putting a label on a product you produce isn't direct false advertising, but could be direct false association

OK, I admit I'm pretty baffled by this.

Hawaii Foodservice Alliance, LLC v. Meadow Gold Dairies Hawaii, LLC, 2023 WL 159907, No. 21-00460 LEK-WRP (D. Hawai’i Jan. 11, 2023)

Plaintiff alleged that defendant MGD advertises and sells milk that is one hundred percent from cows outside of Hawai‘i. Defendant dairy farmers allegedly apply labels to the pre-packaged milk products “indicating such products originate from ‘Hawaii’s Dairy,’ are ‘Made with Aloha,’ and, in some instances, are associated with the farmers in Oahu who produced milk from their cows in Hawaii through the ‘Dairymen’s Association’ beginning in the late 1800s, before they are shipped to MGD in Hawaii.” Some mainland milk was allegedly pasteurized in California, shipped to and re-pasteurized on the Island of Hawaii, and then packaged by MGD with identical labeling. “Hawaii’s Dairy” and “Made with Aloha” on the labels allegedly falsely represented origin, as did MGD’s website claims of “AN ISLAND TRADITION,” “that MGD is proud to be locally owned and operated” and MGD “continue[s] to produce your Meadow Gold favorites always made with aloha.” “MGD’s website also prominently features the MGD mascot known as ‘Lani Moo’ in local Hawaii attire, along with several photographs of farmland and a cow in Hawaii[.]” Plaintiff alleged, however, that “MGD owns zero cows in Hawaii ... and owns zero dairy farms in Hawaii.” Allegedly, a different “Meadow Gold” entity long ago operated dairy farms in Hawaii, but MGD didn’t.

Plaintiffs’ claims sought to hold the dairy farmers directly or contributorily liable under the Lanham Act, and alleged unfair competition/false advertising/deceptive trade practices under Hawaii law. The dairy farmers sought dismissal.

Was a false geographic origin claim one for false association, § 1125(a)(1)(A), or false advertising, § 1125(a)(1)(B)? Courts have treated them as one, the other, or both; the court here said that they could be both.

Why does this matter? Perhaps because courts are tougher on false advertising claims in a lot of ways, including with precedent that, for false advertising, direct liability only attaches to actors who actively make false or misleading claims, while false association allows direct liability for those who only “use” such claims (note this doesn’t actually matter to the outcome of this case, but it matters to retailers). Here, under §43(a)(1)(A), “Plaintiff need only allege that the Dairy Farmers used in commerce any word (or words) which is likely to cause confusion as to the geographic origin of their milk products by another person.” That was sufficiently alleged. The defendants allegedly put the products in interstate commerce and applied the labels to them. The court didn’t bother to analyze contributory liability.

What about direct liability for false advertising? Defendants argued that there was no literal falsity, but misleadingness and materiality was also alleged. Here, the dairy farmers allegedly individually produced, packaged, and labeled the milk products on the mainland then sent them to Hawai’i for MGD to sell on the island.  “[H]owever, Plaintiff does not allege that the Dairy Farmers had control over, or involvement in, creating the statements on the labels. Thus, the Court cannot determine whether the Dairy Farmers are the entities that made ‘the specific, false statements at issue in the litigation[,]’ even if they ultimately applied the labels to the products.” [This strikes me as a really constrained reading of direct liability, and very much in contrast to the leniency IP claimants get. Compare an allegedly false statement presented in an ad as a quote from an endorser: would the advertiser not be directly liable because it wasn’t the first to make the statement?] Thus, the direct liability claim for false advertising was dismissed with leave to amend.

Contributory false advertising: This requires that the defendant contributed to direct false advertising either by knowingly inducing or causing the conduct, or by materially participating in it. Participation can occur when “the defendant directly controlled or monitored the third party’s false advertising,” or possibly when the defendant provided “a necessary product or service, without which the false advertising would not be possible.” On a motion to dismiss, courts look for a plausible inference of knowing or intentional participation, examining “the nature and extent of the communication” between the third party and the defendant regarding the false advertising; “whether or not the [defendant] explicitly or implicitly encouraged” the false advertising; whether the false advertising “is serious and widespread,” making it more likely that the defendant “kn[ew] about and condone[d] the acts”; and whether the defendant engaged in “bad faith refusal to exercise a clear contractual power to halt” the false advertising.

Here, plaintiff sufficiently alleged direct false advertising against MGD.  And it alleged that the milk producers knew that their respective milk products were not sourced from Hawai‘i and that the labels they applied to those products were false, misleading, and/or deceptive, but supplied the milk products to MGD nonetheless.

But plaintiff didn’t adequately allege that the Dairy Farmers “intended to participate or actually knew about the false advertising.” Labeling products with packaging that said “Hawaii’s Dairy” and “Made with Aloha,” does not on its own “suggest[ ] a plausible inference of knowing or intentional participation.” [Um, if they were doing it on the mainland, why not? Surely they knew they were doing it on the mainland, and not in Hawai’i?] Plaintiff failed to allege “the nature and extent of the communications between” the dairy farmers and MGD regarding the statements and thus they didn’t allege material participation. [I also have no idea how a plaintiff is supposed to allege internal communications.]

In addition, plaintiff failed to plead the requisite knowledge with particularity. [I’m not a civ pro expert, but I thought that, even with fraud, knowledge and intent can be alleged generally as matters entirely within the knowledge of the defendant.]

“Ultimately, Plaintiff does not sufficiently allege the Dairy Farmers induced, caused, or worked to bring about the alleged misleading statements.” But there was leave to amend.

Unfair competition under Hawai’i law: This requires unfair conduct that “offends established public policy and … is immoral, unethical, oppressive, unscrupulous or substantially injurious to consumers,” plus injury that negatively affects competition or harms fair competition. This too failed as to the dairy farmers, who allegedly did nothing more than labeling and packaging their milk product. So too with state law false advertising.

Deceptive trade practices: This applied to a person who, inter alia, caused likely confusion about source etc. or used deceptive representations or designations of geographic origin. This was plausibly alleged. The dairy farmers “used those labels and statements insofar as they packaged, labeled, and shipped the milk products to Hawai’i.”