Opinion
Civil No. 01-CV-2059 (RBK).
January 25, 2005
OPINION
This Opinion will address the motion by Plaintiff/Counterclaim Defendant Koch Materials Company ("Koch") under Federal Rule of Civil Procedure 12(c) for judgment on the pleadings with respect to the Lanham Act claim brought by Defendant/Counterclaim Plaintiff Shore Slurry Seal, Inc. ("Shore"). Specifically, Koch argues that Shore does not have standing to bring its claim under the Lanham Act.
I. INTRODUCTION
Because the motion before the Court involves the question of standing, which, in this case, will turn largely on controlling legal principles and the allegations in Shore's Amended Counterclaim, the Court will forego a lengthy discussion of the background of this case. One snapshot of this case is available in a previous opinion by the Court: Koch Materials Co. V. Shore Slurry Seal, Inc., 205 F. Supp. 2d 324 (D.N.J. 2002). Others are available in Magistrate Judge Joel B. Rosen's unpublished opinion issued June 30, 2003 and this Court's unpublished opinion issued January 13, 2005. Relevant to this Opinion is that Shore filed an Amended Counterclaim against Koch, alleging, among other things, a violation of section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a). Facts further relevant to this Opinion are incorporated into the discussion below, as appropriate.
II. DISCUSSION
Koch moves for judgment on the Lanham Act claim brought by Shore on the ground that the allegations in Shore's Amended Counterclaim are insufficient to confer standing. The Court agrees. In deciding a motion for judgment on the pleadings the Court must "view the facts alleged in the pleadings and the inferences to be drawn from those facts in the light most favorable to the plaintiff." Mele v. Fed. Reserve Bank of New York, 359 F.3d 251, 253 (3d Cir. 2004) (citation and quotation marks omitted). "That is, the motion should not be granted unless the moving party has established that there is no material issue of fact to resolve, and that it is entitled to judgment in its favor as a matter of law." Id. (citation and quotation marks omitted). In that way, deciding a motion for judgment on the pleadings under Federal Rule of Civil Procedure 12(c) is no different than deciding a motion to dismiss under Rule 12(b)(6).Id.
The Third Circuit has ruled that prudential limits on standing apply to suits under the Lanham Act. To that end, the Third Circuit grants standing only to those who have a "reasonable interest" in being protected from false advertising. Conte Bros. Automotive, Inc. v. Quaker State-Slick 50, Inc., 165 F.3d 221, 233 (3d Cir. 1998). Specifically, the Third Circuit has adopted the following five-factor test for determining whether one has standing under section 43(a) of the Lanham Act:
(1) The nature of the plaintiff's alleged injury: Is the injury `of a type that Congress sought to redress in providing a private remedy for violations of the [Lanham Act]'?
(2) The directness or indirectness of the asserted injury.
(3) The proximity or remoteness of the party to the alleged injurious conduct.
(4) The speculativeness of the damages claim.
(5) The risk of duplicative damages or complexity in apportioning damages.Joint Stock Society v. UDV North America, Inc., 266 F.3d 164, 179-80 (3d Cir. 2001) (quoting Conte Bros., 165 F.3d at 233).
Courts apply this test on a case-by-case basis without giving determinative weight to any one factor, Joint Stock, 266 F.3d at 180, though some courts have found failure under the first factor fatal to standing, see e.g., Nevyas v. Morgan, 309 F. Supp. 2d 673, 680 (E.D. Pa. 2004) ("[D]espite the fact that the plaintiffs may have suffered an injury to their commercial interests, they have not sustained competitive harm. We thus conclude that the plaintiffs here cannot satisfy the prudential requirements to maintain standing to sue under the Lanham Act."). Under the first factor, there must be an allegation of an injury flowing directly from the conduct proscribed by the act. Id. Thus, because section 43(a) of the Lanham Act seeks to protect against "false designation of origin and false advertising," the injury must be alleged to be "caused by a false designation of origin or false advertising." Id.
Further, a Lanham Act plaintiff must either be a competitor of the defendant or have a commercial interest that is peculiarly damaged by the defendant's false advertising. Recognizing that the Lanham Act was designed to ferret out anti-competitive practices but not wanting to completely bar plaintiffs who were not competitors in the technical sense, the Third Circuit explained that although "there may be circumstances in which a non-competitor may have standing to sue . . . the focus of the Lanham Act is on commercial interests that have been harmed by a competitor's false advertising . . . and in securing to the business community the advantages of reputation and good will by preventing their diversion from those who have created them to those who have not." Conte Bros. 165 F.3d at 234 (citation and quotation marks omitted). Absent a competitive relationship, there must be a link between the defendant's false claims about its own product and an injury to the good will or reputation of the plaintiff in its business. See id. at 234; Camel Hair Cashmere Institute of Am., Inc. V. Assoc. Dry Goods Corp., 799 F.2d 6, 11-12 (1st Cir. 1986) ("[T]here appears to be a general consensus that the plaintiff does not have to be a competitor in order to have standing to sue. The requirement that the plaintiff have a reasonable interest in being protected, however, does not mean that it is sufficient for the plaintiff merely to establish a falsehood in the defendant's advertising or marketing; the plaintiff must also show a link or `nexus' between itself and the alleged falsehood.") (citations omitted).
In Conte Bros., the plaintiffs brought an action under the Lanham Act, claiming that the defendant manufacturer made false statements about the product "Slick 50" and that those statements led to lost sales, which in turn made the plaintiffs less competitive. In denying the plaintiffs' claims, the Third Circuit ruled that such an injury does not confer standing under the Lanham Act:
While the Appellants have alleged a commercial interest, they have not alleged competitive harm. Nor is there any indication that Appellants' good will or reputation have been harmed directly or indirectly. As the District Court stated, "plaintiffs do not allege that defendants ran advertisements that said `don't buy engine additive at Conte Brothers or Hi/Tor — instead, buy Slick 50 directly from the manufacturer.'" . . . The type of injury suffered by Appellants — loss of sales at the retail level because of alleged false advertising — does not impact the Appellants' ability to compete; nor does it detract from the Appellants' reputation or good will. Therefore, the alleged harm is not of the `type that Congress sought to redress' by enacting the Lanham Act.Conte Bros., 165 F.3d at 234.
When a non-competitor is granted standing under the section 43(a) of the Lanham Act, the circumstances are typically such that the particular non-competitor plaintiff is uniquely situated to vindicate the alleged Lanham Act violation. For instance, two notable cases in which non-competitors were granted standing under the Lanham Act are the First Circuit case of Camel Hair Cashmere Institute of Am., Inc. V. Assoc. Dry Goods Corp., and the Ninth Circuit case of Waits v. Frito Lay, Inc., 978 F.2d 1093 (9th Cir. 1992). InCamel Hair, the plaintiffs were members of a trade group of cashmere garment producers whose good will and reputation were directly impacted by the defendant's allegedly false claims that its non-cashmere products were in fact cashmere in that the false statements could potentially affect the reputation of cashmere as a "high quality fibre." See Camel Hair, 799 F.2d at 12; see also Conte Bros., 165 F.3d at 234 (distinguishing the case before it from Camel Hair on the ground that the plaintiffs inCamel Hair suffered harm to their good will and reputation). The plaintiff in Waits was a singer whose voice was imitated in some manner by the defendant for use in a "Doritos" commercial. Responding to the argument that only competitors have standing under the Lanham Act, the Ninth Circuit explained that plaintiffs in Waits's position "will rarely if ever be a competitor, and yet [are] the part[ies] best situated to enforce the Lanham Act's prohibition on such conduct." Waits, 978 F.2d at 1107. The Ninth Circuit's reasoning in this regard is consistent with the Third Circuit's avowed purpose for maintaining prudential limits on standing under the Lanham Act: "[T]o determine whether the plaintiff is `a proper party to invoke judicial resolution of the dispute and the exercise of the court's remedial powers.'" Joint Stock, 266 F.3d at 184 (quoting Conte Bros., 165 F.3d at 225) (citation and internal quotations marks omitted).
The Third Circuit has criticized and declined to adopt the Ninth Circuit's approach to Lanham Act violations, which, as reflected in the Waits opinion, was to create two distinct groups of plaintiffs and then decide the standing question based on whether the particular plaintiff fell into either of the two groups. See Conte Bros., 165 F.3d at 232. But the above-quoted reasoning of the Ninth Circuit is, nonetheless, consistent with the Third Circuit's approach and the Conte Bros. opinion even mentions the Waits plaintiff as a positive example of a non-competitor who had standing under the Lanham Act due to an alleged injury to good will and reputation. See id. at 234.
Whatever room the case law may leave for non-competitor plaintiffs to bring suit under the Lanham Act, the settled law has clearly foreclosed the possibility of a consumer bringing a claim under the Act. See e.g., Made in the USA Found. v. Phillips Foods, Inc., 365 F.3d 278, 281 (4th Cir. 2004) ("[T]he several circuits that have dealt with the question are uniform in their categorical denial of Lanham Act standing to consumers.") (citing Seven-Up Co. v. Coca-Cola Co., 86 F.3d 1379, 1383 n. 5 (5th Cir. 1996)); see also Serbin v. Ziebart Int'l Corp., 11 F.3d 1163, 1177 (3d Cir. 1993) ("[C]onsumers fall outside the range of `reasonable interests' contemplated as protected by the false advertising prong of Section 43(a) of the Lanham Act as enacted in 1946.").
Here, Shore alleges Koch misrepresented the characteristics of the product E-18R by telling Shore it was not fit for use in "reclamation or tack coat jobs" but then telling other customers that E-18R was fit for those jobs. Shore further alleges Koch represented that the product E-181R was approved for use in Pennsylvania and New York when, in fact, the relevant authorities had never approved it for use on publicly funded projects. Shore alleges it has suffered or is likely to suffer damages from these misrepresentations, including potential future damages incurred as a result of "unknowingly using unapproved products on publicly funded projects." Solely in a technical sense, these allegations allege an injury as a result of false advertising. But as a matter of substance, Shore does not allege an injury sought to be redressed by the Lanham Act. In particular, Shore is claiming to have suffered from not getting appropriate utility from the Koch product line and then from being misled into using the wrong product for public projects. Neither is a competitive injury. That is, Shore does not allege that it has a corresponding asphalt product in the marketplace that is suffering as a result of Koch's actions. Nor does it claim that Koch's false claims have or will detract from its commercial reputation or good will. Instead, Shore appears to be claiming merely that it could have been more competitive in the marketplace had Koch disclosed fully the characteristics and acceptable uses of all its products — particularly E-18R. This simply is not the type of injury Congress sought to protect against with the Lanham Act. Each of the eight counts in Shore's Amended Counterclaim includes the general allegation that Koch misrepresented the manner in which the product E-18R could be used. Though there may be more than one avenue for relief by which Shore could have vindicated this perceived wrong, the Lanham Act is not one of them.
As for Shore's claim that it is actually Koch's competitor, it is unsupported by the allegations in the Amended Counterclaim. The allegations in the Amended Counterclaim mention nothing of an injury suffered as a distributor or a manufacturer of asphalt emulsion products. Rather, the allegations focus solely on the fact that Shore has been misusing and will continue to misuse Koch products in the projects it performs. This misuse, Shore argues, could lead to reduced stature in the road-paving business if Shore's customers discover that Shore used the wrong asphalt product on any particular project. Shore also argues that damage to reputation and good will will flow from its resales to customers of the wrong product, i.e., the customers who bought E-18R from Shore while under the impression that the product was really CSS-1h.
The Amended Counterclaim does not make a single mention of either reputation or good will and does not allude to even a hypothetical reduction in stature in either the road paving or asphalt resale market. Shore cannot create allegations of a competitive injury with arguments in its brief when the most liberal reading of the Amended Counterclaim reveals no such allegations. Shore's allegations are clear: Koch misled it into using the wrong asphalt product. Thus, Shore stands as an end-user — a mere consumer — in its attempt to recast its fraud claim as a claim under the Lanham Act. Therefore, Shore has not alleged an injury sought to be redressed by the Lanham Act.
Shore has not presented any argument regarding the remainingConte factors, attempting instead to show that it has stated a claim consistent with the pleading requirements of the Lanham Act as interpreted by the Third Circuit in Johnson Johnson-Merck Consumer Pharmaceuticals Co. v. Rhone-Poulenc Rorer Pharmaceuticals, Inc., 19 F.3d 125, 129 (3d Cir. 1994). Whether Shore has satisfied the pleading requirements set forth by the Third Circuit in Johnson Johnson is irrelevant to Koch's motion, which presents the different argument of lack of standing under the Lanham Act. Incidentally, the Johnson Johnson case did not deal with the standing issue probably because that Lanham Act claim arose "from an advertising war between major competing producers of over-the-counter antacid remedies." Id. at 126. Nonetheless, whether Shore satisfied the pleading requirements set forth inJohnson Johnson is not an issue before the Court. The issue is whether it has satisfied the test of standing under Conte Bros.. The Court's conclusion that Koch stands as a consumer provides sufficient basis on which to grant Koch's motion. That conclusion notwithstanding, further analysis of the Conte Bros. factors demonstrates Shore does not have standing under the Lanham Act. Koch presented several pages of argument addressing these remaining factors, but Shore declined to respond to them. So the Court will address the remaining Conte Bros. factors without the benefit of Shore's input on the matter.
Analysis of the second Conte Bros. factor similarly weighs against Shore. The second factor aims the inquiry at the directness of the asserted injury, i.e., "whether the defendant['s] conduct has had a direct effect on either the plaintiffs or the market in which they participate." Joint Stock, 266 F.3d at 181. Shore alleges loss of profits and a potential future loss due to Koch's allegedly deceptive product branding. These lost profits are attenuated in that they have resulted from a practice that, from the perspective of the Lanham Act, primarily impacts Koch's direct competitors and then theoretically impacts Shore on a secondary or tertiary level.3 If the Court were analyzing this as a fraud claim, then the directness of the injury would be undeniable. But inasmuch as the Lanham Act's focus is on competitive injury, and not consumer fraud, Shore's alleged injury does not flow directly from Koch's alleged Lanham Act-violating chicanery.
Shore's position at the second or third station in the asphalt emulsion market makes resolving the third factor simple. The third factor, which focuses on the "proximity of the plaintiff to the allegedly harmful conduct," requires the Court "to determine whether there is an identifiable class of persons whose self-interest would normally motivate them to vindicate the public interest by bringing an enforcement action." Id. at 182 (citations and quotation marks omitted). Typically, direct competitors constitute this identifiable class. See id. at 182-183 n. 10 ("[W]e take into account the premise implicit in the . . . Conte Bros. test that a direct competitor will usually have a stronger commercial interest than a non-competitor.") Here, manufacturers of asphalt emulsion products are the class best suited to vindicate the public interest against Koch's allegedly false claims. Hence, Shore is not sufficiently proximate to the allegedly harmful conduct to prevail on this factor regardless of whether the Court views it as a consumer or as a distributor.
Next, the fourth factor presents a neutral outcome. The focus at the fourth factor is on the speculativeness of the plaintiff's damages claim. Id. at 183. On the one hand, it appears Shore could easily establish Koch's sales history and point to specific purchases from Koch in which it could have made larger profits if Koch had been completely forthcoming about its product line, especially the uses for which E-18R is suited. But on the other hand, Shore's allegation of damages — that it has "suffered damage from Koch's misrepresentations and/or is likely to be damaged by such misrepresentations, as outlined above, and including future damages for unknowingly using unapproved products on publicly funded projects" — introduces an element of potential unknown harm from Shore's use of Koch products. Though it is not entirely clear from the language of the counterclaim, this allegation appears to be seeking damages that may result if completed paving projects deteriorate, causing Shore to perform additional work or issue refunds of some sort. This type of forward looking damage calculation is inherently speculative. Adding to this natural condition of speculativeness is the fact that Shore may not actually suffer any injury from which it will incur damages. It remains to be seen. Shore presents an alternative demand for disgorgement of profits made by Koch through sales of E-18R. Disgorgement is usually available only when the actual damages are merely nominal. See id. at 184. Assuming that calculating a disgorgement remedy would not present problems, ease in calculating a disgorgement remedy, alone, is not enough to satisfy the fourth factor of the Conte test.See id. That Shore has set forth a demand for disgorgement does not help to establish that it is "a proper party to invoke judicial resolution of the dispute and the exercise of the Court's remedial powers." Id. (quoting Conte Bros., 165 F.3d at 225) (citation and internal quotation marks omitted).
The final factor weighs against Shore. The focus at this point is on whether there is a risk of duplicative damages and whether apportioning damages will be a complex task. Joint Stock, 266 F.3d at 184. If Shore can bring a damages claim on the basis of the present allegations, then so can other Koch customers who were similarly misled by Koch's product naming and pricing tactics. Also, presumably Koch's direct competitors, i.e., asphalt emulsion manufacturers, could bring claims based on the exact conduct detailed in Shore's Amended Counterclaim. This potential for claims by asphalt manufacturers and other Koch customers creates the distinct risk of subjecting Koch to "`multiple liability for the same conduct,'" thereby necessitating "administratively complex damages proceedings."Id. at 185 (quoting Conte Bros., 165 F.3d at 235).
Based on the above analysis of the Conte Bros. factors, the Court concludes Shore does not have standing to bring its claim under the Lanham Act. Shore's failure to allege an injury sought to be redressed by the Lanham Act is most damaging to its standing. That its allegations present Shore as a consumer is fatal in itself. Its status as a consumer aside, Shore's failure to allege any sort of competitive injury is similarly fatal inasmuch as analysis of the remaining Conte Bros. factors provides no counterbalance to this glaring pleading deficiency. The Court will, therefore, grant Koch's motion for judgment on the pleadings.
IV. CONCLUSION
For the reasons stated above, the Court will grant Koch's motion for judgment on the pleadings because Shore does not have standing to bring its claim, as alleged, under the Lanham Act.