Sunday, December 14, 2008

Pipe dreams: mixed ruling on trademark and false advertising plumbing case

Falcon Stainless, Inc. v. Rino Companies, Inc., 2008 WL 5179037 (C.D. Cal.)

Falcon and Rino sell plumbing products. Falcon alleged that Rino (1) falsely advertised that its products meet American Society of Mechanical Engineers (ASME) A112.18.6 standards; (2) falsely advertised that its connectors exceeded the flow rate of Falcon connectors; (3) infringed Falcon’s marks by using on its connectors a numbering system confusingly similar to Falcon’s system; and (4) infringed Falcon’s marks by using on its connectors a square with ‘S’ inside that was confusingly similar to Falcon’s diamond with ‘F’ inside.

For the ASME claim, the court found as follows: The International Association of Plumbing and Mechanical Officials ("IAPMO") regulates and sets the standards for plumbing products in the United States, and the parties believe its approval is critical to business success. IAPMO verifies compliance with industry standards, including the relevant ASME standard, which specifies requirements for metallic water heater connector tubes. Both parties advertise IAPMO verification; pointing to IAPMO certification is standard in the industry, and Rino’s connectors are in fact certified. An IAPMO auditor tested a sample pipe and concluded that it complied with the ASME standard. Falcon, however, hired a third party to test the connectors, and the third party tester concluded that they were not ASME-compliant.

Under Ninth Circuit precedent, for a court to evaluate a claim that certification is false, there must be “a clear and unambiguous statement from the licensing body about [the relevant] regulations and certifications.” Rino’s claim of compliance was not literally false, since IAPMO was generally agreed to be a proper body to certify ASME compliance.

For the water flow claim, the court found that maximum water flow is a key characteristic for water connectors. Rino’s Chinese test lab showed a flow rate of 7.238 gallons per minute, based on 5.32 feet per second water velocity. Falcon’s test results used a water velocity of 5 feet per second, producing an advertised flow rate of 6.345 gallons/minute. It’s undisputed that higher velocity produces higher flow.

Rino’s ad claimed superiority, comparing 6.345 gallons/minute to its own 7.24 gallons/minute. Falcon hired a different lab to do a comparison test using standardized pressures, conditions, and times. In those tests, Falcon’s connectors had a flow rate marginally higher than Rino’s (though apparently the difference was not statistically significant). In other words, the tests showed that Falcon’s connectors were not inferior, and they didn’t substantiate Rino’s claimed flow rate from its Chinese test. Point to remember: comparative ads should compare the same things! For a head-to-head comparison, have head-to-head substantiation.

The court concluded that Falcon had successfully shown that (1) Rino’s Chinese test wasn’t a controlled comparative test, and (2) its own controlled test disproved Rino’s claim of faster flow. False comparative claims create a presumption of actual deception and reliance, as well as irreparable injury.

On the numbering system claim: Falcon doesn’t have a registered trademark on its numbering system. Indeed, I’m not sure one could register a trademark on a system; wouldn’t it be a phantom mark? Taco Cabana mentioned “sales techniques” as a type of protectable trade dress in passing, but I don’t think a numbering system would qualify. Especially here, where Falcon doesn’t use its numbering system in ads or on its website.

Both parties use numerical bar codes on their connectors to identify the diameter and length of the connectors. Falcon uses FF or SWC, followed by a space, as a prefix on flexible connectors, while Rino uses SWF, with no space. In three instances, the parties use identical numbers for certain products, deriving from the fact that they sell products of identical diameter and length. For other products, the numbers aren’t identical because Falcon adds a zero between the diameter and length numbers.

Most of the parties’ sales are made to sophisticated retailers and plumbing companies that know the industry well. The court concluded that the bar code is functional, and it’s also required by a significant buyer in the market. Thus, Rino couldn’t compete with Falcon for that buyer’s business without the system.

Falcon’s number system claim failed because it couldn’t meet its burden of showing nonfunctionality. The system is utilitarian because it identifies size and dimensions. Though alternative designs are available, that doesn’t change the fact that the system performs a function, and does so in response to consumer demand.

As for the geometric shape and letter combo, IAPMO requires certain identifying information on plumbing products. Falcon’s diamond F is a standard diamond shape and a capital F. Falcon has no registered trademark in the diamond F, and it doesn’t use it in advertising. Rino’s square S is a rotated square with an S inside, for Southsea Metal, the manufacturer. At least one other company also puts diamonds on its water connectors in the same place Falcon does. There was no evidence of customer confusion.

Falcon failed to show trademark rights in the diamond F mark. As a common basic shape and letter, the alleged mark wasn’t inherently distinctive. Falcon had insufficient evidence to show secondary meaning: no surveys or other customer evidence; no use in advertising or packaging; no use as a logo. It was just a physical design stamped on the connector itself. Falcon couldn’t even show exclusive use of the diamond.

As a result, the court granted a preliminary injunction on the water flow claims, but not on anything else. The court noted that Falcon was the larger, more established company. Three out of four claims in this case thus support the proposition that established companies use the Lanham Act to create barriers to market entry. But that fourth supports the proposition that new entrants, hungry for market share, may be overhasty in their claims.

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