any product or service, it did not violate the Lanham Act. It argues that the publisher of Medical Electronics, not Armstrong, misrepresented Armstrong as a manufacturer of the Meters. It argues that, even it there was an actionable misrepresentation, there was no customer confusion or loss of sales to KMSP, thus KMSP has no injury.
Whether the August 12, 1988 mailing and the package labels in which Armstrong claimed to be the "sole" distributor were misrepresentations turns on whether an entity which did not qualify as a distributor under C.C., Inc.'s written requirements was nontheless a distributor. The evidence of record reveals no real basis to distinguish a distributor such as Armstrong, which met all the requirements, from other entities to which C.C., Inc. sold Meters -- at least the Mini-Meters -- for the purpose of resale to the public. Perhaps this goes to the meaning of the word "distributor," particularly as C.C., Inc., objectively speaking, intended it. The indication from the April 12, 1988 letter is that C.C., Inc. intended to permit others to sell its products. The finder of fact would have to decide whether this constituted a distributorship. If so, Armstrong's claim to be the sole distributor was a misrepresentation. Because of this issue of fact, summary judgment is not appropriate.
Concerning the claim in the same labels to being an "exclusive" distributor, the undisputed facts demonstrate that this representation was not true at the time the packages were shipped to customers. The question then is whether the delivery to customers of the false claim of exclusivity violated the Lanham Act. Armstrong relies on several cases for the proposition that a claim to exclusivity does not violate the Act because it says nothing about the quality, nature or characteristic of the product or service. In Monoflo International, Inc. v. Sahm, 726 F. Supp. 121 (E.D. Va. 1989), a manufacturer sued a former European distributor who, in order to get around the manufacturer's refusal to sell to it, obtained product from an American distributor by misrepresenting itself as the exclusive distributor for Europe. The court ruled, as relevant here, that defendant's conduct was not covered by the Lanham Act because the misrepresentation was not made in connection with goods or services. Id. at 126-27.
In H.L. Hayden Co. of New York, Inc. v. Siemens Medical Systems, Inc., 879 F.2d 1005, 1022-23 (2d Cir. 1989), the district court had held that an ex-distributor who made unauthorized sales of a manufacturer's product did not violate the Act where there was no misrepresentation about the product and where there was no likelihood that the ex-distributor's customers were deceived about the lack of services provided with the product. The appeals court affirmed, noting that the district court had enjoined the distributor on another claim from making any representation that the manufacturer's warranty applied to plaintiff's product purchased from the unauthorized distributor. Id.
Armstrong also cites Truck Components, Inc. v. K-H Corp., 776 F. Supp. 405, 410-11 (N.D. Ill. 1991), for dismissal of a Lanham Act claim where the misrepresentation did not pertain to a product or service. There plaintiffs complained that defendant represented its intention to manufacture a product where it was prohibited from doing so by a covenant not to compete with plaintiff. The court held that omissions regarding the legal rights of the defendant could not be a basis for Lanham Act liability, stating this "is essentially a breach of contract case." Id. at 411.
In Abernathy & Closther, Ltd. v. E & M Advertising, Inc., 553 F. Supp. 834 (E.D.N.Y. 1982), the court denied a preliminary injunction based on its conclusion that defendant's false statement that its offer was an "exclusive T.V. offer" and made "for the first time on T.V.," but which did not refer to the inherent quality or characteristic of defendant's product, was not actionable under the Lanham Act. Id. at 837.
KMSP distinguishes all of Armstrong's cases and relies principally on two decisions written by Judge Marshall of this court, Chromium Industries, Inc. v. Mirror Polishing & Plating Co., 448 F. Supp. 544 (N.D. Ill. 1978); and In Re Uranium Antitrust Litigation, 473 F. Supp. 393 (N.D. Ill. 1979). In Chromium Industries, the court ruled that the defendant's false claims that its product was covered by a patent and that the competitor's product infringed, where the avowed purpose of the scheme was to use the claim to capture the competitor's customers, stated a claim under the Lanham Act. "In these circumstances," the court stated "[defendant's] representations would create a false impression in the trade that it is the exclusive source of [the product]. 448 F. Supp. at 557.
In Uranium, the court ruled that the Lanham Act covered the defendant's misrepresentation of its ability to supply its customers, where the misrepresentation did not falsely describe defendant's products or falsely connect its products with plaintiff's products, but where the misrepresentation related to the principal bases of competition between sellers, the ability to supply customers.
Having examined all the cited cases, the court concludes that KMSP has the better of the argument. Although Armstrong would reconcile Chromium Industries because the misleading statements regarding whether a process is patented or not "go to an essential characteristic of that product," see Truck Components, 776 F. Supp. at 411 n.1, Judge Marshall himself described Chromium Industries more broadly than that in Uranium:
[The Lanham Act] reaches a seller who exaggerates the scope of his patents, thereby creating a false impression that it is the exclusive source of a product, even though there is no misbranding or mislabelling of the article and no misrepresentation of its inherent attributes. Chromium Industries, supra.
Uranium, 473 F. Supp. at 408. Thus it was not the patent claim but the claim to exclusivity that brought the conduct within Lanham. Concerning Uranium, Armstrong argues that KMSP cannot show that the claim to exclusivity relates to the principal bases of competition between the parties, but the court believes an analogy exists. Plaintiff and defendant are selling the same product, the Meters. "It is the same no matter who . . . sells it." Id. at 408. If Armstrong wanted to keep its hold on the market, it could do so by leading the public to believe it was the only source of supply. A potential customer reading the label would assume so from the claim of exclusivity and would be more likely to order or re-order from Armstrong rather than shop around. Both Chromium and Uranium counsel in favor of KMSP.
At the same time, Armstrong's own cases are not persuasive of Armstrong's position. Monoflo is analogous in that it deals with a claim to exclusivity, but the context is otherwise entirely different. There the defendant made the misrepresentation not to a customer or potential customer but to its seller. Clearly, the misrepresentation was outside the policy underlying the Lanham Act to prohibit unfair competition. The rule of H. L. Hayden is that the unauthorized distributor was not required to obtain authorization to sell the manufacturer's trademarked goods, but it was obliged to sell in a manner which did not suggest to prospective customers that it was part of an authorized sales network. 879 F.2d at 1023-24, relying on Bandag, Inc. v. Al Bolser's Tire Stores, Inc., 750 F.2d 903, 911 (Fed. Cir. 1984), and Stormor Div. of Fuqua Industries, Inc. v. Johnson, 587 F. Supp. 275, 279 (W.D. Mich. 1984). This rule is not inconsistent with Uranium and Chromium and suggests that Armstrong's representation that it had a special connection to the manufacturer should also be treated as within the Act. Finally, Abernathy & Closther expresses a more narrow reading of the Lanham Act than this court believes is appropriate. See, Uranium, 473 F. Supp. at 407-08, and cases cited therein. Thus, it is concluded that Armstrong's claim to be an exclusive distributor comes within the prohibitions of the Lanham Act.
The question whether Armstrong is responsible for the inaccurate listing in Medical Electronics comes down to whether the return of the letter containing the copy for publication is a direction to publish a misrepresentation. Although not explicit, the evidence before the court suggests that the publisher would not have published without receiving the letter authorizing the publication. Under these circumstances, Armstrong is responsible unless it can establish that the publisher would have listed it as a manufacturer even though it knew that Armstrong was not a manufacturer, or would have listed it as a manufacturer if it had known that Armstrong was not a sole distributor (if it was not a sole distributor, as discussed above).
The court notes that KMSP may have some difficulty establishing the other elements of proof if the buyers' guide listing and sales of approximately 100 Meters in 1988-89 are all that occurred. According to Truck Components, plaintiff must prove that the defendant's advertisement was
(1) false and misleading, (2) actually or likely to deceive a substantial segment of [its] audience, (3) material in [its] effect on purchasing decisions, (4) touting goods that entered interstate commerce, and (5) actually or likely to injure the plaintiff.
Truck Components, 776 F. Supp. at 408, citing, Cook, Perkiss & Liehe, Inc. v. Northern California Collection Service, Inc., 911 F.2d 242, 244 (9th Cir. 1990), citing, Skil Corp. v. Rockwell Int'l Corp., 375 F. Supp. 777, 783 (N.D. Ill. 1974). KMSP claims that discovery remains outstanding concerning the extent the misrepresentations were disseminated. This discovery may affect the second and third elements of proof as well as the existence or likelihood of injury to plaintiff. Thus, summary judgment on these issues would be inappropriate.
The conclusion above that Armstrong may have been responsible for the listing in Medical Electronics resolves the question whether Armstrong violated Illinois common or statutory law. See Brooks v. Midas-International Corp., 47 Ill. App. 3d 266, 274, 361 N.E.2d 815, 821, 5 Ill. Dec. 492 (1st Dist. 1977)(Common law unfair competition has been codified by the Uniform Deceptive Trade Practices Act, 815 ILCS 510/2). If the law prohibits defendant from causing confusion as to the source of goods, which Armstrong concedes, a misrepresentation that Armstrong was the source of goods when it was not could confuse the buying public. See id. at 510/2(2).
Similarly, a false representation of oneself as an exclusive distributor asserts "sponsorship, approval, status, affiliation or connection" that one does not have." See id. at 510/2(5). To the extent a violation of the Uniform Deceptive Trade Practices Act is also a violation of the Consumer Fraud and Deceptive Business Practices Act, 815 ILCS 505/2 (it proscribes "the use or employment of any practice described in Section 2 of the 'Uniform Deceptive Trade Practices Act'"), the same conclusions apply to KMSP's consumer fraud count. These claims, then, withstand summary judgment.
Finally, Armstrong contends that KMSP is entitled to no relief even if its claims should be established. Unless KMSP can demonstrate a violation more recent than December, 1990, or a well-founded threat of a violation in the future, the court will not enter an injunction in connection with any finding of liability. "Federal courts do not, as a rule, enjoin conduct which has been discontinued with no real prospect that it will be repeated." Ragsdale v. Turnock, 841 F.2d 1358, 1366 (7th Cir. 1988). The allegations asserted in this case are related in time to Armstrong's transition from sole and exclusive distributor status to being one of multiple distributors. There is no evidence of record that this transition is not complete at this point. See Johnny Carson Apparel, Inc. v. Zeeman Mfg. Co., 203 U.S.P.Q. (BNA) 585 (N.D. Ga. 1978)(where the acts of trademark infringement had been stopped, and defendants had made clear they did not intend to resume them, no basis for an injunction existed).
Further, Armstrong contends that plaintiff had declined to assert a claim for damages and is not entitled to any profits that Armstrong may have made as a result of unfair competition under either federal or state law. Regarding the Lanham Act, Armstrong relies on the unavailability of an accounting in false advertising claims prior to the November, 1989 amendments. KMSP responds that although it is not seeking damages in the nature of lost good will, lost sales or lost profits, it is seeking "damages in the nature of an accounting of Armstrong's profits, KMSP's costs and attorney's fees." It points out that some of the violations occurred after the effective date of the amendments.
Since some of the alleged violations occurred after November 16, 1989, the effective date of the 1988 amendments to the Lanham Act, the possibility of an accounting of Armstrong's profits is not foreclosed. The Lanham Act provides for the recovery of (1) defendant's profits; (2) any damages sustained by the plaintiff; and (3) the costs of the action. 15 U.S.C. § 1117. "This recovery is cumulative, that is, the court may award [plaintiff] both its damages and defendants' profits." Playboy Enterprises, Inc. v. P.K. Sorren Export Co., 546 F. Supp. 987, 997 (S.D. Fla. 1982). There are different standards for the awarding of each. Id. As explained in Playboy Enterprises, an accounting for profits is an equitable remedy often justified under an unjust enrichment theory where the defendant's conduct was deliberate and willful. Id. See Otis Clapp & Son, Inc. v. Filmore Vitamin Co., 754 F.2d 738 (7th Cir. 1985), citing Playboy Enterprises, Inc. v. Baccarat Clothing Co., 692 F.2d 1272, 1274 (9th Cir. 1982)("'Subject to the principles of equity,' the Lanham Act allows the successful litigant to recover: '(1) defendant's profits. . . .' The trial court's primary function is to make violations of the Lanham Act unprofitable to the infringing party."); Sands, Taylor & Wood Co. v. Quaker Oats Co., 978 F.2d 947, 961 (7th Cir. 1992), quoting Roulo v. Russ Berrie & Co. 886 F.2d 931, 941 (7th Cir. 1989)("Profits are awarded under different rationales including unjust enrichment, deterrence, and compensation"). If proceeding under an unjust enrichment theory, the court's award shall bear a relationship to the amount of the enrichment received and shall not be a windfall to the plaintiff. See e.g., Sands, Taylor, 978 F.2d at 963 & n.19 (remanding for a redetermination of damages where original award of $ 24 million in profits constituted a windfall and bore no relationship to defendant's enrichment).
In order to recover damages (apart from defendant's profits), the plaintiff must show that it suffered actual damages. Playboy Enterprises, 546 F. Supp. at 998, citing Maltina v. Cawy Bottling Co., 613 F.2d 582, 587 (5th Cir. 1980). Presumably, plaintiff's inability to establish actual damage would be one factor affecting the court's exercise of discretion in determining whether to award an accounting for profits. But because the appropriate remedy is largely discretionary and subject to equitable principles, the question of appropriate relief must be deferred until after a full presentation of the facts has been made.
Concerning relief under Illinois law, the Deceptive Trade Practices Act provides criminal penalties and injunctive relief, except as it is incorporated into section 2 of the Consumer Fraud and Deceptive Business Practices Act, which Act allows damages on proof thereof. 815 ILCS 505/10a. The parties have not demonstrated whether relief that may be awarded under Illinois law is more limited than that available under the Lanham Act. This issue need not be resolved at this juncture.
For the reasons stated above, the motion for summary judgment is denied.
JOAN HUMPHREY LEFKOW
United States Magistrate Judge
Dated: December 29, 1993