does unclean hands require actual deception? answers may differ for TM/false advertising

Certified Nutraceuticals, Inc. v. Avicenna Nutraceutical,
LLC, No. 18-56631, — Fed.Appx. —-, 2020 WL 4037411 (9th Cir. Jul. 17, 2020) 

This memorandum opinion comes with a partial dissent calling
out the majority’s differential treatment of §43(a)(1)(A) and (B) claims for
unclean hands purposes. The district court rejected Certified’s false
advertising claim based on misstatements about the patented nature of
Avicenna’s products because Certified had made similar false claims about its
products. The court of appeals affirmed. Unclean hands “requires balancing the
alleged wrongdoing of the plaintiff against that of the defendant,” and the
district court did that. Unclean hands also “requires a finding of
inequitableness or bad faith,” including “any willful act concerning the cause
of action or bad faith relative to the matter.” Although evidence of actual consumer
deception is relevant, and although in trademark cases the Ninth Circuit requires
a showing that the “plaintiff used the trademark to deceive consumers,” it was
enough here to determine that Certified knowingly made false statements about the
patented nature of its directly competing product. 

Judge Paez would have reversed on unclean hands. Sufficient
inequitable conduct in trademark cases requires proof of actual deception. [Side
note: I’m not sure this was a correct description—cases often say things like “show
that plaintiff used the trademark to deceive consumers,” but “used to deceive”
and “actually deceived” could differ a lot depending on how much one values
intent versus effect, and the prior cases don’t seem to have turned on the
distinction. However, this case plus the dissent makes it more likely that, going
forward, evidence of actual deception will be required in trademark cases instead
of just highly probative. Cf. Republic Molding Corp. v. B.W. Photo Utils., 319
F.2d 347 (9th Cir. 1963) (stating that the “extent of actual harm caused by the
conduct in question” is “highly relevant” to whether the plaintiff’s conduct
was inequitable).] 

Here, the district court made no finding about actual
deception. Affirming therefore drew a distinction between trademark and false
advertising claims that didn’t exist. Prior false advertising claims rejected unclean
hands where “[o]ur review of the record reveal[ed] no evidence of actual deception
caused by plaintiffs’ advertising,” TrafficSchool.com, Inc. v. Edriver Inc.,
653 F.3d 820 (9th Cir. 2011), or where the plaintiff showed only the knowing
falsity of a claim, Jarrow Formulas, Inc. v. Nutrition Now, Inc., 304 F.3d 829
(9th Cir. 2002). Thus, Judge Paez dissented in part.

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