Tuesday, July 03, 2012

Reprinting news article about competitor is commercial speech

United Fabricare Supply, Inc. v. 3Hanger Supply Company, Inc., 2012 WL 2449916 (C.D. Cal.)
United is a dry cleaning supply company, and 3Hanger is a competitor.  In February, the L.A. Business Journal published “Hanger Makers Swing in Wind?” which discussed the possibility that the federal government would impose tariffs on companies that import hangers from Vietnam or Taiwan. “The LABJ Article reported that U.S. Hanger Co. LLC (“U.S. Hanger”) and some other American hanger makers had petitioned for such tariffs and that their complaints had led to a federal investigation.”  The article contained numerous false statements about United’s involvement, such as that United was the parent of U.S. Hanger.  It also quoted 3Hanger’s VP saying that “U.S. Hanger's parent company, the largest dry-cleaning supply distributor in Southern California, is trying to squeeze out other suppliers,” and that “[t]hey won't sell hangers to me,” though United doesn’t make hangers.
After the LABJ article was published, 3Hanger reprinted it in a pamphlet distributed in hard copy and by email, including a discussion of why the “costs of [customers'] supplies will be increasing at such an alarming rate.”  The pamphlet reached many of United’s customers and was also on 3Hanger’s website.  It “included excerpts from different portions of the LABJ Article, combined together without correct attribution, and in some instances added United's name in bold print to sentences in which United had not been mentioned in the original text.”
The LABJ published a retraction and issued a C&D to 3Hanger, with which 3Hanger complied.
Separately, in September 2010, 3Hanger sold dry cleaning “poly bags” in boxes which originally had been printed with United's logo and other marks, which came from a cancelled United order from a mutual supplier.  The supplier put 3Hanger’s name on the boxes to cover United’s name, which was still printed on the boxes and could be seen by peeling back the label.  (Bruce Boyden has recently posted on the dearth of precedent in copyright law dealing with these types of issues; given the attempt to cover up the marks and the economic significance of the underlying product distinct from the logos/marks, I think any IP claim based on this action would be misuse, but the court says it’s an “isolated incident.”)
In May 2011, 3Hanger sold boxes of United's copyrighted caped hangers bearing the phrase “Your Clothes Cleaned & Pressed For Your Success,” again coming from a rejected order from a mutual supplier.  The client attached print ads for a TV show over United’s copyrighted material, though the ads didn’t completely cover it up.  After receiving a C&D from United about the hangers, 3Hanger didn’t knowingly sell any United hangers.
United sued for false advertising, unfair business practices, trade libel, and trade dress infringement.
The court agreed that United was likely to succeed on the merits of its false advertising claim based on the altered LABJ article pamphlet.
The parties disagreed about the corporate relationship between United and U.S. Hanger: 3Hanger said there was some, but United said there was no parent-subsidiary relationship and United doesn’t own any stock in U.S. Hanger.  The LABJ’s retraction stated that “While there are some common ownership ties between them, the two companies are separate.”  Thus, the LABJ article, even unaltered, was false. 
3Hanger made the statements in the LABJ article by republishing it, so the court wasn’t going to parse 3Hanger’s additional alterations.  3Hanger argued that the few statements it made through its alterations weren’t about the parties’ products or services.  (What about commercial activities?)  But distributing the LABJ article pamphlet communicated to the industry was that United was seeking to drive up the price of products sold by United's competitors, and that as a result customers would suffer.  The excerpts in the pamphlet were attributable to 3Hanger.
Also, they counted as commercial advertising or promotion.  As in the foundational Gordon & Breach case, what wasn’t commercial speech in the LABJ’s hands became so in 3Hanger’s when 3Hanger repurposed it for promotional use.  3Hanger used the article “to promote its own business at the expense of United's standing and reputation with customers. For example, the pamphlet reads: ‘We hope this helps to at least explain the increasing cost of your supplies. We at [3Hanger] are doing everything we can to bring back some relief to this situation.’”
The court did not separately address materiality, but found that United was likely to succed on the merits of its Lanham Act false advertising claim, and thus also on the similar California state law claims.  It didn’t  bother to reach the trade libel/trade dress infringement claims, which it characterized as “less strong.”
However, United was unable to make out irreparable harm.  The September 2010 and May 2011 hanger sales were isolated incidents and there was no evidence they were likely to recur.  But more importantly, 3Hanger complied with the LABJ’s C&D, and the court thought it was going to continue to comply.  It might be true that United already suffered irreparable reputational harm, received customer complaints, lost orders, and expended resources counteracting 3Hanger’s claims, that’s all about liability for past acts.  United’s only allegations of future harm related to the Fabricare Conference, coming up in July, which is an industry trade show at which the parties would both be exhibitors.  United was concerned that an individual associated with 3Hanger would denigrate United, and “the record suggests a basis for that concern,” but given the First Amendment concerns involved, the court couldn’t fashion an order “sufficiently narrow and unambiguous that is untethered to the distribution of the pamphlet or the article.”
The court therefore declined to order a preliminary injunction, but warned that “this ongoing lawsuit, the potential for damages for willful conduct or exemplary damages, and the tools of discovery under the Federal Rules of Civil Procedure should adequately protect United's interests if 3Hanger were to reinitiate its alleged ‘false advertising campaign.’”

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