False statements about trademark license are actionable

Enesco Group Inc. v. Jim Shore Designs, Inc., 2005 WL 3334436 (N.D. Ill.), concerns false advertising claims related to a trademark license. Jim Shore designs the Heartland collection of figurines, garden ornaments and other decorative goods for Enesco; they generally feature quilt-like styles on Americana themes cast in resin. Enesco alleges that it is the exclusive licensee for all Jim Shore designs except bolt fabric. Recently, under a license from Jim Shore, defendant Sunshine Products, Inc. began offering Jim Shore ties, scarves and jewelry. Sunshine then entered into an agreement with defendant Department 56, Inc. (D56) to distribute its Shore products. Enesco alleges that D56 has been disseminating marketing materials that give the impression that D56 has the exclusive right to sell the Jim Shore line of scarves, neckties and jewelry. Enesco further alleges that at trade shows and in sales calls, D56 has been making representations to Enesco customers that gives the impression that D56 is an exclusive licensee of Jim Shore and that Enesco no longer has exclusive rights under the Agreement – in fact, D56 has been telling members of the trade that it will in the future be expanding the Shore line (so to speak) to include items such as Shore figurines, on an exclusive basis.

Some of Enesco’s allegations sound in trademark (or copyright), raising questions of the extent to which an exclusive licensee can assert rights against a licensor. In particular, Enesco complains of Sunshine products that are derivative works of Enesco products. (The upper left image in this post is an Enesco figurine; upper right is a Sunshine cat pin.) Moreover, Enesco has received customer inquiries asking whether Enesco still has the Shore line and customer comments about the products’ similarity. In addition, Enesco believes that the inferior quality of the Sunshine products will harm Enesco’s investment in the brand.

The district court’s opinion does not deal with the trademark/licensing aspects of the case (there is also a breach of contract claim against Shore and a tortious interference with contract claim against Sunshine). The opinion concerns D56’s motion to dismiss Enesco’s state and federal false advertising claims. The court rejects D56’s argument that the alleged oral statements by its employees aren’t sufficient to constitute “advertising or promotion” under the Lanham Act. Though other cases have held that scattered oral statements by employees aren't enough, broad-based statements made to trade show customers are more like print advertising than like isolated person-to-person sales pitches and thus suffice to trigger the Lanham Act.

Probably the most important feature of the case is that it adds to the small but entertaining body of case law interpeting the Lanham Act’s prohibition on misrepresenting the “nature, characteristics, [or] qualities” of a party’s “commercial activities,” a term added in the 1988 revision. The court holds that Enesco’s allegations state a claim for false advertising because licensee status relates to the parties’ commercial activities. (The court does not analyze whether variations in the wording of Illinois’s Uniform Deceptive Trade Practice Act and Consumer Fraud and Deceptive Business Practices Act could lead to a different result; I always wonder why people bring state-law claims in cases like this, and the defendant probably should have made some argument.)

The most notable “commercial activities” case is Proctor & Gamble Co. v. Haugen, 222 F.3d 1262 (10th Cir. 2000), which held that false statements that P&G’s profits were donated to the church of Satan were actionable under 43(a). The harm to P&G’s goodwill was obvious even if the claim didn’t concern the objective characteristics of P&G’s goods or services, and it was the kind of harm with which Congress was concerned, according to the Haugen court.

I’ve long despised the claim of Nike and various of its amici in Nike v. Kasky that consumer protection law is properly only concerned with physical characteristics of goods and services, rather than their conditions of production. That position offers a repulsive view of the consumer as a selfish, short-term-oriented being, not to mention it’s empirically obtuse as to things consumers care about. Douglas Kysar’s excellent article on the product/process distinction goes into the empirical and moral shortcomings of the product/process distinction in detail, but one thing Kysar doesn’t mention is that the 1988 revision of the Lanham Act shows a congressional recognition in the false advertising context that what a company stands for can be as or more important to consumers as whether its shoes are made of plastic or leather.