False Representation or Description under §1125
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BASF Corp. v. Old World Trading Co., 41 F.3d 1081 (7th Cir. 1994)
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- The plaintiff, BASF Corporation, and the defendant, Old World Trading Company, competed in the "private label" segment of the motor vehicle antifreeze market.
- This means that they sold antifreeze to companies who resold it to customers at retail under other brand names.
- In 1982, after auto makers began incorporating more aluminum components into their engines, corresponding new specifications for antifreeze were published.
- The defendant introduced a new antifreeze and advertised that it met all the auto manufacturers' new specifications, as well as the "Cummins specification".
- The party contracted by defendant to blend the antifreeze both failed to perform certain tests and incorrectly performed other tests which were designed to certify compliance with all of the manufacturers' specifications.
- The defendant claimed that it relied on the contractor's assurances that the specifications had been met.
- In late 1985, the plaintiff wrote the defendant and challenged the truthfulness of the "meets all specifications" claim in its advertising.
- The appeals court found that, in order to establish liability, the plaintiff needed to show the advertising in question to be literally false, or, if literally true or ambiguous, to be misleading in context, as proven by actual consumer confusion.
- Plaintiffs in §1125(a) false representation cases generally must prove literal falsity, but the required level of proof varies depending on the nature of the statement in question.
- If a statement makes implicit or explicit references to tests, the plaintiff may show that those tests do not prove the proposition being advanced.
- In other situations, the plaintiff must affirmatively prove that the statement in question is false.
- The defendant argued that it was sufficient that its antifreeze would (and did) meet specifications if and when tested.
- Based on the above standard, the appeals court upheld the district court's finding that the defendant could not truthfully represent that its antifreeze met or exceeded specifications unless all the required tests had actually been run.
- Actual knowledge of all facts necessary for the statement in question was seen as an implicit element of truthful representation.
- A lower court finding of actual consumer confusion was also upheld.
- Damage awards to the plaintiff for lost profits, prejudgment interest and costs were upheld.
- Lost profits were figured as the plaintiff's profit margin per unit times a market share expressed in units and projected as if the defendant had not participated in the private label market.
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