# Opposition Brief — Phoenix of Broward, Inc. v. McDonald's Corp. (No. 07-659)

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Opposition Brief
- **Published:** January 1, 2007

## Text

FILED

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No. 07-659 " _SUPREME COURT Et

Hn the Supreme Court of the Anited States

PHOENIX OF BROWARD, INC., PETITIONER
V.

MCDONALD’S CORPORATION, RESPONDENT

On Petition For A Writ Of Certiorari
To The United States Court of Appeals

For The Eleventh Circuit
BRIEF IN OPPOSITION
GENE C. SCHAERR LINDA T. COBERLY
GEOFFREY P. EATON Counsel of Record
Winston & Strawn LLP GEORGE C. LOMBARDI
1700 K Street, N. W. DAVID J. DOYLE
Washington, D.C. 20006 Winston & Strawn LLP
(262) 282-5000 35 West Wacker Drive
Chicago, Illinois 60601
(312) 558-5600

WILSON-EPES PRINTING Co., INC. — (202) 789-0096 — WASHINGTON, D.C. 20002

QUESTION PRESENTED

Whether, in a suit involving a claim for false
advertising under section 43(a) of the Lanham Act,
the Eleventh Circuit correctly determined that an
allegation that the plaintiff was the defendant's
“direct competitor” was not per se sufficient to confer
prudential standing and that—given the attenuated
and speculative injury alleged and the potential for
duplicative damages under the particular facts of the
case—the plaintiff should be denied prudential
standing to press a claim.

$s

TABLE OF CONTENTS

Page
SUR PMNE RUPEY BPE UIE EIN LEGLD .........cccccercesccoccseccssccccscecosers i
Beeteee OP AUTHORITIES ..........cscscsrerescssrssesenseresers iv
coils csevecreccenacesevsccsserosrsseeccseosssooscess 1
STATEMENT OF THE CASE ...00000.........cccsseeeseceesseeees ]
TD ei adi avonbedessvede 1
Ee 3
REASONS FOR DENYING THE PETITION............. 7

I. There is no conflict among the circuits
with regard to the Question Presented................. 9

A. The Conte Brothers analysis is
gamering an emerging consensus
I NI NNN oo... ca ceccccceseesveccesovesceceesess 10

B. No circuit holds that a plaintiff's
status as a direct competitor alleging
competitive injury is categorically
sufficient to confer prudential
standing no matter how speculative
or attenuated the claimed injury is............... 13

C. Phoenix’s contention that the Third
Circuit itself intended the Conte
Brothers analysis to apply only to
non-competitors is belied by the
unequivocal language of Conte
Brothers and the cases that followed
Neen eT en accascensevvcccevcecscssesense 17

Il. The Eleventh Circuit’s treatment of
prudential standing is entirely consistent
with the purposes underlying the
Lanham Act and advances the principles
CE WUE ERIN ois dics cccscineicceevsssccesccverss 20

III. The unusual facts of this case would
make it a poor vehicle for resolving any
issues related to prudential standing for
RE I aiccsiiceccsnssckedascatiandonebecsdals 23

CCG RIT cciisncensctscisrintviiteseaiiuniscecmpbidatadoieidagiddanaiins 28

1V
TABLE OF AUTHORITIES

Page(s)

Cases

Alphamed Pharm. Corp. v. Arriva Pharm. Corp.,
391 F. Supp. 2d. 1148 (S.D. Fla. 2005)

American Assoc. of Orthodontists v. Yellow
Book USA, Inc.,
434 F.3d 1100 (8th Cir. 2006)

Associated Gen. Contractors of California v.
California State Council of Carpenters,
459 U.S. 519 (1983)

Barrusv. Sylvania, 55 F.3d 468 (9th Cir. 1995)
Bell Atlanticv. Twombly, 127 S.Ct. 575 (2006)
Bennett v. Spear, 520 U.S. 154 (1997)

Conte Bros. Automotive, Inc. v. Quaker State-
Slick 50, Inc., 165 F.3d 221 (3d Cir. 1998)... passim

Dovenmuehle v. Gilldorn Mortgage Midwest
Corp., 871 F.2d 697 (7th Cir. 1989)

GlaxoSmithKline Consumer Healthcare, L.P.
v. Merix Pharm. Corp., 197 Fed App’x 120
(3d Cir. 2006)

Holmes v. SIPC, 503 U.S. 258 (1992)

Hutchinson v. Pfeil,
211 F.3d 515 (10th Cir. 2000)

Vv

ITC Ltd. v. Punchgini, Inc.,
482 F.3d 135 (2d Cir.), cert. denied, 128 S.
6 Ti IR RRS i of Re ae Ae RE 16

Jack Russell Terrier Network of N. Cal. v. Am.
Kennel Club, 407 F.3d 1027 (9th Cir. 2005)........ 14

Johnny Blastotf, Inc. v. Los Angeles Rams |
Football Co., 188 F.3d 427 (7th Cir. 1999)........... 15

Joint Stock Soc’yv. UDV N. Am., Inc.,
266 F.3d 164 (3d Cir. 2001) ...0.0.0.... ce. 10, 17, 21

KIS, S_A. v. Foto Fantasy, Inc.,
240 F. Supp. 2d 608 (N.D. Tex. 2002) .......000........ 12

L.S. Heath & Sons, Inc.v. AT&T Info. Sys.,
OF Bie BE CF Oe Ce, BODE vsccscncssccnssconcestecicncecsonss 15

Logan v. Burgers Ozark Country Cured Hams,
Inc., 263 F.3d 447 (th Cir. 2001) .................. 12, 21

Novartis Consumer Health, Inc. v.
Johnson & Johnson-Merck Consumer
Pharm. Co., 290 F.3d 578 (3d Cir. 2002) ............. 18

Ortho Pharm. Corp. v. Cosprophar, Inc.,
BE FB GOO AG Civ. TOGO osc cvcsccccccscesecsscccsens 16, 19

Pernod Ricard USA LLC v. Bacardi USA,
505 F. Supp. 2d 245 (D. Del. 2007) .......... 2 47,21

Procter & Gamble Co. v. Amway Corp.,
242 F.3d 539 (5th Cir. 2001)................ 10, 12, 22-23

Sandoz Pharm. Corp. v. Richardson: Vicks, Inc.,

902 F.2d 222 (8d Cir. 1990)... secerererrrererertee 19 ae

vi
Societe Des Hotels Meridien v. La Salle Hotel
Operating P’ship,
380 F.3d 126 (2d Cir. 2004)

Stanfieldv. Osborne Indus.,
52 F.3d 867 (10th Cir. 1995)

Telecom Int] Am., Ltd. v. AT&T,
280 F.3d 175 (2d Cir. 2001)

_ Thorn v. Reliance Van Co.,
736 F.2d 929 (3d Cir. 1984)

Waits v. Frito-Lay, .
978 F.2d 1093 (9th Cir. 1993)

Warner-Lambert Co. v. BreathAssure, Inc.,
204 F.3d 87 (3d Cir. 2000)

Wellness Publishing v. Barefoot,
128 Fed. App’x 266 (3d Cir. 2005)

Wellness Publishing v. Barefoot,
No. 02-3773 (JAP), 2008 WL 108889
(D. N.J., Jan. 9, 2008)

Statutes
Lanham Act, 15 U.S.C. § 1125(a@)
Miscellaneous

4 McCarthy on Trademarks and Unfair
Competition § 7:32 (4th ed. 1996)

Restatement (3d) of Unfair Competition (1995) 11

INTRODUCTION

This case does not merit this Court’s review. The
Eleventh Circuit's decision employs a flexble,
multifactor test to assess prudential standing in light
of the particular facts before the court. This test was
first adopted for Lanham Act cases in Conte Brothers
Automotive, Inc. v. Quaker State-Slick 50, Inc., 165
F.3d 221 (3d Cir. 1998) (Alito, J.), based on authority
from this Court in the antitrust context, and its
appropriateness has not been questioned by any court
since. To the extent that there is any remaining

. tension in the case law, it concerns only whether

“direct competitor” status is necessary for a plaintiff
to have prudential standing to press a claim under
the Lanham Act. No court of appeals has held that
“direct competitor” status is categorically sufficient to
confer such standing, regardless of the other
circumstances in the case—here, for example, the
attenuated and speculative nature of the alleged
damages and the significant risk of duplicative
recovery. In short, this case does not implicate any
conflict of authority, either among the circuits or with
this Court’s cases. The petition should be denied.

STATEMENT OF THE CASE
A. Background

The circumstances giving rise to this case are
unique in the history of Lanham Act litigation. The
case’s origins lie in a criminal conspiracy to which
McDonald’s and its customers tell victim. As the
district court below acknowledged, there appears
never to have been any other case “where a company
brought a Lanham Act claim against a competitor

_whose advertising became false or misleading due to ss

2

the fe/onious conduct of third parties.” Pet. App. 42a
(emphases in original).

In the late 1980s, McDonald’s introduced various
prize promotions, including its popular “Monopoly”
game, in which customers were given the opportunity
to win food and cash prizes by collecting game pieces
. patterned after the popular board game. Participants
could win up to $1 million by obtaining “instant win”
pieces or by grouping pieces to form “monopolies.”
The promotional games were operated under contract
by a third-party vendor, Simon Marketing, which was
entrusted with the sole responsibility to “seed” the
games by randomly placing winning game pieces into
the stream of commerce.

In 2000, the Department of Justice informed
McDonald’s for the first time that it was conducting
an investigation into the promotional games.
Ultimately, on August 21, 2001, the FBI announced
that it had arrested Simon Marketing’s director of
security, Jerry Jacobson, and several other people, all
of whom were charged with conspiring to compromise
McDonald’s games through the theft and fraudulent
redemption of winning high-value game pieces.

Immediately after the FBI’s announcement, a
variety of consumer class actions were filed against
McDonald’s, alleging claims for consumer fraud,
negligence, unjust enrichment, and a host of related
torts. Less than a year later, McDonald’s settled
these cases by, among other things, agreeing to
implement a $15 mullion instant giveaway that
provided class members and the general public with
an opportunity to win fifteen $1 million prizes. This
giveaway—coupled with another $10 million in prizes

"°“ that “MeDonald’s’ voluntarily awarded immediately ‘J

3

after the FBI's announcement—resulted in
McDonald’s providing its customers with an
opportunity to win a total of $25 million. This
exceeded the dollar value of the game pieces that
Jacobson and his co-conspirators had diverted from
customers through their criminal conduct.

The Jacobson conspiracy was a disaster for
McDonald’s. In addition to the $25 million in
additional giveaways, the company suffered massive
damage to its reputation and goodwill—damage that,
because it-is rooted in the loss of the public’s trust,
will require significant time and effort to regain.

B. Proceedings Below

Nearly five years after the FBI announced the
arrest of Jacobson and his co-conspirators, and nearly
four years after McDonald’s settled all the consumer
class action lawsuits arising from the conspiracy,
Phoenix of Broward—a Florida company owning a
single Burger King franchise in Fort Lauderdale—
brought this putative class action lawsuit under the
false advertising provision of the Lanham Act, 15
U.S.C. § 1125(a). The suit alleged that “McDonald’s
explicitly and implicitly represented to the public
that players stood a fair and equal opportunity to win
certain grand prizes * * * when in fact the
promotional games had been fixed by a criminal ring
who embezzled the high-value game pieces . and
prevented the public from winning such prizes.” The
result of these “misrepresentations,” the complaint
alleged, was to “divert business away” from Phoenix
and force it to incur costs to combat that diversion.

McDonald’s moved to dismiss the lawsuit,

- - assertiig, among ‘other things; that -Phoenix Jacked -

prudential standing to press its false advertising

4

claim. The district court granted the motion. It
noted that “(t]he Eleventh Circuit has not addressed
what test the court should use in determining
whether a plaintiff has prudential standing to bring a
Lanham Act false advertising claim.” Pet. App. 43a.
It then examined the approaches used in other
circuits before concluding that the correct analysis
was set forth by the Third Circuit in Conte Brothers
Automotive, Inc. v. Quaker State-Slick 50, Inc., 165
F.3d 221 (3d Cir. 1998). Pet. App. 44a. The Conte
Brothers court—seeking to provide decisional clarity
for prudential standing in the context of the Lanham
Act—had adopted the prudential standing test for
antitrust claims articulated by this Court in
Associated General Contractors of California v.
California State Council of Carpenters, 459 U.S. 519
(1983), which employs a five-factor analysis to assess
the fundamental question underlying the concept of
prudential standing, namely, whether the claimant is
the “proper plaintiff’ to bring the claim. /d at 544.
The five factors include “(1) the nature of the
plaintiffs alleged injury, (2) the directness or
indirectness of the asserted injury, (3) the proximity
or remoteness of the party to the alleged injurious
conduct, (4) the speculativeness of the damages
claim, and (5) the risk of duplicative damages or
complexity in apportioning damages.” Pet. App. 44a
(citing Conte Bros., 165 F.3d at 563).

Noting its “doubts that Congress [in the Lanham
Act] sought to redress advertising rendered false by
the criminal conduct of third parties,” Pet. App. 45a,
and its conclusion that “the injury to Phoenix’s
commercial interests caused by the advertisements

“can hardly be described as typical; id at 46a, the ©

district court conducted a careful analysis of the five

5

Conte Brothers factors. It concluded that Phoenix
lacked standing to pursue its Lanham Act claim:

Given the existence of more directly injured
parties, the tenuousness and_ sheer
speculativeness of Phoenix’s damages claim,
and the possibility of multiple duplicative
recoveries, the court concludes that Phoenix
does not have prudential standing to bring a
§ 43(a) false advertising claim against
McDonald's.

Id. at 50a.

The Eleventh Circuit affirmed. It first undertook
to determine whether the prudential standing
doctrine applied to limit the scope of Lanham Act
standing at al]. Noting that “Congress is presumed to
incorporate background prudential standing
limitations unless the statute expressly negates such
principles,” the court of appeals joined both of the
other circuits to address this question in concluding
that “Congress did not intend to abrogate prudential
standing limitations when it enacted the Lanham
Act.” Pet. App. 9a-11a.

Having concluded that prudential standing
principles may operate to restrict the scope of
Lanham Act standing, the court went on to consider
what approach it should employ in determining the
availability of prudential standing for a claim under
the Lanham Act. “After surveying the caselaw,” the
court elected to “join the Third and Fifth Circuits and
adopt the test for prudential standing articulated in
Conte Bros.” Id. at 12a. In so doing, it rejected

..-Phoenix’s.. proposed . “categorical”. test,. which would... --

have conferred standing upon every plaintiff that
claimed to be a direct competitor alleging a

6

competitive injury. Jd. at 14a. Such a categorical
rule, the court suggested, would not comport with the
purposes of the Lanham Act or the Conte Brothers
analysis, which “is designed to determine whether
the injury alleged is the type of injury that the
Lanham Act was designed to redress—harm to the
plaintiffs ‘ability to compete’ in the marketplace and
erosion of the plaintiffs. ‘good will and reputation’
that has been directly and proximately caused by the
defendant’s false advertising.” Jd. at 20a (quoting
Conte Bros., 165 F.3d at 234-36).

The Eleventh Circuit then undertook a careful
analysis of the facts of this case in light of the Conte
Brothers factors, ultimately concluding that the court
had correctly denied prudential standing. The court
of appeals based its decision on “the attenuated link
between the alleged injury and McDonald’s alleged
misrepresentations, the speculative nature of the
claimed damages, the potential complexity in
apportioning damages, and the significant risk of
duplicative damages.” Pet. App. 32a.

Specifically, the court noted that the fraud by
Jacobson and his cohorts rendered only some
representations false—namely, the representations
that customers had a fair and equal chance of
winning one of the “rare ‘high-value” prizes. After
all, the odds of winning millions of lower or mid-value
prizes, including free food and other awards, were not
affected by the conspiracy. Thus, Phoenix’s claim
would have required proof that McDonald’s
representations relating to the “rare, ‘high-value”

prizes—as opposed to the other prizes that customers
were far more likely to win—lured customers away ==

from Phoenix’s restaurant. According to the Eleventh
Circuit, this was simply too tenuous and attenuated,

7

and the damages resulting from such an injury would
have been speculative at best. Jd. at 24a-25a, 28a.
Further, the Eleventh Circuit noted that if Phoenix
were afforded standing in the case, then every
potential competitor of McDonald’s in the nation
would also be entitled to standing, presenting a
serious risk of duplicative damages. /d. at 30a-32a.

The totality of these factors indicated that
although Phoenix alleged itself to be a “direct
competitor” alleging a “competitive injury,” it did not
have prudential standing to bring a Lanham Act
claim against McDonald’s for any advertising
rendered false by the Jacobson conspiracy. /d. at
32a-33a. This petition followed.

REASONS FOR DENYING THE PETITION

The petition fails to satisfy any of this Court's
usual criteria for certiorari. The circuit conflict
asserted in the petition is illusory, constructed from
dicta and a misinterpretation of the cases. Moreover,
to the extent that any tension exists in the cases, it is
not implicated here. No court has held that an
allegation of direct competitor status is, by itself,
categorically sufficient to support prudential standing
regardless of the other facts and circumstances in the
case. Thus there is no decision in conflict with the
Eleventh Circuit's decision here, which denied
standing to a direct competitor because of the
attenuated and speculative nature of the alleged
claim of injury, among other things.

To be sure, some circuits have, in the past
articulated a relatively rigid and categorical approach
to prudential standing under the Lanham Act—
holding that a plaintiff that is zot in direct
competition with the defendant may not establish

8

prudential standing, regardless of the other facts.
The emergence of the Conte Brothers analysis
represents a move away from that more rigid
approach, such that courts will now consider a
variety of facts and circumstances in deciding
whether any plaintiff—even one zot in direct
competition with the defendant—has standing to sue
under the Lanham Act. As Conte Brothers itself
explained, “standing under the Lanham Act does not
turn on the label placed on the relationship between
the parties.” 165 F.3d at 235.

At the same time, no circuit has held
categorically that a plaintiff who is a “direct
competitor” a/ways has prudential standing to assert
a claim under the Lanham Act no matter how
attenuated or speculative the alleged competitive
injury is. And of the jurisdictions that have had
occasion to apply the Conte Brothers five-factor test,
not one of them has held that the test is limited to
cases involving non-competitors, as Phoenix contends
it should be. It is not surprising, then, that the
petition provides no plausible reason to conclude that
any other court of appeals would have decided this
case differently under its own case law—the sine qua
non of a “square” conflict warranting this Court’s
attention.

Although Phoenix contends that denying
standing to direct competitors who have alleged a
distinct competitive injury would “underminel[]” the
objectives of the Lanham Act (Pet. 27), the Conte
Brothers test employed by the Eleventh Circuit and
others will aot likely deny standing to direct
competitors in the typical case. As Phoenix itself
recognized below, “any direct competitor [should]
readily satisfy the elements of the [Conte Brothers |

9

test.” Reply Br. on Appeal at 2. Thus the real
question is not whether applying the Conte Brothers
test in direct competitor cases is systematically
inconsistent with the purposes of the Lanham Act—
and it plainly is not—but rather whether the
Eleventh Circuit’s application of the Conte Brothers
analysis was correct based on the facts of this
particular case.

This is not a typical case. The false advertising
claim here—which arose in highly unusual
circumstances involving criminal wrongdoing by
third parties—was asserted against McDonald’s
Corporation by an individual Burger King franchisee
with a particularly attenuated and speculative claim
of injury. The claim by this franchisee (and by the
other franchisees it hoped to represent) rested on the
notion that it lost customers because of alleged
misrepresentations about whether consumers would
have a fair and equal chance of winning the rarest
few of the many prizes offered in a McDonald’s
promotional game. Further, the attenuated claim of
injury asserted here was no different than those that
could have been asserted by any other restaurant or —
group of restaurants that McDonald’s customers
might also patronize.

Whether the courts below properly denied
Phoenix prudential standing under __ these
circumstances is a fact-bound question that does not
merit this Court’s review. The petition should be
denied.

I. There is no conflict among the circuits with
regard to the Question Presented.

Phoenix devotes the bulk of its petition to a
purported circuit conflict between “categorical”

10

jurisdictions, which award standing to direct
competitors based on a mere allegation of
“competitive injury,” and “flexible” jurisdictions,
which permit consideration of other facts as well, as
part of a more holistic inquiry into the
appropriateness of prudential standing. The conflict
is illusory. There are no truly “categorical”
jurisdictions in this sense, and the “flexible”
jurisdictions do not align as Phoenix describes them.
The petition thus has no basis for asserting an
“intolerable” circuit conflict or, indeed, any
continuing circuit conflict at all.

A. The Conte Brothers analysis is garnering an
emerging consensus among the circuits.

There cannot be any serious doubt about the
appropriateness of the standing analysis that then-
Judge Alito and the Conte Brothers court drew from
this Courts decision in Associated General
Contractors of California v. California State Council
of Carpenters, 459 U.S. 519 (1983). And if there were
any such doubt, that doubt would be dispelled by the
broad acceptance of Conte Brothers by every court
that has considered it thus far. Conte Brothers has
been on the books for nearly 10 years, and its
application of this Court’s flexible, multifactor
standing analysis in the Lanham Act context has
never been questioned by another court, much less
rejected. The Third, Fifth, and Eleventh Circuits all
have adopted the Conte Brothers analysis to
determine prudential standing for false advertising
claims. Joint Stock Soc’y v. UDV N. Am., Inc., 266
F.3d 164, 180 (3d Cir. 2001); Procter & Gamble Co. v.

1]

Amway Corp., 242 F.3d 539 (5th Cir. 2001).1 The
Conte Brothers approach has been endorsed by both
the Restatement (3d) of Unfair Competition, § 3, cmt
f (1995) and the leading scholarly authority on
competition law. See 4 McCarthy on Trademarks and
Unfair Competition § 7:32 n.1 (4th ed. 1996) (“In the
author's opinion, some limit on the § 43(a) standing of
persons remote from the directly impacted party
should be applied by analogy to antitrust law, such as
use of the criteria listed in Associated General
Contractors * * *.”).

Phoenix does not challenge Conte Brothers head-
on but instead complains that it is or should be
limited to cases where the plaintiff is not in direct
competition with the defendant. In other words,
Phoenix contends that as long as the plaintiff alleges
that it falls within the category of “direct
competitors,” any allegation of competitive injury will

necessarily suffice to demonstrate prudential
standing.

The cases do not support that view. To date, only
two of the courts of appeals—the Fifth and the
Eleventh, in the decision below—have had the
opportunity to apply Conte Brothers in a case
involving parties who claimed to be direct
competitors. Those courts have reached the same
conclusion: the multifactor analysis outlined in

| The Eighth Circuii aiso has considered the Conte Brothers
test but has not yet had occasion to decide whether to adopt it
for all Lanham Act standing inquiries. See American Assoc. af
Orthodontists v. Yellow Book USA, Inc., 434 F.3d 1100, 1104
(8th Cir. 2006) (declining to determine appropriate test for
Lanham Act standing where plaintiff could not satisfy any
possible test).

12

Conte Brothers applies equally in all cases—as it was
designed to—regardless of the “label” attached to the
parties. Conte Bros., 165 F.3d at 235; see also Pet.
App. 20a; Procter & Gamble Co. v. Amway Corp., 242
F.3d 539, 562 (5th Cir. 2001); Logan v. Burgers Ozark
Country Cured Hams, Inc., 263 F.3d 447, 461 (5th
Cir. 2001).2. This is not surprising. As the Conte
Brothers court explained, its aim in importing this
analysis into the Lanham Act context was to
“providel] appropriate flexibility in application to
address factually disparate scenarios that may arise
in the future, while at the same time supplying a
principled means for addressing standing” under
§43(a). 165 F.3d at 236.

As discussed further below, there simply is no
contrary authority. No court of appeals has held that
direct competitor status is, by itself, sufficient to
confer prudential standing. No court of appeals has

attached “categorical” significance to the plaintiff's
status as a direct competitor and refused to look
beyond its bare allegation of injury when prudential
standing was at issue. And Phoenix’s attempt to
draw such a categorical distinction from Conte:
Brothers itself also fails. In short, there is no conflict
of law for this Court to resolve.

District courts from all the circuits that have adopted Conte
Brothers also have applied it in cases involving direct
competitors. See, e.g, Pernod Ricard USA LLC v. Bacardi USA,
505 F. Supp. 2d 245, 252 (D. Del. 2007); KIS, SA. v. Foto
Fantasy, Inc., 240 F. Supp. 2d 608, 610-11, 616 (N.D. Tex. 2002);
Alphamed Pharm. Corp. v. Arriva Pharm. Corp., 391 F. Supp.
2d. 1148 (S.D. Fla. 2005).

2

13

B. No circuit holds that a plaintiffs status as a
direct competitor alleging competitive injury
is categorically sufficient to confer prudential
standing no matter how speculative or
attenuated the claimed injury is.

Phoenix’s argument for a circuit conflict is based
on dicta and a logical fallacy. It begins with cases
holding that szoncompetitors necessarily Jack
standing—an issue on which there may be some
tension among the circuits, but which is not
presented here. Then it suggests that, in those cases,
competitor status is the sole criterion for standing.
As long as the plaintiff is a direct competitor of the
defendant, any allegation of competitive injury will be
enough to confer prudential standing and to entitle
the plaintiff to proceed with its claim, regardless of
the nature of that injury or any other facts or
circumstances.

This is a non sequitur. Even if a competitive
relationship is necessary for prudential standing, it
does not follow that such a relationship is always
sufficient for prudential standing. And the petition
identifies no case in which any court of appeals has
held that a plaintiffs allegation that it is a direct
competitor alleging a competitive injury is per se
sufficient to confer prudential standing, even in the
face of arguments that the alleged injury is simply
too attenuated.

The petition characterizes five circuits as having
embraced the purported “categorical” position: the
Ninth, Seventh, Tenth, Second, and Third. But the
cases do not support that characterization. Of the
sixteen court of appeals cases cited in the petition to
support the proposition that a direct competitor

14

alleging competitive injury categorically has Lanham
Act standing, only one actually involved both a direct
competitor and a finding of prudential standing, and
even in that case the court did not confer such
standing “categorically,” based upon an allegation of
injury of the kind at issue here. It is true, of course,
that some of those cases contain language suggesting
the existence of a “categorical” rule. under which
being “a competitor of the defendant and allegling] a
competitive injury” is the central criterion for
prudential standing. Stanfield vy. Osborne Indus., 52
F.3d 867, 873 (10th Cir. 1995); see also Telecom Int7
Am., Ltd. v. AT&T, 280 F.3d 175, 197 (2d Cir. 2001)
(quoting Stanfield). But not one of them reaches the
very different conclusion for which Phoenix cites
them: that direct competitor status is categorically
sufficient to confer standing, no matter how
attenuated the injury.

For example, of the three Ninth Circuit cases
Phoenix cites, only one upheld the plaintiffs
standing—and in that case, the plaintiff was a non-
competitor. Waits v. Frito-Lay, 978 F.2d 1093, 1109
(9th Cir. 1993), cited in Pet. 17-18. The Waits court’s
general statement that “claims of false

representations in advertising are actionable * * *

when brought by competitors of the wrongdoer” was
dicta and, in any event, was a statement not about
prudential standing but about the existence of a
cause of action for false advertising under Section
43(a). Ibid. Waits does not purport to set out a
general rule about the sufficiency of competitor status
to confer prudential standing. In Jack Russell
Terrier Network of N. Cal. v. American Kennel Club,
407 F.3d 1027 (9th Cir. 2005), by contrast, the court
concluded that the plaintiffs lacked standing where

15

they conceded that they did not compete with the
defendants. And in Barrus v. Sylvania, 55 F.3d 468,
470 (9th Cir. 1995), the Ninth Circuit refused to find
standing for consumers who had failed to allege
either “commercial injury [or] competitive injury.”

Similarly, all the Seventh Circuit cases cited by
Phoenix deny prudential standing, and none can
reasonably be read to support Phoenix’s claim that
direct competitor status is sufficient to confer
prudential standing for Lanham Act claims. See Pet.
17. In L.S. Heath & Sons, Inc. v. AT&T Information
Systems, 9 F.3d 561 (7th Cir. 1993), the court denied
prudential standing because the parties were not
competitors. In Johnny Blastoff Inc. v. Los Angeles
Rams Football Co., 188 F.3d 427 (7th Cir. 1999), the
court denied standing because the plaintiff could
show no injury at all, never mind “competitive
injury.” And the court in Dovenmuehle v. Gilldorn
Mortgage Midwest Corp., 871 F.2d 697, 699 (7th Cir.
1989), denied standing on the ground that the
plaintiff lacked any ownership interest in the trade
name that allegedly was misused. In fact, the
Dovenmuehie passage cited in the petition strtes only
that “/t/ypically, plaintiffs suing under [the Lanham
Act] are business competitors * * *.” Pet. 17. While
this is undeniably true, it is not helpful in
determining whether a// business competitors would
necessarily have prudential standing.

The Tenth Circuit, too, rejected prudential
standing in both cases cited by Phoenix. See Pet. 17.
In Stanfield v. Osborne Industries, 52 F.3d 867 (10th
Cir. 1995), the court denied prudential standing to a
plaintiff whose relationship with the defendant was
contractual and non-competitive. In Hutchinson v.
Pfeil, 211 F.3d 515 (10th Cir. 2000), the court denied

16

standing because the alleged injury—which involved
only the “potential for harmful competition” in the
future—was deemed too speculative to support either
Article III or prudential standing. Jd at 520
(emphasis added).

Finally, of the four Second Circuit cases cited by
Phoenix in support of its claim that the Second
Circuit is a “categorical” jurisdiction, all but one
rejected prudential standing. J7C Ltd. v. Punchgini,
Inc., 482 F.3d 135 (2d Cir.), cert. denied, 128 S. Ct.
288 (2007); Telecom Int] Am., Ltd. v. AT&T, 280 F.3d
175, 197 (2d Cir. 2001); Ortho Pharm. Corp. v.
Cosprophar, Inc., 32 F.3d 690, 694 (2d Cir. 1994); see
Pet. 17-18 & n.6. And in the remaining case, the
court based its finding of prudential standing, not on.
the fact that the plaintiff was a “direct competitor
alleging competitive injury,” but rather on the fact
that the allegedly false advertising drew a direct
comparison between the plaintiffs and defendant’s
products. Societe Des Hotels Meridien v. La Salle
Hotel Operating P’ship, 380 F.3d 126, 130 (2d Cir.
2004). Thus the court’s resolution rested as much on
the nature of the injury—an injury markedly
different from the one here—as it did on the
competitor status of the plaintiff.

In short, none of the cases cited by Phoenix is
actually in conflict with the Eleventh Circuit’s
decision here. No circuit has held that a party’s
status as a direct competitor is sufficient to support
prudential standing no matter how attenuated the
alleged competitive injury is.

17

C. Phoenix’s contention that the Third Circuit
itself intended the Conte Brothers analysis
to apply only to non-competitors is belied by
the unequivocal language of Conte Brothers
and the cases that followed it.

Phoenix also attempts to draw support for the
supposed conflict of authority from the Third Circuit
itself, arguing that Conte Brothers was designed as a
test specifically “for non-competitors” (Pet. 21), on the
theory that direct competitors would categorically
have standing. This ignores the express language of
then-Judge Alito’s opinion in Conte Brothers, which
takes care to explain that the case would have come
out the same way even if the parties did compete at
the same level of the marketplace. 165 F.3d at 235.
As the court’s opinion explained, “lulnder the
reasoning we adopt today, standing under the
Lanham Act does not turn on the label placed on the
relationship between the parties.” Jbid. (emphasis
added).

The insignificance of the “label” attached to the
parties’ relationship was confirmed by the Third
Circuit in Joint Stock Society v. UDV North America,
Inc., 266 F.3d 164 (3d Cir. 2001). In that case, then-
Judge Alito emphasized “the premise implicit in the
** * Conte Brothers test that a direct competitor will
usually have a stronger commercial interest than a
non-competitor.” Jd at 183 n.10 (emphasis added).
This language confirms that plaintiffs in different
competitive (or non-competitive) relationships with
the defendant should be subjected to the same five-
factor test articulated in Conte Brothers. See Pernod
Ricard USA LLC v. Bacardi USA, 505 F. Supp. 2d
245, 252 (D. Del. 2008) (applying Conte Brothers test

18

in determining that direct competitor had Lanham
Act standing).

In addition, while the Third Circuit has not yet
expressly applied Conte Brothers in a_ direct
competitor case, it has never limited its Conte
Brothers decision or been faced with (and declined)
an opportunity to apply it in any direct competitor
case where prudential standing was at issue. The
petition cites Novartis Consumer Health, Inc. v.
Johnson & Johnson-Merck Consumer Pharmaceutical
Co., 290 F.3d 578 (3d Cir. 2002), as a case presenting
such an “opportunity” (Pet. 23), but that case did not
involve Lanham Act prudential standing at all.
Rather, Novartis examined the standard for
determining whether a Lanham Act plaintiff could
demonstrate the irreparable harm necessary to
justify a preliminary injunction. Indeed, the Third
Circuit expressly held that the irreparable harm
standard was not identical to the prudential standing
standard. 290 F.3d at 595. Similarly, in both
GlaxoSmithKline Consumer Healthcare, L.P. v.
Merix Pharmaceutical Corp., 197 Fed App’x 120 (3d
Cir. 2006), and Wellness Publishing v. Barefoot, 128
Fed. App’x 266 (3d Cir. 2005)—also cited as evidence
of the Third Circuit’s unwillingness to apply Conte
Brothers in direct competitor cases—the defendant
did not challenge prudential standing before the
Third Circuit. It goes without saying that a

> In a later proceeding in Barefoot involving the same parties,
prudential standing was challenged—and the district court
applied the Conte Brothers analysis, concluding that the direct
competitor plaintiff had standing. Wellness Publishing v.
Barefoot, No. 02-3773 (JAP), 2008 WL 108889, *13 (D. N.J., Jan.
9, 2008).

19

litigant’s decision not to challenge prudential
standing has no bearing on how the court would have
analyzed such a challenge if one had been raised.

Phoenix’s resort to Third Circuit cases from
before Conte Brothers is unpersuasive. As with the
cases from other circuits discussed above, these cases
do not support the proposition that as long as the
plaintiff and defendant are direct competitors, any
allegation of competitive injury is sufficient to confer
prudential standing. The case of Thorn v. Reliance
Van Co., 736 F.2d 929, 931 (3d Cir. 1984) holds only
that a szon-competitor may have Lanham Act
standing in appropriate circumstances. And Sandoz
Pharmaceuticals Corp. v. Richardson-Vicks, Inc., 902
F.2d 222, 230 (3d Cir. 1990), does not address
standing at all.‘

Given the broad acceptance of the Conte Brothers
analysis among the courts that have considered it—
and the fact that no court ever has limited Conte
Brothers or refused to apply it in a direct competitor
case—there is no reason to believe that the analysis
for direct competitor standing is _ particularly
controversial or that it will be any more controversial

4

The case of Warner-Lambert Co. v. BreathAssure, Inc., 204
F.3d 87 (3d Cir. 2000), cited in Pet. 19 n.7, is not a standing case
either. The passage Phoenix quotes actually describes a Second
Circuit case that does not itself support Phoenix’s position. See
id. (discussing Ortho Pharm. Corp. v. Cosprophar, Inc., 32 F.3d
690, 694 (2d Cir. 1995) @oting that a Lanham Act plaintiff
“need not demonstrate that it is in direct competition with the
defendant” to have standing, and that “loln the whole, we have
tended to require a more substantial showing where the
plaintiffs products are not obviously in competition with
defendant's products, or the defendant's advertisements do not
draw direct comparisons between the two’)).

20

in the future than it has been in the past. Again,
every court to consider a true dispute about
prudential standing in the context of direct
competitor claims has concluded that the Conte
Brothers multifactor analysis should apply, rather
than any per se or categorical rule. There is no need
for this Court to weigh in on the issue.

Il. The Eleventh Circuit's treatment of prudential
standing is entirely consistent with the purposes
underlying the Lanham Act and advances the
principles of prudential standing.

On its merits, the Eleventh Circuit’s approach to
prudential standing is in no way inconsistent with
the purposes of the Lanham Act, as Phoenix
contends. Pet. 27 (“[djenying standing to direct
competitors undermines” the purposes of the Lanham
Act”). In practice, the Conte Brothers analysis
employed below will result in the denial of standing
to a direct competitor only in cases involving claims
that bear a tangential relationship at best to the
values embodied in the Lanham Act. Moreover,
Phoenix’s contrary view would have the effect of
entirely eliminating prudential standing
considerations from Lanham Act cases involving
direct competitors—a result for which there is no
reason or authority.

1. Contrary to Phoenix’s contention, the Conte
Brothers analysis applied by the courts below does
not, and does not purport to, “denyl |] standing to
direct competitors’—at least in any but the most
unusual circumstances. Indeed, Phoenix itself
argued below that “(t]he Conte Bros. test * * * has
little utility when applied to direct competitors
alleging competitive harml,] because such plaintiffs

21

invariably satisfy its requirements.” Opening Br. on
Appeal at 9 (emphasis added). As then-Judge Alito
pointed out in Joint Stock Society, the flexible Conte
Brothers test includes “the premise * * * that a direct
competitor will usually have a stronger commercial
interest than a non-competitor,” and thus will
typically survive a Lanham Act standing challenge.
266 F.3d at 183 n.10 (emphasis added).

The cases confirm that genuinely “prototypical”
plaintiffs who are the direct competitors of the
defendants will be found to have prudential standing
under the Conte Brothers test—and that only those
with marginal, highly attenuated Lanham Act claims
will not. For example, in Logan v. Burgers Ozark
Country Cured Hams, Inc., 263 F.3d 447, 461 (5th
Cir. 2001), the Fifth Circuit applied Conte Brothers
in a direct-competitor case and held that where the
defendant’s “literally false advertising about its own
goods influenced its customers to buy its products
instead of Logan’s product,” and where the plaintiff
was the only person who could bring a Lanham Act
false advertising claim against the defendant, the
plaintiff had standing to bring the claim. Similarly,
in Pernod Ricard USA LLC v. Bacardi USA, 505 F.
Supp. 2d. 245, 252 (D. Del. 2007), the district court
employed the Conte Brothers test in concluding that
the plaintiff had standing to bring a Lanham Act
claim where the parties were direct competitors and
the defendant allegedly made false representations
about its own product that harmed the plaintiffs
reputation, goodwill, and ability to compete in the
marketplace.

As noted above, only one court of appeals (other
than the court below) ever has determined that a
direct competitor’s claim was so attenuated that it

22

failed to meet the Conte Brothers standing analysis.
That lone case was Procter & Gamble Co. v. Amway
Corp., in which the Fifth Circuit denied standing to
plaintiff Procter & Gamble in a Lanham Act suit
based upon “fraudulent misrepresentations’—
specifically, false and inflammatory accusations that
Procter & Gamble had links to Satanic cults—made
to potential employees to convince them to work for
and buy from Amway, “resulting ultimately in lower
sales of some of P&G’s products.” 242 F.3d at 563.
Phoenix itself conceded to the court below that
Procter & Gamble was a “bizarre case” involving a
“non-traditional injury.” Opening Br. on Appeal at 16.
Thus by Phoenix’s own admission, the only court of
appeals case ever to deny a competitor standing
under the Conte Brothers analysis—other than this
one—was strange and aberrational. Accordingly,
there can be no serious concern that the Eleventh
Circuit's approach will erode the fundamental
protections the Lanham Act offers to competitors in
‘the marketplace.

2. Further, Phoenix’s proposed standing rule is
overbroad and would effectively eliminate prudential
standing as a requirement for an entire class of
plaintiffs in suits under the Lanham Act. The
categorical rule advocated by Petitioner would confer
standing on a// direct. competitor plaintiffs alleging
competitive injury in a// circumstances, without
consideration of factors like the remoteness of the
alleged injury, the potential for duplicative damages,
the existence of other potential plaintiffs who have
been mere directly harmed, and so on—in short,
without consideration of the principles of prudential
standing at all. What Phoenix is claiming, in effect,
s that any prudential limitation on Lanham Act

23

standing for direct competitors somehow contravenes
the purposes of the statute.

Neither the cases nor the statute itself supports
that view. It is possible, of course, for Congress to
eliminate prudential limitations on standing if it so
desires. See Bennett v. Spear, 520 U.S. 154, 162
(1997). But as the Eleventh Circuit explained,
“Congress is presumed to incorporate background
prudential standing principles [in legislation] unless
the statute expressly negates such principles.” Pet.
App. 9a°10a. Every court to consider this issue,
including the court below, has concluded that
Congress did not abrogate prudential standing
principles in the Lanham Act. See ibid; Procter &
Gamble, 242 F.3d at 562. Although Phoenix has not
challenged that conclusion in this forum, the upshot
of its argument here is that a § 43 claim—by its
terms available to “any person who believes that he
or she is or is likely to be damaged” by false
advertising—must be given its maximum Article III
scope, unlimited by the considerations of “judicial
governance” that make prudential standing a
fundamental component of federal jurisprudence.
There is simply no justification, either in the
jurisprudence of this Court or in the legislative
history of the Lanham Act, for limiting the usual
scope and limitations of prudential standing in this
context.

Ill. The unusual facts of this case would make it a

poor vehicle for resolving any issues related to
prudential standing for Lanham Act claims.

As shown above, there is no circuit conflict on the
question presented—and certainly not a “deep” or
“intolerable” one—and there is no ment to Phoenix’s

Leas
Pte

24

claim that applying a flexible, fact-based analysis in
determining whether a direct competitor has
prudential standing somehow violates the purposes of
the Lanham Act. Even if there were some arguable
conflict in the cases, however, the anomalous
circumstances from which this case arose make it an
inappropriate vehicle for resolving the true scope of
prudential standing for Lanham Act claims.

1. Most fundamentally, the issue of whether the
parties are genuinely “direct competitors” was not
litigated below, and McDonald’s does not contest it
here. But in light of Phoenix’s attempt to imbue
“direct competitor” status with categorical legal
significance, the Court would do well to wait to
resolve the issue presented in this petition until it
has the opportunity to review a case in which the
parties’ “direct competitor” status is both well defined
and, on the facts of the case, inarguable.

In fact, this case cleanly illustrates the emptiness
of a “categorical” approach that turns the words
“direct competitor” into a shibboleth for Lanham Act
standing. “Direct competitor” status is, in the words
of the Conte Brothers court, merely a “label” that
tells us little or nothing about the appropriateness of
prudential standing in a particular case.5 Put simply,
there are different degrees of “directness.” 165 F.3d
at 233. The competitive relationship in this case is
far from typical in Lanham Act cases. Phoenix
operates a single Burger King restaurant in Fort
Lauderdale, Florida. McDonald’s is an international
corporation with annual revenues approaching $22

> Cf. Bell Atlantic v. Twombly, 127 S.Ct. 575 (2006) (bare
allegation of conduct described as “parallel” is not sufficient to
state a claim for restraint of trade under the antitrust laws).

25

billion. McDonald’s does not own or operate any
restaurants in Fort Lauderdale, Florida, although its
franchisees do operate several such restaurants in
the area. Those franchisees pay McDonald’s rent,
fees, and royalties based upon a percentage of their
monthly sales. Thus it is the franchisees who would
benefit most directly from any customers lured away
from Phoenix’s restaurant.

In short, this particular plaintiff operates at a
different level of the marketplace than the entity it
chose to sue. McDonald’s Corporation “competes”
with Phoenix in the same sense that it competes with
each of the 7,171 Burger King restaurants, 6,673
Wendy’s restaurants, and tens Gf not hundreds) of
thousands of other national and independent quick-
service restaurants in the United States. The
operative question, though, is whether the
relationship between McDonald’s and Phoenix is the

kind of relationship that should trigger a finding of
prudential standing, giving Phoenix (and the tens of
thousands of similarly situated plaintiffs) the ability
to bring a claim under the Lanham Act. That is a
question that the facile use of the term “direct
competitor” does not answer.

To illustrate this point more vividly, consider the
striking similarities between the competitive
relationship in this case and the competitive
relationship in Conte Brothers. In both cases, the
parties were engaged in business in the same
industry, but at different economic levels—the
plaintiffs at the “retail” level, selling products directly

6 Although McDonald’s does own and operate approximately
15% of its restaurants nationwide, all the McDonald's locations
in Fort Lauderdale are operated by McDonald's franchisees.

26

to consumers, and the defendants at the “wholesale”
level, selling products to retailers and other
middlemen. In both cases, the “wholesaler”
defendant was accused of disseminating false
advertising that increased sales of its own product
(which it did not sell directly to consumers) at the
expense of other wholesalers’ products that were sold
by the plaintiff retailers. Conte Bros., 165 F.3d at
224. Economically, the competitive relationships at
issue in the two cases were very similar. But in
Conte Brothers, the Third Circuit concluded—based
in part upon the plaintiffs concession—that the
parties were not “direct competitors.” Jd. at 235. In
this case, the court reached the opposite conclusion,
observing generally that “Burger King is one of
McDonald’s direct competitors in the fast food
industry.” Pet. App. 22a n.6. These different labels
attached to similar facts highlight the dangers of a

categorical approach: it simply does not provide a
principled way to identify which Lanham Act claims
merit standing and is likely to lead to inconsistent
results.

At a minimum, though, if the Court were
otherwise inclined to consider whether to require a
categorical approach to prudential standing for
“direct competitors,” the Court would be well served
to wait for a case in which the competitive status of
the parties is more direct than it is here—or at least
where the parties’ competitive status has been
explored in a more complete record.

2. The atypical nature of the “false advertising”
claim and alleged injury at issue here also makes this
case a poor vehicle for considering the question
presented. As noted above, the false advertising
claim in this case is highly unusual—if not unique in

27

the history of Lanham Act litigation: The district
court explained that it was “unable to locate any case
where a company brought a Lanham Act claim
against a competitor whose advertising became false
or misleading due to the felonious conduct of third
parties.” Pet. App. 42a (emphasis in original). The
core purpose of the Lanham Act is to make
advertisers liable for “anticompetitive conduct.” No
such conduct occurred here: indeed, the Department
of Justice publicly declared that McDonald’s was a
“victim” of the same criminal conspiracy that
allegedly rendered the advertising at issue “false.”

Further, in light of the unusual facts of this case,
the alleged injury here was indeed extremely
attenuated. As the courts below recognized, Phoenix
would be required to prove that its particular
franchise lost customers because of representations
that McDonald’s customers had a fair and equal
chance of winning certain rare and specific high-
value prizes—rather than because of the customers’
personal preference for McDonald’s, differences in
quality or convenience, McDonald's other advertising,
or the customers’ interest in winning the more
common, lower and mid-value prizes that were
unaffected by the third-party conspiracy. This is a
heavy burden for Phoenix to bear, and it may make it
difficult for Phoenix to prove that it suffered any
injury at all. Cf. Holmes v. SIPC, 503 U.S. 258, 270-
74 (1992) (finding no standing to sue under the
Ciayton Act in part because of a lack of proximate
cause, in that if certain plaintiffs were allowed to sue,
the court would first need to determine the extent to
which their losses were the result of the alleged
conspiracy or other factors, including potentially their
own poor business practices). The Eleventh Circuit

28

properly concluded that this theory was insufficiently
direct, concrete, and distinct—even at the pleading
stage—to support a finding of prudential standing.

Even apart from the merits of the Eleventh
Circuit's decision, Phoenix’s unusual theory of
causation and injury makes this case far from typical.
For this reason as well, this case would be a poor
vehicle for this Court’s consideration of the question
presented in Phoenix’s petition.

CONCLUSION

This Court’s intervention is not required here.
The Eleventh Circuit’s decision does not present any
unresolved issue of law, and the petition does not
demonstrate any conflict of authority among the
circuits or with any decision of this Court. The
petition should be denied.

Respectfully submitted.

GENE C. SCHAERR LINDA T. COBERLY

GEOFFREY P. EATON Counsel of Record

Winston & Strawn LLP GEORGE C. LOMBARDI

1700 K Street, N. W. DAVID J. DOYLE

Washington, D.C. 20006 Winston & Strawn LLP

(202) 282-5000 35 West Wacker Drive
Chicago, Illinois 60601
(312) 558-5600

February 2008

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386009_1700%3A3. Public record. Not legal advice.