"false association with EPA" claim can be brought by competitor

ISK Biocides, Inc. v. Pallet Machinery Group Inc., No. 3:21-cv-386, 2022 WL 122923 (E.D. Va. Jan. 12, 2022)

The parties compete in the market for wood protection products. ISK alleged that defendants misrepresented the safety, environmental impact, and regulatory status of their products. The court denied the motion to dismiss the Lanham Act claims but kicked out the coordinate Virginia state law claims.

Wood pallets, widely used in the supply chain, are at risk for mold, mildew, and fungus, which is bad for cargo and workers. Fungicides like those sold by the parties are one answer. FDA and EPA share regulatory authority—because pallets are used for food—but EPA does the lion’s share of the work. The delightfully named Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA) requires fungicides—which are pesticides under the law—to be registered by the EPA to be sold.

According to the complaint, one of defendants’ products has a hazardous ingredient, IPBC, that “has been found to have certain adverse effects” on humans, “including irritation, sensitivity, and toxicity to various systems,” even at a concentration of 0.5. EPA advises that those who handle products containing IPBC wear personal protective equipment such as “long-sleeve shirt[s] and long pants, chemical-resistant gloves, [and] shoes plus socks.” Others have a different ingredient, OIT, which allegedly “is harmful if swallowed, toxic in contact with skin, causes severe skin burns and eye damage, may cause allergic skin reactions, and is toxic if inhaled.” Thus, people handling products containing OIT should wear gloves, safety goggles, a face shield, and body protection. OIT is on the EPA’s Safer Chemical Ingredients List, but the EPA notes that OIT “is not associated with a low level of hazard concern for all human health and environmental endpoints.” Moreover, ISK alleged that none of the products are registered as pesticides with the EPA.

ISK challenged various ad claims; the court focused on a few.

For example, it was plausibly false/misleading to advertise that users handling one of the products “need not wear protective equipment.” Since defendants’ data sheet said that it contained a maximum of under 10% of IPBC, it was reasonable to infer that it was at least 0.5% of the product, which was allegedly enough to have adverse effects on humans. Given the EPA’s advice about using protective equipment, the complaint plausibly alleged falsity.

Moreover, an ad on a public Facebook page that referred customers to the data sheet was a commercial advertisement within the meaning of the Lanham Act; it was intended to bolster sales and was “sufficiently disseminated” to fall within §43(a)(1)(A). Proximately caused injury was also plausible because the lack of need for personal protective equipment could plausibly drive sales that would otherwise have gone to ISK.

Likewise, against the other defendant, an ad that it plausibly placed in Pallet Central Magazine which said that “WoodLock Bio-Shield Mold Inhibitor is safe for employees and machinery” was also plausibly false advertising. [Side note: I am endlessly pleased by the existence of these niche industry publications. There’s a magazine for pallets! I can only assume that there actually is a magazine for storage jars out there.] Defendants argued that their products were safe for employees “because the products do not exhibit the same characteristics as the hazardous ingredients they contain.” Although this might be borne out by discovery, ISK sufficiently alleged falsity at this stage.

Contributory false advertising: The court predicted that the Fourth Circuit would recognize contributory false advertising, because it recognizes contributory trademark infringement and both causes of action stem from the Lanham Act.

ISK adequately alleged contributory false advertising claim against defendant J&G by alleging that defendant PMG “directly engaged in false advertising that injured” ISK, by placing an advertisement in Pallet Central Magazine. And it alleged that J&G “contributed” to PMG’s conduct “by knowingly inducing or causing the conduct.” Specifically, “by misrepresenting the necessity of personal protective equipment,” J&G allegedly caused PMG to represent the product was safe for employees. “Put differently, PMG endorsed the safety of WoodLock Bio-Shield products in its advertisement based, in part, on J&G’s assurance that those handling WoodLock Bio-Shield I need not wear personal protective equipment.”

Likewise, ISK adequately alleged contributory false advertising claims against PMG.  As noted above, ISK successfully alleged that J&G falsely advertised, and it alleged that PMG “materially participat[ed]” in this conduct by distributing the sales data sheet that J&G created “during advertising and sales.”

False association: PMG allegedly advertised that WoodLock Bio-Shield “is a proven EPA registered product,” but it is allegedly not. This could cause false association with the EPA, to ISK’s detriment.

Virginia Consumer Protection Act: “[C]ompetitors lack standing under the VCPA because the legislature intended the statute to protect consumers.” Although remedial statutes must be construed “ ‘liberally, so as to suppress the mischief and advance the remedy’ in accordance with the legislature’s intended purpose,” “allowing a competitor to sue under the VCPA does not promote fair and ethical standards of dealing between suppliers and the consuming public.” [I don’t see why—it certainly has the potential to enhance deterrence, and in the Lanham Act context the Supreme Court has reasoned that competitors are often in the best position to identify and challenge false advertising.]  Likewise, Virginia’s common law does not protect against false advertising.