Tatara and Mathes, former World Bank employees, formed NewMarkets to engage in a joint venture with CAM, a German investment group. The joint venture would manage investment funds in new private equity markets. CAM was to invest money and NewMarkets would contribute its principals’ reputations, experience, investment model, and contacts. The parties had agreements covering confidential information and exclusivity. While the joint venture prepared a prospectus containing the plaintiffs’ proprietary investment model, they never received any investments.
Among other things, Plaintiffs alleged that defendants improperly used their draft prospectus to prepare private placement memoranda of their own to market two German funds, falsely identifying Tatara, Mathes, and NewMarkets as involved in fund management; using their names and experience without permission; and misappropriating their fund model.
The court found that plaintiffs had adequately pled false advertising. The private placement memoranda were advertising materials, and allegedly literally false. Moreover, the memoranda repeatedly emphasized plaintiffs’ names, experience, and access, suggesting that consumers might think those things important.
There was a question of extraterritorial application. Courts in the Second Circuit apply the Vanity Fair factors: (1) whether the defendants’ conduct has a substantial effect on United States commerce; (2) whether the defendant is a United States citizen; (3) whether there exists a conflict with trademark rights under foreign law. These factors must be balanced, but two out of three must be present to find that the Lanham Act applies.
Plaintiffs alleged a plausible substantial effect on US commerce—their inability to market their own fund due to the false statements. “As the recent economic turbulence has demonstrated, no segment of the United States economy is more global than finance. Since money flows almost indiscriminately across borders, false statements concerning Plaintiffs in a private placement memorandum in Germany could plausibly and substantially affect commerce in the United States.” (Note the “plausibility” language there—welcome to Lanham Act jurisprudence, Iqbal v. Ashcroft! I guess we’re going to learn a lot about what federal judges think is plausible in interpreting ads.)
Defendant CAM is a German corporation, but one with a substantial presence in the US, including an American subsidiary and an America-based joint venture with plaintiffs; it also consented to American jurisdiction to resolve conflicts relating to the joint venture. Thus it counts as a US citizen for these purposes.
Finally, the court found no substantial conflict with foreign law. Defendants’ experts contended that German securities law would prevent the defendants from rescinding the private placement memoranda, one of the experts also stated that such memoranda are subject to German unfair competition law. So while a broad injunction could cause a conflict, damages or a limited injunction could be available.
The unfair competition claim also survived, even though it wasn’t a traditional trademark claim (because NewMarkets allegedly lacks secondary meaning). The claim wasn’t for misappropriation of trade name, but for a course of conduct including forming a “sham” partnership to gain access to plaintiffs’ ideas, names, and business plans in order to compete with plaintiffs. Misappropriation can apply even when there’s no violation of trade secret law or misappropriation of ideas. (Defendant Oppenheim was dismissed, though, for failure to allege sufficient involvement.)
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