allegedly false warranty letter not material, but could still be TM infringement

Window World Int’l, LLC v. O’Toole, 2020 WL 7041814, No.
4:19-cv-2363-SEP (E.D. Mo. Nov. 30, 2020)

Plaintiff WW sells exterior home remodeling products, and
licenses independently owned/operated franchises to distribute them. Defendants
are franchisees/related people. They sued WW in North Carolina state court for,
inter alia, breach of contract and fraud, seeking reformation to enforce an
unlimited right to use WW’s marks. The North Carolina case was still pending,
but discovery had closed.

In April 2019, one defendant prepared and sent a letter using
WW trademarks in order to collect information from past customers of the
franchises and specifically those who purchased their products from “previous
ownership teams.” It requested that customers call to confirm “proper contact
and product information.” The letter also included a warning: “If you want to
retain the warranty on your products, you need to call us by April 12, 2019.”  

In fact, warranties for WW products would not expire if
customers failed to contact the defendants.

False advertising: WW came within the Lanham Act’s zone of
interests because defendants allegedly presented WW’s warranties as inferior to
their actual coverage. Customers allegedly believed the letter and called
defendants. Proximate cause: Causing customers to believe that they had been misled
about their product warranties “constitutes damage to the reputation of Window
World products.”

However, WW failed to plead materiality: that the deception,
even if it worked, was “likely to influence [a] purchasing decision.” The
letter itself didn’t provide any information about WW products or warranties,
and it was directed to past customers. Even if defendants “received telephone
calls from recipients of the Warranty Letter shortly after it was sent,” the
complaint didn’t plead— even upon information and belief—that any of those
calls suggested that the letter did, or would likely, affect future purchases. “The
bare allegation that the statement satisfies the legal standard for materiality
is insufficient.”

Trademark infringement claims, which don’t require
materiality, survived. The court rejected defendants’ argument that “whenever a
party is authorized to use a mark to sell that mark holder’s products, confusion
is impossible,” because “confusion can be created by a licensee.”  But confusion about what? The court basically
resurrected the false advertising claim, without materiality: “Sending a letter
using another entity’s protected marks urging customers to return communication
citing a false prospect of losing warranty coverage” was enough to plausibly
cause confusion about … something.

Dilution: Not plausible because WW alleged confusion, not
lack of confusion, and there can be no tarnishment because the parties’ windows
are the same products.

Ultimately, however, the court stayed the case so that the
North Carolina court could take a first whack at defendants’ rights to use the
WW marks.

from Blogger

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