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

3) FILED

No. -659 FEB 1 9 2008

OFF " LERK

SUPREME COURT, U.S.

In the Supreme Court of the Gnited States

PHOENIX OF BROWARD, INC.,

Petitioner,

VU.

MCDONALD’S CORPORATION,

Respondent.

On Petition for a Writ of Certiorari

to the United States Court of Appeals

for the Eleventh Circuit

REPLY BRIEF FOR THE PETITIONER

DANIEL R. ORTIZ

MICHELLE D. MorRRIS

University of Virginia

School of Law

Supreme Court

Litigation Clinic

580 Massie Road

Charlottesville, VA 22903

(434) 924-3127

PIERRE H. BERGERON

Squire, Sanders

& Dempsey LLP

221 E. Fourth Street

Suite 2900

Cincinnati, OH 45202

(513) 361-1289

MARK T. STANCIL*

Robbins, Russell, Englert,

Orseck, Untereiner &

Sauber LLP

1801 K Street, NW

Suite 411

Washington, D.C. 20006

(202) 775-4500

DAVID T. GOLDBERG

Donahue & Goldberg, LLP

99 Hudson Street

8th Floor

New York, NY 10013

(212) 334-8813

*Counsel of Record

TABLE OF CONTENTS

TABLE OF AUTHORITIES

I. THE COURTS OF APPEALS ARE

DIVIDED

REVIEW IS NECESSARY TO

VINDICATE THE LANHAM ACT'S

CORE PURPOSES, AND THIS CASE

PRESENTS NO VEHICLE

PROBLEM

CONCLUSION

ll

TABLE OF AUTHORITIES

Cases:

Addiction Specialists v. Township of Hampton,

411 F.3d 399 (Sd Cir. 200B)..............00.0..-sccsvccsccoresees 6

American Ass'n of Orthodontists v. Yellow Book

USA,

434 F.3d 1100 (8th Cir. 2006)...0..0... ccc cece eeeeeees 3

Barrus v. Sylvania,

55 F.3d 468 (9th Cir. 1995)............cccccccscecseeeeseeeeeees 6

Conte Bros. Automotive v. Quaker State-Slick 50,

165 F.3d 221 (3d Cir. 1998)............00.c cee eee eens passim

Cottrell, Lid. v. Biotrol Int'l,

191 F.3d 1248 (10th Cir. 1999).....00.00 cee. 6

First Health Group Corp. v. BCE Emergis Corp.,

269 F.3d 800 (7th Cir. 2001)............cccccccccceceeeeeeeeees 6

Holmes v. SIPC,

503 U.S. 258 (1992)............c cece cee eeeececeeeecees 10

Hot Wax v. Turtle Wax,

191 F.3d 813 (7th Cir. 1999)..0..00.00 cece. 6

Jack Russell Terrier Network of N. Cal. v.

American Kennel Club,

407 F.3d 1027 (9th Cir. 2005)...0.00.0

il

TABLE OF AUTHORITIES—continued

Joint Stock Soc’y v. UDV N. Am.,

266 F.3d 164 (3d Cir. 2001)...................004.

L. & J.G. Stickley v. Cosser,

2007 WL 4171651 (2d Cir. Nov. 27, 2007)

L.S. Heath & Son v. AT&T Info. Sys.,

9 F.3d 561 (7th Cir. 1993)................cssseeees

MainStreet Org. of Realtors v. Calumet City,

505 F.3d 742 (7th Cir. 2007)................0

Newcal Indus. v. Ikon Office Solutions.,

2008 WL 185520 (9th Cir. Jan. 23, 2008).

Ortho Pharm. Corp. v. Cosprophar, Inc.,

32 F.3d 690 (2d Cir. 1994)...........cceeeeeeeees

Peaceable Planet v. Ty, Inc.,

362 F.3d 986 (7th Cir. 2004)..........0.....000.

Playtex Prods. v. Precter & Gamble,

126 Fed. App’x 32 (24 Cir. 2005)...............

Procter & Gamble Co. ¥. Amway,

242 F.3d 539 (5th Cir. 2001)................ 0

Procter & Gamble Co. v. Haugen,

No. 1:95-cv-00094-TS (D. Utah)................

Renaissance Leasing, LLC v. Vermeer Mfg.,

Page(s)

2006 WL 1447032 (W.D. Mo. May 23, 2006).......... 4

1V

TABLE OF AUTHORITIES—continued

Page(s)

Research Sys. Corp. v. IPSOS Publicite,

re BB EOE Ry Be. : ne 6

S.C. Johnson & Son v. Clorox Co.,

241 FSG BB2 (Bd Cir. BOO1).......:ccrccccesessesccrcecovecccees 6

Southland Sod Farms v. Stover Seed Co.,

108 F.3d 1134 (Sth Cir. 1907).............ccccccccccecccceces, 6

Stanfield v. Osborne Indus.,

G2 F.3G SST CIOS Civ. 1GG6).....crcccorccccecescccsccecceseses 5

Telecom Int'l Am., Ltd. v. AT&T,

Re Bie Te eH | ee 1, 4

Thompson v. County of Franklin,

BED ee ee Ce Ge Be vce vcccccceveseccevecsocccesecessoces: 7

Waits v. Frito-Lay,

978 F.2G 1098 (Sth Cir. 1903B)......ccccvcccccccecssccessoceses 4

Warner-Lambert Co. v. BreathAsure, Inc.

BE FB G7 (Be Cit. BUDD )...ccccocnccccevcocccocccevosscccveceses 8

Statutes and Rules:

Fed. R. Civ. P. 12(b)(6)...........0......... et ena 2,11

Vv

TABLE OF AUTHORITIES—continued

Page(s)

Miscellaneous:

S. Rep. No. 1333, 79th Cong., 2d Sess. (1946)

Respondent's efforts to obfuscate the clear and

stark conflict this case presents are unavailing.

Respondent does not even acknowledge the fact that

the decision below charted the circuits’ disarray. See

Pet. App. 14a-20a. Though respondent is quick to

point out (Br. in Opp. 20-21) that petitioner urged the

court of appeals to hold that direct competitors

alleging a competitive injury automatically satisfy

the multifactor test set forth in Conte Bros.

Automotive v. Quaker State-Slick 50, 165 F.3d 221

(3d Cir. 1998), the court of appeals expressly rejected

that effort to harmonize the two standards. See Pet.

App. 19a-20a. The court of appeals thus acknow-

ledged widespread conflict on this issue and con-

cluded that it could not (or should not) be defused.

Respondent retreats to the position that five

circuits simply did not mean what they said when

they held that, “to have standing for a [Lanham Act]

false advertising claim, the plaintiff must be a

competitor of the defendant and allege a competitive

injury.” Telecom Intl Am., Ltd. v. AT&T, 280 F.3d

175, 197 (2d Cir. 2001) (citation omitted); see also pp.

4-5, infra (collecting cases). But respondent cannot

point to a single decision by the Second, Third,

Seventh, Ninth, or Tenth Circuits in which a direct

competitor has been denied prudential standing to

bring a false advertising claim under the Lanham Act

(much less one in which those courts of appeals have

even purported to apply the multifactor Conte Bros.

analysis to such a claim). And, even as respondent

casually (and erroneously) dismisses those circuits’

repeated pronouncements as mere dicta, it selectively

plucks a single sentence from Conte Bros. as evidence

that then-Judge Alito’s opinion purported to establish

a definitive standing test for direct competitors’

2

claims. It did not. Read with even the slightest

attention to context, that decision plainly meant to

expand standing to encompass certain claims by non-

direct competitors. That is why, as respondent

concedes (Br. in Opp. 18), the Third Circuit has never

applied it to a direct-competitor case in the nearly ten

years since it was decided.

Respondent ultimately resorts to the claim that

this case is so “unusual” or “anomalous” as not to

warrant this Court’s review. Br. in Opp. 9, 23-24, 26-

28. Nothing could be further from the truth. Here,

the owner of a Burger King restaurant alleged that

McDonald’s—its archrival—knowingly engaged in

false advertising designed to lure the former’s

customers to the latter’s restaurants. There is

nothing “atypical” (Br. in Opp. 26) about such a

Lanham Act claim. Finally, respondent’s claim that

this Court should decline review because “the issue of

whether the parties are genuinely ‘direct competitors’

was not litigated below” (Br. in Opp. 24) is simply

astounding. The notion that a fact that was required

by law to be deemed true (see Fed. R. Civ. P.

12(b)(6)), was not disputed below, and_ that

respondent concedes it “does not contest” before this

Court (Br. in Opp. 24) is somehow an obstacle to

review makes no sense—particularly because

dismissal on standing grounds necessarily precedes

full litigation of such controversies.

I. THE COURTS OF APPEALS ARE

DIVIDED

Respondent concedes that “some circuits have, in

the past, articulated a relatively rigid and categorical

approach to prudential standing under the Lanham

Act,” Br. in Opp. 7, but respondent nevertheless

3

insists that the Eleventh Circuit’s adoption of the

multifactor Conte Bros. analysis presents no conflict.

Respondent is wrong.

A. Most obviously, respondent is at a loss to

explain why the court of appeals expressly recognized

that adopting the Conte Bros. standard furthered a

circuit conflict on this issue. Pet. App. 12a-20a.

Indeed, respondent quotes liberally from the court of

appeals’ opinion (Br. in Opp. 5-7, 23), but omits any

mention of that court’s repeated references to the

widespread confusion among the circuits. See, e.g.,

Pet. App. 12a n.2, 14a, 16a, 18a n.5. Although the

decision below was somewhat imprecise in describing

the conflict (see Pet. 17-19 & nn.6-7), it correctly

observed that the circuits are in. disarray.

Respondent does not even mention the court’s

analysis, much less explain how it could be fairly

characterized as heralding an “emerging consensus”

in favor of the Conte Bros. test for direct-competitor

plaintiffs. Br. in Opp. 10.

That omission is particularly striking because the

court of appeals observed that the Conte Bros.

standard represented a significant departure from

the categorical approach, and expressly refused to

hold that the tests were functionally indistin-

guishable when applied to direct competitors. Pet.

App. 19a-20a. To the contrary, it held that a “direct

competitor” with a “competitive” injury—the standing

requirements of the categorical circuits—would not

satisfy the multifactor test. Id. at 19a. Respondent

makes no attempt to reconcile that holding with its

assertion that no conflict exists.

Nor does respondent answer other courts’

acknowledgment that there is confusion among the

circuits. See American Ass'n of Orthodontists v.

4

Yellow Book USA, 434 F.3d 1100, 1103-1104 (8th Cir.

2006) (“[A] number of circuits have held,

categorically, that false advertising claims * ** are

actionable only ‘when brought by competitors of the

wrongdoer,” while “[o]ther circuits have adopted a

less categorical multi-factor test.”) (citation omitted)

(emphasis added); Renaissance Leasing, LLC v.

Vermeer Mfg., 2006 WL 1447032, at *3 (W.D. Mo.

May 23, 2006) (“Under the categorical approach,

adopted by the Second, Seventh and Tenth Circuits,

to have standing to assert a Lanham false advertising

claim, ‘the plaintiff must be a competitor of the

defendant and allege a competitive injury.”’) (citation

omitted). Remarkably, respondent appears to

suggest that the Eighth Circuit's decision in

American Association of Orthodontists (Br. in Opp. 11

n.1) supports its claim that the Conte Bros. test is

“garnering an emerging consensus” among the

circuits (id. at 10). But that court expressly noted the

existence of divergent standards; it did not (as

respondent would have it) imply that the circuits are

moving toward uniformity.

B. Respondent does not dispute that five

circuits—the Second, Third, Seventh, Ninth, and

Tenth—have consistently stated that the Lanham

Act’s prudential standing requirements are satisfied

when suit is “brought by competitors of the

wrongdoer” alleging a competitive injury. Waits v.

Frito-Lay, 978 F.2d 1093, 1109 (9th Cir. 1993); see

also, e.g., Telecom Intl Am., Ltd. v. AT&T, 280 F.3d

175, 197 (2d Cir. 2001) (“[T]o have standing for a

{Lanham Act] false advertising claim, the plaintiff

must be a competitor of the defendant and allege a

competitive injury.”) (internal quotation marks and

citation omitted); Joint Stock Soc’y v. UDV N. Am.,

5

266 F.3d 164, 180 (3d Cir. 2001) (“Section 43(a) is

intended to provide a private remedy to a commercial

plaintiff who[se] * * * commercial interests have been

harmed by a competitors false advertising.”)

(internal citations omitted); L.S. Heath & Son v.

AT&T Info. Sys., 9 F.3d 561, 575 (7th Cir. 1993) (“In

order to have standing to allege a false advertising

claim *** the plaintiff must assert a discernible

competitive injury.”); Jack Russell Terrier Network of

N. Cal. v. American Kennel Club, 407 F.3d 1027, 1037

(9th Cir. 2005) (“[A] plaintiff must show * * * that the

injury is ‘competitive,’ or harmful to the plaintiff's

ability to compete with the defendant.”); Stanfield v.

Osborne Indus., 52 F.3d 867;.873 (10th Cir. 1995)

(“[T]o have standing for a false advertising claim, the

plaintiff must be a competitor of the defendant and

allege a competitive injury.”).

Respondent claims that those repeated

pronouncements are mere “dicta” (Br. in Opp. 13) and

that those circuits stand ready to deny prudential

standing to direct competitors alleging a competitive

injury. But respondent fails to identify a single

instance where a direct competitor with a competitive

injury has been denied prudential standing by the

Second, Third, Seventh, Ninth, or Tenth Circuit.

That is because (not surprisingly) the categorical

circuits correctly take prior decisions at their word

and adhere to those repeated statements. It should

come as no surprise, then, that the only two circuits

that have imported the Conte Bros. test for direct

competitors’ claims had not expressly adopted the

“categorical” rule. If there is any “logical fallacy”

here (Br. in Opp. 13), it is respondent’s belief that the

categorical circuits will soon line up to adopt the

Conte Bros. analysis. In the nearly ten years since

6

Conte Bros. was decided, not a single “categorical”

circuit has adopted it, nor have any of those circuits

denied stantiiig to a direct competitor asserting a

competitive injury.

What is more, respondent casually disregards the

numierous cases in which direct competitors have

brought Lanham Act cases in these circuits without

any suggestion that they were subject to a multifactor

standing test.2 Br. in Opp. 19. But many juris-

dictions permit courts to raise prudential standing

questions sua sponte. See, e.g., MainStreet Org. of

Realtors v. Calumet City, 505 F.3d 742, 749 (7th Cir.

2007) (dismissing a claim for lack of prudential

standing after raising the issue sua _ sponte);

' Of course, respondent does not identify any decision by the

categorical circuits characterizing their prior decisions as

“dicta.” To the contrary, at least one circuit—the Ninth—has

expressly rejected an invitation to disavow its prior

statements. In Barrus v. Sylvania, 55 F.3d 468 (9th Cir.

1995), the court confirmed that Waits—which respondent

specifically dismisses as “dicta” (Br. in Opp. 14)—“fully

analyzed the standing requirements under [Section 43(a) of

the Lanham Act],” 55 F.3d at 469 (emphasis added), and

further held that “[t]he discussion of false advertising in

Waits was not mere dicta,” id. at 470.

2 See, e.g., Newcal Indus. v. Ikon Office Solutions, 2008 WL

185520 (9th Cir. Jan. 23, 2008); L. & J.G. Stickley v. Cosser,

2007 WL 4171651 (2d Cir. Nov. 27, 2007); Playtex Prods. v.

Procter & Gamble Co., 126 Fed. App’x 32 (2d Cir. 2005);

Peaceable Planet v. Ty, Inc., 362 F.3d 986 (7th Cir. 2004);

Research Sys. Corp. v. IPSOS Publicite, 276 F.3d 914 (7th

Cir.-2002); S.C. Johnson & Son v. Clorox Co., 241 F.3d 232

(2d Cir. 2001); First Health Group Corp. v. BCE Emergis

Corp., 269 F.3d 800 (7th Cir. 2001); Hot Wax v. Turtle Wax,

191 F.3d 813, (7th Cir. 1999); Cottrell, Ltd. v. Biotrol Intl,

191 F.3d 1248 (10th Cir. 1999); Southland Sod Farms v.

Stover Seed Co., 108 F.3d 1134 (9th Cir. 1997).

7

Addiction Specialists v. Township of Hampton, 411

F.3d 399, 405 (3d Cir. 2005) (raising prudential

standing sua sponte); Thompson v. County of

Franklin, 15 F.3d 245, 248 (2d Cir. 1994) (“[W]e are

required to address [a standing] issue * * * even if the

parties fail to raise the issue’before us. Our

obligation, moreover, extends to the prudential rules

of standing.”) (alteration in original) (citations

omitted). The fact that none of the “categorical”

circuits has ever even questioned—much less

denied—standing to a direct competitor alleging a

competitive injury speaks volumes.

One such instance is particularly telling. As

everyone agrees (Pet. 24; Br. in Opp. 10-11), the Fifth

Circuit imported the Conte Bros. test for direct

competitors’ claims in Procter & Gamble Co. v.

Amway, 242 F.3d 539 (5th Cir. 2001). The very same

facts at issue in that case gave rise to parallel

litigation in the District of Utah. Procter & Gamble

Co. v. Haugen, No. 1:95-cv-00094-TS. The Utah case

involved the very same plaintiffs and at least seven of

the same defendants (including the parties alleged to

be principally responsible for the false advertising).

Even after the Fifth Circuit held in 2001 that

plaintiffs were subject to the Conte Bros. test and

therefore lacked standing, 242 F.3d. at 564, plaintiffs

continued to pursue their claims in the Utah case,

where the Tenth Circuit’s “categorical” rule governs.

Indeed, in 2007, the Utah plaintiffs prevailed at trial

on their Lanham Act claim, recovering a verdict of

$19.25 million against the very same defendants who

six years earlier had prevailed in the Fifth Circuit on

standing grwunds. Procter & Gamble Co. v. Haugen,

No. 1:95-ev-00094-TS, Dkt. 1145. As we noted (Pet.

24 n.10), these dramatically divergent results are a

8

direct consequence of the circuits’ conflicting

standards. Respondent does not even mention the

Utah litigation, much less attempt to explain or

defend this discrepancy.

C. Respondent’s attempt to read the Third

Circuit's Conte Bros. decision as establishing a

standing test for direct competitors’ claims is

unavailing. For starters, the plaintiffs there had

expressly conceded that “the parties are not in direct

competition.” 165 F.3d at 236.5 Nor can the single

sentence of the court’s opinion respondent extracts

bear such weight. Read in context, the court’s refusal

to rely on “the label placed on the relationship

between the parties” plainly refers to the plaintiff's

belated assertion that the parties “were ‘competitors’

in some limited sense.” Jd. at 235 (emphasis added);

see also ibid. (“nominally competitive relationship”

would not suffice) (emphasis added). Here, by

contrast, it is undisputed that the parties are in

direct competition and that the false advertising

caused a competitive injury. Significantly,

respondent concedes that the Third Circuit has never

applied Conte Bros. to a direct-competitor claim. Br.

in Opp. 11, 18. And, in Warner-Lambert Co. v.

BreathAsure, Inc., 204 F.3d 87 (3d Cir. 2000), that

court reaffirmed its view that it “require|[s] a more

substantial showing where the plaintiffs products are

not obviously in competition with defendant’s

products.” Jd. at 95 (quoting Ortho Pharm. Corp. v.

Cosprophar, Inc., 32 F.3d 690, 694 (2d Cir. 1994)). In

any event, if Conte Bros. applies to direct competitors,

3 By respondent’s logic, that fact alone makes any statement

regarding direct competitors mere dicta. See Br. in Opp. 14-

16 (arguing that circuits’ statement of the categorical rule

were dicta because some involved non-direct competitors).

9

it is still in conflict with the categorical circuits, and

this Court’s intervention is no less warranted.

II. REVIEW IS NECESSARY TO VINDICATE

THE LANHAM ACT’S CORE PURPOSES,

AND THIS CASE PRESENTS NO

VEHICLE PROBLEM

A. Respondent acknowledges that “the funda-

mental question underlying the concept of prudential

standing [is] whether the claimant is the ‘proper

plaintiff to bring the claim.” Br. in Opp. 4.

Respondent further acknowledges that “the direct

competitors of the defendants” are “genuinely

‘prototypical’ plaintiffs” under the Lanham Act. Br.

in Opp. 21. Respondent nonetheless argues that a

direct competitor alleging a competitive injury lacks

prudential standing unless it passes the multifactor

Conte Bros. test. That turns the essential purpose of

the Lanham Act—‘“to protect the public from deceit

[and] to foster fair competition,” S. Rep. No. 1333,

79th Cong., 2d Sess. 4 (1946)—on its head.

Respondent asserts (without foundation) that

petitioner will find it difficult “to prove” that

McDonald’s false advertising diverted its customers.

Br. in Opp. 27.4 But that is why we have trials before

factfinders. Such considerations run to the merits of

the case and should have no bearing on prudential

4 Petitioner brought this suit as a proposed class action on

behalf of all Burger King restaurant owners. Pet. 8.

Respondent does not dispute that the false advertising

campaign produced an “unnatural spike in sales” (Pet. App.

59a) and that Burger King was its primary competitor (id. at

57a). It requires no speculation to suppose that McDonald’s

reaped those rewards at the expense of its chief rival.

10

standing analysis when a “prototypical” plaintiff has

brought suit.5

B. Respondent hopes to depict this case as so far

outside the norm as to warrant the bizarre result

reached below, but that attempt cannot withstand

even casual scrutiny. There is nothing “unusual”

about the owner of a Burger King restaurant alleging

that false advertising by McDonald’s violates the

Lanham Act. Notably, respondent does not contest

that the fiercely competitive fast-food industry relies

heavily on customer promotions to entice customers

away from rival restaurants. See Pet. 5-6. And it is

utterly beside the point that respondent’s

“advertising became false or misleading due to the

felonious conduct of third parties.” Br. in Opp. 27

(quoting Pet. App. 42a). What matters most for

present purposes is that respondent continued to

promise customers that they had a “fair and equal”

chance to win highly attractive prizes when (as

respondent knew) they had no chance at all. In any

event, as the district court correctly noted (Pet. App.

42a), false advertising is a strict-liability tort under

5 Contrary to respondent’s suggestion (Br. in Opp. 27),

Holmes v. SIPC, 503 U.S. 258 (1992), does not encourage

courts to deny standing to prototypical plaintiffs based on

doubts about their ultimate ability to establish proximate

cause. The Court there addressed whether the plaintiff had

properly stated a securities fraud claim under RICO, not (as

respondent claims) whether there was “standing to sue under

the Clayton Act.” Br. in Opp. 27. In any event, that decision

is perfectly consistent with categorically affording standing

to direct competitors under the Lanham Act, because the

Court conducted that analysis only after noting that the

plaintiff admitted that it was asserting only “the rights of

customers who never purchased manipulated securities.” 503

U.S. at 270-271 (emphasis added).

—_—_ o—~———

11

the Lanham Act, so respondent’s claimed good faith is

irrelevant.

Finally, there is no merit to respondent’s assertion

that this Court should await a case in which “the

issue of whether the parties are genuinely ‘direct

vompetitors” has been “litigated below.” Br. in Opp.

a Respondent does not dispute that petitioner

adequately pleaded that it was respondent’s direct

competitor, which is all that Fed. R. Civ. P. 12(b)(6)

requires. Nor does respondent suggest that it

challenged petitioner’s status as a direct competitor

in the district court or in the court of appeals. And

respondent concedes that it “does not contest” that

fact here. Br. in Opp. 24. The suggestion that a fact

that is completely undisputed before this Court

somehow presents an obstacle to review is baseless.

In any event, dismissal on prudential standing

grounds is necessarily preliminary to the litigation of

‘any such controversies. The legal issue presented

here was fully developed below, and this case pre-

sents an ideal opportunity for the Court to resolve it.

CONCLUSION

The petition for a writ of certiorari should be

granted.

Respectfully submitted.

DANIEL R. ORTIZ

MICHELLE D. MORRIS

University of Virginia

School of Law

Supreme Court

Litigation Clinic

580 Massie Road

Charlottesville, VA 22903

(434) 924-3127

PIERRE H. BERGERON

Squire, Sanders

& Dempsey LLP

221 E. Fourth Street

Suite 2900

Cincinnati, OH 45202

(513) 361-1289

FEBRUARY 2008

12

MARK T. STANCIL*

Robbins, Russell, Englert,

Orseck, Untereiner &

Sauber LLP

1801 K Street, NW

Suite 411

Washington, D.C. 20006

(202) 775-4500

DAVID T. GOLDBERG

Donahue & Goldberg, LLP

99 Hudson Street

8th Floor

New York, NY 10013

(212) 334-8813

*Counsel of Record

a —

a