when is a trademark licensee's use of a TM deceptive to consumers?

Puma v. Wal-Mart Stores East, LP, No. A-1-CA-38023, 2022 WL 3221810, -- P.3d – (N.M. Ct. App. Aug. 9, 2022)

Interesting case about trademark preemption. The Pumas alleged that defendants violated the New Mexico Unfair Practices Act based on their purchase of a Black & Decker-branded coffeemaker.

Based on Black & Decker’s reputation, the Pumas thought the coffeemaker would be better than the lower-priced store brand and paid more for it as a result. However, Black & Decker did not in fact design, manufacture, distribute, or warrant the coffeemaker. Its maker, Applica, paid royalties to Black & Decker for the right to use the name and trademarks in selling small kitchen appliance. “[A] consumer reading the information on the Coffeemaker’s box would not know of any relationship between Black & Decker and Applica.” The coffeemaker evidently proved unsatisfactory, and the Pumas sued.

The district court certified a class of those who purchased the coffeemaker at a New Mexico Wal-Mart store from 2009 to 2013, approximately 40,600 members. The district court, after a bench trial, found that defendants’ conduct constituted an “unfair or deceptive trade practice.” It awarded $300 in statutory damages and attorney fees, but because the class could not establish actual damages, it was not entitled to damages.

The court of appeals affirmed the finding of a violation of the UPA against an argument that the Lanham Act preempted the claim. Defendants started with 15 U.S.C. § 1055, which allows related companies to use registered marks, including “any person whose use of a mark is controlled by the owner of the mark with respect to the nature and quality of the goods or services on or in connection with which the mark is used.” 15 U.S.C. § 1127. They argued that B&D could grant a license and be protected as long as the owner exercised quality control. And they argued that they had done so because their licensing agremeent “mandated that Black & Decker exercise control and oversight to ensure the Coffeemaker met Black & Decker’s quality standard.” [Side note: that’s not enough if they didn’t actually do it!]

But anyway, the conduct could still violate the UPA, which is “remedial legislation for consumer protection,” and which courts interpret “liberally.” “New Mexico cases have historically interpreted the UPA to focus exclusively on consumer protection, protecting innocent consumers.” By contrast, the Lanham Act protects “persons engaged in commerce” and does not allow consumers to bring claims. Interpretation of the UPA is supposed to be “guided by the interpretations given by the federal trade commission [(FTC)] and the federal courts.” Reading the latter phrase to include all federal court decisions, including Lanham Act decisions, “would produce a direction so broad as to be practically meaningless.”

Defendants’ position that, “so long as the quality associated with the Black & Decker brand is maintained, failing to indicate the ultimate source or manufacturer of the Coffeemaker cannot constitute an unfair or deceptive trade practice under the UPA,” conflicted with the UPA’s list of unfair/deceptive acts, such as “causing confusion or misunderstanding as to the source, sponsorship, approval or certification of goods” and “representing that goods ... are of a particular standard [or] quality ... if they are of another.” “The language of these subsections indicates that the Legislature intended that representations as to a product’s source could be a basis for liability under the UPA, independent of that product’s quality.”

In a footnote, the court found that the argument that the Lanham Act constituted a regulatory safe harbor/generally preempted the claim insufficiently developed.

So, was there sufficient evidence of an unfair trade practice? The district court relied on three statutory prohibited practices: “representing goods ... as those of another when the goods ... are not the goods ... of another,” “causing confusion or misunderstanding as to the source, sponsorship, approval or certification of goods,” and “using exaggeration, innuendo or ambiguity as to a material fact or failing to state a material fact if doing so deceives or tends to deceive.”

As to the first, defendants argued that this wasn’t a case of passing off, since B&D collaborated with and permitted its licensee to use the mark. And they argued that “neither the Coffeemaker nor its packaging affirmatively stated that Black & Decker designed, manufactured, distributed, or warranted the Coffeemaker.”

The court of appeals disagreed. The trial court made factual findings that the Pumas were actually deceived as to the source of the product. “Even if we assume that, by virtue of the trademark licensing agreement between Applica and Black & Decker, Defendants’ use of the Black & Decker trademark on the Coffeemaker could not alone constitute active misrepresentation as to the source or manufacturer of the Coffeemaker, Defendants have not adequately addressed the district court’s reliance on [another part of the consumer protection law], which provides that ‘using ... ambiguity as to a material fact or failing to state a material fact if doing so deceives or tends to deceive’” can constitute an unfair or deceptive trade practice.” Thus, the presence of the trademark plus the absence of any disclosure on the product or the advertising could deceive reasonable consumers about either (1) the relationship between Black & Decker and Applica; or (2) that the product was in fact a product of Applica, rather than of Black & Decker. The court pointed out that the name, “Black & Decker 12 Cup Programmable Coffeemaker” “emphasized that the ‘Black & Decker’ name was an important characteristic of the Coffeemaker; these statements tended to deceive a reasonable consumer, and Defendants knew or should have known that potential purchasers of the Coffeemaker would likely regard information about the Coffeemaker being a Black & Decker product as material.”

The court emphasized that it was not holding “that the use of a trademark by a licensee pursuant to a trademark licensing agreement by itself constitutes an unfair or deceptive trade practice,” or that individual or widespread licensing was “per se irrelevant” to the inquiry. Nor was evidence of the quality of the licensed product “per se irrelevant.” Rather, the court of appeals was simply holding that the Lanham Act did not govern the UPA claim, “and that, under the circumstances of this case, Defendants’ knowing and willful use of ambiguity as to material fact, which tended to deceive a reasonable consumer, constituted an unfair or deceptive trade practice.”

This liability victory didn’t result in big damages, though. The court of appeals found that the district court didn’t err in denying damages for unjust enrichment. And it reversed the district court’s decision to award the Pumas attorney fees related to class certification.