Monday, October 27, 2014

Which false advertising claims are barred by Dastar?

A.H. Lundberg Associates, Inc. v. TSI, Inc., No. C14–1160, 2014 WL 5365514 (W.D. Wash. Oct. 21, 2014)

The parties compete to make and supply equipment to various processing industries. Defendant TSI specializes in wood and biomass, and began purchasing plaintiff Lundberg’s products in 2007.  In 2012, Gary Raemhild, a Lundberg employee with design and engineering knowledge, left Lundberg to work for TSI.  TSI then began offering products that Lundberg alleged were copied from Lundberg based on information and drawings from Raemhild.  Lundberg alleged (1) false designation of origin/reverse passing off; (2) false advertising of the authorship of the design of the products; and (3) false advertising based on TSI’s claim to have made “improvements” to the products.

Dastar barred the false designation of origin claim.  TSI physically made the goods it sold, so that’s it.  Courts have also (wrongly) held that false claims of authorship can’t be false advertising under §43(a)(1)(B), and the court here joined them—misrepresenting authorship isn’t misrepresenting “nature, characteristics, or qualities” covered by §43(a)(1)(B).  An actionable misrepresentation has to relate to something that would “change the user’s actual experience of the product”:

[T]he origin of the design of a product, like licensing status, is not a “characteristic” of that good. A difference in the original author of the design would not change a pollution compliance product user’s experience because the features and function of the product would be identical in both instances. TSI’s alleged misrepresentation that it designed its own pollution control products amounts to a false designation of authorship and does not implicate any “physical or functional” attributes of the pollution compliance products.

The Lanham Act isn’t a device for perpetual patent protection any more than it is for perpetual copyright.

Comment: this result makes sense in this particular context, but it ought to be a materiality determination, not an interpretation of “characteristics.”  As stated, for example, a misrepresentation that goods were “union made” would arguably be excluded from §43(a)(1)(B) coverage.  Yet the precise reason that producers advertise “union made” or “dolphin safe” etc. is to generate sales from consumers who strongly believe that such products are better than products not produced under the relevant conditions.  (By contrast, producers make authorship claims almost inherently when selling: “our product does X” could at least be alleged to be a representation of creation.)  See Kwikset v. Superior Court (California consumer protection case discussing, among other things, the irrelevance of physical differences when meat has been misrepresented as kosher).

If we read “product user’s experience” to include the hedonic experience—the satisfaction the consumer receives from buying the product—then “union made” would be a “characteristic” even if authorship isn’t, despite the lack of physical effects on the product.  But why tap dance in this way instead of using materiality?  The court cited a Ninth Circuit case, Sybersound, that held that a misrepresentation about a song’s copyright licensing status wasn’t actionable under §43(a)(1)(B), but indicated that a misrepresentation about who performed a song would change the user’s experience and thus count as a misrepresented “characteristic”—but that’s not about the physical characteristics of the recording; it’s about how consumers perceive the value of different performers.)

Finally, the allegation that TSI falsely claimed improvements in the product design was dismissed because a claim that a product is “improved” is mere puffery, and the complaint alleged that TSI failed to state what the improvements were. However, Lundberg might be able to replead to include potential claims that TSI’s press release claimed “improvements to both construction and gas flow that enhance overall productivity and maintenance.”  But the court noted that it would require Lundberg to satisfy Rule 9(b), as the 9th Circuit has done for other types of false advertising claims.  Lundberg’s complaint sounded in fraud because it alleged that Raemhild stole its trade secrets (I don’t know why that alleges fraud, given the purposes of Rule 9(b)), and because the complaint alleged that TSI was “falsely describing and misrepresenting [TSI’s] products” (“false” doesn’t necessarily mean “intentionally false,” but the court so reads it here even though stating a claim under §43(a) does not require intentional falsity).  Further, the court expressed skepticism that even claimed improvements in “construction and gas flow” would be more than puffery in the absence of anything quantifiable or measurable.  But it would allow leave to amend anyway.

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