Introduction

On March 23 2016 the Fourth Circuit Court of Appeals concluded that a false advertising or false association claim made under Section 43(a) of the Lanham Act (15 USC §1125(a)) need not be premised on the ownership of a US trademark registration or even use of a mark in the United States. A Section 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 that arises under Section 43(a) is not whether the defendant's activities infringe the plaintiff's registered mark, but rather whether the defendant has used in commerce a word, term, name or symbol that the plaintiff believes is likely to cause it damage.

Facts

Belmora LLC sold over-the-counter pain relief products in the United States under the Flanax® brand name. In 2005, Belmora obtained a US trademark registration for FLANAX. Bayer Consumer Care AG and Bayer Healthcare LLC ('Bayer') were affiliates of a multinational corporation and had sold analgesics in Mexico under the Mexican-registered trademark FLANAX since 1976. However, they 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 those analgesics it offers under the Flanax name in Mexico. Although Mexican consumers – and arguably Mexican-US consumers who had entered the United States from Mexico – were likely to be familiar with Bayer's Mexican Flanax product, the majority of US consumers would typically be unaware of Bayer's Mexican brand.

In this matter, it was alleged that Belmora advertised and promoted its US product directly to Mexican-Americans by using specific product packaging (including colour schemes and type-style), as well as advertising copy, designed to create an untrue association or affiliation between Bayer's Mexican product and the product offered by Belmora in the United States. For instance, its advertising copy states that "Flanax products have been used [for] many, many years in Mexico [and are] now being produced in the United States by Belmora". Bayer petitioned the US Trademark Office to cancel Belmora's FLANAX trademark registration under Section 14(3) of the Lanham Act, alleging that Belmora's use of FLANAX "misrepresent[ed] 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 evidence that Belmora had ''readily establishe[d] blatant misuse 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 appealed the TTAB decision by initiating a civil proceeding in the Eastern District of Virginia (15 USC §1071(b)). Meanwhile, Bayer filed suit in the Southern District of California alleging false association and false advertising under Section 43(a) of the Lanham Act. The cases were consolidated in Virginia.

In February 2015 Judge Gerald Lee of the US 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 the FLANAX mark in the United States and owned no US 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?"

In purporting to rely on the Supreme Court's recent decision in Lexmark International Inc v Static Control Components, Inc (134 S Ct 1377 (2014)), the court concluded that Bayer had failed to demonstrate that it was within the 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 false association and false advertising claims. Bayer appealed to the Fourth Circuit.

Decision

The Fourth Circuit vacated the district court decision and remanded the matter for further proceedings, finding that standing for a claim under this section of the act need not be premised on a US trademark registration or even on use of the mark in the United States. Instead, all that is needed 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 Section 43(a), the court found that the plain language does not require a plaintiff to possess a US trademark registration or even to have used a trademark in US commerce. Rather, Congress wrote the section in terms of the putative defendant's conduct. Contrasting Section 43(a) with trademark infringement under Section 32 of the Lanham Act (15 USC §1114), where the language includes a registration/use pre-condition, the court concluded that Congress clearly could have included such a pre-condition under the former act but elected not to. Thus, the district court erred in reading such a requirement into the statute.

The court then analysed whether Bayer was in a position to allege properly that it had been, or would likely be, damaged by Belmora's actions. It 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 the Lanham Act's provisions under this prong is exceedingly straightforward as Section 45 provides a clear statement of the interests Congress intended the act to protect. According to the 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 prohibited by the statute. In the context of Section 43(a), this means showing "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 act's protected zone of interests?
  • If so, did Bayer plead proximate causation of a cognisable injury?

As to false association (Section 43(a)(1)(A)), the court found that that Bayer's claim fell within the 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 rather than 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 cognisable injury in the form of lost sales revenue, thus satisfying 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 (Section 43(a)(1)(B)), the court concluded that Bayer's claim fell within the 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 unfair competition, as identified within the act, by using deceptive advertisements that capitalised 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 US FLANAX registration pursuant to Section 14(3), the court found the same Lexmark analysis to apply because the relevant language in Section 14(3) closely corresponds to Section 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.

Comment

Although the Belmora decision appears to provide an avenue for foreign entities to reach into the United States to stop domestic trademark use, the decision was premised on whether Bayer had standing and whether its claims could survive a motion to dismiss. Whether Bayer or any similarly positioned plaintiff will ultimately prevail in light of Section 43(a)remains to be seen. In addition 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 act, it would seem likely that other circuits will follow, but that too remains to be seen.

For further information on this topic please contact Timothy J Kelly or Giancarlo L Scaccia by telephone (+1 212 218 2100) or email (tkelly@fchs.com or gscaccia@fchs.com). The Fitzpatrick, Cella, Harper & Scinto website can be accessed at www.fitzpatrickcella.com.

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