Antitrust Law Daily Wrap Up, FALSE ADVERTISING—DMd: Mobile Device Accessories Manufacturer Pleads Lanham Act False Advertising Claim Against Amazon.com over Kindle Accessories Marketing, (Jan 3, 2013)

By Tobias J. Gillett, J.D., LLM.

A manufacturer of accessories for mobile electronic devices can proceed with its Lanham Act false advertising claim against Amazon.com over allegedly false statements regarding the availability of the manufacturer’s products and the approval required to sell accessories for Amazon’s Kindle e-book reader, the federal district court in Baltimore has ruled (M-Edge Accessories LLC v. Amazon.com, Inc., January 2, 2013, Garbis, M.).

The manufacturer, M-Edge Accessories, Inc., produces accessories for mobile electronic devices such as tablet computers and e-book readers. In 2008, M-Edge began manufacturing and selling through Amazon.com accessories for Amazon’s Kindle e-book readers, including a protective jacket and a book light.

According to M-Edge, Amazon regularly threatened M-Edge during negotiations regarding various agreements they entered in order to get larger shares of M-Edge’s sales, including threats to de-list M-Edge’s products and to deny pre-launch access to new Kindle versions. In 2010, Amazon launched a new Kindle version, and provided M-Edge with only one day of notice, preventing M-Edge from producing accessories for it immediately. At the same time, Amazon began selling its own accessories, which M-Edge asserted were “knock-offs” of M-Edge’s products, including a lighted cover that M-Edge claimed violated one of M-Edge’s patents.

Amazon also allegedly created a “Preferred Vendor Program,” and threatened M-Edge with adverse consequences if M-Edge did not pay to join it. When M-edge refused, Amazon allegedly sent a list of “Amazon Approved Accessory Vendors” to M-Edge’s customers and potential customers that did not include M-Edge, and coerced M-Edge’s customers into ceasing their business with M-Edge.

In addition, Amazon sent M-Edge e-mails informing M-Edge that it was no longer an approved vendor of Kindle accessories. However, Amazon allegedly continued to display M-Edge products on its website, but with statements that those products were “currently unavailable,” in conjunction with displays of competing products, including those produced by Amazon.

M-Edge filed suit, alleging a variety of claims, including a Lanham Act false advertising claim contending that the statements that its products were “currently unavailable” and that sale of Kindle accessories required Amazon’s permission (and that Amazon had not given M-Edge that permission) constituted false advertising. Amazon filed a motion to dismiss.

Falsity

Amazon initially argued that the statements, even as alleged, were truthful, and hence not false advertising. However, the court noted that a Lanham Act false advertising claim required that a statement be “either false on its face or, although literally true, likely to mislead and to confuse consumers given the merchandising context. Here, the court determined that Amazon’s statements “might be found misleading or false by implication in context.” On a motion to dismiss, M-Edge had presented a plausible claim that its customers could have been misled by Amazon.

Commercial Advertising

Amazon next contended that its statements had not been made in a commercial advertisement, as required for a Lanham Act claim. The court applied the test outlined in Gordon & Breach Science Publishers, S.A. v. America Institute of Physics (859 F. Supp. 1521, 1994-2 Trade Cases ¶70,707) for determining whether a statement is commercial advertising or promotion. Under this test, a statement is commercial advertising if it is (1) commercial speech; (2) by a defendant who is in commercial competition with plaintiff; (3) for the purpose of influencing consumers to buy defendant’s goods or service. (4) While the representations need not be made in a “classical advertising campaign,” the representations must be disseminated sufficiently to the relevant public to constitute “advertising” or “promotion” within the relevant industry.

Here, the court found M-Edge had sufficiently met these elements. Amazon’s statements constituted commercial speech, as they were “an expression related solely to the economic interests of the speaker and its audience.” The “not currently available” statement could be plausibly viewed as an attempt to mislead consumers looking for M-Edge products into purchasing Amazon products instead, while the statements regarding M-Edge’s lack of approval to sell Kindle accessories could be viewed as an attempt to get consumers to buy Amazon products or those produced by manufacturers who pay Amazon a share of their proceeds. Amazon’s dissemination of the statements through its website and through e-mail to customers could constitute advertising in those circumstances.

Therefore, the court denied Amazon’s motion to dismiss M-Edge’s Lanham Act claim. The court also denied Amazon’s motion to dismiss state law unfair competition and intentional interference with contracts and economic relations claims.

The case is No. MJG-11-3332.

John Edward McCann, Jr. (Miles and Stockbridge PC) for M-Edge Accessories LLC. Jonathan Mark Shaw (Boies Schiller and Flexner LLP) for Amazon.com, Inc.

Cases: Advertising MarylandNews