This posting was written by Jody Coultas, Editor of CCH Unfair Trade Practices Law.
The federal district court in New York City declined to enjoin food distributor Kangadis Food Inc. from selling refined olive oil labeled as "100% Pure Olive Oil" (North American Olive Oil Association v. Kangadis Food Inc., April 25, 2013, Rakoff, J.). However, the court ordered Kangadis to provide reasonable notice to potential consumers of its past mislabeling.
NAOOA, a trade organization that represents the olive oil industry, filed suit against Kangadis for allegedly falsely and deceptively marketing its olive oil and "100% Pure," when it actually contained an industrially-processed oil produced from olive pits, skins, and pulp called Pomace, in violation of the Lanham Act and New York General Business Law.
Kangadis admitted that its "100% Pure Olive Oil" product contained only olive-Pomace oil. On April 12, the court preliminarily enjoined Kangadis from labeling products containing Pomaceas "100% Pure Olive Oil" and from selling any product containing Pomace without including the ingredient on the label. NAOAA asked the court to enjoin Kangadis from selling 100% refined olive oil as "100% Pure Olive Oil" as Kagadis alleged it currently sold.
In order to obtain a preliminary injunction, the party must show irreparable harm and either a likelihood of success on the merits or sufficiently serous questions going to the merits to make them a fair ground for litigation and a balance of hardships tipping toward the party requesting the injunction.
Irreparable Harm
NAOAA was able to demonstrate that it would suffer irreparable harm absent an injunction, according to the court. Under the Lanham Act, NAOAA needed to show that the parties were competitors in the olive oil market and there was a logical causal connection between the false advertising and its own sales position. The parties were clearly competitors in the olive oil market, and Kangadis’ false marketing of the cheaper Pomace oil as pure olive oil would harm other sellers. The labeling also induced consumers to purchase a lower quality product, which could lead consumers to lose faith in the olive oil market as a whole.
Likelihood of Success on Merits
The court declined to issue the requested injunction because the NAOAA could not show a likelihood of success on the merits of its Lanham Act false advertising claims. It was clear that Kangadis violated federal and state standards by selling refilled oil as "100% Pure Olive Oil." However, NAOAA failed to seek direct enforcement of the standards, which are either nonbinding or unenforceable through a private action. NAOAA also could not show that a reasonable consumer’s understanding of olive oil aligned with the standards. A consumer could view 100% Olive Oil as being silent on whether it was virgin or refined.
Balance of Hardships
There also was a lack of evidence of the balance of hardships to support NAOAA’s New York General Business Law false advertising claims, according to the court. To state a claim, NAOAA had to show that Kangadis’s act was consumer-oriented, material deceptive, and injured NAOAA. Although there was sufficient evidence to litgate whether Kangadis violated the New York law, NAOAA failed to show that the balance of hardships tipped in favor of an injunction. Althougth false advertising may hurt competitors in the market, it was unclear to what extent the market would be harmed.
The court granted NAOAA’s request for a notice to consumers regarding Kangadis’ past mislabeling of products containing Pomace. NAOAA was able to show to show that the labeling claims were literally false and actually misleading to consumers. The balance of hardships and public interest also tipped in favor of an injunction. Therefore, Kangadis was required to provide reasonable notice of its mislabeling.
NAOAA was ordered to post bond in order to adequately compensate Kangadis in the event the injunction was issued in error.
Showing posts with label Lanham Act false advertising. Show all posts
Showing posts with label Lanham Act false advertising. Show all posts
Monday, April 29, 2013
Monday, March 18, 2013
Publisher Could Not Base False Advertising Action on Newspaper’s Inflated Circulation Claims
This posting was written by John W. Arden.
A newspaper’s inflated circulation claims could not form the basis of a Lanham Act false advertising action brought by the publisher of a free television guide because the publisher did not begin soliciting advertisers until after the newspaper publicly acknowledged its misstatements and revised its circulation claims and because the inflated circulation figures were not part of a commercial campaign, according to the federal district court in Central Islip, New York (Conte v. Newsday, Inc., March 13, 2013, Bianco, J.).
Background. In December 2003, Anthony Conte founded I Media, which published and distributed TV Time Magazine, a free, weekly television listings publication containing articles and features relating to television, as well as crossword puzzles, cartoons, and word games. I Media was financed in large part through the sale of delivery routes to independent distributors. TV Time was published from November 2004 through May 2005.
In the summer of 2004, Conte learned, from a story on the Internet, that Newsday newspaper had misstated its circulation figures for 2002 and 2003. The newspaper issued a press release to that effect on June 17, 2004. The newspaper’s parent, Tribune Publishing, announced the revision of Newsday’s circulation figures for 2003 and 2004 on September 10, 2004. It also sent a letter informing Newsday’s advertisers of the revised figures.
Conte spoke with potential clients about paying to advertise in TV Time only after the date that he learned about Newsday’s circulation misstatements, sometime in February or March of 2005, the court found. However, he claimed to have spoken with a long list of potential clients about advertising in TV Time throughout 2003 and 2004, before he learned of the circulation misstatements.
Newsday had its own television-related publication, called TV Picks, which was published as a stand-alone magazine and distributed inside the Sunday editions of Newsday. In February 2004, Newsday started to include TV Picks in the pages of the newspaper, but later that spring resumed printing it as a stand-alone magazine.
In late May or June of 2005, some of Conte’s route distributors allegedly contacted Newsday reporter Mark Harrington, who researched and wrote stories about Conte. Newsday editors and executives testified that they did not authorize or instruct Harrington to conduct the investigation. On August 2, 2005, thirty-three route distributors filed a class action in Nassau County, alleging that I Media was a scheme perpetrated by Conte to defraud them of the money they paid for their delivery routes. Harrington received a copy of the distributors’ complaint and published an article about Conte in Newsday on September 7, 2005, along with a follow up on September 14, 2005.
In September 2006, Conte brought this action, claiming that Newsday and Conte’s distributors violated federal RICO, the Lanham Act, the Sherman Act, and the Electronic Privacy Act and committed various state law torts in attempting to monopolize and dominate the print advertising sales and pre-printed, free standing insert distribution sales markets on Long Island. The court dismissed the RICO, Sherman Act, and Electronic Privacy Act claims, as well as some state law claims in March 2010. In March 2012, the Newsday defendants filed a motion for summary judgment with respect to the Lanham Act claims.
Lanham Act False Advertising Claims
Conte had alleged that Newsday’s inflated circulation figures constituted false advertising in violation of Section 43(a) of the Lanham Act, inducing advertisers to purchase space from Newsday rather than TV Time and causing a direct loss of print advertising and insert distribution service sales. The court, however, granted Newsday’s motion for summary judgment, holding that (1) Conte lacked standing to bring the Section 43(a) claims and (2) the report of the inflated circulation figures was not commercial advertising, promotion, or commercial speech under the Lanham Act.
Section 43(a) of the Lanham Act prohibits false representations in advertising about the qualities of goods and services. To establish a false advertising claim, a plaintiff must prove that (1) the defendant made a false or misleading statement, (2) the false or misleading statement actually deceived or had the capacity to deceive a substantial portion of the intended audience, (3) the deception was material as likely to influence purchasing decisions, (4) there was a likelihood of injury to the plaintiff, such as declining sales or loss of goodwill, and (5) the goods traveled in interstate commerce.
The court noted that it was undisputed that a false or misleading statement was made by Newsday and that the inflated circulation figures were operating in the marketplace until June 17, 2004, when Newsday publicly reported that the figures were incorrect.
Standing to sue. The uncontroverted evidence indicated that I Media’s TV Time and Newsday’s TV Picks were not in competition during the period when Newsday’s inflated circulation figures were operative in the marketplace—that is, prior to June 17, 2004. Conte had not yet released TV Time to the public. Because Conte’s TV Time was not obviously in competition with Newsday’s products during the period when Newsday misstated its circulation figures, Conte was required to make a more substantial showing of injury and causation to establish standing to bring a false advertising action. While Conte’s stated injury related to his advertising efforts, the uncontroverted evidence showed that Newsday’s circulation-related misstatements were retracted before Conte started to actively solicit advertisers for TV Time.
A further claim that the inflated circulation figures were in effect during a time when Conte attempted to solicit advertisers for TV Week, a prior publication, was unavailing on the ground that Conte failed to establish a likelihood of injury and causation.
Deceptive advertising. Conte’s deceptive advertising claim—alleging that the Newsday defendants repeatedly disseminated false material statements about its business, goodwill, and reputation—failed on the ground that there was no evidence that the Newsday defendants misrepresented Conte’s goods as part of a commercial campaign. Section 43(a) of the Lanham Act imposes liability on any person who misrepresents the nature, characteristics, qualities, or geographic origin of another person’s goods or services in commercial advertising or promotion. To be actionable, the misrepresentation must occur in “commercial advertising or promotion.”
In this case, Harrington’s articles could not give rise to a Lanham Act deceptive advertising claim, since articles published by journalists are not considered “commercial advertising, commercial promotion, or commercial speech.” Such articles are traditionally granted full protection under the First Amendment, the court observed.
To survive summary judgment, Conte was required to produce sufficient evidence for a reasonable jury to conclude that the Newsday defendants made other allegedly false statements as part of an organized campaign to penetrate the market. However, he failed to identify any concrete, allegedly deceptive statements about his product or commercial activities. Even assuming that there was evidence that Newsday employees or agents made deceptive statements about Conte or his company, no rational juror could conclude that the statements were made as part of an organized campaign to penetrate the relevant market, the court concluded.
Conte’s further claim that Newsday committed trade dress infringement was rejected on a finding that TV Time’s trade dress—consisting of “a glossy paper cover,” particular fonts and font sizes, and an advertising footer—was not worthy of protection.
A newspaper’s inflated circulation claims could not form the basis of a Lanham Act false advertising action brought by the publisher of a free television guide because the publisher did not begin soliciting advertisers until after the newspaper publicly acknowledged its misstatements and revised its circulation claims and because the inflated circulation figures were not part of a commercial campaign, according to the federal district court in Central Islip, New York (Conte v. Newsday, Inc., March 13, 2013, Bianco, J.).
Background. In December 2003, Anthony Conte founded I Media, which published and distributed TV Time Magazine, a free, weekly television listings publication containing articles and features relating to television, as well as crossword puzzles, cartoons, and word games. I Media was financed in large part through the sale of delivery routes to independent distributors. TV Time was published from November 2004 through May 2005.
In the summer of 2004, Conte learned, from a story on the Internet, that Newsday newspaper had misstated its circulation figures for 2002 and 2003. The newspaper issued a press release to that effect on June 17, 2004. The newspaper’s parent, Tribune Publishing, announced the revision of Newsday’s circulation figures for 2003 and 2004 on September 10, 2004. It also sent a letter informing Newsday’s advertisers of the revised figures.
Conte spoke with potential clients about paying to advertise in TV Time only after the date that he learned about Newsday’s circulation misstatements, sometime in February or March of 2005, the court found. However, he claimed to have spoken with a long list of potential clients about advertising in TV Time throughout 2003 and 2004, before he learned of the circulation misstatements.
Newsday had its own television-related publication, called TV Picks, which was published as a stand-alone magazine and distributed inside the Sunday editions of Newsday. In February 2004, Newsday started to include TV Picks in the pages of the newspaper, but later that spring resumed printing it as a stand-alone magazine.
In late May or June of 2005, some of Conte’s route distributors allegedly contacted Newsday reporter Mark Harrington, who researched and wrote stories about Conte. Newsday editors and executives testified that they did not authorize or instruct Harrington to conduct the investigation. On August 2, 2005, thirty-three route distributors filed a class action in Nassau County, alleging that I Media was a scheme perpetrated by Conte to defraud them of the money they paid for their delivery routes. Harrington received a copy of the distributors’ complaint and published an article about Conte in Newsday on September 7, 2005, along with a follow up on September 14, 2005.
In September 2006, Conte brought this action, claiming that Newsday and Conte’s distributors violated federal RICO, the Lanham Act, the Sherman Act, and the Electronic Privacy Act and committed various state law torts in attempting to monopolize and dominate the print advertising sales and pre-printed, free standing insert distribution sales markets on Long Island. The court dismissed the RICO, Sherman Act, and Electronic Privacy Act claims, as well as some state law claims in March 2010. In March 2012, the Newsday defendants filed a motion for summary judgment with respect to the Lanham Act claims.
Lanham Act False Advertising Claims
Conte had alleged that Newsday’s inflated circulation figures constituted false advertising in violation of Section 43(a) of the Lanham Act, inducing advertisers to purchase space from Newsday rather than TV Time and causing a direct loss of print advertising and insert distribution service sales. The court, however, granted Newsday’s motion for summary judgment, holding that (1) Conte lacked standing to bring the Section 43(a) claims and (2) the report of the inflated circulation figures was not commercial advertising, promotion, or commercial speech under the Lanham Act.
Section 43(a) of the Lanham Act prohibits false representations in advertising about the qualities of goods and services. To establish a false advertising claim, a plaintiff must prove that (1) the defendant made a false or misleading statement, (2) the false or misleading statement actually deceived or had the capacity to deceive a substantial portion of the intended audience, (3) the deception was material as likely to influence purchasing decisions, (4) there was a likelihood of injury to the plaintiff, such as declining sales or loss of goodwill, and (5) the goods traveled in interstate commerce.
The court noted that it was undisputed that a false or misleading statement was made by Newsday and that the inflated circulation figures were operating in the marketplace until June 17, 2004, when Newsday publicly reported that the figures were incorrect.
Standing to sue. The uncontroverted evidence indicated that I Media’s TV Time and Newsday’s TV Picks were not in competition during the period when Newsday’s inflated circulation figures were operative in the marketplace—that is, prior to June 17, 2004. Conte had not yet released TV Time to the public. Because Conte’s TV Time was not obviously in competition with Newsday’s products during the period when Newsday misstated its circulation figures, Conte was required to make a more substantial showing of injury and causation to establish standing to bring a false advertising action. While Conte’s stated injury related to his advertising efforts, the uncontroverted evidence showed that Newsday’s circulation-related misstatements were retracted before Conte started to actively solicit advertisers for TV Time.
A further claim that the inflated circulation figures were in effect during a time when Conte attempted to solicit advertisers for TV Week, a prior publication, was unavailing on the ground that Conte failed to establish a likelihood of injury and causation.
Deceptive advertising. Conte’s deceptive advertising claim—alleging that the Newsday defendants repeatedly disseminated false material statements about its business, goodwill, and reputation—failed on the ground that there was no evidence that the Newsday defendants misrepresented Conte’s goods as part of a commercial campaign. Section 43(a) of the Lanham Act imposes liability on any person who misrepresents the nature, characteristics, qualities, or geographic origin of another person’s goods or services in commercial advertising or promotion. To be actionable, the misrepresentation must occur in “commercial advertising or promotion.”
In this case, Harrington’s articles could not give rise to a Lanham Act deceptive advertising claim, since articles published by journalists are not considered “commercial advertising, commercial promotion, or commercial speech.” Such articles are traditionally granted full protection under the First Amendment, the court observed.
To survive summary judgment, Conte was required to produce sufficient evidence for a reasonable jury to conclude that the Newsday defendants made other allegedly false statements as part of an organized campaign to penetrate the market. However, he failed to identify any concrete, allegedly deceptive statements about his product or commercial activities. Even assuming that there was evidence that Newsday employees or agents made deceptive statements about Conte or his company, no rational juror could conclude that the statements were made as part of an organized campaign to penetrate the relevant market, the court concluded.
Conte’s further claim that Newsday committed trade dress infringement was rejected on a finding that TV Time’s trade dress—consisting of “a glossy paper cover,” particular fonts and font sizes, and an advertising footer—was not worthy of protection.
Thursday, October 11, 2012
Nutritional Ingredient Manufacturer Held Liable for False Advertising
This posting was written by William Zale, Editor of CCH Advertising Law Guide.
Gnosis, a manufacturer of raw ingredients for nutritional companies, falsely advertised its Extrafolate product in violation of the Lanham Act by using the chemical name, abbreviation, chemical formula, and Chemical Abstracts Services registry number reserved for Merck Eprova’s purer folate ingredients, the federal district court in New York City has ruled.
Merck was entitled to an enhanced award of Gnosis’s profits, a permanent injunction including provisions for corrective advertising, and an award of attorney’s fees. The court held that Merck lacked standing under the New York deceptive practices and false advertising laws.
Folate is the B vitamin that helps the body make new healthy cells. All living beings require folates, and they are particularly useful to promote prenatal health for expectant mothers and their fetuses and to lessen the risks of some cancers and cardiovascular diseases.
Gnosis’s folate product was a mixture of the “active” S-isomer and the “inactive “R-isomer. Although Gnosis’s product was admittedly a mixture of these two isomers, Gnosis used terms and the chemical formula for the pure S-isomer product in describing its product.
Merck had standing to sue under the Lanham Act because it was injured when its competitor falsely advertised its chemically distinct product as identical to Merck’s product. In an organized advertising campaign Gnosis widely distributed materials that were literally false and that materially misrepresented the nature of what Gnosis was selling, the court determined. Gnosis also distributed brochures with literally true descriptions of a pure 6S Isomer Product that were impliedly false and intended to mislead customers in connection with Extrafolate, which was not a pure 6S isomer, the court found.
Gnosis was liable, not only for direct false advertising, but also for contributory false advertising because its false use of the common chemical name caused its distributors to advertise falsely, the court decided.
Enhanced Profits Award
The award of Gnosis’s profits was held necessary to prevent it from falsely advertising in the future. Gnosis’s conduct during its advertising campaign and litigation revealed its disdain for the law and the court. It deliberately and willfully engaged in false advertising as part of a strategy designed to gain its market share in the lucrative vitamin and nutritional supplement industry through deception, according to the court.
Though the plain language of the Lanham Act permits trebling of only of damages, an award of profits may be enhanced without identified limit to “such sum as the court shall find to be just if “the amount of the recovery based on profits is . . . inadequate, under 15 U.S.C. § 1117(a). Gnosis’s profits during the applicable period were $175,664.71. This amount was increased to $526,994.13 in order to compensate Merck for the improved market position Gnosis enjoyed solely as a result of its false advertising, the court found.
Injunctive Relief
Injunctive relief was appropriate because Merck suffered irreparable harm and the damages award, based only on sales up to March 2009, did not fully compensate Merck. Gnosis was to be (1) permanently enjoined from advertising its 6R,S Mixture Product with the names 6S-5-methyltetrahydrofolate, L-5 methyltetrahydrofolate, L-S-MTHF, or any synonyms thereof and (2) ordered to engage in a campaign of corrective advertising to be approved by the court with input from Merck.
Attorney’s Fees
An award of attorney’s fees was appropriate. Gnosis’s false advertising was willful and done in bad faith and because its litigation strategy was conducted in bad faith with senior officers, including its CEO, frustrating the litigation process at every turn, the court found.
New York Law
Merck lacked standing under the New York deceptive practices and false advertising laws. Corporate competitors have standing under the New York law if the gravamen of the complaint is consumer injury or harm to the public interest. Although Merck’s experts posited that there may be some negative health consequences associated with the R-isomer, Merck had not definitively established that these negative health consequences were also associated with the Gnosis’s 6R,S mixture product, the court determined. Instead, Merck’s allegations focused almost entirely on losses suffered by Merck itself, not the eventual—and theoretical— harm suffered by the public at large.
The opinion in Merck Eprova AG v. Gnosis S.p.A. will be reported at CCH Advertising Law Guide ¶64,835.
Gnosis, a manufacturer of raw ingredients for nutritional companies, falsely advertised its Extrafolate product in violation of the Lanham Act by using the chemical name, abbreviation, chemical formula, and Chemical Abstracts Services registry number reserved for Merck Eprova’s purer folate ingredients, the federal district court in New York City has ruled.
Merck was entitled to an enhanced award of Gnosis’s profits, a permanent injunction including provisions for corrective advertising, and an award of attorney’s fees. The court held that Merck lacked standing under the New York deceptive practices and false advertising laws.
Folate is the B vitamin that helps the body make new healthy cells. All living beings require folates, and they are particularly useful to promote prenatal health for expectant mothers and their fetuses and to lessen the risks of some cancers and cardiovascular diseases.
Gnosis’s folate product was a mixture of the “active” S-isomer and the “inactive “R-isomer. Although Gnosis’s product was admittedly a mixture of these two isomers, Gnosis used terms and the chemical formula for the pure S-isomer product in describing its product.
Merck had standing to sue under the Lanham Act because it was injured when its competitor falsely advertised its chemically distinct product as identical to Merck’s product. In an organized advertising campaign Gnosis widely distributed materials that were literally false and that materially misrepresented the nature of what Gnosis was selling, the court determined. Gnosis also distributed brochures with literally true descriptions of a pure 6S Isomer Product that were impliedly false and intended to mislead customers in connection with Extrafolate, which was not a pure 6S isomer, the court found.
Gnosis was liable, not only for direct false advertising, but also for contributory false advertising because its false use of the common chemical name caused its distributors to advertise falsely, the court decided.
Enhanced Profits Award
The award of Gnosis’s profits was held necessary to prevent it from falsely advertising in the future. Gnosis’s conduct during its advertising campaign and litigation revealed its disdain for the law and the court. It deliberately and willfully engaged in false advertising as part of a strategy designed to gain its market share in the lucrative vitamin and nutritional supplement industry through deception, according to the court.
Though the plain language of the Lanham Act permits trebling of only of damages, an award of profits may be enhanced without identified limit to “such sum as the court shall find to be just if “the amount of the recovery based on profits is . . . inadequate, under 15 U.S.C. § 1117(a). Gnosis’s profits during the applicable period were $175,664.71. This amount was increased to $526,994.13 in order to compensate Merck for the improved market position Gnosis enjoyed solely as a result of its false advertising, the court found.
Injunctive Relief
Injunctive relief was appropriate because Merck suffered irreparable harm and the damages award, based only on sales up to March 2009, did not fully compensate Merck. Gnosis was to be (1) permanently enjoined from advertising its 6R,S Mixture Product with the names 6S-5-methyltetrahydrofolate, L-5 methyltetrahydrofolate, L-S-MTHF, or any synonyms thereof and (2) ordered to engage in a campaign of corrective advertising to be approved by the court with input from Merck.
Attorney’s Fees
An award of attorney’s fees was appropriate. Gnosis’s false advertising was willful and done in bad faith and because its litigation strategy was conducted in bad faith with senior officers, including its CEO, frustrating the litigation process at every turn, the court found.
New York Law
Merck lacked standing under the New York deceptive practices and false advertising laws. Corporate competitors have standing under the New York law if the gravamen of the complaint is consumer injury or harm to the public interest. Although Merck’s experts posited that there may be some negative health consequences associated with the R-isomer, Merck had not definitively established that these negative health consequences were also associated with the Gnosis’s 6R,S mixture product, the court determined. Instead, Merck’s allegations focused almost entirely on losses suffered by Merck itself, not the eventual—and theoretical— harm suffered by the public at large.
The opinion in Merck Eprova AG v. Gnosis S.p.A. will be reported at CCH Advertising Law Guide ¶64,835.
Friday, September 07, 2012
Dismissal of Antitrust Claims Against Printer Maker Upheld
This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.
The U.S. Court of Appeals in Cincinnati has upheld dismissal of antitrust claims against Lexmark International, Inc., a major producer of laser printers and toner cartridges for its printers. Static Control Components, Inc., a company that made components for toner cartridges, lacked standing to pursue those claims. However, the appellate court ruled that Lanham Act false advertising and claims under the North Carolina Unfair Deceptive Trade Practices Act should not have been dismissed on standing grounds.
Lexmark developed toner cartridges containing microchips that communicate with printers to ensure that Lexmark printers only work with its cartridges. In addition, Lexmark acquired and repaired its used toner cartridges for resale. Static Control replicated the cartridge microchips and sold the microchips to remanufacturers. Remanufacturers refilled Lexmark cartridges and sold them to Lexmark printer owners at a lower cost.
Lexmark offered its larger customers a “Prebate” program in which it sold new toner cartridges at an upfront discount if the customer agreed to a single-use license and to return cartridges to Lexmark rather than a remanufacturer. The price of Lexmark's toner cartridges allegedly increased following the implementation of the program because of reduced competition from remanufacturers.
Standing to Assert Antitrust Claims
Static Control lacked standing to assert antitrust claims based on the “Prebate” program. The program targeted only the market for remanufactured cartridges, the court explained. Static Control was neither a competitor nor a consumer in the market for replacement toner cartridges. The implementation of the Prebate program decreased the number of remanufactured cartridges for Lexmark printers, which in turn decreased Static Control's sales; however, the intended targets of the Prebate program were the end users and the remanufacturers, not Static Control.
Moreover, Static Control’s alleged injury was not inextricably intertwined with the injuries in the market for replacement toner cartridges. The court also noted that the number of potentially more direct victims counseled against a finding of standing.
Antitrust Injury
Static Control also failed to plausibly allege any antitrust injury stemming from Lexmark’s decision to use the “lock-out” microchips in its cartridges and Lexmark’s exclusive distribution agreement with its own microchip supplier. Static Control failed to allege how the existence of a microchip requirement alone caused it any injury. It was possible that, without the microchips, Static Control would have been able to sell more component parts for remanufactured cartridges, but Static Control did not make this allegation. Moreover, Static Control did not allege how the removal of one of its direct competitors from the components and microchips market following an exclusive distributorship agreement with a single customer caused any damage to the seller' position within those markets or profits. The firm did not allege that Lexmark was a former customer or that absent the exclusive agreement the printer marker would have purchased from it.
There was no cognizable antitrust injury resulting from Lexmark’s continuous redesigns of its microchips, the court also ruled. Static Control contended that Lexmark engaged in the redesigns “to exclude competitors from the relevant markets, restrict output, and increase end-user prices.”
If Lexmark were able to maintain a monopoly on remanufactured toner cartridges by making cartridge parts wholly unavailable, then Static Control might have standing to pursue an antitrust violation. However, the firm did not sufficiently allege such behavior, the court noted. Static Control did not allege how the redesign decreased competition in the markets in which it competed, the market for microchips or parts.
Noerr-Pennington Immunity
Lexmark was immune under the Noerr-Pennington doctrine from an antitrust claim based on Lexmark's filing of an unsuccessful copyright action. Static Control did not offer any allegations upon which one could plausibly conclude that the copyright action was “objectively meritless.” Although a federal appellate court ultimately concluded that Lexmark did not have a valid copyright claim, this was not determinative of whether the suit was reasonable, according to the court.
False Advertising, State Law Claims
Static Control did, however, have standing to pursue a Lanham Act false advertising claim, even though it was not a competitor of Lexmark. The court refused to impose a standing requirement, found in other federal circuits, that a Lanham Act false advertising plaintiff be a competitor of the defendant. Static Control alleged a cognizable interest in its business reputation and sales to remanufacturers and sufficiently alleged that these interests were harmed by Lexmark's statements to the remanufacturers that it infringed Lexmark's intellectual property.
Dismissal of the federal antitrust claims for lack of standing did not require dismissal of North Carolina Unfair Deceptive Trade Practices Act claims, the appellate court ruled. Generally, federal case law was persuasive and instructive in construing North Carolina’s own antitrust statutes. However, North Carolina would be more flexible in its standing analysis, in the court’s view. North Carolina would not apply the factors enunciated in U.S. Supreme Court’s 1983 decision in Associated Gen. Contractors of Cal., Inc. v. Cal. State Council of Carpenters, 459 U.S. 519, 1983-1 Trade Cases ¶65,226, to deny Static Control’s standing to pursue state law unfair competition claims.
The decision is Static Control Components, Inc. v. Lexmark International, Inc., CCH Trade Regulation Reporter ¶78,027.
The U.S. Court of Appeals in Cincinnati has upheld dismissal of antitrust claims against Lexmark International, Inc., a major producer of laser printers and toner cartridges for its printers. Static Control Components, Inc., a company that made components for toner cartridges, lacked standing to pursue those claims. However, the appellate court ruled that Lanham Act false advertising and claims under the North Carolina Unfair Deceptive Trade Practices Act should not have been dismissed on standing grounds.
Lexmark developed toner cartridges containing microchips that communicate with printers to ensure that Lexmark printers only work with its cartridges. In addition, Lexmark acquired and repaired its used toner cartridges for resale. Static Control replicated the cartridge microchips and sold the microchips to remanufacturers. Remanufacturers refilled Lexmark cartridges and sold them to Lexmark printer owners at a lower cost.
Lexmark offered its larger customers a “Prebate” program in which it sold new toner cartridges at an upfront discount if the customer agreed to a single-use license and to return cartridges to Lexmark rather than a remanufacturer. The price of Lexmark's toner cartridges allegedly increased following the implementation of the program because of reduced competition from remanufacturers.
Standing to Assert Antitrust Claims
Static Control lacked standing to assert antitrust claims based on the “Prebate” program. The program targeted only the market for remanufactured cartridges, the court explained. Static Control was neither a competitor nor a consumer in the market for replacement toner cartridges. The implementation of the Prebate program decreased the number of remanufactured cartridges for Lexmark printers, which in turn decreased Static Control's sales; however, the intended targets of the Prebate program were the end users and the remanufacturers, not Static Control.
Moreover, Static Control’s alleged injury was not inextricably intertwined with the injuries in the market for replacement toner cartridges. The court also noted that the number of potentially more direct victims counseled against a finding of standing.
Antitrust Injury
Static Control also failed to plausibly allege any antitrust injury stemming from Lexmark’s decision to use the “lock-out” microchips in its cartridges and Lexmark’s exclusive distribution agreement with its own microchip supplier. Static Control failed to allege how the existence of a microchip requirement alone caused it any injury. It was possible that, without the microchips, Static Control would have been able to sell more component parts for remanufactured cartridges, but Static Control did not make this allegation. Moreover, Static Control did not allege how the removal of one of its direct competitors from the components and microchips market following an exclusive distributorship agreement with a single customer caused any damage to the seller' position within those markets or profits. The firm did not allege that Lexmark was a former customer or that absent the exclusive agreement the printer marker would have purchased from it.
There was no cognizable antitrust injury resulting from Lexmark’s continuous redesigns of its microchips, the court also ruled. Static Control contended that Lexmark engaged in the redesigns “to exclude competitors from the relevant markets, restrict output, and increase end-user prices.”
If Lexmark were able to maintain a monopoly on remanufactured toner cartridges by making cartridge parts wholly unavailable, then Static Control might have standing to pursue an antitrust violation. However, the firm did not sufficiently allege such behavior, the court noted. Static Control did not allege how the redesign decreased competition in the markets in which it competed, the market for microchips or parts.
Noerr-Pennington Immunity
Lexmark was immune under the Noerr-Pennington doctrine from an antitrust claim based on Lexmark's filing of an unsuccessful copyright action. Static Control did not offer any allegations upon which one could plausibly conclude that the copyright action was “objectively meritless.” Although a federal appellate court ultimately concluded that Lexmark did not have a valid copyright claim, this was not determinative of whether the suit was reasonable, according to the court.
False Advertising, State Law Claims
Static Control did, however, have standing to pursue a Lanham Act false advertising claim, even though it was not a competitor of Lexmark. The court refused to impose a standing requirement, found in other federal circuits, that a Lanham Act false advertising plaintiff be a competitor of the defendant. Static Control alleged a cognizable interest in its business reputation and sales to remanufacturers and sufficiently alleged that these interests were harmed by Lexmark's statements to the remanufacturers that it infringed Lexmark's intellectual property.
Dismissal of the federal antitrust claims for lack of standing did not require dismissal of North Carolina Unfair Deceptive Trade Practices Act claims, the appellate court ruled. Generally, federal case law was persuasive and instructive in construing North Carolina’s own antitrust statutes. However, North Carolina would be more flexible in its standing analysis, in the court’s view. North Carolina would not apply the factors enunciated in U.S. Supreme Court’s 1983 decision in Associated Gen. Contractors of Cal., Inc. v. Cal. State Council of Carpenters, 459 U.S. 519, 1983-1 Trade Cases ¶65,226, to deny Static Control’s standing to pursue state law unfair competition claims.
The decision is Static Control Components, Inc. v. Lexmark International, Inc., CCH Trade Regulation Reporter ¶78,027.
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