Needs more facts: insufficient allegations of dissemination doom Lanham Act claim

SB Diversified Prods., Inc. v. Murchison, No. 12cv2328, 2014 WL 3894353 (S.D. Cal. July 28, 2014)

Previous opinion discussed here.  SB sued Murchison for false advertising and unfair competition, claiming that Murchison, a competitor in the squirrel trap market, made false and misleading statements about SB and its product, the “Squirrelinator,” to promote its own competing product, the “Black Fox.”  SB also sought a declaratory judgment of patent noninfringement.  After its first complaint was dismissed, it filed an amended complaint with a new claim for trade libel.

The court first found that SB had alleged enough facts to establish jurisdiction over the declaratory relief claim.  Though SB didn’t allege a direct threat of infringement proceedings from Murchison, it sufficed that SB alleged (1) Murchison’s statements on Amazon that the Squirrelinator is a “copy” of the “patented Black Fox under the ′086 patent”; and (2) a potential customer’s statement that “a fellow in Redding” [allegedly a misstatement of Murchison’s location, Red Bluff] was trying to sell the customer squirrel traps and claiming that another trap infringed on his (the fellow’s) patent, that he had video showing the Squirrelinator’s inferiority, and that he’d won a lawsuit against another entity.  Murchison’s alleged conduct would place SB in a position of abandoning sales of its product, which it claimed it had a right to make, or running the risk of being sued; that was enough.

False advertising: SB alleged that Murchison criticized the Squirrelinator, but Murchison argued that this wasn’t “commercial speech.”  The court quoted the old Gordon & Breach test for “commercial advertising or promotion,” without noting Lexmark’s probable effect on that test and in particular Lexmark’s approval of Lanham Act coverage for commercial disparagement.  Regardless, to be “commercial speech”—one element of Gordon & Breach—a core feature is that such speech must propose a commercial transaction.  The court concluded that SB failed to allege that Murchison engaged in commercial speech, because the statements alleged “simply criticize plaintiff’s product but do not propose a commercial transaction.”  (I really don’t think that formulation was designed to exclude “scaring off commercial competitors’ customers” from the category of commercial speech, even if no alternate transaction is suggested at the moment.) 

Separately, SB failed to allege facts showing sufficient dissemination to the purchasing public.  Indeed, the complaint contained an embarrassing oversight, alleging that Murchison “disseminated the video and email to a wide portion of the relevant purchasing public by emailing it to (NEED FACT HERE).”  The Lanham Act false advertising claim was dismissed without prejudice.

Then, in another weird little lacuna, the court separately dismissed what it characterized as a Lanham Act “unfair competition” claim, by which it seemed to mean §43(a)(1)(A) confusion/trademark infringement, since it quoted that part of the statute.  However, it then apparently applied the “commercial advertising or promotion” requirement to that claim too, reasoning that “[b]ecause plaintiff has not yet established that defendant’s purported statements were sufficiently disseminated to the purchasing public, the Court finds it premature to determine whether defendant’s purported statements regarding plaintiff’s product likely deceived, or caused confusion or mistake, among the purchasing public.”  Thus, it declined to dismiss the claim.  (Hunh? If there weren’t sufficient allegations for (B), why were there sufficient  allegations for (A)?).  Although I can see the point of having a kind of de minimis standard for §43(a)(1)(A) too, I don’t really know what the court is thinking here, nor do I have any idea what the alleged false association etc. was, since disparagement is inconsistent with confusion over source.

California UCL: SB failed to state a claim because it failed to allege facts demonstrating it lost money or property as a result of Murchison’s conduct.

Trade libel: This cause of action requires (1) a publication; (2) which induces others not to deal with plaintiff; and (3) special damages.  SB failed to allege facts demonstrating special damages.  General allegations of pecuniary harm through lost sales were insufficient in the absence of an allegation of amount lost, amount of business before the alleged trade libel, and/or amount of business after.