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Who doesn't love going to Costco and stocking up on those
8-packs of toothbrushes, 12-packs of paper towels, and 48-packs of
AA batteries? But what happens when one of the items that
you've managed to squeeze into the backseat of your car
doesn't live up to your expectations? Is Costco
responsible for the claims that appear on product packaging?
In Corker v. Costco Wholesale Corporation, a group of
coffee farmers from the Kona District of the Big Island of Hawaii
sued Costco (and other retailers as well), alleging that
Costco's "Kona" coffee contains little or no coffee
from the Kona District. The plaintiffs argued that Costco
sold coffee, made and packaged by other companies, that was not
real "Kona" coffee. The plaintiffs sued in the
United States District Court for the Western District of
Washington, alleging various claims under Section 43(a) of the
Lanham Act.
Looking to the Ninth Circuit's five-element test for a
false advertising claim, the court said that the
plaintiffs must prove that there was "a false statement of
fact by the defendant in a commercial advertisement about its own
or another's product." Because the "Kona"
coffee sold by Costco was manufactured, produced, and packaged by a
third party, the court held that it was the manufacturer -- and not
Costco -- who is responsible for the statement made on the
packaging. In granting the motion to dismiss on the false
advertising claim, the court acknowledged, however, that there may
be situations where a retailer may be responsible for packaging
claims, such as when "a retailer controls or participates in
the creation of the offending label or creates additional marketing
materials for a product that amplify the manufacturer's
misrepresentations . . . ."
The court refused to dismiss, however, the plaintiffs'
false designation of origin claim. The court
held that the Lanham Act protected against more than false
association with a particular producer or manufacturer, but also
protected against consumer confusion about the geographic origin of
the goods.
Costco also moved to dismiss the plaintiffs' Lanham Act
claims to the extent that they were based on the fact that the
products were offered for sale on the Costco website, arguing that
Section 230 of the Communications Decency Act
immunized the company from liability. Section 230 of the CDA
provides that, "[n]o provider or user of an interactive
computer service shall be treated as the publisher or speaker of
any information provided by another information content
provider." Although the plaintiffs argued that the CDA
does not bar intellectual property claims, the court held that the
plaintiffs' claim for false designation of origin, even though
asserted under the Lanham Act, was not an intellectual property
claim. The court granted the motion to dismiss, to the extent
that the plaintiffs' claim is based on making a product
available on its website. The court noted, however, that
"any act the retailer defendant takes in the physical world to
deliver the offending package to the purchaser would not be covered
by the CDA."
While retailers have some defenses against false advertising
claims under the Lanham Act that are based on statements made on
third party packaging, one important take-away from this case (and
from another recent case we recently
blogged about) is that there is some uncertainty about how far
those defenses extend. Advertisers should exercise particular
care when participating in the creation of the on-pack statement or
when incorporating the statement into its own advertising
materials.
This alert provides general coverage of its subject area. We
provide it with the understanding that Frankfurt Kurnit Klein &
Selz is not engaged herein in rendering legal advice, and shall not
be liable for any damages resulting from any error, inaccuracy, or
omission. Our attorneys practice law only in jurisdictions in which
they are properly authorized to do so. We do not seek to represent
clients in other jurisdictions.
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