Antitrust Law Daily Wrap Up, FALSE ADVERTISING—WDWash: Failure to Identify Country of Origin on Yarn Labels Could Be False Advertising, (Nov 2, 2012)

By William Zale, J.D.

Cascade Yarns’ alleged failure to identify a country of origin on the labels of yarn supplied to U.S. retail shops could constitute Lanham Act false advertising and common law unfair competition, the federal district court in Seattle has ruled (Cascade Yarns, Inc. v. Knitting Fever, Inc., October 31, 2012, Martinez, R.). The court denied Cascade summary judgment on counterclaims brought by competing distributor Knitting Fever, Inc. (KFI) relating to country of origin, but granted summary judgment rejecting KFI’s counterclaims based on fiber content labeling.

KFI had withdrawn expert evidence on fiber content. Fiber content labeling problems appeared to be industry-wide, the court observed. Because KFI had no evidence that Cascade’s yarns were mislabeled as to fiber content, the Lanham Act counterclaim based on false labeling as to fiber content failed.

The court reached a different result on KFI’s allegation that “many of Cascade’s yarn labels fail to identify a country of origin as required by law.” Cascade mischaracterized testimony of KFI’s CEO and its operations manager as supporting Cascade’s position that listing the address of a yarn supplier or distributor were sufficient to meet the legal requirements, the court found.

Cascade failed to establish a ground for summary judgment by making the conclusory assertion that “unlike a yarn product’s fiber content, its country of origin does not relate to its ‘inherent quality or characteristic’ and, therefore, materiality cannot be shown without additional evidence, which KFI lacks,” the court said.

There is precedent holding that failure to designate country of origin in violation of the Tariff Act (19 U.S.C. § 1304) violates section 43 of the Lanham Act as a matter of law, the court noted. Cascade failed to argue why this reasoning should not apply. KFI did not specifically allege a violation of the Tariff Act, but did allege that specified yarns are not properly labeled as to country of origin.

Because genuine issues of material fact exist as to whether some Cascade labels failed to properly designate country of origin, and whether that failure constitutes a violation of the Lanham Act, the court denied Cascade’s motion for summary judgment as to this aspect of KFI’s Lanham Act claim. The motion was denied as to KFI’s common law unfair competition claim for the reasons set forth in the Lanham Act analysis.

The case is No. C10-861RSM.

Amy E. Rose (Squire Sanders) for Cascade Yarns, Inc. Deirdre E. McInerney (Pepper Hamilton LLP) for Knitting Fever, Inc.

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