Antitrust Law Daily Wrap Up, TOP STORY—FedCir: Tote Towel Inventor Can Pursue False Advertising, Deceptive Acts, and Unfair Competition Claims Against Bed Bath & Beyond, (Jan 28, 2013)

By William Zale, J.D.

Tote towel inventor Roger Hall stated claims of Lanham Act false advertising, New York statutory deceptive acts and practices, and common law unfair competition against Bed Bath & Beyond (BB&B), the U.S. Court of Appeals for the Federal Circuit has ruled (Hall v. Bed Bath & Beyond, Inc., January 25, 2013, Newman, P.). The court upheld dismissal of a counterclaim for false patent marking.

The Tote Towel is a large towel with binding around all the edges, zippered pockets at both ends, and an angled cloth loop in the middle, pictured in Hall’s U.S. Design Patent No. D596,439 S. While the patent application was pending, Hall contacted BB&B to discuss whether the retailer would sell the Tote Towel. At a business meeting, Mr. Hall left samples of his packaged Tote Towel with BB&B. Both the package and the towel were marked “patent pending.” BB&B, through supplier West Point Home, had copies of the Hall towel manufactured in Pakistan, for retail sale by BB&B.

After the patent issued, Hall brought suit asserting claims including unfair competition under the Lanham Act, deceptive acts or practices under the New York General Business Law, and New York common law unfair competition. The defendants raised various defenses and counterclaims, including a false marking counterclaim. The district court dismissed all of the claims and counterclaims on the pleadings.

False Advertising

Hall’s Lanham Act claim was based on false advertising and consumer confusion arising from BB&B’s advertising of a towel of identical appearance and similar packaging, and that consumers would readily confuse it with Hall’s Tote Towel. Hall alleged that BB&B’s use of phrases including “convenient zipper pockets” were likely to cause confusion with the Tote Towel and that packaging stating “performance that lasts the useful lifetime of the towel” misrepresented its quality, which allegedly was extremely poor.

The court decided that Hall sufficiently alleged the falsity or misleading nature of the advertising to avoid dismissal at the pleading stage. Hall pleaded a plausible claim of falsity, whether literal or by necessary implication, in the court’s view. Advertising of “performance that lasts the useful lifetime of the towel” implied that the towel will not fall apart after a single wash or a few washes, the court opined.

Hall was not required to plead actual harm. A likelihood of harm was the statutory criterion. Hall’s Tote Towel and BB&B’s towel are competitive products, and Hall stated in his complaint that one of his resale customers mistakenly believed that BB&B was selling Hall’s towel “for nearly half his price.” When the parties are competitors and the advertising tends to mislead, dismissal on the pleadings is not appropriate, the court said.

The advertising was not puffery—subjective claims about products, which cannot be proven either true or false. BB&B’s claim of “lasting” performance was stated as a fact, according to the court.

Dismissal of the Lanham Act count was reversed.

Deceptive Acts or Practices

New York General Business Law Sec. 349 declares unlawful deceptive acts or practices in the conduct of any business. A plaintiff must prove three elements: (1) that the challenged act or practice was consumer-oriented; (2) that it was misleading in a material way; and (3) that the plaintiff suffered injury as a result of the deceptive act. Consumer confusion was not an element of a violation under the New York law, unlike the Lanham Act.

Hall maintained that the deceptive act was the claim of the quality of the BB&B “counterfeit” towel. Hall argued that the statement was misleading, and thus a deceptive act under New York GBL §349(a). Hall sufficiently pleaded possible injury to his business based on the allegedly confusing similarity between the Tote Towel and BB&B’s product. The court concluded that the count under New York GBL §349(a) was not subject to dismissal on the pleadings.

Unfair Competition

In his common law unfair competition claim, Hall alleged that he spent time and money designing the towel, surveying and buying materials, assessing consumer interest, manufacturing the Tote Towel, and further efforts, including applying for the design patent. He alleged that those skills, investments, and efforts were misappropriated—a misappropriation of labor, not of an idea.

The court in LinkCo, Inc. v. Fujitsu Ltd., 230 F. Supp. 2d. 492, 502 (S.D.N.Y. 2002), stated that “New York courts have found that persons have a protectable property interest in their ‘labor, skill, expenditure, name and reputation.’” The district court in this case erred in holding that a contractual relationship is required to support a misappropriation claim, whether the misappropriation is of a bare idea, or of labor and skill, the court decided.

Federal Preemption

BB&B argued that even if Hall has a New York cause of action, the action is preempted by federal patent law. The U.S. Supreme Court in Bonito Boats, Inc. v. Thunder Craft Boats, Inc., 489 U.S. 141, 156-57 (1989), held that state law cannot protect “an unpatented utilitarian or design conception which has been freely disclosed by its author to the public at large,” in that case a boat hull design in open use. However, the Court recognized that “all state regulation of potentially patentable but unpatented subject matter is not ipso facto pre-empted by the federal patent laws,” id. at 154.

The court agreed with Hall that design patent infringement is not his only possible remedy, and that principles of patent law preemption did not override potential causes of action based on unfair commercial practices.

False Marking

The defendants brought a counterclaim for false marking because Tote Towels apparently retained the label “patent pending” for a few months after the patent had issued. The America Invents Act changed the law of false marking to require a showing of competitive injury as a result of the false marking. This requirement applies to all cases, without exception, that were pending on, or commenced on or after, the date of the enactment in 2011. Because the defendants did not plead any competitive injury caused by the “patent pending” label on Hall’s patented Tote Towels, dismissal of the false marking counterclaim is affirmed.

Dissent

Circuit Judge Alan Lourie dissented from the majority’s reversal of the dismissal of Hall’s false advertising claim. According to Judge Lourie, the statement on BB&B’s packaging—“performance that lasts the useful lifetime of the towel”—was mere puffery in the form of an untestable tautology: the towel lasts as long as it lasts.

The case numbers are 2011-1165 and 2011-1235.

Attorneys: Mitchell C. Shelowitz (Shelowitz & Associates, PPLC) for Roger J. Hall. Laura A. Wytsma (Loeb & Loeb, LLP) for Bed Bath & Beyond, Inc.

Companies: Bed Bath & Beyond, Inc.

MainStory: TopStory Advertising StateUnfairTradePractices