Use of competitor's photo in comparative ads caused no (c) damage, appeals court holds

I Dig Texas, LLC v. Creager, --- F.4th ----, 2024 WL 1590590, No. 23-5046 (10th Cir. Apr. 12, 2024)

The district court found that use of a competitor’s photos in comparative advertising was fair use; the court of appeals affirms on the alternative ground that no copyright damages can be traced to the use of the photos, holding that a plaintiff seeking defendant’s profits must show a nexus between the use of the copyrighted works and the profits. It also affirms the conclusion that it was not literally false to claim that machinery was American-made when it was assembled in the US from materials including foreign-sourced components.

Appellee I Dig Texas tried to appeal to consumers’ preference for American-made products; it used Creager’s photographs of its China-made Montana Post Drivers as part of its advertising.

Rather than ruling on fair use, the court reached the alternative ground of lack of any nexus to damage, which was fully briefed below.

Profits can be either direct or indirect; indirect profits would include “enhance[ing] operations by infringing on a copyright or “add[ing] sales because [defendant’s] advertisements included copyrighted images. Appellant Creager “bore the initial burden to show a nexus between I Dig Texas’s infringement and making of a profit.” Once the nexus has been established, the burden would be on defendant to show which profits didn’t come from infringement, but that first step still exists. Showing a nexus requires more than speculation.  

Although the photos depicted Creager’s products, “there’s no evidence that I Dig Texas sold any more products because the advertisements had included these photographs.” [I will note there’s a subterranean fair use rationale, still, since if the photos hadn’t been used for critical purposes but to show the appeal of defendant’s lookalike products no one would have failed to infer a nexus. This might be another knock-on effect of Goldsmith: courts now afraid to say that anything is transformative, even straight-up criticism.] There was no showing that I Dig Texas “made any money from the advertisements bearing the copyrighted images.” The existence of the ads wasn’t “evidence that anyone had bought something from I Dig Texas because of these advertisements. And even if someone had bought something from I Dig Texas based on these advertisements, there’s no reason to believe that the two photographs would have made a difference to any consumers.”

Nor were the ads literally false (again, an alternative ground: the district court found that the components were disclosed, but the court of appeals noted that at least some of the ads didn’t contain all the relevant information). “[A]n ambiguous statement can’t be literally false.”

Some I Dig Texas products were assembled in the United States, others in China. “Even for the products that I Dig Texas had assembled in the United States, some components had come from overseas. For example, I Dig Texas had used a nitrogen power cell made in China. And some of the nuts and bolts had come from Canada.” The court of appeals reasoned that “make” “could refer either to the origin of the components or to the assembly of the product itself.” Since some of the products were assembled in the US, the ads were ambiguous and not literally false.

What about the ones assembled overseas? Well, the ads didn’t say “all.”  I Dig Texas said on its website: “We Provide 100% American Made Skid Steer Attachments.” And a statement can be literally false by necessary implication. But that 100% was still ambiguous: it could mean “that only some of the products consist entirely of domestic components assembled in the United States. Or 100% could refer only to assembly of the final product rather than the origin of the components.” [Not discussed: were either of these true?] Nor could the court rely on FTC standards in a Lanham Act case, especially when the FTC noted that there was no bright line.

Likewise, patriotic symbols like the American flag could imply US manufacture, but they couldn’t “objectively be verified as true or false,” so they couldn’t be literally false. [Actually, that suggests they couldn’t be misleading, either, but the court seems a bit unclear about that.]