Opinion ID: 767757
Heading Depth: 3
Heading Rank: 2

Heading: Damage to Goodwill

Text: 50 Although Balance Dynamics stipulated that it suffered no lost sales or change in financial condition, it reserved the right to seek, inter alia, damages to its goodwill. To recover for damage to goodwill, the plaintiff bears the burden of proof. Web Printing Controls Co., Inc. v. Oxy-Dry Corp., 906 F.2d at 1204-05; Lithuanian Commerce Corp. v. Sara Lee Hosiery, 47 F.Supp.2d 523, 533 (D.N.J. 1999). Schmitt contends that Balance Dynamics offered no evidence that its goodwill or reputation within the industry was actually damaged by Schmitt's communications. But Balance Dynamics presented evidence of the literal falsity of the Schmitt advertisements and also contended that Schmitt violated the Lanham Act with deliberate intent and bad faith. Though the actual confusion rule would ordinarily preclude Balance Dynamics' claim for goodwill, in certain circumstances the literal falsity of an advertisement or evidence of deliberate intent or bad faith has sufficed to entitle a plaintiff to certain forms of relief or to create a presumption of damages in the marketplace. The trial court seems to have acknowledged this in stating that literal falsity could prove the existence of actual confusion. However, we hold that in the present case, evidence of literal falsity and deliberate intent or bad faith does not entitle Balance Dynamics to recover money for damages to goodwill.
51 Because proof of actual confusion can be difficult to obtain, Lindy Pen Co. Inc. v. Bic Pen Corp., 982 F.2d 1400, 1407 (9th Cir. 1993), 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. However, the literal falsity rule has never permitted a plaintiff to recover marketplace damages without other proof that such damages occurred. Rather, this rule has been stated in suits in which the plaintiff sought injunctive relief, see, e.g., United Indus. Corp. v. Clorox Co., 140 F.3d 1175, 1180 (8th Cir. 1998); Seven-Up Co. v. Coca-Cola Co., 86 F.3d 1379, 1389 (5th Cir. 1996); McNeil-P.C.C., Inc. v. Bristol-Myers Squibb Co., 938 F.2d 1544, 1549 (2d Cir. 1991); cf. Federal Trade Commission v. Brown & Williamson Tobacco Corp., 778 F.2d 35 (D.C. Cir. 1985); or literal falsity was not found, see, e.g., Podiatric Physicians, 185 F.3d at 614-18; C.B. Fleet Co., Inc. v. Smithkline Beecham Consumer Healthcare, L.P., 131 F.3d 430, 434 (4th Cir. 1997); or marketplace damages were not awarded under the Lanham Act, see, e.g., Rhone-Poulenc Rorer Pharmaceuticals, Inc. v. Marion Merrell Dow, Inc., 93 F.3d 511, 516 (8th Cir. 1996); Avila v. Rubin, 84 F.3d 222, 227 (7th Cir. 1996); or literal falsity was accompanied by other proof of marketplace damages. See, e.g., BASF Corp. v. Old World Trading Co., 41 F.3d 1081, 1085-88 (7th Cir. 1994); U-Haul Int'l v. Jartran, Inc., supra. 52 At trial, Balance Dynamics attempted to show that Schmitt's advertisements were literally false. But the above cases demonstrate that literal falsity, without more, is insufficient to support an award of money damages to compensate for marketplace injury such as harm to goodwill 3 . A contrary rule would risk conferringan undue windfall on Balance Dynamics. Balance Dynamics presented no evidence that its goodwill was harmed, or that customers were actually deceived by its advertisement 4 . To the contrary, the evidence indicated that Balance Dynamics' business was not harmed by Schmitt's letters. Balance Dynamics' sales increased after the period in question, and there was no decrease in the price of its product. Further, Balance Dynamics admitted that no customers had ever informed it that it was losing a sale due to the Schmitt communications. While literal falsehood or the likelihood of deception may be sufficient to entitle Balance Dynamics to injunctive relief or reimbursement for responsive advertising, it should not permit Balance Dynamics to recover for injuries to goodwill in the absence of some more substantial indication that these injuries actually occurred. Cf. BASF Corp. v. Old World Trading Co., 41 F.3d at 1085-88 (finding literal falsity but requiring further proof of marketplace damages); Castrol, Inc. v. Pennzoil, 987 F.2d 939, 941-43 (3d Cir. 1993) (affirming trial court decision granting injunctive relief but denying monetary damages despite finding of literal falsity).
53 Though literal falsity alone does not raise an inference of damage to goodwill, some courts have created a presumption of damages when literal falsity is accompanied by deliberate intent or bad faith. The Ninth Circuit reasons that 54 the expenditure by a competitor of substantial funds in an effort to deceive consumers and influence their purchasing decisions justifies the existence of a presumption that consumers are, in fact, being deceived. He who has attempted to deceive should not complain when required to bear the burden of rebutting a presumption that he has succeeded. 55 U-Haul Int'l, Inc. v. Jartran, Inc., 793 F.2d at 1040-41; see also Southland Sod Farms v. Stover Seed Co., 108 F.3d 1134, 1146 (9th Cir. 1997); Resource Developers, Inc. v. Statue of Liberty-Ellis Island Foundation, Inc., 926 F.2d 134, 140 (2d Cir. 1991). 56 In Porous Media Corp. v. Pall Corp., 110 F.3d 1329 (8th Cir. 1997), the court followed the Ninth Circuit's reasoning and permitted a presumption of money damages where there existed proof of willful deception. Id. at 1336. However, acknowledging that a plaintiff seeking monetary relief under the Lanham Act generally must meet a higher level of proof than those seeking injunctive relief, the court clarified the presumptive damages rule as extending only to cases of comparative advertising where the plaintiff's product was specifically targeted. Id. at 1334-35. Otherwise, stated the Porous Media court, a plaintiff might enjoy a windfall from a speculative award of damages by simply being a competitor in the same market. Id.; see also Harper House, Inc. v. Thomas Nelson, Inc., 889 F.2d 197, 209 fn.8 (9th Cir. 1989). 57 The reasoning of Porous Media is applicable to the present case since Schmitt specifically targeted Balance Dynamics' balancer, which was the only product of its kind in the market. However, as statedabove, the evidence shows that Balance Dynamics did not suffer marketplace injury as a result of Schmitt's advertisements. Therefore, even if the advertisements were found literally false and Balance Dynamics presented evidence of willfulness or bad faith, the evidence defeats any presumption of damage to goodwill in the present case.