Lanham Act: brand owners’ current weapon of choice
Since the outbreak of COVID-19, US federal courts have seen an uptick in Lanham Act cases. Unlike a typical Lanham Act case dealing solely with some form of trademark infringement or dilution, these cases have largely attacked third-party price-gouging of key medical supplies needed to combat the disease.
In its purest form, the Lanham Act was designed to protect brand goodwill and recognition. In a typical case, a company may seek to enforce its federal trademark against another company that is using a mark that may be confusingly similar. The COVID-19 pandemic, however, has underscored the need for companies to be equipped with other mechanisms to swiftly forestall price-gouging and protect brand reputation within the public forum.
In this situation, the Lanham Act has allowed medical supply companies to quickly leverage its protections to block unauthorised third-party redistribution and consequent price-gouging of essential medical goods.
3M respirators
3M has been the flag-bearer on this issue so far. Since the pandemic outbreak, the company has filed several complaints seeking Lanham Act relief to enjoin price-gougers from profiting on 3M products that are vital to those fighting COVID-19, with one of the most visible products being N95 respirators. 3M’s complaints paint a stark picture of gougers taking advantage of governments and healthcare providers in a time of crisis.
In 3M v Puznak, 3M alleges a price-gouging scheme in which the defendants tried to deceive government officials in Indiana into thinking that they were connected with 3M, and offered respirators at a price more than double the list price.
3M’s complaint details the significant confusion that arose from this conduct as Indiana officials, already overwhelmed with responding to the pandemic and the need for N95 respirators, tried to determine whether the offer was reliable. When questioned by Indiana officials on their connection to 3M, the defendants allegedly spun a false narrative, stating that: “nobody from 3M has time or interest … in satisfying … paranoid irrationality” and that the diligence was “really quite sad … for the people of Indiana”.
The defendants also informed the state that they were receiving “counsel of executives from 3M to ‘just forget it and move on’”. Ultimately, this ruse was revealed as the state learned that the defendants had no 3M connection, and were merely trying to profiteer from the pandemic.
3M’s other complaints offer similar stories of fraudulent schemes to deceive government agencies and healthcare providers with price-gouging allegations ranging anywhere from two to six times 3M’s own list prices.
- In 3M v Ignite Capital, 20-cv-00225 (N.D. Fl. 2020), the defendants allegedly offered 3M masks at more than 460% of list price through an intricate process, requiring the customer to engage an escrow agent and stating 3M would be performing a background check.
- In 3M v King Law Center, 20-cv-00760 (M.D. Fl. 2020), the defendant allegedly stated that 3M requires funds to be placed in escrow and subsequently went silent after the Florida state agency refused to wire funds without first inspecting the products.
- The defendant in 3M v Hulomil, 20-cv-00394 (W.D. Wis. 2020), allegedly sent an email with the subject line “Much better deal 3M 8210” stated it had “direct access” to 3M, and offered respirators for “$3.75 per mask!” (250% to 350% above list).
- In 3M v TAC2 Global, 20-cv-0100 (M.D. Fl. 2020), the defendant was accused of sending a quote for 3M respirators at a price of 460% over list, stating that it had recently become a 3M distributor, that it had a “contract agreement with the 3M manufacturer” and that each mask would be inspected and certified by 3M.
- The defendant in 3M v Performance Supply, 20-cv-02949 (S.D.N.Y. 2020), allegedly sent a “formal quote” for masks at prices of 500% to 600% over list to New York City’s procurement office, actually securing a bid evaluation request from the office, which inaccurately identified the defendant as a 3M vendor.
- In 3M v Rx2Live, 20-at-00263 (E.D. Ca. 2020), allegations detailed that the defendant contacted a healthcare provider offering 3M respirators, among other items for sale, with minimum orders as large as 10 million masks at prices of more than quadruple 3M’s list price, and requiring a non-disclosure agreement in connection with the purchase.
- In 3M v Geftico, 20-cv-00648 (M.D. Fl. 2020), the defendant allegedly contacted the Centers for Disease Control and Prevention (CDC) with an offer to sell masks for the Strategic National Stockpile at over 500% above 3M’s list price, falsely stating that it had millions of masks then available to it.
- In 3M v Wollsieffer, 20-cv-00336, (D. Utah 2020), the defendants allegedly posted on a Facebook group made up of 13,000 former members of the US Military Academy, a solicitation for buyers of 3M respirators at over 400% of list price. The defendants allegedly responded to complaints about price-gouging, claiming that their “group is making less than 5% on the mark up. That’s not price-gouging. If you have a beef, take it up with 3M. That’s where you should start”.
If true, each of these complaints presents a scathing indictment of what 3M called “opportunistic” and “deplorable pandemic profiteers”. Not coincidentally, 3M has itself experienced public outrage at any whisper of price-gouging or other exploitation of the pandemic. Accordingly, one can understand the immediate need to curb such marketplace falsities as quickly as possible. As such, the Lanham Act appears to have been 3M’s mechanism of choice to quickly address the unauthorised trading on its brand and risk of damage to public reputation.
Other medical devices
Other suppliers of essential COVID-19 medical equipment have turned to the Lanham Act to address COVID-19 price-gouging. CoronaCide manufactures COVID-19 antibody test kits and received emergency approval from the US Food and Drug Administration to offer the tests to healthcare providers. Similar to 3M, CoronaCide was forced to address unauthorised distribution of its test kits.
In CoronaCide v Wellness Matrix, 20-cv-00816 (M.D. Fl. 2020), defendants were allegedly offering CoronaCide test kits for sale through fraudulent websites listing the CoronaCide brand despite having no affiliation with CoronaCide. Even worse, the allegations revealed that CoronaCide had already explicitly prevented the defendants purchasing CoronaCide test kits and offering them for sale.
In another case, Medline Industries v OfficeMart, 20-cv-0171 (E.D.N.C. 2020), Medline alleges Lanham Act violations against the defendants for purportedly offering to sell Medline’s medical gowns at prices of more than 200% to 300% of list. The fraudulent sales were offered to some of Medline’s own customers. Medline alleges significant reputational damage from this strategy, citing a customer email in which the customer threatened that if it discovered that Medline was “selling product into non-healthcare channels it will be the end of any business relationship”.
These complaints reveal a common strategy: invoke the pandemic and promise immediate turnaround on orders in an apparent effort to spread even further confusion and evade discovery.
Lanham Act protections
As this influx of cases has revealed, the Lanham Act appears to be a powerful mechanism for stopping such activities. Notably, laws directed at preventing price-gouging are generally propounded at the state level. Given the pandemic, however, and the emergency need for immediate relief on the national level, the Lanham Act provides a strong mechanism to address such activity.
The Lanham Act is useful for a number of reasons. First, it provides injunctive relief, permitting plaintiffs to ask courts to shut down fraudulent sales in the immediate term rather than waiting for the court process to run its course. To do so, plaintiffs need to show that their claims are likely to succeed and to cause irreparable harm to their brand. 3M has already succeeded in obtaining temporary injunctive relief in a number of the cases identified above, effectively deadening the aggrieved conduct quickly and efficiently.
Second, the Lanham Act permits recovery of attorney fees. If some of the egregious instances of alleged exploitation are proved, courts are likely to give strong consideration to a fee award. This could serve as a helpful deterrent to curb such fraudulent behaviour, especially when expensive federal regulations and approvals are involved such as in the CoronaCide case.
Third, the Lanham Act allows for the possibility of triple damages in cases of intentional wrongdoing. The alleged egregiousness of some of the defendants’ actions in the above cases allows for the possibility of obtaining additional damages. Recognising the importance of brand protection, 3M committed to donating such damages it receives as a result of these cases to a COVID-19-related charitable organisation.
The COVID-19 pandemic has called on companies to creatively identify different strategies for combating price-gouging and opportunism. While the typical mechanisms may not provide such immediate relief in a fashion that is complete and efficient in the face of a global pandemic, the Lanham Act appears to have filled the void in offering such protections for companies who recognise the need to protect their valuable brand and public reputations.
Brian Michalek is a partner at Saul Ewing Arnstein & Lehr. He can be contacted at: brian.michalek@saul.com
Erin Westbrook is an associate at Saul Ewing Arnstein & Lehr, and can be contacted at: erin.westbrook@saul.com
