Wednesday, July 06, 2011

Pushcart war: false designation of origin counterclaim survives without lost sales

Safco Products Co. v. Welcom Products, Inc., 2011 WL 2601838 (D. Minn.)

Safco sued Welcom and its foreign manufacturer for design patent infringement in its Magna Cart MCX pushcart. Welcom asserted invalidity and a Lanham Act counterclaim that Safco’s pushcarts aren’t in fact manufactured in Taiwan, but actually in China, contrary to their markings, and that Safco ships through Taiwan solely in order to evade a substantial tariff on Chinese-made pushcarts.

Welcom produced evidence that the carts were made in China. Safco argued that a cart in a possibly damning picture was counterfeit, but “the fact that counterfeiting may be common in China does not establish that this particular cart is in fact a counterfeit.” There was also some documentary evidence that Safco investigated the origin after this lawsuit began and discovered that it had in fact been buying carts made in China. There was a material factual dispute requiring resolution at trial.

Safco argued that Welcom lacked standing (again with this unhelpful terminology!) because it failed to produce evidence of actual or likely deception, materiality, or actual damages/injury.

Recovery of damages requires proof of actual damages and a causal link between the violation and the damages. Here, Welcom didn’t produce any evidence of lost sales, and its sales were outstripping Safco’s with respect to this particular model. However, the Lanham Act also allows recovery of defendants’ profits and costs, as well as injunctive relief. So lack of lost sales was no reason to grant summary judgment.

Actual/likely deception: if the pushcarts were made in China, “Made in Taiwan” would be literally false, allowing relief without evidence of consumer reaction. The court commented that it seemed “beyond dispute” that a false origin claim was “at least likely to deceive consumers” into believing the false origin claim. And the Eighth Circuit recently clarified that actual confusion is not required to support an award of disgorged profits, since that would undermine the Lanham Act’s equitable aims of deterrence and avoiding unjust enrichment.

Safco argued that unjust enrichment was only of concern in a trademark infringement case. The court disagreed, based on the statute. There was also no requirement of willfulness to justify an award of profits, though it is a relevant factor; the 1999 amendments to the Lanham Act, clarifying that willful violations of §43(c) can result in an award of profits, shed light on the requirements under §43(a), as to which there is no willfulness language. The court noted that it would have broad discretion to award monetary relief, and it might be that “Welcom's apparent inability to establish a damages claim could likely be due, not to the inherent problems of establishing causation and reliably measuring what sales it lost to Safco due to the false designation of origin, but rather to the fact that Welcom--despite any false designation--has not lost any sales and Safco has not gained any sales.”

Moreover, Safco wasn’t the manufacturer or the labeler; it imported the pushcarts through another party, also not the manufacturer, which purported to have them made in Taiwan by someone else. Thus, because Safco had apparently been blissfully ignorant of the true geographic origin of the products it imported, “equitable considerations could preclude any Lanham Act remedy against Safco.” I realize these are preliminary comments by the court; later consideration should probably take into account the desirability of imposing some duty of care on importers to make sure that the claims on their products are not false; putting their profits at risk in cases of failure to confirm factual claims like the statutorily required designation of origin (or, perhaps, active ingredients in a different case) would, one hopes, have some deterrent effect.

No comments: