Antitrust Law Daily Wrap Up, ADVERTISING—W.D. Wash.: Lanham Act claim based on statement on yarn company website fails, (May 28, 2015)

By Edward L. Puzzo, J.D.

The federal district court in Seattle has rejected a yarn company’s Lanham Act claim based on a statement made on a competitor’s website about one of its products (Cascade Yarns, Inc. v. Knitting Fever, Inc., May 27, 2015, Martinez, R.).

Background. Cascade Yarns, Inc. and Knitting Fever, Inc. (KFI) compete in the market for the sale of luxury yarns. On May 24, 2010, Cascade filed suit against Knitting Fever, alleging that the company engaged in false advertising and unfair competition in violation of the Lanham Act and the Washington Consumer Protection Act (WCPA) by mislabeling the fiber content of certain yarns. Knitting Fever filed counterclaims asserting that Cascade mislabeled fiber content or country of origin of various yarns. The court later dismissed all of Cascade’s claims and many of Knitting Fever’s counterclaims, leaving only Knitting Fever’s Lanham Act and WCPA unfair competition claims based on country of origin labeling of certain Cascade yarns and its Lanham Act and Washington common law claims arising from a posting on Cascade’s website.

Cascade subsequently filed a second action against Knitting Fever, asserting Lanham Act and state law unfair competition and false advertising claims concerning Knitting Fever’s alleged mislabeling of certain yarns as to their country of origin. The claims were consolidated in November 2013. Knitting Fever moved for summary judgment on Cascade’s new claims. Conversely, Cascade moved, in part, for judgment on the pleadings and summary judgment.

On April 15, 2015, the court dismissed Cascade’s claims based on KFI’s sale of Katia yarns, both as to injunctive and monetary relief, and dismissed Cascade’s claims for monetary damages based on KFI’s sale of Mondial yarns. The court also dismissed Cascade’s claims for injunctive relief as to all Mondial yarns except as to KFI’s sale of its Mondial Vello d’Oro yarn, which it permitted Cascade to try to the Court. Following the court’s ruling, KFI agreed to voluntarily dismiss its country of origin claims and claim for tortious interference with contractual relationships.

The remaining issues were KFI’s counterclaims for unfair competition under the Lanham Act and Washington common law arising out of Cascade’s posting on its website in spring 2011 of an announcement concerning certain milk fiber yarns sold by KFI under the headline “Milk Protein Fiber Hype.” After trial, the court dismissed the tortious interference claims against principals of Cascade, finding that there was insufficient evidence that they directed the milk fiber yarn posting.

Lanham Act claim. Even if KFI could avail itself of a rebuttable presumption of consumer deception by showing that Cascade’s statements were literally false, it would have to show that Cascade intentionally misled consumers in order to prevail on its Lanham Act claim absent proof of actual injury, the court stated. It was KFI’s burden to show deliberate falsity in order to avail itself of a presumption of injury, and this was a burden that KFI did not meet. Further, KFI failed to present any direct evidence showing that it was injured by the milk fiber yarn post. Thus, KFI’s claim should not go to the jury, the court ruled.

Further, since, as both parties agree, the elements of KFI’s claim for unfair competition under Washington common law are identical to the elements of a claim for false or misleading advertising under the Lanham Act, the unfair competition claim must fail as well, the court ruled.

The case is Civil Action No. C10-861 RSM.

Attorneys: Robert J. Guite (Sheppard Mullin Richter & Hampton) for Cascade Yarns, Inc. Jacob Cohn (Gordon & Rees LLP) for Knitting Fever, Inc., and Designer Yarns Ltd.

Companies: Cascade Yarns, Inc.; Knitting Fever, Inc.; KFI, Inc; Designer Yarns, Ltd.

Cases: Advertising ConsumerProtection StateUnfairTradePractices WashingtonNews