Cascade Yarns, Inc. v. Knitting Fever, Inc., 2015 WL
1735517, No. C10–861 (W.D. Wash. Apr. 15, 2015)
This is another round of an “extensive” lawsuit between the
parties, who compete to sell yarn. Relevant here are Cascade’s claims against
KFI under the Lanham Act and Washington state law for for false advertising
related to the country of origin labels on KFI’s Katia and Mondial yarns. KFI
had previously admitted that certain yarns were sold by KFI in limited
quantities in 2012 without labels properly reflecting their Chinese origins.
KFI argued that Cascade’s false advertising claims had to
fail because Cascade had no evidence of injury, despite its assertion of sales
diversion. Cascade argued that it was
pursuing a theory of disgorgement, which didn’t require direct injury. To get
money damages, Cascade needed to show actual injury; literal falsity leads to a
presumption of consumer deception, but not a presumption of damage to the
plaintiff when the literal falsity is noncomparative and there are numerous
competitors in the market. This principle avoids awarding plaintiffs a windfall
that would be punitive rather than compensatory. “The fact that failure to
designate country of origin may be actionable under the Lanham Act does not
mean that any competitor in the market is entitled to recover.” Thus, the
Lanham Act damages claim was dismissed.
In a footnote, the court rejected KFI’s argument that
Cascade lacked Lanham Act standing under Lexmark.
“Cascade’s allegations of lost profits and damage to its business reputation
satisfy the requirements of Article III standing, and as a direct competitor
alleging diversion of sales, Cascade meets the prudential standing requirements
that its claim fall within the ‘zone of interests’ protected by the Act and
that its alleged injuries be proximately caused by the Act’s violation.”
As for the availability of injunctive relief, competitors
need not prove injury. “Cascade’s failure to raise a triable issue of fact as
to causation and injury does not affect the viability of its Lanham Act claim
to the extent that Cascade seeks injunctive relief.” However, Cascade still needed to show the
other elements of a false advertising claim.
The court first rejected KFI’s unclean hands defense.
Although Cascade admitted to having briefly sold four King Cole yarns that were
not properly labeled as to country of origin, that didn’t foreclose its claim
for injunctive relief. “Indeed, there is
good reason to permit an injunction action to proceed where a monetary action
would be barred: in the former case the Court must take into account the
public’s interest in being freed from deceptive practices in addition to a
litigant’s interest in being compensated where harmed by them.” (Query how this comports with eBay and Winter.)
KFI admittedly mislabeled three yarns when they were first
imported in 2012, but they bore corrected labels by the end of 2012, and there
was no evidence of further mislabeling. Cessation alone didn’t moot the claim
for injunctive relief; the burden is on the defendant to show that its reform
is “irrefutable and total,” and injunctive relief may also be appropriate for a
terminated but willful violation. There was no evidence of willful violation
here. “KFI has provided ample assurance that it will not again sell these three
Mondial yarns without properly designating their Chinese origin.” Thus, the
court wouldn’t “waste judicial resources in fashioning an entirely superfluous
remedy” as to those yarns.
However, there was a genuine issue of material fact as to
continued mislabeling of another variety of yarn. A witness admission that it
was made in Turkey rather than Italy raised a question of proper labeling. KFI
continued to list the yarn on its website “without assurance that any past
mislabeling has been irrefutably addressed.” Cascade would be allowed to seek
equitable relief from the court (not a jury).
The state law claims received the same treatment.
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