Grass Seed Sellers Could Not Enjoin Each Other’s Allegedly False Ads

This posting was written by E. Darius Sturmer, Editor of CCH Business Franchise Guide.

Competing sellers of grass seed and plant food products—Scotts and Pennington—were not entitled to preliminary injunctive relief against each other’s allegedly false advertising, the federal district court in Richmond, Virginia has held (The Scotts Co., LLC v. Pennington Seed, Inc., November 30, 2012, Gibney, J.).

Neither could show that it was likely to prevail on the merits of its claims, that it suffered irreparable harm, that the balance of equities tipped in its favor, or that injunction would serve the public interest, the court decided. The companies’ cross-motions for preliminary injunctions were denied, as were Pennington’s motions to strike supplemental filings submitted by Scotts.

The present dispute between the competitors arose in early March, when Scotts filed suit against Pennington over its claim that Pennington’s Smart Seed grass seed products contain “twice the seed” as Scotts’ Turf Builder products. By the end of the month, the court had dismissed Scotts’ Lanham Act and state law false advertising claims, as well as its common law unfair competition claims, finding that the advertising claims at issue were covered under the terms of a confidential settlement agreement previously entered into by the parties. That settlement agreement mandated that the parties attempt alternative dispute resolution before such an action could be filed. The parties completed this procedure in April without success, and Scotts again pursued an injunction against Pennington’s advertising.

In the interim, however, Pennington had fired back with its own lawsuit, asserting false advertising under federal and state law, common law unfair competition, and violation of the Georgia Uniform Deceptive Trade Practices Act stemming from Scotts’ descriptions of Pennington’s “1 Step Complete” combination grass seed products as “a bunch of ground-up paper” and Scotts’ superiority claims with respect to its own EZ Seed products.

“Twice the Seed” Claims

Scotts was unable to show a likelihood of success on its Lanham Act suit based on Pennington’s “twice the seed” claims, the court found. Whether Pennington’s ads were literally false was debatable. While Pennington’s products did not contain twice the number of seeds as Scotts’ grass seed products, the claim was literally true on a weight basis, which Pennington attested was the industry standard to measure seed count. A consumer survey produced by Scotts, however, suggested that, even if literally true, the ads misled potential purchasers.

On the other hand, Pennington established that the equitable doctrine of laches could apply to prevent Scotts from obtaining relief, given that Scotts had waited until Pennington’s promotional materials had been public for over a year before challenging them.

Scotts also failed to make a necessary showing of irreparable harm, the court added. As most consumers purchase their products at the beginning of the brief spring grass seed season, the need for urgency had already been removed. There was “no reason that a full trial on the merits [could not] be had prior to the time the parties’ claims could again become crucial,” the court said.

Considering the balance of the equities, the court observed from the parties’ “tit-for-tat” litigation strategy that each party’s hands appeared “slightly soiled, which weigh[ed] against injunctive relief.”

Finally, the court stated, while the public interest was “undoubtedly served by a marketplace fee of consumer confusion as to the nature, quality, and characteristics of companies’ products,” Scotts had not made a clear showing that Pennington’s claims were “likely to substantially cause consumer confusion such that the public interest factor decidedly tips in Scotts’ favor.”

1 Step Complete vs. EZ Seed

The likelihood of success on the merits of Pennington’s claims against Scotts was similarly uncertain, the court determined. Pennington failed to show that Scotts’ “bunch of ground-up paper” claim was literally false, in light of undisputed evidence that the mulch component in 1-Step Complete contained paper. Further, it could hardly be argued that a reasonable consumer seeking to buy a grass seed product would understand Scotts’ claim to convey the message that Pennington’s 1 Step Complete was comprised entirely of a bunch of ground-up paper. Consumer survey evidence did not support Pennington’s argument that Scotts’ advertising deceived consumers into believing that 1 Step Complete was made entirely of a bunch of ground-up paper.

As to Scotts’ superiority claims, preliminary assessment of product testing conducted by a Scotts research specialist led the court to conclude that the testing reasonably supported Scotts’ germination and seedling establishment claims.

Because Pennington failed to show that Scotts’ claims were false, misleading, and thus likely to harm Pennington’s sales, reputation, or goodwill, it could not establish that it would suffer irreparable harm from their continuation, the court held. Likewise, Pennington’s failure to show false or misleading claims, or resultant competitive harm, precluded a finding that the balance of equities or public interest tipped in its favor.

The case is Civil Action No. 3:12-CV-168.

Cassandra Carol Collins (Hunton & Williams LLP) for Scotts Company LLC. Charles Bennett Molster, III (Winston & Strawn LLP) for Pennington Seed, Inc.

Rejection of Lanham Act Juice Blend Labeling Challenge Upheld; California Law Claims Revived

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

Pom Wonderful, a seller of pomegranate juice and juice blends, was precluded from asserting Lanham Act false advertising claims based on Coca Cola's naming and labeling of “Pomegranate Blueberry Flavored Blend of 5 Juices,” the U.S. Court of Appeals in San Francisco ruled yesterday. The product contained about 99.4% apple and grape juices, 0.3% pomegranate juice, 0.2% blueberry juice, and 0.1% raspberry juice, according to the court.

A ruling that Pom Wonderful failed to assert an injury in fact under the California Unfair Competition Law (UCL) and False Advertising Law (FAL) was vacated and remanded for further proceedings. Not considered on Pom’s appeal from the decision of the federal district court in Los Angeles (CCH Advertising Law Guide ¶63,889) was a ruling that Pom can pursue Lanham Act claims that consumers were confused by Coca Cola's intentionally misleading marketing and advertising (apart from naming and labeling) of the pomegranate-blueberry flavored blend.

Food Labeling Regulation

Pom’s challenge to the name “Pomegranate Blueberry Flavored Blend of 5 Juices” would create a conflict with Food and Drug Administration regulations and would undermine the FDA’s apparent determination that so naming the product is not misleading, the court determined. As to labeling, Pom apparently wanted to force Coca-Cola to alter the size of the words on its label so that the words “Pomegranate Blueberry” would no longer appear in larger, more conspicuous type on Coca-Cola’s label than did the words “Flavored Blend of 5 Juices.”

Congress and the FDA had considered and spoken to what content a label must bear, and the relative sizes in which the label must bear it, so as not to deceive. Despite speaking extensively to how prominently required words or statements must appear, the FDA had not required that all words in a juice blend’s name appear on the label in the same size or that words hew to some other standard. Coca-Cola’s label presumptively complied with the relevant FDA regulations and thus accorded with the judgments the FDA had so far made, the court held.

California Law

In rejecting the claims under California law, the district court had interpreted statutory “lost money or property” language to require a plaintiff to show that it is entitled to restitution from the defendant—even if the plaintiff seeks only injunctive relief. That was error in light of California Supreme Court rulings making it clear that standing under UCL Section 17204 of the Unfair Competition Law and FAL Section 17535 did not depend on eligibility for restitution, the court concluded.

The May 17 decision in Pom Wonderful LLC v. Coca-Cola Co., No. 10-55861, will be reported at CCH Advertising Law Guide ¶64,708 and CCH 2012-1 Trade Cases ¶77,892.

Labeling Puerto Rican Rum as “Havana Club” Not False Advertising

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

A liquor distributor (Bacardi U.S.A.) did not engage in false advertising under the Lanham Act by labeling a rum not produced in Cuba as “Havana Club,” the U.S. Court of Appeals in Philadelphia has ruled.

Pernod Ricard USA filed a false advertising suit under Section 43(a)(1)(B) of the Lanham Act, asserting that the labeling of Bacardi’s bottle, particularly the use of the words “Havana Club,” misleads consumers to believe that the rum is produced in Cuba. In a three-day trial, Pernod presented unrebutted survey evidence that approximately 18 percent of consumers who looked at the Havana Club rum bottle were left thinking that the rum was made in Cuba or from Cuban ingredients.

The trial court ruled in favor of Bacardi (CCH Advertising Law Guide ¶63,805).

Geographic Origin

The phrase “Havana Club™” appears in large letters on the front of the rum bottle at issue, the court noted. Below that, in letters of prominent though smaller size and in a different font, the words “PUERTO RICAN RUM” appear. “Havana Club™” appears elsewhere on the bottle, including a statement that the product “is a premium rum distilled and crafted in Puerto Rico using the original Arechabala family recipe … [d]eveloped in Cuba …”

In order to determine whether advertising was false or misleading, the court looked at the words “Havana Club” in the context of the entire advertisement—the label of the rum. Viewed in that context, any thought a consumer might have that the words “Havana Club” indicate the geographic origin of the rum must certainly be dispelled by the plain and explicit statements of geographic origin on the label, according to the court.

Survey Evidence

The trial court properly disregarded the survey evidence as immaterial, because the Lanham Act does not forbid language that reasonable people would have to acknowledge is not false or misleading, the court concluded.

The August 4 opinion in Pernod Ricard USA, LLC v. Bacardi U.S.A.,LLC will be reported in CCH Advertising Law Guide.

Salons Can Pursue False Ad Suit Against Makers of “Salon Only” Products

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

Hair salon operators have standing to pursue a Lanham Act false advertising suit against manufacturers of “salon-only” hair products alleged to be widely available at mass retailers, the federal district court in New York City has ruled.

Constitutional Standing

The salon operators’ class action complaint satisfied the case-or-controversy requirement under Article III of the U.S. Constitution by asserting (1) a concrete and particularized injury, (2) causally connected to the conduct complained of, and (3) likely to be redressed by a favorable decision, the court held.

The manufacturers argued that any injury caused by the diversion of salon-only products to mass retailers did not flow from the false “salon-only” advertising.

The salon operators identified an injury separate from the injury created by the diversion, the court found. They asserted that their reputation was damaged because customers associated the “salon-only” advertising with the salons and therefore may stop patronizing the salons when they discover the falsity of the statements at issue.

The claimed causation was fairly straightforward: it was plausible that consumers would associate false advertising claims with the seller of the product, in addition to (or instead of) the product’s manufacturer, according to the court. Although the consumer’s decision ultimately caused injury to the salon operators, the manufacturers’ allegedly false statements had a “determinative or coercive effect” on the consumer’s decision.

If the manufacturers had engaged in false advertising, it was unlikely that they could successfully defend this action by showing that the salon operators could have avoided the effect of that violation of law by exiting the market for the manufacturers’ hair products. In any event, the operators sufficiently alleged the existence of a causal connection between the false advertising and the injury to their reputation based on past practices to establish standing, the court determined.

Statutory Standing

The salon operators had statutory standing under the Lanham Act because they had a reasonable interest in protecting themselves from the reputational damage allegedly resulting from the manufacturers’ advertising.

In Famous Horse Inc. v. 5th Avenue Photo Inc. (CCH Advertising Law Guide ¶64,046), the Second Circuit had held that a retail chain had alleged a “reasonable interest” and a reasonable basis for believing that its interest could be harmed by the supplier’s false advertising; the chain had an interest in maintaining its customers’ perception that its branded jeans, though discounted, were genuine, and the supplier’s false statements tended to undercut that perception.

Materiality

The salon operators stated a Lanham Act false advertising claim because the allegedly false statements related sufficiently to an inherent and material characteristic of the product to be actionable, the court decided. The claim that the products were sold only in salons went directly to a highly relevant aspect of the product. The “salon-only” claim differentiated these products from products sold at mass retailers and also indicated the superiority and cachet of the professional products.

Consumers might be willing to pay a premium for products sold exclusively through salons because they associated these products with professional expertise. The salon operators alleged facts sufficient to show that the false advertising claims were material to consumers’ purchasing decisions, the court concluded.

The decision in Salon FAD v. L’Oreal USA, Inc. appears at CCH Advertising Law Guide ¶64,162.

Name-Brand Retailer Can Pursue False Ad Suit Against Wholesaler of Counterfeit Jeans

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

Famous Horse, operator of the name-brand clothing retailer V.I.M., had standing to assert a Lanham Act claim that wholesalers of counterfeit Rocawear jeans falsely advertised that V.I.M. was a satisfied customer, the U.S. Court of Appeals in New York has ruled.

Standing to Sue

The federal Circuits have split on the issue of standing under Sec. 43(a) of the Lanham Act, the court observed. The Seventh, Ninth, and Tenth Circuits have applied a strong categorical requirement that a commercial plaintiff bringing an unfair competition claim must be in competition with the alleged false advertiser. The Third, Fifth, and Eleventh Circuits applied a more flexible standard.

Famous Horse had standing whether the more flexible reasonable interest test or the stronger categorical requirement was applied. Famous Horse, which sold genuine Rocawear jeans, was clearly in competition with the wholesalers, who sold counterfeit Rocawear jeans, the court found.

The V.I.M. chain of stores, according to Famous Horse, was known for selling genuine name-brand clothing at very low prices. Famous Horse alleged that it was uniquely affected by the wholesalers’ sale of counterfeit Rocawear jeans in two ways: first, its reputation as a discount store was harmed because consumers believed that it sold Rocawear jeans at inflated prices compared to counterfeit jeans supplied by the wholesalers; and second, consumers who learned of counterfeit Rocawear jeans on the market would believe that V.I.M. similarly peddled counterfeit clothes.

Reasonable Interest to Protect

The court held that Famous Horse alleged a reasonable interest to be protected against the wholesalers’ alleged false advertising as well as a reasonable basis for believing that this interest would be damaged by the alleged false advertising.

Proof of actual losses would be difficult, in the court’s view, given that V.I.M. stores operated in a large market that included luxury retailers selling name brands at full price, discounters of various stripes, and numerous counterfeiters selling fake versions of name brands. Famous Horse alleged sufficiently plausible claims, however, to overcome a motion to dismiss.

The opinion in Famous Horse, Inc. v. 5th Avenue Photo Inc. will be reported at CCH Advertising Law Guide ¶64,046.