Monday, April 19, 2010

Is undisclosed paid-for content noncommercial speech?

Edward B. Beharry & Co., Ltd. v. Bedessee Imports Inc., 2010 WL 1223590 (E.D.N.Y.)

Beharry sells various spices under the INDI brand, including Special Madras Curry Power. Bedessee is a competitor. In 2006, Beharry sued Bedessee for counterfeiting, trademark infringement, and related claims. In 2007, the court entered a final judgment that, among other things, prohibited defendants from “objecting, interfering, contesting or opposing the use and/or registration by [plaintiff] of the INDI Curry Mark.”

In 2008, The Carribean New Yorker, read by the parties’ customer base, ran an article, “FDA warns of filthy ‘Special Madras Curry Powder.’” It said that Beharry’s Special Madras Curry Power posed a threat to the public; specifically that the FDA had rejected a June 2008 shipment because it was “filthy.” The article then explained that FDA guidelines define an article as “filthy” if it “appears to consist in whole or in part of a filthy, putrid or decomposed substance or to be otherwise unfit for food.” The article stated, “[c]ontradicting Beharry’s claim of pride in providing its customers with high quality products and services, its ‘famous’ Indi brand curry was denied entry to the United States.” The article continued that the FDA had rejected entry to shipments of INDI curry powder repeatedly during the mid-1980s on similar grounds. Moreover, the FDA had issued a warning on Beharry custard powder for containing “non-permitted and undeclared tartrazine.” The article concluded that “[t]he West-Indian community must be made aware of repeated adverse FDA actions regarding Beharry’s food products and any corollary health risks,” and provided links to the FDA announcements, though the links were broken and one contained a typographical error.

Beharry alleged that Bedessee “contributed to, authored, conceived, submitted and/or otherwise caused” the piece to be published. Moreover, Beharry alleged that individual defendant Invor Bedessee circulated the full article by email to distributors and the customer base, though Bedessee claimed that the email didn’t go to anyone in New York or even in the United States.

Beharry first claimed for common-law commercial defamation based on the “threat … to the public” and “[c]ontradicting Beharry’s claim of pride in providing its customers with high quality products” statements, alleging a 75% loss in sales.

The court denied Bedessee’s motion to dismiss. Bedessee’s denial of any connection to the publication didn’t warrant dismissal, but merely created a factual dispute. Beharry noted that the publication didn’t contain a byline, and claimed that the piece was a paid ad rather than a news article. Bedessee’s email could raise additional suspicion, because he expressly characterized it in quotation marks as a “‘public article.’” (Or he, like lots of people, might not know how to use quote marks—while I’m not sure the email is evidence of anything, I agree that there is a factual issue.) The court further found that the litigious history between the parties supported the allegation of a connection with the article.

(There’s a very interesting question left open here: what if Bedessee is “connected” to the article in the sense of convincing the magazine that it was a worthwhile story to run, but didn’t pay for it to appear?)

Bedessee also argued substantial truth, based on the FDA websites referenced in the complaint. The court agreed with Beharry that, though the statements accurately report on the denial of entry, the publication went “well beyond the scope of the FDA report, creating a false and misleading impression regarding all of plaintiff's products.” The very first sentence warns of an ongoing threat that the curry powder “and other products” pose to public health. Such an inference doesn’t necessarily follow from a single seizure of curry powder in 2008, similar seizures in the mid-1980s, and warnings about tartrazine in custard powder in 2008. A reasonable reader could find the gist or sting more serious than that which was fairly suggested by the FDA’s findings (though I would think a reasonable reader could also follow the article’s logic).

Similarly, Bedessee was not protected by the fair report privilege, which requires substantial accuracy. Given that the article speaks of an ongoing threat from curry powder “and other products,” a reasonable jury could find that this wasn’t a fair and true representation of official proceedings.

(I have to wonder whether you’d get the same result in a suit against the Carribean New Yorker itself. Maybe—though actual malice would likely be a separate problem.)

Was there a violation of the consent judgment? Beharry argued that Bedessee “interfer[ed]” with the use of the INDI trademark by making false or misleading representations regarding the quality of its INDI products. Defendants argued that the publication was substantially true and protected by the First Amendment; the court wasn’t persuaded. (I would have thought that a better argument would be that the parties couldn’t have intended “interference” to mean anything so broad; under Beharry’s interpretation, completely fair competition in the market that drove Beharry out of business would seem to constitute an “interference” with the “use” of the mark. A better interpretation would seem to be that Bedessee wasn’t allowed to do anything to set up a legal barrier to the use of the mark.)

Beharry also claimed violation of the Lanham Act. Now what seems to me to be weirdness: Bedessee argued that the Lanham Act claim failed because the article wasn’t commercial speech. The court agreed. “No named defendant appears anywhere in the publication, nor do any of defendants’ products, prices, or business contacts. As the public would have no reason to associate the publication with defendants, it cannot possibly propose a commercial transaction between defendants and readers of The Caribbean New Yorker. Even if defendants paid to run the piece with a motivation toward indirectly influencing customers to buy their goods, such a motivation does not transform the piece into commercial speech” (citing Bolger v. Youngs Drug Products Corp., 463 U.S. 60, 66 (1983), for the proposition that economic motivation alone can’t make something commercial speech).

Comment: So basically, you can say nasty things about your competition—and even nice things about yourself—if the public wouldn’t attribute the statements to you? Or does the court think that any mention of Bedessee, even in something that appeared to be editorial content, would give the public “reason to associate the publication with defendants”? Either alternative seems very troubling to me. This holding is inconsistent with the ruling on defamation. If the defendant paid for this content to appear in the publication, it's an ad. If failing to label an ad as an ad moves content from commercial speech to noncommercial speech, we've now created both a huge gap in advertising regulation and a huge incentive to arbitrage. (And note that if you say, "no problem, because stuff that's just disparaging the competition will be rare, and most paid-placement content will mention the advertiser and thus be an ad again," you are taking the position that consumers must--descriptively or normatively or both--expect any mention of an advertiser in apparently editorial content to be sponsored by the advertiser, which has serious consequences for trademark law and puts a ton of pressure on things like nominative fair use.)

In any event, the court also ruled that the email inviting recipients to discuss the article wasn’t commercial speech, because it was unclear what, if anything, Bedessee actually discussed with any of the recipients. And it was “evident” that a reproduction of the article with an invitation to discuss it was not a commercial proposition or ad. (This seems to me inconsistent with the core Gordon & Breach case used to define advertising for false advertising purposes—that case involved an article, not actionable commercial speech itself, that the court held could constitute advertising when repurposed by a competitor to attack the plaintiff.) Result: motion to dismiss Lanham Act claims granted.

On the New York false advertising and deceptive business practices claims, the court agreed that the claims had to be dismissed because of failure to allege consumer harm or injury to the public interest, only harm to the plaintiff’s own business interests.

On the New York tarnishment and blurring claims, the court first ruled that Beharry had adequately pled that INDI was strong enough to qualify for protection, since Beharry alleged that it has been used for 30 years, is distinctive, represents significant investment in advertising and promotion, and has generated valuable goodwill. The blurring claim, but not the tarnishment claim, was dismissed because the mark was not associated with any other goods and services, and thus the publication didn’t lessen the capacity of the mark to identify Beharry’s goods or distinguish them from others. The tarnishment claim, apparently on a Deere theory, survived (which goes to show what’s wrong with Deere: if there’s no actionable falsehood—which of course remains to be seen—no plaintiff should be able to use dilution to avoid the constraints, many of them constitutional, on defamation/false advertising).

In New York, common law product disparagement claims cover only false statements about the quality of goods and services, and require malice and special damages. Special damages must be pled with sufficient particularity to identify actual losses, and the individuals who ceased to be customers or refused to purchase must be named. Beharry argued that it pled lost sales, not lost customers. But such round figures, with no itemization, are only general damages, not special damages, and Beharry didn’t plead that the nature of its business makes it difficult to identify its losses with sufficient specificity. Thus, the product disparagement claims were dismissed.

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