Antitrust Law Daily Wrap Up, ADVERTISING—C.D. Cal.: Plastics manufacturer cannot show that rival companies’ advertisements were false or misleading, (Feb 6, 2015)

By Dan Selcke, J.D.

The federal district court in Los Angeles, California entered judgment for a plastics distributor accused by a plastics manufacturer of false advertising, since the manufacturer could not show that the advertisements in question were either literally false or that they had misled or confused consumers (Caltex Plastics, Inc. v. Elkay Plastics Company, Inc., February 4, 2015, Lew, R).

Caltex Plastics manufactured polyethylene bags and laminated products, which included packaging materials that had been qualified by the Department of the Navy (DON) as meeting the Department of Defense’s (DOD) MIL 81705 Type III specifications for “flexible barrier materials,” and which had been placed on the DOD’s Qualified Products List (QPL). If defense contracts required MIL 81705 Type III products, they could only be purchased from qualified manufacturers on the QPL. To get on the QPL, Caltex had to contact the DOD and submit its product for testing.

Elkay was also in the plastics business. On its marketing materials, Elkay advertised a line of static shielding bags as having met “the electrostatic requirements for MIL 81705 Type III.” However, Elkay had not tested the bags to see if they met these requirements, had not asked its suppliers whether they met those requirements, the DON had not qualified the bags, and the bags were not on the QPL. After getting confronted by Caltex, Elkay agreed to remove all references to “specification number 81705 from its website and printed materials pertaining to the barrier bags in question.” It followed through on this promise, but Caltex still brought suit.

Lanham Act. Celtex was unable to show that Elkay’s representations were literally false in violation of the Lanham Act, according to the court. To state a Lanham Act claim against Elkay, Celtex needed to show that Elkay’s claim that its bags met “the electrostatic requirements for MIL 81705 Type III” was false. Celtex argued that the claim was literally false because only the DON could decide that a product met those requirements, and the DON had not tested Elkay’s product. This argument was flawed. The DON was the only organization that could qualify that a product met the requirements, but a product could still meet them without being qualified.

Celtex also argued that Elkay’s claim was literally false because Elkay had no independent evidence that its bag products met the MIL 81705 Type III requirements. This argument could not prevail because it was a “lack of substantiation” argument, and a false advertising claim cannot be proved on “lack of substantiation” grounds. Celtex bore the burden of showing that Elkay’s advertisements were false or misleading, not merely that they was unsubstantiated. For this reason, the fact that Elkay had not tested its bags was irrelevant.

Because Celtex could not show that Elkay’s advertisements were literally false, it had to try and show that they were likely to mislead or confuse consumers. To do that, it had to provide extrinsic evidence that consumers had actually been misled or confused. Testimony that, compared to Elkay’s bags, there were cheaper products on the market that also met the MIL 81705 Type III requirements did not show that consumers believed that Elkay’s products were qualified by the military or on the QPL.

The same went for Celtex’s evidence that the defense community was confused as to the DOD’s qualification requirements for MIL 81705 Type III products. That confusion was caused by the DOD’s failure to inform the relevant defense officials of those requirements, not because of Elkay’s advertisements. Because Celtex could not show that those advertisements were false, the court dismissed the Lanham Act claim.

California claims. Next, the court considered Celtex’s claim that Elkay had engaged in false advertising in violation of California’s False Advertising Law, which prohibits advertisements that are “untrue or misleading” to the “reasonable consumer.” Celtex could not clear this hurdle for the same reasons it could not show that Elkay’s advertisements were false under the Lanham Act.

Finally, the court rejected Celtex’s arguments as to why Elkay had violated the California’s Unfair Competition Law which prohibits any unlawful, unfair, or fraudulent business act or practice. Simply put, Celtex could not show that Elkay had engaged in any unlawful, unfair, or fraudulent acts.

Attorney fees. The court denied Elkay’s request that it be awarded attorney fees under the Lanham Act, which allowed courts to grant such fees in exceptional cases. This was not such a case.

The case is No.: 2:12-cv-10033 RSWL(JEMx).

Attorneys: Fred A. Fenster (Greenberg Glusker Fields Claman and Machtinger LLP) for Caltex Plastics Inc. Gary M. Anderson (Fulwider Patton LLP) for Elkay Plastics Company Inc.

Companies: Caltex Plastics Inc.; Elkay Plastics Company Inc.

Cases: Advertising CaliforniaNews