Presumption of injury saves Lanham Act monetary award

General Steel Domestic Sales, LLC v. Chumley, — Fed.Appx.
—-, 2015 WL 4591924, Nos. 14–1119, 14–1121 (10th Cir. July 31, 2015)
Chumley formerly worked for General Steel, then founded
Armstrong after an unfriendly parting. 
The parties compete to sell prefabricated steel buildings directly to
That’s where the lies began. One
Internet posting purported to detail Armstrong’s community service efforts in
the Middle East, offering quotations from the company’s Vice President of
International Affairs, J.P. Remington, III. The problem? The charity didn’t
exist. Neither did Mr. Remington. And the false claims didn’t stop with phony
philanthropy: soon General Steel was in the crosshairs. Ads on Google, for
example, claimed that Armstrong sold “General Steel” buildings. It didn’t. The
company’s website claimed that Armstrong fabricates the steel it uses to
assemble its buildings. It doesn’t. And one ad on Armstrong’s website—entitled
“May the Best Building Win”—offered a side-by-side comparison of Armstrong’s
and General Steel’s products and claimed that General Steel provided consumers
with fewer options than, in truth, it did.
General Steel sued under the Lanham Act and the Colorado
Consumer Protection Act, and here we find out that presumptions matter. The
district court granted summary judgment on the state-law claims for failure to
show harm, but granted an injunction and disgorgement of profits on the Lanham
Act claims based on the statements that Armstrong fabricated its own steel;
that Armstrong offered “general steel” buildings for sale; and that General
Steel failed to offer pregalvanized steel or stainless fasteners for its
buildings. The court of appeals affirmed.
The court of appeals heartily agreed that the statements at
issue were literally false.  Steel
fabrication: Armstrong isn’t a steel manufacturer but purchases steel from
others and then assembles it into buildings. Armstrong argued that its
discussion of “each piece of steel we fabricate” was ambiguous, but it
wasn’t.  “General steel” buildings:
Armstrong didn’t sell its rival’s products. 
Armstrong again argued ambiguity (say that three times fast), reasoning
that its statement could also mean “Armstrong makes ‘general’ (i.e.,
all-purpose) steel buildings.” However, there was no credible evidence in the
record that the term “general steel” is used in the industry to describe steel
buildings sold by anyone else.  (Note
that we determine meaning here without resort to dictionaries or surveys!)  Meanwhile, Armstrong’s ads included
side-by-side comparisons between its products and those of General Steel, even
using General Steel’s logo and sometimes capitalizin “General Steel.” “In this
light, there’s just no doubt what Armstrong’s ads were talking about—or that
they were literally false.” 
And finally: Armstrong argued that its statements about providing
“pre-galvanized secondary framing” and “stainless steel fasteners” where
General Steel didn’t were literally true because Armstrong includes these items
unless the customer declines them, while General Steel doesn’t include them
unless the customer requests them. But Armstrong’s ads didn’t explain anything
like that, for example by comparing “standard” features.  Instead, they purported to compare available
features, and thus were literally false. 
The evidence at trial showed that both companies provided these features
at additional cost and that customers could choose whether to buy them.
Materiality: without deciding the appropriate burden or
standard, the court of appeals held that the third set of false statements was
“material under any conceivable standard,” using Armstrong’s own evidence at
trial that “steel fasteners and pregalvanized framing were important to
Armstrong’s brand, giving the company a competitive edge and improving the
quality of its buildings.”  The district
court found that both “general steel” and fabrication of steel went to the
products’ inherent qualities or characteristics and thus presumed materiality;
the court of appeals saw no reason to find error.
Injury: the district court found that the literal falsity
was willful and in side-by-side comparative advertising, and thus presumed injury
to General Steel.  Assuming, without
deciding, that this presumption was appropriate, Armstrong failed to show that
the presumption was unwarranted on the grounds that some of its false
statements weren’t made in comparative advertising.  True, they were all made on Armstrong’s
expressly comparative “May the Best Building Win” webpage. But Armstrong argued
that that two of the three statements were in small print after side-by-side
columnar comparisons between the two brands, which is like a separate ad.  The court of appeals was unimpressed.  It wasn’t willing to split a single webpage
in two.
Remedies: in calculating disgorgement of profits, the
district court used a burden-shifting framework: General Steel had to prove
Armstrong’s gross profits during the period of false advertising and Armstrong
had to prove what part of those profits wasn’t attributable to its false
advertising.  Armstrong didn’t produce
any such evidence.  The district court
used a procedure that fit well with the statute, which says: “In assessing
profits the plaintiff shall be required to prove defendant’s sales only;
defendant must prove all elements of cost or deduction claimed.”  The cases Armstrong cited said that, “unless
there is some proof that plaintiff lost sales or profits, or that defendant
gained them, the principles of equity do not warrant an award of defendant’s
profits.” “We don’t question the propriety of this principle, only its
relevance when it comes to determining not whether monetary relief should be
awarded but whether (as here) to employ the statutorily prescribed
burden-shifting procedure to ascertain its amount.”
General Steel cross-appealed on its state law consumer
protection claims.  The district court
granted summary judgment because General Steel didn’t have sufficient evidence
of harm.  Armstrong wasn’t required to
show lack of harm to win on summary judgment. 
The differing results on the two claims show the importance of
presumptions—but also highlight a continuing problem with state law/Lanham Act
interactions, which is that courts apply the same standards to both most of the
time and then randomly diverge, usually at the behest of the parties.

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