Antitrust Law Daily Wrap Up, ADVERTISING—E.D. Va.: Egg producer's Lanham Act claim likely to succeed on merits, (Jun 17, 2016)

By Edward L. Puzzo, J.D.

A Lanham Act false advertising claim, made by an egg producer challenging an email sent by a certification organization to 39 grocery retailers questioning the validity of the producer's "Certified Organic" claims, demonstrated a clear and convincing likelihood of success on the merits, the federal district court in Alexandria, Virginia has ruled (Handsome Brook Farm, LLC v. Humane Farm Animal Care, Inc., June 15, 2016, Cacheris, J.).

Handsome Brook Farm (HBF) and three of its source farms produce eggs certified under the USDA "Certified Organic" program and the American Humane Association (AHA) "Pasture Raised" program. Humane Farm Animal Care (HFAC) maintains a rival certification program entitling egg producers certified by it to market their product as "Certified Humane."

On May 20, 2016, HFAC's Executive Director Douglas prepared an email questioning the validity of the "Certified Organic" and "Pasture Raised" claims on Handsome Brook Farm's egg packaging and sent it to 69 individuals in 39 top grocery retailers in the United States—including Whole Foods, Costco, Publix, Target, Albertsons, Safeway—suggesting that they consider changing their egg suppliers to those using the HFAC "Certified Humane" certification.

Soon after the HFAC email was issued, grocery retailers began to pull Handsome Brook Farm products from their shelves. HBF filed this lawsuit seeking injunctive relief and damages pursuant to the Lanham Act. The court granted a temporary restraining order (TRO) barring HFAC from further dissemination of the email.

In addition to moving for a permanent injunction enjoining HFAC from further dissemination of the email, HBF now moved for a mandatory injunction requiring HFAC to make a retraction statement through email and through a posting on its website.

Commercial speech. Under the Lanham Act's false advertising provision, a threshold requirement under Gordon & Breach Science Publishers v. American Institute of Physics, 859 F. Supp. 1521 (S.D.N.Y. 1994) is that the false or misleading statement be "commercial advertising or promotion." HFAC argued that the email was not commercial because its primary purpose was to further the cause of HFAC and other advocacy groups supporting the humane treatment of animals. But the court noted that HFAC pursues its objective of promoting humane animal treatment though distinctly commercial means, charging farmers seeking its certification an annual inspection fee, an annual application fee and a licensing fee based on a percentage of the products sold. The court noted that the income HFAC received from these fees was more than double what it received in donations and grants. Viewed in that light, the primary purpose of HFAC's May 20, 2016 was commercial: (1) to protect the interest of HFAC licensees who had spent extra money to raise eggs under the "Certified Humane" standard; and (2) soliciting the retailers to change their suppliers to HFAC certified suppliers.

Competitors. The next requirement under Gordon is that defendant is in competition with plaintiff. HFAC argued that this required direct competition at the same level of the distribution chain, absent here because HBF produced eggs, whereas HFAC was not an egg producer. But the court stated that the absence of a direct-competitor relationship is not dispositive in a Lanham Act claim. The court ruled that HBF and HFAC were competitors in the same market at a different stage of production, and were sufficiently competitive for the email to fall within the meaning of commercial advertising or promotion under the Lanham Act.

Promotional purpose. Another requirement under Gordon is that the speech be made for the purpose ofinfluencing consumers to purchase the defendant's products. The court found that the email was not fundraising in nature. The court further found that, although HFAC was not an egg producer itself, it commercially benefited from certifications it licensed to egg producers. Thus, the court ruled, the email had a promotional purpose.

Dissemination of speech. The final requirement under Gordon is that the speech be sufficiently disseminated to constitute advertising or promotion. The court noted that the email recipients included the top ten conventional grocery chains in the U.S., collectively accounting for over 16,000 stores nationwide. The court ruled that the dissemination requirement was met.

The court concluded that all four Gordon requirements for "commercial advertising or promotion" were met.

Clear and convincing. The court explained that for a mandatory injunction, the plaintiff must demonstrate a clear and convincing probability of success on the merits. Having met that standard as to the "commercial advertising or promotion" element of a Lanham Act false advertising claim, the court ruled that the plaintiff had also met that standard as to the remaining elements of a Lanham Act false advertising claim. The email was false and misleading, in implying that HBF's certifications were invalid; it was material, in that it was likely to influence purchasing decisions; it deceived consumers and injured the plaintiff, by causing retailers to pull its products off the shelves; and the statements were disseminated in interstate commerce. The court concluded that plaintiff had clearly and convincingly demonstrated a likelihood of success on the merits of its Lanham Act false advertising claim.

The case is Civil Action No. 1:16-cv-00592-JCC-MSN.

Attorneys: Nigel L. Wilkinson (Manatt Phelps & Phillips, LLP) for Handsome Brook Farm, LLC. Lana Marie Manitta (Rich Rosenthal Brincefield Manitta Dzubin & Kroeger LLP) for Humane Farm Animal Care, Inc.

Companies: Handsome Brook Farm, LLC; Humane Farm Animal Care, Inc.

Cases: Advertising VirginiaNews