Supplier lacks standing to sue retailer for false advertising

Runberg, Inc. v. Victoria's Secret Stores, Inc., 2012 WL 5252309 (S.D. Ohio)

Discussion of complaint here.  Runberg, d/b/a Zephyrs, sued VS when it got dumped as a supplier, arguing that VS violated the Lanham Act, and coordinate state law, by putting different and allegedly lower-quality hosiery in packages that still had pictures of the Zephyrs product.  VS moved to dismiss everything but the breach of contract claims (which I too will ignore) on standing grounds.  (The court declined to reach VS’s argument that choice of law prevented Zephyrs from bringing false advertising claims based on the law of states other than Ohio, which I guess means that those claims are technically still alive, but the writing’s on the wall.)

Because Ohio courts look to the Lanham Act for guidance on Ohio’s DTPA, the court treated the standing analysis similarly for both the Ohio and federal claims.  Zephyrs needed to show injury to itself; false advertising that caused injury to consumers was not enough to establish Article III standing.  Zephyrs argued that direct competition wasn’t required as long as there was a nexus between itself and the alleged falsehood, which existed here because the packages had images of Zephyrs-supplied products on them and because the continued use of those images interfered with Zephyrs’ ability to market its goods to other sellers and undermined Zephyrs’ reputation for high quality.

That wasn’t enough.  Nothing on the packaging indicated that the products came from Zephyrs, and the allegations about the effects on Zephyrs’ reputation were merely conclusory.  Even if VS’s failure to update the packaging caused injury in fact, there was no reasonable inference of a causal connection between the injury and the claim of harm to Zephyrs’ reputation because there’s no obvious association between the parties.  Not only was there no connection on the package, the parties’ agreement barred Zephyrs from publicly disclosing that it made the hoisery for VS.  The required nexus for a false advertising claim would be between Zephyrs’ alleged injury and the advertising, and it didn’t allege facts showing such a nexus.

Even if there were Article III standing, Zephyrs would lack prudential standing.  The 6^th Circuit requires (1) a reasonable interest to be protected against the alleged false advertising and (2) a reasonable basis for believing that the interest is likely to be damaged by the alleged false advertising.  Direct competition is the focus, even if it’s not absolutely required.  In the absence of direct competition, a more substantial showing of injury and causation is required.  “It is not plausible, as the term is used in Iqbal and Twombly, to believe that Victoria's Secret's failure to remove the pictures of the Zephyrs-made product from the hosiery packages for similar products now made by another supplier impedes Zephyrs' ability to sell these same designs to other retailers or injures its reputation.”

Zephyr argued that it was the exclusive licensee of the “Butterfly Lace Design,” owned by a German company, which status was undermined because VS continued to use the design on its package without a license.  But without any allegation of trademark or copyright infringement, this purported license couldn’t have any actionable effect.  Dastar allowed an exclusive licensee to sue for infringement.  Zephyrs failed to allege that its relationship with the German company was harmed or that it lost US business based on VS’s continued use of the photo.