do retailers proximately cause the harm of false advertising? [what about of TM infringement?]

In Re Outlaw Laboratory, LP Litig., No. 18-cv-840-GPC-BGS, 2019
WL 6497883 (S.D. Cal. Dec. 3, 2019)
Outlaw is doing a pretty good job of establishing the previously
contestable—and inconsistent with trademark law—rule that retailers aren’t
liable for false advertising that appears on products they sell. One would
think at least secondary liability would be appropriate, but Outlaw’s strategy
has been to claim direct liability.
Outlaw, which makes sexual enhancement products, sued five
independent convenience and liquor stores in the San Diego area as well as one
local wholesaler, alleging a scheme to sell sexual enhancement pills, which
contain hidden prescription drugs, and which they market as “all natural,”
among other false advertisements including that the products contain “no
harmful synthetic chemicals,” “no prescription necessary,” and that the
products have limited side effects. The court answers no to the question “can a
local retail or wholesale store that sells another company’s product, without
independently advertising that product, be held liable under Lanham Act for any
false statements on the product’s packaging?”
Defendants continue to sell the accused products, which are displayed
on racks “at or near the checkout counter” without the use of additional,
in-store advertisements. The FDA has issued multiple notices warning that some
of the accused products contain hidden drugs, including sildenafil (a
prescription drug found in Viagra), desmethyl carbodenafil (an analogue of
sildenafil), dapoxetine (an anti-depressant drug), and tadalafil (a
prescription drug found in Cialis). However, there is no evidence that
defendants had “any role in formulating the challenged products or had any role
in drafting the language on their packaging.” [Why are they still selling these
products, given the risks to their customers?]
In a strategy that will be reminiscent of other plaintiffs
in IP cases, Outlaw’s demand letters warned recipients that they were “selling
illegal sexual enhancement drugs,” which “subject your company to legal action
for racketeering…under RICO (Racketeer Influenced Corrupt Organizations) and
the Federal Lanham Act” and obligate the recipients to pay to Outlaw “profits
from the sale of Illicit Products dating back four years,” “Attorney’s fees,”
“Punitive damages,” and “Triple damages.” The letters estimated the recipients’
liabilities at “over $100,000” but stated that Outlaw would “settle all claims
in exchange for a one-time settlement agreement of [$9,765, in the sample
demand letter] and your agreement to stop selling the Illicit Products.”
Some recipients acquiesced to the demand letter and settled
with Outlaw. Others didn’t settle but removed the products from their shelves.  In the resulting lawsuits, Outlaw contended
that defendants’ sales “caused Plaintiff to lose opportunities to expand into
the male enhancement market, and fail to realize gains in sales.” A principal
indicated his belief that some of Outlaw’s customers now purchase defendants’
products, and that the general consumer has “no reason to purchase
[Plaintiff’s] products if they can easily purchase pharmaceuticals over the
counter.” There was no quantification of loss or identification of specific
The traditional Lanham Act defendant “is the entity or
person that makes the specific, false statements at issue in the litigation.” Retail
or wholesale stores are different, and “cannot be held liable…on allegations
that they displayed and sold [other companies’ products] in their stores.” “In
the same way that an internet platform is not responsible for the veracity of
vendors’ advertisements, a retail or wholesale store cannot be found liable for
false information appearing on the packages of the products that they sell.” The
store must actively “misrepresent[ ]” the products or make a “false or
misleading representation.”
Outlaw’s contrary cases were Gucci Am., Inc. v. Action
Activewear, Inc., 759 F. Supp. 1060, 1065 (S.D.N.Y. 1991), and Grant Airmass
Corp. v. Gaymar Indus., Inc., 645 F. Supp. 1507, 1511 (S.D.N.Y. 1986). But Gucci
was a trademark case, and Grant Airmass speaks of “knowingly cause[ing]
a false representation to be used in connection with goods and services in
commerce.” By contrast, defendants here didn’t “independently promulgate[] a
misrepresentation or false advertisement,” whereas in Grant Airmass the
defendant “distributed and presented in commerce the allegedly false report,”
assisted in the sales efforts, and promoted the product in speeches to staff,
customers, and third-party organizations. 
[The conclusion would have to be that “distributing and presenting in
commerce” aren’t enough, at least without additional acts like arranging for
the initial printing of the report.]
There was no evidence of independent advertising; the photos
of the stores showed no ads by defendants.
Separately, Outlaw failed to show proximate causation of the
harm, because defendants didn’t create the enhancement products, design their
packages, or independently advertise the products. As a result, “it is
difficult to see how merely placing products on display and selling them
qualifies as conduct that caused Plaintiff’s injuries under Article III or the
Lanham Act.” [Hey, TM folks. Note that this conclusion should apply to
retailers of infringing goods even if the “commercial advertising or promotion”
reasoning doesn’t.  How comfortable are
you with this reasoning for proximate harm causation?]  The next language links the causation argument
back to direct misrepresentation, though: the injury has to be “traceable to
some conduct by the defendant which violates the Lanham Act,” which was not the
case here.

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