Antitrust Law Daily Wrap Up, ADVERTISING—S.D. Tex.: Questions of truthfulness of machinery replacement part ads preclude summary judgment, (May 10, 2016)

By Greg Hammond, J.D.

Genuine issues of material fact concerning whether ads were literally false or misleading and whether the statements were likely to influence consumers’ purchasing decisions remain in an action alleging that a machinery manufacturer falsely advertised that its replacement parts were interchangeable with a supplier’s replacement parts. The federal district court in Houston consequently denied the manufacturer’s and supplier’s cross-motions for summary judgment on the Lanham Act false advertising claims (Alfa Laval Inc. v. Flowtrend, Inc., May 9, 2016, Atlas, N.).

Alfa Laval Inc. supplies machinery and equipment for use in the food processing, pharmaceutical, and other industries that require high sanitary standards, as well as Original Equipment Manufacturer (OEM) replacement parts for its machinery and equipment. Similarly, Flowtrend, Inc. sells aftermarket non-OEM replacement parts, including parts for Alfa Laval equipment and machinery. At issue in this litigation are Flowtrend’s statements in advertising that “a majority of [Flowtrend’s] products are identical to their name brand counterparts,” and that its replacement parts are interchangeable with Alfa Laval parts, are just like OEM parts, and meet or exceed OEM specifications.

Alfa alleged that Flowtrend violated the Lanham Act for false advertising, trade dress infringement, and unfair competition, as well as the Copyright Act, by posting copyrighted materials, including Alfa’s product brochures and manuals, on Flowtrend’s website. Alfa and Flowtrend filed cross-motions for summary judgment on the false advertising and Copyright Act claims. Flowtrend also sought summary judgment on the Lanham Act trade dress infringement and unfair competition claims.

False advertising. The court concluded that the parties submitted competing evidence that raised a genuine issue of material fact on the false advertising claims, precluding summary judgment. In particular, Alfa provided evidence that Flowtrend stated in advertising that its products were “identical” to Alfa products and that they were interchangeable. However, it remained unclear, according to the court, whether the statements were literally false and/or misleading. In addition, there was a genuine issue of material fact concerning whether the statements were likely to influence consumers’ purchasing decisions, given the other available suppliers of aftermarket replacement parts. The cross-motions for summary judgment on the false advertising claim were therefore denied.

Copyright Act. The court, however, granted Flowtrend’s motion for summary judgment on Alfa’s Copyright Act claim, finding that the claim was time-barred under the relevant three-year statute of limitations. Alfa admitted it was aware as early as 2009 that the alleged copyrighted materials were on Flowtrend’s website, and it knew by May 2010 that a customer had downloaded the copyrighted materials from Flowtrend’s website, the court noted. However, Alfa did not file the lawsuit until September 9, 2014, which was well beyond the three-year statute of limitations. The court found no evidence that Flowtrend engaged in new acts of copyright infringement after the materials were originally posted and there was no evidence to suggest that Flowtrend reposted the materials after the original posting in 2009. The court consequently granted Flowtrend’s motion and denied Alfa’s motion for summary judgment on the Copyright Act claim.

Laches defense. Next, Flowtrend claimed that the Lanham Act claim for trade dress infringement, unfair competition, and false advertising was barred by the equitable doctrine of laches. The court rejected this argument, however, finding that the period of time between October 2006, the date on which Flowtrend argues the laches period began, and the March 2008 cease and desist letter was less than four years—the applicable statute of limitations. Thus, Flowtrend was not entitled to summary judgment based on a laches defense.

Nominative fair use. Lastly, the court found that Alfa presented evidence that raised a genuine issue of material fact concerning whether Flowtrend used Alfa’s trademark truthfully. In particular, the court found that there was evidence that Flowtrend used Alfa’s trademarks in connection with advertising statements that Flowtrend products were “identical” to the corresponding Alfa product, but there was also evidence that the products were not actually identical. Flowtrend was therefore not entitled to summary judgment on its nominative fair use defense to the Lanham Act trade dress infringement claim.

The case is No. H-14-2597.

Attorneys: Peter Santos (Nexsen Pruet, PLLC) for Alfa Laval Inc. Christopher J. Schwegmann (Lynn Pinker Cox & Hurst, LLP) for Flowtrend, Inc.

Companies: Alfa Laval Inc.; Flowtrend, Inc.

Cases: Advertising TexasNews