Monday, May 06, 2019

court rejects contributory false advertising under Lanham Act

Telebrands Corp. v. My Pillow, Inc., 2019 WL 1923410, No. 18-CV-06318 (N.D. Ill. Apr. 30, 2019)

Telebrands sued My Pillow (maker of a “patented pillow product,” which I’m so tempted to call PPP) for breach of contract, breach of implied contract, tortious interference with business expectancy, unjust enrichment, and quantum meruit. My Pillow counterclaimed for false advertising in violation of the Lanham Act, violations of the Illinois Uniform Deceptive Trade Practice Act (IUDTPA) and the Illinois Consumer Fraud and Deceptive Business Practices Act (ICFA), unfair competition, fraud, and breach of contract. Here, the court dismisses some of the counterclaims.

The counterclaim alleged that My Pillow and Telebrands entered into a License Agreement under which My Pillow had the right to market its pillows directly to consumers and Telebrands had the exclusive right to “advertise, promote, market, distribute, and sell” the My Pillow pillows in certain stores. The License Agreement required Telebrands to comply with all applicable laws in performing under the License Agreement, including the FTC Act. It automatically terminated by its terms in 2014, but the parties continued their business relationship through a series of purchase orders.

After that time, Telebrands allegedly agreed not to engage in false advertising of the My Pillow product and to prevent its retail clients from engaging in false advertising, but didn’t.  For example, in September 2018, allegedly listed My Pillow’s product as “Telebrands My Pillow” and showed a box image that contained an endorsement of the product as “National Sleep Foundation Official Pillow.” But My Pillow was, at the time, subject to a consent decree that prohibited My Pillow from making any health claims about its product or advertising it as an “official” product of any organization. Although it informed Telebrands of the decree, and Telebrands agreed to ensure that its retail clients remove from its advertisements all health claims and/or statements that My Pillow is the “official” pillow, Telebrands allegedly failed to monitor its retail clients’ advertisements to ensure the retailers complied with My Pillow’s directives. My Pillow’s CEO allegedly met with a Telebrands representative and showed them examples of false advertising from Telebrands’ retailers. The rep then offered to indemnify My Pillow for any damages incurred from the false advertising.

Telebrands also allegedly agreed to prohibit and prevent its retail clients from purchasing “ad words” on Google and other search search engines, but didn’t.

The court applied Rule 9(b) to all the counterclaims as grounded in fraud.

Telebrands argued that My Pillow’s Lanham Act claim failed because it was based entirely on statements appearing on the websites of third-party retailers. My Pillow argued that Telebrands is subject to contributory liability.  The court disagreed.  Under Lexmark, My Pillow had to plead and prove “economic or reputational injury flowing directly from the deception wrought by [Telebrands’] advertising.” [That alteration is doing a lot of work used to defeat a contributory liability theory.]

Duty Free Americas, Inc. v. Estee Lauder Companies, Inc., 797 F.3d 1248 (11th Cir. 2015), held that a plaintiff could assert a claim for contributory false advertising, analogizing to contributory trademark infrignement. Under that standard, the “plaintiff must show that a third party in fact directly engaged in false advertising that injured the plaintiff” and that the “defendant contributed to that conduct either by knowingly inducing or causing the conduct, or by materially participating in it.”

But the Seventh Circuit hasn’t recognized contributory false advertising. “[S]uch a claim would be inconsistent with Lexmark’s proximate cause formulation.”  [No it wouldn’t!  It would just identify the primary false advertiser.  Lexmark didn’t address secondary liability.] Anyway, the court rejected the claim even assuming the DFA standard applied, because My Pillow didn’t allege that Telebrands engaged in the alleged false advertising by inducing, causing, or materially participating in the conduct.

[Courts recognize contributory trademark infringement all the time; the relevant statutory language supporting this type of liability, or lack thereof, is the same.  Say it’s not sufficiently pled, that’s fine, but it’s no surprise that the court doesn’t give any reason that trademark and false advertising ought to be treated differently.]

Because the IUDTPA, ICFA, and unfair competition claims were the same as the Lanham Act, they also failed.  [I often wonder why people don’t make more out of statutory differences.  While what constitutes deceptive advertising might and probably should be consistent across the statutes, they often don’t have the same language for things like primary v. secondary liability.  The precedents linking Lanham Act and state law claims are about the core issue of falsity/materiality/damage.]

Finally, My Pillow did meet the Rule 9(b) particularity requirements for fraud with regards to indemnification for/policing of false advertisements based on the CEO’s meeting with a specific Telebrands rep, but failed to allege sufficient details regarding AdWords, including which words should be covered, the content of ads, the identity of the relevant retail clients, or when or where the allegedly violative ads appeared.

Breach of contract failed; it was just a reassertion of the failed alleged violations of the Lanham Act, the IUDTPA, and the ICFA as a breach of the compliance-with-law clause of the contract. The only other specific statute that My Pillow identified was the FTC Act, but it didn’t allege any specifics that support that claim.

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