Monday, April 30, 2018

seller can't sue customer for false advertising under Lanham Act because customer can't sue seller either

Buckeye Int’l, Inc. v. Schmidt Custom Floors, Inc., 2018 WL 1960115, No. 18-cv-111-jdp (W.D. Wis. Apr. 26, 2018)

Buckeye sells floor finishing products, including Gym Bond, which is supposed to help a clear topcoat adhere to a previously finished gymnasium floor. Schmidt used Gym Bond on the floors of several sports facilities, but the floors had problems with peeling. Schmidt turned to social media and email to voice its complaints. Buckeye contends that the peeling was caused by Schmidt’s faulty preparation of the floor surface, and sued for false advertising and related claims. The court denied a preliminary injunction.

“A customer’s complaints about a supplier’s products and services, even if posted on social media, are not statements made in commercial advertising or promotion.” In addition, there was a genuine dispute about the cause of the floor problems, making speech and counterspeech the appropriate resolution for now.

Schmidt complained about Gym Bond and Buckeye on social media and directly to Schmidt customers and trade associations, including statements that Buckeye admitted that Gym Bond is defective and that Buckeye is broke. The parties sharply disputed the truth or falsity of the statements. Schmidt took down social media postings on Facebook, YouTube, LinkedIn, and Google Review. (Schmidt was apparently very mad.)

The court explained that “commercial advertising or promotion”

is broader than classic advertising, and it is not limited to traditionally published or broadcast materials. There is no requirement that the challenged communication be distributed broadly to the general public, but there must be some public dissemination. Individualized person-to-person communication, whether conducted in-person or by means of correspondence, is not within the scope of the statute.

Thus, Schmidt’s emails or personal discussions with its customers, the trade association, or anyone else weren’t subject to the Lanham Act.  [This seems to skip a step.  Were the emails individualized or personalized, or was there a mass mailing trying to reach the relevant market?  Email ads are still ads.]

The social media posts were disseminated to some portion of the public.  Still, “not every social media posting would constitute commercial advertising or promotion”: what’s needed is “a systematic communicative endeavor to persuade possible customers to buy the seller’s product.” That’s where Buckeye’s claim faltered. Under Gordon & Breach test, Schmidt’s anti-Buckeye social media postings wouldn’t be commercial advertising or promotion because Schmidt and Buckeye are not competitors. [Though this rigid application of Gordon & Breach neglects the subsequent effects of Lexmark, which I believe removed the “competitor” prong from Gordon & Breach—and several subsequent cases have so held.] 

This public complaining wasn’t “a prototypical negative advertisement that disparages a competitor’s goods to promote one’s own. …Schmidt is explaining that the trouble with its floor refinishing is not its fault. And Schmidt is warning Buckeye’s customers about an alleged deficiency in one of Buckeye’s products. There is no endeavor to persuade any potential customer to choose Schmidt’s services.”  [Though explaining that the trouble wasn’t its fault does seem to be designed to boost Schmidt’s attractiveness to potential customers, as well as to criticize Buckeye.]  Ultimately, Schmidt’s social media postings weren’t “a systematic communicative endeavor to persuade possible customers to buy the seller’s product.” “[T]he communications at issue in this case are, at heart, those of a customer who is unhappy with a supplier’s product,” and Lexmark indicates that this isn’t generally within the Lanham Act’s purview. 

Lexmark said that in the context of not letting the customer sue the seller for false advertising of its own products’ characteristics; Lexmark itself is a disparagement case, and I read the case as allowing far greater scope for disparagement claims.  However, the court here thought that sauce for the goose was sauce for the gander: if the customer can’t sue for false advertising, then the converse should also be true. Thus, “[t]he public interest is better served by Buckeye offering its counter-explanation rather than by shutting down Schmidt’s side of the story.” Of course, causes of actions with heavier burdens of proof on intent remain.

No comments: