Opinion ID: 3160389
Heading Depth: 3
Heading Rank: 2

Heading: The Gordon & Breach Test

Text: While repeating the test above, the court below used a different test first developed by the Southern District of New York in Gordon & Breach Sci. Publishers S.A. v. Am. Inst. of Physics, 859 F. Supp. 1521, 1536 (S.D.N.Y. 1994), which is employed in many other circuits to determine whether a statement is made in “commercial advertising or promotion.” The statement must be: (1) commercial speech; (2) by a defendant who is in commercial competition with the plaintiff; (3) for the purpose of influencing customers to buy the defendant’s goods or services; (4) that is disseminated sufficiently to the relevant purchasing public to constitute advertising or promotion within that industry.4 Grubbs v. Sheakley Grp., No. 1:13cv246, 2015 WL 1321126, at  (S.D. Ohio Mar. 18, 2015) (emphasis added). The court below treated discussion of the Gordon & Breach test by this Court in LidoChem v. Stoller Enterprises, Inc., 500 F. App’x 373, 379 (6th Cir. 2012), as though it were the established law of this Circuit. The court below went on to find that the e-mails to twenty-three recipients were not widely disseminated enough as to constitute advertising or promotion in the PEO industry. The Sheakley Defendants and Strunk-Zwick urge us to affirm on this ground, while Plaintiffs assert that they have stated a claim for false advertising under the Podiatric Physicians test. In essence, the parties dispute the reach of the Lanham Act with respect to false advertising claims, which we now examine. 4 Many circuits have adopted this test wholesale. See, e.g., Suntree Tech., Inc. v. Ecosense Int’l, Inc., 693 F.3d 1338, 1349 (11th Cir. 2012); Podiatrist Ass’n, Inc. v. La Cruz Azul De Puerto Rico, Inc., 332 F.3d 6, 19 (1st Cir. 2003); Proctor & Gamble Co. v. Haugen, 222 F.3d 1262, 1273–74 (10th Cir. 2000); Coastal Abstract Serv., Inc. v. First Am. Title Ins. Co., 173 F.3d 725, 735 (9th Cir. 1999); Seven–Up Co. v. Coca–Cola Co., 86 F.3d 1379, 1384 (5th Cir. 1996). Other circuits have adopted aspects of the four-part test. See Porous Media Corp. v. Pall Corp., 173 F.3d 1109, 1120 (8th Cir. 1999) (adopting the test but defining advertising as communication that “propose[s] a commercial transaction”). No. 15-3302 Grubbs, et al. v. Sheakley Group, et al. Page 16 LidoChem concerned rival chemical corporations producing competing agricultural chemicals for the Western Michigan market. 500 F. App’x at 374–75. At issue were a falsified lab report that the defendant corporation provided to a large soybean grower whose plants became yellow after being sprayed with the plaintiff’s product, and subsequent false statements of fact in letters to the soybean grower’s attorney. Id. at 375–77. Faced with a situation in which it was unsure whether certain statements were made in “commercial advertising or promotion,” as the statute requires, the LidoChem court turned to the Gordon & Breach test, and decided that they were. See LidoChem, 500 F. App’x at 379–81. LidoChem, we note, was an unpublished decision that is not binding on subsequent panels of this Court but may be considered for its persuasive authority. See, e.g., United States v. Webber, 208 F.3d 545, 551 n. 3 (6th Cir. 2000). LidoChem in no way disavowed Podiatric Physicians, and indeed recognized it as the law of this Circuit. 500 F. App’x at 380. At the same time, the LidoChem decision instructs us how the Podiatric Physicians test is itself not always instructive: under Podiatric Physicians, plaintiffs state a claim for false advertising when they plead, among other things, that an advertisement containing false or misleading statement of fact entered interstate commerce. As LidoChem tacitly acknowledged, Podiatric Physicians is silent as to what constitutes advertising (and, in its most frequently cited formulation, does not mention promotion at all). Podiatric Physicians thus advanced a test that does not define its own scope. In some cases, it may be obvious whether statements were made in “advertising or promotion.” Yet, as noted above, communications need not necessarily resemble traditional television, radio, print, or Internet advertisements to fall within the purview of the Lanham Act. Semco, 52 F.3d at 112. Semco, decided prior both to Podiatric Physicians and to any Circuit’s adoption of the Gordon & Breach test, declined to “divine the true meaning of ‘commercial advertising and promotion.’” Id. Defendants facing false advertising claims, as here, may understandably seek to evade liability by arguing that contested statements did not constitute “commercial advertising or promotion” and are thus outside the ambit of the statute. That the district courts of this Circuit have frequently looked to the Gordon & Breach test in the absence of a definition of “commercial advertising or promotion” suggests a desire for additional clarity beyond our existing precedent. See, e.g., Champion Labs., Inc. v. Parker-Hannifin Corp., 616 F. Supp. 2d 684, 694 (E.D. Mich. 2009); White Mule Co. v. ATC Leasing Co. LLC, 540 F. Supp. 2d No. 15-3302 Grubbs, et al. v. Sheakley Group, et al. Page 17 869, 897 (N.D. Ohio 2008); Kansas Bankers Sur. Co. v. Bahr Consultants, Inc., 69 F. Supp. 2d 1004, 1012 (E.D. Tenn. 1999) (all applying Gordon & Breach test). The Gordon & Breach test represents but one attempt to make sense of the elusive phrase “commercial advertising or promotion,” which is defined neither in statute nor in legislative history. See Coastal Abstract Serv., Inc. v. First Am. Title Ins. Co., 173 F.3d 725, 734 (9th Cir. 1999) (quoting Seven–Up Co. v. Coca–Cola Co., 86 F.3d 1379, 1383 (5th Cir. 1996)). Discussing the Gordon & Breach test, the Seventh Circuit expressed “serious doubts about the wisdom of displacing the statutory text in favor of a judicial rewrite with no roots in the language Congress enacted.” First Health Grp. Corp. v. BCE Emergis Corp., 269 F.3d 800, 803 (7th Cir. 2001). The court proceeded to define advertising, according to what it considered its common usage, as “a form of promotion to anonymous recipients, as distinguished from face-to-face communication” and “a subset of persuasion [that] refers to dissemination of prefabricated promotional material.” Id. at 803–804. The Second Circuit considered each part of the Gordon & Breach test separately. See Fashion Boutique of Short Hills, Inc. v. Fendi USA, Inc., 314 F.3d 48, 56–58 (2d Cir. 2002). It began with the common meanings of the words in the statute, and “easily accept[ed] the first and third elements of the Gordon & Breach test that define the term ‘commercial’ as referring to ‘commercial speech’ that is made for the purpose of influencing the purchasing decisions of the consuming public.” Id. at 56-57. Regarding Gordon & Breach’s dissemination requirement, it stated: The ordinary understanding of both “advertising” and “promotion” connotes activity designed to disseminate information to the public. Thus, the touchstone of whether a defendant’s actions may be considered “commercial advertising or promotion” under the Lanham Act is that the contested representations are part of an organized campaign to penetrate the relevant market. Proof of widespread dissemination within the relevant industry is a normal concomitant of meeting this requirement. Id. at 57. Critical to the court’s adoption of the market penetration requirement was its conclusion that, “[a]lthough the Lanham Act encompasses more than the traditional advertising campaign, the language of the Act cannot be stretched so broadly as to encompass all commercial speech.” Id. (citing Sports Unlimited, Inc. v. Lankford Enters., Inc., 275 F.3d 996, No. 15-3302 Grubbs, et al. v. Sheakley Group, et al. Page 18 1005 (10th Cir. 2002) and First Health Grp., 269 F.3d at 803). The Second Circuit did not adopt the requirement of the Gordon & Breach test that plaintiffs and defendants be in competition, which it noted was not required by the statute itself. Id. at 58. It is time to revisit Semco’s unwillingness to define the term “commercial advertising or promotion.” Like the Second Circuit, we readily adopt the first and third requirements of the Gordon & Breach test: namely, that “commercial advertising or promotion” must consist of “‘commercial speech’ that is made for the purpose of influencing the purchasing decisions of the consuming public.” Id. at 57. These criteria add only an intent requirement to the Podiatric Physicians test, which requires plaintiffs to show that the supposed advertisements “will likely influence the deceived consumer’s purchasing decisions.” 185 F.3d at 613. We further agree with the Second Circuit that “the touchstone of whether a defendant’s actions may be considered ‘commercial advertising or promotion’ under the Lanham Act is that the contested representations are part of an organized campaign to penetrate the relevant market.” Fashion Boutique, 314 F.3d at 57. However, such campaigns, especially those aimed at previous customers, may not necessarily entail widespread, market-wide dissemination of any given message or false statement as junk mail, newspaper advertisements, and television commercials might; producers today employ data as never before to track our consumption habits, especially on the Internet, and send out personalized promotional material accordingly. We may see web advertisements based on our internet search history or use of social media sites like Facebook, or receive e-mails from airlines regarding sales on routes we regularly travel or flyers advertising “friends and family” sales for stores we patronize. Such targeted promotion reflects a belief by advertisers that discrete segments of a much larger existing or potential customer base may find specific messages most persuasive. In engaging in this sort of targeted promotion, advertisers may undertake an organized campaign to penetrate a market without any given message flooding that market. In other words, the most focused advertisements or promotions may not be widely disseminated at all. We believe that the requirement of “widespread dissemination” or “market penetration” fails sufficiently to account for the types of sophisticated, tailored advertising in use today, and that the plain meaning of the terms “commercial advertising” or “commercial promotion” No. 15-3302 Grubbs, et al. v. Sheakley Group, et al. Page 19 accommodates targeted communications to a substantial portion of a company’s existing customer or client base. At the same time, we recognize the concern of other courts in rendering too much commercial speech actionable as false advertising. See Seven-Up, 86 F.3d at 1384 (discussing a district court’s concern that to “permit a single private correspondence” to fall within this subsection of the Lanham Act “would sweep within the ambit of the Act any disparaging comment made in the context of a commercial transaction”). We therefore define “commercial advertising or promotion” as: (1) commercial speech; (2) for the purpose of influencing customers to buy the defendant’s goods or services; (3) that is disseminated either widely enough to the relevant purchasing public to constitute advertising or promotion within that industry or to a substantial portion of the plaintiff’s or defendant’s existing customer or client base. We decline to adopt the requirement that the parties be in competition. Obviously, defendants who are in direct competition with plaintiffs may falsely denigrate their competitors’ products or make equally false statements about the merits of their own, and are indeed the most likely source of such false advertising. But, as the Second Circuit noted, because the statute nowhere requires such a showing by plaintiffs, we will not impose one. See Fashion Boutique, 314 F.3d at 58. Turning now to the facts of this case, we believe that the letter to all of Tri-Serve’s clients, fits squarely within this definition of “commercial promotion.” The letter to the twentytwo clients touted the many advantages of the purported “partnership” with Sheakley: By moving into Sheakley Group we will be able to provide you and your employees with additional resources, services, and benefits, while continuing to provide you with the service that you have grown accustomed to expect from TriServe . . . You will begin to see the Sheakley HR name and we will be introducing new benefits and new services to assist you with growing your business. (R. 87, Compl. ¶ 840, Page ID 3185.) As Plaintiffs plead in their Complaint, this e-mail represented the culmination of a plan to move the Tri-Serve clients to Sheakley, and intended to induce them into transferring their business. With that in mind, we turn to the traditional Podiatric Physicians factors. No. 15-3302 Grubbs, et al. v. Sheakley Group, et al. Page 20 C. Application of the Podiatric Physicians factors
In the context of the allegations throughout the complaint that Strunk-Zwick did not own Tri-Serve, had no authority to transfer its clients, and then allowed its entire client base to be subsumed into Sheakley, the e-mails and mailings from Strunk-Zwick to customers contain several false and misleading statements of fact concerning Tri-Serve’s product, PEO services. The July 3, 2009 e-mail and mailing to customers stated that “we are partnering with Sheakley HR,” and that Tri-Serve was “moving into Sheakley Group” because of “tremendous growth over the last 6 months.” It also gave a future address of “TriServe LTD c/o Sheakley HR Solutions.” Plaintiffs specifically assert that the references to “partnering” and the “move” are false: Tri-Serve was not moving and the companies had no relationship whatsoever. The supposed address of “TriServe LTD c/o Sheakley HR Solutions” at One Sheakley Way was also a false representation of the geographic origin of the PEO services and could also have created a further misimpression as to the relationship between the companies.
Plaintiffs seeking damages for false advertising must “present evidence that a ‘significant portion’ of the consumer population was deceived.” Herman Miller, Inc. v. Palazzetti Imports & Exports, Inc., 270 F.3d 298, 323 (6th Cir. 2001) (citing Podiatric Physicians, 185 F.3d at 616). The e-mails and mailings appear to have deceived the Tri-Serve customers who received them. By August 2009, health insurers and workers’ compensation departments were billing Tri-Serve at Grubbs’ office, but clients were sending their payments to Sheakley, not Grubbs. Where false advertising cases have involved only mass mailings—albeit several orders of magnitude more than at issue here—this Court has treated the intended audience as the recipients of the letters. See Balance Dynamics Corp. v. Schmitt Indus., Inc., 204 F.3d 683, 686 (6th Cir. 2000) (successive mass mailings to 2,500 and 3,200 clients and potential clients); Podiatric Physicians, 185 F.3d at 611 (mass mailings of 6,000-8,000 letters). No. 15-3302 Grubbs, et al. v. Sheakley Group, et al. Page 21
The third and fifth prongs of the test, which require a plaintiff to show that the statement will likely influence the deceived consumer’s purchasing decisions and that the challenged statements caused harm to the plaintiff, both address “causation generally.” Podiatric Physicians, 185 F.3d at 613. The false address and statements about “partnering” would likely cause a consumer, assuming it was still paying Tri-Serve, to send funds to Sheakley, which they apparently did by August at the latest.
Finally, Plaintiffs must show that the statements were introduced into interstate commerce. Often, the very scope of a mass promotional campaign allows a court to gloss over this element of the Podiatric Physicians test. For example, it would be easy for a court simply to assume that some letters out of a mass mailing of thousands entered interstate commerce. See Balance Dynamics, 204 F.3d at 687. The Internet, which the Supreme Court has described as “an international network of interconnected computers,” and which facilitates the constant flow of e-mail, enables interstate commerce of many types to occur. See Reno v. Am. Civil Liberties Union, 521 U.S. 844, 849 (1997) (describing the history of the Internet and types of communication through its portals). When e-mails or files attached to them cross state lines, they travel in interstate commerce. See, e.g., United States v. Chambers, 441 F.3d 438, 449 (6th Cir. 2006). Plaintiffs do not allege in their Complaint that the e-mail, or the mailed versions thereof, ever traveled outside Ohio. Plaintiffs did not specify where the recipients of the e-mail were located, or where any of the relevant e-mail servers might have been. The question is whether Plaintiffs nonetheless pled that the e-mails were introduced into interstate commerce. The most instructive discussions of whether e-mails necessarily travel in interstate commerce arise in the criminal context. See, e.g., United States v. Lay, 612 F.3d 440, 447 (6th Cir. 2010) (affirming wire fraud conviction where e-mails were sent between states). The recent case of United States v. Napier, 787 F.3d 333, 346 (6th Cir. 2015), specifically rejected the defendant’s argument that the government needed to establish where the recipient of an e-mail No. 15-3302 Grubbs, et al. v. Sheakley Group, et al. Page 22 containing child pornography was located. The “relevant inquiry” for interstate commerce purposes for a sufficiency of the evidence challenge by a criminal defendant was “whether there is enough circumstantial evidence that these electronic communications were transmitted through interstate wires. Given the omnipresent nature of the Internet, this is not a difficult burden for the government to satisfy.” Id. Napier approvingly cited case law from other circuits to the effect that no showing was necessary that transmissions had crossed state lines. Id. (collecting cases from the First, Second, Third, Fourth, and Fifth Circuits). However, it stopped short of adopting an unequivocal rule to that effect because of circumstantial evidence that the images had traveled between different time zones. United States v. Mellies also discussed this body of law with approval, but declined to hold that e-mail or Internet transmissions always move in interstate commerce because the parties had not addressed the issue in their briefs. 329 F. App’x 592, 605 (6th Cir. 2009). In light of this guidance, we hold that a civil plaintiff need not allege that an e-mail crossed state lines to survive a motion to dismiss. Napier specifically stated that the government—which, by the time of trial, would necessarily have concluded its investigation— need not prove the location of an e-mail recipient to establish an interstate nexus, and we believe it would be unfair to impose a more stringent burden on a plaintiff in a civil case who has not yet had the benefit of discovery. To survive a motion to dismiss, a plaintiff must allege “factual content that allows the court to draw the reasonable inference” that the supposed false advertisements were introduced into interstate commerce. See Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). Stating that an e-mail was sent is enough. In so holding, we join the Seventh Circuit that the very act of sending an e-mail creates the interstate commerce nexus necessary for federal jurisdiction. See Doe v. Smith, 429 F.3d 706, 709–10 (7th Cir. 2005) (holding interstate commerce nexus met and reversing grant of motion to dismiss for failure to state a claim under the Wiretap Act where counsel stated at oral argument that defendant had e-mailed a video). For these reasons, and because the Sheakley Entity Defendants may be held vicariously liable for Strunk-Zwick’s e-mail as described above, Plaintiffs have stated a claim for false advertising against Strunk-Zwick and the Sheakley Entity Defendants. No. 15-3302 Grubbs, et al. v. Sheakley Group, et al. Page 23