Failure to indicate non-US country of origin is literally false

Ira Green, Inc. v. J.L. Darling, Corp., No. 11-05796, 2012 WL 4793005 (W.D. Wash. Oct. 9, 2012)

Darling sells all-weather paper, Rite in the Rain (RITR) paper, and holds a patent on it.  Darling produced STORM SAF all-weather paper notebooks for Brigade.  Darling put the STORM SAF label on the notebook covers, with RITR paper inside, and printed the patent marking on the back of the notebook cover, although its patent covered sheets of paper rather than notebooks.  Brigade then sold the notebooks to the quasi-government entity that runs retail outlets on military bases.  Brigade’s financial difficulties led the relationship to break down.  Green bought Brigade and switched paper suppliers, procuring waterproof paper from China.  Green didn’t put “made in China” labels on its notebooks for at least a year, when a Customs agent ordered the labeling.

The parties sued each other for, among other things, false patent marking, defamation (these two brought by Green), false advertising/unfair competition, and trademark infringement in the STORM SAF mark (both).  Defamation: Darling sent emails to military personnel claiming that another firm had “done their best to create products that are confusingly similar to ours”  and that “lives could depend on the tactical notes that they couldn’t record or turned illegible into mush.”  Another statement claimed that Green’s product “has such substandard  qualities, that it can be considered dysfunctional,” and that “failure to secure such notes can lead to compromising a mission.”  A sales script said that “offering this knockoff product to the troops can potentially compromise a mission and virtually put lives at risk.”  (There were, however, questions about Darling’s responsibility for some statements, since they came from an intermediary.)  Darling’s co-president stated that “(o)ur feedback from soldiers, officers and our own testing is that the Chinese product significantly underperforms and will result in-situ field failure and that Green’s paper “begins to degrade” after a few minutes after soaking in water.  Darling’s internal tests concluded that Green’s paper wasn’t weatherproof or waterproof, while Green’s independent lab found that the writing on all tests was legible and no tearing was noted when  exposed to water.  Meanwhile, the military retailer’s tests found Darling’s paper “acceptable” and Green’s Chinese paper “swollen, frayed, and appeared fragile to the touch.”  Eventually, it switched to Darling’s notebooks.

The parties disputed whether it was false to mark the notebooks rather than each individual sheet and whether, if that was false, Darling had the requisite intent.  Green argued that Darling knew of the falsity because Darling had been denied a patent on books and notebooks containing weatherproof sheets, but Darling claimed that it used business judgment and legal advice to decide to mark the notebooks.  The new AIA “competitive injury” standard is as yet undefined by the Federal Circuit, but the court adopted a causation standard: a plaintiff must show that the false marking caused lost sales, lost reputation, or inability to freely market or price products.  Green couldn’t satisfy that standard.  However, the Lanham Act claim based on the same facts survived because there was a fact question on literal falsity, as well as on Darling’s knowledge and Green’s likely injury.  So, basically, it’s impossible to bring a false marking claim any more, but you can still try your hand at a Lanham Act claim on the same facts.

There were also factual issues on the disparagement claim, even though Darling didn’t contest falsity for these purposes.  Among other questions, loss causation was unclear, given that the retailer’s own internal testing of Green’s products had bad results.  Likewise, Darling’s false advertising claims raised their own questions of fact, such as whether Green falsely marketed its products as waterproof; the court noted that literal falsity would also allow presumptions of causation and damages.  And there were fact issues on ownership of the unregistered trademark.

Country of origin claims: Green argued that any “mistaken” marking (the notebooks apparently bore Green’s corporate address, in the US) was moot because it had been fixed.  There was a fact issue about when and how many notebooks were correctly marked, but no dispute that Green didn’t put the proper country of origin on the notebooks when they were first distributed.  This was a “literally false omission,” meaning that causation and damages would be presumed unless rebutted, and Green didn’t do so.  An interesting result, especially since the court didn't cite the other country of origin cases.  See, e.g., Alto Prods. Corp. v. Tri Component Prods. Corp., 1994 WL 689418 (S.D.N.Y. Dec. 8, 1994). The court granted summary judgment on liability only for Darling.  Because Washington’s consumer protection law had no presumptions on causation or damages (someday, someone should really catalog “state laws are just like the Lanham Act except when they aren’t”), summary judgment for Darling on the state law claim was inappropriate.