Web Consent Still Trickier Than Old Fashioned Signature
It may be that the question of consent on a website is a consumer’s best bet to avoid onerous terms. And often, the issue is reviewed in the context of a business trying to enforce an arbitration clause. That was the case in the second quarter of this year in Herzog v. Superior Court, 101 Cal. App. 5th 1280 (2024). The underlying matter is ostensibly a products liability case against Dexcom, the manufacturer of the Dexcom G6. The product is a sensor below the skin that measures and monitors a patient’s glucose levels. Simultaneously, it wirelessly transmits the information to a display device or to an app in the patient’s cell phone. The product is designed to give the patient a 20-minute warning before a hyperglycemic or hypoglycemic event (including, for example, a diabetic seizure). Several patients had filed lawsuits alleging the device had not worked properly. Dexcom had sought to get the case out of Superior Court and into arbitration by compelling arbitration. The trial court had agreed with Dexcom and had compelled arbitration in all five of the cases that are consolidated under Herzog. But on a petition of the appellate court, the question became whether a contract to arbitrate had actually existed between Dexcom and the patients in question. Whether a contract exists under California law is whether there is mutual assent, or consent, of the parties. Consent is not mutual, unless the parties all agree upon the same thing in the same sense. Herzog v. Superior Court, 101 Cal. App. 5th 1280, 1293 (2024). The parties’ outward manifestations must show that the parties all agreed “upon the same thing in the same sense.” In the old world it was simpler. The patient would have been handed a stack of documents and a pen. Had the patient signed the documents with the pen, in largest part, under law the patient would have been deemed to have assented or consented to the existence of the contract. This method had its own sort of madness: it’s a fiction to think that the patient was reading sixty pages in the one minute allotted for them to sign. But, in defense of the old world, when a consumer was handed a pen and a thick stack of documents, the moment was just solemn enough that they knew they were committing themselves if they signed. In our current world, it’s a click-click-click life. Therefore, in the context of an internet transaction, “in the absence of actual notice, a manifestation of assent may be inferred from the consumer's actions on the website—including, for example, checking boxes and clicking buttons—but any such action must indicate the parties' assent to the same thing, which occurs only when the website puts the consumer on constructive notice of the contractual terms. Id. at 1294. In order to connect their personal device (e.g. iPhone) to the Dexcom G6, a patient had to create an account. In that process they would come to a page entitled “Legal” and be advised: “You understand and agree that your use of this website or any DexCom Inc. mobile application or software platform for your DexCom continuous glucose monitor is subject to the Terms of Use, Privacy Policy and any other acknowledgements listed below. By ticking the boxes below you understand that your personal information, including your sensitive health information, will be collected, used and shared consistently with the Privacy Policy and Terms of Use. You further understand that personal information and sensitive personal information will be stored and processed by DexCom, Inc., and/or its affiliate, SweetSpot Diabetes Care, Inc. in the United States, which may have different data protection laws than the country in which you reside.” (Italics added by the court). Id. at 1289-1290. Under this paragraph were two boxes, one next to the statement, “I agree to Terms of Use” and another next to, “I agree to Privacy Policy.” The phrases “Terms of Use” and “Privacy Policy,” which were written in green, were hyperlinks that, if clicked, would take the user to separate webpages. The separate page for “Terms of Use” did in bold letters on the first or second page (this is a consolidated case and the versions were slightly different for patients) state: “PLEASE NOTE THAT THIS AGREEMENT CONTAINS A MANDATORY ARBITRATION OF DISPUTES PROVISION." The signup would not complete unless the patient “clicked” through. Dexacom relied heavily on this fact for its argument, stating that it was a classic ‘clickwrap’ agreement, valid and routinely enforced under California law. Id. at 1295. The appellate court, however, in analyzing whether the patient had constructive or inquiry notice of the agreement to arbitrate found that there was NOT such notice because a) use of the app was not mandatory (the device had its own digital output); b) in plain language, the first paragraph of the page entitled Legal made it seem like it was related to personal information and sensitive health information; and c) there had not been disclosure that the terms were intended to apply to the app AND the device. It tied the matter up in a bow by reiterating that numerous courts have held that the onus must be on website owners to put users on notice of the terms to which they wish to bind consumers. Id. at 1299. Here, the court did not get this wrong. A possible reading of the opening paragraph on the page entitled Legal could lead someone to believe it was primarily about data and privacy issues. But as the court itself noted, the first sentence in the same paragraph states it is “subject to the Terms of Use.” My point is that it feels either outcome was possible here because the standards in this area of the law are still like common law type concepts - a bit gooey. The practice point, of course, for the business is to always to make your disclosures as clear as possible. For the consumer, if you think you have a shot on this issue, you may want to shoot your shot. This areas has been litigated in the past and it is an area where David sometimes will win over Goliath.
The Son Will Come Out Tomorrow – Or At Least For Now Son Sauce Not Banned
Occasionally, I admit, this blog has covered a few esoteric items because they seemed interesting. But the Sunsauce Foods Indus. Corp. v. Son Fish Sauce USA Corp., No. 22-cv-08973-PCP, 2024 U.S. Dist. LEXIS 87026 (N.D. Cal. 2024) case covers a problem that a lot of businesses may eventually face. Sunsauce is a Thailand-based company that produces and sells Thai-style sauces and related food products. Son Fish is a California-based company that produces and sells fish sauce in the United States. Sunsauce Foods Indus. Corp. v. Son Fish Sauce USA Corp., No. 22-cv-08973-PCP, 2024 U.S. Dist. LEXIS 87026, at 1-2 (N.D. Cal. 2024). Hereinafter, this blog shall refer to the parties as the Thai company and the California company rather than their names. The Thai company owns the registered mark, a composite mark containing the word “SUNSAUCE” that it registered in 2013. The California company applied in 2019 for the mark “SON SAUCE” which it stated it had used in commerce since December 22, 2015. The California company’s application for the mark SON SAUCE hit some bumps in the road at the United States Patent and Trademark Office. Chiefly, the examiner issued a final office action on September 30, 2020 which found the mark SON SAUCE to be confusingly similar to the Thai company’s mark which contained the word SUNSAUCE. Therefore, the examiner refused to register the California company’s “SON SAUCE” mark. Although this decision can be appealed, the California company abandoned the effort at that time. Instead, nearly two years later, in June of 2022, the California company petitioned the USPTO to cancel the Thai company’s trademark registration on the ground that the Thai company had either abandoned its mark or failed to adequately use it in the United States. Presumably, the effort to cancel the Thai company’s trademark was a bit like poking a bear. The Thai company responded in December of 2022 by suing the California company for trademark infringement as well as claims for common law trademark infringement, unfair competition under California's Unfair Competition Law, and unfair competition under Section 43 of the Lanham Act, 15 U.S.C. § 1125(a). Over a year later, the Thai company filed a preliminary injunction to enjoin the California company from using SON SAUCE in packaging, marketing, selling, and distributing its sauce products. Id. at 1. The preliminary injunction was denied by the court. The court found that the Thai company had failed to meet its evidentiary burden because it had only supplied declarations from attorneys and not from employees of the company. Next, it reasoned, essentially, that there was no reason to grant any leniency about the evidentiary standards because the Thai company had waited a year to file the preliminary injunction. Further, it found that the California company’s arguments about likelihood of confusion more compelling because, to constitute trademark infringement, use of a mark must be likely to confuse an appreciable number of people as to the source of the product. Id. at 8. It added that the Thai company had shown no actual evidence of consumer confusion and the actual presence of its products in the U.S. was still in doubt. As I have said many times, it is much easier to “Monday-morning quarterback” something like that than to go through it. But parsing through, there are several guideposts for businesses and their attorneys here. First, apply for the trademark as early in the lifecycle of your business and brand as possible. I have known businesses that wait to see if a product gains traction and in some respect that’s fair: it’s the equivalent of putting out a minimum viable product and gauging market response before investing in trademark registration. On the other hand, trademark registration is not terribly expensive. Waiting to apply, may in fact, be pennywise and pound foolish. This case illustrates the pitfalls of waiting: the California company began selling SON SAUCE in the market in December of 2015. It did not file the mark until four years later. Thus, nearly five years later when its application was rejected, one would presume that it had significant market traction and some brand awareness. The costs – both real and psychological – of abandoning the mark nearly five years after launch are much more than at an earlier stage. The second point is rather obvious: do not file a lawsuit and wait nearly a year to file a preliminary injunction. In the real world, of course, it’s not always so clear. Clients drag their feet and may not always appreciate the machinations of the U.S. legal system. Perhaps as well, the opponent makes early overtures towards a settlement that in the short run obscure the importance of seeking the preliminary injunction. And here, the Thai company may yet have the last laugh depending on how the underlying case unfolds. But the lackadaisical approach to filing the preliminary injunction signaled to the court that it wasn’t essential for the relief sought to be granted. In the same vein, if someone is infringing on your mark, do not wait to sue. And finally to note, as occurred here, an examiner’s opinion may not be the last word. In the end we will have to wait and see if the Thai company ultimately prevails in this suit. Over the course of my career, I have witnessed examiners block applications on grounds of likelihood of confusion in instances where I thought the examiner was wrong. In those cases, the applicant is left in the same odd position as the California company was here: either i) change the mark and your company’s branding because one examiner opined that your mark would be confused with an existing mark, or ii) carry on per usual, but now with a vague fear that the existing mark owner may one day sue you for trademark infringement. It’s a no man’s land. Ordinarily the opinion of a single examiner would not be given preclusive effect because the other elements of issue preclusion have not been met. See, e.g. Playnation Play Sys. v. Velex Corp., 924 F.3d 1159, 1169 (11th Cir. 2019) and Brookwood Funding, LLC v. Avant Credit Corp., 2015 U.S. Dist. LEXIS 191679, at 13 (N.D. Ga. 2015). So, technically the issue of likelihood of confusion may not be determined even if an examiner has blocked the applicant on those grounds. But investment abhors uncertainty and who wants to invest significant monies in advertising a brand that has even a remote chance of the possible loss of the mark of the brand? A final word of caution: if the applicant has litigated the likelihood of confusion issue before the Trademark Trial and Appeal Board, the findings of the Trademark Trial and Appeal Board may be the last word if the other ordinary elements of issue preclusion are present and the matter is given preclusive effect. B&B Hardware, Inc. v. Hargis Indus., 575 U.S. 138 (2015).
It Wasn’t Me is More than a Song by Shaggy
The third and final case reviewed for the second quarter blog is an alter ego case out of Wisconsin, where I am licensed in addition to California.
In the City of Wautoma v. Marek, 2024 Wisc. App. LEXIS 343 (2024), the village of Wautoma brought a civil forfeiture action against Sharon Marek. The chief allegation is that Marek was renting rooms to individuals at a property in violation of the single-family zoning ordinance.
After trial, Marek argued that Wis. Stat. § 66.1014 limited the power of local governments to place restrictions on the rental of residential dwellings and that, in any event, the only proper defendant would have been the limited liability company that owned the property in question. The court dismissed Wautoma’s action based on its determination that the its single-family residential zoning ordinances were rendered unenforceable by Wis. Stat. § 66.1014.
Wautoma appealed.
The appellate court affirmed the trial court, but based on Marek’s other argument, that the only proper defendant in the case was the limited liability company. It appears that the case was not published because it was only decided by one judge, but it involves such well settled law arguably it would not need to be published under Wis. Stat. § 809.23(b)(1) “The issues involve no more than the application of well-settled rules of law to a recurring fact situation.” But, in any event, it’s a nice affirmation of basic corporate law.
The appellate court reiterated the basic law that although an LLC is an association of members it is nevertheless a distinct legal entity separate from its members. And as a distinct legal entity it grants its investors limited liability. City of Wautoma v. Marek, 2024 Wisc. App. LEXIS 343, at 3. An LLC member "'is not personally liable for any debt, obligation or liability of the limited liability company, except that a member or manager may become personally liable by his or her acts or conduct other than as a member." Id. at 3-4.
In this case, the court recited the key facts. Wautoma had introduced a lease signed by Marek on behalf of the LLC. And the LLC was the sole owner of the property. Therefore, the property was not Marek's to lease and therefore, she could not, in her individual capacity, lease the property to tenants.
Then, the court broadly construed some of Wautoma’s arguments as possibly seeking to pierce the corporate veil. But the court reiterated Wisconsin law on the issue: a party seeking to pierce the corporate veil must be able to point to evidence establishing relevant factors, which include "failure to observe corporate formalities," "siphoning" of funds from the business to the owner, "and the absence of corporate records. Id. at 8. The court found that Wautoma had not presented any evidence of the foregoing.
Marek basically succeeded on what could be called the Shaggy defense: Say it wasn’t you.
My girl just caught me You made her catch you? I don't know how I let this happen With who? The girl next door, ya know? Man I don't know what to do Say it wasn't you
And in this case, it really was not Marek doing the actions in an individual capacity. For all the lawyers out there who feel like Dwight Schrute from The Office when counseling their clients to slavishly follow the small formalities, this case exonerates you. And for business owners, the practice point is that those formalities do matter. In the fiction of the entity when Marek was taking the action it was actually the LLC taking the action because the lease was signed on behalf of the LLC. The court essentially just recognized that Wautoma named the wrong party.
Commentaires