Friday, May 13, 2011

Steamed up: LG loses materiality-heavy case

LG Electronics U.S.A., Inc. v. Whirlpool Corp., 2011 WL 1760424 (N.D. Ill.)

LG sued Whirlpool for false advertising related to steam dryers. Discussion of several previous rulings.

A jury returned a verdict largely in Whirlpool’s favor, rejecting LG’s Lanham Act and Illinois Consumer Fraud and Deceptive Business Practices Act (CFA) claims, though it did find in LG’s favor under the Illinois Uniform Deceptive Trade Practices Act (IUDTPA), which provides only for injunctive relief. The jury specifically found that LG had failed to prove by a preponderance of the evidence that it was entitled to lost profits, a remedy based on a price erosion theory, or Whirlpool’s profits. LG sought an injunction, which the court denied.

LG argued that Whirlpool falsely and misleadingly used the word "steam" in its advertisements and in the name of its Duet Steam Dryer, when the Duet Steam Dryer does not use steam, but instead uses a mist of cold water sprayed into a warm dryer drum. LG’s dryer boils water and then injects hot vapor into the dryer drum. Whirlpool never claimed to do this, or to make steam in the same way as LG; its promotional materials contain an explanation that it sprays a mist of cold water into the hot air in the drum. LG’s survey expert testified about likely confusion over the method Whirlpool used, but he studied an ad that Whirlpool hasn’t run for the past 18-24 months.

LG didn’t introduce its steam dryer into the US market until December 2007, two months after Whirlpool, which was the first company in the industry to market a steam dryer to satisfy customer desires for wrinkle reduction and odor removal.

In finding for LG on the IUDTPA claim, the jury found that LG established by a preponderance of the evidence that Whirlpool (1) represented that goods or services have characteristics, uses, or benefits that they do not have; (2) represented that goods or services are of a particular standard, quality, or grade or that goods are a particular style or model, if they are of another; or (3) engaged in any other conduct that similarly creates a likelihood of confusion or misunderstanding. But it didn’t explain the basis of its verdict.

LG sought a permanent injunction against the use of “steam” to describe Whirlpool’s dryers. LG’s witnesses testified that being able to offer a steam dryer was an important driver of sales, and that washers and dryers were often sold together, increasing the impact.

The court found that LG couldn’t get an injunction because the jury’s findings of nonliability on the other claims meant that the jury probably found that Whirlpool’s dryers do use steam. As a result, LG failed to establish conduct by Whirlpool that was likely to damage it even given a finding of an IUDTPA violation; injunctive relief requires a plaintiff to be “likely to be damaged by a deceptive trade practice,” and in any event the terms of any injunction must be “upon terms that the court considers reasonable." 815 Ill. Comp. Stat. 510/3.

LG argued that a finding of an IUDTPA violation entitled it to a presumption of irreparable harm, but the court disagreed. Proof of the violation didn’t require proof of harm under the jury instructions; the court explicitly instructed the jury not to consider the question of damages; and the jury returned specific findings that LG failed to prove lost profits, a price erosion theory, or entitlement to Whirlpool’s profits. In fact, given its other verdicts, the jury made an implied finding that the dryer uses steam—if it hadn’t, it should have found a violation of the CFA, given that if the Whirlpool dryer didn’t use steam not only falsity, intent that consumers rely on the representation, and harm would amply have been proved because Whirlpool well knew that consumers care about steam. (The court didn’t find that the jury would necessarily have found a Lanham Act violation because the issue of actual/likely deception was hotly contested, no pun intended; not sure how this squares with the harm conclusion.)

This was consistent with the IUDTPA verdict because the jury could have determined that an ad tested by LG created the false impression that Whirlpool’s dryers create steam by boiling, as LG’s survey expert concluded. “[T]he jury likely found that this advertisement created a likelihood of confusion or misunderstanding as to how the Duet Dryer operates, but also concluded that this was immaterial in light of the fact that the dryer does use steam.” This would support a finding of an IUDTPA violation given that law’s breadth, but would not be a deceptive act under the CFA and given its immaterial nature wouldn’t have caused LG to sustain actual damages, which would also prevent Lanham Act liability.

The court independently agreed that the dryer used steam under standard definitions of steam: water vapor produced by heat. “Ultimately, it would be nonsensical to assert that one does not create, and use, ‘steam’ when one injects cold water or ‘mist’ into a hot drum within which it indisputably evaporates.

What about the idea of a presumption of irreparable harm from false advertising? The court first dismissed the primary cited cases as involving the Lanham Act, rather than the IUDTPA, but did not explain what elements of the IUDTPA are distinct. Note that courts routinely say that state and federal false advertising causes of action are the same, even when they clearly aren’t; here the verdict forced the court to say there was a difference, but not why it mattered for a presumption of irreparable harm. One old Illinois case presumed irreparable harm, but that was for a preliminary injunction, not after a trial where a jury found against the plaintiff on various claims of harm.

Likely confusion is not enough; the plaintiff has to show likely harm in the future.

Also, LG failed independently to prove likely irreparable harm, and in any event the court would use its discretion to decline injunctive relief. There was no expert testimony or credible evidence of even a single Whirlpool customer, retailer, or trade representative who expressed confusion. All of LG’s evidence was that the use of steam mattered; since Whirlpool used steam, that wasn’t relevant. Even if misunderstanding about how the dryer created steam mattered, Whirlpool discontinued that ad.

Even if LG had established a likelihood of continued harm, the court would have declined to grant an injunction. (That’s what the court said, though in its discussion of the four-factor test it leaned heavily on the no-harm finding.) An injunction would subject Whirlpool to considerable costs in changing its ads and its product name as well as markings on the product itself and the associated literature, along with harm to its credibility and goodwill.

LG also didn’t get an award of attorneys’ fees and costs, because there was no showing of willfulness.

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