TrueCar’s false claims not subject to car dealers’ challenge without evidence of injury

Dependable Sales & Service, Inc. v. Truecar, Inc., 2019
WL 3067115, No. 15-cv-1742 (PKC) (S.D.N.Y. Jul. 12, 2019)
Lots
of prior
rulings
about various aspects of this false advertising claim in the general field of
auto sales.
TrueCar successfully moved for partial reconsideration of
the previous summary judgment decision holding that the plaintiffs, 108
automobile dealerships, failed to come forward with evidence of economic or
reputational injury from TrueCar’s advertising. They weren’t direct competitors
and TrueCar’s false advertisements did not make comparative claims, so
plaintiffs weren’t entitled to a presumption of injury. Now, the court
concluded that without evidence of some injury, disgorgement wasn’t available as
a remedy, despite evidence of TrueCar’s willful Lanham Act violations.
There is authority in the Second Circuit for allowing
disgorgement to advance the interest of deterrence, even where the plaintiff
has not demonstrated injury. However, that line of cases “arose in the
trademark and trade dress arena.” It’s worth noting that the statutory language
doesn’t make this distinction; Lexmark is an interpretation of the
overall structure of Lanham Act liability. 
“More recently, in a false-advertising case, the Second Circuit observed
that ‘[o]ur precedent permits a district court to award a defendant’s full
profits based solely on deterrence,’” Merck Eprova AG v. Gnosis S.p.A., 760
F.3d 247, 262 (2d Cir. 2014), but that was a case of obvious direct competition.
Unfortunately, the court went on to say that “[t]here are important
differences in the elements of a trademark claim and a false advertising claim,
as well as in the interests at stake…. In a trademark case, a plaintiff may be
harmed by virtue of losing exclusive control over its own mark…. The
unauthorized use of a mark ‘invariably threatens injury to the economic value
of the goodwill and reputation” associated with the mark.’ … Even where a
trademark plaintiff cannot point to lost sales, it may still be harmed by ‘a
loss of control … over how the public perceives’ its goods or services.” 
As readers of this post likely know, this assumption is both
(1) unsound in a number of situations, particularly outside classic source
confusion, and (2) increasingly vulnerable post-eBay and Winter,
now that courts have given renewed attention to plaintiffs’ harm stories.  Of course, it would be reasonable to respond
that even without a presumption of irreparable harm, a presumption of harm
is still justified … but the lost control language is very tightly tied to the
discourse of irreparability.  As a few
cases (mostly in the 9th Circuit) have recognized, the existence of
some unquantified risk of harm (“may still be harmed”) is not the same
thing as the likelihood that the harm will materialize.  Perhaps the standard for disgorgement ought
to cover any [reasonable? theoretical? plausible? nontrivial? you see the
difficulty] risk whether likely or not—I suspect that the level of willfulness
might interact with one’s opinion on the matter.
Anyway, in a trademark case, the Second Circuit concluded
that the district court should have ordered disgorgement solely to deter
willful infringement because the “deliberate[ ] and fraudulent[ ]” infringement
of plaintiff’s mark warranted disgorgement of defendant’s full profits, even though
plaintiff did not demonstrate lost sales, consumer confusion or damage to good
will. Defendant’s “callous disregard for the rights of a competitor” was
sufficient. [As opposed to callous disregard for consumers and competition in
general through willful false advertising—note too that trademark infringement
in a non-sales substitution case wouldn’t come under this reasoning if we take
“competitor” seriously, which would actually be a decent way of reconciling the
cases.] But a false advertising plaintiff must show injury “by way of
lost sales or damage to business reputation,” though a presumption of injury
can arise from falsity about a direct competitor.  [The real problem here is that the trademark
cases cited largely predate, and definitely have have not actually analyzed, Lexmark
and its statutory interpretation. I’m not saying the court is definitely wrong
in its holding here—though I might have gone the other way—but I am saying that
the efforts to distinguish trademark law are not successful.]
Ultimately, the court reasoned, “[i]t may seem anomalous
that a false advertiser in need of deterrence can escape the disgorgement of
profits when there are plaintiffs that are eager and willing to pursue that
remedy,” but the plaintiffs here didn’t show injury. A differently situated
plaintiff [would it have to be an entity that used TrueCar’s business model of
contracting with different dealers and offering discounts? It’s not obvious why
the false advertising here would’ve hurt them either] might have damages
that are small or difficult to establish, and for them disgorgement would be an
ideal remedy. Consumer class actions [unless consumers signed arbitration
agreements] or the FTC/state AGs are other options for punishing willful false
advertising.  
The court declined to exercise supplemental jurisdiction
over the remaining state law claims.

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