Tuesday, December 30, 2014

Failure to disclose potato variety isn't misleading

Zuckerman Family Farms, Inc. v. Bidart Bros., No. 1:14–cv–01529, 2014 WL 7239423 (E.D. Cal. Dec. 17, 2014)
Plaintiffs sued for violation of the Plant Variety Protection Act (PVPA), the Lanham Act, and California Business Practices Code section 17200 et seq.  They alleged that Bidart imported, planted, and propagated Sifra, a PVPA-protected variety of potato, without authorization. The court denied a preliminary injunction and dismissed the complaint.
HZPC registered a new potato variety in the Netherlands in 2008, and was issued a PVPA certificate in 2012.  It entered into a Sifra production agreement with Zuckerman providing that Zuckerman was authorized to certify [Sifra] seed potatoes ... for its own use and shall have the Priority Right for marketing and sales of seed potatoes of the [v]ariety in the States of California, Oregon, and Washington. Priority right is defined as the right of [Zuckerman] to first right of refusal to use or market seed of the [v]ariety in California, Oregon, and Washington.”
Bidart was allegedly selling Sifra potatoes from a source other than Zuckerman or HZPC, below the price offered by plaintiffs, which had affected the sale of as many as 280,000 fifty-pound units of plaintiffs’ Bella Blanca brand potatoes.
The court found that plaintiffs lacked standing to bring PVPA claims because they didn’t own any relevant exclusive right.  HZPC agreed not to appoint other marketing agents in the territory, but retained its own right to sell seed potatoes to other growers.  And while Zuckerman had the exclusive right to market Sifra to other growers (except for HZPC’s rights), and to propagate in order to market Sifra for non-table use, plaintiffs didn’t allege that Bidart propagated Sifra to market for growing purposes, so that exclusive right hadn’t been infringed.  Neither Zuckerman nor HZPC had the right to exclude others from table production of Sifra unless they both agreed. In order to exclude a potential grower from growing or selling Sifra for table use in the territory, first Zuckerman would have to decline to exercise its right of first refusal, then HZPC would have to refuse permission. Thus, they were best described as co-exclusive rightsholders, and Zuckerman alone didn’t have constitutional standing to bring its claim.  (It could amend to add HZPC, if that were possible.)
The complaint wasn’t clear about the nature of the Lanham Act claim.  It alleged that any sale of Sifra within the relevant territory impliedly represented that the potatoes came from plaintiffs, causing consumer deception about the affiliation between the parties or the origin, sponsorship or approval of Bidart’s sales.  But plaintiffs also alleged that Bidart’s conduct of “marketing the Sifra variety without representing its true nature and that it is subject to protection under the PVPA” harmed plaintiffs’ Bella Blanca brand and reputation.
The false association claim didn’t work because it was predicated on the assumption that plaintiffs had exclusive rights in the territory.  Plus, plaintiffs didn’t explain how the confusion would happen given that Bidart wasn’t alleged to have used any marks associated with plaintiffs.  In theory, plaintiffs could be arguing that Sifra potatoes are distinguishable enough from other white, round potatoes to have a protectable trade dress, but they didn’t plead any facts to this effect or any facts indicating nonfunctionality.  Plaintiffs wanted to stop Bidart from selling Sifra potatoes—a patent remedy, not a false association remedy. (There also seems to be a lurking Dastar issue here, as the court suggests when it notes that Bidart was the origin of the potatoes it sold.)
As for false advertising, that theory too was tied to nonexistent exclusivity.  Plaintiffs argued that Bidart’s sales deprived plaintiffs of their right to advertise that they were the exclusive source of Sifra potatoes, commanding a premium. Plus, even did exclusivity exist, mere failure to disclose that the potatoes were Sifra wasn’t itself false or misleading.  Bidart advertised the potatoes that it sold as “white, round potatoes.” This was literally true and plaintiffs didn’t explain why it was misleading.  There was no authority suggesting that a grower or seller needed to use the specific varietal in its advertising. 
The state-law unfair competition claims failed to justify a preliminary injunction too, for the same reasons.  Plus, the court concluded, a UCL claim couldn’t be founded on PVPA or Lanham Act violations to established predicate unlawful conduct—such a claim was preempted. (Citing patent law, but not Lanham Act cases, because the Lanham Act actually doesn’t preempt state law except for a few unusual situations not at issue here.)
The motion to dismiss was granted for the same reasons, with leave to amend for the PVPA to add HZPC.  It’s not clear that amendment could save the Lanham Act claims, and the court commented that “[e]ven assuming that a trade dress or other false association claim could be alleged in this case based solely on sale of Sifra, Defendant’s sale of Sifra could only imply that Zuckerman or HZPC has approved of the sale.”  The court didn’t elaborate, but it may be that unless the parties are sufficiently related, such probabalistic confusion can’t inflict an actionable injury on either one of them.  After all, in the unlikely event that a consumer really thought “either Zuckerman or HZPC approved this product,” the consumer doesn’t actually expect the product to come from Zuckerman; she just thinks it might or might not be the case.  (Another instance where materiality would be very useful in trademark.)
Then the court told plaintiffs to be clearer about their §43(a) claims, stating that the Ninth Circuit imposes different standing requirements on the different subsections (and quoting Ninth Circuit cases only even though the intro discussion mentioned Lexmark, which is a bit odd). For false advertising standing, the plaintiff needs to show (1) a commercial injury based upon a misrepresentation about a product; and (2) that the injury is “competitive.”  (Lower courts are largely ignoring Justice Scalia’s claim that Lexmark wasn’t a standing decision.)  For false association, standing comes from alleging commercial injury based upon the deceptive use of a trademark or its equivalent.  (Lexmark doesn’t make this distinction, but many courts apparently assume it was only a §43(a)(1)(B) case, despite Lexmark’s reliance on language that does not differ in its application to the subsections.)  To replead, plaintiffs would have to identify specific statements that caused false association or constituted false advertising.  Though plaintiffs pled lost sales through lower prices, they didn’t plead any facts indicating that Bidart’s advertising of Sifra as “white, round potatoes” or the omission of the name “Sifra” or any other alleged misrepresentation caused plaintiffs to lose sales to Bidart.

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