Friday, May 05, 2006

How not to analyze a false advertising claim

Sunlight Saunas, Inc. v. Sundance Sauna, Inc., -- F.Supp.2d --, 2006 WL 1005172 (D. Kan.)

This case involves a vicious battle between Sunlight and Sundance (and related companies), both sellers of saunas over the internet; former employees of one are principals of the other, which explains some of the bitterness with which they said nasty things about one another. The nastiness included claims on both sides that the other was intentionally lying to customers about the parties’ respective products, along with a briefly live Sunlight criticism site,, operated by a Sundance employee. The result was a complaint with everything but the kitchen sauna in it: tortious interference, trademark infringement, trademark dilution, defamation, injurious falsehood, civil conspiracy, prima facie tort, unfair business practices under California law, false advertising under California law, false advertising under the Lanham Act, cybersquatting, and violation of the Sherman Act. If I’d seen this case before I wrote my advertising law exam, I probably would have used it.

Defendant’ summary judgment motion took some unusual tacks, such as contesting the false advertising allegations on the grounds that their speech was noncommercial – a classic “gripe site” -- and that Sunlight couldn’t prove damages. Unsurprisingly, the court refused to find as a matter of law that the website, including the domain name, was noncommercial speech.

The alleged falsehoods offer some interesting lessons, even if you’re not looking to buy a sauna. The defendants’ website included the claim, “Lie # 1: True Ceramic Heaters. Sunlight Sauna's heaters are made from steel rods and aluminum casing with pink paint. Aluminum can be incredibly toxic inside the body.”

Indeed, Sunlight had advertised its heaters as 100% ceramic. Though it described itself as a “manufacturer,” it did not make saunas but bought them from a number of third parties; until Sunlight saw a photo of the heater on a competitor’s website, it didn’t know that its heater was not completely ceramic. Sunlight made the (totally ridiculous) claim that by saying the heaters were 100% ceramic, it meant that the ceramic in the heaters was 100% pure. The court found that the “Lie #1” claim would proceed to trial, since the defendants had no evidence that the ceramic was not pure, and a reasonable jury could believe that Sunlight did not “lie” when it advertised its heaters as "100% pure ceramic heaters."

Where to start? The court misplaced the burden of proof – there’s no mention of Sunlight’s burden of showing falsity. The purity claim is laughable, since no reasonable consumer would understand that as the meaning of “100% pure ceramic,” and the heater itself is concededly not pure ceramic. Whether Sunlight “lied,” as opposed to the actual composition of the heaters, is an opinion; while it might be actionable under the Lanham Act if it implied specific facts about Sunlight’s bad faith, the traditional defamation and injurious falsehood torts seem more appropriate. Sunlight’s claim about the heaters is false, even if it’s not a lie. The aluminum toxicity bit might have some legs, if Sunlight had offered some evidence of falsity, of which there’s no mention in the opinion.

“Lie # 2: Veneer Free Construction. Sunlight Saunas would have you believe that each of their saunas were 100% veneer free.”

Pretty much the same deal: Sunlight made some claims, which a consumer most likely would have interpreted as claims that the saunas were veneer-free: “veneer-free cabinetry” and “Some manufacturers use thin veneer sheets instead of the good stuff. At Sunlight, we employ beautiful tongue and groove wood to the entire sauna, including the ceiling, floor, back wall and benches.” Subsequently, Sunlight discovered that – whoops! – the saunas it sold did indeed contain veneers. In litigation, however, Sunlight mealy-mouthed that it never stated that each sauna was 100% veneer-free, and the court allowed its claim to proceed. This isn’t as outrageous as the result for “Lie #1,” but given that Sunlight removed both the ceramic and the veneer-free claims from its site, I find it difficult to see why this one survived summary judgment.

“Lie # 3: No Safety Warnings: Sunlight Saunas has no safety compliance.”

This one is a little better. Sunlight had safety certification, though not by any of the standard authorities such as Underwriters Laboratory. Though the website continued by listing the standard authorities whose certification was absent, the court found that this qualifying information did not tell the whole story, especially since Sunlight supplied a product manual with safety warnings and general safety information.

“Lie # 4: Lifetime Warranty” and “Sunlight Saunas would have you believe they are the manufacturer, yet another lie.”

Sunlight does offer a lifetime manufacturer’s warranty, though not a warranty of its own. A reasonable jury could believe that a manufacturer’s warranty was enough. No problem there, but the court goes on to buy Sunlight’s claim that “some organizations may consider Sunlight to be a manufacturer because it designs its own saunas” and “in any case, it never claimed to build its own saunas.” Again, I call shenanigans: there’s a reason why the words “manufacturer” and “designer” are different; by Sunlight’s standard, I’m a journal publisher. Is whether you’re a manufacturer material? Maybe, maybe not, but whether the claim to be a “manufacturer” is false doesn’t strike me as a close call. (The PTO has found FURNITURE MAKERS for a store that sells, but does not produce, furniture to be misleading and unregistrable.)

"Lie # 5: Sunlight Exclusives. Sunlight Saunas presents a list of 'exclusive' features. Claiming to be unique.... Sunlight Saunas doesn't even manufacture their own saunas. Other companies offer the same products without the fraudulent claims."

Sunlight had evidence that no other company offers the same exact product. A reasonable jury could find falsity. In addition, the repetition of “lies” could be a false statement about Sunlight’s intent. My reaction: fair enough. It’s possible that the defendants went too far in responding to Sunlight’s ads, though based on the facts in the court’s opinion it seems that they’ve got a strong set of counterclaims.

Defendants contested materiality, as it’s advisable to do these days. Under First Circuit precedent, market studies or consumer surveys aren’t required when a statement relates to an “inherent quality or characteristic” of the product, which essentially means a feature that’s likely to be material. Since the statements concerned safety, quality of construction, and warranties, they were probably material.

Sunlight also alleged false designation of origin because “Sunlight Saunas” was part of the sunlightsaunas-exposed (Exposed) domain name and an email address used on the site was Defendants argued, unsurprisingly, that confusion was unlikely. Defendants conceded that the similarity of the marks weighed in favor of Sunlight, which they probably shouldn’t have done: “exposed” is a difference, especially since it suggests criticism. Really, this is a nominative fair use case. The court saw it differently, though. A jury could find that defendants’ intent was to enhance their competitive positions at the expense of Sunlight. I don’t know what that has to do with an intent to confuse consumers about source, but apparently it counts against defendants because it’s “self-serving and not educational or disinterested.” The website was created to turn Sunlight into “burnt toast,” “take them down pretty hard,” etc., and it’s clear that defendants were angry, but angry and piratical are different.

Defendants also argued that the Exposed site didn’t sell goods or services, but for a time it did contain links to competitors, so the marketing channels could also favor the plaintiff. The court’s ultimate holding: Though consumers take a great deal of care with a sauna purchase, defendants didn’t establish that they were entitled to summary judgment. Even if consumers weren’t likely to be confused about the source of the saunas discussed on the website, sauna purchasers could reasonably have been confused about whether Sunlight sponsored or associated with the website and/or e-mail account.

Okay, if the false advertising portion of the decision was bad, this is 100% pure bad. Talk about missing the forest for the trees. Under what circumstances would Sunlight sponsor or associate with a website that called it a liar – actually, a LIAR? There are good reasons to criticize the nominative fair use defense – and certain applications of it would disallow the domain name at issue – but at its best it uses common sense where, as here, a mechanical application of the ordinary confusion factors would allow a jury to find likely confusion.

The court got closer on the ACPA claim, pointing out that “exposed” is somewhat less transparent in meaning than “sucks.” It may not immediately alert internet users that they’re at a gripe site. Given that, there was sufficient evidence to deny summary judgment on the issue of bad faith. Whatever you think about ACPA, it’s clearly a better claim than the false designation of origin claim, since it focuses on the domain name rather than the absolutely unconfusing website content.

Plaintiff’s California law claims alleged false advertising on the website and to a private investigator posing as a potential customer. Given plaintiff’s evidence of potential customers who didn’t buy because they saw the website, plaintiff showed enough injury to meet California’s new standing requirements.

The court did dismiss Sunlight’s tortious interference claims for failure to show defendants’ knowledge of either existing contracts or specific potential customers whose plans to contract with Sunlight were disrupted. So too the vague and inchoate claims of “prima facie tort” were dismissed.

Plaintiff’s defamation claims covered both the website and oral statements; there was a genuine issue of material fact on truthfulness, as discussed above. Defendants asserted qualified privilege in communicating information in which it and the recipients had an interest, but that defense does not extend to a publication to the general public, as on the internet. In contrast to injurious falsehood, defamation is about injury to reputation, not just sales, but Sunlight could use lost sales to justify a jury inference of reputational harm, so the claim would proced. Since Kansas has refused to recognize a tort of injurious falsehood, however, that claim was dismissed.

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