No mark, no false designation of origin is still the rule in NY

Innovation Ventures, LLC v. Ultimate One Distributing Corp.,
2016 WL 1317524, No. 12-CV-5354 (E.D.N.Y. Mar. 31, 2016)
 
The Fourth Circuit’s Belmora
decision did more than create protection for foreign marks in the US; it
created a conflict with a number of other doctrines about who can sue for
trademark infringement.  Here, the
district court follows Second Circuit precedent—but this case clearly should
come out the other way under Belmora,
given the harm the plaintiff concededly suffered.
 
Innovation sued lots of businesses allegedly involved in
making, selling, and distributing counterfeit 5-hour ENERGY.  Quality King is a New York-based wholesaler
of health, beauty, and grocery products, and FDI is a Florida-based wholesaler
of grocery products. Quality King bought approximately 878,688 bottles of what
FDI sold as 5-hour ENERGY, for a total price of over $1,000,000. FDI didn’t
dispute that all of these bottles were counterfeit. Quality King resold
approximately 270,864 bottles to downstream retail customers. (Quality King
56.1 ¶ 13.) The 607,824 counterfeit bottles that Quality King did not resell
were quarantined and transferred to the custody of Living Essentials; Quality
King paid FDI $799,266.80 for the counterfeit bottles that were unsold and
quarantined.
 
Quality King’s standard purchase order included
representations by FDI that “any and all merchandise that is the subject of
this purchase order (1) was obtained by Supplier [FDI] without fraud,
misrepresentation or violation of any statute, regulation, or administrative
court order, (2) can lawfully be distributed in the United States in its
present form and packaging, and (3) is not the subject of any legal or
contractual restriction on its resale by Supplier [FDI] to [Quality King].”  Also, FDI warranted and represented that FDI’s
products were genuine and not counterfeit, and FDI agreed to indemnify Quality
King for costs, expenses, losses, and attorneys’ fees for any lawsuits arising
out of FDI’s breach of the Vendor Agreement.
 
The court found that Quality King was entitled to summary
judment on its breach of contract/warranty claims in the amount of $799,266.80,
with factual disputes precluding determination of any additional damages at
this time. However, common law indemnification for the Lanham Act claims
against Quality King was unavailable, because indemnification “is neither
provided for under the Lanham Act’s extensive remedial provisions nor has
federal common law been implied to allow such remedies.” Moreover, “a party who
has itself participated to some degree in the wrongdoing cannot receive the
benefit of the [common law indemnity] doctrine.” “Common law indemnification is
warranted where a defendant’s role in causing the plaintiff’s injury is solely
passive, and thus its liability is purely vicarious.” Here, Quality King resold
hundreds of thousands of the counterfeit bottles, thus participating in some
degree in the wrongdoing.
 
Quality King also sued under §43(a)(1)(A) and (B).  The court rejected the false desgination of
origin claim because Quality King didn’t own or have a property interest in any
relevant trademark rights. “[I]t is well settled that the standards for false
designation of origin claims under Section 43(a) of the Lanham Act (15 U.S.C. §
1125) are the same as for trademark infringement claims under Section 32 (15
U.S.C. § 1114).”  Cf. Greenwich Taxi,
Inc. v. Uber Tech., Inc., 123 F. Supp. 3d 327, 338 (D. Conn. 2015) (dismissing
federal false designation of origin claim where plaintiffs failed to allege
their “associat[ion] with any recognizable marks or associat[ion] with valid
marks entitled to protection”); Zino Davidoff SA v. Selective Distrib. Int’l,
Inc., No. 07-cv-10326, 2013 WL 1234816, at *7 (S.D.N.Y. Mar. 27, 2013) (“simply
purchasing a product for resale does not give rise to an interest in that
product’s trademark sufficient to state a claim for unfair competition”);
Silverstar Enters., Inc. v. Aday, 537 F. Supp. 236, 241 (S.D.N.Y. 1982)
(dismissing Lanham Act trademark infringement claim where plaintiff sought to
enforce its own contractual rights rather than registrant’s trademark rights). Quality
King argued that it didn’t need to own the mark at issue to win a false
designation claim, but Second Circuit precedent disagreed with it.
 
False advertising: Lexmark
requires “an injury to commercial interest in sales or business reputation
proximately caused by the defendant’s misrepresentations.”  Quality King argued that two customers,
Steerforth and CVS, ceased purchasing products from Quality King “[a]s a result
of [Quality King’s] sale of alleged counterfeit 5-hour ENERGY,” satisfying its
burden.  The FDI defendants disputed the
losses; the record indicated a material factual dispute about causation.  Moreover, Quality King didn’t show proximate
cause—that its injury was proximately caused by FDI’s misrepresentations, “rather
than Quality King’s independent decision to resell counterfeit 5-hour ENERGY to
CVS and Steerforth. As the Supreme Court cautioned in Lexmark, ‘a business misled by a supplier into purchasing an
inferior product is, like consumers generally, not under the [Lanham] Act’s
aegis.’”  [I think the Lexmark Court pretty clearly meant that
a business that is the ultimate consumer
of the product
is, like consumers generally, not within the Lanham Act’s
zone of interests.  A reseller is a different matter, as the non-competitor
relationship between the parties in Lexmark
itself indicates; also, I don’t understand how Quality King’s decision to resell
to CVS was “independent” of FDI’s misrepresentations.]
 
Regardless, even assuming standing, Quality King couldn’t
show that FDI made statements in “commercial advertising or promotion.” While
Quality King argued that the packaging and labeling on the counterfeit products
was “commercial advertising and promotion,” there was no evidence that the FDI
defendants created or labeled those bottles, or that FDI engaged in a
widespread, organized campaign to mislead the public regarding 5-hour ENERGY. On
the record before the court, FDI’s participation was limited to purchasing
counterfeit 5-hour ENERGY from two wholesalers and reselling that product to
another wholesaler.
 
The state-law unfair competition claim failed because the
standards were the same as for the Lanham Act.

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