLDEN GLOW Campaign

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“Get 30% tanner over the leading sunscreen!”

How do consumers interpret the advertisement? Specific and measurable claim?

Is it true?

Legal Analysis Of 2013 GOLDEN GLOW Campaign

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Puffing

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General or vague claims of superiority understood as opinions rather than factual representations

Exaggerated advertising

Blustering or boasting

No reasonable buyer would rely upon the claim

A subjective claim (puffery) is not actionable under Lanham Act false advertising

What Is Puffing?

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“For a healthier looking tan!”

Specific or absolute characteristics?

Vague?

Highly subjective?

Legal Analysis of GOLDEN GLOW Campaign – Puffing?

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“Get  More.  Use  Less.”

Vague?

Highly subjective?

Does it misdescribe specific or absolute characteristics?

Legal Analysis of GOLDEN GLOW Campaign – Puffing?

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“Get  more.  Use  50%  less.”

Specific?

Measurable claim of product superiority?

Apparently based on testing

Is  there  a  comparison  to  a  competitor’s  product? Which competitor?

Legal Analysis of GOLDEN GLOW Campaign – Puffing?

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Real World Example

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Legal Analysis of Real World Example

Literally True: Tester:  “Ready  to  see  the  results.  So  that  is  the  photo  on  your  iPhone  5.”   Male  Diner:  “a  little  dark” Tester:  “That’s  the same photo on the Lumia 920. Big difference  right?” Deceptive?

– Depends on testing methodology (was flash used for one and not the other?)

– Appropriate  qualifiers  in  the  ad  as  to  the  “test”?

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Legal Analysis of Real World Example

Puffing:

– “The  thing  that  is  most  amazing  about  this  phone  is  the  camera.”

– “The  camera  on  this  phone  is  better  than  the  camera  on  your  phone  [iPhone].”

– “The  best  camera  phone  ever  built  period  .  .  .  takes  beautiful  photos  in  lowlight.”

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Claims Under State Laws

Consider state laws – trademark infringement, unfair competition and dilution – Generally, the same analysis applies as that of

federal claims – But may have additional requirements

Trade Libel (CA): the publication of a false statement of fact that is an intentional disparagement  of  the  quality  of  the  plaintiff’s  services or products, and the publication results in pecuniary damages

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PICTURE OF PUFFER FISH

Other Avenues for Claims

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Federal Trade Commission

16 C.F.R. Section 14.15(b)-(c): “Commission  policy  in  the  area  of  comparative  advertising encourages the name of, or reference to competitors, but requires clarity, and, if necessary, disclosure, to avoid deception of the consumer  .  .  .  ”

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FTC

Prohibits false, unfair or deceptive advertising

Advertisement does not have to be literally false

An ad is considered deceptive if it contains a misrepresentation or omission that is likely to mislead consumers, and this deception is material to  the  consumer’s  choice

Competitor or consumers may notify FTC to induce agency to take action

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FTC

49 Fed. Reg. 30999 (Aug. 2, 1984): – “As a matter of law, firms lacking a reasonable

basis before an ad is disseminated violate section 5 of the FTC Act and are subject to prosecution.”

Substantiation required for express and implied claims

Pre-existing data necessary

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FTC v. SKECHERS

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National Advertising Division (NAD)

Set up by the Council of Better Business Bureaus Private, self-regulation of advertising industry There can be no pending lawsuit or issued judicial order in

order to use this forum Resolved in a matter of weeks, rather than months or years Cheaper than litigation “Appeal”  process  available  to  the  advertiser If  the  “infringing”  advertiser  does  not  comply  with  the  NAD  

recommendation, the NAD can submit to the FTC for review

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Other Federal Regulatory Agencies

Food and Drug Administration (FDA) – food product labeling, prescription drugs and cigarettes

Securities and Exchange Commission (SEC) – stocks, bonds and financial instruments

Department of Transportation (DOT) – air carriers and travel agencies

Treasury Department (Bureau of Alcohol, Tobacco and Firearms) – alcoholic beverages

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Dangers of Social Media

Statements made on Facebook, Twitter and other social media forums could be considered false advertising in certain situations

Adopt a specific and expansive Social Media Policy

Educate your employees again and again

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Other Mitigation Strategies: Insurance

General business liability

Advertising injury coverage – May cover defense of trademark infringement,

false advertising, product disparagement claims

Advertising nexus

Beware of exclusions!

Tender immediately

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Take-Away Points

Understand all claims made by your advertisement, both express and implied Establish the veracity of all claims Ensure substantiation of all claims is reliable

and appropriate Plan  ahead  and  have  a  “Plan  B,”  including  

alternative ads if risk is unacceptable

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Moderator: – Harrison Perla, Esq.

Harrison Perla, Director of Worldwide Legal Affairs at CEVA, Inc. @HarrisonEsquire on Twitter

Panelists

Presenters: – Susan M. Natland, Esq.

Partner at Knobbe Martens [email protected]

– Lynda Zadra-Symes, Esq.

Partner at Knobbe Martens [email protected]

– Diane M. Reed, Esq.

Partner at Knobbe Martens [email protected]

– Jeff Van Hoosear, Esq.

Partner at Knobbe Martens [email protected]


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