TrueCar's false claims not subject to car dealers' challenge without evidence of injury

Dependable Sales & Service, Inc. v. Truecar, Inc., 2019 WL 3067115, No. 15-cv-1742 (PKC) (S.D.N.Y. Jul. 12, 2019)

Lots of prior rulings about various aspects of this false advertising claim in the general field of auto sales.

TrueCar successfully moved for partial reconsideration of the previous summary judgment decision holding that the plaintiffs, 108 automobile dealerships, failed to come forward with evidence of economic or reputational injury from TrueCar’s advertising. They weren’t direct competitors and TrueCar’s false advertisements did not make comparative claims, so plaintiffs weren’t entitled to a presumption of injury. Now, the court concluded that without evidence of some injury, disgorgement wasn’t available as a remedy, despite evidence of TrueCar’s willful Lanham Act violations.

There is authority in the Second Circuit for allowing disgorgement to advance the interest of deterrence, even where the plaintiff has not demonstrated injury. However, that line of cases “arose in the trademark and trade dress arena.” It’s worth noting that the statutory language doesn’t make this distinction; Lexmark is an interpretation of the overall structure of Lanham Act liability.  “More recently, in a false-advertising case, the Second Circuit observed that ‘[o]ur precedent permits a district court to award a defendant’s full profits based solely on deterrence,’” Merck Eprova AG v. Gnosis S.p.A., 760 F.3d 247, 262 (2d Cir. 2014), but that was a case of obvious direct competition.

Unfortunately, the court went on to say that “[t]here are important differences in the elements of a trademark claim and a false advertising claim, as well as in the interests at stake…. In a trademark case, a plaintiff may be harmed by virtue of losing exclusive control over its own mark…. The unauthorized use of a mark ‘invariably threatens injury to the economic value of the goodwill and reputation” associated with the mark.’ … Even where a trademark plaintiff cannot point to lost sales, it may still be harmed by ‘a loss of control ... over how the public perceives’ its goods or services.” 

As readers of this post likely know, this assumption is both (1) unsound in a number of situations, particularly outside classic source confusion, and (2) increasingly vulnerable post-eBay and Winter, now that courts have given renewed attention to plaintiffs’ harm stories.  Of course, it would be reasonable to respond that even without a presumption of irreparable harm, a presumption of harm is still justified … but the lost control language is very tightly tied to the discourse of irreparability.  As a few cases (mostly in the 9^th Circuit) have recognized, the existence of some unquantified risk of harm (“may still be harmed”) is not the same thing as the likelihood that the harm will materialize.  Perhaps the standard for disgorgement ought to cover any [reasonable? theoretical? plausible? nontrivial? you see the difficulty] risk whether likely or not—I suspect that the level of willfulness might interact with one’s opinion on the matter.

Anyway, in a trademark case, the Second Circuit concluded that the district court should have ordered disgorgement solely to deter willful infringement because the “deliberate[ ] and fraudulent[ ]” infringement of plaintiff’s mark warranted disgorgement of defendant’s full profits, even though plaintiff did not demonstrate lost sales, consumer confusion or damage to good will. Defendant’s “callous disregard for the rights of a competitor” was sufficient. [As opposed to callous disregard for consumers and competition in general through willful false advertising—note too that trademark infringement in a non-sales substitution case wouldn’t come under this reasoning if we take “competitor” seriously, which would actually be a decent way of reconciling the cases.] But a false advertising plaintiff must show injury “by way of lost sales or damage to business reputation,” though a presumption of injury can arise from falsity about a direct competitor.  [The real problem here is that the trademark cases cited largely predate, and definitely have have not actually analyzed, Lexmark and its statutory interpretation. I’m not saying the court is definitely wrong in its holding here—though I might have gone the other way—but I am saying that the efforts to distinguish trademark law are not successful.]

Ultimately, the court reasoned, “[i]t may seem anomalous that a false advertiser in need of deterrence can escape the disgorgement of profits when there are plaintiffs that are eager and willing to pursue that remedy,” but the plaintiffs here didn’t show injury. A differently situated plaintiff [would it have to be an entity that used TrueCar’s business model of contracting with different dealers and offering discounts? It’s not obvious why the false advertising here would’ve hurt them either] might have damages that are small or difficult to establish, and for them disgorgement would be an ideal remedy. Consumer class actions [unless consumers signed arbitration agreements] or the FTC/state AGs are other options for punishing willful false advertising.  

The court declined to exercise supplemental jurisdiction over the remaining state law claims.