Monday, April 20, 2020

Common sense can't show materiality for damages purposes in Fifth Circuit

Illinois Tool Works, Inc. v. Rust-Oleum Corporation, --- F.3d ----, No. 19-20210, 2020 WL 1808871 (5th Cir. Apr. 9, 2020)

The Fifth Circuit continues on its crusade to prevent false advertising disgorgement from being awarded. [I guess it has worse crusades.]

The parties compete in the market for windshield water-repellant. ITW alleged that RO’s ad made three false claims: (1) that RO’s RainBrella lasts over 100 car washes, (2) that RainBrella lasts twice as long as the leading competitor (who everyone admits is ITW’s Rain-X), and (3) the so-called And Remember claim: “And remember, RainBrella lasts twice as long as Rain-X. We ran it through 100 car washes to prove it.” A jury agreed, finding that the 100-car-washes claim was misleading and that the other two claims were false. It awarded ITW over $1.3 million—$392,406 of Rust-Oleum’s profits and $925,617 for corrective advertising—but the district court reduced the corrective-advertising award.

“Disgorgement of profits is appropriate only if it is equitable and the defendant’s profits are attributable to the Lanham Act violation.” This requires “evidence that the defendant benefitted from the alleged false advertising.” The court of appeals concluded that ITW failed to present sufficient evidence of attribution. There was no evidence that even a single consumer purchased RainBrella because of the false advertising.  It was not enough to have (1) testimony about how important the advertising claims were to Rust-Oleum, (2) evidence that tens of thousands of people saw the commercial, and (3) evidence of head to head competition in stores.

RO’s own opinion that the ads were important or would prove profitable was a mere “truism.”  [Why isn’t it a truism because we can expect their self-interest to induce them to be right? At least their expectations for the ad could be circumstantial evidence of its effectiveness.] But that opinion couldn’t substitute for evidence that the advertising actually worked.  The disgorgement award was vacated.

So was the corrective advertising award. “Lanham Act awards are compensatory, not punitive.” Though the court didn’t categorically reject prospective corrective advertising awards, ITW offered no evidence that it needed or deserved one. It didn’t argue that it had a plan for such advertising, what it would be, “offer a ballpark figure of what it might cost, or provide even a rough methodology for the jury to estimate the cost. Damages need not be proven with exacting precision, but they cannot be based on pure speculation.” The jury couldn’t reasonably have based such an award only on how much RO spent on its own advertising, but that was all it had to go on. Indeed, there wasn’t even evidence that Rain-X’s injured reputation needed help, given that it was the undisputed market leader, “and there was no evidence that Rust-Oleum was even remotely successful in its attempt to dethrone the king.” Here, a corrective advertising award would be a windfall. [I guess sometimes, if you go after the king, best to miss.]

With the damages award vacated, the only remaining issue was RO’s argument that the evidence was insufficient to find it liable for the 100-car-washes claim, and again RO prevailed. ITW didn’t present evidence that the deception was material.

Again, the court of appeals was unwilling to rely on common sense: (1) the claim misrepresented how long RainBrella lasts, which is an inherent quality or characteristic of RainBrella; and (2) the claim was important to Rust-Oleum’s marketing strategy. The Fifth Circuit doesn’t think there are inherent qualities or characteristics, as it already established in its Pizza Hut case. “If misleading claims about something as vital to pizza as its ingredients were not necessarily material, a misleading claim about how long a windshield water-repellant treatment lasts was not, either. Moreover, though Illinois Tool Works asserts that consumers want to know how long these products last, it does not substantiate this assertion with evidence.”

Nor did the prominence of the claim in RO’s marketing show materiality. Not in the Fifth Circuit! The court doesn’t explain why prominence isn’t at least circumstantial evidence of importance to consumers, just says that the cases about prominence aren’t Fifth Circuit cases. I guess in the Fifth Circuit you could get an executive up on the stand to testify that the central characteristic of your product matters to consumers … but maybe even that wouldn’t be relevant evidence in the Fifth Circuit, since it’s already said that executives’ beliefs in materiality aren’t evidence of materiality.

And the fact that a consumer was surprised that RainBrella was so ineffective didn’t show materiality, either—that was just one consumer, and there was no evidence that he bought the product because he expected it to last 100 washes.

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