Authorization to sell products under another name defeats passing off but not false certification claim

Tri-State Energy Solutions, LLP v. KVAR Energy Savings Inc., --- F. Supp. 2d ----, 2012 WL 3322681 (D. Del.)

Tri-State and KVAR had a regional distribution agreement (RDA), providing that Tri-State would distribute KVAR’s energy-saving products in three states.  It didn’t work out.  I’ll skip the contractual claims as best I can.  Tri-State alleged deceptive trade practices.  KVAR counterclaimed for trademark infringement and false advertising, among other claims.

Tri-State and another plaintiff, Chieffo Electric, alleged trade libel against KVAR and an individual defendant, Fish.  This claim was based on an “Impostor List” posted on KVAR’s website that identified plaintiffs as entities with which KVAR asserts it is not affiliated and that are manufacturing and/or marketing KVAR's product under another name.  It was also based on oral statements by Fish to distributors that Tri-State and a related individual were overcharging, price gouging, or stealing money from distributors; that they were crooks and thieves; and that their products caused fires.

Defendants argued that plaintiffs couldn’t show that any statement on the Impostor List was false and defamatory.  Plaintiffs argued that the list’s claims that KVAR held a patent on the product, and that some of plaintiff’s products caused damage and fires, were false.  Defendants rejoined that, even if false, those statements didn’t specifically refer to any one party on the list.  The court disagreed: the narrative portion of the list could reasonably be read to refer to each listed party.

Defendants also argued that the list or the oral statements caused any pecuniary injury.  Assuming injury was required, while the individual plaintiff testified that he could not point to any “economic harm resulting from the alleged defamation,” he also testified that his reputation was damaged (“[If] somebody Googles me right now, the first thing pops up that I'm impostor and I sell a product that burns down people's homes.”); and that he and his family had been threatened to the point that his “kid hid[ ] underneath a table every time somebody knocked on the door.”  The court declined to grant summary judgment to defendants on this claim.

As to plaintiffs’ deceptive trade practices claims under Delaware law (DTPA), the claims at issue were also the Impostor List and tape-recorded statements by Fish to distributors about Plaintiffs' business practices, calling Gillen a “thief.”

Defendants correctly noted that the DTPA doesn’t extend to wrongs between parties in a vertical relationship (customer/seller), instead of a horizontal one (among sellers and producers).  But that didn’t resolve the matter: the parties’ agreement gave Tri-State exclusive rights in some respects, and the parties competed at least for one account.  A reasonable jury could find a horizontal relationship. The DTPA also denies standing where the harm occurred in the past if the party didn’t seek an injunction.  But plaintiffs were seeking an injunction and alleged ongoing harm.

KVAR’s Lanham Act counterclaims were that plaintiffs’ sale of KVAR products under the name Kilowatt Nanny created confusion, that plaintiffs used confusingly similar marks to KVAR’s mark, and that plaintiffs improperly used KVAR’s Underwriters Laboratories (UL) and CSA certifications on its product on the Kilowatt Nanny products.

Plaintiffs argued that KVAR authorized the sales under the Kilowatt Nanny name.  The undisputed record evidence was that KVAR told Tri-State to rename the product to deflect phone calls to Tri-State.  Thus, Tri-State was authorized to make the sales.  However, there was insufficient evidence to grant summary judgment to the plaintiffs/counterclaim defendants on the argument that permission to rename the product included permission to use KVAR’s certifications on those products.  (Hard to imagine that KVAR has standing to assert the certification entities’ potential endorsement claims, though.  Also, if the products were unaltered, could there be anything false about saying they were certified?  I doubt you can get around first sale by saying, even if it’s true, that “the entity that provides our certification only certifies new products, not used ones.”)  So that part of the Lanham Act claim survived.

KVAR’s counterclaim that plaintiffs’ circulation of the initial complaint to potential customers, and other statements, constituted trade libel also survived, though the court wasn’t convinced that Delaware actually recognizes trade libel distinct from defamation. 

In addition, KVAR’s counterclaims for intentional interference with contract/prospective economic advantage survived summary judgment, unusually for such claims.  Here, it was undisputed that KVAR and third party EcoQuest had a business relationship, that Tri-State knew about it, and that Tri-State distributed information about its litigation and an alleged safety recall of KVAR products (which turned out to be false) to kill EcoQuest’s deal with KVAR.  Further, the deal did indeed subsequently fall apart.  That was enough, but KVAR didn’t get summary judgment in its favor.  There was a genuine issue of material fact as to whether EcoQuest or KVAR terminated the relationship, which was important to proximate causation.

KVAR’s common law unfair competition claim failed because KVAR failed to show evidence of harm from unfair competition, despite alleging lost sales of $2 million on the intentional interference claims; the court wasn’t going to hunt through the record on KVAR’s behalf.