Monday, October 31, 2016

Disparaging an unauthorized reseller could violate the Lanham Act

Dentsply Int’l Inc. v. Dental Brands for Less LLC, No. 15 Civ. 8775, 2016 WL 6310777 (S.D.N.Y. Oct. 27, 2016)

Dentsply sued Dental Brands over Dental Brands’ resale of Dentsply’s dental products without Dentsply’s authorization. Dental Brands buys Dentsply’s products overseas, where they’re sold at 20-65% below the prices in the US, and then resells them domestically.  Dental Brands counterclaimed for antitrust and false advertising violations. Along with filing suit against unauthorized resellers, Dentsply allegedly falsely claimed that Dental Brands’ products (1) were “materially different” and “inferior” to Dentsply’s products sold by its authorized distributors, (2) have been “mishandled” and (3) present an “immediate safety and health risk to their patients and puts dentists at risk of liability to patients.”

The court dismissed the antitrust claims because Dental Brands lacked antitrust standing, but the false advertising counterclaim survived.  The counterclaim alleged that Dental Brands “stores and ships” the Dentsply’s products “following the same directions” that Dentsply provides to its authorized distributors; that Dental Brands “does not sell dental product less than twelve months before its expiration date”; and that the Dentsply products Dental Brands offers are not any different in quality, composition or formulation from the Dentsply products sold by authorized distributors. Thus, Dental Brands plausibly alleged false advertising.

However, New York commercial disparagement and defamation claims were dismissed.  Disparagement and defamation are different claims, and “New York courts have taken a relatively strict approach” such that if “the statements concern products or services at all, it is rare for a court to find that a claim for commercial defamation lies.” The issue here was only product disparagement.  That matters because “injury is conclusively presumed” for defamation, but a plaintiff alleging product disparagement must plead and ultimately prove “malice and special damages.” New York law that special damages be pled with more than round dollar amounts; this “particularity requirement is strictly applied.” 

Dental Brands didn’t plead special damages.  Dental Brands invoked the Restatement (Second) of Torts, arguing that it could use a “lost sales” theory of special damages because it could show “with reasonable certainty” that a “[w]idely disseminated” misrepresentation caused “serious and genuine pecuniary loss by affecting the conduct of a number of persons whom the plaintiff is unable to identify and so depriving him of a market that he would otherwise have found.” But New York hasn’t adopted this theory, and even if it applied, a plaintiff must do more than estimate damages.

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