American Brands, Inc. v. RJ Reynolds Tobacco Co.

• Decision Date: 02 June 1976
• Docket Number: No. 76 Civ. 762.,76 Civ. 762.
• Citation: 413 F. Supp. 1352
• Parties: AMERICAN BRANDS, INC., Plaintiff, v. R. J. REYNOLDS TOBACCO COMPANY and LKP International Ltd., d/b/a Leber Katz Partners, Defendants.
• Court: U.S. District Court — Southern District of New York

413 F. Supp. 1352

AMERICAN BRANDS, INC., Plaintiff, v. R. J. REYNOLDS TOBACCO COMPANY and LKP International Ltd., d/b/a Leber Katz Partners, Defendants.

No. 76 Civ. 762.

United States District Court, S. D. New York.

June 2, 1976.

Chadbourne, Parke, Whiteside & Wolff, New York City, for plaintiff; Paul G. Pennoyer, Jr., Daniel J. O'Neil, Charles S. Tusa, Thomas E. Bezanson, Thomas A. Dubbs, New York City, of counsel.

Davis, Polk & Wardwell, New York City, for defendant R. J. Reynolds Tobacco Co.; Richard E. Nolan, Hiram D. Gordon, Carolyn Lewis Ziegler, Brooklyn, N. Y., of counsel.

Marshall, Bratter, Greene, Allison & Tucker, New York City, for defendant LKP International, Ltd., Gary J. Cohan, New York City, of counsel.

MEMORANDUM

LASKER, District Judge.

American Brands, Inc., (American) brought this action February 17, 1976 against R. J. Reynolds Tobacco Company (Reynolds) and LKP International Ltd. (Reynolds' advertising agency) for alleged violations of the Lanham Act, 15 U.S.C. § 1125(a) and the laws of the State of New York. Jurisdiction is predicated on 15 U.S.C. § 1121, 28 U.S.C. § 1338(a) and (b), and the doctrine of pendant jurisdiction.

At the time suit was commenced, American claimed that Reynolds' advertising of its "NOW" 2 mg tar cigarettes which then stated "Now. The lowest `tar' of all cigarettes" was false because for many years prior to the institution of this action, American had manufactured and distributed CARLTON 70's, a 1 mg tar cigarette, lower by definition in tar and nicotine content than NOW; and on February 2nd and February 16th, respectively, had commenced the distribution of its CARLTON 2 mg. menthol and filter king cigarettes. American sought a preliminary and permanent injunction prohibiting Reynolds from continuing to use the quoted language in advertising.

During the course of the litigation and, according to Reynolds, because of the wider marketing by American of its CARLTON 70's, (which American admits it had distributed only on a test basis until December 1975), Reynolds has discontinued (with exceptions noted below) the use of the original advertisement. Instead it has substituted the text "Now. 2 mg `tar' is lowest (king-size or longer)." to be used in the areas in which it has concluded that CARLTON 70's, which are only 70 mm. in length, are distributed on a "more than insignificant" basis. In other areas its advertisement presently reads "Now. 2 mg `tar' is lowest" without the qualifier referring to king and longer sizes. Because of the change in Reynolds' advertising, American filed an amended complaint on March 15th which alleges that the new Reynolds advertisement is false 1) in relation to CARLTON 70's because the 70's continue to be lower in tar and nicotine content than NOW cigarettes and 2) in relation to CARLTON 83 mm. menthols and filter kings because, American claims, the use of the word "lowest" in the NOW advertising implies that NOW cigarettes are lower in tar content than the 83's when, in fact, each is at the 2 mg level.

In their answers, Reynolds and LKP deny the allegations of the complaint, deny that the Lanham Act is applicable in the circumstances alleged in the complaint, and assert that since Reynolds and American are both New Jersey corporations and no federal question exists, this court lacks jurisdiction of the subject matter. In addition, Reynolds asserts a counterclaim against American alleging that American's advertising is false and misleading because its claim that the CARLTON 2 mg cigarette is the "fastest growing of the top 25" brands is false, and CARLTON's promotion and distribution of its new 2 mg menthol and filter kings interchangeably with the predecessor 4 mg cigarettes is deceptive and tends to confuse since these two cigarettes are substantially different from each other. Moreover, during the course of the trial and in its proposed findings of fact, Reynolds has also submitted evidence and asserts (presumably moving by implication that its counterclaim be amended accordingly) that American's advertisements of its CARLTON 70's are false and deceptive because, to use Reynolds' words, they are "designed to prevent the consumer from appreciating the shorter length of CARLTON 70's by showing a picture of the package at an angle" allegedly creating and intended to create the impression that the cigarette is larger than shown. (Reynolds' Proposed Findings of Fact 103)

Finally, Reynolds also asserts (although the claim was not pleaded) that a particular advertisement of CARLTON which lists the tar content of cigarettes other than CARLTON, but which does not include the tar content of NOW cigarettes is false and misleading because it creates the impression that there is no other cigarette with as low a tar content as CARLTON 2's whereas, in fact, NOW's content is as low. Reynolds' counterclaim seeks a preliminary and final injunction against American to stop the allegedly false CARLTON advertising.

Hearings on the motions for preliminary injunction were merged into a full trial pursuant to Rule 65 of the Federal Rules of Civil Procedure.

Because of the fluidity of the situation and the claim by both sides that the impact of each day's advertising may be significant, and that an early ruling was therefore of special importance, this decision was delivered from the bench rather than in a formal opinion. This memorandum contains the substance of the oral opinion, which included the court's findings of fact and conclusions of law. There are set forth in this decision only those facts which are relevant and necessarily must be considered to reach a determination under applicable law. The discussion does not purport to review the entire history of the development of CARLTON 70's, CARLTON 4 mg's, CARLTON 2 mg's, NOW cigarettes, the dynamics of the promotion of cigarettes, the relation of the parties or other matters which may be regarded as relevant, but consideration of which is not necessary in reaching a decision on the merits of the complaint or counterclaim.

I. Jurisdiction

Section 43(a) of the Lanham Act (15 U.S.C. § 1125(a)) reads as follows:

"(a) Any person who shall affix, apply, or annex, or use in connection with any goods or services, or any container or containers for goods, a false designation of origin, or any false description or representation, including words or other symbols tending falsely to describe or represent the same, and shall cause such goods or services to enter into commerce, and any person who shall with knowledge of the falsity of such designation of origin or description or representation cause or procure the same to be transported or used in commerce or deliver the same to any carrier to be transported or used, shall be liable to a civil action by any person doing business in the locality falsely indicated as that of origin or in the region in which said locality is situated, or by any person who believes that he is or is likely to be damaged by the use of any such false description or representation." 15 U.S.C. § 1125(a).

Reynolds asserts that American's complaint fails to state a claim under the Lanham Act. It argues that Congress never intended the Act to apply to claims of false advertising such as asserted by American in which the defendant is not charged with misappropriating the name or distinctive features of the plaintiff's product. Reynolds asserts that the sole purpose of the Lanham Act, as established by court decision and legislative history, was to deal with claims of false advertising that are "analogous to the misappropriation or misuse of trade names or trademarks." Geisel v. Poynter Products Inc., 283 F.Supp. 261, 267 (S.D.N.Y.1968). We agree with Reynolds that protection against such wrongs was a major purpose of the Act and that most cases brought under the Lanham Act do relate to palming off and misappropriation of trademarks. Indeed, few have been brought to our attention which deal with false advertising and none which deal with claims such as made here by American. Nevertheless, we believe that the complaint states a claim under the Act and that accordingly this court has jurisdiction of the subject matter.

The starting point for any such determination must be the language of the Act itself, which in relevant part provides:

". . . any person who shall . . use in connection with any goods . . any false description or representation, including words or other symbols tending falsely to describe or represent the same, . . . and shall cause such goods . . . to enter into commerce, and any person who shall with knowledge of the falsity of such . . . description or representation cause or procure the same to be transported or used in commerce . . . shall be liable to a civil action by any person . . . who believes that he is or is likely to be damaged by the use of any such false description or representation."

These words on their face apply to a case of false advertising. This construction is supported by the language of the Third Circuit Court of Appeals in the seminal and early decision of L'Aiglon Apparel v. Lana Lobell Inc., 214 F.2d 649 (3rd Cir. 1954), where, in reference to the statute the court declared:

"Congress has defined a statutory civil wrong of false representation of goods in commerce and has given a broad class of suitors injured or likely to be injured by such wrong the right to relief in the federal courts. This statutory tort is defined in language which differentiates it in some particulars from similar wrongs which have developed and have become defined in the judge made law of unfair competition. Perhaps this statutory tort bears closest resemblance to the already noted tort of false advertising to the detriment of a competitor, as formulated by the American Law Institute out of materials of the evolving common law of unfair competition. . . . But however similar to or different from pre-existing law, here is a provision of a federal statute

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