Vacating the district court’s dismissal of plaintiff’s trademark infringement, false endorsement and unfair competition claims under the Lanham Act and state law, the U.S. Court of Appeals for the Second Circuit held that to plead trademark infringement or false endorsement under the Lanham Act a plaintiff need not allege likelihood of confusion as to the source of a product. Famous Horse, Inc. v. 5th Avenue Photo, Inc., Case No. 08-4523 (2d Cir., Oct. 21, 2010) (Lynch, J.) (Livingston, J., dissenting-in-part).
Plaintiff Famous Horse operates V.I.M., a chain of discount clothing stores in the New York area. The defendants are wholesalers who offered to supply ROCAWEAR brand jeans to several clothing stores, including those owned by Famous Horse. After the plaintiff purchased purported ROCAWEAR brand jeans from defendants, it discovered that the jeans were counterfeit and stopped doing business with the defendants. The defendants continued selling the counterfeit jeans to other retailers and allegedly told potential customers that V.I.M was a satisfied customer. Famous Horse filed a complaint against the defendants alleging trademark infringement under §32 of the Lanham Act, false endorsement and unfair competition under §43(a) of the Lanham Act, along with related state law claims. The district court dismissed the plaintiff’s false endorsement claims under §32 and §43(a) for failure to state a claim upon which relief may be granted, finding that the plaintiff did not allege facts establishing consumer confusion as to the source of its products. The district court also denied the plaintiff’s motion to amend its complaint to include a Section 43(a) unfair competition claim. Famous Horse appealed.
The 2d Circuit found that the district court erred in dismissing the plaintiff’s false endorsement claims under Section 32 and 43(a) because it improperly read the Lanham Act to solely prohibit confusion as to the origin of goods or services. Concerning §43(a), the circuit court explained that it prohibits false or misleading representation that result in many different types of consumer confusion, including confusion as to affiliation, association or sponsorship as infringing activity. Second Circuit precedent has specifically recognized Lanham Act claims in situations in which one company had falsely portrayed another as a satisfied customer. Thus, the plaintiff’s allegations that the defendants falsely identified Famous Horse as a satisfied customer were sufficient to state a claim under §43(a). Concerning §32, the circuit court noted that this section prohibits the use of a registered mark “likely to cause confusion, to cause mistake, or to deceive” but does not enumerate the types of confusion that might be caused. The plaintiff expressly alleged that the defendants used the plaintiff’s marks in connection with the false misrepresentation that Famous Horse was a satisfied customer. The circuit court determined that this use was “plainly likely to deceive” and “create confusion and mistake” concerning the relationship between the defendants’ goods and services and the plaintiff. Thus, the circuit court concluded that the plaintiff’s false endorsement allegations were also sufficient to state a claim under §32. Accordingly, the Second Circuit vacated the dismissal of plaintiff’s false endorsement claims under §32 and §43(a).
Famous Horse also alleged an unfair competition claim under § 43(a) of the Lanham Act, alleging that The defendants completed unfairly by selling counterfeit ROCAWEAR jeans. The defendants argued that Famous Horse could not support an unfair competition claim based upon the ROCAWEAR mark, which the plaintiff does not own. The 2d Circuit determined that the district court erred in its denial of plaintiff’s second motion to amend its complaint to include a §43(a) unfair competition claim. The 2d Circuit acknowledged that the plaintiff’s §43(a) claim “may well be difficult to prove at trial,” but nonetheless found that it had alleged sufficiently plausible claims to overcome a motion to dismiss, despite the fact that Famous Horse did not own the mark at issue.
Applying its “reasonable interest approach,” the 2d Circuit held that the plaintiff had standing to bring an unfair competition claim. Alleged lost sales to defendants’ lower-priced counterfeit jeans and the “unique harm” that customers may mistakenly believe that the plaintiff is selling ROCAWEAR brand jeans at inflated prices was sufficient harm that the plaintiff possessed a “reasonable interest” to be protected against the defendants’ acts. Further, the court found that plaintiff would also have standing under standards of other circuits because the plaintiff and defendants “are in essence competitors.”
Judge Livingston concurred with the majority on everything except for the unfair competition claim. Judge Livingston would have applied the test for trademark standing employed by the Third Circuit in Conte Brothers Automotive, Inc. v. Quaker State-Slick 50, Inc., and, upon application of this test, found that the plaintiff lacked a “reasonable interest” sufficient to confer standing for a Lanham Act unfair competition claim based upon the defendants’ asserted sale of counterfeit jeans bearing the ROCAWEAR mark. While under Conte Brothers, Judge Livingston found that the plaintiff had alleged sufficient injury to confer standing, the balance of the factors weighed against standing, such as the fact that another party was clearly more proximately affected than the plaintiff by the defendants’ counterfeiting, namely, the owner of the ROCAWEAR mark.