Monday, February 20, 2012

$3 million bond for corrective advertising in preliminary injunction

Northern Star Industries, Inc. v. Douglas Dynamics, LLC, 2012 WL 507827 (E.D.Wis.)
The grant of an injunction is conditioned on posting security.  Damages caused by an erroneous preliminary injunction can’t exceed the amount of the bond, courts err on the high side, though they must give reasons for the figures chosen.
Defendant requested a $6.2 million bond, based on its engineering director’s estimate of costs for corrective advertising and replacement advertising at just under $120,000 each, and over $5.9 million in lost sales.  Northern Star disagreed.
First, the amounts claimed for creative work had to be eliminated since the court’s order would specify what the corrective ads must stay, which knocked $20,000 off.  Douglas also intended to shift away from safety to a new theme, possibly resulting in an entirely new production, but that wasn’t Northern Star’s problem, so the court allocated the cost of producing 45 seconds of replacement video to fix the false claims.
What about the big numbers?  Northern Star argued that lost profits was a more accurate measure of financial impact than lost revenue. But the court here was offered no profit margin information on the snow plow industry, so it stuck with lost revenue.  Still, Douglas had included estimated lost revenues for plows that it didn’t tout in the ad campaign the court found to be false.  This led to a total required bond of just under $4 million, erring on the high side.  (The court did not make clear how the lost sales figures had been calculated, but apparently the method was acceptable as applied to the advertised plows; while I have little sympathy for the defendants here, I do see an argument that corrective advertising might harm the entire brand, even the unadvertised models, though it would be hard to calculate how much.)
So, subject to the bond being posted, Douglas was enjoined not to republish various statements, and to edit the revised videos it had posted to include a court-required statement.  This statement had to be “recited by a narrator at a speed that is easily understood and consistent with the narrator's speech throughout the rest of the video … and while being read by the narrator, … displayed in print in clearly viewable black Myriad Pro 14 pt font on a white background.”  It was to say that the district court had granted a preliminary injunction, finding that, “subject to final determination of the merits of the  parties' claims, statements that ‘the BOSS Power V-XT v-blade cannot trip in the V or scoop mode’ and certain statements claiming or implying that users of blade-trip plows will be physically injured but users of Fisher/ Western edge-trip plows will not were literally false.  Accordingly, as preliminarily ordered by the Court, Douglas Dynamics withdraws those advertising claims.”  (Not the easiest statement to understand, I think.)
If, after editing, comparison tests or demonstrations were shown, the following should also be added: “The following series of comparison tests were conducted by Fisher/Western. The reliability of the test methodologies which included measuring speed with a speedometer without any type of calibration or verification and using of three different truck models although of a similar vehicle class have been called into question. Comparison tests should be as similar as possible with as many variables controlled as possible, and the variables in Dynamics' tests are not well controlled.”  Unless no test runs were shown, the video must include at least one test run showing Northern Star’s plow performing successfully.
Douglas also had to send a letter to all its dealers, post notices on its Facebook pages and threads (which may go to show that competitor-plaintiffs know where consumers are getting their information) in the same font and size as other thread discussions, run full-page print ads publishing the corrective ads in a number of different specialty magazines.

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