Defamatory statements justify Lanham Act fee award

Neuros Co., Ltd. v. KTurbo, Inc., 2013 WL 1706368 (N.D. Ill.)

After the 7th Circuit fixed its outlier “advertising and promotion” rule, it remanded to the district court to reconsider the issues here.  Neuros sued KTurbo, its competitor in the high-speed turbo blower market, for false advertising under the Lanham Act and the Illinois Uniform Deceptive Trade Practices Act as well as for other claims. The court found defamation per se and awarded $10,000 in compensatory damages and $50,000 in punitive damages.

On remand, Neuros sought an entry of judgment on the Lanham Act and DTPA claims, as well as attorneys’ fees and injunctive relief.  KTurbo opposed only the fees and injunctive relief.

Under the Lanham Act, an attorneys’ fees award is appropriate “if the opposing party's ‘claim or defense was objectively unreasonable—was a claim or defense that a rational litigant would pursue only because it would impose disproportionate costs on his opponent’” or where a party's violation of the Lanham Act is “especially egregious.”  The DTPA says a court “may” award reasonable attorneys’ fees and costs, and the court held that the standard was essentially the same as that under the Lanham Act.

The court found KTurbo’s defense objectively unreasonable.  KTurbo told customers that Neuro’s claims of wire power (ratio of electrical current to work, apparently quite important) were exaggerated, and continued to make those statements well after Neuros sued.  These statements were literally false. “KTurbo persisted in denying that the slide show and related marketing activities were deceptive long after it was evident that the denial was frivolous.” The evidence showed that KTurbo sought to drive Neuros out of business, stating its intent to “break” and “terminate” Neuros and continuing to accuse Neuros of cheating after its representatives advised it not to do so and after the C&D and subsequent lawsuit.  “For KTurbo to maintain its defense and continue to violate the Lanham Act in light of KTurbo knowing its claims regarding Neuros's efficiency were false was both objectively unreasonable and egregious,” justifying a fee award.  (Will all successful defamation claims, which have a much higher standard than the Lanham Act, justify an award of attorneys’ fees when a Lanham Act claim is also available?  I can see the argument for this.) 

For the same reasons, a DTPA fee award was justified; the standard was whether KTurbo willfully engaged in a deceptive trade practice, which requires “voluntary and intentional, but not necessarily malicious,” action.  KTurbo argued that its conduct wasn’t willful, but that ignored the record.

Turning to injunctive relief, it was apparent that no adequate remedy at law existed to make Neuros whole.  “The false statements made by KTurbo regarding Neuros's wire power and efficiency will have lingering effects on its business, because employees of potential customers could believe the false information KTurbo has disseminated.”  (Is this really true?  Surely winning the defamation lawsuit mattered.  But the court referred to the “somewhat unique method of advertising in the industry,” which is apparently individual presentations made by Powerpoint, which doesn’t strike me as terrifically unique.)  Anyway, there’s a well-established presumption that Lanham Act violations cause irreparable injuries, because it’s virtually impossible to ascertain the precise economic consequences of intangible harms such as damage to reputation and lost goodwill. Because Neuros couldn’t quantify its damages, no adequate legal remedy existed.

KTurbo would suffer no hardship from refraining from its false claims, especially since it hadn’t been in the turbo blower business for more than two years (then is injunctive relief necessary?).  And the court granted a “narrowly tailored” request for corrective advertising that didn’t place a significant burden on KTurbo. Injunctive relief would also serve the public interest in truthful advertising.  Similar analysis applied under the DTPA.

KTurbo was enjoined to refrain from distributing confidential or proprietary Neuros documents (interesting remedy not discussed in the opinion—how is it related to the violation of the law found?) and from making false/misleading statements about Neuros. It was also required to issue corrective advertising under its name advising every known recipient of the false email and any other similar written or oral statements of the falsity of those statements.