Thursday, January 15, 2015

Interpretation of alleged relabeling agreement is for jury

Ecore International, Inc., v. Downey, No. 12–2729, 2015 WL 127316 (E.D. Pa. Jan. 7, 2015)
Ecore makes recycled rubber flooring; defendants allegedly relabeled and resold Ecore’s goods as its own.  Downey owns an engineering consulting company that provided consulting services to Ecore, and founded and was the sole shareholder of defendant Pliteq, also in the business of sound-control flooring products.  Defendants bought Ecore products through third parties, first buying unlabeled goods and adding Pliteq labels.  Later, defendants had workers remove the Ecore labels and replace them with Pliteq ones. Defendants allegedly took precautions to prevent the relabeling from being discovered, including instructing employees not to mention Pliteq when communicating with Ecore. Defendants also published marketing materialis misrepresenting that Pliteq created and manufactured the products.
Defendants argued that there was an email agreement between Downey and Ecore to relabel to deal with some competitors, and that Ecore used similar private labeling strategies with other partners. Ecore denied this and denied that the relevant person even read the part of the message at issue. The court found that the relevant email, while it appeared to discuss competitors’ products, was “difficult to comprehend fully from an outside perspective, even with the benefit of some deposition testimony.”  The key portion says:
If Irvine is willing to accept alternates, I have told Mark that we will sell a private label of QT [Ecore’s product brand], called Pliteq GenieMat, through our distributor at $0.75/SF. It won’t have the same level of testing, or say QT on it, but at least is comparable with the SoundSeal testing, and we can provide a letter saying it is a private label as manufactured by Ecore. This should alleviate their need for lowest price.
Ecore’s response email said “F* * * them ... cut their throat on price....this is a war and our nuclear device is not ready yet. The USRR suit is going to cost a f* * *ing fortune to defend. Take no prisoners ... we’ll clean up the market mess once we have the reissue in hand” (ellipses in original).  Ecore said that the recipient didn’t even read the relevant portion of the email, and also noted that defendants’ conduct was inconsistent with the alleged proposal because the relabeling never came with any sort of “letter saying it is a private label as manufactured by Ecore.”  Plus, defendants resold the products at a higher price, which didn’t seem in keeping with the alleged agreement.
Given the highly factual nature of the dispute, the court denied summary judgment for Ecore. The court also noted that defendants’ argument that relabeling/private labeling was common wasn’t sufficiently shown.  They cited a case finding that, “because it was common in the clothing industry for retailers to add their own labels, retailer labels do not express or are not understood by consumers as a designation of origin at all, and thus they cannot constitute false designations of origin for the second element of a reverse passing off claim.”  But defendants only offered examples of Ecore’s own private labeling agreements; they didn’t show a common industry practice. Plus, defendants didn’t just relabel. They made express statements of origin on their website and in marketing materials. However, the existence of private labeling agreements did potentially enhance the credibility of the claim that Ecore had a similar agreement with defendants, further showing that the issue should be for the jury.
The false advertising claims were based on largely the same misrepresentations as to the source of the products in marketing materials.  Ecore argued that actual deception and materiality could be presumed given literal falsity. But this presumption only applied for injunctive relief, not money damages.  Ecore’s off-hand reference to evidence that two actual consumers were misled wasn’t enough to grant it summary judgment. Those incidents involved a sales rep who wrongly tried to push customers into buying defendants’ products rather than Ecore’s, which had little or nothing to do with the advertising statements at issue.

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