competitor lacks Lanham Act standing absent allegations of why it in particular would be harmed by false advertising

Blue Star Press, LLC v. Blasko, No. 17-CA-111-OLG, 2018 WL 1904835 (W.D. Tex. Mar. 6, 2018) (magistrate judge R&R)

The parties make adult coloring books, typically marketed as a means of relieving stress but proving stressful in this litigation. Blue Star began successfully publishing adult coloring books in 2015, then began working with defendants Reagan and Sada Lewis to create Christian-inspired coloring books. However, Reagan allegedly secretly agreed to work on competing adult coloring book publishing with his friend, defendant Sean Blasko, agreeting “to fraudulently steal coloring book opportunities and sales from Blue Star, often misappropriating Blue Star’s own Trade Secrets/Confidential Information to do so.”  Blasko counterclaimed, alleging that Reagan Lewis in fact stole trade secrets from him, including confidential methods for “determining keyword search terms and online marketing and advertising,” and for “obtaining sponsored ads on Amazon for books” with less “need for ‘good’ keyword search terms.”

The court found that Blasko’s counterclaim stated a claim under the FDTSA.  Blue Star argued that

misappropriation had to be made with actual or constructive knowledge, but Lewis was Blue Star’s employee at the time of the alleged misappropriation. Blasko plausibly alleged that Lewis was acting within the scope of his employment at Blue Star, and thus that Blue Star was vicariously liable, a type of liability the court determined was available under the FDTSA.  Even assuming, as Blue Star argued, that Lewis’s secret relationship with Blasko was in violation of his employment agreement with Blue Star, and that, had Blue Star known about it, Lewis would have immediately been fired, agency/responsibility for Lewis’s acts was a factual issue.

Blue Star did better against Lanham Act and state false advertising-related counterclaims. Blasko alleged that Blue Star misled consumers into believing that Blue Star had the lawful right to republish the artwork in its books; misled consumers by passing its books off as books published by their competitors; misrepresented that one or more of Blue Star’s books were “NEW & EXPANDED”; and misrepresented that Blue Star’s artwork is “all hand-drawn” and drawn “by independent artists” in Texas for Blue Star.

Lexmark’s causation requirement had bite here, despite the fact that the parties directly compete.  The court indicated that “Blasko might have demonstrated the needed causal connection by alleging, for example, that some of Blue Star’s claimed ‘knock-off’ publications mimicked Blasko publications or that, unlike Blue Star’s publications, Blasko’s publications actually were hand-drawn, created by independent artists, or created by local or Texas artists.” But Blasko instead only conclusorily alleged harm.  Direct competition wasn’t enough; Blasko didn’t allege how any of Blue Star’s alleged conduct took away from Blasko’s market share, as opposed to that of other competitors.  Nor was it sufficient to allege that Blue Star could sell at lower prices for higher margins and with less cost because Blue Star does not pay for the proper licensing fees that Blasko pays, “including for books containing the same themes and images such as the parties’ Dia de los Muertos books.” The injury to Blasko could have resulted from any number of other reasons—potential harm isn’t enough for standing.