La Canada Ventures, Inc. v. MDalgorithms, Inc.

Background

La Canada Ventures, Inc. is a health and beauty retailer offering cosmetic products. MDalgorithms, Inc. offers software and app technology for education and advice about acne treatment. Both parties create and market skin and haircare products using marks with the root “MD.” La Canada owns seven trademarks, including MD FACTOR, MD, MD 101, and MD LASH FACTOR. MDalgorithms creates and sells customizable skincare and haircare kits under the marks MDacne and MDhair.

La Canada’s Second Amended Complaint asserted trademark infringement under the Lanham Act, unfair competition, and federal and California false-advertising claims. La Canada alleged that customers were confused about the source of MDalgorithms’ products. MDalgorithms sought partial summary judgment on Counts I and II as to MDacne, on Count III seeking cancellation of the MDacne trademark registration, and on Counts V and VI, the federal and California false-advertising claims. MDalgorithms also moved to strike and exclude the report and testimony of La Canada’s expert, Richard Kostick, under Federal Rule of Evidence 702 and the standards from Daubert v. Merrell Dow Pharmaceuticals, Inc.

Partial Summary Judgment on MDacne

Under Rule 56, summary judgment is appropriate when there is no genuine dispute about a material fact and the moving party is entitled to judgment as a matter of law. For trademark infringement, the plaintiff must show ownership of a protectable mark and a likelihood that the defendant’s use will cause consumer confusion.

The court analyzed the likelihood of confusion under the Ninth Circuit’s eight-factor Sleekcraft test. The court found that the evidence of actual confusion favored MDalgorithms because La Canada’s survey concerned MDhair rather than MDacne, and the evidence was minimal. The court also found that La Canada’s “MD” marks were relatively weak because “MD” commonly means doctor of medicine and many other skincare products used MD-formative marks. The similarity of the parties’ goods and their use of online marketing channels were neutral. The court found that the similarity of the marks favored La Canada, but that MDalgorithms’ intent and the degree of care exercised by purchasers favored MDalgorithms. The likelihood of expansion of product lines was neutral.

Considering the factors together, the court held that La Canada had not presented a triable issue of material fact showing that MDacne infringed La Canada’s trademarks. The court therefore granted summary judgment for MDalgorithms on Counts I and II as to MDacne. Because Count III sought cancellation of MDalgorithms’ MDacne registration and depended on the likelihood-of-confusion analysis, the court also granted summary judgment for MDalgorithms on Count III.

The court stated that Counts I and II remained pending as to MDhair. The ruling did not grant summary judgment on the MDhair claims because MDalgorithms had not moved for summary judgment on those claims.

False Advertising Claims

La Canada based its federal and California false-advertising claims on four asserted problems: that MDalgorithms’ products were not individually customized, that MDalgorithms did not offer “unlimited dermatologist support,” that its products were not FDA-approved, and that its return policy improperly described the products as medical products.

The court concluded that La Canada had offered no evidence showing that these statements were literally false or misleading. The court found that MDalgorithms supported its description of the kits as customized based on customers’ skin and haircare needs. It also found that the website’s reference to dermatologist support was not literally false or misleading, and that the use of a plural reference to dermatologists was a one-time mistake that had been corrected. The court found no consumer-facing evidence that MDalgorithms advertised its products as FDA-approved; instead, the website stated that the products contained clinically proven and FDA-cleared topical anti-acne ingredients. Finally, the court found that the return-policy language was not misleading because it stated that returned products could not be reused by another customer.

The court separately held that La Canada had not shown damages caused by the alleged false advertising. La Canada argued that its damages expert properly calculated trademark-infringement and false-advertising damages in the same way, but the court found no basis for treating the alleged injuries as identical. The court therefore granted judgment for MDalgorithms on Counts V and VI.

Motion to Strike Expert Report and Testimony

The court also granted MDalgorithms’ motion to strike Kostick’s report and exclude his associated testimony. Rule 702 requires expert testimony to be helpful, based on sufficient facts or data, the product of reliable principles and methods, and reliably applied. The court found that Kostick did not describe his digital-marketing methodology with enough specificity to allow testing or effective cross-examination. His report stated that he used several tools but did not explain adequately what he did with them, and La Canada had not produced documentation of important parts of his analysis.

The court also found that Kostick could not identify the basis for his opinion that effective digital marketing should produce a short-term return of two to five times the investment. The sources listed in his report were not adequately identified, were not reliable peer-reviewed publications, and were not connected clearly to his analysis. The court concluded that these opinions were unreliable under Daubert and also did not satisfy the expert-report disclosure requirements of Federal Rule of Civil Procedure 26(a)(2)(B)(ii).

Disposition

The court granted MDalgorithms’ motion for partial summary judgment and motion to strike. Judgment was granted for MDalgorithms on Counts I, II, and III as to the MDacne mark and on Counts V and VI. Counts I and II remained as to MDhair. Kostick’s expert report was stricken, and his associated testimony was excluded. The court also granted the parties’ administrative motions to seal portions of their briefs and related exhibits containing confidential business information.