Wednesday, April 30, 2014

Bait and switch advertising isn't TM infringement

Sussman-Automatic Corp. v. Spa World Corp., --- F. Supp. 2d ---, 2014 WL 1651953 (E.D.N.Y. Apr. 25, 2014)

Sussman sued Spa World and its principals for bait-and-switch advertising. They allegedly purported to sell Sussman’s “Mr. Steam” steam shower and spa products on their website and over the phone but never stocked Sussman products. Instead, when a customer would order a Sussman product on the phone or by putting it in an online shopping cart, defendants’ employees falsely said the requested product was “temporarily out of stock” and instead offered to sell the customer a Spa World product. This was allegedly literally false because there was no Mr. Steam inventory in the first place, and also falsely implied that Mr. Steam products had been stocked in the past and would be in the future.  In addition, defendants allegedly attempted to “convert” customers to their products by misrepresenting material qualities of Spa World’s products and by maligning Sussman’s products.  Employees would allegedly represent the Spa World brand as an “upgrade” compared to Mr. Steam, for the same or lower price.  In addition, employees would allegedly claim that defendants’ products were made in the US, certified by Underwriters Laboratories, and of high quality—while in fact they were made in China from inferior materials and were not UL certified.

Sussman alleged that it discovered the bait and switch scheme when one of its resellers’ sales managers tried to buy a Mr. Steam product from defendants’ website and couldn’t complete the sale.  Its employees allegedly verified defendants’ practices by placing similar phone calls, and received the same treatment.

The court, surprisingly, granted defendants’ motion to dismiss. It (correctly) held that Rule 9(b) didn’t apply to the Lanham Act claims, because there was no Second Circuit precedent on point.
Trademark infringement: initial interest confusion is enough, but it’s not clear how IIC interacts with the Polaroid factors.  But it doesn’t matter, because you can’t run through the Polaroid factors on a motion to dismiss. 

Defendants argued that there could be no IIC without confusion as a result of similarity between the parties’ marks.  Sussman argued that it could state a claim by alleging unauthorized use of its mark to divert customers (as stated, overbroad).  It’s not enough, the court found, to allege unauthorized use of a mark (true enough), but also similarity between the parties’ marks.  Courts using IIC have spoken about consumers being “initially … attracted to the junior user’s mark by virtue of its similarity to the senior user’s mark, even though these consumers are not actually confused at the time of purchase.”  Thus, the court concluded, even if the unauthorized use of the mark helped defendants gain crucial credibility in the early stages of a purchase decision, “there is no allegation that such credibility was acquired on account of the similarity between the parties’ respective trademarks, as is required to state a claim sounding in ‘initial interest confusion.’”  

What about confusion over the source or sponsorship of the defendants’ goods?  Well, the court says that Sussman alleged “tangible confusion” on the part of consumers who might’ve thought that defendants regularly carried Mr. Steam products or that Sussman endorsed defendants’ resale of Mr. Steam products, but this confusion didn’t result from “uncertainty regarding the source of a product, either prior to or at the point-of-sale.”

Note: all of this makes perfect sense, and may increase the coherence of trademark law as a distinct form of false advertising, as long as it’s clear that there’s a separate false advertising claim arising from the bait and switch.

So, on to false advertising. The falsities alleged were (1) the offer of Mr. Steam products on the website, (2) the assertion that defendants were temporarily out of the products, (3) positive misstatements about defendants’ products, and (4) disparagement of Mr. Steam products. 
The court found that Sussman adequately alleged the falsity of (1) and (2):

The fact that the Defendant promoted the 'Mr. Steam” products on its website, while not false in the literal sense, could imply a false message that the Defendants carried “Mr. Steam” products in its inventory. Similarly, the Court finds that an assertion by an employee of Spa World that the Defendants were temporarily out of stock of the “Mr. Steam” Products could imply a false message that the Defendants carried or intended to carry “Mr. Steam” products in its inventory.

I’m still puzzled!  In what sense is allowing a consumer to put an item in a shopping cart anything other than a literal claim of its availability?  

Defendants argued that their statements about their own products were mere puffery.  But while some statements were puffing, statements that the products were manufactured in the US and were UL-certified were not.  In addition, the negative statements about Mr. Steam might be actionable—the allegations were that defendants routinely told customers that Mr. Steam’s products were of poor quality, were unreliable and sluggish, and were inferior to defendants’ products.
What about “commercial advertising or promotion”?  Courts look for “an organized campaign to penetrate the relevant market.” A few oral statements might not be enough—but that would be after discovery.  Anyway, “the unspecified number of phone calls and interactions between the Defendants’ employees and prospective ‘Mr. Steam’ consumers and the online display of the Plaintiff’s products on the Spa World website, both albeit without a clear time frame, is sufficient to infer an ‘organized campaign’ on the part of the Defendants.”  

However, the court still dismissed the claim because the plaintiff made no attempt to define or allege a “relevant market.”  (Hunh? Did the court just not like the plaintiff or something?  How is a website that, by reasonable inference, is the defendants’ means of targeting customers online not an attempt to penetrate the relevant market, as evidenced by defendants’ own actions?  It’s not as if the website is reserved only for people with a password.  It was apparently found via search; the relevant market would appear to be “people looking for spa products.”)  Plaintiff could replead.

The court also declined to recognize a separate cause of action for unfair competition under the Lanham Act, which just covers trademark infringement and false advertising.  That killed the state-law unfair competition claims too, as duplicative.  Having dismissed the federal claims, the court declined to exercise supplemental jurisdiction under the NY GBL § 349 (false advertising) claims, though it noted that repleading the Lanham Act claim would allow reassertion of the state claim.

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