Failure to disclose non-US origin not false despite American iconography

Milso Industries Corp. v. Nazzaro, 2012 WL 3778978 (D. Conn.)

Milso sued Nazzaro (a former employee), asserting a variety of claims; I’m only going to discuss the Lanham Act issues.  Milso makes and sells caskets, including some that are made in Mexico and others made in the U.S.  Nazzaro also sells caskets, including some made in China that were allegedly not clearly marked (or marked at all) as such.  His business is called Liberty, whose logo is the Statue of Liberty wrapped in the American flag; both the logo and the marketing materials are red, white, and blue.

Milso argued that defendants’ conduct constituted false designation of origin and false advertising.  Defendants contested standing because of Milso’s Mexican caskets, but Milso also sold U.S.-made caskets, giving it a reasonable interest to be protected.

The court rejected the argument that the alleged failure to label country of origin, a violation of the Tariff Act, was therefore a per se false designation of origin.  Though a few courts so hold, reasoning that the marking requirement reflects—and helps create—an environment in which consumers presume unmarked products to be U.S.-made, other courts have disagreed.  A per se rule that failure to mark is a false designation of origin would conflict with the rule that the Lanham Act doesn’t impose any affirmative duty of disclosure; a claim can’t be based on failure to disclose.  (I don’t think this follows.  That may be the general rule, but the specific context of country of origin may change background consumer expectations, and we might not want to put plaintiffs to the expense of proving this in each individual case any more than we do with literal falsity.)  The court agreed that a failure to make a statement is neither “false” nor a “representation,” especially since a duty to disclose would be almost limitless.  A per se rule about country of origin “would inappropriately restrict the ability of the finder of fact to evaluate the particular circumstances of each case.”

Milso argued that the Chinese-made caskets were either never marked “Made in China” or marked with a sticker so flimsy that it never reached the consumer, but didn’t produce evidence of this.  However, there was a genuine issue as to whether the stickers were adequate to inform consumers of the country of origin.  Milso also argued that the extensive use of American iconography constituted false advertising and false designation of origin.  The court found the company name and iconography, though evoking clear associations with the U.S., “too general to evoke any specific geographical associations [the U.S. apparently not counting as a specific geographical place] or to support an inference that there is an implied claim of domestic manufacture.”  Thus, defendants won summary judgment on literal falsity.

Turning to implicit falsity, Milso submitted a survey allegedly finding deception above 20%.  But the court found that the study didn’t ask the proper questions.  In the study, respondents in the first cell saw a booklet with three lithographs of Liberty caskets and another with three lithographs of Matthews caskets; the Liberty lithographs didn’t say “made in China.”  Respondents were then asked to pick their first, second, and third choices.  Respondents in the second cell saw the same Matthews booklet, but a Liberty booklet with “made in China” labels.  The expert concluded that “made in China” was material and that its omission was misleading.

The court found that the survey supported the materiality claim, but not the misleadingness claim.  The survey didn’t focus on whether the (unaltered) marketing materials suggested that Liberty’s caskets were manufactured domestically, nor even on what characteristics of marketing materials in general suggest domestic manufacture to consumers.  Instead, the expert’s report inferred from the materiality of the information that its omission was misleading.  But that would apply to any company in the industry, and the claim here was that it was Liberty’s iconography that required disclosure of the source of the caskets.  So defendants also won summary judgment on the implicit falsity claim.