Thursday, February 02, 2017

Failure to show causation leads court to overturn jury verdict against false advertising

A.L.S. Enters., Inc. v. Robinson Outdoor Prods., LLC, No. 14-CV-500, 2017 WL 393307 (W.D. Mich. Jan. 30, 2017)

ALS sued Robinson for false advertising of Robinson’s Trinity scent-control hunting clothing. The jury returned a verdict for ALS, awarding ALS $1.3 million in lost profits plus $2 million in damage control costs, and found that ALS was entitled to disgorgement of Robinson’s profits in the amount of $500,000. Finally, the jury found that Robinson acted willfully. The court granted judgment as a matter of law on all the money and denied attorneys’ fees, though it did grant a permanent injunction.

The parties sell scent-control clothing designed to mask (adsorb) human scent or odor from animals, and market their products primarily to bow hunters. They share many of the same retail customers.  Robinson began to use synthetic polymers, specifically a product called Macronet.  Robinson had Dr. Roger Pearson perform a static adsorption test using the same size pieces of fabric containing four different adsorptive technologies using butyric acid to mimic human scent.  The product that Robinson ultimately sold as Trinity contained one-sixth of the Macronet per square meter than the fabric sample Pearson tested.

Robinson told retailers: (1) 1 ScentBlocker Jacket with Trinity has the scent adsorbing capacity of 3 Scent-Lok jackets with carbon alloy and 8 Under Armour jackets with Zeolite (the 8-3-1 claim); (2) activated carbon technology has 44% of the odor adsorption capacity of the Trinity technology (the 100-44 claim); and (3) Trinity technology adsorbs up to 40% more odor than carbon and up to 200% more than Zeolite (the 40/200 claim). Only the 40/200 claim was made to all of Robinson’s retail customers and to consumers.

Robinson ordered another test to determine the validity of ALS’s national ad campaign stating that Scent-Lok products were 16 times more effective than ScentBlocker products. The results of the test showed that ALS’s and Robinson’s products performed at about the same level.

In deciding a motion for judgment as a matter of law, the question is “whether there is sufficient evidence to raise a question of fact for the jury.” The evidence must be viewed in the light most favorable to the party against whom the motion is made.

Robinson admitted that the 8-3-1 and 44-100 claims were literally false. However, ALS was still required to show that these statements were material to the retailers’ purchasing decisions and that there was a causal link between these statements and some harm, but it didn’t. As to materiality, while both statements could influence a purchasing decision, both statements were always presented together to the retailers, and often near the 40/200 claim. “Given that these statements were mathematically at odds with one another, it is implausible (without testimony from the retailers) that sophisticated and knowledgeable retail buyers would have relied on either statement.”  [Given the court’s argument below that “technology” is not the same as “product,” these statements are not mathematically at odds with one another.  Also, expecting even sophisticated retail buyers to do non-purchase-related ratio math is probably expecting too mcuh.]

And ALS failed to offer any evidence sufficiently linking these statements to any retailer’s purchasing decision.  It wasn’t enough to show that one retail representative “was impressed” with a slide making the 8-3-1 claim and said that Robinson “truly ha[d] innovation that changes the game.” Being impressed with a single slide out of many that were presented doesn’t show that it actually influenced buying decisions, especially since Robinson was marketing its Trinity technology as something new that allowed for more flexible, less bulky fabrics. ALS argued that, after being shown the 8-3-1 and 100-44 slides, another retailer ordered Trinity products, but “inferences of causation based solely on the chronology of events” cannot alone establish a link to harm “where the record contains...other equally credible theories of causation.” It was equally plausible that the product’s other new features, rather than the 8-3-1 and 100-44 statements, influenced the retailer’s purchasing decisions. The jury didn’t hear from the retailer.

The evidence established that the 40/200 claim, made to retailers and consumers, was literally true, given that Robinson showed that the underlying tests used an acceptable methodology (there was no industry standard).  ALS argued that the prototype used in that test was never commercialized, and the only product at issue contained 1/6th the amount of Macronet used int hat test.  But the first test compared technologies, while the second compared products.  Because the 40/200 claim only referred to “Trinity Technology,” it wasn’t literally false.  [Ugh.  Why would a reasonable consumer or retailer think that “technology” meant something other than “the technology as applied to the product actually being touted to you”? I’d have gone with falsity by necessary implication]

The court did find that the 40/200 claim was misleading to consumers, as proved by a consumer survey.  Among other things, many consumers [naturally!] interpreted the 40/200 claim as referring to the product itself—meaning that the ScentBlocker product itself allowed a hunter to get closer to a deer. Also, around 70 percent of respondents thought that the “up to 40 percent odor claim” meant that the product’s superior adsorption would last the whole time hunting and not just up through 7.5 hours, which was all that was supported.

But ALS didn’t show survey or other witness testimony about deception of retailers.  The fact that two retailers repeated Robinson’s claim showed that those two were deceived, but not that a “ ‘significant portion’ of the [retailer] population was deceived.”  [This again seems bizarre.  Why isn’t that a reasonable inference for the jury to make, under the circumstances?  It’s hard to get direct evidence of consumer deception, and individual examples can be representative, or we wouldn’t admit them at all.]

The court also found that ALS showed materiality to consumers, but not to retailers.  ALS presented evidence at trial that there is a well-established market for scent-control hunting apparel and that scent control is an important feature in hunting apparel, and that was enough for the jury to find materiality.  The jury was properly instructed that a statement is material if it likely influenced purchasing decisions. “Evidence that a statement concerned an inherent quality or characteristic of a product is evidence of a likely influence on purchasing decisions.”

But for the retailers, that wasn’t enough—not the centrality of the claim, and not the fact that Robinson “inundated” retailers with the 40/200 claim. [What did ALS do to make this judge disbelieve its claim?  Those sound like decent pieces of evidence to me.]  Robinson was an established player in the market for scent-control clothing, and there was no evidence that, without the statement, their purchases would have been lower, and there were other claims made about the Trinity products that might have motivated retailers’ purchases.  [What happened to “evidence that it’s an inherent quality is evidence of likely effect on decisions,” one paragraph ago?]

ALS also failed to establish causation at the consumer level.  It argued harm at the retailer level—lost clothing and fabric sales to one retailer, lost clothing sales to another, and institution of a buy-back program at a third.  Although ALS may have been entitled to a presumption of damage because the ad specifically targeted its product, any presumption was overcome by evidence of no marketplace injury.  Two factors unrelated to Robinson’s advertising affected the market during the relevant period: first, Under Armour entered the scent-control hunting clothing space and was having a noticeable impact on the market.  For example, one respondent indicated that Under Armour was beating ALS because Under Armour was “new in...the hunting industry and ha[d] inundated it with marketing,” and a retailer representative told ALS that “UA sells” regardless of whether its scent-control clothing worked. Second, retailers showed increasing preference for their own in-house brands.  ALS’s fluctuating sales revenue didn’t show that false advertising had caused sales declines; there were downward trends before the ads, and Robinson’s sales to one retailer also went down or were flat, which suggested that Robinson hadn’t taken sales from ALS.

ALS argued that it initiated a guaranteed buy-back program at Dick’s in 2014 in response to Robinson’s advertising statements, which resulted in $53,000 in reduced profit for that year. But ALS didn’t link that to the false statements, since the program was voluntarily adopted “to temper the negative effects of Robinson’s false advertising.”  [I don’t quite get that—in a footnote, the court suggests that the program wasn’t a factual rebuttal of Robinson’s ads, which makes a bit more sense—though I agree that this rationale makes the damages “more akin to damage control expenses rather than marketplace damages.”]

Retailer testimony was “noticeably absent.”  Plaintiffs are often reluctant to solicit customers, who might be at risk of being subpoenaed, out of fear of alienating them.  But that doesn’t remove the requirement of evidence that Robinson’s advertisements influenced the retailers’ purchasing decisions.  “At bottom, ALS tried its case on a theory of post hoc ergo propter hoc,” but that wasn’t enough in the presence of other equally credible theories of causation.  [Why wasn’t that a question for the jury to answer?]

For the same reasons, the jury’s award of Robinson’s profits went away.  Also, ALS entered into several contracts with Bone Collector, a celebrity hunting group with its own hunting television show, as part of a marketing campaign. The agreements called for ALS to pay Bone Collector a total of $5 million. ALS claimed that the Bone Collector deal was necessary for ALS to effectively respond to Robinson’s 40/200 advertisements; the jury awarded ALS $2 million as damage control expenses. But this deal wasn’t a necessary corrective measure to address the false advertising, and so it had to go. To be recoverable as damage control costs, corrective measures must be “reasonable under the circumstances and proportionate to the damage that was likely to occur.” They can’t be “general image polishing costs” but must instead be incurred to correct specific false representations made by a competitor. “For example, Ford could not recover its total advertising costs from Volkswagen if Volkswagen falsely represented the fuel economy of its vehicles.”  [I see the point, and it seems fair, though if we were really serious about goodwill being a kind of lump thing we should be more open to general image advertising to restore goodwill.]

Also, before trial, ALS described the Bone Collector deal as being about other things, such as correcting a lack of celebrities in a “celebrity-centric industry.”

In the alternative, the court granted Robinson’s motion for a new trial.

The court did grant a permanent injunction.  Likely confusion satisfies the requirement of irreparable harm.  [I’m a little surprised the court didn’t discuss eBay, given how hard it’s been on ALS in every other element.]  Robinson argued that there was no irreparable harm because Robinson ceased using the 40/200 campaign in mid-2014, and as part of its settlement efforts, it took steps to remove the 40/200 hangtags from clothing in its warehouse and at retailers. Also, ALS’s inability to quantify its damages, and its decision not to seek damages for 2015 or 2016, allegedly showed lack of injury. 

The court found this to be a “close call,” but still warranting injunctive relief.  In spite of Robinson’s efforts, ALS showed evidence that the 40/200 claim remained in the marketplace, on retailer websites and on products at retail stores.  The risk of harm was continuing, and there was no adequate remedy other than an injunction requiring further removal efforts, including steps to ensure that references to the 40/200 claim are removed from “non-retailer hunting-related websites.”

This was not an exceptional case justifying attorneys’ fees for ALS, even under the more forgiving Octane Fitness standard.  Robinson’s defense was fairly strong, given its evidence that the product worked.  Though it conceded that the 8-3-1 and 100-44 claims were false and that it showed them to retailers in multiple presentations, there was no evidence of materiality. “As for the 40/200 claim, Robinson showed that a significant portion of retailers were not deceived by it and that the 40/200 claim was not material to the retailers’ purchasing decisions.”  Robinson also had “compelling” evidence about the lack of connection to any lost sales.  Also, Robinson didn’t litigate in an unreasonable manner, with only typical “hiccups.”

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