selling allegedly stolen/converted merchandise isn't reverse passing off

ML Fashion, LLC v. Nobelle GW, LLC, No. 3:21-CV-00499 (JCH), 2022 WL 313965 (D. Conn. Feb. 2, 2022)

The parties have a dispute over control of a fashion business. The Lanham Act claim is based on alleged diversion/conversion of products from one store to another, allegedly “depicting the real property, stolen products, and fixtures, furniture, and equipment in the store as its own.” The rival store, Nobelle, allegedly sells identical items procured from the same vendors as ML Fashion’s, which are supposed to be exclusive, and uses the same online descriptions “down to the prices and the photographs and text descriptions of the products.” “Since in or about late 2020, ML Fashion has been receiving calls from vendors about unpaid bills or about where to ship certain goods that have turned out to be for Nobelle.” This allegedly showed confusion about whether plaintiffs backed defendants. (I’m skipping details relevant to other claims.)

False advertising: Plaintiffs didn’t allege that Nobelle altered the merchandise in any way; “instead, the false statement arises from implication, from the fact that Nobelle is selling products that are not theirs to sell and, in the case of ‘The Line’ items, products it does not have the authority to sell.” But the complaint didn’t actually allege that defendants advertised items from “The Line,” only that they sold them. Second, more fundamentally, this was conversion/breach of contract, not false advertising. Advertising and selling merchandise that allegedly beloned to ML Fashion was not itself a false statement. The merchandise was neither branded “Nobelle” or with any mark owned by plaintiffs. The Lanham Act “imposes no affirmative duty of disclosure” on advertisers, and that “a claim [generally] cannot be based on the failure to disclose a fact” unless affirmative statements required clarification, and no such affirmative statements were alleged.

Unfair competition: Under the circumstances, this had to be false designation of origin/reverse passing off.  But ML didn’t plausibly alleged that defendants falsely designated an origin. “[T]he plaintiff[s] must allege an affirmative act in which the defendant falsely represented itself as the product’s owner or creator.” While “repackag[ing]” or altering the product in some way might be sufficient, “cases involving a claim for reverse palming off generally” – but not always – “entail the defendant removing the plaintiff’s trademark and replacing it with the defendant’s own mark.” In addition, Dastarwarns that “[t]he words of the Lanham Act should not be stretched to cover matters that are typically of no consequence to purchasers.” One case previously held that “consumers are unlikely to care who owns the product”, provided they are not being deceived in any way about its quality or maker. “It follows logically that a reverse passing off claim based entirely on disputed ownership of the goods being sold – but devoid of any affirmative false representation or allegation that the product being sold was altered in any way – is insufficient to state a claim.” There were no allegations that defendants did anything to deceive consumers into thinking that “The Line” or other branded products they are selling were in reality made by Nobelle.