Tiger, tiger burning bright: Did he who made the Lokai make thee?

Lokai Holdings LLC v. Twin Tiger USA LLC, No. 15-CV-9363, 2018
WL 739435 (S.D.N.Y. Feb. 6, 2018)
Lokai sued Twin Tiger for trade dress infringement, unfair
competition, and false advertising based on Twin Tiger’s sale of bracelets
similar to those of Lokai; both parties’ bracelets include dark and light beads.
 Lokai alleged that “the contrasting
beads of its bracelets are intended to represent balance and the cycle of life
with the dark bead filled with mud from the Dead Sea, the lowest point on
earth, and the light colored bead filled with water from Mount Everest, the
highest point on earth.”  Here, the court
dismissed Twin Tiger’s counterclaims based on failure to disclose that the
water could leak out of the beads and that endorsers were compensated for
social media promotion. In addition, Twin Tiger counterclaimed based on letters
Lokai sent to Twin Tiger’s customers, requesting that they cease selling Twin
Tiger’s bracelets and threatening litigation based on infringement of Lokai’s
intellectual property rights.
Lokai bracelet

Twin Tiger bracelet

The court found both alleged falsehoods insufficient to make out a Lanham Act
claim.  Lokai’s website says “The white
bead carries water from Mt. Everest, and the black bead contains mud from the
Dead Sea.” The idea that the water would always stay in the white bead wasn’t
the only reasonable interpretation of the statement, and thus it couldn’t be
literally false.  Nor did Twin Tiger
sufficiently plead implicit falsity; at the pleading stage, the plaintiff must “offer
facts” to support the allegation that consumers or retailers were misled or
confused by the challenged ad, though consumer survey or other extrinsic
evidence isn’t required to be incorporated into the complaint.  [What would
suffice?  Is an allegation that
“reasonable consumers believe that the water would stay in the bead for the
working life of the bracelet” an allegation of fact, or is it conclusory?  What about allegations that leak-resistant
containers this size do exist, and that reasonable consumers would expect that
their jewelry would be leak-resistant? 
Courts are not always too clear about what they want here.]
As for failure to disclose that Lokai compensates certain
influences, celebrities, and media outlets for their endorsement of Lokai
products in online and social media advertising, Twin Tiger argued that this
violated FTC guidelines.  The FTC directs
that “a connection between the endorser and the seller of the advertised
product that might materially affect the weight or credibility of the
endorsement (i.e., the connection is not reasonably expected by the audience)
… must be fully disclosed.” There’s no private right of action under the FTC
Act, though its interpretation “can and should inform what constitutes false
advertising under the Lanham Act.” 
However, “the Lanham Act requires an affirmative misrepresentation or an
omission that renders an affirmative statement false or misleading—not a
failure to disclose something material.” [What about the implicit
misrepresentation that the celebrities/influencers chose to promote the
bracelets because they liked them, rather than because they were paid to do so?
That’s the premise of the FTC Endorsement guidelines, after all.]
           
The California and New York state law claims failed too,
though with some details differing. Under California law, “the presence of a
disclaimer or similar clarifying language may defeat a claim of deception.” On
Lokai’s website, albeit not on the same webpage, Lokai states: “Injected with
water sourced by sherpas from the heights of Mt. Everest, the white bead
represents life’s highest moments … The water may evaporate over time.” This
disclosure made it unreasonable “for any consumer or retailer to believe that
water will remain permanently in the bracelet.” [This reasoning seems to
contradict the general rule that the disclaimer has to be one that reasonable
consumers will perceive—under Williams v.
Gerber Products
, will reasonable
consumers read through multiple webpages to find qualifications?]
Likewise, “Twin Tiger cannot engineer [a private cause of
action under the FTCA] through California law.” 
[What about California law’s “unlawful” component, which does exactly
that, though perhaps not with Endorsement Guides that lack the force of formal
rules?]  “More important, outside of
conclusory allegations of a violation of the FTC Guidelines, Twin Tiger has not
alleged any facts that plausibly raise an inference that the non-disclosure of
paid endorsements is likely to lead consumers to believe that the endorsements
are unpaid.”
Finally, and failing to note the developing split on this
issue, the court ruled that the New York § 349 claim didn’t allege sufficiently
“consumer-oriented” conduct, because harm to competitors was the core of the
claim here, even though the FTC regulations were relevant to § 349, which is
“substantially modeled on the Federal Trade Commission Act.”
The tortious interference counterclaims were dismissed
because Twin Tiger didn’t allege sufficient facts on the specific contracts or
business relationships at issue. The names of the entities weren’t enough
without details about when the contracts were formed, when they took place, and
what the major terms were; attaching the contracts to the complaint might have
worked.
Furthermore, the court struck Twin Tiger’s affirmative
defense of unclean hands because the alleged misconduct wasn’t sufficiently
related to the subject matter of the litigation.  Trade dress infringement was distinct from
advertising about the bracelets or alleged inequitable misconduct in obtaining
a design patent.

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