Next! Bonded leather maker loses false advertising claims against critics

Design Resources, Inc. v. Leather Industries of America, —
F.3d —-, 2015 WL 3775712 (4th Cir. June 18, 2015)
 
The Fourth Circuit affirmed the
district court’s summary judgment kicking out Lanham Act (and coordinate state)
false advertising claims against defendants LIA and Ashley Furniture
.  Plaintiff DRI alleged that Ashley’s ad in a
trade magazine, and two statements by Dr. Nicholas Cory, director of LIA’s
research laboratory, which ran in articles in the same publication, were false
and misleading.  Ashley is a furniture
maker and seller, and LIA is a leather industry trade association that owns (at
least for purposes of this appeal) the Leather Research Laboratory.  Cory is a leather chemist and the director of
the Laboratory, which provides “labeling advice to companies who market leather
and leather-look products, as well as testing services to determine such
products’ leather content for purposes of federally mandated disclosure to
consumers.”
 
DRI develops furniture coverings which hare sold to
furniture manufacturers. DRI developed a “synthetic leather-look furniture
covering product,” later renamed as NextLeather.  NextLeather is “composed of 61% polyurethane,
22% poly/cotton, and 17% leather.” “[I]t has a polyurethane face on a fabric
core and is backed with a thin layer of leather fibers adhered (i.e., bonded)
to its base or underside.” This allegedly improved its mimicking of real
leather by making the material more pliable and fluid in draping over
furniture.  DRI requested labeling advice
and composition from Cory, who advised that the product could “ABSOLUTELY NOT!”
be characterized or marketed as leather, citing the relevant FTC Guides, which
specify that products containing ground or shredded leather, rather than
comprising “wholly the hide of an animal[,] should not be represented, directly
or by implication, as being leather.”  Cory suggested that DRI could label
NextLeather as “[n]ot leather,” “[r]econstituted leather,” or “[b]onded
leather.”

DRI then began marketing NextLeather as bonded leather, disclosing the
product’s composition on a label in compliance with the FTC Guides. “In
preparation for the Spring High Point Market in North Carolina—an important,
annual furniture industry event—DRI sold samples of NextLeather to 25 leading
furniture manufacturers.” In the weeks leading up to and following the trade
event, though, Ashley put a series of full-page ads in Furniture Today, “a widely read trade magazine.” DRI alleged that
one of the ads falsely disparaged DRI and NextLeather with the text: “Is It
REALLY LEATHER? … Some upholstery suppliers are using leather scraps that are
mis-represented as leather …. Know What You Are Buying[.] REMEMBER … The
Overseas Manufacturer Has NO Liability In The U.S.A. You Do!”
 
Furniture Today
also published an article written by Joan Gunin, “Chemist fears confusion over
imitators may hurt category.” The Gunin article quoted Cory: “To call [leather
alternatives such as bonded leather] ‘leather’ is outright deception, outright
fraud…. It’s not leather…. It’s a synthetic that has leather fibers glued
to the underside.”   A later article written
by Susan Andrews was headlined, “For consumers’ sake, let’s not call it ‘bonded
leather.’”  The Andrews article referred
to “[n]ew composite fabrics now called ‘bonded leather,’” which “have a surface
layer of vinyl or polyurethane, a center layer of fabric, and a backing that
contains some leather fibers … glued onto the fabric for a look that is
similar to the back of a leather hide.” Andrews advocated against using the
term “bonded leather” for these products, saying that the term was “bound to
confuse consumers, who are likely to hear only the word ‘leather.’” The article
then quoted Cory, who said that calling these products bonded leather “is
deceptive because it does not represent its true nature. It’s a vinyl, or a
polyurethane laminate or a composite, but it’s not leather. If you tar and
feather someone, does that make them a chicken?”
 
The Fourth Circuit recognizes falsity by necessary
implication as part of explicit falsity, as well as implicit falsity (proven by
extrinsic evidence).
 
Here, the court of appeals agreed that DRI failed to show
that the Ashley Ad was either literally false or impliedly false. DRI argued
that the ad’s statement that “[s]ome upholstery suppliers are using leather
scraps that are misrepresented as leather” was literally false by necessary
implication, because the audience would recognize the reference to suppliers of
bonded leather generally and to DRI.  But
the ad refers unmistakably to products marketed as leather, not to products
marketed as bonded leather or NextLeather. 
The court was unwilling to accept that the ad meant the opposite of what
it said.  Where an ad only hints at or
merely suggests inferences, it’s not literally false, though an acceptable
false advertising claim can “depend on the consumer to draw conclusions that
are logically necessary from an ad’s statements.”

DRI argued that the relevant audience would recognize the claim it identified
because of: (1) another Furniture Today article,
published between the first and second publications of the Ashley ad, said that
“Ashley is urging buyers to ‘be aware’ of bonded leather,” (2) a survey by
Ashley’s expert witness showing that viewers of the ad understood it to refer
to bonded leather, (3) email exchanges between Ashley and Cory suggesting that
Ashley sought to disparage bonded leather, and (4) testimony by DRI’s owner and
president and by a furniture manufacturer to the effect that “DRI was the only
company offering a product like NextLeather® and marketing it as ‘bonded
leather.’” But all this was outside the face of the ad and deep into the
context.
 
What about implied falsity? 
DRI pointed to the survey, but DRI needed to show that the Ashley ad
confused consumers about NextLeather.  The survey asked consumers who had attended
the Spring High Point Market what message they thought the ad conveyed and to
which specific suppliers they thought the ad referred. The results showed that
“zero respondents gave an answer that could be interpreted as a belief that DRI
or NextLeather were specifically mentioned as[,] … [or] implied or suggested
to be[,] the supplier of the upholstery material described” in the ad.
 
Likewise, DRI failed to support its claim about Cory’s
statement in the Gunin Article. DRI argued that Cory’s statement that “[t]o
call [alternative leather products such as bonded leather] ‘leather’ is outright
deception, outright fraud” was is literally false by necessary implication. DRI
argued that any reasonable juror would conclude that Cory was calling DRI’s use
of the term “bonded leather” fraudulent. 
But the statement unambiguously communicated a message about unqualified use of “leather,” not about
the use of “bonded leather.”  Moreover,
DRI acknowledged that NextLeather was not leather, but a “synthetic
leather-look furniture covering product.” Cory’s statement was true, not false
or misleading.
 
Finally, the court of appeals agreed that Cory’s statement
in the Andrews article hadn’t been shown to be false or misleading.  The Andrews article did advocate against use
of the term “bonded leather” as “bound to confuse consumers,” and it quoted
Cory as saying that the term “is deceptive because it does not represent [the]
true nature” of the products it is used to describe. Instead, Cory said,
accurate descriptions would use “vinyl,” “polyurethane laminate,” or
“composite,” rather than with a term that includes the word “leather.”
 
The district court found this to be merely Cory’s opinion on
how consumers would react to the term. 
DRI cited Milkovich v. Lorain Journal Co., 497 U.S. 1 (1990), which held
that opinion statements are not automatically protected against defamation
claims if they imply knowledge of facts that underlie the opinion.  Accepting this extrapolation of the
defamation rule to the Lanham Act, DRI’s argument still didn’t work here.  Cory’s statement didn’t imply a basis in
facts leading to the conclusion that consumers were deceived by the term “bonded
leather.” It communicated only his hypothesis of the potential for deception.  Plus, Lanham Act cases have held that
statements of general opinion aren’t actionable; actionable claims must be
empirically disprovable.  A prediction
about the future is essentially opinion and not actionable.  In context of an article claiming that a
marketing term is “bound to confuse” consumers, “stating that the term is ‘deceptive’
is merely putting that point a different way.” A claim that the term had been
shown to deceive consumers might be falsifiable, but “merely calling a term ‘deceptive’
suggests only that it is the speaker’s view that the term has the potential to
deceive.” It was a prediction, not a representation of fact.

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