Monday, February 02, 2015

Dastar doesn't bar true reverse passing off claim

Luxul Technology Inc. v. NectarLux, LLC, --- F.Supp.3d ----, 2015 WL 352048, No. 14-CV-03656 (N.D. Cal. Jan. 26, 2015)
Luxul makes LED products. Its patented EazyLux LED tube lamps can replace fluorescent tube lamps without rewiring. The parties contracted so that NectarLux would be Luxul’s “exclusive, independent representative for the sale of Luxul products” in certain regions, for certain customers. “NectarLux was obligated to make good faith efforts to meet its sales commitments, work with Luxul to accelerate sales, understand ‘deal flow,’ and establish factory and distribution channels on the east coast,” among other things. Luxul agreed to disclose confidential information, and NectarLux agreed not to disclose it.
Luxul alleged that the parties met with a potential manufacturer, and then NectarLux contained the same manufacturer to discuss alternative proposals and set up meetings with competing LED companies. NectarLux allegedly “made and continue[s] to make false representations to actual and potential customers,” regarding Luxul’s alleged legal problems. Luxul also found that defendants Keeney and JKeeney Consulting posted a document called “NectarLux—HOA Whitepaper AG” on JKeeney’s LinkedIn profile, using several images that Luxul “uses to represent and promote its technology.” Some were copyrighted by Luxul Taiwan Inc., Luxul’s parent company, and the document allegedly used an image of Luxul’s president and quotation that were misleading about whether NectarLux was responsible for the technological innovation behind the EasyLux LED tube lamps. Products and images identical to those on Luxul’s website allegedly appeared on NectarLux’s website, but the Luxul brand name had been replaced with Nectar.
Luxul terminated its agreement with NectarLux and sued.
NectarLux argued that Luxul failed to allege Article III standing. The court disagreed; breach of contract and misrepresentation of source/misappropriation of the Luxul name was enough, along with alleged lost customers and sales and damage to Luxul’s reputation and brand.
Lanham Act standing: NectarLux alleged that there was no commercial injury and that the parties weren’t competitors. Citing pre-Lexmark precedent, the court stated that the two prongs of §43(a) have different standing requirements. False association only requires alleged commercial injury based on deceptive use of a trademark or its equivalent, whereas false advertising requires alleged “injury to a commercial interest in sales or business reputation that is “proximately caused by the defendant’s misrepresentations.” Lexmark. (Why not proximate cause for false designation of origin?)
Allegations that NectarLux’s misrepresentations regarding the source of the LED tube lamps resulted in harm to the distinctiveness of Plaintiff’s product, brand, goodwill, and reputation, plus allegations that NectarLux replaced “Luxul” with “Nectar” on the actual goods themselves sufficed. NectarLux argued that the marketing materials at issue were “created and used to sell Plaintiff’s light bulbs, and to benefit Plaintiff,” but that didn’t show that Luxul hadn’t suffered commercial injury. Also, although NectarLux was a marketing consultant, not a competitor, that wasn’t required for false association or false advertising.
Luxul properly alleged reverse passing off: that NectarLux replaced “Luxul” with “Nectar” on the actual goods and sold the goods to consumers. Also, the alleged alterations of images of Luxul lamps to read “Nectar” instead plausibly would cause confusion, even though that wasn’t a traditional reverse passing off claim. Dastar didn’t bar the claim, because, while NectarLux contended that it was the source of the marketing materials at issue, the tangible goods at issue were the lamps. Plus, there was no conflict between copyright and trademark here.
False advertising: While Luxul alleged that NectarLux falsely claimed that the “Nectar product is UL certified with the intent to induce prospective customers of Luxul to purchase Defendant’s product in lieu of Luxul’s product,” the rest of its alleations were “bare recitations of the elements of a false advertising claim, bereft of any factual allegations.” Dismissed with leave to amend.
California UCL/FAL: These claims were based on allegations of the rebranding, discussed above, and wrongful representations to third parties that Luxul’s business and products were affected by false legal issues. Luxul adequately alleged lost money or property, even if it might not be entitled to restitution. It also alleged unlawfulness through its Lanham Act claim, and unfairness through its claims about false representations about legal issues—an alleged patent action against Luxul in Taiwan.
Copyright infringement: Luxul pled itself out of statutory damages, and NectarLux argued that Luxul failed to allege damages because any works it copied and altered were used to sell Luxul products. But that didn’t matter: Luxul sufficiently alleged ownership and infringement; NectarLux might have a claim of implied license as the case continued.

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