Distributor can be sued for direct false advertising under Lexmark

Toddy Gear, Inc. v. Navarre Corp., 2014 WL 4271631,  No. 13 CV 8703 (N.D. Ill. Aug. 26, 2014)

Toddy Gear makes the Toddy Smart Cloth, “a double-sided microfiber cloth with an antimicrobial coating crafted for scratch-free cleaning of extremely sensitive surfaces such as handheld electronics.”  Toddy Gear alleged that Navarre distributed a knockoff of the Toddy Smart Cloth with the exact same size, dimensions, color and other characteristics, called the Schatzii.  (Yet there’s no trade dress claim; perhaps Toddy Gear feared an expensive functionality battle.)  In addition, Toddy Gear alleged that the “product markings for the Schatzii state that the product is ‘designed and produced by Cleer Gear in the United States,’” while Cleer Gear has only one employee in the United States and imports the product from China.  Toddy Gear sued for false advertising and violation of the Illinois Uniform Deceptive Trade Practices Act.

Navarre argued that Toddy Gear didn’t fall within the Lanham Act’s zone of interests under Lexmark because it was really asserting a claim under the Textile Fiber Products Identification Act, which doesn’t provide for a private right of action.  This was essentially a Pom Wonderful preclusion issue.  The TFPIA bars the misbranding or false or deceptive advertising of textile fiber products, and deems a product misbranded if, inter alia, a label does not show “in words and figures plainly legible, the following: ... [i]f it is an imported textile fiber product the name of the country where processed or manufactured.”  By its express terms, the law “shall be held to be in addition to, and not in substitution for or limitation of, the provisions of any other Act of the United States.” The Lanham Act bars false and misleading advertising. Per Pom Wonderful, “[n]o other provision in the Lanham Act limits that understanding or purports to govern the relevant interaction between the Lanham Act and the [FTC].” So there’s no preclusion.

In addition, the court rejected Navarre’s argument that Toddy Gear didn’t allege a “discernable competitive injury,” since Toddy Gear alleged that the competing product at issue was “manufactured and distributed by Cleer Gear” and Navarre only allegedly marketed the Schaatzii to retailers.  Lexmark rejected a categorical direct competition test, but rather required economic or reputational injury “flowing directly from the deception wrought by the defendant’s advertising; and that that occurs when deception of consumers causes them to withhold trade from the plaintiff.”  Toddy Gear’s complaint, alleging that Navarre distributed an exact replica of its product, but with materially false statements on the packaging, to retail stores where Toddy Gear also sells, and that this injured Toddy Gear, was sufficient to allege a direct injury to its commercial interest.

Did Toddy Gear allege that Navarre made a false statement in an ad?  Yes, by alleging that “Navarre has caused the Schatzii product, which includes false statements on the product packaging, to enter interstate commerce.”  Labels, package inserts, or other promotional ads are commercial advertising under the Lanham Act.  And Toddy Gear alleged the relevant statements and their falsity (since the product was allegedly made in China) with the necessary particularity to satisfy Rule 9(b).  The court wasn’t going to get into implied versus explicit falsity on a motion to dismiss.

The state law claims therefore also survived.