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Gemstones, ink cartridges and mattresses

Leora M. Itman

Leora M. Itman

Haley N. Schaffer

Haley N. Schaffer

What do heating appliances, gemstones, laser printers and personalized mattresses all have in common? They were the products at heart in some of the most fascinating cases that faced Minnesota’s federal and state judges and the U.S. Supreme Court justices in the last year and a half. These cases address claims for false or misleading advertising or deceptive trade practices, whether those claims were brought under the federal Lanham Act, Minnesota’s Deceptive Trade Practices Act (“MDTPA”), or Minnesota’s False Statement in Advertising Act (“MFSAA”), or any combination of the above. This article will provide a brief Unfair Trade Practices 101 and then discuss the new case law.

In a nutshell, the federal Lanham Act creates two types of comparative advertising claims: the “my product is better than yours” claim and the “tests prove that my product is better than yours” claim. Competitors, not consumers, have the standing to assert a cause of action under the act.

A false advertising claim under the act requires a false statement. There can be two kinds: statements that are literally false and statements that may be literally true but misleading. Even once a false statement is proven, a plaintiff must establish that the statement was made in a commercial advertising or promotion. Statements made to just a handful of customers, for example, are not likely sufficient. The false statement must also be material enough to matter to those customers, be made in interstate commerce, and have resulted in economic or reputational injury to the competitor. In addition to actual and treble damages, a plaintiff can sue for injunctive relief to prevent the conduct from continuing, and for attorney’s fees in exceptional cases.

A MDTPA claim requires the same analysis as the Lanham Act, except that consumers can bring claims under the act too, and the Lanham Act’s interstate commerce requirement does not apply. A MDTPA claim is not nearly as lucrative as a Lanham Act one; a claimant cannot recover damages. The MDTPA only offers injunctive relief, although attorney’s fees may be awarded in exceptional cases.

Last but not least, the MFSAA also allows consumers to sue for false or misleading advertising. This statute provides for a criminal penalty, attorney’s fees, and costs. A plaintiff suing under the MFSAA, however, does not act for self alone, but rather as a self-proclaimed attorney general, suing to benefit the public. MFSAA plaintiffs cannot be merchants with respect to the goods at issue.

With that brief background (see our chapter on Unfair Trade Practices in the forthcoming Minnesota Business Litigation Deskbook: Claims and Remedies for all the cites and far more detail), below are the most important 2014 and 2015 false advertising and deceptive trade practices cases from the U.S. Supreme Court and the federal District of Minnesota, in chronological order:

Lexmark International, Inc. v. Static Control Components, Inc., 134 S. Ct. 1377 (2014): This U.S. Supreme Court case centered on the ever expensive printer ink cartridges, and printer manufacturer Lexmark’s attempt to control the market to buy and sell those cartridges and their refills. Lexmark did not like that its customers were saving some money by selling their depleted Lexmark ink cartridges to refurbishers for refill, so they implanted a special microchip in their ink cartridges that would prevent a cartridge from being used again unless Lexmark first replaced the microchip. Static Control one-upped Lexmark by figuring out how to make a microchip that mimicked that of Lexmark, which Static Control then sold to the refurbishers so people could still save some money. Lexmark sued. Static Control countersued under the Lanham Act, stating that Lexmark’s PR campaign misled companies into thinking, among other things, that it was illegal to resell any refurbished Lexmark cartridges with the Static Control microchips. The biggest issue for the court was what test to apply for standing: Was the microchip manufacturer too far removed from Lexmark to bring a Lanham Act claim? Did the act only provide standing to direct competitors (here, the refurbishers)? The court held that the “zone of interests” test applied, and that in order for a plaintiff to come within that zone, it must allege an economic or reputational injury to a commercial interest in reputation or sales flowing directly from the defendant’s deception. Based on that test, the court found that Static Control had standing to sue Lexmark, and had alleged an adequate basis to survive a motion to dismiss.

Select Comfort Corp. v. Tempur Sealy Int’l, Inc. et al*.,11 F. Supp. 3d 933 (D. Minn. 2014): When does a lawsuit benefit the public? This U.S. District Court for the District of Minnesota case answered that question in a battle over beds where Select Comfort sued competitor Mattress Firm for, among other things, allegedly improperly using Select Comfort’s trademarks in its paid advertising on Google and other sites. The court held that Select Comfort’s allegations of false advertising were not enough on their own to establish a public benefit; and general and conclusory allegations of public benefit did not advance the legal ball. Here, the real harm alleged was to Select Comfort’s bottom line — sales, goodwill, and reputation. The court said that kind of harm was not public benefit kind of harm, and dismissed Select Comfort’s MFSAA and other public benefit-based claims.

Honeywell Int’l Inc. v. ICM Controls Corp., 45 F. Supp. 3d 969 (D. Minn. 2014): How unambiguous is the term “Made in America”? Not very, said the U.S. District Court for the District of Minnesota in this case involving two manufacturers of combustion control products used for controlling heating appliances. Honeywell claimed that competitor ICM was, among other things, falsely stating that ICM’s products were “Made in America” when the products allegedly did not qualify to use that term. But what does “Made in America” mean? Does it mean materials sourced in America? Components made in America? Can an item be partially foreign made or sourced and still be “Made in America?” This ambiguity showed, according to the court, that the term “Made in America” could not be literally false under the Lanham Act’s literal falsity test. Therefore, in order to prevail on its false advertising claim, Honeywell needed to establish deception with reliable consumer or market research. Since Honeywell had not proffered reliable research as to what relevant purchasers thought “Made in America” meant, and whether they would find ICM’s use of that phrase misleading, the court dismissed Honeywell’s Lanham Act claim.

Klinge v. Gem Shopping Network, Inc., Case No. 12-cv-2392 (JNE/SER), 2014 U.S. Dist. LEXIS 178599 (D. Minn. Dec. 31, 2014): This case is about the elements of MDTPA and MFSAA claims. Klinge, a Minnesota resident with no jewelry sales background or knowledge, decided to purchase precious gems from the Gem Shopping Network (“GSN”) television channel and resell them based on a tip from a GSN employee. In addition, in one year, she purchased and kept approximately $675,334 worth of gemstones and jewelry from GSN. Klinge alleges that GSN misrepresented how scarce and valuable certain gems were, and she brought MDTPA, MFSAA, and other causes of action. Klinge’s MDTPA claim was dismissed because she could not show that she personally would suffer future harm since her last purchase from GSN was over four years ago and she did not intend to purchase any more gems from GSN. The Court found that Klinge did sufficiently show a public benefit for purposes of the MFSAA because of the breadth of the reach of the TV broadcast of the alleged misrepresentations. However, Klinge’s MFSAA claim was ultimately dismissed because the court found her to be a merchant, and not a consumer. The court found it irrelevant that she lacked specialized expertise in the area of her business; once she formed a business dealing in gems and jewelry, she removed herself from the Act’s applicability.

*Maslon LLP represented the defendant Mattress Firm in this case.

Haley N. Schaffer is a partner at Maslon LLP. Leora M. Itman is an associate at Maslon LLP.

About Haley N. Schaffer and Leora M. Itman

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