On March 23, 2016, the Fourth Circuit Court of Appeals concluded that a false advertising/ false association claim under Lanham Act Section 43(a) (15 U.S.C. §1125(a)) need not be premised upon the ownership of United States trademark registration or even use of a mark in the United States. A §43(a) claim is available to “[a]ny person who believes that he is or will be damaged” as a result of a defendant’s activities. Thus, the question under §43(a) is not whether the defendant’s activities infringe the plaintiff’s registered mark; rather, the question is whether the defendant has used in commerce a word, term, name, or symbol that plaintiff believes is likely to cause it damage.

Background

Appellee Belmora LLC sells over-the-counter pain relief products in the United States under the FLANAX® brand name. Belmora applied for and, in 2005, obtained a United States trademark registration for FLANAX. Appellants Bayer Consumer Care AG and Bayer Healthcare LLC (“Bayer”) are affiliates of a multinational corporation and have sold analgesics in Mexico under the Mexican-registered trademark FLANAX since 1976, but have never sold  or marketed products under the FLANAX name in the United States. Instead, in the United States, Bayer uses the name ALEVE® to market and sell the analgesics it offers under the FLANAX name in Mexico. As such, although Mexican consumers and, arguably, Mexican- American consumers who have entered the United States from Mexico are likely to be  familiar with Bayer’s Mexican FLANAX product, the majority of United States consumers  would typically not be aware of Bayer’s Mexican brand.

In this matter, it was alleged that Belmora advertised and promoted its United States product directly to Mexican-Americans by using product packaging (including color schemes and type-style), as well as advertising copy (e.g., “Flanax products have been used [for] many, many years in Mexico [and are] now being produced in the United States by Belmora”) designed to create an untrue association or affiliation between Bayer’s Mexican product and the product offered by Belmora in the United States. Bayer accordingly petitioned the United States Trademark Office to cancel Belmora’s FLANAX trademark registration under Lanham Act §14(3) alleging that Belmora’s use of FLANAX “misrepresent[s] the source of [its] goods” in connection with which the mark was used. The Trademark Trial and Appeal Board (“TTAB”) cancelled Belmora’s trademark registration finding that Bayer had standing to bring the cancellation action because it “lo[st] the ability to control its reputation and thus suffer[ed] damage.” The TTAB also found the evidence ‘‘readily establishe[d] blatant misuse [by Belmora] of the FLANAX mark in a manner calculated to trade in the United States on the reputation and goodwill” of [Bayer’s] Mexican mark.

Belmora thereupon pursued an appeal of the TTAB decision by initiating a civil proceeding in the Eastern District of Virginia (15 U.S.C. §1071(b)). Meanwhile, Bayer filed suit in the Southern District of California alleging false association and false advertising under Lanham 

Act §43(a). The cases were ultimately consolidated in Virginia.

In February 2015, Judge Gerald Lee of the United States District Court for the Eastern District of Virginia reversed the TTAB’s decision, concluding that Bayer lacked standing to assert its claims of false designation of origin, false advertising, and misrepresentation of source because it had never used FLANAX in the United States and owned no United States registration. The Court distilled the issues in the case to a single question:

Does the Lanham Act allow the owner of a foreign mark that is not registered in the United States and further has never used the mark in United States commerce to assert priority rights over a mark that is registered in the United States by another party and used in United States commerce?

Purporting to rely on the Supreme Court’s recent decision in Lexmark International Inc. v. Static Control Components, Inc., 134 S. Ct. 1377 (2014), Judge Lee’s court concluded that Bayer had failed to demonstrate that it was within the Lanham Act’s “zone of interests,” and that it had not alleged injuries tying the harm suffered to the conduct of Belmora that fell within the scope of the statute. Accordingly, the district court reversed the TTAB’s decision cancelling Belmora’s mark and dismissed Bayer’s §43(a) false association and false advertising claims. Bayer appealed to the Fourth Circuit.

The Fourth Circuit’s Decision

The Fourth Circuit vacated the district court decision and remanded the matter for further proceedings, finding that standing for a Lanham Act §43(a) claim need not be premised upon a United States trademark registration or even use of the mark in the United States, so long as there is a reasonable basis to conclude that the claimant is likely to be damaged by the defendant’s activities in the United States.

Focusing first on the statutory language of §43(a), the court found that the plain language does not require a plaintiff to possess a United States trademark registration or to even have used a trademark in United States commerce. Rather, Congress wrote §43(a) in terms of the putative defendant’s conduct. Contrasting §43(a) with trademark infringement under Lanham Act § 32 (15 U.S.C. §1114) where the language includes a registration/use precondition, the court concluded that Congress clearly could have included such a precondition under §43(a), but elected not to. Thus, the district court erred in reading such a requirement into the statute.

The court then analyzed whether Bayer was in a position to properly allege that it had been or would likely be damaged by Belmora’s actions, and did so in light of the two-prong test established by the Supreme Court in Lexmark International Inc. v. Static Control Components, Inc., 134 S. Ct. 1377 (2014). Under Lexmark, a plaintiff’s claim must first fall within the “zone of interests” protected by the statute. The court noted that analysis of Lanham Act provisions under this prong is exceedingly straightforward because Lanham Act

§45 provides a clear statement of the interests Congress intended the Lanham Act to   protect. According to the Supreme Court’s Lexmark decision, “to come within the zone of interests in a suit for false advertising under §43(a), a plaintiff must allege an injury to a commercial interest in reputation or sales.” Second, the plaintiff must allege an injury sufficiently close to the conduct the statute prohibits. “In the context of Section 43(a), this means show[ing] economic or reputational injury flowing directly from the deception wrought by the defendant’s advertising; and that that occurs when deception of consumers causes them to withhold trade from the plaintiff.” In applying Lexmark to the facts of the case, the Fourth Circuit framed the analysis as two questions: Did the alleged acts of unfair  competition fall within the Lanham Act’s protected zone of interests? And if so, did Bayer plead proximate causation of a cognizable injury?

As to false association (§43(a)(1)(A)), the court found that that Bayer’s claim fell within the Lanham Act’s zone of interests because the complaint alleged that Belmora’s misleading association with Bayer’s FLANAX caused customers to buy Belmora’s FLANAX product in the United States instead of purchasing Bayer’s FLANAX in Mexico (or perhaps even Bayer’s competing ALEVE® product in the United States). The court also found that these alleged lost customers could reasonably translate to a cognizable injury in the form of lost sales revenue, thus satisfying the Lexmark’s second prong. Accordingly, the court concluded that

Bayer adequately pled a Section 43(a) false association claim.

Similarly, with respect to false advertising (§43(a)(1)(B)), the court concluded that Bayer’s claim fell within the Lanham Act’s zone of interests by “protecting persons engaged in commerce within the control of Congress against unfair competition.” The court also found that Bayer had sufficiently alleged that Belmora engaged in Lanham Act unfair competition by using deceptive advertisements that capitalized on Bayer’s goodwill and caused Bayer to potentially lose customers. The court found that the allegation of potential lost customers demonstrated an injury to sales or reputation proximately caused by Belmora’s alleged conduct, thereby satisfying Lexmark’s second prong and establishing the adequacy of Bayer’s pleading as to false advertising.

Finally, on the cancellation of Belmora’s United States FLANAX® registration pursuant to §14(3), the court found the same Lexmark analysis to apply because the relevant language in §14(3) closely tracks §43(a) and because Bayer’s cancellation claim “confronts the ‘deceptive and misleading use of marks.’” Thus, the district court erred in reversing the TTAB’s cancellation determination on the basis that Bayer lacked standing.

It is important to keep in mind that although the Belmora decision appears to provide an avenue for foreign entities to reach into the United States to stop a domestic trademark use, the decision is premised upon whether Bayer had standing and whether its claims could survive a motion to dismiss. Whether Bayer (or any similarly-positioned plaintiff) will ultimately prevail on the merits of its §43(a) and cancellation claims remains to be seen. In addition, of course, the Belmora decision is only binding on the courts of the Fourth Circuit. Given the decision’s reliance on Lexmark and the plain language of the Lanham Act, it would seem likely that other circuits will follow, but that, too, remains to be seen.