Tuesday, September 24, 2019

Inability to quantify damages justifies finding irreparable harm

Harbor Breeze Corp. v. Newport Landing Sportfishing, Inc., 2019 WL 4570033, No. SACV 17-01613-CJC(DFMx) (C.D. Cal. Aug. 26, 2019)

Harbor Breeze won a jury verdict of false advertising against Newport, a competitor in the whale watching tour business, but received $0 in damages (and $0 in an advisory verdict on disgorgement).  The court declined to order disgorgement of profits or award attorneys’ fees, but did grant a permanent injunction because damage had been shown but wasn’t sufficiently quantifiable to allow legal remedies, making injunctive relief appropriate.

Harbor Breeze operates in Long Beach and San Pedro in Los Angeles County, and Newport operates in Newport Beach in Orange County.  The false advertising at issue: (1) A consumer who searched online for “Long Beach whale watching” would get Newport’s website, which made repeated use of the phrase “Long Beach residents and visitors,” suggesting that its cruises depart from Long Beach, not Newport Beach. (2) Newport advertised, for example, a “$10 whale watching special,” but consumers could never get on its whale watching cruise for only ten dollars; there was also a $2.50 fuel surcharge and a 2% wharfage fee. “There was also evidence that calling these extra charges a ‘fuel surcharge’ or ‘wharfage fee’ was misleading because these fees were a way to get extra revenue, not tied to actual expenses, and Defendants did not disclose these fees until late in the process.”

In the Ninth Circuit, unless and until the Supreme Court changes things, disgorgement under the Lanham Act requires willfulness.  The court agreed with the jury.  It was reasonable to find no willfulness; one of Newport’s owners testified that Newport made changes to websites and ads following state court litigation in 2012 over false advertising and afterwards, they thought they were in compliance. And the evidence indicated an intent to optimize search results, not to deceive. One change was language on every webpage that Newport’s boats departed from “beautiful Newport Beach.” Also, a jury could reasonably find that Newport’s profits weren’t attributable to false advertising. “There was evidence that, even including the extra fees, Defendants offered cheaper whale watching cruises than Plaintiffs…. Consumers might care more about getting a good deal than where the cruise departs or whether a few dollars get added to the ticket cost.”  And there wasn’t evidence of intent to mislead about ticket prices because they ultimately disclosed all the fees prior to purchase, even if that turned out to be misleading.  [Note: this is terrible reasoning. The point of bait and switch is that you draw the consumer in with one price, then disclose the extra cost when they’re psychologically and perhaps otherwise committed to the purchase.  This may not be an appropriate case for disgorgement, but the fact that they successfully carried out the bait and switch does not mean they had nondeceptive intent.]

Permanent injunction: The jury found that the false advertising caused or was likely to cause damage to the plaintiffs. Harbor Breeze’s VP of operations testified that they regularly received calls from customers who are confused by the false advertising and who believed that Harbor Breeze offers Newport’s $16 whale watching special. A customer once attempted to board Harbor Breeze’s whale watching cruise with a Groupon voucher from Newport and became upset enough at learning the truth that they let him take the cruise for free. Other employees similarly testified about confused and angry customers, harming Harbor Breeze’s business reputation and goodwill.

Legal remedies were inadequate because this kind of harm “is difficult to quantify,” as the jury’s verdict denying damages demonstrated. The balance of hardships/public interest also favored an injunction to keep defendants from returning to their old ways.

However, to protect truthful commercial speech, the court limited the relief granted. Rather than requiring Newport to put a statement of its location on all ads or webpages, it would only require disclosure of Newport’s location for “webpages and advertisements that repeatedly use the name of another city, making it seem as if Defendants’ whale watching cruises depart from a city other than Newport Beach. It is not misleading, for example, for Defendants to state on their website that they are about twenty miles away from Long Beach. But a repeated reference to Long Beach, without a clear disclosure regarding Defendants’ location of departure, may mislead or confuse consumers.”

Nor would Newport have to edit its webpages’ source code to include the text “Newport Beach Cruise Operator” in the title tag or the phrase “All Cruises Depart from Newport Beach” in the description tag. To do so, the court thought, would “significantly burden protected speech,” though it didn’t explain how.  The analogy was to the splash screen in the Trafficschool.com case, but that case involved a clickthrough that interfered with reaching any web page at all on the website; the proposed mandatory language might not have done much good, but it’s a standard disclosure that wouldn’t prevent search engine indexing or require a consumer clickthrough and thus doesn’t appear burdensome at all. The court thought that the required text would “unfairly impair Defendants’ ability to optimize their search engine results,” but why?  If they can only maximize their results by not using the name Newport, that seems like it’s pretty closely connected to the falsehoods at issue here.

Nor would defendants have to give up domain names with other city names. There were lawful uses for those; they might want to reserve a particular domain name, for instance, in case they expand to other cities.

And Newport wouldn’t be enjoined from buying the names of geographic locations other than Newport Beach on pay-per-click advertising systems like Google AdWords. There was nothing wrong with that, “so long as consumers understand the cruises depart from Newport Beach.” There was also nothing wrong with outbidding other operators for ads.

Finally, the court was “concerned about the administrability and feasibility of an injunction that attempts to enjoin what appears in organic Google search results or third-party websites like Groupon,” and thus the injunction wouldn’t hold Newport responsible for content created by third parties.

Separately, Newport “must advertise a price for a ticket that is the entire final cost of the ticket, excluding any legally collected sales tax or any optional, add-on services or goods.”

For attorneys’ fees, this wasn’t an exceptional case; defendants turned out to be right that plaintiffs couldn’t prove [the amount of] any damages. “Although the injunction confers some public benefit, stopping misleading advertising about whale watching does not ameliorate a serious public harm.”

No comments: