Falsity by necessary implication comes home

Time Warner Cable, Inc. v. DirecTV, Inc., --- F.3d ----, 2007 WL 2263932 (2nd Cir.)

District court proceedings discussed here. In partially affirming the preliminary injunction against certain DirecTV ads, the Second Circuit adopted the doctrine of falsity by necessary implication, which means that ads can be literally false – with all the presumptions of deception and harm that entails – even without “explicitly mak[ing] a false assertion, if the words or images, considered in context, necessarily and unambiguously imply a false message.”

Less significantly, the court held that puffery includes images that, though inaccurate, are “so grossly exaggerated that no reasonable consumer would rely on them in navigating the marketplace.” Finally, it held that irreparable harm may be presumed when a comparative ad is literally false and, “given the nature of the market, it would be obvious to the viewing audience that the advertisement is targeted at the plaintiff, even though the plaintiff is not identified by name.”

Background: Time Warner is the second-largest US cable company, and the franchisee in most of New York City. DirecTV doesn’t have the same franchise limitations, and is thus Time Warner’s greatest threat to market share. Time Warner offers both analog and digital signals, but DirecTV has only digital. Both offer high-definition (HD) service on a limited number of channels. The parties agreed that the HD services are equivalent in picture quality. For non-HD channels, digital is generally better than analog, because it resists interference. But Time Warner’s analog service meets FCC requirements for a signal that provides “enjoyable viewing with barely perceptible impairments.”

DirecTV began an ad campaign to educate consumers that, even with an HD TV set, one must also receive HD programming from the TV service provider in order to enjoy an HD picture. It thus began running a TV commercial in which Jessica Simpson says, “You’re just not gonna get the best picture out of some fancy big screen TV without DIRECTV.” The narrator concluded, “For picture quality that beats cable, you've got to get DIRECTV.” After Time Warner objected, DirecTV changed the concluding line to, “For an HD picture that can't be beat, get DIRECTV.” Another ad featured William Shatner as Captain Kirk, stating, “With what Starfleet just ponied up for this big screen TV, settling for cable would be illogical,” and the same ending taglines.

Likewise, DirecTV ran internet ads showing unwatchable TV images contrasted to sharp and clear images, labeled “Other TV” and “DirecTV,” and inviting consumers to “Find out why DirecTV’s picture beats cable.” An ad on its own website stated, “If you’re hooking up your high-definition TV to basic cable, you're not getting the best picture on every channel. For unparalleled clarity, you need DIRECTV HD.”

The district court granted injunctive relief. DirecTV argued on appeal that its commercials did not explicitly claim that its HD quality was superior to cable HD quality, and thus could not be literally false. The court found that the Simpson commercial did explicitly claim superiority – “You’re just not gonna get the best picture out of some fancy big screen TV without DIRECTV.” In fact, viewers can get the same “best picture” by ordering HD from cable.

The Shatner commercial required more analysis. In context, “settling for cable would be illogical” worked with Shatner’s opening praise of the “amazing picture quality” of DirecTV HD and the closing tagline about the unbeatable picture provided by DirecTV HD. Thus, the middle line also clearly referred to HD picture quality; and since it would only be illogical to settle for cable if cable were worse, that was literally false.

Reconciling past cases, the court adopted the doctrine of falsity by necessary implication, which was first identified by name in a SDNY case 20 years ago, Tambrands, Inc. v. Warner-Lambert Co., 673 F.Supp. 1190, 1193-94 (S.D.N.Y.1987). A claim that is, in context, unambiguous may be literally false. Here, the district court held that the claim in context was unambiguous: it refers to cable’s picture quality. The court of appeals found no clear error.

The internet ads raised a different issue. DirecTV didn’t dispute that the highly pixelated images it used in its internet ads were inaccurate depictions of cable picture quality, whether digital or analog. Thus, the internet ads were explicitly and literally false. But DirecTV argued that they were also so exaggerated that no reasonable buyer would believe them – negative puffery. Time Warner agreed that negative puffery would not support a Lanham Act claim (at least not a false advertising claim; dilution would cover it). But, according to Time Warner, DirecTV’s own rationale for running the ads – that consumers are highly confused about HD technology – was reason to think that consumers might rely on the ads.

The court of appeals observed that prior puffery cases about terms such as “thorough research” don’t offer good principles for evaluating images. “Unlike words, images cannot be vague or broad.” While one standard definition of puffery – general claims of superiority that are so vague as to be meaningless – fits images badly, the other – “an exaggerated, blustering, and boasting statement upon which no reasonable buyer would be justified in relying,” Pizza Hut, Inc. v. Papa John’s Int’l, Inc., 227 F.3d 489, 497 (5th Cir. 2000), can be applied.

The court of appeals found that the district court clearly erred in accepting Time Warner’s argument about consumer uncertainty. The “other TV” images in the internet ads are so bad – “unwatchably blurry, distorted, and pixelated, and ... nothing like the images a customer would ordinarily see using Time Warner Cable’s cable service,” according to Time Warner’s senior network engineer. Indeed, the pixelation is “not the type of disruption[] that could naturally happen to an analog or non-HD digital cable picture.” Thus, the ads are not even remotely realistic, and the court found it difficult to imagine that any consumer, no matter how unsophisticated, could be fooled into thinking cable’s picture quality would be that bad. The court accepted DirecTV’s argument that even a person who didn’t know anything about cable would know that Time Warner couldn’t supply an unwatchable signal and still survive in the market. (Gee, I really wish someone would tell my cellphone company – which also happens to be a cable provider – that.) Moreover, the internet ads don’t claim that the “Other TV” is an HD TV image, or that they represent what happens when an HD TV is connected to basic cable. They simply compare DirecTV picture quality to basic cable picture quality, and that’s so “obviously hyperbolic” that no reasonable buyer would be justified in relying on it.

It seems to me the court of appeals missed the point Time Warner was making about a transitioning market. A new HD customer – and almost all of them are new, because the tech is new and expensive – knows that “ordinarily” her cable won’t be anything near that bad. But does she know what it will look like when she attaches an analog cable feed to her spiffy new HD TV? Is it so unreasonable to think that there might be a mismatch that would degrade analog quality? Perhaps, given the court’s arguments about what “other TV” represents, this is an implicit falsity case turning on whether consumers understood the comparison to show pictures on an HD TV specifically. But I’m not sure it’s just puffery.

Unsurprisingly, the court of appeals did agree with the district court that a presumption of irreparable harm applied for the false TV ads, even though they didn’t mention Time Warner by name. Since Time Warner is essentially a monopolist where it has a franchise, any reference to “cable” necessarily refers to Time Warner in those areas and harms it there. The revised Simpson ad doesn’t even say “cable.” But 90% of households have either satellite or cable. With this “nearly binary” market structure, consumers would obviously understand that DirecTV’s claims target cable.