Monday, April 19, 2010

Swimsuit claim sinks

TYR Sport, Inc. v. Warnaco Swimwear, Inc., --- F.Supp.2d ----, 2010 WL 1192438 (C.D. Cal.)

TYR and Warnaco (Speedo) make high-end swimwear and accessories for competitive swimmers. USA Swimming is the national governing body of US swimming. In 2006, USA Swimming hired Mark Schubert as National and Olympic Team head coach and general manager, while Schubert was and remained a paid Speedo spokesman. Speedo also has an exclusive sponsorship agreement with USA Swimming dating to 1984.

TYR alleged a combination to make USA Swimming a de facto sales agent for Speedo, which included false statements by Schubert to promote Speedo’s products and disparage TYR’s. In the run-up to the 2008 Olympic games, high-end swimsuit manufacturers were engaged in an arms race. Speedo’s LZR Racer, released in early 2008, was an upgrade from its previous Fast Skin Pro. TYR was working on its own Tracer Rise. Schubert touted the LZR Racer as offering a 2% advantage, something he said to the National Team members at a meet in Manchester directly as well as to reporters. He said that swimmers should wear the Speedo suit at trials or they might end up at home watching the Olympics on NBC.

Erik Vendt, an American swimmer with an endorsement deal with TYR, became dissatisfied with his TYR suit in late 2007 and made several calls to Schubert, his coach (both on the National team and previously at USC). Schubert recalled telling Vendt to talk to his agent and TYR about his concerns. TYR invited him to test the unreleased Tracer Rise and he was apparently very happy with it. Two weeks later, though, he told TYR that he planned to wear a Speedo, and TYR cancelled his endorsement deal.

By the time of the US Olympic trials, only one of the TYR-sponsored swimmers to whom Schubert had spoken at the Manchester meet had switched from TYR to Speedo. Several wore a TYR suit and qualified. Matt Grevers won two gold medals, a silver, and set a world record while wearing the Tracer Rise. “Meanwhile, the Speedo-wearing swimmers experienced unparalleled success at the Olympics. All told, 86% of the swimming medals in Beijing, including 91% of the gold medals, were won by swimmers wearing the LZR Racer.” The arms race continued after the Olympics; other competitors sometimes overtook the Speedo and TYR suits. But Schubert continued promoting Speedo, at one point advising two swimmers on the Junior National Team to wear the LZR Racer because it was “faster” than the TYR and Blue 70 suits they were wearing at the time.

In July 2009, the sport’s international governing body banned the high-performance full-body suits from competition, ending the market.

TYR’s claims asserted violations of the Sherman Act and California’s Cartwright Act (also a monopoly act), as well as false advertising under the Lanham Act and tortious interference with contractual relations. I focus here on the false advertising claims, though the court allowed TYR’s theory that disparagement using the prestige and apparent impartiality of USA Swimming could violate the Sherman Act. False statements about rivals can obstruct competition without competitive justification, so defendants weren’t entitled to summary judgment on that theory. However, the standard for antitrust violations of this sort is very high, so the court was willing to entertain a further summary judgment motion now that the parties were focused on the issue. Disparaging statements “must have a significant and enduring adverse impact on competition itself in the relevant markets to rise to the level of an antitrust violation.”

The Lanham Act claim was based on the 2% advantage and “faster” statements. Speedo argued that Schubert’s statement at Manchester was to an audience of 25 swimmers, only one of whom switched from TYR to Speedo, and that months later after a poor race in her TYR suit; she testified that Schubert’s 2% comment had nothing to do with her decision. The statement to the two youth swimmers similarly failed to result in lost sales: one tried the Speedo suit for one race and then switched back to TYR because he didn’t like the feel of the Speedo, and the other didn’t use a TYR.

TYR argued that literal falsity in a comparative claim obviated the need to prove injury. But the presumption from such literal falsity is one of deception and reliance—causation—and not injury. It didn’t cure TYR’s failure to show lost sales. Moreover, the presumption is rebuttable, and had been rebutted. And any claim for injunctive relief was moot, because there’s now no market for high-performance swimsuits among elite swimmers.

But there was a similar 2% statement to a reporter. Speedo argued that this wasn’t commercial advertising or promotion, because it was made to the press about a matter of public concern. The court agreed: Schubert was addressing a public debate about the effect of Speedo’s new suit on swimmers’ performance. The article in which the statement appeared was clearly protected speech, and Schubert’s statement was inextricably intertwined with the reporter’s coverage of the topic.

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