Made in the USA claim partially barred by laches

Rocky Brands, Inc. v. Red Wing Shoe Company, Inc., 2008 WL 4771848 (S.D. Ohio)

Rocky Brands brought false advertising and false designation of origin claims against Red Wing under the Lanham Act and state law. Red Wing moved for summary judgment on laches.

Rocky Brands makes boots overseas. Red Wing makes boots in the US and overseas. Rocky alleged that Red Wing’s ads falsely suggest that all Red Wing boots are made in the US. Red Wing argued that Rocky acquired knowledge of the issue in 2001, when, Rocky’s CEO testified, he saw a “consistent intentional … bait and switch … of China made product trying to tie into the historical Red Wing brand and made in USA.” In 2003, Rocky contacted legal counsel, who investigated during the summer of 2003. In October 2003, Rocky sent a letter with its findings to the FTC.

In June 2004, the FTC wrote to Red Wing noting that some of its stores displayed “signs, posters, door mats, and clocks stating ‘made in USA,’ even though some of the boots in the stores are actually imported. Because these signs and posters are not affixed to any particular boot or box but are either on the store windows or inside the store, the staff believes that they may give the impression that all the products in the store are in fact ‘Made in the USA’....” Red Wing then sent a letter to its store managers about proper use of “Made in USA.”

The FTC didn’t send a copy of the letter to Rocky; Rocky requested an update in September 2004 and sent along a copy of a Wall Street Journal article indicating that certain sketchy Red Wing sales practices continued. The FTC responded by indicating the matter would be given careful attention, but took no further action. In November 2005, Rocky wrote a C&D to Red Wing. Red Wing denied any wrongdoing. Rocky sued in April 2006.

Because the Lanham Act doesn’t have its own statute of limitations, courts use laches as a time limit; laches requires (1) a plaintiff’s failure of diligence and (2) defendant’s resulting prejudice. Courts look to the analogous statue of limitations in the forum state: if a claim is brought before that time, there’s a presumption of reasonability, whereas if it’s brought after, there’s a presumption of unreasonability and prejudice. The time runs from plaintiff’s actual or constructive knowledge of the allegedly unlawful conduct. Here, the court applied the two-year Ohio limitations period for claims of bodily injury or damage to personal property. (Comment: There wasn’t anything better than that? What about the state unfair competition statute, at least?)

The court found that Rocky’s knowledge began in 2001, and thus there was a presumption of prejudicial and unreasonable delay. Rocky argued that it could rebut the presumption because there was no reason to think the delay was prejudicial. The potential increase in damages during the period of delay, however, counted as prejudicial.

Rocky then argues that its out-of-court efforts and its protest to the FTC should excuse its delay. Though involvement in administrative proceedings can excuse delay in trademark cases, the court noted that this was not a trademark case; moreover, lobbying the FTC isn’t the same thing as being involved in an administrative proceeding. The FTC didn’t investigate, and it issued no formal findings or conclusions. Also, the FTC didn’t notify Red Wing of Rocky’s involvement, which means that—unlike in other cases—the administrative action didn’t provide Red Wing notice of Rocky’s potential claim.

Rocky also argued that the doctrine of progressive encroachment applied. This is a trademark doctrine, not a false advertising doctrine, though I think the analogy is persuasive: if a claim gets more exaggerated over time, it may move from nonactionable to actionable. The court, however, refused to apply the doctrine outside of the context of trademark, reasoning that the emergence of a likelihood of confusion is the “sine qua non” of progressive encroachment. Of course, likelihood of (trademark) confusion is a type of false advertising; likelihood of deception could also emerge over time.

More persuasively, the court noted that progressive encroachment requires some sort of change in direction, not a normal expansion of the size of the business. Here, the only change was the addition of more models of shoes to the lines Red Wing produces overseas. But they’ve always been directly competing with Rocky.

Finally, Rocky argued that egregious conduct—here, false advertising and false denials of the false advertising—defeated laches, an equitable doctrine. Knowing falsity can’t simply defeat laches in a false advertising case, because almost any Lanham Act claim could involve accusations of deliberate falsity. A court must be firmly convinced of the defendant’s fraudulent intent before rejecting laches on grounds of unclean hands.

The court found no such convincing evidence here; Red Wing’s denial came well after the analogous two-year statue of limitations had lapsed, and couldn’t have affected Rocky’s delay.

Rocky was, however, allowed to pursue claims for injunctive relief. Laches is not an estoppel. To avoid the possibility of injunctive relief, a defendant must show it’s been misled by the plaintiff’s acts or inaction, which Red Wing could not do.