Monday, April 23, 2012

New stromboli in old boxes

Leonetti's Frozen Foods, Inc. v. American Kitchen Delights, Inc., 2012 WL 1138590 (E.D. Pa.)
Leonetti’s sells stromboli throughout the mid-Atlantic region, and from 2000-2007 made stromboli for Maglio Fresh Food.  Defendant American Kitchen makes ready to eat foods as private label/store brands.  In 2007, it began making stromboli for Maglio, which distributed them through the same region.  Leonetti’s alleged that American Kitchen’s versions had different ingredients and nutrition facts, were folded differently, looked substantially different, and were made using less meat and less expensive ingredients, but American Kitchen nevver advised its customers of the change.
In 2010, Leonetti’s allegedly discovered that American Kitchen was distributing stromboli under the same packaging that Leonetti’s had used to distribute Leonetti’s stromboli under the Maglio brand.  Leonetti’s argued that it didn’t give defendants permission to use the images of Leonetti’s hand-made stromboli to market the new products.  American Kitchen’s use of pictures, ingredients, and nutrition facts for Leonetti’s-made stromboli allegedly prevented customers from learning that the stromboli had changed and allowed American Kitchen to continue to benefit from the goodwill created by Leonetti’s previous production of premium, hand-made stromboli for Maglio, allegedly misleading retail and food service customers.
American Kitchen allegedly learned of customers’ complaints about the new products in 2007-2008.  Sysco requested samples from American Kitchen and Leonetti’s.  American Kitchen allegedly obtained Leonetti’s samples to use as a model, and its samples then contained more ingredients, were handmade, and were folded differently than American Kitchen’s actual stromboli.  But for this deception, Leonetti’s alleged, it would have obtained the Sysco account, and Leonetti’s alleged that American Kitchen did the same with samples to other customers.
In 2010, the USDA investigated American Kitchen to see whether it used accurate and properly approved labels for the stromboli it made for Maglio, and found that American Kitchen lacked proper approval.  Despite this, Leonetti’s alleged that American Kitchen made at least 3 shipments of stromboli using rescinded labels, and never stopped sending stromboli to Maglio using the rescinded labels.
Most of a year later, after having obtained new label approval from the USDA, American Kitchen began using new boxes.  Leonetti’s alleged that the new boxes used pictures that were substantially different from the products inside, with samples submitted to a photographer that contained additional ingredients and were folded differently than the actual stromboli.  Leonetti’s alleged that this misrepresentation continued to harm it by confusing consumers and increasing American Kitchen’s sales.
First, the court noted that district courts in the Third Circuit have applied an “intermediate” pleading standard to false advertising Lanham Act claims (why not TM claims? because TM is favored over false advertising, apparently; don’t ask for a reason).  Since Leonetti’s alleged that American Kitchen made false statements, it was important to provide sufficiently detailed allegations to allow a proper defense.  Leonetti’s allegations were indeed sufficient to meet this standard. Further, Leonetti’s sufficiently alleged literal falsity: that the photos and nutritional and ingredient information on the packages didn’t correspond to the stromboli in the boxes.  It didn’t matter that Maglio’s name was on the packages and not American Kitchen’s, since false representations about another person’s goods are also barred.  Moreover, other cases have found that it’s false advertising for the defendant to use pictures of a plaintiff’s product to sell its own when the pictured product wasn’t identical to the one the defendant was prepared to deliver.  American Kitchen argued that the photos were generic, but they were “clearly intended to represent the stromboli contained inside the boxes—the stromboli manufactured by American Kitchen—when, if Leonetti's allegations are true, they did not.”
The court also found that the photos and information on the boxes were sufficiently alleged to be “commercial advertising or promotion,” using the standard test: Leonetti’s plausibly alleged that they were “designed to influence customers to buy” and “sufficiently disseminated to the relevant purchasing public to constitute advertising or promotion within the industry” (as one would think the package would have to be), for over four years.  Photos and labels are primary means of promoting the stromboli when customers can’t taste before purchase.  “If the packaging in question were merely functional and not intended to also promote the product within, there would be no need to include anything other than identifying information on the box (i.e., a label unadorned by photographs, noting only that the box contains ‘stromboli’ and including required nutritional information would suffice). Instead, on the package in question, embellished text next to a glossy photograph of a cheese and pepperoni filled stromboli induces potential customers to ‘Taste the Tradition.’”

As one does these days, American Kitchen also argued that Leonetti’s lacked prudential standing.  The court disagreed: Leonetti’s alleged that both manufactured strombolis for sale to food service and retail customers, whether under their own names or private labels.  Moreover, the court found that the Conte Bros. test was satisfied: (1) the nature of the alleged injury was lost sales/goodwill due to false advertising, exactly what the Lanham Act targets; (2) the asserted injury was sufficiently direct; (3) Leonetti’s was proximate to the alleged injurious conduct given that Leonetti’s alleged a direct impact on its ability to sell its own stromboli; (4) even if damages were speculative, they were sufficiently pled; and (5) there was little risk of duplicative damages or complexity in apportioning damages because the market for stromboli was not alleged to be complex and recognizing Leonetti's right to bring a damages action was not likely to “subject the defendant firm to multiple liability for the same conduct and result in complex damages proceedings.”  (Even recitations of successful traverses of Conte Bros. make clear how overlapping the factors are and how inappropriate these considerations are for motions to dismiss.)
American Kitchen also tried the doctrine of primary jurisdiction, suggesting that the complaint should be dismissed because there was no allegation that the FTC had determined that the USDA label on the boxes was misleading.  Nope.  “Although conclusions made by the FTC or the USDA with respect to information included on the stromboli labels might ultimately affect American Kitchen's defense against Leonetti's claims, the issue before me is not whether the labeling on American Kitchen's stromboli complied with FTC or USDA regulations.”  Falsity/misleadingness was a matter within the court’s competence.

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