More Kona coffee: false designation claims under 43(a)(1)(A), but not (B), can target retailers

Two more opinions here, one about the meaning of “origin” in 43(a)(1)(A) and one about the liability of retailers for false advertising and false designation of origin.

Corker v. Costco Wholesale Corp., No. C19-0290RSL, 2019 WL
5895430 (W.D. Wash. Nov. 12, 2019)

The difference in treatment of claims against retailers of third party products under trademark and false advertising (43(a)(1)(A) and (B), respectively) appears to have hardened: here, plaintifs get to use (A) to bring their false designation of geographic origin claim against the retailers, but not (B), although the opinion is less than clear about the interaction between working parts.

Plaintiffs, coffee farmers in the Kona District of the Big
Island of Hawaii, alleged that the moving defendants sell coffee products that
falsely designate the geographic origin of the coffee as “Kona.”
 

Kroger’s house blend

Magnum Exotics “Kona blend”

The retailer defendants challenged the plausibility of the
Lanham Act claims and argued that Section 230 precluded claims against
them.  
The retailers argued that it was the product producers who
made a false statement of fact, not them, and that putting the third-party
vendor’s product on their shelves or websites wasn’t a false statement of fact.
 The court agreed, finding that “the
policy implications of imposing liability for false advertising on all downstream
participants in a retail chain are troubling.” 
Quoting another court: “Defendants undoubtedly sell many products—should
they be responsible for scrutinizing and determining the veracity of every
claim on every product label in their stores simply because they sell the
product?” The answer is no, even though it’s yes for trademark and copyright
infringement, which are not obviously easier to detect–indeed, given the result on 43(a)(1)(A), it appears the very same claims get to proceed against the retailers as false association claims despite the policing difficulties thereby created.  
Without clarifying whether it was discussing direct or
secondary liability, the court suggested that retailers could be liable for
false advertising if they “control[] or participate[] in the creation of the
offending label or create[] additional marketing materials for a product that
amplify the manufacturer’s misrepresentations.” 
That sounds direct; what about contributory liability?  Regardless, “false advertising claims against
the retailer defendants, acting solely in their roles as retailers, may not
proceed.”  However, claims based on
private label coffees from Cost Plus and Kroger could continue.
False association: plausibly pled (apparently also against the retailers as retailers of third party products), because “origin” has
always been understood to include geographic origin, even if it also expanded
over time.  (The court rejected Sugai
Prods., Inc. v. Kona Kai Farms, Inc., 1997 WL 824022 (D. Haw. Nov. 19, 1997), to
the extent that it held that a false association of origin claim under 43(a)(1)(A)
protects only against misrepresentations as to the identify of a product’s manufacturer.)
No protectable ownership interest in a mark is required under §43(a)(1)(A) where
the claim was based in false designation of geographic origin.
The claims were pled with sufficient particularity. For
example, plaintiffs alleged that Costco “sells a variety of deceptive coffee
products, including but not limited to Magnum Exotics.” Magnum Exotics products
were marked with the word Kona on the front of the packaging and allegedly used
deceptive taglines, slogans, and imagery that imply, falsely, that the coffee
in its “Kona” products originated in the Kona District; the plaintiff provided
examples of the offending text and images. 
The use of exemplar products didn’t “invalidate or make unclear the
allegation that Magnum Exotics products marked with the word Kona and sold by
Costco contain a false designation of origin.” That was enough information for
Costco to defend itself.  At one point,
plaintiffs alleged that “[s]ampling has shown that nearly every product labeled
‘Kona’ in [the supplier defendants’] product lines misrepresents the origin of
the coffee beans contained in the package.”
Defendants argued that plaintiffs were therefore not
challenging every product labeled “Kona” and they had no way of knowing which
products were at issue. But the immediately following allegations clarified
that plaintiffs were alleging a consistent practice of false designation of
origin,
even if a few Kona beans made their
way into an individual package. Given the scarcity of authentic Kona coffee (…
Kona coffee represents on 0.01% of the worldwide supply of coffee) and the high
profitability of marketing commodity coffee as if it were Kona coffee, it is no
surprise that any defendant that is willing to engage in such deceptive
practices would consistently practice their deception across all product lines.
An unscrupulous merchant selling counterfeit Rolex watches on a street corner
tends not to mix a real Rolex into inventory every once in a while.
(Side note: Now that’s complaint drafting.)
CDA immunity: The relevance of CDA immunity was unclear. It
doesn’t apply to goods stocked and sold in a physical store, even though the
defendants have websites, and it also doesn’t apply to private label products
sold on those sites (as to which the retailers are the providers of the accused
content).  Plaintiffs also argued that,
once an online sale is made, physical-world acts to deliver the accused
products to the purchaser wouldn’t be covered by the CDA, and defendants didn’t
respond to that argument. The court was apparently willing to accept
plaintiffs’ argument, which should deeply worry many online retailers, but the court also said in its
concluding paragraph that the claim against the retailers was “barred by the
CDA to the extent their conduct is limited to making a product available for
sale on a website.” Because even the false designation claim under 43(a)(1)(A) isn’t an IP claim, I guess that means that sales of the non-house brand stuff on the websites are immunized.  (To the extent that
the retailer defendants are advertising the other products on their websites,
aren’t they doing more than making them available for sale? The other advertising content on the
page is separate from that which is on the physical products themselves, and
may or may not come from other sources—thus it could trigger secondary or even direct liability for false advertising, at least in the
absence of the CDA.)
  
Corker v. Costco Wholesale Corp., No. C19-0290RSL, 2019 WL
5893291 (W.D. Wash. Nov. 12, 2019)
Same facts. These supplier defendants argued that, whatever
the original interpretation of “origin” was, it no longer applies. Prior to
1989, Section 43(a) of the Lanham Act prohibited “false designation[s] of
origin” generally. In 1989, Congress split 43(a) into two separate subsections,
“the first of which covers false designations of origin that cause consumer
confusion and the second of which covers false designations of geographic
origin in advertising.” The suppliers argued that, because a misrepresentation
of “geographical origin” in advertising or promotion is specifically prohibited
by Section 43(a)(1)(B), a claim based on false designations of geographical
origin cannot be brought under Section 43(a)(1)(A) even there’s a likelihood of
consumer confusion.
The court disagreed. The more general term “origin” can
still cover claims based on geography. 
(Sure, but at heart this is a false advertising claim, and probably
should have the false advertising requirements—commercial advertising/promotion
and materiality.  That said, those seem easily
satisfied by the labels here, especially given the prominence of the “Kona”
claim.)  Subsequent cases have continued
to talk about “origin” as encompassing geographic origin. (Citing Dastar
and Two Pesos as well as Kehoe Component Sales, Inc. v. Best Lighting
Prods., Inc., 796 F.3d 576, 587 (6th Cir. 2015) (“As Dastar makes plain, an
entity makes a false designation of origin sufficient to support a reverse
passing off claim [under Section 43(a)(1)(A) ] only where it falsely represents
the product’s geographic origin or represents that it has manufactured the
tangible product that is sold in the marketplace when it did not in fact do
so.”).)   Sugai Prods., Inc. v. Kona Kai
Farms, Inc., 1997 WL 824022, at * 11 (D. Haw. Nov. 19, 1997), held that only
(a)(1)(B) applied to false designation of geographic origin, but the court here
disagrees.

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