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Ninth Circuit Law Limits Scope of False Advertising Claims Under the Lanham Act

08-1216
February 13, 2009

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Last Month at the Federal Circuit - March 2009

Judges:

Lourie (author), Rader, Linn

[Appealed from: W.D. Wash., Judge Pechman]

In Baden Sports, Inc. v. Molten USA, Inc., Nos. 08-1216, -1246 (Fed. Cir. Feb. 13, 2009), the Federal Circuit reversed the district court’s denial of JMOL on Lanham Act claims. The Court concluded that a false advertising claim under section 43(a)(1)(A) and (B) of the Lanham Act, based on use of the term “innovative,” is precluded because this term relates to neither the origin of the goods nor the nature, characteristics, or qualities of the goods.

Both Baden Sports, Inc. (“Baden”) and Molten USA, Inc. (“Molten”) sell high-end basketballs. Baden owns U.S. Patent No. 5,636,835 (“the ’835 patent”), which is directed to a ball with “raised seams” and a “layer of padding underneath the outer covering.” Baden sued Molten for patent infringement and false advertising under section 43 of the Lanham Act, based on Molten’s sale of basketballs allegedly containing Baden’s proprietary technology, and the advertising associated with these balls.

The district court granted Baden’s motion for SJ of patent infringement, finding Molten infringed Baden’s patent regarding the proprietary “dual-cushion technology” used in the parties’ competing basketballs. The district court granted-in-part and denied-in-part Molten’s motion for SJ on the false advertising claims. First, the district court granted the motion based on advertisements that used the terms “proprietary” and “exclusive” because it found that those terms conveyed the idea that Molten invented and owns the basketball technology, and thus was precluded from Lanham Act liability under the Supreme Court’s decision in Dastar Corp. v. Twentieth Century Fox Film Corp., 539 U.S. 23 (2003). The district court, however, denied Molten’s motion for SJ based on advertisements that use the word “innovative,” reasoning that “innovative” does not necessarily connote the inventor of the technology and can describe basketball characteristics, which are subject to Lanham Act liability in light of Dastar.

The parties proceeded to trial on damages for patent infringement and on Baden’s false advertising claims based on Molten’s use of the term “innovative” in its advertisements for basketballs utilizing Baden’s patented technology, which Baden claimed falsely implied that the dual-cushion technology was a Molten innovation.

After trial, the district court enjoined Molten from further infringing the ’835 patent in the United States and from stating in its U.S. advertising that dual-cushion technology is “innovative.” Molten moved for JMOL on Baden’s false advertising claims, arguing that Dastar precluded Lanham Act claims based on authorship of an idea. The district court denied the motion.

On appeal, Molten argued that the district court erred by failing to dismiss Baden’s Lanham Act claim in light of the Supreme Court’s holding in Dastar. Molten also claimed that the district court erred in excluding evidence relevant to the element of falsity regarding the “innovation” language in its advertisements, and that the jury’s $8M damages award for patent infringement was excessive.

Applying Ninth Circuit law, the Federal Circuit first considered Baden’s section 43(a) Lanham Act claim and agreed with Molten that Dastar does preclude Baden’s false advertising claim. The Federal Circuit reminded that the Supreme Court in Dastar held that “origin of goods,” as that term is used in section 43(a), does not refer to “the person or entity that originated the ideas or communications that ‘goods’ embody or contain.” Slip op. at 8 (quoting Dastar, 539 U.S. at 32). Instead, the Supreme Court read “origin of goods” as referring “to the producer of the tangible goods that are offered for sale, and not to the author of any idea, concept, or communication embodied in those goods.” Id. at 8-9 (quoting Dastar, 539 U.S. at 37). Because Dastar Corporation (“Dastar”) was the “origin,” or producer, of the products it sold, the Supreme Court held that Dastar was not liable for false advertising under the Lanham Act. Because of its inherently limited wording, the Dastar court noted that section 43(a) can never be a federal codification of the overall law of unfair competition, but can only apply to certain unfair trade practices prohibited by its text.

The Federal Circuit then evaluated whether Molten’s advertising refers to the “producer of the tangible goods,” in which case a claim under section 43(a)(1)(A) would be proper, or whether it refers to “the author of” the idea or concept behind Molten’s basketballs, in which case the claim would be foreclosed by Dastar. Id. at 9. The Court found that Dastar does not permit Baden to claim false advertising under section 43(a)(1)(A) because Baden did not argue that someone other than Molten produces the infringing basketballs, and nothing in the record indicated that Molten is not in fact the producer of the balls. Thus, the Court concluded that Baden’s claims are not actionable under section 43(a)(1)(A) because they do not “cause confusion . . . as to the origin” of the basketballs. Id. (alteration in original).

The Court then explained that section 43(a)(1)(B) also does not apply to Baden’s claims, as the Ninth Circuit does not interpret this section to apply to false designation of authorship. The Court noted that, following the Ninth Circuit’s interpretation of section 43(a)(1)(B) in Sybersound Records, Inc. v. UAV Corp., 517 F.3d 1137, 1144 (9th Cir. 2008), to read the section otherwise would create an overlap between the Lanham and Patent acts. Section 43(a)(1)(B) applies to the characteristics of the goods, the Court explained, and authorship is not a nature, characteristic, or quality of the goods as those terms are used in section 43(a)(1)(B).

The Court concluded that Baden had alleged nothing more than false designation of authorship because no physical or functional attributes of the basketballs are implied by Molten’s advertisements. In the Court’s view, the term “innovative” only indicates, at most, that its manufacturer created something new, or that the product is new, irrespective of who created it. Thus, the Court concluded that Baden could not avoid the holding in Dastar by framing a claim based on false attribution of authorship as a misrepresentation of the nature, characteristics, and qualities of a good.

The Court rejected Baden’s argument that there was sufficient “non-Dastar” evidence at trial to independently support the jury’s Lanham Act award. Specifically, Baden pointed to Molten’s “switch” to a nondual-cushion design while still advertising their basketballs as containing dual-cushion technology and Molten’s false claims that its basketballs were designed by a prominent Italian designer. Because the Court found that Baden did not pursue these false advertising arguments at trial, the Court refused to consider them on appeal. Accordingly, the Federal Circuit reversed the district court’s denial of JMOL on Baden’s Lanham Act claims.

The Federal Circuit also refused to consider as moot Molten’s arguments that the district court erred in excluding evidence relevant to the element of falsity regarding the “innovation” language in its advertisements and that the $8M damages award for patent infringement was excessive.

The Court did consider, however, Baden’s cross-appeal based on patent law, in which Baden argued that, absent an injunction, there is a substantial likelihood of customer confusion about the basketballs. The Court rejected Baden’s argument that the district court erred by not applying the Lanham Act standard to its injunction ruling because the Court found that Baden’s request for an injunction was brought under the Patent Act. The Court refused to allow Baden to argue a new statutory basis for its injunction on appeal. Further, because the injunction requires Molten to “inform consumers that Molten basketballs employing ‘dual-cushion’ technology are not available in the United States,” the Court concluded that no potential consumer confusion exists. Slip op. at 15-16.