Opinion ID: 199896
Heading Depth: 3
Heading Rank: 3

Heading: Consumer Deception

Text: 39 The next element of a false advertising claim under the Lanham Act requires plaintiffs to demonstrate that the alleged misrepresentation deceived a substantial portion of the consuming public. See Clorox, 228 F.3d at 33 n. 6. 12 Usually consumer deception is demonstrated through surveys, which establish that consumers were misled by the alleged misrepresentations. See Johnson & Johnson Merck, 960 F.2d at 298. Plaintiff-appellant Packard argues, however, that it does not have to shoulder the burden of presenting this evidence because existing caselaw allows plaintiffs like it who allege claims that are literally false to avail themselves of a presumption of consumer deception. See Castrol Inc. v. Pennzoil Co., 987 F.2d 939, 943 (3d Cir.1993) (ruling that a plaintiff must prove either literal falsity or consumer confusion, but not both); Johnson & Johnson v. GAC Int'l, Inc., 862 F.2d 975, 977 (2d Cir.1988) (When a ... representation is literally or explicitly false, the court may grant relief without reference to the advertisement's impact on the buying public.). 40 In response, defendants recognize that a presumption of consumer deception is available to plaintiffs seeking injunctive relief for literal falsity claims; however, they argue that the presumption does not apply, without more, to plaintiffs seeking money damages for literal falsity claims. 41 Though there was once support for the assertion that consumer deception cannot be presumed simply because a plaintiff alleges a literal falsity claim for money damages, see PPX, 818 F.2d at 272 (noting that as of 1987 the presumption had only been applied to literal falsity claims for injunctive relief), it has become the practice of most circuits to apply the presumption to all literal falsity claims. See Pizza Hut, Inc. v. Papa John's Int'l, Inc., 227 F.3d 489, 497 (5th Cir.2000) (holding, on a claim for damages and injunctive relief, that when the statements of fact at issue are shown to be literally false, the plaintiff need not introduce evidence on the issue of the impact the statements had on consumers.... [However] [p]laintiffs looking to recover monetary damages for false or misleading advertising that is not literally false must prove actual deception); EFCO Corp. v. Symons Corp., 219 F.3d 734, 740 (8th Cir.2000) (ruling, on a claim for damages, that when an advertisement is literally false ... the plaintiff need not prove that any of its customers were actually persuaded by the advertising); Balance, 204 F.3d at 693 (noting that a presumption of consumer deception applies to a literal falsity claim for damages so long as there is other proof of marketplace damages); B. Sanfield, Inc. v. Finlay Fine Jewelry Corp., 168 F.3d 967, 971 (7th Cir. 1999) (ruling, on a damages claim, that [w]here the statement in question is actually false, then the plaintiff need not show that the statement either actually deceived consumers or was likely to do so). 42 In fact, defendants' argument contradicts this Court's explicit pronouncements on the issue. In assessing whether a Lanham Act claim for injunctive relief and money damages had been properly dismissed, we stated, If the advertisement is literally false, the court may grant relief without considering evidence of consumer reaction. In the absence of such literal falsity, an additional burden is placed upon plaintiff to show that the advertisement... conveys a misleading message to the viewing public. Clorox, 228 F.3d at 33 (internal citations omitted). 43 Moreover, applying a presumption of consumer deception to all literal falsity claims, irrespective of the type of relief sought, makes sense. When a plaintiff demonstrates that a defendant has made a material misrepresentation that is literally false, there is no need to burden the plaintiff with the onerous task of demonstrating how consumers perceive the advertising. See Balance Dynamics, 204 F.3d at 693 (noting that [b]ecause proof of `actual confusion' may be difficult to obtain, most of the circuits have ruled that when a statement is literally false, a plaintiff need not demonstrate actual customer deception in order to obtain relief under the Lanham Act). Common sense and practical experience tell us that we can presume, without reservation, that consumers have been deceived when a defendant has explicitly misrepresented a fact that relates to an inherent quality or characteristic of the article sold. To presume as much requires neither a leap of faith nor the creation of any new legal principle. 13 44 Because defendants do not dispute that overstating cashmere content is a literal falsity claim, we apply a presumption of consumer deception in plaintiffs' favor on this claim. Based on this presumption, and defendants' failure to present evidence to rebut it, Packard has satisfied its burden of demonstrating consumer deception on its cashmere content claim. 45 Whether literal falsity is involved in plaintiffs' claim that defendants improperly labeled their goods as cashmere rather than recycled cashmere, however, is a contentious issue. Defendants argue that this claim is, by definition, one of implied falsity — that is, a representation that is literally true but in context becomes likely to mislead. See Clorox, 228 F.3d at 33 (defining an implied falsity claim as one in which the advertisement, though explicitly true, nonetheless conveys a misleading message to the viewing public). As further support for their argument, defendants offer a simple syllogism: all suits based on implied messages are implied falsity claims; since plaintiffs assert that the term cashmere on the garments' labels implicitly conveys the false message that the garments contain virgin cashmere, their claim must be one of implicit falsity. 46 We agree with defendants that normally a claim like plaintiffs', in which the representation at issue is literally true (the garments do contain cashmere as the label states) but is misleading in context (defendants failed to disclose that the cashmere is recycled), is evaluated as an implied falsity claim. See id. However, we disagree with defendants' assertion that all claims that rely on implied messages are necessarily implied falsity claims. In Clorox, this Court noted that [a]lthough factfinders usually base literal falsity claims upon the explicit claims made by an advertisement, they may also consider any claims the advertisement conveys by `necessary implication.' Id. at 34-35. We explained that [a] claim is conveyed by necessary implication when, considering the advertisement in its entirety, the audience would recognize the claim as readily as if it had been explicitly stated. Id. at 35. 47 After drawing all reasonable inferences in favor of the nonmoving party, a rational factfinder could conclude that plaintiffs' recycled cashmere claim is one of literal falsity. The Wool Products Labeling Act, 15 U.S.C. § 68 et seq., requires recycled garments and fabrics, including cashmere, to be labeled as such. As a result, whenever a label represents that a garment contains the unqualified term cashmere, the law requires that the garment contain only virgin cashmere. The Act, then, is essentially telling consumers that garments labeled cashmere can be presumed to be virgin cashmere as if it had been explicitly stated. Clorox, 228 F.3d at 35. Plaintiffs also presented evidence demonstrating that experienced retailers, like Saks, were aware of the Act's requirements. Based on this evidence, we conclude that plaintiffs have presented sufficient evidence to demonstrate that consumers would view the term virgin as necessarily implicated when a garment was labeled cashmere. 48 The district court rejected this argument because [i]t is at least equally plausible to infer that Congress [in enacting the Wool Product Labeling Act] was concerned that it would be misleading for a seller to fail to distinguish between virgin and recycled cashmere, even though it would not be literally false to do so. The district court's argument, however, substitutes an irrelevant inquiry for the required analysis. Rather than assessing what consumers would necessarily infer from the unqualified term cashmere in light of the Act's requirements, the district court delved into issues of congressional intent and statutory interpretation. See Johnson & Johnson Merck, 960 F.2d at 297 (The question in such cases is — what does the person to whom the advertisement is addressed find to be the message?). Because the Act necessarily implies the term virgin anytime the unmodified word cashmere appears on a garment's label and experienced retailers, like Saks, were aware of the Act's requirements, we rule that plaintiffs' recycled cashmere claim can be reasonably seen as one of literal falsity. Therefore, plaintiffs may benefit from a presumption of consumer deception on this claim. 49 Even if plaintiffs' recycled cashmere claim did not involve literal falsity, plaintiffs would still be able to avail themselves of a presumption of consumer deception on alternative grounds. It is well established that if there is proof that a defendant intentionally set out to deceive or mislead consumers, a presumption arises that customers in fact have been deceived. See Porous Media Corp. v. Pall Corp., 110 F.3d 1329, 1333 (8th Cir.1997) (approving of a presumption of consumer deception upon a finding that defendant acted deliberately to deceive); see also U-Haul Int'l Inc. v. Jartran, Inc., 793 F.2d 1034, 1041 (9th Cir.1986) (same). 50 As evidence of defendants' intentional mislabeling of the blazers' recycled cashmere, plaintiffs introduced a letter dated January 13, 1995, addressed to Harve Benard's president, Bernard Holtzman, from one of Harve Benard's testing laboratories. On the top of the letter, there is a handwritten note from L. Pedell, an agent for Harve Benard, which states, Also see note from mill below. This is an on-going saga. The note that Pedell is referring to reads, in pertinent part, FOR YOUR INFO PLS NOTE MILL IS USING RECICLED CHASMERE [sic]. 14 Despite receiving notice that its blazers were being made from recycled cashmere, Harve Benard continued to market its garments without any recycled designation, as required by law, until months after the commencement of this lawsuit in 1996. Thus, Harve Benard's unwillingness to comply with the law, despite being on notice of its violation, can be seen as an attempt deliberately to deceive the consuming public. 51 In response, defendants offer several factual and legal arguments, none of which we find persuasive. First, defendants argue that a presumption of consumer deception cannot be triggered on an implied falsity claim, even if there is evidence of an intent to deceive. Defendants' claim, however, is undermined by several circuit cases that have explicitly held otherwise. See Porous, 110 F.3d at 1337 (applying presumption of consumer deception to an implied falsity claim when there is intent to deceive); William H. Morris, 66 F.3d at 258-59 (stating that a presumption of consumer deception applies to an implied falsity claim where there is sufficient evidence of an intent to deceive); Johnson & Johnson Merck, 960 F.2d at 298-99 (same); Resource Developers, 926 F.2d at 140 (same). The justification for applying the presumption whenever there is evidence of intentional deception is perspicuous: The expenditure by a competitor of substantial funds in an effort to deceive customers and influence their purchasing decisions justifies the existence of a presumption that consumers are, in fact, being deceived. U-Haul, 793 F.2d at 1041. This reasoning holds true regardless of whether the claim that plaintiffs allege involves an implied or literal falsity. 52 Second, defendants argue that the fact that an Italian mill stated that it was using recycled cashmere has little bearing on whether the mill was using cashmere that would be considered recycled under the definitions of the Wool Products Labeling Act. Defendants seem to misunderstand or underestimate the import of the letter. One of Harve Benard's mills informed the president of the company that its cashmere-blend garments contained recycled fabric. Rather than investigating the matter to determine whether Harve Benard was violating the law by not properly labeling its cashmere as recycled, Harve Benard did nothing. It did not finally change the garments' labels until more than one year later when plaintiffs sought a temporary restraining order on the issue. One reasonable explanation, which a juror may choose to credit, for Harve Benard's refusal to investigate or act on the letter is that Harve Benard intended to deceive the consuming public about the recycled nature of its cashmere. Cf. Amirmokri v. Baltimore Gas & Elec. Co., 60 F.3d 1126, 1133 (4th Cir.1995) (noting that intent may be inferred from a failure to act). 53 Lastly, defendants argue that Harve Benard's failure to act on the letter for one year does not meet the intent requirement set forth in applicable precedent. Defendants read Resource Developers, 926 F.2d at 140, as standing for the proposition that a defendant's failure to dispel confusion caused by its advertising circular for four months is insufficient evidence of intent. Since Harve Benard's failure to act is comparable to the defendant's in Resource Developers, defendants conclude that there is insufficient evidence to support a finding of intent. 54 Even if we were to adopt defendants' reading of Resource Developers, we remain unpersuaded by their argument because the circumstances of this case are far more compelling. First, the fact that defendants waited for more than a year before changing the blazers' mislabeling is far more probative of intentional deceit than waiting for four months. Second, when referring to the Italian mill's use of recycled cashmere, Pedell noted on the top of the letter, This is an on-going saga. Drawing all reasonable inferences in plaintiffs' favor, a rational juror could conclude from this sentence that the recycled cash-mere issue had been encountered before and — as the word saga suggests — on a continuing basis. Because this saga probably began or could have begun a considerable amount of time before January 1995, we decline defendants' invitation to place a time constraint on plaintiffs' evidence of intent. 55 With respect to the Institute's recycled cashmere claim for injunctive relief, the district court dismissed the claim because the Institute failed to demonstrate evidence of consumer deception. Because the foregoing analysis applies with equal force to the Institute's recycled cashmere claim, we rule that the Institute can avail itself of a presumption of consumer deception. Thus, the district court erred in granting defendants' motion for summary judgment on the Institute's recycled cashmere claim. 56 Nothing in this opinion, however, is meant to preclude defendants from rebutting the presumption of consumer deception at trial by showing that the labeling did not actually deceive consumers.