A Yarn Spun, But Advertising Not Tailored To A Lanham Act Claim

In a recent application of the Supreme Court's 2014 Lexmark decision on standing, the Court of Appeals for the Third Circuit held last month that a yarn retailer who alleged it was misled by its supplier into purchasing mislabeled yarn lacked standing to bring a Lanham Act false advertising claim. Knit With v. Knitting Fever, Inc., No. 12-3219, 2015 WL 5147749 (3d Cir. Sept. 2, 2015). While the Third Circuit followed what at first glance appears to be a straightforward pronouncement in Lexmark that "even a business misled by a supplier into purchasing an inferior product" does not have Lanham Act standing, the facts of this case make it worth considering whether there are any contexts in which the Supreme Court's pronouncement should not apply.

Appellant, The Knit With ("TKW"), is a small business engaged in retail sales to consumers of specialty yarns. Appellee, Knitting Fever Inc. ("KFI"), is a supplier and distributor of yarn. From the mid-1980s through late 2005, TKW purchased yarn from KFI, including yarn purportedly spun with cashmere content - the Debbie Bliss Cashmerino line. The Cashmerino products were identified by KFI as being spun of fiber content consisting of 55% merino wool, 33% microfiber and 12% cashmere. TKW purchased over 2,000 balls of the Cashmerino yarns.

In 2004, scandal erupted in the "designer" yarn world when testing by a competitor attempting to knock-off the Cashmerino products revealed that the Cashmerino yarns did not contain any cashmere. After a series of tests and an alleged cover-up by KFI, TKW announced a recall of the Cashmerino yarns. TKW then filed a federal lawsuit alleging that KFI's false labeling harmed its commercial interests. The Complaint asserted many causes of action including breach of express and implied warranties of merchantability, RICO claims, perfidious trade practices and, relevant here, false advertising under the Lanham Act.

The district court dismissed TKW's Lanham Act claim for lack of standing, relying on the then-applicable multi-factor balancing test for Lanham Act standing articulated in Conde Bros. Auto v. Quaker-Slick 50, 165 F.3d 221 (3d Cir. 1998). Subsequently however, Lexmark International v. Static Control, 134 S. Ct. 1377 (2014) abrogated Conde, and the appeal on the issue of standing therefore was governed by the Lexmark standard. As it turned out, the result was the same and the Third Circuit panel affirmed the dismissal.

Under Lexmark, "a plaintiff must allege...