Common sense can’t show materiality for damages purposes in Fifth Circuit

Illinois Tool Works,
Inc. v. Rust-Oleum Corporation, — F.3d —-, No. 19-20210, 2020 WL 1808871
(5th Cir. Apr. 9, 2020)
The Fifth Circuit
continues on its crusade to prevent false advertising disgorgement from being
awarded. [I guess it has worse crusades.]
The parties compete in
the market for windshield water-repellant. ITW alleged that RO’s ad made three
false claims: (1) that RO’s RainBrella lasts over 100 car washes, (2) that
RainBrella lasts twice as long as the leading competitor (who everyone admits
is ITW’s Rain-X), and (3) the so-called And Remember claim: “And remember,
RainBrella lasts twice as long as Rain-X. We ran it through 100 car washes to
prove it.” A jury agreed, finding that the 100-car-washes claim was misleading
and that the other two claims were false. It awarded ITW over $1.3
million—$392,406 of Rust-Oleum’s profits and $925,617 for corrective advertising—but
the district court reduced the corrective-advertising award.
“Disgorgement of
profits is appropriate only if it is equitable and the defendant’s profits are
attributable to the Lanham Act violation.” This requires “evidence that the
defendant benefitted from the alleged false advertising.” The court of appeals
concluded that ITW failed to present sufficient evidence of attribution. There
was no evidence that even a single consumer purchased RainBrella because of the
false advertising.  It was not enough to
have (1) testimony about how important the advertising claims were to
Rust-Oleum, (2) evidence that tens of thousands of people saw the commercial,
and (3) evidence of head to head competition in stores.
RO’s own opinion
that the ads were important or would prove profitable was a mere “truism.”  [Why isn’t it a truism because we can expect
their self-interest to induce them to be right? At least their expectations for
the ad could be circumstantial evidence of its effectiveness.] But that opinion
couldn’t substitute for evidence that the advertising actually worked.  The disgorgement award was vacated.
So was the
corrective advertising award. “Lanham Act awards are compensatory, not
punitive.” Though the court didn’t categorically reject prospective corrective
advertising awards, ITW offered no evidence that it needed or deserved one. It
didn’t argue that it had a plan for such advertising, what it would be, “offer
a ballpark figure of what it might cost, or provide even a rough methodology
for the jury to estimate the cost. Damages need not be proven with exacting
precision, but they cannot be based on pure speculation.” The jury couldn’t reasonably
have based such an award only on how much RO spent on its own advertising, but
that was all it had to go on. Indeed, there wasn’t even evidence that Rain-X’s
injured reputation needed help, given that it was the undisputed market leader,
“and there was no evidence that Rust-Oleum was even remotely successful in its
attempt to dethrone the king.” Here, a corrective advertising award would be a
windfall. [I guess sometimes, if you go after the king, best to miss.]
With the damages
award vacated, the only remaining issue was RO’s argument that the evidence was
insufficient to find it liable for the 100-car-washes claim, and again RO
prevailed. ITW didn’t present evidence that the deception was material.
Again, the court of
appeals was unwilling to rely on common sense: (1) the claim misrepresented how
long RainBrella lasts, which is an inherent quality or characteristic of
RainBrella; and (2) the claim was important to Rust-Oleum’s marketing strategy.
The Fifth Circuit doesn’t think there are inherent qualities or characteristics,
as it already established in its Pizza Hut case. “If misleading claims
about something as vital to pizza as its ingredients were not necessarily
material, a misleading claim about how long a windshield water-repellant
treatment lasts was not, either. Moreover, though Illinois Tool Works asserts
that consumers want to know how long these products last, it does not
substantiate this assertion with evidence.”
Nor did the prominence
of the claim in RO’s marketing show materiality. Not in the Fifth Circuit! The
court doesn’t explain why prominence isn’t at least circumstantial evidence of
importance to consumers, just says that the cases about prominence aren’t Fifth
Circuit cases. I guess in the Fifth Circuit you could get an executive up on
the stand to testify that the central characteristic of your product matters to
consumers … but maybe even that wouldn’t be relevant evidence in the Fifth
Circuit, since it’s already said that executives’ beliefs in materiality aren’t
evidence of materiality.
And the fact that a
consumer was surprised that RainBrella was so ineffective didn’t show materiality,
either—that was just one consumer, and there was no evidence that he bought the
product because he expected it to last 100 washes.

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