Wednesday, February 13, 2019

FTC standards for "made in the USA" support competitor's literal falsity claim

BenShot, LLC v. Lucky Shot USA LLC, 2019 WL 527829, No. 18-C-1716 (E.D. Wis. Feb. 11, 2019)

“In 2015, BenShot began selling drinking glasses with bullets embedded in the side via an insertion in the glass.”  In 2016, Lucky Shot followed suit; both parties added more types of glasses over time. Lucky Shot’s logo contains the terms “U.S.A.” and “HANDCRAFTED.”  [There are detailed allegations, but suffice it to say that “Made in the USA” is allegedly a big part of the pitch on defendants’ own websites and Instagram, on Amazon, in point-of-purchase displays, in Google ads, etc.]

On, one defendant’s company profile states, “Our products are designed and developed in the USA and contract manufactured in China.” Lucky Shot’s manager allegedly admitted that the glass portions of at least Lucky Shot USA’s shot and whiskey glasses were made in China. The bottom of they whiskey glass packaging states, “Glass and packaging made in China.”

BenShot alleged federal and Wisconsin common law false advertising claims. Lucky Shot argued that  BenShot failed to plead fraud with particularity under Rule 9(b), because BenShot acknowledged that the packaging says that the glass was made in China. The court disagreed.  The fact that one type of package says that the glass and packaging is made in China doesn’t mean that the other representations—including, crucially, the representations made in advertising for the glasses—were sufficiently qualified.

BenShot also sufficiently alleged economic/reputational damages by alleging direct competition + false advertising + BenShot’s own substantial investment in making glasses in the US, which is important to customers + resulting injury.

Defendants then argued that falsity wasn’t sufficiently alleged, because they complied with FTC policy on “Made in USA” claims. See B. Sanfield, Inc. v. Finlay Fine Jewelry Corp., 168 F.3d 967, 973 (7th Cir. 1999) (“[T]he [FTC’s] assessment of what constitutes deceptive advertising commands deference from the judiciary.”). The package claims “assembled in the USA,” and the FTC says, “[t]o begin with, in order for a product to be considered ‘all or virtually all’ made in the United States, the final assembly or processing of the product must take place in the United States.”

That was a misreading of the FTC standard, which says, “when a marketer makes an unqualified claim that a product is ‘Made in USA,’ it should, at the time the representation is made, possess and rely upon a reasonable basis that the product is in fact all or virtually all made in the United States.” An unqualified “Made in USA” claim means that a product should “contain only a de minimis, or negligible, amount of foreign content.” Final assembly/processing in the US is necessary but not sufficient under the plain language of the FTC statement.  In light of the FTC standard, BenShot plausibly alleged literal falsity given that it alleged that the defendants make the unqualified “Made in the USA” claim despite admitting that this is not so. “While discovery is needed to better understand the defendants’ manufacturing process and costs, the allegations in the complaint do not suggest that this is a case ‘[w]here the percentage of foreign content is very low,’ or where ‘[f]oreign content ... is incorporated further back in the manufacturing process’ such that the foreign content does not constitute ‘a direct input into the finished product’” (citing FTC standard).

Defendants argued that BenShot failed to allege misleadingness, but literal falsity/misleadingness didn’t need to be sorted out at this stage of the case.  Defendants also argued that all of their statements had to be considered in the full context of their offerings, including their qualified statement on the bottom of their whiskey glass packaging.  The argument that one disclosure cured all other falsehoods was, the court noted, “unconvincing.”

The common law claim for unfair competition also survived.

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