Antitrust Law Daily Wrap Up, TOP STORY—EDWis: Marketing Handbook Sent to Generator Dealers Constitutes Commercial Advertising for Lanham Act Purposes, (Jan 23, 2013)

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

The federal district court in Milwaukee has granted Generac Power Systems, Inc.’s motion for reconsideration of an order denying its previous motion for preliminary injunction, concluding, contrary to its previous decision, that a marketing handbook for a generator sent to dealers selling that generator did constitute commercial advertising, and hence that Generac had stated a viable Lanham Act false advertising claim (Generac Power Systems, Inc. v. Kohler Co., January 22, 2013, Randa, R.). The court granted Generac’s motion for a preliminary injunction requiring Kohler Co. to inform its dealers of the falsity of a statement in its handbook and to instruct the dealers to destroy remaining copies of it.

Generac and Kohler manufacture competing models of 20 kilowatt generators. In the marketing handbook, Kohler had included a comparison between its generator and Generac’s generator, and stated that Generac’s generator lacked a “Low-Speed Diagnostic Exercise.”

False Advertising

In its previous decision, Advertising Law Guide ¶64,675, the court had addressed Generac’s claim that this statement violated the Lanham Act’s prohibition on false or misleading advertising. Although the court determined that Kohler’s statement was “literally false,” the court concluded that the handbook did not constitute a commercial advertisement for purposes of the Lanham Act. The court relied on the Seventh Circuit’s 2001 decision in First Health Grp. Corp. v. BCE Emergis Corp., 269 F.3d 800, Advertising Law Guide ¶60,408, which the court had cited as holding that a statement must be sent to “anonymous recipients” to constitute commercial advertising. Since Kohler had sent the handbook to identified dealers, the court found that Generac did not have a sufficiently high likelihood of success on the merits to warrant issuance of a preliminary injunction.

In its present decision, the court considered supplemental briefing regarding the Seventh Circuit’s 2012 decision in Neuros Co., Ltd. v. KTurbo, Inc., 698 F.3d 514, Advertising Law Guide ¶64,864, which had found that a slideshow directed at an audience of consulting engineers constituted commercial advertising, and concluded that the handbook did represent commercial advertising.

Having found that Generac had established that element of its case, the court determined that Generac had also satisfied the other elements of a Lanham Act false advertising claim, including (1) a false statement of fact, (2) actual deception or the tendency to deceive, (3) materiality, (4) that “the defendant caused its false statement to enter interstate commerce,” and (5) injury or likelihood of injury. The court had previously determined that Kohler’s statement was “literally false,” and thus Generac did not have to show customer deception. Kohler had “caused its false statement to enter interstate commerce” by mailing the handbook to the dealers. Finally, the court found that a false statement made in the context of comparative advertising between the two companies’ products was sufficient to establish irreparable injury.

Preliminary Injunction

As the court had found that Generac had stated a claim for Lanham Act false advertising, the court proceeded to address its request for a preliminary injunction. Since Generac had established a likelihood of success on the merits, and irreparable injury was presumed, the court weighed the balance of harms to the parties that would result from an injunction.

The court noted that Kohler had already ceased distribution of the handbook and had issued a replacement handbook to its dealers, and therefore that Generac’s request that Kohler be enjoined from distributing the handbook was moot. Nonetheless, the court concluded that the need to “eradicate any residual effects in the marketplace that are due to Kohler’s false advertising” necessitated an injunction requiring Kohler to inform its dealers of the falsity of the statement in the handbook, and to instruct its dealers to destroy remaining copies of the handbook.

The court rejected Generac’s request for attorneys’ fees, finding that Generac had not cited any authority for its request.

The case is No. 12-C-66.

Attorneys: Kyle M. Costello (Boyle Fredrickson SC) for Generac Power Systems Inc. Benjamin A. Kaplan (Michael Best & Friedrich LLP) for Kohler Co.

Companies: Generac Power Systems, Inc.; Kohler Co.

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