Friday, August 24, 2007

Lawyers, rum, and money

I was gambling in Havana; I took a little risk: Pernod Ricard USA LLC v. Bacardi U.S.A., Inc., --- F.Supp.2d ----, 2007 WL 2381016 (D. Del.)

Pernod sued Bacardi for false advertising of Bacardi’s Havana Club brand rum. The parties are leading importers and distributors of spirits, and thus direct competitors – plaintiff is the third largest in the US by sales value, fourth by volume. Plaintiff owns half of Havana Club International (Cuba), and half of Havana Club Holding (Luxembourg), which owns the Havana Club mark in some countries outside the US, and is partners with the Cuban state enterprise Cubaexport, which formerly exported Cuban Havana Club rum primarily to Eastern Europe and the Soviet Union. Because of the US trade embargo, no Cuban Havana Club rum entered the US. Defendant distributes its own Havana Club brand rum, made in Puerto Rico. The parties are battling for control of the trademark in the US. (Much more background in Havana Club Holding, S.A. v. Galleon S.A., 203 F.3d 116 (2d Cir. 2000)).

Defendant’s marketing program includes assertions that it owns the rights to the Havana Club brand in the US, as the successor to a company that marketed Cuban Havana Club rum before 1960. Thus, it is positioning its Puerto Rico rum as a relaunch of the older Cuban rum. Plaintiff alleged false description of geographic origin and false claim of ownership of the mark, both of which caused it harm.

Defendant argued that plaintiff lacked standing to make a false advertising claim. (This is not a trademark case because of the cloud surrounding the trademark.) Constitutional standing was easy, but defendant invoked the Third Circuit’s Conte Brothers prudential standing test, which balances based on the following questions: (1) is this the type of injury Congress sought to redress through the Lanham Act? (2) Is the injury direct or indirect? (3) Is there an identifiable class of people whose self-interest would ordinarily motivate them to vindicate the public interest by suing? (4) Is the damages claim speculative? (5) How high is the risk of duplicative damages and the complexity of apportioning damages?

As it happens, the Second Circuit addressed standing on related claims in Havana Club: “Any rum producer selling its product in the United States can obtain standing to complain about Bacardi’s allegedly false designation of origin as long as it can demonstrate the commercial injury required for an action under section 43(a).” 203 F.3d at 134. Here, plaintiff alleged that defendant’s misleading advertisements would divert sales from its rum to defendant’s. That’s (1) the right type of injury, and (2) direct, because the parties are direct competitors. The court then treated the other factors as potentially countervailing, but in fact no obstacle. Plaintiff is (3) part of the class of self-interested entities motivated to sue on behalf of the public interest; it has sold its product in the US and allegedly (4) suffered damages particular to it, such that a lost sales and profits calculation could be introduced as evidence of damages; and (5) damages are assertable only by other US rum marketers.

The thing is, (1)-(5) all follow as a result of the parties’ status as direct competitors. Conte Brothers is a ritualistic exercise applied to direct competitors, marred only by the possibility of bollixing the ritual. There’s hints of that even here, where the court speaks of “[e]xpanding standing to parties like the plaintiff.” There’s no expansion – if plaintiff is in fact a direct competitor (and there could be a contest on that point, but the court resolved it in plaintiff’s favor for purposes of this motion) then it’s at the core of Lanham Act false advertising standing.

Separately, defendant argued that plaintiff failed to plead its second count of false advertising properly, because statements about its ownership rights in a trademark don’t concern the “nature, characteristics, qualities, or geographic origin” of its goods. Plaintiff responded that, given that a trademark exists only as a right appurtenant to a product or service, a trademark ownership claim is a statement about a key product characteristic. A trademark “identifies the product, distinguishes the product from rival brands, vouches for the product’s consistent quality and fixes the product in the public mind.” But in Monsanto Co. v. Syngenta Seeds, Inc., 443 F. Supp. 2d 648 (D. Del. 2006) (covered here), the court held that alleged misrepresentations regarding defendant’s status as an authorized trademark licensee didn’t concern “nature, characteristics, or qualities,” citing Dastar. A trademark may operate as a quality signal, but does not convey “actual information” about characteristics or qualities.

Commentary: What? Obviously a trademark conveys information about the characteristics known to be associated with that particular trademark; I guess the court means that it doesn’t convey non-trademark information. But that’s an odd thing to say about a geographic mark like Havana Club – descriptive marks do convey non-trademark information, which is why we have special rules making it harder to get exclusive rights in them and special exceptions allowing others to use descriptive terms for their own products even when the trademark owner has shown secondary meaning. Likewise, courts – including the Third Circuit in the BreathAsure case – have recognized that trademarks themselves can be deceptive, which necessarily implies that they can convey (falsifiable) information. I do understand the court’s desire to draw a line between trademark and false advertising claims and sort all trademark-related claims into the former category, but it might be more accurate to say that claims of ownership of a trademark – not ordinarily the focus of a marketing campaign – do not concern the qualities of the underlying product.

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