Shutting distributor out doesn't violate Lanham Act

TriState HVAC Equipment, LLP v. Big Belly Solar, Inc., --- F.Supp.2d ----, 2010 WL 4139285 (E.D. Pa.)

TriState sued Big Belly for breach of contract, breach of the implied covenant of good faith and fair dealing, tortious interference with a prospective contractual relation, unjust enrichment, and unfair competition.

The facts relevant to the Lanham Act claim: TriState was a nonexclusive distributor for Big Belly solar-powered trash compactors. Big Belly reserved the right to sell directly to key and national accounts, a list of which was supposed to be provided by Big Belly but allegedly never was. If Big Belly did involve TriState in sales to those accounts, TriState would be entitled to 25% of its normal margin. Big Belly also reserved the right not to accept, in its sole discretion, any order submitted by a distributor.

TriState targeted the City of Philadelphia, and Big Belly allegedly confirmed that it wouldn’t be pursuing the City as one of its own accounts. At some point, Big Belly started pursuing the City itself, and entered into a sole-source contract with the City. City representatives told TriState that Big Belly had informed it that the City could purchase trash compactors with the desired wireless configuration only from Big Belly, that Big Belly could give the City the best price, and that the City did not need to purchase the trash compactors through a Big Belly distributor or put the contract out for bidding by distributors.

TriState argued that these statements were false and misleading. The court granted Big Belly’s motion to dismiss the Lanham Act claims. Because Big Belly reserved the right not to accept any order placed by a distributor, and could have refused to accept TriState’s order to supply the City, its statements that the City could buy only from Big Belly were neither false nor misleading. Whether TriState could have provided the desired wireless configuration is irrelevant since Big Belly could have rejected its order regardless. Big Belly may have breached its contractual obligations, but that doesn’t implicate the Lanham Act.