Gun Dealer Failed To State Antitrust Claims Against Village, Trustees Over License Law Changes

This posting was written by Jody Coultas, Contributor to Wolters Kluwer Antitrust Law Daily.

A gun dealer failed to state Sherman Act, Section 1 or Lanham Act commercial disparagement claims against the Village of Norridge, Illinois, stemming from a change in an ordinance that may force the gun dealer to close up shop, according to the federal district court in Chicago (Kole v. Village of Norridge, April 19, 2013, Durkin, T.).


The gun dealer entered into an agreement with the Village in which he agreed to sell guns only over the Internet in return for a license to operate the business in the Village. A revised ordinance terminated gun store licenses altogether and bans gun stores from the Village. Once the agreement and its three-year exemption from the revised ordinance expires, the gun dealer may be forced to close up shop, or at least relocate their business outside the Village.

The gun dealer failed to allege a conspiracy, agreement, or other concerted action to restrain trade in violation of Section 1 of the Sherman Act, according to the court. The Village and its trustees were one entity. Although a single firm’s restraints may directly affect prices and have the same economic effect as concerted action might have, there can be no liability under Section 1 in the absence of agreement.

Commercial Disparagement

Statements made by a Village trustee did not run afoul of the Lanham Act commercial disparagement section, according to the court. One trustee stated to a local newspaper that "the one current Village weapons dealer licensee has agreed that it will cease doing business in the village no later than April, 30, 2013." The gun dealer argued that the statement was commercial disparagement because it false and harmed business because the statement suggested to potential customers that it would soon go out of business.

The Lanham Act section prohibiting commercial disparagement applies only to statements used in commerce and made in commercial advertising or promotion. The statement also did not support the gun dealer’s Illinois Deceptive Trade Practices Act claim.

False Ad Claims Based on Letter, E-Mail Proceed

This posting was written by William Zale, Editor of CCH Advertising Law Guide.

Organ Recovery Systems (ORS), a manufacturer of organ preservation solutions, stated a claim of false advertising under the Lanham Act and Illinois consumer protection statutes by asserting injury from an allegedly misleading letter sent by Preservation Solutions, Inc. (PSI) to organ procurement organizations (OPOs), the federal district court in Chicago has ruled.

ORS also stated a claim of false advertising under the Lanham Act and Illinois consumer protection statutes against BTL Solutions for allegedly sending to organ procurement professionals a broadcast e-mail falsely stating that BTL enabled FDA approval of a label change for the room-temperature storage of ORS’s UW solution.

Commercial Advertising or Promotion

PSI contended that “actionable advertising must be anonymous” and ORS alleged only person-to-person statements by PSI. However, PSI’s letter allegedly was received by potential ORS customers throughout the country, the court observed. The fact that the letter was addressed “Dear OPO Administrator” rather than to a named individual or business supported ORS’s suggestion that it was a mass unsolicited communication.

Even if the letter was specifically targeted to OPOs known by PSI, ORS alleged that the letters were a generalized solicitation rather than an individualized communication. For this reason, ORS’s allegations satisfied the “commercial advertising or promotion” element of a Lanham Act false advertising claim, the court determined. ORS’s claims that three OPO employees expressed confusion about the letters could support a finding that ORS was likely to be injured by allegedly misleading statements in the letters.

BTL’s statements could constitute commercial speech, and its e-mail was an anonymous communication to a large group that would satisfy the Lanham Act’s test for commercial advertising or promotion, the court added. Contrary to BTL’s contention that ORS failed to allege a significant connection between the conduct at issue and Illinois, which both the Illinois Uniform Deceptive Trade Practices Act and Consumer Fraud Act required, it was likely that the disputed communications originated in Illinois and that ORS felt harm in Illinois.

Counterclaims

BTL could pursue a Lanham Act false advertising counterclaim against ORS for posting on its website allegedly false statements that it had FDA approval to sell its SPS-1 solution with a label indicating that the solution does not need to be filtered before use, the court also decided. ORS presented documents consistent with its assertion that the FDA had approved the practices at issue.

Even were these documents to be considered on a motion to dismiss, however, neither the counterclaim nor these documents contained sufficient details about FDA practice for the court to say that the letter constituted “approval” for purposes of the false advertising claim, according to the court.

PSI failed to state a claim of “passing off,” under the Lanham Act and Illinois consumer protection statutes, by making conclusory allegations that ORS led customers to believe that ORS-sold solution was PSI’s product, the court concluded.

The decision is Organ Recovery Systems, Inc. v. Preservation Solutions, Inc., CCH Advertising Law Guide ¶64,733.

Further details regarding CCH Advertising Law Guide appear here.

Commercial Based on Unreliable “Lab Test” Enjoined

This posting was written by William Zale, Editor of CCH Advertising Law Guide.

Cat litter manufacturer Clorox was preliminarily enjoined by the federal district court in New York City from airing a television commercial making comparative claims about cat litter odor reduction.

Competitor Church & Dwight (C & D) was likely to succeed on the merits of its Lanham Act false advertising suit that the commercial made literally false claims based on an unreliable “lab test,” and was likely to suffer irreparable harm, the court held.

Clorox’s litter used carbon as an odor fighting ingredient while C & D’s litter used baking soda. In Clorox’s test, 11 panelists gave a malodor rating of zero to cat excrement treated with carbon in sealed jars but found that baking soda reduced odor only 32%—the same decrease represented in the demonstration shown in Clorox’s commercial.

Necessary Implication of Falsity

The commercial was literally false because the “jar test” could not reasonably support the necessary implication that Clorox’s litter outperformed C & D’s products in eliminating odor, the court determined. The test was unreliable because its unrealistic conditions said little, if anything, about how carbon performs in cat litter in circumstances highly relevant to a reasonable consumer, and it could not possibly support Clorox's very specific claims with regard to litter, according to the court.

Another reason given by the court for rejecting the test results was the implausible uniformity with which panelists found that cat excrement treated with carbon contained “zero” malodor. When 11 panelists stick their noses into jars of excrement and report 44 times that they smelled nothing unpleasant, the result more likely reflected flaws in their in-house training or objectivity than any reliable result, the court said.

Irreparable Harm

C & D proved a likelihood of irreparable harm. One of the beakers in Clorox's commercial bore the label “baking soda,” and C & D was the only major manufacturer of cat litter that used baking soda as a deodorizing ingredient. Consumers shopping for cat litter overwhelmingly identified baking soda with C & D’s Arm & Hammer cat litter products, according to the court.

The court concluded that the comparisons were at least as direct as those in Time Warner Cable, Inc. v. DIRECTV, Inc. (CCH Advertising Law Guide ¶62,620), where the court found that viewers of a DIRECTV commercial that disparaged “cable” in an area in which Time Warner served as the exclusive cable provider would “undoubtedly understand” that criticism to apply to Time Warner specifically.

The January 4 opinion in Church & Dwight Co. v. Clorox Co. will be reported at CCH Advertising Law Guide ¶64,533.

eBay's Advertising of Tiffany Jewelry Not Proven Misleading

This posting was written by William Zale, Editor of CCH Advertising Law Guide.

The famous jeweler Tiffany failed to establish that online marketplace eBay engaged in misleading advertising under the Lanham Act in connection with the sale of counterfeit “Tiffany” jewelry on its site, the federal district court in New York City has ruled.

eBay advertised the sale of Tiffany goods on its website in various ways. Among other things, eBay provided hyperlinks to “Tiffany,” “Tiffany & Co. under $150,” “Tiffany & Co.,” “Tiffany Rings,” and “Tiffany & Co. under $50.” eBay also purchased advertising space on search engines, in some instances providing a link to eBay's site and exhorting the reader to “Find tiffany items at low prices.”

Prior Decisions

Following trial in 2008, the court rejected Tiffany’s false advertising claims (CCH Advertising Law Guide ¶63,019). The court found that eBay’s advertising was not literally false and or likely to mislead consumers because authentic items were offered for sale, and inauthentic items were only listed on eBay due to the illicit acts of third parties.

On appeal, the U.S. Court of Appeals in New York City agreed that eBay’s ads were not literally false but ordered the trial court to take a fresh look at whether eBay’s advertising was likely to mislead or confuse consumers, in light of evidence that eBay knew that “Tiffany” products advertised and sold on eBay often were counterfeit (CCH Advertising Law Guide ¶63,792).

Likelihood of Confusion

On remand, the trial court noted that Tiffany had not produced extrinsic evidence of deception such as a consumer survey typically required to prove that a substantial portion of consumers in fact were misled by advertising.

Instead, Tiffany relied on (1) declarations of three eBay customers who believed that they bought counterfeit Tiffany goods on eBay, (2) testimony from a Tiffany employee that Tiffany had received numerous emails complaining of counterfeit Tiffany goods on eBay, and (3) 125 emails sent by customers to eBay complaining of counterfeit Tiffany goods.

Because none of the complaining customers referred to any eBay advertisements, the court held that no extrinsic evidence indicated that the ads were misleading or confusing.

Intent to Deceive

An exception to the extrinsic evidence rule exists, according to the court. When an advertiser has intentionally set out to deceive the public, and the conduct is of an egregious nature, a presumption arises that consumers are, in fact, being deceived.

Tiffany contended that eBay’s intent to deceive was proven at trial by the fact that eBay continued advertising the availability of Tiffany products on its website after it had been notified that a sizable portion of the products were counterfeit. The court held that Tiffany waived this argument by failing to raise it before, during, or after trial, or on appeal.

eBay’s conduct could not be found egregious because there was no proof that eBay was aware those consumers were being misled by its advertisements, the court concluded. In addition, eBay took substantial steps to prevent and detect the sale of counterfeit goods on its website.

The opinion in Tiffany (NJ) Inc. v. eBay, Inc., filed September 13, 2010, will be reported at CCH Advertising Law Guide ¶63,967.

Baseball Rooftop Club Promoter Faces Suit Over Internet Ads

This posting was written by William Zale, Editor of CCH Advertising Law Guide.

The proprietor of a “rooftop club” for viewing Chicago Cubs baseball games (Wrigley Done Right) stated Lanham Act claims of false advertising and false designation of origin against a promoter of competing venues (Ivy League Club and Wrigley Rooftop Club), the federal district court in Chicago has ruled.

False Advertising

An Internet advertisement that promoted the availability of services at the Ivy League club when it was under construction and not operating could constitute false advertising, the court held. From January 2008 until some time in 2009, the promoter allegedly advertised the availability of services at the Ivy League Club on its website, despite the fact that the facility was closed for renovation through the 2009 baseball season and lacked a license required for hosting patrons.

The promoter allegedly deceived consumers into booking reservations for inferior services by accepting reservations and later providing tickets at other facilities with less favorable viewing locations than the Ivy League Club’s.

The Ivy League Club allegedly booked a significant number of reservations as a result of these misleading advertisements, and the diversion of sales allegedly injured Wrigley Done Right’s business.

The promoter contended that construction delays did not amount to fraud and that website disclaimers were posted. However, the advertising and selling of seats at a nonoperating venue for a more than a year and a half went beyond mere “construction delay,” according to the court.

False Designation of Origin

The promoter’s advertising for the Wrigley Rooftop Club could constitute a false designation of origin, the court ruled.

The promoter and the Wrigley Rooftop Club allegedly sponsored an advertisement on the website ballparkrooftops.com featuring a photo of Wrigley Done Right’s building next to a link to the Wrigley Rooftop Club’s website. Wrigley Done Right allegedly was injured as a result of the misrepresentation because sales were diverted to the Wrigley Rooftop Club.

State Law

Claims under the Illinois Deceptive Trade Practices Act and Illinois Consumer Fraud Act would stand or fall based on the outcome of Lanham Act claims of false designation of origin and false advertising, the court added.

The July 12 opinion in Bluestar Management LLC v. Annex Club, LLC will be reported at CCH Advertising Law Guide ¶63,916

Further information about CCH Advertising Law Guide appears here on the CCH Online Store.

Manufacturer Not Liable for Seller's Alleged False Advertising of Products

This posting was written by William Zale, Editor of CCH Advertising Law Guide.

Taiwanese bicycle component manufacturer Tien Hsin was not directly or vicariously liable under the Lanham Act or Washington law for allegedly false advertising by a separate corporation (FSA)—whose trademark was held by the manufacturer—that sold Tien Hsin's products to North American distributors and retailers, the federal district court in Seattle has ruled.

Direct Liability

A competing seller's direct liability theory was rejected because none of Tien Hsin's employees contributed to, commissioned, reviewed, or participated in the creation of FSA's advertisements. There was no evidence that Tien Hsin had knowledge of the advertisements, or more importantly of their falsity, the court found.

Vicarious Liability

The competitor asserted vicarious liability on grounds that FSA was Tien Hsin's alter ego and agent. The relationship between the two was akin to a subsidiary-parent relationship, the court said. At least at a high level, Tien Hsin had the power to control FSA because it supplied substantially all the products FSA sold and owned the FSA trademark. FSA was wholly owned by one of Tien Hsin's four shareholders who was related through marriage to the other three shareholders.

Parent/Subsidiary Relationship

However, a parent corporation generally is not liable for acts of its subsidiary, the court observed. There was no evidence that the corporate formalities were disregarded. The close relationship between the two firms was not grounds for an alter ego finding.

To hold a parent firm liable on an agency theory would require that the parent exercise total control over the subsidiary. The control that Tien Tsin was able to exercise because of trademark ownership, stock ownership, and near sole supplier status did not rise to the level of total domination that could justify holding it liable for torts committed by a separately incorporated entity, the court concluded.

The decision is Campagnolo S.R.L. v. Full Speed Ahead, Inc., CCH Advertising Law Guide ¶63,897.

Evidence That eBay’s Ads Misled Consumers Merits Another Look

This posting was written by William Zale, Editor of CCH Advertising Law Guide.

In light of evidence that online marketplace eBay knew that “Tiffany” products advertised and sold on eBay often were counterfeit, the U.S. Court of Appeals in New York ordered a trial court to take a fresh look at whether eBay’s advertising was likely to mislead or confuse consumers in violation of the Lanham Act.

The court remanded the case to the federal district court in New York City, which had held that the evidence at trial did not support Tiffany’s claims that eBay’s advertising violated the Lanham Act (CCH Advertising Law Guide ¶63,019).

Advertising of "Tiffany" Goods

eBay advertised the sale of Tiffany goods on its website in various ways. Among other things, eBay provided hyperlinks to “Tiffany,” “Tiffany & Co. under $150,” “Tiffany & Co.,” “Tiffany Rings,” and “Tiffany & Co. under $50.” eBay also purchased advertising space on search engines, in some instances providing a link to eBay's site and exhorting the reader to “Find tiffany items at low prices.”

Yet the trial court found, and eBay does not deny, that “eBay certainly had generalized knowledge that Tiffany products sold on eBay were often counterfeit,” the appellate court observed.

eBay did not infringe or dilute Tiffany’s trademarks, and the advertising was not literally false because some genuine Tiffany merchandise was offered for sale on eBay. However, the reasons given for rejecting the claim that the advertising was misleading were inadequate, the court held.

Fair Use

Even if eBay’s use of Tiffany's mark was a nominative fair use, it did not follow that eBay did not use the mark in a misleading advertisement, the court reasoned. The mere fact that the incorporation of another’s brand in an advertisement may be a permissible fair use under trademark law did not preclude a claim that the advertisement was false or misleading.

Knowledge

eBay could not rely on its lack of knowledge as to which particular listings on its website offered counterfeit Tiffany goods. This fact, while relevant to the question of contributory trademark infringement, shed little light on whether the advertisements were misleading insofar as they implied the genuineness of Tiffany goods on eBay's site, the court said.

Sellers’ Fraud

Finally, the court was unconvinced by the theory that eBay's advertisements were misleading only because the sellers of counterfeits made them so by offering inauthentic Tiffany goods. This consideration was relevant to Tiffany's direct infringement claim, but less relevant, if relevant at all, to the question of whether the advertising was likely to mislead or confuse consumers.

It was true that eBay did not itself sell counterfeit Tiffany goods. Only the fraudulent vendors did, and that in part was why eBay did not infringe Tiffany's mark.

But eBay did affirmatively advertise the goods sold through its site as Tiffany merchandise. The law required that eBay be held accountable for the words that it chose insofar as they misled or confused consumers, the court concluded.

The April 1 opinion in Tiffany (NJ) Inc. v. eBay Inc. will be reported in CCH Advertising Law Guide.

Google's Sponsored Links Not False Ads or Designations of Origin

This posting was written by William Zale, Editor of CCH Advertising Law Guide.

Google's publishing of “sponsored links” in response to an online search for a building materials seller's “Styrotrim” trademark could not constitute false advertising or false designations of origin, affiliation, connection, or association of a competitor with the seller in violation of the Lanham Act, the federal district court in Sacramento has ruled.

Ad Words Program

The seller challenged the use of “Styrotrim” as a suggested keyword in Google's AdWords program, through which advertisers bid for placement of sponsored links in keyword search results.

The seller contended that Google's placement of competitors above the seller’s business on results pages confused consumers into believing that competitors' products were preferable to the seller’s and, in essence, was a form of “bait and switch” advertising.

Lack of Direct Competition

Although Google might provide advertising support for others in the seller’s industry, Google did not directly sell, produce, or otherwise compete in the building materials market. Without a showing of direct competition, the seller failed to state a claim for false advertising under the Lanham Act, according to the court.

Even if a “sponsored link” might confuse a consumer, with several different sponsored links appearing on a page it was hardly likely that a consumer might believe each one was the true producer or origin of the Styrotrim product. As such, the seller failed to properly plead a false designation of origin.

Communications Decency Act Immunity

Under the Communications Decency Act, Google was an interactive computer service immune from common law claims including fraud. The seller argued that Google was exposed to liability as an “information content provider” because, through its keyword suggestion tool, Google in fact did participate in the content of advertisements.

Keyword suggestion, however, was a “neutral tool” that did nothing more than provide options that advertisers could adopt or reject, in the court's view.

The opinion in Jurin v. Google Inc. appears at CCH Advertising Law Guide ¶63,777.

Subway Can Pursue Suit Challenging Quiznos' Comparative Ads

This posting was written by William Zale, Editor of CCH Advertising Law Guide.

Lanham Act claims challenging Quiznos' television commercials and an Internet contest, comparing the amount of meat in Quiznos and Subway sandwiches, could not be rejected on summary judgment because there were numerous unresolved issues of material fact, the federal district court in Hartford has ruled.

Twice the Meat

Quiznos contended that the claims made in its Cheesesteak Commercial were true because its Prime Rib sandwich actually contained two times as much meat as the Subway Cheesesteak sandwich. However, field testing of 651 franchises conducted by Quiznos showed that 27.65% of franchises failed to meet Quiznos’ standard of 5 oz. of meat, and 10.29% made sandwiches with less than 4 oz. of meat, the court found.

A comprehensive survey of 4,370 Quiznos franchises revealed that 44.14% of the Prime Rib sandwiches tested contained less than 5 oz. of meat, and 5.86% contained less than 4 oz. of meat.

The parties appeared to agree that the Subway Cheesesteak sandwich contained at least 2.5 ounces of meat. In addition, the Subway Cheesesteak was available with a double portion of meat for an extra $1.00.

Literal Falsity

Quiznos unsuccessfully argued that the commercial could not be literally false because it was ambiguous. The court determined that the commercial clearly conveyed the “twice the meat” message by direct side-by-side comparison of the two sandwiches along with commentary by “men on the street” indicating that the Subway sandwich has “little meat” or “no meat,” as well as by the text frame reading that the Quiznos sandwich had “more than 2x the meat.”

Implied Falsity—Price Message

Genuine issues of fact were created by the parties' conflicting surveys of whether Quiznos Ultimate Italian commercial conveyed a price message. Given Quiznos' claim that its sandwich contained a double portion of meat, if the competing products were perceived as costing the same, consumers arguably were misled into believing that the Quiznos sandwich would be a better value for the money.

Internet Video Contest

Finally, there were genuine issues of fact as to whether false representations were made in connection with Quiznos' Internet-based contest, which solicited videos through the domain name “meatnomeat.com.”

Four posted sample videos depicted a Subway sandwich as having no meat or less meat than a Quiznos sandwich. Quiznos' contention that the posting of the videos did not constitute commercial speech for the purpose of influencing customer to buy Quiznos' products was unpersuasive, according to the court.

The opinion, Doctor's Associates, Inc. v. QIP Holder LLC, is reported at CCH Advertising Law Guide ¶63,763.

U.S. Not Immune from Suit for False Advertising

This posting was written by William Zale, Editor of CCH Advertising Law Guide.

The United States was not immune from a software company's claim that the Department of Justice violated the Lanham Act by falsely representing that the company's TrustedAgent product would be included in DOJ’s information security solution for Federal Information Security Management Act compliance, the federal district court in the District of Columbia has ruled.

The Lanham Act was amended in 1999 to provide that the United States is not immune from suit for violations.

Commercial Advertising and Promotion

The software company (Trusted Integration, Inc.) stated a Lanham Act claim by asserting injury to its interstate business from the Department of Justice's allegedly false and deceptive advertisement of a product that it was selling to the company's potential customers, the court determined.

A Lanham Act claim may be based on a likelihood of damage from commercial advertising or promotion that misrepresents the nature, characteristics, qualities, or geographic origin of another person's goods, services, or commercial activities.

Trusted Integration alleged that government agencies sought to purchase their Federal Information Security Management Act compliance solution from the DOJ. DOJ’s advertisements to its potential customers allegedly portrayed TrustedAgent as “a key component,” even though DOJ had no intention of actually including it in the final product and had formally announced that it was selling its own alternative.

The company further alleged that the DOJ “repeatedly referenced” TrustedAgent in its demonstration to potential customers, and that this gave customers the “false sense” that TrustedAgent would be included in the final product.

The January 20 decision in Trusted Integration, Inc. v. United States of America, Civil Action No. 09-898 (ESH), appaers at CCH Advertising Law Guide ¶63,737.

Enfamil Ad Claims Enjoined; Store Brand Awarded $13.5 Million

This posting was written by William Zale, Editor of CCH Advertising Law Guide.

A jury awarded $13.5 million to store brand infant formula producer PBM Products on a finding that Mead Johnson & Co. falsely advertised its Enfamil® LIPIL® formula in violation of the Lanham Act.

After the jury returned its verdict on November 10, the federal district court in Richmond, Virginia enjoined Mead Johnson from publishing any advertisement containing a false representation about PBM’s infant formula. PBM supplies store-brand infant formulas to Walmart, Sam's Club, Target, Kroger, Walgreens, and other retailers.

The December 1 injunction order expressly bars Mead Johnson from making the following claims: “It may be tempting to try a less expensive store brand, but only Enfamil LIPIL is clinically proven to improve brain and eye development,” and “There are plenty of other ways to save on baby expenses without cutting back on nutrition.”

The court directed Mead Johnson to retrieve any and all advertisements, promotional materials, or other literature containing the above claims.

The December 1 order does not articulate the basis for entering the injunction. In an earlier ruling (see Trade Regulation Talk, May 28, 2009), the court had denied PBM’s motion for a preliminary injunction (CCH Advertising Law Guide ¶63,417; 2009-1 CCH Trade Cases ¶76,619).

Laches Defense

Mead Johnson unsuccessfully contended that PBM’s suit was barred by the defense of laches on the theory that PBM had not diligently pursued its Lanham Act claim.

Mead Johnson argued that its challenged ad claims in a 2008 mailer had been made for more than two years. The court viewed the two-year Virginia statute of limitation period for fraud as analogous to false advertising under the Lanham Act, which lacks a statute of limitations.

Contrary to Mead Johnson’s contention, the 2008 Mailer took a new approach in tone and message towards store brand infant formula, according to the court. Mead Johnson consciously decided that its marketing should be more aggressive and risky, as it had witnessed a decrease in its sales and an increase in store brand sales, the court said.

The 2008 Mailer and its attack on store brands was the result of that marketing decision. On these facts, the court determined that Mead Johnson had not shown that PBM lacked diligence in pursuing its Lanham Act claim.

The December 1 order in PBM Products, LLC v. Mead Johnson Nutrition Co. will be reported in CCH Trade Regulation Reports and CCH Advertising Law Guide.

“Steam” Dryer Claims Could Be Lanham Act False Advertising

This posting was written by William Zale, Editor of CCH Advertising Law Guide.

Allegations that Whirlpool’s advertisements for “steam” clothes dryers were literally false could not be rejected at the summary judgment stage of a Lanham Act false advertising case brought by competitor LG Electronics, the federal district court in Chicago has ruled.

LG alleged that the advertised dryers did not actually employ steam to remove odors and wrinkles from fabrics. Whirlpool's “steam” dryers worked by introducing a spray of cool water into a hot, spinning dryer drum where heat and moving air speeded evaporation of moisture from the dampened clothes.

Whirlpool unsuccessfully contended that the advertised dryers satisfied the meaning of “steam” employed by Consumer Reports, other magazines, and other competitors. Whirlpool identified no binding precedent holding that the behavior of competitors was relevant to whether its own advertising claims were literally false. Evidence from Consumer Reports articles and the like was inadmissible on summary judgment to prove the truth of the matters asserted, according to the court.

Whirlpool did not respond to LG's contention that the advertising was literally false because it necessarily implied the unambiguous message that Whirlpool's dryers created and used steam whereas conventional dryers did not.

Disputed Definition of “Steam”

Whirlpool's expert testimony that its dryers met the definition of steam as “vapor arising from a heated surface” was not conclusive, given the existence of competing definitions.

Considering the context of the advertising claims—touting the use of steam as a new way to care for clothes—a finder of fact could conclude that Whirlpool necessarily implied the unambiguous message that Whirlpool’s dryers refreshed clothing by a process not previously available in Whirlpool’s non-steam dryers, the court found. Finally, Whirlpool failed to support its contention that the use of the word “steam” in an LG-owned patent for conventional dryers constituted an admission that “vapor arising from a heated surface” in Whirlpool's dryers constituted steam.

Implied Falsity—Consumer Survey

A consumer survey was admissible to support allegations that Whirlpool’s advertisements conveyed an implied message to consumers, the court held. The LG survey consultant had designed and supervised over 500 consumer surveys in the areas of trademark, trade dress, advertising perception, and advertising claim substantiation.

Whirlpool contended that the survey was unreliable because LG's expert ignored the results of open-ended questions, improperly based his opinion solely on the result of a closed-ended question at the end of the survey, and used a “control” commercial too different from the “test” commercial. Whirlpool’s criticism was held to address the weight of the study, rather than its admissibility. Evaluating technical deficiencies and awarding weight to this evidence was the province of the trier of fact.

Expert Testimony—Consumer Perception

A thermodynamics expert's testimony for LG on consumer perception as to the definition of steam was stricken because he had no expertise in consumer perception, according to the court. However, his testimony that Whirlpool “steam” dryers did not create thermodynamic steam was not stricken because Whirlpool's objections went to the weight of the testimony, and Whirlpool would be free to cross-examine him regarding his application of the definition of steam to Whirlpool’s steam dryers.

The deicision is LG Electronics U.S.A. v. Whirlpool Corp., CCH Advertising Law Guide ¶63,596.

Letters to Competitor’s Customers Not “Advertising” Within Lanham Act

This posting was written by William Zale, Editor of CCH Advertising Law Guide.

A Guardian Life Insurance agency did not engage in “commercial advertising or promotion” within the meaning of the Lanham Act's false advertising prohibition by sending letters to MetLife customers using an agency name and logo formerly used by MetLife, the federal district court in Chicago has ruled.

The Guardian agency was set up by the former managing director of a MetLife agency, who had been replaced. The new agency had hired 21 former MetLife agents, some of whom had retained MetLife client files.

One of the new agency’s letters to Metlife customers announced a move to a larger location, and a second letter enclosed forms to “help make this transition . . . seamless to you.”

Direct Communications

The allegedly deceitful announcements were direct communications, not advertising, in the court’s view. “Advertising is a form of promotion to anonymous recipients, as distinguished from face-to-face communication,” the Seventh Circuit explained in First Health Group Corp. v. BCE Emergis Corp. (CCH Advertising Law Guide ¶60,408).

The agency's letters were not sent to anonymous recipients, the court noted. They were directed to individuals on client lists. The second letter enclosed a highly individualized transfer of assets form containing not just the customer's name but his or her social security number and MetLife account number.

Although the announcements might give rise to claims under state law, they were not actionable under the Lanham Act, either as advertising or trademarks (in light of the MetLife's abandonment of the agency name and logo), the court concluded.

The September 16 opinion in Metropolitan Life Insurance Co. v. O’M & Associates LLC, will be reported at CCH Advertising Law Guide ¶63,616.

On Opening Day of Term, High Court Denies Review of Three Trade Regulation Cases

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter, and John W. Arden.

The U.S. Supreme Court opened its 2009-2010 term yesterday by denying review of three trade regulation decisions—concerning resale price fixing, Lanham Act false advertising, and arbitration of an in-term restrictive covenant in a trademark license.

Resale Price Maintenance

Left standing by the Court was a decision by the U.S. Court of Appeals in Richmond, Virginia (2009-1 Trade Cases ¶76,547), holding that two pesticide manufacturers did not conspire with their distributors to set minimum resale prices of certain termiticide products.

In their petition for review, complaining providers of pest control services asked: (1) whether resale price agreements, through which retailer agents raised consumer prices, is controlled by Leegin Creative Leather Products, Inc. v. PSKS, Inc. (2007-1 Trade Cases ¶75,753), 551 U.S. 877 (2007) or United States v. General Electric Co., 272 U.S. 476 (1926); and (2) whether it was established that the manufacturer's resale price agreements with retailers violated §1 of the Sherman Act under Leegin.

The petition is Valuepest.com of Charlotte, Inc. v. Bayer Corp., Docket 08-1584, cert. filed June 22, 2009.

Lanham Act False Advertising

The Supreme Court declined to review a decision by the U.S. Court of Appeals for the Federal Circuit (2009-1 Trade Cases ¶76,553, CCH Advertising Law Guide ¶63,320), reversing a jury award of more than $8 million against a Japanese basketball manufacturer for falsely advertising its product design as “innovative.”

On appeal, the manufacturer contended that Lanham Act claims based on advertisements that falsely claim authorship of an idea were barred by the U.S. Supreme Court’s decision in Dastar Corp. v. Twentieth Century Fox Film Corp., 539 U.S. 23 (2003).

In its petition, the manufacturer had asked whether Dastar established an authorship limitation on false advertising claims brought under Section 43(a)(1)(B) of the Lanham Act. The petition is Baden Sports, Inc. v. Molten USA, Inc., Docket 08-1477, cert. filed May 28, 2009.

Restrictive Covenant

The Court denied a petition for review of a decision of the U.S. Court of Appeals in San Francisco (2009-1 Trade Cases ¶76,482, CCH Business Franchise Guide ¶14,055), which held on remand from the U.S. Supreme Court that an arbitrator manifestly disregarded California law by enforcing an in-term restrictive covenant in a trademark license.

On October 6, 2008, the Supreme Court vacated an earlier decision of the appeals court (2008-1 Trade Cases ¶76,129, CCH Business Franchise Guide ¶13,703) in light of the Court’s decision in Hall Street Associates, LLC. v. Mattel, Inc., 128 S.Ct. 1396 (2008).

In a petition for review, a party to the trademark license asked whether a decision vacating an arbitration award on the non-statutory ground of "manifest disregard" was inconsistent with U.S. Supreme Court precedent and whether an arbitrator's good faith but erroneous interpretation of state law constituted a basis for vacating an arbitration award under the Federal Arbitration Act.

The petition for review is Improv West Associates v. Comedy Club, Inc., Docket 08-1525, cert filed June 8, 2009.

Sales Representatives' Statements Could Constitute Advertising Under Lanham Act

This posting was written by William Zale, Editor of CCH Advertising Law Guide.

Dental equipment companies Dentsply and Tulsa Dental Products could have engaged in commercial advertising or promotion under the Lanham Act by encouraging their sales representatives to contact all of the customers of a small competitor (Guidance Endodontics) and make false and disparaging statements about its business, the federal district court in Albuquerque has ruled.

The element of “commercial advertising or promotion” was not controlled purely by the instances of disparaging statements for which there was direct evidence. Both direct and circumstantial evidence were to be considered in determining whether there had been sufficient dissemination of the statements at issue.

Guidance Endodontics presented evidence of the following:

(1) Three specific instances of a representative of Dentsply or TDP contacting customers of Guidance, making a false statement that Guidance could no longer provide certain products, and, in two cases, attempting to persuade the customer to buy the defendants’ products instead;

(2) Dissemination of the same false information among the defendants’ sales representatives and other employees;

(3) A rash of mysterious telephone calls inquiring whether Guidance could still supply certain products; and

(4) An internal policy of extremely competitive marketing on the defendants’ part.

Based on this evidence, viewed in the light most favorable to Guidance, and on the fact that Guidance and the defendants shared target markets, the court held that Guidance created genuine issues of material fact as whether the defendants had made false or misleading representations constituting commercial advertising or promotion within the meaning of the Lanham Act.

The court further held that New Mexico law was applicable to the dispute, as the place where the injury occurred, and that Dentsply and Tulsa Dental Products could have violated the New Mexico Unfair Practices Act. Knowledge of the falsity of the sales representatives’ statements was imputed to the defendants.

The decision is Guidance Endodontics, LLC v. Dentsply International, Inc., CCH Advertising Law Guide ¶63,569.

Store-Brand “Compare To” Statements Could Be False Advertising

This posting was written by William Zale, Editor of CCH Advertising Law Guide.

“Compare To” statements by a manufacturer of store brand joint care dietary supplements (Perrigo Company) were not mere puffery and could constitute false advertising under the Lanham Act and New York law, the federal district court in Central Islip New York has ruled.

The statements could convey a false message of equivalence in formulation and efficacy as compared to branded Rexall Sundown Osteo Bi-Flex products, in the court’s view.

Perrigo countered with false advertising claims against Rexall Sundown, one of which survived summary judgment review.

Product Equivalence Message

Most of Perrigo’s “Compare To” statements invited a comparison of the products’ ingredients, according to the court. The competing products were likely to be shelved near each other in stores, making it more likely that a consumer would understand the Perrigo Products to be equivalent to the national brand.

Much of the text on the side and rear panels of the Perrigo Products matched the prior packaging for Osteo Bi-Flex. Perrigo’s sponsored website stated that a comparison of the active ingredients might reveal that the only differences between the two products were the inactive ingredients, such as the colors etc. and the price.

A consumer survey commissioned by Rexall Sundown raised genuine issues of fact as to whether the “Compare To” statements created a false message of product equivalence in terms of ingredients and/or efficacy that was likely to deceive consumers, the court found.

In addition, a leading U.S. specialist in the field plant-derived drugs stated that the store brand Perrigo products and Rexall Sundown's Osteo Bi-Flex were “significantly different,” based on the higher ratio of an anti-inflammatory ingredient in Osteo Bi-Flex.

Materiality

To prove false advertising, Rexall Sundown was required to demonstrate that a false or misleading representation involved an inherent or material quality of the product. A rational trier of fact could conclude that the disputed issues related to core ingredients and/or efficacy of the supplement, according to the court. In addition, the manner in which the Compare To statements were conveyed—in prominent highlighting and in close proximity to product performance claims—contributed to their materiality.

National Brand’s Ingredient Concentration Advertising

Perrigo raised a disputed issues of fact as to whether Rexall Sundown falsely advertised the key ingredient of its Osteo Bi-Flex products as “10 times more concentrated,” the court held. A consumer survey commissioned by Perrigo concluded that the “10 times more concentrated” claim caused a meaningful proportion of prospective consumers to think that Osteo Bi-Flex provided greater performance benefits than, or was superior to, other products.

Injury and causation could be presumed from comparative superiority claims, the court noted. Perrigo created a triable issue as to whether it was “obvious” that Rexall Sundown's claim targeted Perrigo products and, thus, that injury should be presumed.

Fatal Delay

Perrigo was barred from challenging other claims that Rexall Sundown had featured on packaging and in advertising since the late 1990s.

Perrigo contended that it had no reason to know that the claims were false until the National Advertising Division issued a decision regarding the claims in 2007 (CCH Advertising Law Guide ¶62,608). However, under the doctrine of laches, the court found Perrigo’s delay in bringing suit both inexcusable and prejudicial, in light of Rexall-Sundown's substantial investments in its packaging and advertising.

The September 10 opinion in Rexall Sundown v. Perrigo Co. will be reported in CCH Advertising Law Guide and CCH Trade Regulation Reports.

Former Sales Director Can Pursue Claims for Misuse of His Name

This posting was written by William Zale, Editor of CCH Advertising Law Guide.

Joseph Krause—the former sales director of the Philadelphia Soul arena football team—can pursue claims for Lanham Act false designation of origin and state law misappropriation of name against the team and its part owner, rock musician Jon Bongiovi (a.k.a., Jon Bon Jovi), the federal district court in Philadelphia has ruled.

Krause alleged that the team’s record-breaking ticket sales were due to his favorable reputation in the sports and entertainment industry. Following the team’s 2008 national championship season, Krause was given a one-week notice of termination when the Arena Football League suspended its 2009 season.

E-Mail to Fans

After Krause’s termination, the team allegedly sent an e-mail to fans from Krause’s Philadelphia Soul e-mail address. The team allegedly sought to trade on Krause’s good name and reputation with the fan base and cause confusion as to Krause’s association with the unpopular decision to cancel the 2009 season and the resulting controversy over season ticket refunds.

Standing to Sue

The court held that Krause had standing to sue for a false designation of origin in violation of the Lanham Act. Although his damages were speculative, this was outweighed by factors supporting standing: the nature of the alleged injury (loss of reputation and goodwill among the public and Philadelphia fans), the directness of the injury from the false designation of the e-mail, Krause’s status as the most clearly identifiable party to bring an enforcement action, and the lack of risk of duplicative damages.

Use of Name, Likelihood of Confusion

Krause succeeded in alleging that his name was protectable mark that had secondary meaning in the sports and entertainment business. Krause relied on Lewis v. Marriott Int’l, Inc. (ED Pa. 2007), CCH Advertising Law Guide ¶62,815, in which the court held that a hotel chain’s use of a chef’s name to promote wedding packages at a Philadelphia hotel could constitute Lanham Act false advertising.

Although Krause did not allege that his name was specifically used in advertisements to promote the Philadelphia soul, he was did not have to make allegations regarding advertising in order to establish false designation of origin, according to the court.

The e-mail at issue contained the line “From: Joe Krause [mailto:jkrause@philadelphiasoul.com].” Krause alleged that the Philadelphia Soul sought to cause confusion among fans as to Krause’s association with the season’s cancellation and that the e-mail actually deceived, or tended to deceive, members of the public. These allegations satisfied the likelihood of confusion element of a false designation of origin claim, the court determined.

Misappropriation of Name

Krause also asserted a state law claim for the tort of invasion of privacy by misappropriation of name, a common law cause of action recognized by the Pennsylvania Supreme Court. Krause adequately pled that the team and Bongiovi sought to appropriate the value of his name by benefiting from his goodwill and reputation with the team’s fans. No pleading of secondary meaning was required to sustain the misappropriation of name claim, the court noted.

The June 4 opinion in AFL Football LLC v. Krause will be reported at Advertising Law Guide ¶63,434.

“Unique” Infant Formula Ad Claims Not Enjoined

This posting was written by William Zale, Editor of CCH Advertising Law Guide.

A producer of store brand infant formula (PBM Products) asserting Lanham Act violations was denied a preliminary injunction barring “unique formulation” advertising claims made in a mailer by Mead Johnson, the producer of Enfamil LIPIL formula.

The federal district court in Richmond found that PBM failed to demonstrate a likelihood of success on its claim that Mead’s national advertising campaign falsely stated that only Enfamil LIPIL had two lipids—docosahexaenoic acid (DHA) and arachidonic acid (ARA).

Mead’s advertisements cited studies that compared its current and prior formulas and apparently found that the addition of the lipids resulted in improved eye and brain development for infants. The parties acknowledged that both PBM’s store brand formula and Mead Johnson’s Enfamil LIPIL used the same levels of the lipids and obtained them from the same supplier—the only FDA-approved source.

Studies

Mead claimed, “It may be tempting to try a less expensive store brand, but only Enfamil LIPIL is clinically proven to improve brain and eye development.” The claim was not literally false, in the court’s view, because it was undisputed that the studies demonstrated, concomitant with the presence of the lipids in Mead’s formula, the benefits to vision and brain development claimed in this advertisement.

Because the claim was not literally false, PBM had the burden of demonstrating that it tended to mislead consumers, and nothing in PBM’s pleadings demonstrated this. In addition, a disclaimer clarified the point that the studies only compared the current version of Mead’s formula with its prior version, which did not contain the lipids.

Unique Formulation

PBM also failed to show that it likely would succeed in challenging another Mead claim: “En-Fact: Enfamil LIPIL’s Unique Formulation Is Not Available in Any Store Brand.”

An objective reading of this statement suggested that “unique” referred, not to an isolated component of the formula, but rather to the formula in its entirety, the court said. That is, Enfamil LIPIL contained various ingredients, in addition to the lipids, that provided the consumer with a “unique formulation” unavailable elsewhere. As long as Mead Johnson’s product contained ingredients that other brands did not, the statement could not be considered literally false.

Graphic, Captions

Finally, PBM failed to show a likelihood of success on its claims regarding a “blurry duck” graphic and associated captions. The graphic, which was divided down the middle, contained a picture of a duck. One side of the picture looked blurry, while the other appeared clear. Next to the blurry side were the words “without LIPIL®,” while the caption next to the clear side read “with LIPIL®.”

The question of literal falsity turned on whether the captions clearly conveyed what Mead claimed was the intention of the graphic—that Enfamil LIPIL provided a benefit that Enfamil without the lipids did not. The court acknowledged that a plausible argument existed that the duck graphic might tend to convey the false impression that, in order to obtain formula with the lipids a consumer had to purchase Enfamil LIPIL, when in fact this was not the case. This plausible mistake notwithstanding, Mead did provide the disclaimer clarifying the comparison.

In sum, at this stage of the case, PBM had not satisfied its burden of demonstrating that these statements tended to mislead or confuse the consuming public, the court concluded.

The May 7 opinion in PBM Products LLC v. Mead Johnson Nutrition Co. will be reported at CCH Advertising Law Guide ¶63,417 and at 2009-1 Trade Cases ¶76,619.

Healthcare Product Ads Falsified Studies; $11 Million Awarded for Corrective Advertising

This posting was written by William Zale, Editor of CCH Advertising Law Guide.

GE Healthcare has been barred from falsifying scientific study results in advertisements for its Visipaque x-ray contrast medium product. The federal district in Trenton, New Jersey entered a permanent injunction and ordered GE to pay over $11.3 million to a competitor (Bracco Diagnostics) for corrective advertising. The court issued a 175-page opinion after a 39-day bench trial.

The crux of Bracco’s case was that GE violated the Lanham Act by falsely advertising Visipaque as superior to Bracco’s product, Isovue. GE Healthcare advertised establishment claims asserting that studies showed Visipaque to be superior in several ways, including renal and cardiovascular safety, lower costs, and less discomfort.

Literal Falsity, Injunction

In late 2002 and early 2003, GE focused its ad claims on a study published in the New England Journal of Medicine in early 2003 (the NEPHRIC study). Visipaque sales spiked following publication of the study.

The study concluded that renal damage may be less likely in high-risk patients when iodoxanol (the scientific name for Visipaque) is used rather than a “low-osmolar, nonionic contrast medium” (LOCM). The study was based on a head-to-head comparison of Visipaque with Omnipaque, an older GE Healthcare product. Both Omnipaque and Bracco’s Isovue are LOCMs.

While the greater number of GE’s advertisements were true, the court ruled that GE’s advertising of Visipaque as proven superior to all LOCMs was literally false. Based on the NEPHRIC study and other studies presented at trial, the court enjoined GE’s literally false claims of renal and cardiovascular safety, lower costs, and less discomfort.

Commercial Advertising and Promotion

While scientific articles are not commercial speech subject to regulation, secondary dissemination of the NEPHRIC article in GE’s advertisements did constitute commercial speech, the court held.

Oral statements made by GE Healthcare sales representatives, as evidenced by sales call notes, constituted commercial advertising or promotion. The sales call notes, albeit limited in number, were part of a full-scale marketing plan by GE to claim the benefits of Visipaque over LOCM alternatives through sales calls, websites, print marketing materials, and more, according to the court.

Lost Profits

Bracco’s request that GE Healthcare be required to disgorge its profits was declined. GE’s actions were not willful or deliberate, the court found. The creation of confusion and deception among customers due to GE’s advertising campaign was based on scientific studies and articles that had limited applicability. No scientific studies had explicitly found the converse of GE’s advertisements, the court noted.

Bracco failed to prove that it failed to win bids from large accounts as a result of GE’s conduct. Bracco also failed to carry its burden of showing that there was any causal connection between GE’s advertisements and the increasing sales of Visipaque to individual doctors and hospitals.

Corrective Advertising

Bracco did succeed in recovering over $11.3 million in costs incurred for corrective advertising. Damages could be presumed from the literally false ad claims, and GE failed to substantiate a claim that there was no connection between Bracco’s corrective advertising and GE’s false advertising. Bracco was not entitled to clinical study expenses allegedly incurred to refute GE’s false claims because such studies were undertaken as a regular cost of business in the healthcare industry, according to the court.

Future Disputes

The court ordered that any dispute between the parties arising from GE’s future advertising be submitted for resolution to a neutral panel or individual of the parties’ choice, such as the National Advertising Division (“NAD”), a division of the Council of Better Business Bureau.

The March 25, 2009 opinion in Bracco Diagnostics, Inc. v. Amersham Health, Inc. will be reported at CCH Advertising Law Guide ¶63,347.

$8 Million Award for “Innovative” Advertising Claim Reversed

This posting was written by William Zale, Editor of CCH Advertising Law Guide.

A jury award of more than $8 million against a Japanese basketball manufacturer (Molten) for falsely advertising its product design as “innovative” was reversed by the U.S. Court of Appeals for the Federal Circuit.

A competitor (Baden) brought suit alleging that Molten infringed its patent on basketball cushion technology. Baden recovered the damages award (CCH Advertising Law Guide ¶62,854) on its claim that Molten falsely advertised its basketballs in violation of Sec. 43(a) of the Lanham Act.

Molten contended that Lanham Act claims based on advertisements that falsely claim authorship of an idea are barred by the U.S. Supreme Court's decision in Dastar Corp. v. Twentieth Century Fox Film Corp., 539 U.S. 23 (2003). Baden contended that Dastar permitted it to proceed on the ground that Molten's “innovation” advertising misrepresented the “nature, characteristics, [or] qualities” of its basketballs in violation of Lanham Act Sec. 43(a)(1)(B).

Authorship of Innovation

Baden failed to argue on appeal that Molten's innovation claims were false for any reason other than a false attribution of the authorship of that innovation, the court said. Baden's claims therefore did not go to the nature, characteristics, or qualities of the goods.

To allow Baden to proceed with a false advertising claim that was fundamentally about the origin of an idea would be contrary to the Ninth Circuit's interpretation of Dastar in Sybersound Records, Inc. v. UAV Corp. (CCH Advertising Law Guide ¶62,894), the court concluded.

The opinion in Baden Sports, Inc. v. Molten USA, Inc. appears at CCH Advertising Law Guide ¶63,320.