Opinion ID: 815989
Heading Depth: 3
Heading Rank: 3

Heading: The Lanham Act count for unfair competition

Text: Section 43(a)(1) of the Lanham Act, 15 U.S.C. §1125(a), provides: §43(a)(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, HALL v. BED BATH 11 or commercial activities by another person, or (B) in commercial advertising or promotion, misrepresents the nature, characteristics, qualities, or geo- graphic origin of his or her or anoth- er 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. The district court states that “Count 2 of the amended complaint alleges, without elaboration, that Defendants have engaged in unfair competition in violation of § 43(a)(1) of the Lanham Act” based on trademark and trade dress infringement, as well as false advertising. Order at 5. We do not share the district court’s view that the count is “without elaboration,” for the complaint describes BB&B’s asserted Lanham Act acts of unfair competition as follows: ¶62. Defendants’ use of [phrases including “Workout Towel,” “drapes around your neck,” and “convenient zipper pockets”] are likely to cause confusion, mistake, or to deceive as to the affiliation, connection, or association between the Tote Towel and the Counterfeit Towel. ¶63. The packaging of the Counterfeit Towel also states “performance that lasts the useful lifetime of the towel.” . . . Defendants’ use of these terms and words on its label and in commercial advertis- ing and promotion misrepresents the nature, characteristics, and qualities of the Counterfeit 12 HALL v. BED BATH Towel which is of extremely poor quality and falls apart only after several washes. ¶64. Defendants’ attempts to claim Hall’s innovations and sell inferior, cheaper products, promising lifetime use, amount to unfair competition and misappropriation under The Lanham Act, 15 U.S.C. § 1125(a), which has caused and continues to cause serious injury to Plaintiff. The district court held that Hall’s “likely to cause confusion” allegation did not state a viable cause of action because “the amended complaint does not allege the existence of a trademark.” Order at 8. The court stated that although the BB&B packaging shows a person using the towel, in a design similar to that shown on Hall’s packaging, the package is “not inherently distinctive because the image is nothing more than the product itself being used as intended.” Id. Hall states that the district court erred in viewing the Lanham Act count as limited to trademark or trade dress issues. Hall states that his charge of false advertising and consumer confusion arose from BB&B’s advertising of the accused towel of identical appearance and similar packaging, and that consumers would readily confuse it with Hall’s Tote Towel. The Second Circuit has explained that “the text of the Lanham Act makes it clear that a false advertising claim can properly be brought against a defendant who misrepresents the quality of its own goods as well.” Société Des Hotels Meridien v. LaSalle Hotel Operating P’ship, L.P., 380 F.3d 126, 132 (2d Cir. 2004). Lanham Act §43(a)(1) may be violated by advertising that is either “literally false,” or when “the advertisement, while not literally false, is nevertheless likely to mislead or confuse consumers.” Tiffany (NJ) Inc. v. eBay Inc., 600 F.3d 93, 112 (2d Cir. 2010); see also HALL v. BED BATH 13 Johnson & Johnson-Merck Consumer Pharms. Co. v. Smithkline Beecham Corp., 960 F.2d 294, 297 (2d Cir. 1992) (“[A] plaintiff must show that either: 1) the challenged advertisement is literally false, or 2) while the advertisement is literally true it is nevertheless likely to mislead or confuse consumers.”). Hall stated that BB&B engaged in false or mislead- ing advertising by advertising that its towel has “performance that lasts the useful lifetime of the towel.” He stated that he washed one of BB&B’s towels and it was damaged after a single washing, and the district court observed that “the difference between the [once] washed product and new is noticeable.” However, the district court held that the “performance” advertising “is not the sort that can be described as containing a truth or falsity,” and “makes no guarantees about how long the towel itself will last.” Order at 11-12. The district court held that even if the statements of the quality of the BB&B towel are false or misleading, they are not actionable by Hall without a plausible showing of injury to Hall. Hall states that this condition is met, for the similar appearance is likely to confuse consumers, who will expect Hall’s towel to be of similar poor quality. Precedent guides that if BB&B’s advertising statement is literally false, it may be actionable “without reference to the advertisement’s impact on the buying public.” Tiffany, 600 F.3d at 112 (quoting McNeil-P.C.C., Inc. v. Bristol-Myers Squibb Co., 938 F.2d 1544, 1549 (2d Cir. 1991)). If the statement is not literally false but is merely misleading, remedy may still be available, but the evidentiary burden is higher. In Tiffany the court explained that to prevail on a likelihood-of-confusion theory based on false advertising, the plaintiff must demonstrate through “extrinsic evidence” that a “statistically significant” portion of the consumer base would be confused. Id. 14 HALL v. BED BATH at 112-13. A claim may be “literally false” for Lanham Act purposes if it is “false by necessary implication.” Time Warner Cable, Inc. v. DIRECTV, Inc., 497 F.3d 144, 158 (2d Cir. 2007). Applying the “necessary implication” criterion, “[i]f the words or images, considered in context, necessarily imply a false message, the advertisement is literally false and no extrinsic evidence of consumer confusion is required.” Id. We conclude that Hall has pleaded a plausible claim of falsity, whether literal or by necessary implication. Defendants’ advertising of “performance that lasts the useful lifetime of the towel” implies that the towel will not fall apart after a single wash or a few washes. “[T]he public interest underlying the Lanham Act’s prohibition of misleading advertisement is that of preventing consumer confusion or deception.” Conopco, Inc. v. Campbell Soup Co., 95 F.3d 187, 193 (2d Cir. 1996). A reasonable consumer would expect the “useful lifetime” of a towel to be more than one or a few washes. The distortion is similar to that discussed by the Third Circuit in Novartis Consumer Health, Inc. v. Johnson & Johnson-Merck Consumer Pharmaceuticals Co., 290 F.3d 578 (3d Cir. 2002), where the product was labeled “Night Time Strength.” While “Night Time Strength” could mean whatever strength the product happened to have at night, the court held that the label was false by necessary implication because “the phrase ‘nighttime strength’ . . . necessarily conveys a message that the . . . product is specially made to work at night.” Id. at 589. Here, “lasts the useful lifetime of the towel” literally states that the towel lasts as long as it lasts, even if it lasts for only one washing. To meet the Lanham Act provision, Hall need not plead actual harm; the likelihood of harm is the statutory criterion. See §43(a)(1) (a false advertiser “shall be liable HALL v. BED BATH 15 in a civil action by any person who believes that he or she is or is likely to be damaged by such act.”). Hall’s Tote Towel and BB&B’s towel are competitive products, and Hall stated in his complaint that one of his resale customers mistakenly believed that BB&B was selling Hall’s towel “for nearly half his price.” Compl. ¶26. When the parties are competitors and the advertising tends to mislead, dismissal on the pleadings is not appropriate. For a Lanham Act §43(a) count, a “flexible approach” to injury and causation analysis is appropriate, so that “while a plaintiff must show more than a ‘subjective belief’ that it will be damaged, it need not demonstrate that it is in direct competition with the defendant or that it has definitely lost sales because of the defendant’s advertisements.” Ortho Pharm. Corp. v. Cosprophar, Inc., 32 F.3d 690, 694 (2d Cir. 1994); see also Kuklachev v. Gelfman, 600 F. Supp. 2d 437, 470 (E.D.N.Y. 2009) (at the pleading stage for §43(a), “plaintiffs need only state that there was confusion and offer facts to support that claim.”). The district court held that Hall’s §43(a) claim merely “sought liability for nonactionable puffery.” The Second Circuit has defined puffery as “[s]ubjective claims about products, which cannot be proven either true or false.” Time Warner, 497 F.3d at 159 (quoting Lipton v. Nature Co., 71 F.3d 464, 474 (2d Cir. 1995)). The court in Time Warner further defined puffery as an “exaggerated, blustering, and boasting statement upon which no reasonable buyer would be justified in relying,” id. at 160, referencing the Third Circuit’s description that “[p]uffery is an exaggeration or overstatement expressed in broad, vague, and commendatory language. Such sales talk, or puffing, as it is commonly called, is considered to be offered and understood as an expression of the seller’s opinion only, which is to be discounted as such by the 16 HALL v. BED BATH buyer . . . . The ‘puffing’ rule amounts to a seller’s privilege to lie his head off, so long as he says nothing specific.” Castrol, Inc. v. Pennzoil Co., 987 F.2d 939, 945 (3d Cir. 1993) (quoting W. Page Keeton et al., Prosser and Keeton on the Law of Torts §109, at 756-57 (5th ed. 1984)) (internal quotation marks omitted). The distinction between non-actionable puffing and a misleading false statement is whether a “reasonable buyer would take [the representation] at face value.” Time Warner, 497 F.3d at 159. If no reasonable buyer would take the advertisement seriously, then “there is no danger of consumer deception and hence, no basis for a false advertising claim.” Id. In Lipton the court had applied this distinction to conclude that the defendant’s contention that he had conducted “thorough” research was just puffery, which was not actionable under the Lanham Act. 71 F.3d at 474. BB&B’s claim of “lasting” performance is stated as a fact; it is not “blustering” or “boasting,” and does not sound like “puffery.” At the pleading stage, “plaintiffs need only state that there was confusion and offer facts to support that claim.” Kuklachev, 600 F. Supp. 2d at 470. Hall sufficiently alleged the falsity or misleading nature of the advertising, to avoid dismissal at the pleading stage. See World Wrestling Fed’n Entm’t, Inc. v. Bozell, 142 F. Supp. 2d 514, 529 (S.D.N.Y. 2001) (declining to resolve falsity on motion to dismiss). We conclude that dismissal of the Lanham Act §43(a) count on the pleadings was improper. Dismissal of that count is reversed.