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Home | BakerHostetler

Mark Johnson, Mathew Drocton Release 2024 Q1 Updates in Insurance Class Actions

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Biotechnology, Chemical and Pharmaceutical: Supreme Showdown

Casie Collignon, Aleksandra Vold Moderate Panels at NetDiligence Cyber Risk Summit

Teresa Goody Guillén Presents at SPAC Conference 2024

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<a href="#Room">Room Rental Site Sued Over Chimerical Reviews and Listings</a>

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<a href="#Consumers">Consumers: Burger King Product Pictures Are Not Well Done</a>

<a href="#Bedding">Bedding Company Faces Fake Sale Class Action</a>

<a href="#OpenAI">OpenAI Moves to Dismiss Silverman Copyright Claims</a>

<a href="#NAD">NAD Cuts Synthetic Diamond Retailer Web Copy into Shape</a>

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Room Rental Site Sued Over Chimerical Reviews and Listings

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FTC keeps promise to ramp up negative attention on false positives

Remember the first time you hunted for your own apartment? The anguish of trying to rent a new place before you get kicked out of your dorm room/parents’ basement/friend’s rec room? The dry, itchy eyes from staring at search results online? The triumph of finding a place that was dirt cheap but didn’t seem so disgusting that you couldn’t bring a date home?

What if that perfect place was just a mirage?

The Federal Trade Commission claims that many of the apartment listings on Roomster.com, a website dedicated to bringing “places and people together,” <a href="https://www.ftc.gov/news-events/news/press-releases/2022/08/ftc-states-sue-rental-listing-platform-roomster-its-owners-duping-prospective-renters-fake-reviews" target="_blank" rel="noreferrer noopener">are completely fake</a>. Listings for well-priced, attractive apartments turn out to not exist at all once site users have paid a fee.

Moreover, the Commission says, the company paid for tens of thousands of fake ads, most of which were sourced from one individual named Jonathan Martinez, who was also included as a defendant in the case. “Although the Roomster Defendants claim that their ... platform provides ‘verified’ and ‘authentic’ living arrangement listings, in many instances it does not,” the Commission states in <a href="https://www.ftc.gov/system/files/ftc_gov/pdf/Roomster%20Complaint.pdf" target="_blank" rel="noreferrer noopener">its complaint</a>. “Instead, [they] rely on fake reviews … and fake listings to get consumers to pay for access to rental information that is unverified and, in many instances, does not exist.”

The scam was aimed at customers from the lower end of the economic spectrum, particularly “students, lower-income individuals, and those desperate for safe, low-cost housing in markets where such housing is extremely hard to find.” These unfortunate consumers, the FTC claims, were taken in to the tune of tens of millions of dollars.

While Martinez flipped on Roomster and settled separately with the Commission—including a $100,000 penalty and a lifetime ban on selling reviews and endorsements—there’s still no resolution to the remaining effort against the listings site. The company is still being charged in the New York Southern with a slew of counts, including false endorsement, misrepresentation, and violations of New York, California, Colorado, Florida, Illinois, and Massachusetts state laws.

All of this would be somewhat interesting on its own—false endorsement activity is widespread and the facts in this case are remarkable for their scale rather than their novelty.

But the novel aspect of the story is the seriousness with which the FTC is pursuing fake reviewers. About two years ago, the Commission put “<a href="https://www.ftc.gov/news-events/news/press-releases/2021/10/ftc-puts-hundreds-businesses-notice-about-fake-reviews-other-misleading-endorsements" target="_blank" rel="noreferrer noopener">hundreds of businesses on notice</a>” about fake reviews, and the Roomster case seems the latest iteration of that effort—albeit with a few new twists.

First, the jurisdictional scope of the charges is notable. The Commission teamed up with six of the most consequential states in the union to target the company.

But the FTC also mentioned Roomster’s executives in its complaint, alongside Martinez; the Commission isn’t playing when it comes to false reviews. Just something to remember if you’re ever tempted to give yourself or your company a few stars and some glowing words.

Consumers: Burger King Product Pictures Are Not Well Done

Class action beef survives the King’s motion to haughtily dismiss

No, We’re Not Talking About the New “Magic Mike”

Feast your eyes, then, on a <a href="https://admin.bakerlaw.com/wp-content/uploads/2023/09/BK-Comp.pdf" target="_blank" rel="noreferrer noopener">complaint</a> filed by four New York- and Florida-based plaintiffs against everyone’s favorite “have it your way” purveyor of cow-meat sandwiches, Burger King. There are so many vivid color photos of Burger King menu options in this complaint that it probably boasts more pure chuck than a [INSERT BURGER KING COMPETITOR NAME HERE] burger, are we right?!

(We’re not technically paid good money to make bad jokes or even worse marketing tags, so forgive us and we’ll get on to the heart of the matter.)

Last year the plaintiffs, would-be regicides all, filed a class action in the Southern District of Florida, claiming that the King is overstating the size of its famous Whopper sandwich (and pretty much everything else on the menu) in its advertising.

The plaintiffs allege that, despite the fact that the amount of ingredients in the sandwiches did not change, Burger King began advertising them as much larger than they are in real life. “Burger King advertises its burgers as large burgers compared to competitors and containing over-sized meat patties and ingredients that overflow over the bun to make it appear that the burgers are approximately 35% larger in size,” the complaint reads, “and contain more than double the meat, than the actual burger.”

The regicides suffered harm because they bought the sandwiches based on these deceitful representations.

That’s the basis of the case, which, despite being trimmed of some fat by the court, got a shot of growth hormone in an <a href="https://admin.bakerlaw.com/wp-content/uploads/2023/09/BK-ord.pdf" target="_blank" rel="noreferrer noopener">order</a> filed at the end of August.

Burger King moved to dismiss, as any enormous and iconic American company would, maintaining that it “makes very clear how much beef the Whopper contains. ... Plaintiffs do not and cannot contend that [the company] delivered them less than a quarter pound of beef with any Whopper or Big King,” the company wrote in its motion. “They argue, instead, that they ‘expected’ more beef, ostensibly because of the protruding patties in the pictures they included in the [amended complaint]. All of Plaintiffs’ claims, however, fail to meet the objective requirement of reasonableness that is subject to judicial scrutiny at the pleading stage.”

The court threw out a slew of claims plaintiffs made under various state protection laws but kept a set of breach of contract, negligent misrepresentation, and unjust enrichment claims.

On the contract claim, Burger King made a bold argument in its motion, which the court smacked down. “To prevail,” the King maintained, “Plaintiffs would have to prove that the advertising photo of a burger constituted a contractual offer by [Burger King] that included as an ‘essential term’ delivery of a handcrafted sandwich looking exactly like the picture. ... Plaintiffs [ ] have to show a meeting of the minds between [Burger King] and its guests that [Burger King] would deliver every sandwich looking exactly like the picture in a particular ad.”

Burger King’s eyes were bigger than its stomach on this one. “How can that be?” the court asked incredulously. “We won’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. Nor will we simply assume that most reasonable people would take lying down this incongruity between the amount of sustenance they were promised and the amount of sustenance they got.”

In the end, the court asked, “Who are we to decide whether [the] seemingly substantial difference [noted by plaintiffs] between what was promised and what was sold was (or was not) enough to alter the purchasing preferences of reasonable American consumers? Far better, it seems to us, to leave that determination to the consumers themselves, who—if the case survives that far—will get to sit in the jury box and tell us what reasonable people think on the subject.”

Bracing stuff. Perhaps the King is confusing the function of the menu board—a listing of products and prices—with product packaging, which, under Food and Drug Administration regulations, can show enlarged pictures so long as the manufacturer notes the disproportion.

The contract claims, then, will move forward, with the regicides allowed to file an amended complaint reconfiguring the state law claims.

Bedding Company Faces Fake Sale Class Action

Angry plaintiff, armed with Way Back Machine, tries to put discount claims to sleep

Brooklyn. The name has different marketing connotations than it used to. Nowadays, it summons up images of disapproving aesthetes, cool-as-ice professionals, and artisanal craftspeople. Back in the early ’70s, it was an entirely different story. Urban decay. Crime and grit and sweat. “Dog Day Afternoon.”

Brooklyn, after all, is where the term “to the mattresses” was coined, by Crazy Joe Gallo as he and the fabled Gang That Couldn<a>’</a>t Shoot Straight holed up in a safe house during the First Colombo War (by the way, if you’re looking for a great read, check out “<a href="https://www.kirkusreviews.com/book-reviews/tom-folsom/the-mad-ones/" target="_blank" rel="noreferrer noopener">The Mad Ones</a>: Crazy Joe Gallo and the Revolution at the Edge of the Underworld”).

But today a company named Brooklyn Bedding more likely than not conjures up the image of a fussy “sleep technician” who’s created a super-expensive mattress based on European design principles and held together with locally sourced nails and fabric. <a href="https://brooklynbedding.com/pages/our-story" target="_blank" rel="noreferrer noopener">And sure enough</a>:

Two brothers, John and Rob Merwin, began as liquidators but eventually, quite tenaciously and scientifically started deconstructing mattresses and visiting factories to learn how to design a better mattress themselves.

“Deconstructing.” They have to mean post-2000s Brooklyn.

Look hard and long enough with a jaundiced eye, however, and you’re likely to uncover some sort of seedy racket almost anywhere, and that’s why we’re talking about Brooklyn Bedding today.

The company is getting <a href="https://admin.bakerlaw.com/wp-content/uploads/2023/09/bed-comp.pdf" target="_blank" rel="noreferrer noopener">sued</a> by one Sean Phillips in the Northern District of California. He alleges the company decks its website out with the usual salesy terms, design, and iconography:

On its website, Defendant lists purported “regular” prices and advertises purported “Limited Time” discounts from those “regular” prices. These include “LIMITED TIME” discounts offering “up to $X off” and “X% off.” Defendant uses countdown clocks to represent that its sales are on the verge of ending. Defendant also advertises that its Products have a lower discount price as compared to a higher, regular price shown in grey and/or strikethrough font.

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Phillips claims that these tactics are designed to suck in potential buyers even though “everything about Defendant’s price and purported discount advertising is false.” The regular prices, he maintains, are always inflated, and the customer receives no real discount—rendering the “limited time” claims false, as well.

The case is just getting underway—the complaint was filed in late July—and there’s no telling where it will end up. Will Phillips’ deep Internet Archive search for sale figures hold up in court? Will his curated screenshots serve as a wake-up call for the company?

But—whether Brooklyn Bedding is guilty or not—a cursory glance at the complaint is a helpful reminder to keep careful track of every discount and sale your company mounts. Place reasonable time gaps between offers and “limited time” sales, and make sure you can demonstrate the baseline prices that make price cuts meaningful.

That way, you won’t wind up sleeping with the fishes.

OpenAI Moves to Dismiss Silverman Copyright Claims

Motion sidesteps direct infringement altogether

We’re simply frail human beings. No super-algorithms we. But nonetheless, we predicted how OpenAI might respond to the <a href="https://www.bakerlaw.com/insights/ad-ttorneyslaw-july-28-2023/#Sarah" target="_blank" rel="noreferrer noopener">class action</a> filed by comedian and author Sarah Silverman and two other writers in the Northern District of California back in July.

When we covered the case, we quoted Silverman et al.’s <a href="https://admin.bakerlaw.com/wp-content/uploads/2023/07/silv-comp.pdf" target="_blank" rel="noreferrer noopener">general copyright claim</a> at length:

Plaintiffs never authorized OpenAI to make copies of their books, make derivative works, publicly display copies (or derivative works), or distribute copies (or derivative works). ... All those rights belong exclusively to Plaintiffs under copyright law. ... [T]o train the OpenAI Language Models, OpenAI relied on harvesting mass quantities of textual material from the public internet, including Plaintiffs’ books, which are available in digital formats.

We wondered about this approach—specifically, whether or not copyright claims could stand if the only activity in question was the use of Silverman’s materials in training, rather than the production of text that could be considered a competitive product.

OpenAI’s response arrived in late August, and it sheds some light on the company’s likely response to the slew of copyright claims that Silverman’s suit represents.

“At the heart of Plaintiffs’ Complaints are copyright claims,” the <a href="https://admin.bakerlaw.com/wp-content/uploads/2023/09/OAI-mtd.pdf" target="_blank" rel="noreferrer noopener">motion</a> reads. “Those claims, however, misconceive the scope of copyright, failing to take into account the limitations and exceptions (including fair use) that properly leave room for innovations like the large language models now at the forefront of artificial intelligence.”

How Copyright (Lawyers) Work

The motion, however, “focuses only on the dismissal of the assortment of ancillary claims that Plaintiffs included in their Complaints—claims for vicarious copyright infringement, violation of the Digital Millennium Copyright Act (‘DMCA’), unfair competition, ‘negligence,’ and unjust enrichment.”

Why avoid addressing the main copyright claim? More on that in a second.

But within the scope of this motion, the claims alleging vicarious infringement “are based on the erroneous legal conclusion that every single ChatGPT output is necessarily an infringing ‘derivative work’—which is a very specific term in copyright law—because those outputs are, in only a remote and colloquial sense, ‘based on’ an enormous training dataset that allegedly included Plaintiffs’ books.”

Worse still: “According to the Complaints, every single ChatGPT output ... is necessarily an infringing ‘derivative work’ of Plaintiffs’ books. Worse still, each of those outputs would simultaneously be an infringing derivative of each of the millions of other individual works contained in the training corpus—regardless of whether there are any similarities between the output and the training works. That is not how copyright works.”

But why didn’t OpenAI take a swing at the direct infringement claims? The Fashion Law blog, one of our fave publications, as we’ve said over and over again, <a href="https://www.thefashionlaw.com/openai-sheds-light-on-fair-use-in-bid-to-trim-copyright-lawsuits/" target="_blank" rel="noreferrer noopener">floats the theory</a> that this omission is “likely an indication that OpenAI ‘fancies [its] chances in court and wants a fair use declaration for training’—presumably in order to help prevent the filing of additional suits of a similar nature in the future.”

We’d call that an artful dodge, but we don’t want to get sued by the Dickens estate.

As we predicted, the nature of large language model training will be at the heart of OpenAI’s defense. Is it, or is it not, fair use? Is there a subset of generative AI output that would infringe the copyright of authors whose texts are used in training?

We await Silverman and her fellow plaintiffs’ reply.

NAD Cuts Synthetic Diamond Retailer Web Copy into Shape

Agape Diamonds neglected to label the origin of its home-grown rocks

When we started researching this story, we poked around looking for the difference between natural diamonds and their lab-grown or synthetic brethren. “Surely,” we thought, “they must be inferior in some way—in their purity of composition, or color, or some other factor—to explain why they’re more affordable.” The process for creating them is 70 years old at this point. Why have they not flooded the market and driven down the price of all diamonds, natural or not?

Turns out, there’s no difference. Chemically, structurally, the gems are the same. So why are natural gems still priced higher? Why are they “worth” more?

We stumbled across an answer from an online jewelry retailer that somehow proved simultaneously instructive and baffling:

Lab-created diamonds are chemically the same as natural, mined diamonds. They are more affordable, but their value likely will not hold up over time. They will also never have the same rarity, uniqueness and meaning as a natural stone that was formed over billions of years deep in the earth. [Bolding ours—Ed.]

Meaning? It has meaning because it was dug up out of the ground? It’s hard to make this argument if the synthetic stones are structurally the same as natural stones ... unless perhaps part or all of that meaning is derived from the fact that someone had to do the digging.

And, given the <a href="https://en.wikipedia.org/wiki/Child_labour_in_the_diamond_industry" target="_blank" rel="noreferrer noopener">controversies and abuses tied to diamond mining</a>, perhaps this is a category of meaning that we should begin to interrogate?

That differential in market value clearly incentivizes some retailers to hide the origin of their stock. But, <a href="https://www.bakerlaw.com/insights/ad-ttorneyslaw-may-13-2022/#Company" target="_blank" rel="noreferrer noopener">as we’ve remarked before</a>, the Federal Trade Commission has <a href="https://www.ftc.gov/news-events/topics/tools-consumers/jewelry-guides" target="_blank" rel="noreferrer noopener">fairly stringent rules </a>regarding the marketing of synthetic gems. And the National Advertising Division references those rules in disputes.

The latest case involves online retailer Agape Diamonds, which mostly sells synthetic and “conflict-free” natural stones. The <a href="https://www.naturaldiamonds.com/council/" target="_blank" rel="noreferrer noopener">Natural Diamond Council</a>, whose mission is to “advance the integrity of the modern diamond industry and to inspire, educate and protect the consumer,” <a href="https://bbbprograms.org/media-center/dd/agape-diamonds" target="_blank" rel="noreferrer noopener">hauled Agape before NAD </a>this summer, claiming that the company’s “marketing, including its presentation of its products for sale on its website, violates the Federal Trade Commission’s Jewelry Guides because it does not clearly and conspicuously disclose the origin of the stones.”

Agape hopped to and altered its website and social media accounts so that the synthetic stones were properly and conspicuously labeled for what they are.

But, according to NAD, “other online advertising from Agape [failed to] include clear and conspicuous disclosure of the stone’s origin.”

Here’s where the rubber hits the road for anyone selling synthetic gems—a microcosm of the general FTC gemstone rules:

To the extent not already reflected in its advertising, NAD recommended that all Agape advertising include the appropriate description (e.g., “Simulated” or “Lab Grown”) immediately preceding the word “diamond” or “stone” with equal conspicuousness so as to clearly disclose the nature and origin of the product and the fact that it is not a mined gemstone, consistent with the FTC Jewelry Guides, including in advertising where images of items are used with or without any descriptive text.

With that warning, Agape agreed to get the rest of its online advertising in line.

Looking to the future, perhaps comprehensive consumer education regarding the essentially identical nature of natural and synthetic diamonds will eliminate the need for such review. Then the fake stones—guaranteed to be created without dangerous mining conditions or child labor—might be invested with their own valuable “meaning.”

<a href="https://bakerlaw.zoom.us/webinar/register/WN_B1THCfzxQse3z6sWqMy8Cw" target="_blank" rel="noreferrer noopener">Session 10: What Brands Need to Know About NFTs</a>

Join us for an overview of today’s Web3 ecosystem and a discussion on how brands use NFTs to engage customers and expand into new markets. Topics include how NFTs are used in reward, loyalty, and membership programs, how trademark laws apply to NFTs, and strategies for protecting your brand’s reputation.

<a href="https://www.adventures-in-law.com/blogs/latest-ftc-public-meeting-asks-wont-somebody-please-think-of-the-children/" target="_blank" rel="noreferrer noopener">Latest FTC Public Meeting Asks, ‘Won’t Somebody Please Think of the Children?’</a>

AD-ttorneys@law – September 26, 2023

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