MVS Filewrapper® Blog: Who May Bring a Federal False Advertising Suit?

     The Supreme Court's recent decision in Lexmark International, Inc. v. Static Control Components, Inc. prescribed the appropriate framework for determining whether a plaintiff has standing in a false advertising action under the 15 U.S.C. 1125(a).  Prior to this decision, there were three competing approaches to determining whether a plaintiff has standing to bring suit under the Lanham Act: 

 

·         The Third, Fifth, Eighth and Eleventh Circuits utilized an antitrust standing or a set of factors laid out in Associated General Contractors;

 

·         The Seventh, Ninth and Tenth Circuits used a categorical test which only permits actual competitors to bring false advertising suits under the Lanham Act; and lastly

 

·         The Second Circuit applied a "reasonable interest' approach," under which a Lanham Act plaintiff "has standing if the claimant can demonstrate '(1) a reasonable interest to be protected against the alleged false advertising and (2) a reasonable basis for believing that the interest is likely to be damaged by the alleged false advertising.'"

 

     In this case, the Sixth Circuit applied the Second Circuit's reasonable-interest test and concluded that Static Control had "standing because it 'alleged a cognizable interest in its business reputation and sales to remanufacturers and sufficiently alleged that th[o]se interests were harmed by Lexmark's statements to the remanufacturers that Static Control was engaging in illegal conduct."  The Supreme Court held that in order to have standing, a plaintiff "ordinarily must show that its economic or reputational injury flows directly from the deception wrought by the defendant's advertising; and that occurs when deception of consumers causes them to withhold trade from the plaintiff." Thus, direct application of a zone-of-interest test and proximate-cause requirement "supplies the relevant limits on who may sue under §1125(a)" and supplants the tests previously applied by the lower courts.   

Public use can't be experimental if not for purposes of the patent application

In a decision last week, the Federal Circuit affirmed a district court's grant of summary judgment of invalidity of a patent and summary judgment to the defendant on the Plaintiff's false advertising claims. The defendant asserted the patent was invalid as obvious and by virtue of a prior public use.  The district court held a genuine issue of fact existed regarding whether the public use was experimental, but granted summary judgment of obviousness.  The court also granted summary judgment on the false advertising claims.

The Federal Circuit agreed the patent was invalid, but on the grounds of public use.  Specifically, the court held there was no genuine issue of material fact that the public use both embodied all the claim limitations and was not for experimental use.  While the purpose of the use was ostensibly for purposes of durability testing, the court observed that the results of the "test" (which was performed in 1989) were not available until almost a year after the patent application was filed in 1992.  As such, even if the use was for purposes of testing durability, it could not, as a matter of law, be experimental use, because it was not for purposes of the patent application.

The court also affirmed the summary judgment on the Lanham Act false advertising claims, agreeing with the district court there was no evidence the two challenged statements were false.

More detail of Clock Spring, L.P. v. Wrapmaster, Inc. after the jump.

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Claim that infringing product was defendant's "innovation" cannot support section 43(a) claim

In a decision last month, the Federal Circuit reversed a district court's denial of judgment as a matter of law from a jury award of $8,054,579 under § 43(a) of the Lanham Act.  The plaintiff held a patent on a type of basketball, and the defendant (against whom summary judgment of infringement was granted) advertised their basketball was their "innovation."

The Federal Circuit reversed the district court's decision and held that the assertion of a product as being "innovative" is precluded from liability under 43(a) because the statement isn't about the "origin of the goods" or the "nature, characteristics, or qualities" of the goods.  Rather, the plaintiff's main problem with the use of "innovative" in connection with the basketball was that is was a false designation of authorship and the Supreme Court's decision in Dastar Corp. v. Twentieth Century Fox Film Corp. precluded such a claim under § 43(a)(1)(A).  The assertion was also not actionable under § 43(a)(1)(B) based on the Ninth Circuit's interpretation of Dastar in Sybersound Records v. UAV Corp.

More on Baden Sports, Inc. v. Molten USA, Inc., after the jump.

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Eleventh Circuit: Unsolicited proposals insufficient to show intent to resume use of trademark

In a decision Friday, the Eleventh Circuit affirmed a district court's grant of summary judgment in favor of the defendant, finding the plaintiff had abandoned its trademarks.  Although the complaint consisted of both federal and state common law claims, the analysis ultimately came down to whether a valid Lanham Act claim existed, as the remaining claims were based on the alleged § 1125 claims.  

The Eleventh Circuit held the trademarks in question were abandoned due to nonuse, and that mere hope that the company could get funding from an unknown source was not enough to show intent to resume use in the future.  As a result, the district court's grant of summary judgment on the issue was proper.  The court also held the plaintiff did not have prudential standing to bring a false advertising claim, given the defendant did not sell the allegedly infringing products while the plaintiff was selling products bearing its marks.  Because the Lanham Act claims failed, the remaining claims likewise failed, and the district court's grant of summary judgment was affirmed.

More concerning Natural Answers, Inc. v. SmithKline Beecham Corp. after the jump.

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Eleventh Circuit: eBay may eliminate presumption of irreparable harm in trademark cases

In a recent decision, the Eleventh Circuit vacated a district court's injunction against the use of a competitor's trademarks in the meta tags of a defendant's website.  The court held that while the plaintiffs had shown likelihood of success on both their trademark infringement and false advertising claims, because the district court relied on a presumption of irreparable harm to support its injunction, the injunction must be vacated.

Specifically, the court noted that the Supreme Court's eBay decision did away with the notion of irreparable harm in patent cases, and that the statutory authorization for injunctions is similar in trademark cases.  While the court noted that eBay applied to the case, it declined to decide its effect, specifically "whether the nature of trademark infringement gives rise to a presumption of irreparable injury," meaning whether presuming irreparable harm in trademark cases would run afoul of eBay.

More detail of N. Am. Med. Corp. v. Axiom Worldwide, Inc. after the jump.

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Second Circuit: Advertisement can be literally false even if no explicitly false assertion made

Yesterday the Second Circuit handed down a decision concerning a preliminary injunction that clarifies false advertising under the Lanham Act, especially regarding the use of images in advertisements. In an opinion containing the unlikely combination of pop icons William Shatner and Jessica Simpson, the court adopted the "false by necessary implication" doctrine and concluded that images can be "literally false" for the purposes of the Lanham Act. The court also held that images that are sufficiently exaggerated such that "no reasonable consumer would rely on them in navigating the marketplace" are non-actionable puffery.

The court also considered the presumption of irreparable harm in favor of parties whose names are explicitly mentioned in false advertising. The court extended this presumption to parties whose names are not explicitly mentioned when "given the nature of the market, it would be obvious to the viewing audience that the advertisement is targeted at the [party]."

More detail of Time Warner Cable, Inc. v. DIRECTV, Inc. after the jump.

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Splenda® leaves a bitter taste in competitors' mouths

The business may be all about sweetness, but the competition can be bitter.  That's the story right now in the artificial sweetener business, with much of the action centered around sucralose, the sweetener in Splenda®.  The sweetener is the subject of several currently pending cases.

In the first, rival sweetener maker Merisant, maker of Equal® and Nutrasweet®, have sued the producer of Splenda®, McNeil Nutritionals, LLC, a subsidiary of Johnson & Johnson, for false advertising.  At issue
 is the advertising campaign stating that Splenda® is "made from sugar, so it tastes like sugar."  Merisant alleges that this statement misleads consumers into thinking that sucralose either contains sugar or is not an artificial product.  Compounding the problem, according to Merisant, in 2003, Splenda's® advertisements used to include "but it's not sugar" at the end, but this language was dropped in an effort to lead consumers to believe that sucralose was more "natural."  Notably, this change corresponds with a sizeable increase in U.S. sales of Splenda®, with a total of $212 million in sales in 2006. 

The key is that sugar is used as a starting ingredient when making Splenda®, but the sugar is removed during the manufacturing process as the sucralose is produced.  McNeil's argument is that its advertisements are factually correct:  sucralose is "made from sugar," because sugar is used at the beginning of the manufacturing process.  The judge summarized its position as:  "how could a consumer interpret a product that is ‘made from sugar’ and ‘tastes like sugar’ as actually being sugar?"  Some of the evidence shows that consumers aren't getting that message, though, as one expert stated that 40-50% of survey respondents either think that Splenda® contains sugar or is a mix of Splenda® and sugar.

The trial in this case began on April 9, and is scheduled to last two weeks.  Merisant is seeking disgorgement of $176 million in McNeil's profits based on the allegedly false advertising.  The stakes are not only money, though, but also include the share of the artificial sweetener market.  In 2006, Splenda® held 68% of the market, and Merisant wants to take a bite out of Splenda's® market share. 

In another false advertising lawsuit in California regarding the same advertising campaign, McNeil is facing off with the Sugar Association, scheduled to go to trial in November.  For its part, McNeil is counterclaiming that the Sugar Association has engaged in a "malicious smear campaign" against Splenda®, and seeks damages in the form of corrective advertising to correct any mistaken consumer impression that Splenda® is unsafe.

While McNeil is on the defensive in that case, it is on the offensive when it comes to "generic" sucralose being imported into the United States.   On April 6, McNeil filed a complaint with the International Trade Commission against several Chinese producers of sucralose.  While the text of the complaint is not available, there are several patents covering sucralose and various methods of producing it held by a British company, Tate & Lyle (because Tate & Lyle is the owner of the patents, it is the actual party before the ITC).  Given the ITC's enforcement power under 19 U.S.C. § 1337 to prevent importation of products that infringe intellectual property rights in the United States, the ITC action most likely seeks to prevent importation of these items based on patent infringement.  (Update (4/13):  The Chiniese companies have denied infringement.)

Further update (4/25):  Another Splenda® case has been brought to my attention:  McNeil sued Heartland Sweeteners, a manufacturer of "generic" sweeteners, for trade dress infringement in December 2006.  Heartland sells "store brand" sweeteners, and, according to McNeil, uses Splenda's® distinctive color scheme on its packaging.  Below is a comparison of the packaging from the complaint:

Splenda comparison photo

The case is pending in the Eastern District of Pennsylvania (case no. 2:06-cv-05336-JP), and a hearing on McNeil's request for a preliminary injunction was held on March 13.  No decision has yet been rendered.

This battle of the sweeteners may be a bitter one, but these cases illustrate the importance of intellectual property laws in protecting a company's rights to do business, and the types of enforcement mechanisms that are in place to assist in enforcing these rights, as well as fairness in the marketplace.

Update (5/11):  The Equal v. Splenda case has settled, according to the AP.  According to the report, the jury was set to find in favor of the Equal makers, although not to award as much as they were requesting.

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