Free Trial Brief - District Court of Arizona - Arizona

GREENBERG TRAURIG, LLP 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 Plaintiff Awareness Corporation ("Awareness") hereby submits its bench memorandum regarding its claims for direct violations of Section 43(a) of the Lanham Act against the Distributor Defendants and defendant Group Vision International ("GVI"). Awareness further submits its bench memorandum regarding its claims for contributory violations of Section 43(a) of the Lanham Act against GVI. I. The Distributor Defendants and GVI Each Directly Participated in Literally False and Injurious Commercial Advertising and Promotion in Interstate Commerce. To prevail on its Lanham Act claim against the defendants, Awareness must establish the following elements:
phx-fs1\1506619v01\8/8/05\6:42:00PM ATTORNEYS AT LAW SUITE 700 2375 EAST CAMELBACK ROAD PHOENIX, ARIZONA 85016 (602) 445-8000

Steven M. Weinberg, SBN 016817, [email protected] Brian J. Schulman, SBN 015286, [email protected] Kimberly A. Warshawsky, SBN 022083, [email protected] Attorneys for Plaintiff Awareness Corporation and Third Party Defendants Allcock and Schmidt IN THE UNITED STATES DISTRICT COURT DISTRICT OF ARIZONA Awareness Corporation, Plaintiff, v. Group Vision International, L.L.C., et al., Defendants. No. CV03-2024-PHX-DGC PLAINTIFF AWARENESS CORPORATION'S BENCH MEMORANDUM NO. 2 RE: THE DISTRIBUTOR DEFENDANTS' AND GVI'S DIRECT VIOLATIONS OF SECTION 43(a) OF THE LANHAM ACT AND GVI'S CONTRIBUTORY VIOLATIONS OF SECTION 43(a) OF THE LANHAM ACT

And related cross claims and third party actions.

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(1) a false statement of fact by [the defendants] in a commercial advertisement [or promotion] about its own or another's products; (2) the statement actually deceived or has the tendency to deceive a substantial segment of its audience; (3) the deception is material, in that it is likely to influence the purchasing decision; (4) [the defendants] caused [their] false statement to enter interstate commerce; and (5) the plaintiff has been or is likely to be injured as a result of the false statement, either by direct diversion of sales from itself to [the defendants] or by lessening the goodwill associated with its products. Southland Sod Farms v. Stover Seed Co., 108 F.3d 1134, 1139 (9th Cir. 1997). 1. Unsubstantiated Advertising Claims are Per Se False.

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An advertising claim that is completely unsubstantiated is per se false because the advertiser implies that it has a factual basis for making the assertion when in reality it knows that no such basis exists. Novartis Consumer Health, Inc. v. Johnson & JohnsonMerck Consumer Pharms. Co., 290 F.3d 578, 590 (3d Cir. 2002). taken in the arena of health-related product advertising. This precedent underscores the aggressive stance that federal courts, as a matter of public policy, have See, e.g., Conopco, Inc. v. Campbell Soup Co., 95 F.3d 187, 194 (2d Cir. 1996) ("We have consistently held that the public's interest is especially significant when health and safety concerns are implicated, as with the advertising of over-the-counter medications."); Syntex Labs., Inc. v. Norwich Pharmacal Co., 437 F.2d 566, 568-69 (2d Cir. 1971) (affirming lower court's holding that, "with the consequences of confusion so much more serious, relief [in a Lanham Act case] should be granted upon lesser proof of confusing similarity in a prescription drug case than in other areas of infringement litigation."). See also 4 J. THOMAS MCCARTHY, MCCARTHY ON TRADEMARKS AND UNFAIR COMPETITION § 23:32 (4th ed. 2004) (compiling cases). 2. "Deliberately False" Statements Give Rise to a Presumption of Actual Deception and Reliance.

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"[F]or false comparative advertising claims, this circuit has held that
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"`[p]ublication of deliberately false comparative claims gives rise to a presumption of actual deception and reliance.'" Southland, 108 F.3d at 1146 (quoting U-Haul Int'l, Inc. v. Jartran, Inc., 793 F.2d 1034, 1040-41 (9th Cir. 1986)). The reasoning behind this presumption is that "he who has attempted to deceive should not complain when required to bear the burden of rebutting a presumption that he succeeded." U-Haul, 793 F.2d at 1041. "Because a reasonable jury could conclude, based on the evidence submitted by Plaintiffs, that Defendants' comparative advertising claims were deliberately false within the meaning of § 43(a), Plaintiffs may be entitled to a presumption of actual consumer deception and reliance, and would therefore be entitled to appropriate monetary relief unless the Defendants could rebut the presumption." Southland, 108 F.3d at 1146. Proof of "deliberately false" or "misleading" within this context carries a fairly low burden. See Harper House, Inc. v. Thomas Nelson, Inc., 889 F.2d 197, 209 (9th Cir. 1989) (finding that the defendant intended to deceive consumers despite "little overt reference" to the plaintiff's product). The key determination is whether defendant undertook significant action to disseminate the false statements to the relevant target group. William H. Morris Co. v. Group W, Inc., 66 F.3d 255, 259 n.2 (9th Cir. 1995). Where it is clear that the relevant people received the false message, courts may imply a defendant's intent to deceive. Id. Accordingly, deliberateness can be shown by proof that the defendant knowingly made the false or misleading statements with the intent that relevant persons would rely on these statements. Such deliberateness exists here where the sole purpose of the false and misleading statements made by the Distributor Defendants was to make the relevant "consumer" ­ Awareness distributors and their customers who the Distributor Defendants intentionally were attempting to lure away from Awareness to their directly competitive company and product line ­ leave Awareness and its products and turn instead to GVI and the Distributor Defendants. Misdescriptions of specific or absolute characteristics of a product are not puffery but are actionable, as are specific claims of product superiority. Southland, 108 F.3d at
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1145. All of the deliberately false and misleading claims made and disseminated by the defendants are specific and actionable and not puffery. 3. "Commercial Advertising" Under the Lanham Act Depends Upon the Industry and the Audience Receiving the False Messages.

The false statements need not be directed to a large group or general population. "[I]t is enough if the false advertising is directed to an identifiable group that the advertiser seeks to persuade for the purpose of enhancing its competitive position, directly or indirectly...." Health Case Compare Corp. v. United Payors & United Providers, Inc., 1998 WL 122900 at *4 (N.D. Ill. Mar. 13, 1998). "The level of circulation required to constitute advertising and promotion will undeniably vary from industry to industry and from case to case." Am. Needle & Novelty, Inc. v. Drew Pearson Mktg., Inc., 820 F. Supp. 1072, 1078 (N.D. Ill. 1993). The Distributor Defendants had as their "target group" Awareness distributors who were in the downlines in which they had been distributors and their customers, and as shown by their actions and admissions, believed that email blasts and telephone conferences would be the most effective means of disseminating their lies. As at least one of Distributor Defendants has admitted, word of mouth was the best way to promote to this target group. Thus, Awareness need not show that the falsehoods were made to a significant segment of the health supplement industry. It need only show that the falsehoods were made to the intended target group. The Distributor Defendants have admitted that it was this group ­ Awareness distributors and their customers ­ that they were attempting to influence. Cf. Seven-Up Co. v. Coca-Cola Co., 86 F.3d 1379 (5th Cir. 1996) (sales presentation given in meetings to 11 of 74 possible cross-franchise bottlers). It is the clear intent of the Ninth Circuit since Lindy Pen Co. v. Bic Pen Corp. that defendants who engage in false and misleading advertising be held liable. 982 F.2d 1400, 1411 (9th Cir. 1993). The presumptions permitted and the discretion given to district courts in fashioning remedies makes this clear. This intent certainly is not intended to be
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undone if the false and misleading messages were made to the defendants' intended target group, rather than to the entirety of a particular industry. 4. Material Statements Influence a Consumers' Purchasing Decisions. A false advertising claim is considered "material" for purposes of the Lanham Act where "it is likely to influence the purchasing decision." Cook, Perkiss & Liehe, Inc. v. N. Cal. Collective Serv., Inc., 911 F.2d 242, 244 (9th Cir. 1990). Such "influence" is presumed where, as here, the misrepresentation pertains to an inherent quality or characteristic of the product. See, e.g., Cashmere & Camel Hair Mfrs. Inst. v. Saks Fifth Ave., 284 F.3d 302, 302 (1st Cir. 2002); Telebrands Corp. v. Wilton Indus., Inc., 983 F. Supp. 471, 475 (S.D.N.Y. 1997) ("[A] false or misleading statement is a material misrepresentation [under the Lanham Act] if it pertains to an `inherent quality or characteristic' of the product."). 5. The Lanham Act Does Not Require Competitors to Show Proof of Actual Injury to Obtain Either Equitable or Monetary Relief.

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"A competitor need not prove injury when suing to enjoin conduct that violates Section 43(a)." Southland, 108 F.3d at 1145. Accordingly, even if Awareness was unable to prove actual injury, the false and misleading statements made by the Distributor Defendants can be permanently enjoined. Further, "an inability to show actual damages does not alone preclude a recovery under Section 1117 [of the Lanham Act].... [u]nder Lindy Pen, the preferred approach allows the district court in its discretion to fashion relief, including monetary relief, based on the totality of the circumstances." Id. at 1146 (citing Lindy Pen, 982 F.2d at 1411, and distinguishing Harper House, 889 F.2d at 197 as no longer being the "preferred approach," in which the Ninth Circuit had held that a showing of actual injury was required for a plaintiff to be awarded damages under Section 43(a)). "Courts have been more willing to allow monetary damages even without a showing of actual consumer confusion" in Section 43(a) false advertising cases. Id. at 1146.
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GVI Contributed to the Defendant Distributors' Literally False and Injurious Commercial Advertising and Promotion in Interstate Commerce. It is well-settled that liability for violations of the Lanham Act can extend beyond

those who actually perpetrated the deception. Inwood Labs., Inc. v. Ives Labs, Inc., 456 U.S. 844, 853 (1982). See also Grant Airmass Corp. v. Gaymar Indus., Inc., 645 F. Supp. 1507, 1511 (S.D.N.Y. 1986) ("[L]iability under the Lanham Act has been construed to extend beyond those who actually misrepresent goods or directly place such goods in commerce."); 4 J. THOMAS MCCARTHY, MCCARTHY ON TRADEMARKS AND UNFAIR COMPETITION § 25:19 (4th ed. 2004) ("A plaintiff has a § 43(a) claim against all those allegedly responsible for falsely describing and placing in commerce the advertised goods."). The United States Supreme Court, in Inwood Laboratories, Inc. v. Ives Laboratories, Inc., held that where a "manufacturer or distributor ... continues to supply its product to one whom it knows or has reason to know is engaging" in a violation of the Lanham Act, the "manufacturer or distributor is contributorily responsible for any harm done as a result of the deceit," even if the distributor lacked "direct control" of the infringing party. 456 U.S. at 853-54 (emphasis added). See also Fonovisa, Inc. v. Cherry Auction, Inc., 76 F.3d 259, 265 (9th Cir. 1996) (reinstating trademark owner's Lanham Act claim where flea market operator "disregard[ed] its vendors' blatant [infringements] with impunity," as contributory liability extends to those who were "`willfully blind' to the ongoing violations.") (quoting Hard Rock Café Licensing Corp. v. Concession Servs., Inc., 955 F.2d 1143 (7th Cir. 1992)); Mini Maid Servs. Co. v. Maid Brigade Sys., Inc., 967 F.2d 1516, 1522 (11th Cir. 1992) ("[C]ontributory trademark infringement might be grounded upon a franchisor's bad faith refusal to exercise a clear contractual power to halt the infringing activities of its franchisees."); RESTATEMENT (THIRD) OF UNFAIR COMPETITION § 27 ("One who markets goods or services to a third person who further markets the goods or services in a manner that subjects the third person to liability to another for infringement ... is subject to liability to that other for contributory
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infringement if ... (b) the actor fails to take reasonable precautions against the occurrence of the third person's infringing conduct in circumstances in which the infringing conduct can reasonably be anticipated."). The legal standard of care is that of a reasonably prudent person. See, e.g., MCCARTHY ON TRADEMARKS AND UNFAIR COMPETITION § 25:19 ("The ordinary business person cannot claim innocence [on a claim of contributory liability] if the facts are such that any reasonable person in such a position should have known that it was actively participating in an operation which constituted unfair competition or trademark infringement."). RESPECTFULLY SUBMITTED this 8th day of August, 2005. GREENBERG TRAURIG, LLP By: /s/ Kimberly A. Warshawsky Steven M. Weinberg Brian J. Schulman Kimberly A. Warshawsky Attorneys for Awareness Corp. and Third Party Defendants Allcock and Schmidt

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CERTIFICATE OF SERVICE I hereby certify that on August 8, 2005, I electronically transmitted the attached document to the Clerk' Office using the CM/ECF System for filing and transmittal s of a Notice of Electronic Filing to the following CM/ECF registrants: Curtis D. Drew, Esq. 2342 North Pima Road Scottsdale, Arizona 85257-2405 [email protected] Attorney for Defendant Group Vision International, L.L.C. G. Gregory Eagleburger, Esq. The Eagleburger Law Group 2999 North 44th Street, Suite 303 Phoenix, Arizona 85018 [email protected] Attorneys for Distributor Defendants I hereby certify that on August 8, 2005, I served the attached document by facsimile and United States mail on the following, who are not registered participants of the CM/ECF System:

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/s/ J. David Smith

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