Lack of affirmative statement dooms Lanham Act claim

FMC Corp. v. Summit Agro USA, LLC, 2014 WL 6627727,  No. 14–51 (D. Del. Nov. 14, 2014) (magistrate judge)

FMC and Summit Argo compete in the herbicide market.  Herbicides are sold by manufacturers to distributors, thence to retailers, thence to farmers/growers.  According to Summit Argo’s witness, this isn’t like grocery shopping; growers tend to work one-on-one with salespeople employed by retailers, or with independent agricultural consultants.  Thus, growers rarely view product packaging or labeling before buying, though sometimes they may read product labels on shipping boxes or individual jugs when shopping at a retailer.  Growers may also apply the herbicide themselves or contract with a third-party applicator; in the latter case, the grower often won’t ever see the product or its packaging.  Defendants’ expert Fowler testified that “where and how the active ingredient [in a herbicide product] was made is irrelevant to a grower’s purchasing decisions.”  He identified a number of relevant considerations, including price, expected crop value, spectrum and duration of weed control, method and timing of application, ease of use, volatility, product safety and product reliability.  Two herbicides are rarely ever equal; they offer different mixes of benefits.

FMC did provide evidence of “consumer ethnocentrism” from Professor Naveen Donthu. He testified that consumers prefer to purchase domestically-manufactured products, in order to assist the domestic economy, increase domestic jobs and further a sense of patriotism.  The largest market for herbicides in the US is Midwestern farmers. Donthu studied U.S. citizen adult consumers in the American Midwest and found that consumers who exhibited each of three “cultural variables (collectivism, masculinity and uncertainty avoidance)” reacted negatively to the perceived quality of Japanese products, exhibited less intention to purchase such products and owned fewer such products.  He also cited sources supporting claims that rural Midwesterners tend to be collectivist and uncertainty avoidant, and that a high percentage of people running Midwestern farms are men.  Thus, he opined that, all things being equal, American farmers would prefer domestically produced goods versus goods produced in China. Thus, a label falsely indicating or implying domestic manufacture would deceive consumers.

When Summit began shipping its product in mid-2013, the boxes containing the gallon jugs of the product didn’t indicate Chinese origin.  After October 2013, they did, but the actual jugs have never been so labeled.

The judge concluded that FMC didn’t identify any actionable misrepresentation, even if Summit violated the Tariff Act, which requires that “[E]very article of foreign origin (or its container ...) imported into the United States shall be marked in a conspicuous place as legibly, indelibly, and permanently as the nature of the article (or container) will permit in such manner as to indicate to an ultimate purchaser in the United States the English name of the country of origin of the article.” 19 U.S.C. § 1304(a).  

First, the court rejected cases holding that violations of the Tariff Act per se violate the Lanham Act (a variant of falsity by necessary implication based on the background rule that foreign goods are labeled as such, creating the conditions under which consumers examine unlabeled goods).  See, e.g., Alto Prods. Corp. v. Ratek Indus. Ltd., No. 95 Civ. 3314 (LMM), 1996 WL 497027 (S.D.N.Y. Sept. 3, 1996). Alto held that “[l]ogic dictates” that a consumer viewing such a label will necessarily “assume that [the goods] are American-made, thus creating a likelihood of confusion with goods which are, in fact, American-made,” and that this was material.

But §43(a) imposes no affirmative duty of disclosure; it requires a “false designation of origin” that amounts to a “misrepresent[ation],” which “appears to require that a defendant make an actionable affirmative statement in order to have violated the statute.”  A statement is actionable if it’s misleading or untrue as a result of failure to disclose a material fact, but “in and of itself an omission is insufficient; the plaintiff must also point to an actionable affirmative statement in order to breathe life into such a claim.”

Moreover, the judge didn’t agree with Alto’s reasoning about what a consumer looking at an unlabeled good would necessarily think, given that foreign-made goods are often sold in the US.  (But they are sold labeled, which is the point.  A product on the shelves at Target is presumptively new; a product on the shelves at Goodwill is presumptively used.  Context provides important information.  I find Alto’s reasoning—“this is an X” presumptively communicates “this is an X made in the US” unless otherwise labeled—persuasive.)  At the very least, since this is implied, actual evidence of consumer deception would be required.  Plus, if a violation of the Tariff Act automatically violated the Lanham Act, that would conflict with the idea that there’s no private cause of action for violations of the Tariff Act.

The jug labels at issue didn’t have literally false statements of origin.  True, the label said “Distributed by: Tenkoz, Inc. 1725 Windward Concourse, Suite 1410 Alpharetta, GA 30005[.]” But this was literally true.  Nor did it necessarily imply US origin of the active ingredient.  Instead, consumers would have to make a number of mental leaps to conclude that US-based distributors distribute only US-made goods.

Without a survey or other evidence of actual deception, FMC couldn’t win.  Its expert declaration wasn’t enough.  Professor Donthu didn’t speak to whether any Midwestern farmer was actually confused or would be confused by a similar label.  Instead, Donthu focused on Midwesterners’ desire to buy American.  His declaration assumed a label falsely implying American origin.  Plus, the evidence cut against the idea that farmers even see the labels before buying; Summit’s evidence was more detailed on this point.  The record evidence indicated that, while some farmers read product labels before purchase, mostly they don’t.  Unread labels couldn’t deceive a substantial portion of the intended audience.  (Seems like there’s a theory here for deceiving the consultants and third parties who guide farmers’ purchases.)

Also, FMC didn’t show materiality.  Donthu’s conclusions relied on an earlier article he wrote, but that article examined Midwesterners generally, not farmers or agricultural employees, or even businesspersons.  It looked at their views about cars and consumer electronics, not herbicides or agricultural products, and it related to Japanese origin, not Chinese, around 2005, not 2013.  Donthu conceded that these differences could be significant. Plus, Donthu wasn’t an expert on farmers, and he relied on data “presented at a high level of generality,” such as data for all US farmers instead of those who purchased the relevant products.  This was significant because the evidence indicated that herbicide purchases depend on a number of specific factors; “when Kasper, FMC’s Commercial Director, was asked at his deposition to identify important factors going to farmers’ herbicide purchasing decisions, he did not even mention country of origin as one such factor.”  And Donthu’s ultimate conclusion relied on all other things being equal, which they weren’t when herbicides were at issue.

Thus, FMC didn’t show likely success on the merits.  For much the same reasons, the judge recommended granting Summit’s motion to dismiss—FMC didn’t plead an affirmative misrepresentation.  This also doomed the Delaware Deceptive Trade Practices Act claim, and the common-law unfair competition claim failed to allege a particular valid business relationship with which Summit interfered.