Opinion ID: 59474
Heading Depth: 2
Heading Rank: 1

Heading: Applicability of the Lanham Act

Text: Sterling argues that the Lanham Act relates only to trademarks, not to all commercial activities. It alleges that its actions did not involve a misuse of Schlotzsky's trademark and therefore did not violate the Lanham Act. We first look at Sterling's actions, then decide whether those actions ran afoul of the Lanham Act. There is ample evidence that Sterling mischaracterized its relation with Schlotzsky's. For example, on September 14, 2004, shortly after Sterling became a non-exclusive supply chain manager, Sterling and Van Eerden Food Service signed an agreement wherein Sterling stated that it was a purchasing agent appointed by both Schlotzsky's, Inc. and SIFA and was appointed by Schlotzsky's, Inc. and [SIFA] to be their exclusive representative in the purchasing of products. . . . There was evidence of seven contracts between Sterling and distributors containing the same misrepresentation that Sterling was the exclusive representative and purchasing agent within the Schlotzsky's system. There was also evidence of thirty-two contracts between Sterling and manufacturers wherein Sterling claimed to be the exclusive representative for purchasing and distribution of all goods and services within the Schlotzsky's system. Sterling also misrepresented its authority to SYGMA. Schlotzsky's learned of some of these misrepresentations only during discovery after suit was filed. In one instance, Sterling demanded that Colorado Gold, the only approved manufacturer of the Schlotzsky's brand of potato chips, pay rebate fees or risk being replaced by another manufacturer. Colorado Gold resisted, then paid some rebates, and finally stopped making these payments and sued Sterling. Two weeks after Schlotzsky's notified Sterling that it would no longer be a non-exclusive supply chain manager, Sterling entered into a contract with PepsiCo Food Service, Inc. PepsiCo was a supplier of non-proprietary potato chips to the Schlotzsky's system before Sterling's involvement. This contract contained similar misrepresentations, namely, that Sterling was authorized to execute the agreement on behalf of Schlotzsky's system. With these incidents as a fair survey of Sterling's actions, we turn to whether this type of conduct violates the Lanham Act. When we interpret the scope of a statute, we are resolving a question of law. Woodfield v. Bowman, 193 F.3d 354, 358 (5th Cir.1999). The relevant language of Section 43(a) of the Lanham Act is this: (1) Any person who, on or in connection with any goods or services, or any container for goods, uses in commerce any word, term, name, symbol, or device, or any combination thereof, or any false designation of origin, false or misleading description of fact, or false or misleading representation of fact, which (A) is likely to cause confusion, or to cause mistake, or to deceive as to the affiliation, connection, or association of such person with another person, or as to the origin, sponsorship, or approval of his or her goods, services, or commercial activities by another person, or (B) in commercial advertising or promotion, misrepresents the nature, characteristics, qualities, or geographic origin of his or her or another person's goods, services, or commercial activities, shall be liable in a civil action by any person who believes that he or she is or is likely to be damaged by such act. 15 U.S.C. § 1125(a)(1) [1] . The Supreme Court recently addressed the meaning of Section 43(a). Dastar Corp. v. Twentieth Century Fox Film Corp., 539 U.S. 23, 123 S.Ct. 2041, 156 L.Ed.2d 18 (2003). At issue in Dastar was whether a producer of a new video production violated Section 43(a) by not acknowledging reliance on an original television production. Id. at 25-28, 123 S.Ct. 2041. Although the specific language of Section 43(a) at issue in Dastar was origin of goods, the Court explained that Section 43(a) is one of the few provisions that goes beyond trademark protection. Id. at 29, 123 S.Ct. 2041. The language of Section 43(a) is broader than much of the Lanham Act in that it prohibits actions like trademark infringement that deceive consumers and impair a producer's goodwill. Id. at 32, 123 S.Ct. 2041. Though broad in scope, the Court cautioned that the Lanham Act should not be stretched to cover matters that are typically of no consequence to purchasers. Id. at 33, 123 S.Ct. 2041. The Court then rejected the plaintiffs' claim in Dastar, concluding that claims to protect an author's interest were actionable under copyright law, not the Lanham Act. After Dastar, other courts have followed the Supreme Court's directive that Section 43(a) may be applied to situations in which a registered trademark is not involved. Zyla v. Wadsworth, Div. of Thomson Corp., 360 F.3d 243, 251 (1st Cir.2004) (stating that the existence of a trademark is not a necessary prerequisite to a § 43(a) action); Empresa Cubana del Tabaco v. Culbro Corp., 399 F.3d 462, 478 (2d Cir. 2005) (stating that Section 43(a) includes causes of action grounded in allegations of false or misleading description of fact and false or misleading representation of fact); Gnesys, Inc. v. Greene, 437 F.3d 482, 488-89 (6th Cir.2005) (stating that Section 43(a) concerns false representation by those engaged in commerce, and is clearly not limited to trademark issues). This Circuit has stated that Section 43(a) of the Lanham Act has been characterized as a remedial statute that should be broadly construed. Seven-Up Co. v. Coca-Cola Co., 86 F.3d 1379, 1383 (5th Cir.1996). It is true that the Court has found that the congressional purpose for the Lanham Act was to provide remedies for unfair and misleading use of trademarks. Procter & Gamble Co. v. Amway Corp., 242 F.3d 539, 563 (5th Cir.2001). As already noted, though, Dastar directs that Section 43(a) extends beyond mere trademark protection. Schlotzsky's claim is that Sterling damaged its goodwill and profited by misrepresenting that it was solely authorized to act on behalf of the franchisor in relevant respects. Sterling's action threatened the goodwill of the Schlotzsky's brand with suppliers, some of whom already had the authority to manufacture and distribute Schlotzsky's products. It caused confusion with franchisees concerning the details of the association Sterling had with Schlotzsky's. As middleman between suppliers and franchisees, Sterling deceptively used the Schlotzsky's brand name in an effort to further Sterling's position in the marketplace. These actions violate the prohibition against representations of fact that are likely to cause confusion, or to cause mistake, or to deceive as to the affiliation, connection, or association of such person with another. . . . 15 U.S.C. § 1125(a)(1). The reach of Section 43(a) of the Lanham Act is sufficient to encompass Sterling's deceptions.