court rejects contributory false advertising under Lanham Act

Telebrands Corp. v. My Pillow, Inc., 2019 WL 1923410, No.
18-CV-06318 (N.D. Ill. Apr. 30, 2019)
Telebrands sued My Pillow (maker of a “patented pillow
product,” which I’m so tempted to call PPP) for breach of contract, breach of
implied contract, tortious interference with business expectancy, unjust
enrichment, and quantum meruit. My Pillow counterclaimed for false advertising
in violation of the Lanham Act, violations of the Illinois Uniform Deceptive
Trade Practice Act (IUDTPA) and the Illinois Consumer Fraud and Deceptive
Business Practices Act (ICFA), unfair competition, fraud, and breach of contract.
Here, the court dismisses some of the counterclaims.
The counterclaim alleged that My Pillow and Telebrands
entered into a License Agreement under which My Pillow had the right to market
its pillows directly to consumers and Telebrands had the exclusive right to
“advertise, promote, market, distribute, and sell” the My Pillow pillows in
certain stores. The License Agreement required Telebrands to comply with all
applicable laws in performing under the License Agreement, including the FTC
Act. It automatically terminated by its terms in 2014, but the parties
continued their business relationship through a series of purchase orders.
After that time, Telebrands allegedly agreed not to engage
in false advertising of the My Pillow product and to prevent its retail clients
from engaging in false advertising, but didn’t. 
For example, in September 2018, Walgreens.com allegedly listed My
Pillow’s product as “Telebrands My Pillow” and showed a box image that
contained an endorsement of the product as “National Sleep Foundation Official
Pillow.” But My Pillow was, at the time, subject to a consent decree that
prohibited My Pillow from making any health claims about its product or
advertising it as an “official” product of any organization. Although it
informed Telebrands of the decree, and Telebrands agreed to ensure that its
retail clients remove from its advertisements all health claims and/or
statements that My Pillow is the “official” pillow, Telebrands allegedly failed
to monitor its retail clients’ advertisements to ensure the retailers complied
with My Pillow’s directives. My Pillow’s CEO allegedly met with a Telebrands
representative and showed them examples of false advertising from Telebrands’
retailers. The rep then offered to indemnify My Pillow for any damages incurred
from the false advertising.
Telebrands also allegedly agreed to prohibit and prevent its
retail clients from purchasing “ad words” on Google and other search search
engines, but didn’t.
The court applied Rule 9(b) to all the counterclaims as
grounded in fraud.
Telebrands argued that My Pillow’s Lanham Act claim failed
because it was based entirely on statements appearing on the websites of
third-party retailers. My Pillow argued that Telebrands is subject to
contributory liability.  The court
disagreed.  Under Lexmark, My Pillow had to plead and prove “economic or reputational
injury flowing directly from the deception wrought by [Telebrands’]
advertising.” [That alteration is doing a lot of work used to defeat a
contributory liability theory.]
Duty Free Americas, Inc. v. Estee Lauder Companies, Inc.,
797 F.3d 1248 (11th Cir. 2015), held that a plaintiff could assert a claim for
contributory false advertising, analogizing to contributory trademark
infrignement. Under that standard, the “plaintiff must show that a third party
in fact directly engaged in false advertising that injured the plaintiff” and
that the “defendant contributed to that conduct either by knowingly inducing or
causing the conduct, or by materially participating in it.”

But the Seventh Circuit hasn’t recognized contributory false advertising. “[S]uch
a claim would be inconsistent with Lexmark’s proximate cause formulation.”  [No it wouldn’t!  It would just identify the primary false
advertiser.  Lexmark didn’t address secondary liability.] Anyway, the court
rejected the claim even assuming the DFA standard
applied, because My Pillow didn’t allege that Telebrands engaged in the alleged
false advertising by inducing, causing, or materially participating in the
conduct.
[Courts recognize
contributory trademark infringement all the time; the relevant statutory
language supporting this type of liability, or lack thereof, is the same.  Say it’s not sufficiently pled, that’s fine,
but it’s no surprise that the court doesn’t give any reason that trademark and false advertising ought to be treated
differently.]
Because the IUDTPA, ICFA, and unfair competition claims were
the same as the Lanham Act, they also failed. 
[I often wonder why people don’t make more out of statutory
differences.  While what constitutes
deceptive advertising might and probably should be consistent across the
statutes, they often don’t have the same language for things like primary v.
secondary liability.  The precedents
linking Lanham Act and state law claims are about the core issue of
falsity/materiality/damage.]
Finally, My Pillow did meet the Rule 9(b) particularity
requirements for fraud with regards to indemnification for/policing of false
advertisements based on the CEO’s meeting with a specific Telebrands rep, but
failed to allege sufficient details regarding AdWords, including which words
should be covered, the content of ads, the identity of the relevant retail
clients, or when or where the allegedly violative ads appeared.
Breach of contract failed; it was just a reassertion of the
failed alleged violations of the Lanham Act, the IUDTPA, and the ICFA as a
breach of the compliance-with-law clause of the contract. The only other
specific statute that My Pillow identified was the FTC Act, but it didn’t
allege any specifics that support that claim.

from Blogger http://bit.ly/2DVoBB0

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