Friday, June 19, 2015

Next! Bonded leather maker loses false advertising claims against critics

Design Resources, Inc. v. Leather Industries of America, --- F.3d ----, 2015 WL 3775712 (4th Cir. June 18, 2015)
The Fourth Circuit affirmed the district court’s summary judgment kicking out Lanham Act (and coordinate state) false advertising claims against defendants LIA and Ashley Furniture.  Plaintiff DRI alleged that Ashley’s ad in a trade magazine, and two statements by Dr. Nicholas Cory, director of LIA’s research laboratory, which ran in articles in the same publication, were false and misleading.  Ashley is a furniture maker and seller, and LIA is a leather industry trade association that owns (at least for purposes of this appeal) the Leather Research Laboratory.  Cory is a leather chemist and the director of the Laboratory, which provides “labeling advice to companies who market leather and leather-look products, as well as testing services to determine such products’ leather content for purposes of federally mandated disclosure to consumers.”
DRI develops furniture coverings which hare sold to furniture manufacturers. DRI developed a “synthetic leather-look furniture covering product,” later renamed as NextLeather.  NextLeather is “composed of 61% polyurethane, 22% poly/cotton, and 17% leather.” “[I]t has a polyurethane face on a fabric core and is backed with a thin layer of leather fibers adhered (i.e., bonded) to its base or underside.” This allegedly improved its mimicking of real leather by making the material more pliable and fluid in draping over furniture.  DRI requested labeling advice and composition from Cory, who advised that the product could “ABSOLUTELY NOT!” be characterized or marketed as leather, citing the relevant FTC Guides, which specify that products containing ground or shredded leather, rather than comprising “wholly the hide of an animal[,] should not be represented, directly or by implication, as being leather.”  Cory suggested that DRI could label NextLeather as “[n]ot leather,” “[r]econstituted leather,” or “[b]onded leather.”

DRI then began marketing NextLeather as bonded leather, disclosing the product’s composition on a label in compliance with the FTC Guides. “In preparation for the Spring High Point Market in North Carolina—an important, annual furniture industry event—DRI sold samples of NextLeather to 25 leading furniture manufacturers.” In the weeks leading up to and following the trade event, though, Ashley put a series of full-page ads in Furniture Today, “a widely read trade magazine.” DRI alleged that one of the ads falsely disparaged DRI and NextLeather with the text: “Is It REALLY LEATHER? ... Some upholstery suppliers are using leather scraps that are mis-represented as leather .... Know What You Are Buying[.] REMEMBER ... The Overseas Manufacturer Has NO Liability In The U.S.A. You Do!”
Furniture Today also published an article written by Joan Gunin, “Chemist fears confusion over imitators may hurt category.” The Gunin article quoted Cory: “To call [leather alternatives such as bonded leather] ‘leather’ is outright deception, outright fraud.... It’s not leather.... It’s a synthetic that has leather fibers glued to the underside.”   A later article written by Susan Andrews was headlined, “For consumers’ sake, let’s not call it ‘bonded leather.’”  The Andrews article referred to “[n]ew composite fabrics now called ‘bonded leather,’” which “have a surface layer of vinyl or polyurethane, a center layer of fabric, and a backing that contains some leather fibers ... glued onto the fabric for a look that is similar to the back of a leather hide.” Andrews advocated against using the term “bonded leather” for these products, saying that the term was “bound to confuse consumers, who are likely to hear only the word ‘leather.’” The article then quoted Cory, who said that calling these products bonded leather “is deceptive because it does not represent its true nature. It’s a vinyl, or a polyurethane laminate or a composite, but it’s not leather. If you tar and feather someone, does that make them a chicken?”
The Fourth Circuit recognizes falsity by necessary implication as part of explicit falsity, as well as implicit falsity (proven by extrinsic evidence).
Here, the court of appeals agreed that DRI failed to show that the Ashley Ad was either literally false or impliedly false. DRI argued that the ad’s statement that “[s]ome upholstery suppliers are using leather scraps that are misrepresented as leather” was literally false by necessary implication, because the audience would recognize the reference to suppliers of bonded leather generally and to DRI.  But the ad refers unmistakably to products marketed as leather, not to products marketed as bonded leather or NextLeather.  The court was unwilling to accept that the ad meant the opposite of what it said.  Where an ad only hints at or merely suggests inferences, it’s not literally false, though an acceptable false advertising claim can “depend on the consumer to draw conclusions that are logically necessary from an ad’s statements.”

DRI argued that the relevant audience would recognize the claim it identified because of: (1) another Furniture Today article, published between the first and second publications of the Ashley ad, said that “Ashley is urging buyers to ‘be aware’ of bonded leather,” (2) a survey by Ashley’s expert witness showing that viewers of the ad understood it to refer to bonded leather, (3) email exchanges between Ashley and Cory suggesting that Ashley sought to disparage bonded leather, and (4) testimony by DRI’s owner and president and by a furniture manufacturer to the effect that “DRI was the only company offering a product like NextLeather® and marketing it as ‘bonded leather.’” But all this was outside the face of the ad and deep into the context.
What about implied falsity?  DRI pointed to the survey, but DRI needed to show that the Ashley ad confused consumers about NextLeather.  The survey asked consumers who had attended the Spring High Point Market what message they thought the ad conveyed and to which specific suppliers they thought the ad referred. The results showed that “zero respondents gave an answer that could be interpreted as a belief that DRI or NextLeather were specifically mentioned as[,] ... [or] implied or suggested to be[,] the supplier of the upholstery material described” in the ad.
Likewise, DRI failed to support its claim about Cory’s statement in the Gunin Article. DRI argued that Cory’s statement that “[t]o call [alternative leather products such as bonded leather] ‘leather’ is outright deception, outright fraud” was is literally false by necessary implication. DRI argued that any reasonable juror would conclude that Cory was calling DRI’s use of the term “bonded leather” fraudulent.  But the statement unambiguously communicated a message about unqualified use of “leather,” not about the use of “bonded leather.”  Moreover, DRI acknowledged that NextLeather was not leather, but a “synthetic leather-look furniture covering product.” Cory’s statement was true, not false or misleading.
Finally, the court of appeals agreed that Cory’s statement in the Andrews article hadn’t been shown to be false or misleading.  The Andrews article did advocate against use of the term “bonded leather” as “bound to confuse consumers,” and it quoted Cory as saying that the term “is deceptive because it does not represent [the] true nature” of the products it is used to describe. Instead, Cory said, accurate descriptions would use “vinyl,” “polyurethane laminate,” or “composite,” rather than with a term that includes the word “leather.”
The district court found this to be merely Cory’s opinion on how consumers would react to the term.  DRI cited Milkovich v. Lorain Journal Co., 497 U.S. 1 (1990), which held that opinion statements are not automatically protected against defamation claims if they imply knowledge of facts that underlie the opinion.  Accepting this extrapolation of the defamation rule to the Lanham Act, DRI’s argument still didn’t work here.  Cory’s statement didn’t imply a basis in facts leading to the conclusion that consumers were deceived by the term “bonded leather.” It communicated only his hypothesis of the potential for deception.  Plus, Lanham Act cases have held that statements of general opinion aren’t actionable; actionable claims must be empirically disprovable.  A prediction about the future is essentially opinion and not actionable.  In context of an article claiming that a marketing term is “bound to confuse” consumers, “stating that the term is ‘deceptive’ is merely putting that point a different way.” A claim that the term had been shown to deceive consumers might be falsifiable, but “merely calling a term ‘deceptive’ suggests only that it is the speaker’s view that the term has the potential to deceive.” It was a prediction, not a representation of fact.

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