On March 26, 2021, the United States Court of Appeals for the Second Circuit decided The Andy Warhol Foundation v. Goldsmith, a decision addressing the “fair use” doctrine, an important part of copyright law. “Fair use” tries to balance the extent to which one artist may build on a prior artist’s work without getting the first artist’s approval or license for doing so, and when so much of the quality or quantity of first work is copied that that artist’s work deserves protection against the latter piece. In the recently-decided case, which the Warhol Foundation had won below, the appellate court rejected the claim that Warhol’s uses of certain photographs of Prince Rogers Nelson by Linda Goldsmith (with photographs and Warhol works depicted in Slip Op. at 7-9) was protected fair use of the copyrighted photos. Instead, the Court concluded that the sixteen pieces of art Warhol had created in the Prince Series could provide Goldsmith the basis for a recovery for copyright infringement. Review of this case provides an important understanding of what “fair use” has been understood to mean, how that doctrine has changed and evolved, and what it may mean in future cases.

Understanding the decision requires an understanding of some basic facts and concepts. As the court noted, “Goldsmith is a professional photographer primarily focusing on celebrity photography, including portrait and concert photography of rock-and-roll musicians.” Slip op at 5. This eventually included taking a series of color and black/white photographs in 1981 of a “(then) up-and-coming musician Prince Rogers Nelson (known through most of his career simply as ‘Prince’).” Id. at 6-7. Eventually, Vanity Fair magazine got a license from Goldsmith to use a single black/white photograph from the collection:

“as an artist reference,” which in the industry meant that “an artist ‘would create a work of art based on [the] image reference.’” Id. at 7-8. As the Second Circuit noted:

Vanity Fair, in turn, commissioned [Andy] Warhol to create an image of Prince for its November 1984 issue. Warhol’s illustration, together with an attribution to Goldsmith, was published accompanying an article about Prince by Tristan Vox and appeared as follows:

In addition to the credit that ran alongside the image, a separate attribution to Goldsmith was included elsewhere in the issue, crediting her with the “source photograph” for the Warhol illustration. [Id. at 8-9].

Understanding those facts now require some understanding of who Andy Warhol was.

According to Court, Warhol “was an artist recognized for his significant contributions to contemporary art in a variety of media. Warhol is particularly known for his silkscreen portraits of contemporary celebrities.” Slip op at 5. After creating the item to run in Vanity Fair:

Warhol created 15 additional works based on the Goldsmith Photograph, known collectively, and together with the Vanity Fair image, as the “Prince Series.” The Prince Series comprises fourteen silkscreen prints (twelve on canvas, two on paper) and two pencil illustrations, and includes the following images:

Although the specific means that Warhol used to create the images is unknown (and, perhaps, at this point, unknowable), Neil Printz, the editor of the Andy Warhol Catalogue Raisonné, testified that it was Warhol’s usual practice to reproduce a photograph as a high-contrast two-tone image on acetate that, after any alterations Warhol chose to make, would be used to create a silkscreen. For the canvas prints, Warhol’s general practice was to paint the background and local colors prior to the silkscreen transfer of the image. Paper prints, meanwhile, were generally created entirely by the silkscreen process without any painted embellishments. Finally, Warhol’s typical practice for pencil sketches was to project an image onto paper and create a contoured pencil drawing around the projected image. [Id. at 9-10].

The question then is whether Warhol infringed, or simply made fair use of, the Goldsmith photo.

To answer that question, one needs to understand what constitutes “infringement” and what is “fair use.” Infringement is the unlicensed copying of a pre-existing work. Under copyright law, the original creator has a right to the first work and a presumptive right to the works derived from it. In fact the Copyright statute, “copyright protection extends both to the original creative work itself and to derivative works, which it defines as, in relevant part, ‘a work based upon one or more preexisting works, such as a[n] . . . art reproduction, abridgement, condensation, or any other form in which a work may be recast, transformed, or adapted’ 17 U.S.C. § 101.” Slip op at 13. “Fair use” is also statutorily protected, at 17 U.S.C. § 107, and grows out of the notion that much progress in art, literature, and science comes in building on the work of others. Slip op at 14-15. Thus, determining whether one is in engaging in fair use of pre-existing works, and can proceed without license, depends on a balancing and weighing of the four statutory factors: (1) the purpose and character of the second artist’s/author’s use; (2) the nature of the earlier copyrighted work; (3) the amount and substantiality of the portion of the original work used in the second work; (4) the effect of the use on the potential market for the first work. Because “fair use presents a holistic context-sensitive inquiry ‘not to be simplified with bright-line rules,’” it gets complicated. Slip op at 15.

Frequently, as occurred in the Warhol case, the first factor becomes the battleground, and there was a trend in the law to see whether the second work had made a “transformative” use of the first, and therefore could be considered fair use. One makes such decision by determining “‘whether the new work merely supersedes the objects of the original creation, or instead adds something new, with a further purpose or different character, altering the first with new expression, meaning, or message.’” Slip op at 16 (quoting Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569, 579 (1994)). “Although the most straightforward cases of fair use thus involve a secondary work that comments on the original in some fashion, in Cariou v. Prince, we rejected the proposition that a secondary work must comment on the original in order to qualify as fair use. See 714 F.3d at 706.” Slip op at 17. Cariou was also a photograph case where the Court concluded that twenty-five of the thirty works at issue were transformative of the original  photographs because they had been used “‘as raw material, transformed in the creation of new information, new aesthetics, new insights and understanding.’” Slip op at 17 (quoting Cariou v. Prince, 714 F.3d 694, 706 (2d Cir. 2013)).

In this Warhol case, however, the Second Circuit stepped back from Cariou, the “high-water mark of our court’s recognition of transformative works,” to reject the argument that the Warhol Prince Series was transformative, instead finding the series merely derivative. In doing so, the appellate court made clear that a transformative purpose was a necessary, but alone insufficient element of establishing fair use, stating that:

[W]hether a work is transformative cannot turn merely on the stated or perceived intent of the artist or the meaning or impression that a critic—or for that matter, a judge—draws from the work. Were it otherwise, the law may well “recognize[e] any alteration as transformative.”

* * *

Although we do not hold that the primary work must be “barely recognizable” within the secondary work… the secondary work’s transformative purpose and character must, at a bare minimum, comprise something more than the imposition of another artist’s style on the primary work such that the secondary work remains both recognizably deriving from, and retaining the essential elements of, its source material. [Slip op. at 26, 28 (quoting Nimmer, § 13.05(B)(6) at 26)]

Because the appeals court concluded that “any reasonable viewer with access to a range of such photographs including the Goldsmith Photograph would have no difficulty identifying the latter as the source material for Warhol’s Prince Series,” the Second Circuit rejected the claim of fair use. Slip op. at 55. In doing so, the Second Circuit rejected what seemed like a fairly persuasive amicus argument (illustrated with photos at pages 9-26) that “recognizable similarity in expression is not, in itself, substantial similarity,” that only limited aspects of the Goldsmith work was protectable, and differences in aesthetic have been determinative in previous cases. It also pulled far back from the limits promoted by a number of legal scholars who, pre-Cariou, had suggested, in REFLECTIONS ON THE HOPE POSTER CASE, 25 Harv. J. L. & Tech. 243 (2012), even that “giving artists more freedom to make creative uses of copyrighted materials” should occur because it is “socially beneficial” to  provide a “safe harbor” for any use that is “creative,” which the article defined as anything that “either constitute[s] or facilitate[s] creative engagement with intellectual products.” Id. at 318-323.

One must understand that the appellate court here did more than simply look at the works side by side—an important element of the decision that use was not transformative comes from not seeing enough newness, for sure. Slip op at 25-26. The court deemed that true even though each allegedly infringing work is “immediately recognizable as a ‘Warhol.’ Entertaining that logic would inevitably create a celebrity-plagiarist privilege; the more established the artist and the more distinct that artist’s style, the greater leeway that artist would have to pilfer the creative labors of others. But the law draws no such distinctions.” Slip op at 31. But it is also important that the Second Circuit address the “commercial” purposes of the alleged use as within the same statutory prong as the transformativeness analysis. “[J]ust as we cannot hold that the Prince Series is transformative as a matter of law, neither can we conclude that Warhol and AWF are entitled to monetize it without paying Goldsmith the ‘customary price’ for the rights to her work, even if that monetization is used for the benefit of the public,” Slip op at 34, a point the Court drives home further when assessing the fourth (effect on market) statutory prong later in the opinion. Slip op at 44-50. This focus on the commercial impact, which also is further emphasized in Judge Sullivan’s concurrence, illustrates that the “fair use” analysis may be more aptly described as a “fare to use” test, in the sense that a court is determining whether the second artist must pay for the privilege of relying on the earlier creations to reach a new intended artistic destination.

It is worth noting that, despite reaction to the Warhol decision as an important one, it was ignored less than a week later by the Second Circuit itself in Marano v. Metropolitan Museum of Art, decided April 2, 2021, and the Supreme Court in Google v. Oracle. Indeed this debate continued almost immediately, as both the United States Supreme Court and the Second Circuit addressed fair use cases in recent days, and gave the second artist’s creative “purpose” a much greater continuing role in determining transformativeness than Warhol would suggest was appropriate. First, the Second Circuit itself in Marano v. Metropolitan Museum of Art (decided April 2, 2021), held in a case about a photograph of “Eddie Van Halen playing his ‘Frankenstein’ guitar” that “whether the use is ‘transformative’…constitutes the ‘heart of the fair use inquiry,’” and that the purpose the defendant sought to serve was a primary factor in determining fair use.  Summary order at 2-5 (allowing “the Met’s ‘copying the entirety of [the Photo]’”). Then, April 5th the US Supreme Court decided in Google v. Oracle that “fair use” is an “equitable rule of reason” requiring “judicial balancing” of “the sometimes conflicting aims of copyright law” so that copyright does not “stifle the very creativity which the law las was meant to foster.” (Op. at 13-15.) Neither Marano nor Google cite Warhol, though each address at some length, including in a Supreme Court dissent, the role “purpose” plays in assessing whether a use is “transformative.” See, e.g., Google, Slip op. at 24-28, Dissent at 15-17. So the debate goes on and fair use inquires remain “open-ended” and subject to “context-sensitive inquiry.” Summary order at 5.

Since fair use potentially applies to many media and markets beyond the visual art/photography one illustrated in Warhol, creators and owners of intellectual property generally need access to counsel experienced in such matters. From the book to screenplay to film progression noted as an example in Warhol, Slip op at 22, 28-29, 31, to newer (or newly popular) genres of poetry, to spoofs, pastiches and mash-ups, to video clips, to music, the question of “fair use” v. “fare to use” will continue to come up for artists building on earlier works.

Our colleague Stuart Gerson of Epstein Becker Green has a new post on SCOTUS Today that will be of interest to our readers: “The Court Dismisses the Trump Twitter Account Case as Moot, but Social Media Is Sure to Be on the Menu Again“.

The following is an excerpt:

Yesterday, I discussed the Supreme Court’s move into the world of technology in the case of Google LLC v. Oracle America, Inc., in which the Court held that Google’s copying of a small slice of Java programming language code constituted a permissible “fair use” of Oracle’s assumed copyright of Java itself. The Court’s reversal of a contrary decision by the Federal Circuit, saving Google perhaps more than $1 billion in damages, was based on factual determinations that copying the relevant code that constituted an “Application Programming Interface,” or “API,” to develop novel, transformative applications related to Android smartphones was, among other things, of minor and unrelated interest to Oracle’s interest in the Java programming language and was otherwise in the public interest. Whether this important decision will create an open season on API’s, an effective limitation on patent and copyright troll cases, or something that could affect antitrust litigation will only be seen in the future. What is certain is that the Court increasingly will be involved in cases related to information technology. As another recent Court action suggests, one such aspect of this might relate to social media.

Click here to read the full post and more on SCOTUS Today.

Our colleague Stuart Gerson of Epstein Becker Green has a new post on SCOTUS Today that will be of interest to our readers: “The Court Won’t Allow Second-Guessing of Convictions Supported by Persuasive Evidence”.

The following is an excerpt:

In a per curiam opinion (Sotomayor, J., dissenting without opinion), the Court today decided the case of Mays v. Hines, reversing the Sixth Circuit and reinstating a judgment of conviction in a murder case that originated almost 35 years ago.

Hines had been convicted of murder in the wake of evidence that he had been seen fleeing the scene in the victim’s car while wearing a bloody shirt. He was later heard by family members to admit to stabbing someone at the motel where the murder took place. Nevertheless, years after trial, a divided panel of the Sixth Circuit rendered a majority decision that Hines should be given a new trial because his attorney should have worked harder to blame someone else for the crime.

Click here to read the full post and more on SCOTUS Today.

Our colleague Stuart Gerson of Epstein Becker Green has a new post on SCOTUS Today that will be of interest to our readers: “The Supreme Court Takes a Lenient View of Personal Jurisdiction and 4th Amendment Seizures”.

The following is an excerpt:

The Court rendered two opinions on Thursday, both interesting and impactful, one of them particularly significant with respect to civil litigation practice.

Ford Motor Co. v. Montana Eighth Judicial District Court arose following two motor vehicle accidents, one in Montana, the other in Minnesota, in which Ford vehicles were alleged to have been defective. Ford argued that the state courts’ having personal jurisdiction over it could only exist if the company’s conduct in the state had given rise to the plaintiffs’ claims, and that the necessary causal link could be found only if the company had designed, manufactured, or sold in the state the actual vehicle involved in the accident. None of those factors existed here, where the vehicles at issue were brought into each state via resale elsewhere and subsequent relocation. Affirming the judgments of the two state supreme courts who had ruled against the company, every Justice (save Barrett, J., who did not participate) rejected the company’s “causal link” proposition.

The lead opinion was written by Justice Kagan, who was joined by her increasingly frequent ally, the Chief Justice, along with Justices Breyer, Sotomayor, and Kavanaugh. The remaining three Justices concurred in various separate opinions.

Click here to read the full post and more on SCOTUS Today.

Last week, the Securities and Exchange Commission’s Division of Examinations (the “Division”) released its 2021 examination priorities.  The priorities reflect the impact of the COVID-19 pandemic, including how it has increased risks related to cybersecurity; a new focus on climate change; and appear to recognize concerns raised by the recent trading in GameStop stock.

Impact of COVID-19

The onset of the work-from-home environment arising from the COVID-19 pandemic, has, among other things, increased the SEC’s concerns about “endpoint security, data loss, remote access, use of third-party communication systems and vendor management.”  Consequently, the Division will review whether firms have taken appropriate steps to:

  • Safeguard customer accounts and prevent account intrusions, including verifying an investor’s identity to prevent unauthorized access;
  • Oversee vendors and service providers;
  • Address malicious email activities, such as phishing or account intrusions;
  • Respond to incidents, including those related to ransomware attacks; and
  • Manage operational risk as a result of dispersed employees in a work-from-home environment.

In particular, the Division will also focus on “controls surrounding online and mobile application access to investor account information, the controls surrounding electronic storage of books and records and personally identifiable information maintained with third-party cloud service providers, and firms’ policies and procedures to protect investor records and information.”

The SEC’s concern is timely given the recent news of Microsoft’s hack, and reflect its long standing focus on cybersecurity.  Further, the SEC’s reference to vendors and third-party providers is a reminder that firms are responsible for making sure that the services they outsource comply with applicable SEC rules and requirements.

Climate Change

In its press release announcing the examination priorities, the SEC announced that “[this year, the Division is enhancing its focus on climate and [environmental, social and governance (“ESG”)] related risks by examining proxy voting policies and practices to ensure voting aligns with investors’ best interests and expectations, as well as firms’ business continuity plans in light of intensifying physical risks associated with climate change.”

Accordingly, in the examination priorities, the SEC stated that “[t]he Division will shift its focus to whether [business continuity] plans, particularly those of systemically important registrants, account for the growing physical and other relevant risks associated with climate change… As climate-related events become more frequent and more intense, we will review whether systemically important registrants are considering effective practices to help improve responses to large-scale events.”  The SEC noted that the scope of its examinations will be similar to the post-Hurricane Sandy work and “focus on the maturation and improvement of these plans over the intervening years.”  Firms should review their business continuity plans and determine whether any further updates or improvements are warranted and, in particular, should be prepared to explain how they have reviewed their plans in light of this guidance.

And, the day after releasing the examination priorities, the SEC took direct aim at climate change and ESG issues by announcing the formation of a Climate and ESG Task Force in the Division of Enforcement. The task force’s initial focus will be to identify material gaps or misstatements in issuers’ disclosures of climate risks under current disclosure requirements. It will also investigate ESG disclosure and compliance issues relating to asset managers and funds, as well as tips, referrals and whistleblower complaints on ESG-related issues.  As part of this initiative, the SEC will review its guidance issued in 2010 concerning the application of existing disclosure requirements to climate change matters, with the goal of updating the guidance to reflect developments of the past decade.  Stay tuned for that further guidance.

Fintech

Technology has dramatically changed the way firms interact with customers and clients and the SEC noted that it “remains committed to staying informed about how these developments impact registrants and investors.”  In an apparent reference to the Robinhood on-line trading app, and the recent trading in Gamestop stock, the SEC noted that “[a]mong other areas, examinations will focus on evaluating whether firms are operating consistently with their representations, whether firms are handling customer orders in accordance with customer instructions, and review compliance around trade recommendations made in mobile applications.”

The SEC also reminded market participants engaged with digital assets that it will continue to assess the following: whether investments are in the best interests of investors; portfolio management and trading practices; safety of client funds and assets; pricing and valuation; effectiveness of compliance programs and controls; and supervision of representatives’ outside business activities.  As digital assets gain in popularity and firms continue to adopt distributed ledger technology, it is expected that this will be an area of increased focus for the SEC.

Other Priorities

The examination priorities also include specific areas of focus for registered investment advisors, investment companies, municipal advisors and broker-dealers.  By way of example, for broker-dealers, the SEC noted areas of focus including:

  • Financial responsibility to ensure that assets are safeguarded in accordance with the Customer Protection Rule and Net Capital Rule;
  • Compliance with best execution obligations in a zero commission environment;
  • Compliance with amended Rule 606 order routing disclosures;
  • Payment for order flow arrangements and its possible effects on order routing and best execution obligations; and
  • Market-maker compliance with Regulation SHO.

And, of course, the priorities reflect long running concerns including recommendations to retail investors, in particular, seniors, teachers, military personnel, and retirement savers as well as implementation of Reg BI (which we have previously written about here), the transition from LIBOR, and anti-money laundering.

Conclusion

Firms should consider the SEC examination priorities as well as FINRA’s 2021 priorities (which we wrote about here) when they review their policies and plan their compliance initiatives for the year.  To the extent firms identify deficiencies in their policies and procedures, they should promptly remediate them to try to minimize their regulatory risk.

Imagine this: You litigate a case for years. Your opponent wins summary judgment. You appeal. The appellate court agrees that the summary judgment was erroneous and remands for trial. On remand, your opponent argues that the appellate court actually affirmed the dismissal of one the claims that was clearly remanded for trial. The lower court accepts that argument. What do you do?

You are facing the injustice of being denied the victory you just won in the appellate court. You know you can return to the appellate court again—someday—as of right. But if that return trip does not happen until after trial, you will waste substantial time and resources on the erroneously-limited trial.

Fortunately, appellate courts take this issue very seriously and will entertain interlocutory appeals to ensure that lower courts obey their commands. When an appellate court remands a case to a lower court, it issues a “mandate”—an order directing the lower court to take some specified action. Case law is clear that the mandate must be followed to the letter. In New Jersey, for example, the leading case on this issue, Flanigan v. McFeely, was authored by then-state Supreme Court Justice William J. Brennan less than a year before his elevation to the U.S. Supreme Court. Justice Brennan explained that “the trial court is under a peremptory duty to obey in the particular case the mandate of the appellate court precisely as it is written.” He further explained that “[r]elief from its [i.e., the mandate’s] directions, even though manifestly erroneous, can be had only in the appellate court whose judgment it is.”

A recent unpublished Order confirms that New Jersey appellate courts continue to take Justice Brennan’s words seriously. In 2019, in Deborah Heart and Lung Center v. Virtua Health, Inc., the appellate court reversed and remanded for trial claims by plaintiff, a charity cardiac hospital, that the defendants, a nearby competing hospital system and a number of its officials and physicians, had effected a “plan to put Deborah out of business” by bullying vulnerable cardiac patients to transfer to a more distant hospital in Pennsylvania instead of to Deborah. The appellate court held that: “Our review of the record reveals email exchanges, deposition testimony, and certifications suggesting defendants collectively worked to shutter Deborah.” It then stated its mandate, in relevant part, as follows: “Reversed and remanded as to Deborah’s claims against defendants for unfair competition and civil conspiracy limited to the identified patients.”

Despite the clarity of this language, the main defendant, Virtua Health, argued on remand that only the civil conspiracy claim had been remanded, and the dismissal of the unfair competition claim had actually been affirmed. And one of the individual defendants, Richard Miller, the former CEO of Virtua Health, argued that his dismissal had actually been affirmed in its entirety. The lower court agreed with both of these defendants and entered in limine orders excluding from trial all claims against Miller and the unfair competition claims against Virtua.

The plaintiff responded by making a motion for an interlocutory appeal. The Appellate Division granted that motion and summarily reversed the trial court, ordering that:

Appellant’s motion for leave to appeal is granted, and the orders of September 29 and December 4, 2020, are reversed summarily. In our opinion in Deborah Heart and Lung Center v. Virtua Health, Inc., et al., No. A-2307-17 (App. Div. July 16, 2019), we reversed the summary judgment granted by the trial court to defendant Richard Miller. We also reversed the dismissal of Deborah’s claims for unfair competition and civil conspiracy, limited to the identified patients, as to all defendants, including the Virtua defendants, and remanded the case for trial on those claims. As the trial court’s orders of September 29 and December 4, 2020 are inconsistent with our opinion and the terms of the remand, they are reversed and the case again remanded for trial of plaintiff’s claims of unfair competition and civil conspiracy, limited to the identified patients, as to all defendants.

In the New Jersey Appellate Division, only about 14% of motions for interlocutory appeal are granted. Most appeals (about 78%) are ultimately affirmed—usually after full briefing and arguments on the merits. The summary reversal of the lower court in Deborah v. Virtua shows that appellate courts continue to take the principle first enunciated by Justice Brennan seriously.

Our colleague Stuart Gerson of Epstein Becker Green has a new post on SCOTUS Today that will be of interest to our readers: Understanding Standing Under Article III – and the Chief Justice Stands Alone.

The following is an excerpt:

Articles in the popular press have noted that today’s decision by a near-unanimous Supreme Court in the case of Uzuegbunam v. Preczewski represents a victory for several Christian students in their battle against a college’s restrictive policies that prevented their on-campus religious evangelizing.

It is true enough that the now-former students’ complaint against Georgia Gwinnett College began as a result of the college’s imposition of rules that blocked the students’ speaking about their faith and distributing religious tracts, but by the time the case was decided, the policies in question had been rescinded and the plaintiffs were no longer students at the college.

The plaintiffs had not sought compensatory damages, only nominal damages, and the operative question before the Court had little to do with the First Amendment and, instead, dealt fundamentally with the matter of standing: Could the former students continue their suit against the college and its former policies that prevented their speaking about their Christian faith where they sought only nominal damages?

Click here to read the full post and more on SCOTUS Today.

Creative and aggressive plaintiffs’ lawyers are forever on the hunt for new theories under which to bring potentially lucrative class action lawsuits utilizing plaintiff-friendly state consumer protection statutes (with California being the most favored forum). The dietary supplement industry has been in the plaintiffs bar’s cross-hairs for more than a decade now. As the case law has evolved and developed, supplement companies have had notable success fighting these suits. Just last week, Judge Miller in the Southern District of California tossed a proposed class action against Germ-X maker Vi-Jon Inc. accusing it of mislabeling its hand sanitizer, finding that the consumer “only pled a conjectural and hypothetical injury” (a copy of Judge Miller’s decision can be found here), and the Ninth Circuit has made it clear that where a consumer challenges an advertisement as false or deceptive the plaintiff must demonstrate that there is scientific evidence showing that the product does not provide the claimed benefit. Nevertheless, class action false advertising lawsuits continue to cost the supplement industry billions of dollars.

Case in point, last week Reckitt Benckiser LLC agreed to pay $53 million to settle claims that it deceptively marketed a glucosamine supplement in what the plaintiffs are describing as “the largest dietary supplement class action settlement ever reached.”

The Plaintiffs claimed that they and others were induced to buy “Move Fee Advanced,” a glucosamine supplement, based on claims made in advertisements and on the packaging that the product treats joint pain and stiffness. Plaintiffs filed suit in the Northern District of California alleging that Reckitt Benckiser violated California’s CLRA, UCL, FAL, and New York General Business Law section 349 and 350 by advertising Move Free Advanced as providing joint health benefits that it does not provide. The parties engaged in four years of extensive discovery culminating in a heavily contested class certification motion. In their motion, Plaintiffs submitted evidence showing that more than a dozen independent studies since the late 1990s found no improvement in pain, mobility or quality of life for patients treated with glucosamine or chondroitin, separately or in combination. In response, Reckitt Benckiser argued that there were too many individual factors to certify a class or set class damages, including how individuals interpreted the advertising, how dissatisfied individuals were with the product, or how effective the product was on individual customers’ particular medical conditions.

Judge Vince Chhabria disagreed, and certified both a California and New York class of buyers of Reckitt’s “Move Free Advanced” supplement, finding that “plaintiffs have submitted evidence that Reckitt Benckiser labeled their ‘Move Free’ glucosamine and chondroitin-based supplements with claims suggesting that the supplements would improve joint functioning, but the scientific studies show that the ingredients in the supplements do not actually improve joint functioning.”

After the class was certified, Reckitt Benckiser moved for summary judgment on the grounds that all of Plaintiffs’ claims were preempted by the Food Drug & Cosmetic Act, that Plaintiffs could not prove that the Move Free Advanced’s advertising was false and that Plaintiffs’ full refund theory failed because Move Free Advanced was not a completely worthless product. Judge Chhabria again disagreed and denied Reckitt Benckiser’s motion, finding that there were material facts at issue that precluded granting summary judgment.

Following several mediation sessions, the parties reached a proposed settlement that will provide class members with cash refunds for up to three purchases of Move Free Advanced for a total of $66 without the need for proof of purchase. Alternatively, consumers could spend up to $225 on certain Reckitt Benckiser products. Consumers with proof of their purchases will receive refunds for all of their purchases. If the settlement is approved, plaintiffs’ counsel will be paid up to $12.5 million in attorneys’ fees plus court costs.

Given the potentially lucrative fee awards, false advertising class actions will continue to be a significant risk facing the dietary supplement industry. The plaintiffs’ bar closely watches government regulatory activity and companies should anticipate and be prepared to defend against copycat claims.

Fortunately, there are a number of steps that can help shield dietary supplement companies from these types of lawsuit. Beyond ensuring compliance with relevant FDA regulations, companies should review product label and marketing materials to ensure that any claims that they make are not misleading and have adequate scientific support. They should also evaluate whether either their product labeling or advertising makes any implied claims or message that if challenged, could not be substantiated.

Our colleague Stuart Gerson of Epstein Becker Green has a new post on SCOTUS Today that will be of interest to our readers: The Supreme Court Decides Significant Administrative Law Case Preventing Disclosure of Agency Deliberations

The following is an excerpt:

The Court decided two cases today, one of which is an administrative law case that may prove consequential, not just in the field of environmental law, in which it is grounded, but in other areas of the law, for example, health care, in which prospective rules undergo repeated drafts and modifications. United States Fish and Wildlife Service v. Sierra Club, the maiden opinion written by the newest Justice, Amy Coney Barrett, and joined by all of her colleagues except for Justices Breyer and Sotomayor, concerned an Environmental Protection Agency (EPA) rule regarding structures used to cool industrial equipment. The intra-governmental approval process for what became the ultimate rule was complicated, and there were, as a result, several drafts that might have been material in changing minds or otherwise affecting what became the final rule here. The Sierra Club submitted requests under the Freedom of Information Act (FOIA) for records related to the subsidiary agency services consultations with the EPA. The services invoked the FOIA’s deliberative process privilege (see 5 U. S. C. §552(b)) to prevent disclosure of the draft biological opinions analyzing the EPA’s proposed rule. The Sierra Club sued to obtain these withheld documents, and the Ninth Circuit held that the draft biological opinions were not privileged because, even though labeled as drafts, the draft opinions represented the services’ final opinion. The Supreme Court reversed, holding that the deliberative process privilege protects from disclosure the in-house draft biological opinions that are both pre-decisional and deliberative, even if the drafts reflect the agencies’ last views about a proposal. The majority reiterated that the FOIA’s exception from disclosure embodied in the deliberative process privilege shields from disclosure documents reflecting advisory opinions and deliberations comprising the process by which the government formulates decisions and policies. See NLRB v. Sears, Roebuck & Co., 421 U. S. 132 (1975).

Click here to read the full post and more on SCOTUS Today.

Our colleague Stuart Gerson of Epstein Becker Green has a new post on SCOTUS Today that will be of interest to our readers: A Hint About the Future of the Affordable Care Act.

The following is an excerpt:

There were no opinions delivered today, only very heated and important argument in the consolidated cases of Brnovich v. Democratic National Committee and Arizona Republican Party v. Democratic National Committee.

These cases concern whether two of Arizona’s voting policies—one prohibiting counting provisional ballots cast on election day outside of a voter’s designated precinct, the other permitting only limited categories of persons, e.g., family members, caregivers and postal workers, from handling a voter’s completed early ballot—violate Section 2 of the Voting Rights Act and, in the case of one of them, whether it also violates the 15th Amendment.

And on Monday, the Court heard argument in United States v. Arthrex, the latest challenge to the Federal Circuit’s holding that U.S. Patent and Trademark administrative judges are principal officers of the United States because their adjudications of cases for the Executive Branch are unreviewable and, hence, that these patent judges should be excluded from civil service protections and the Patent Trial and Appeal Board (“PTAB”) should be closed down. The problem is comparable to other Appointments Clause cases recently before the Court. Many of the Justices, particularly conservatives like Justice Kavanaugh, were, in questioning, clearly reticent to overthrow the entire patent review mechanism, and clearly leaning towards a more surgical solution: severing the provision of the law structuring the PTAB panels and thus leading to supervision by an official who is constitutionally appointed.

Click here to read the full post and more on SCOTUS Today.