Monday, November 18, 2019

More Kona coffee: false designation claims under 43(a)(1)(A), but not (B), can target retailers

Two more opinions here, one about the meaning of "origin" in 43(a)(1)(A) and one about the liability of retailers for false advertising and false designation of origin.

Corker v. Costco Wholesale Corp., No. C19-0290RSL, 2019 WL 5895430 (W.D. Wash. Nov. 12, 2019)

The difference in treatment of claims against retailers of third party products under trademark and false advertising (43(a)(1)(A) and (B), respectively) appears to have hardened: here, plaintifs get to use (A) to bring their false designation of geographic origin claim against the retailers, but not (B), although the opinion is less than clear about the interaction between working parts.

Plaintiffs, coffee farmers in the Kona District of the Big Island of Hawaii, alleged that the moving defendants sell coffee products that falsely designate the geographic origin of the coffee as “Kona.”
Kroger's house blend

Magnum Exotics "Kona blend"

The retailer defendants challenged the plausibility of the Lanham Act claims and argued that Section 230 precluded claims against them.  

The retailers argued that it was the product producers who made a false statement of fact, not them, and that putting the third-party vendor’s product on their shelves or websites wasn’t a false statement of fact.  The court agreed, finding that “the policy implications of imposing liability for false advertising on all downstream participants in a retail chain are troubling.”  Quoting another court: “Defendants undoubtedly sell many products—should they be responsible for scrutinizing and determining the veracity of every claim on every product label in their stores simply because they sell the product?” The answer is no, even though it’s yes for trademark and copyright infringement, which are not obviously easier to detect--indeed, given the result on 43(a)(1)(A), it appears the very same claims get to proceed against the retailers as false association claims despite the policing difficulties thereby created.  

Without clarifying whether it was discussing direct or secondary liability, the court suggested that retailers could be liable for false advertising if they “control[] or participate[] in the creation of the offending label or create[] additional marketing materials for a product that amplify the manufacturer’s misrepresentations.”  That sounds direct; what about contributory liability?  Regardless, “false advertising claims against the retailer defendants, acting solely in their roles as retailers, may not proceed.”  However, claims based on private label coffees from Cost Plus and Kroger could continue.

False association: plausibly pled (apparently also against the retailers as retailers of third party products), because “origin” has always been understood to include geographic origin, even if it also expanded over time.  (The court rejected Sugai Prods., Inc. v. Kona Kai Farms, Inc., 1997 WL 824022 (D. Haw. Nov. 19, 1997), to the extent that it held that a false association of origin claim under 43(a)(1)(A) protects only against misrepresentations as to the identify of a product’s manufacturer.) No protectable ownership interest in a mark is required under §43(a)(1)(A) where the claim was based in false designation of geographic origin.

The claims were pled with sufficient particularity. For example, plaintiffs alleged that Costco “sells a variety of deceptive coffee products, including but not limited to Magnum Exotics.” Magnum Exotics products were marked with the word Kona on the front of the packaging and allegedly used deceptive taglines, slogans, and imagery that imply, falsely, that the coffee in its “Kona” products originated in the Kona District; the plaintiff provided examples of the offending text and images.  The use of exemplar products didn’t “invalidate or make unclear the allegation that Magnum Exotics products marked with the word Kona and sold by Costco contain a false designation of origin.” That was enough information for Costco to defend itself.  At one point, plaintiffs alleged that “[s]ampling has shown that nearly every product labeled ‘Kona’ in [the supplier defendants’] product lines misrepresents the origin of the coffee beans contained in the package.”

Defendants argued that plaintiffs were therefore not challenging every product labeled “Kona” and they had no way of knowing which products were at issue. But the immediately following allegations clarified that plaintiffs were alleging a consistent practice of false designation of origin,

even if a few Kona beans made their way into an individual package. Given the scarcity of authentic Kona coffee (… Kona coffee represents on 0.01% of the worldwide supply of coffee) and the high profitability of marketing commodity coffee as if it were Kona coffee, it is no surprise that any defendant that is willing to engage in such deceptive practices would consistently practice their deception across all product lines. An unscrupulous merchant selling counterfeit Rolex watches on a street corner tends not to mix a real Rolex into inventory every once in a while.

(Side note: Now that’s complaint drafting.)

CDA immunity: The relevance of CDA immunity was unclear. It doesn’t apply to goods stocked and sold in a physical store, even though the defendants have websites, and it also doesn’t apply to private label products sold on those sites (as to which the retailers are the providers of the accused content).  Plaintiffs also argued that, once an online sale is made, physical-world acts to deliver the accused products to the purchaser wouldn’t be covered by the CDA, and defendants didn’t respond to that argument. The court was apparently willing to accept plaintiffs’ argument, which should deeply worry many online retailers, but the court also said in its concluding paragraph that the claim against the retailers was “barred by the CDA to the extent their conduct is limited to making a product available for sale on a website.” Because even the false designation claim under 43(a)(1)(A) isn't an IP claim, I guess that means that sales of the non-house brand stuff on the websites are immunized.  (To the extent that the retailer defendants are advertising the other products on their websites, aren’t they doing more than making them available for sale? The other advertising content on the page is separate from that which is on the physical products themselves, and may or may not come from other sources—thus it could trigger secondary or even direct liability for false advertising, at least in the absence of the CDA.)

Corker v. Costco Wholesale Corp., No. C19-0290RSL, 2019 WL 5893291 (W.D. Wash. Nov. 12, 2019)

Same facts. These supplier defendants argued that, whatever the original interpretation of “origin” was, it no longer applies. Prior to 1989, Section 43(a) of the Lanham Act prohibited “false designation[s] of origin” generally. In 1989, Congress split 43(a) into two separate subsections, “the first of which covers false designations of origin that cause consumer confusion and the second of which covers false designations of geographic origin in advertising.” The suppliers argued that, because a misrepresentation of “geographical origin” in advertising or promotion is specifically prohibited by Section 43(a)(1)(B), a claim based on false designations of geographical origin cannot be brought under Section 43(a)(1)(A) even there’s a likelihood of consumer confusion.

The court disagreed. The more general term “origin” can still cover claims based on geography.  (Sure, but at heart this is a false advertising claim, and probably should have the false advertising requirements—commercial advertising/promotion and materiality.  That said, those seem easily satisfied by the labels here, especially given the prominence of the “Kona” claim.)  Subsequent cases have continued to talk about “origin” as encompassing geographic origin. (Citing Dastar and Two Pesos as well as Kehoe Component Sales, Inc. v. Best Lighting Prods., Inc., 796 F.3d 576, 587 (6th Cir. 2015) (“As Dastar makes plain, an entity makes a false designation of origin sufficient to support a reverse passing off claim [under Section 43(a)(1)(A) ] only where it falsely represents the product’s geographic origin or represents that it has manufactured the tangible product that is sold in the marketplace when it did not in fact do so.”).)   Sugai Prods., Inc. v. Kona Kai Farms, Inc., 1997 WL 824022, at * 11 (D. Haw. Nov. 19, 1997), held that only (a)(1)(B) applied to false designation of geographic origin, but the court here disagrees.

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