Saturday, April 05, 2008

Non-trademark owner can make trademark counterfeiting but not false advertising claim

Trans USA Products, Inc. v. Howard Berger Company, Inc., 2008 WL 852324 (D.N.J.)

The parties compete to sell consumer wiring and electrical devices to retailers and distributors. Plaintiff sued defendants for selling products bearing counterfeit UL certification marks, which indicate compliance with Underwriters Laboratories safety standards. Unsurprisingly, plaintiff alleged that UL certifications are standard in the business, and important to consumers, so distributors and retailers won’t sell products without UL certification. The UL mark is also a registered certification mark.

Plaintiff alleged that defendants knowingly or negligently sold products with counterfeit UL marks or products that had been de-listed but still bore UL marks, and this constituted a false endorsement and false representation of safety. Because defendants allegedly sold non-UL products as UL products, they were able to undercut plaintiff’s prices significantly.

Defendants argued that plaintiff hadn’t stated a claim. Somewhat unusually, the court characterized §43(a)(1)(A) as covering false representations, and (a)(1)(B) as covering false advertisements. Plaintiff submitted that it could amend its complaint to provide greater specificity by better identifying the products at issue, specifying the time period of defendants’ sales, identifying defendants’ markets, and naming some lost customers.

Because of the fraudulent elements of a Lanham Act claim, the court applied an “intermediate” pleading requirement—a rule 8½, as it were—for §43(a)(1)(B) claims. (This has always puzzled me. If a rule 8½ existed, wouldn’t it, perhaps, be in the Rules? Moreover, if fraud-lite is an element of false advertising, it’s also an element of false designation of origin, affiliation, sponsorship, etc. under §43(a)(1)(A), so why just apply Rule 8½ to false advertising claims?) But the court explained, following previous district court cases from the Third Circuit, that this “slightly heightened” pleading requirement is necessary in Lanham Act cases because when a party is charged with making false statements, it’s important to provide sufficiently detailed allegations to allow a proper defense.

Counterfeit markings suggesting UL approval do violate the Lanham Act if they falsely suggest that products have been tested and approved by UL. However, the court found that the complaint was insufficiently specific to identify the products or other factual elements of a claim, including whether the products were disseminated in commerce.

Assuming that amendment could fix these deficiencies, the court ruled that the complaint failed to set forth a false advertising claim. There was no “commercial advertising or promotion” because there was no allegation that defendants used “any particular advertising or promotional medium other than the markings on the product.” Comment: To the best of my knowledge, this is the first time that a court has held that representations on product packaging that are visible to a consumer contemplating a purchase are not “advertising or promotion.” Courts, in fact, have routinely analyzed statements on product packaging as potentially false advertising. Respectfully, this holding is a mistake.

Because of this holding, however, the court ruled that amendment on the §43(a)(1)(B) claim would be futile, though it allowed the plaintiff to try again on §43(a)(1)(A) for “false designation of approval.” Overall, an odd result, but perhaps sufficient to provide relief if the facts are as alleged.

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