Friday, October 02, 2015

competition no longer required for Lanham Act "commercial advertising or promotion"

Healthnow New York Inc. v. Catholic Health System, Inc., 2015 WL 5673123, No. 14–CV–986S (W.D.N.Y. Sept. 25, 2015)
Healthnow, aka Blue Cross and Blue Shield of Western New York (BCBS), sued Catholic Health for violations of the Lanham Act and NY’s GBL, as well as for defamation.  Ads in church bulletins said:
[BCBS] has recently introduced a new Medicare Advantage product, Senior Blue HMO Select that replaces its existing Senior Blue HMP–POS 650 plan. This product specifically excludes all Catholic Health facilities including all hospitals, labs, diagnostic imaging, rehabilitation centers, home care, and all other sites-services. [BCBS] may not have adequately communicated this exclusion to its members. Please note that several other Medicare Advantage plans are available that include access to Catholic Health.
Catholic Health also ran an ad in the Buffalo News during BCBS’s open enrollment period, which stated in large type “[BCBS] Senior Blue HMO Select customers will no longer have access to Catholic Health facilities.” Smaller text included: “While emergency services will still be covered, this new plan completely eliminates your ability to choose Catholic Health facilities for services like surgical procedures, home care, rehabilitation, and other non-emergent care needs. Receiving such services at a Catholic Health facility will not be covered under this plan.”
BCBS alleged that these statements were false and misled consumers into believing that BCBS didn’t provide coverage for other facilities not within the Catholic Health System network but, by virtue of their name (“Mount Saint Mary’s Hospital” or “Brothers of Mercy”), may be perceived to be a “Catholic” health facility. Letters from Catholic Health’s CEO to current employees and Catholic Health System retirees were to similar effect, as was an op-ed he published during the open enrollment period.
Catholic Health argued that its statements weren’t commercial advertising or promotion under the Gordon & Breach test.  The Second Circuit never adopted the prong requiring competition between the parties, and Lexmark means it never will.  Catholic Health also argued that its statements were not made “for the purpose of influencing consumers to buy defendant’s goods or services,” another element of Gordon & Breach. However, the challenged statements allegedly directly affected BCBS’s sales and reputation, which was cognizable under §43(a).  (That doesn’t really address the question of whether Catholic Health’s speech was noncommercial or commercial—noncommercial speech can cause harm to business goodwill.)  Further citations: Educational Impact, Inc. v. Danielson No. 14–937(FLW)(LHG), 2015 WL 381332, *13 (D.N.J. Jan. 28, 2015) (recognizing that Lexmark repudiated the ‘direct-competitor test’ enunciated in Gordon & Breach ); Tobinick v. Novella, No. 9:14–cv–80781, 2015 WL 1191267, *5 n. 10 (S.D. Fla. Mar.16, 2015) (same).
As for falsity and misleadingness, BCBS alleged that the statements were false because Senior Blue HMO Select provides coverage for emergency care treatment, as well as treatment by primary care physicians, at all Catholic Health facilities.  In an article on which Catholic Health relied, a BCBS spokesperson is quoted as saying that that Senior Blue HMO Select would cover medical care at all major medical facilities in Western New York with one exception: “Buffalo General, Roswell, ECMC, and Gates Vascular Institute, among others, but it does not include the Catholic Health System. So they are specifically excluded? On that option only. We have 6 other options that offer a full network.”  Catholic Health also relied on plan materials distributed by BCBS.  None of these were incorporated into the complaint, so the court converted the motion to dismiss into a motion for summary judgment and invited further briefing.  The court cautioned: “even if the short statements in the BCBS publicity materials are found to inaccurately reflect the true scope of Senior Blue HMO Select, it is unclear how BCBS can press a viable claim for false or misleading advertising against Catholic Health for using the same language BCBS used in its own materials. Instead, pursuing false advertising or deceptive act claims based on statements repeated from BCBS’s own promotional materials, particularly materials directed at medical providers such as Catholic Health, is arguably frivolous.”
As for defamation, the claim was actually for product disparagement, because the challenged statements were about the scope of BCBS services, not about whether BCBS was “anti-Catholic” as BCBS tried to argue.  BCBS was therefore required to plead and prove special damages, setting forth “an itemized account of her losses; round figures or a general allegation of a dollar amount as special damages will not suffice.” This it did not do.


  1. Wait. So Catholic Health's nominatives use of its own mark is the basis of a false advertising suit on the theory that the mark also describes others' services and is therefore misleading? BCBS's theory of the case, if accepted, could make it effectively impossible to build up secondary meaning in a descriptive mark.

  2. Fortunately for Catholic Health, it didn't seem as if the court was very receptive to the underlying theory of the case.