Wednesday, December 22, 2010

Indian Arts & Craft Act predictably survives constitutional challenge

Native American Arts, Inc. v. Contract Specialties, Inc., --- F.Supp.2d ----, 2010 WL 4823688 (D.R.I.)

Plaintiff NAA is a wholly Indian-owned organization that sells Indian arts and crafts. Defendant Specialties also sells arts and crafts. NAA sued Specialties for violations of the Indian Arts and Crafts Act of 1990 and the Indian Arts and Crafts Enforcement Act of 2000 (collectively IACA), which forbid the offer or sale of a good in a manner that falsely suggests it is an Indian-made product. The complaint alleged that Specialties falsely suggested that its products were Indian-made by advertising them using the label "Indian" and names of tribes such as "Apache," "Navajo," "Kiowa," and "Cree," without qualifiers or disclaimers.

The complaint alleged that NAA and Specialties compete to sell similar products made in an Indian style, NAA’s authentic and Specialties’ fake, so that NAA suffered competitive injury in the form of lost sales, lowered prices, and damage to goodwill and reputation.

Specialties argued that NAA lacked standing. IACA was specifically amended to allow Indian arts and crafts organizations to sue on their own behalf, but Specialties argued that NAA could not demonstrate injury in fact (an "invasion of a legally protected interest" that is both "concrete and particularized" and "actual or imminent, not conjectural or hypothetical”). Specialties argued that it didn’t sell its “Indian” products in Illinois, NAA’s principal place of business, and that NAA had no employees, business locations, or other property in Rhode Island, Specialties’ principal place of business. NAA countered that the parties compete nationwide, but Specialties argued that the fact that both parties have some customers in the various states was insufficient. It argued that IACA should be interpreted similarlty to the Lanham Act, thus requiring inquiry into the parties’ areas of marketing, distribution, and concurrent use to determine actual competition.

The court took the challenge seriously: “It would be an alarming prospect if anyone who has had some sales, no matter how few (or perhaps even a single sale), of authentic Indian products in the United States could recover millions of dollars of statutory damages from any seller of fake Indian products in the nation--especially since such damages may significantly exceed a defendant's gross revenues for the period in question.” But holding that NAA had standing was not the same as holding that it was entitled to win and recover. At the motion to dismiss stage, it was enough for NAA to allege that it sells similar products and that its sales and reputation had been harmed by Specialties’ false labeling. Specialties’ concerns could be addressed on summary judgment, where NAA might well need to provide good evidence of competition, given Specialties’ distance from Illinois.

Specialties then argued that NAA was required to plead with particularity under Rule 9(b). However, the cause of action was one for misrepresentation, which does not require fraud or mistake or have any scienter requirement. The court specifically commented that cases applying Rule 9(b), after recognizing that IACA was a strict liability statute, seemed misguided. NAA's allegations that Specialties passed off certain specified non-Indian products as Indian by, among other things, describing them as "Indian," "Navajo," and "Apache" was sufficient to provide the required short and plain statement of the claim, and would be sufficient even if Rule 9(b) applied.

Specialties next invoked the First Amendment. The cause of action exists against a person who offers or sells a good in a manner that falsely suggests it is an "Indian product." The meaning of "Indian product" is determined by regulations promulgated by the Secretary of the Interior. The pertinent regulation provides, "[t]he term 'Indian product' means any art or craft product made by an Indian," with illustrations stating that the term "includes, but is not limited to ... Art made by an Indian that is in a traditional or non-traditional style or medium."

Specialties contended that the law thus permitted criminal liability simply for creating artwork in a traditional or non-traditional Indian style or medium, which is too vague given that artistic expression is protected by the First Amendment. This was wrong. The regulation did not say that every product made in a traditional or non-traditional style or medium was, or was represented to be, an Indian product. In fact, the regulation specifically stated that "[a]n 'Indian product' under the Act does not include ... [a] product in the style of an Indian art or craft product made by non-Indian labor." IACA regulates marketing, not artistic qualities.

Next, Specialties argued that IACA was unconstitutionally race-conscious legislation because it "grants Native Americans a right not enjoyed by other Americans, that is, a right to the protection of a special ethnic-based trademark for its style of goods that is not available to any other race or ethnicity." However, Supreme Court precedent establishes that laws dealing with Indians will not be disturbed "[a]s long as the special treatment can be tied rationally to the fulfillment of Congress' unique obligation toward the Indians." IACA survived rational basis review: Congress was acting to stem the heavy flow of counterfeit Indian products.

There was one potentially colorable equal protection argument: that instead of providing for a private right of action for aggrieved Indians only, the IACA should have extended a private right of action to all persons aggrieved by its violation. However, since this argument would hurt rather than help Specialties, the alleged violator, Specialties lacked standing to raise such a claim. (Presumably local vendors of properly-marked Indian-style but non-Indian art would have the requisite standing.)

The final issue was damages. IACA allows a prevailing plaintiff to elect either the greater of treble damages or "not less than $1,000 for each day on which the offer or display for sale or sale continues." Specialties argued that this language permitted a damages floor of $1,000 per day, regardless of the number of violative product types sold, while NAA argued that each product type justified a separate award. Specialties also made a “throwaway” argument that either way, the damages provision violated due process, which the court rejected mainly because the BMW v. Gore and Exxon v. Baker cases concerned jury awards of punitive damages. The statutory interpretation dispute was premature, even if it was safe to assume that NAA would elect the second method of calculation, because there was still summary judgment and trial ahead.

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