literal falsity as Q of fact v. law and other important issues in a dueling ladder case

Wing Enters., Inc. v. Tricam Indus., Inc., No. 17-cv-1769
(ECT/ECW), 2021 WL 63108 (D. Minn. Jan. 7, 2021)

After remand
because the court of appeals concluded that a materiality survey was wrongly
excluded
, the court here tries again in this false advertising case between
competing sellers of articulated ladders, also known as multi-position (or MPX)
ladders. Given the inclusion of the survey, a reasonable jury could find both
that Tricam made a literally false statement and that Wing suffered cognizable
commercial injury. One thing worth noting here is the relevance of greater
availability of disgorgement of profits, creating the potential for an award
even when damages can’t be proven with reasonable specificity.

Wing’s claims all revolve around ANSI A14.2, a voluntary
industry standard that “prescribes rules governing safe construction, design,
testing, care and use of portable metal ladders of various types and styles.” The
standard says, inter alia, that when a ladder uses particular types of rungs
those rungs “shall have a step surface of not less than 1 inch, either flat or
along a segment of 3 inches or greater radius.” The outer rungs on Tricam’s
multi-position ladders are greater than one inch deep in the middle, but they
are crimped and less than one each deep at each end, where the rung meets the
rail. Wing argued that they therefore fail to comply with the standard, despite
(1) the label affixed to each ladder containing an oval icon that bears the
text “MANUFACTURER CERTIFIES CONFORMANCE TO OSHA1 ANSI A14.2 CODE FOR METAL
LADDERS”; (2) the portion of each product’s page at Home Depot’s website that
provides: “Certifications and Listings: ANSI Certified”; and (3) the portion of
each product’s page on Tricam’s website that provides: “CERTIFICATIONS: ANSI
A14.2 OSHA.”

Tricam argued that it couldn’t be held responsible for
statements on Home Depot’s website. The court found a jury issue (which is a
gift to Tricam). “The gist of this argument is that Tricam only made this
statement to Home Depot—not to the public—and that Home Depot was the one to
disseminate it.” Thus, it wasn’t Tricam’s statement. Wing pointed out
that Tricam “expected and intended that [statements to Home Depot] would be
used in commercial advertising.”

How did the statements get on the website? Home Depot uses an
Item Data Management (IDM) system vendor portal for “managing online content
relating to products Home Depot sells (or that vendors hope Home Depot will
sell)”:

Home Depot chooses what fields a
vendor can or must populate within the IDM system, reviews the content vendors
submit through the IDM system, may reject content that does not follow Home
Depot’s requirements, must approve any changes requested by the vendor, and may
itself change content on a product page without prior notification to the
vendor.

Tricam knew that if it did not
select some type of ANSI certification from a drop-down menu in the IDM system,
Home Depot would not issue a SKU number for the product, and the product would
likely not be sold at Home Depot. A Home Depot representative testified that
the “IDM is the source of truth for all content as it relates to Home Depot”
and that Home Depot relies on its suppliers, like Tricam, to make sure the
content it enters into the IDM system is accurate.

Home Depot doesn’t independently audit that information, and
Tricam warranted that its marketing materials were accurate, including
specifically ANSI statements. Deposition testimony unsurprisingly confirmed
that Tricam expected and intended that the information it entered would appear
on Home Depot’s website and that customers would use it for comparison when
ladder-shopping.

Tricam monitors Home Depot pages for Tricam ladders; it can
request content changes by submitting a ticket in the IDM system. It considered
doing so after this lawsuit was filed, when it removed the ANSI-certification
language from its own website, but didn’t, “in part because it wanted customers
to be able to differentiate its products from other articulated ladders on Home
Depot’s site.”

The court found no previous authority addressing “whether
and when a supplier’s Lanham Act liability is cut off after the supplier passes
on an allegedly false statement to a retailer expecting and intending that the
statement will reach the purchasing public.” Tricam made the novel but too
clever by half argument that it could only be contributorily liable, and Home
Depot was not alleged to be primarily liable (and Wing might lack standing
against Home Depot).

I would have rejected this claimwashing attempt out of hand
given the evidence of both intent and effect—the claim reached the consumer
just as if Tricam had paid the transit authority to put posters up on buses—but
the court was more sympathetic. Wing pointed out that false advertising precedent
indicates that retailers can’t be liable for statements from manufacturers,
which indicates that the manufacturers are the appropriate target for primary
liability, but the court thought that was irrelevant to whether Tricam could be
liable, apparently comfortable with the idea that nobody could be liable for a
false ad. The court reasoned that because it’s possible that both manufacturer
and retailer could be liable, authorities that retailers weren’t liable
for transmitting false advertising to consumers didn’t bear on whether
manufacturers were liable. This seems to me like a logic error.

The court found that, with reference to the language of the
Lanham Act, which requires “use” of a false statement in commerce, the relevant
question was “whether the business has ceded so much control that it is no longer
‘using’ the ad.” [Even under the court’s own terms, the issue should be whether
the business is controlling the statement at issue. Extensive editorial
control by the publisher over the format or other non-false portions of the ad
should be irrelevant.]

The court held that there was a genuine dispute of material
fact over “whether the degree of control Home Depot exercised over its website
means that Tricam did not ‘use’ the online ANSI-certification statement in
commerce”:

The evidence that Home Depot could
change the content on its webpage without notifying Tricam could suggest that
Tricam effectively surrendered control over the allegedly false content. But
there is also evidence that Home Depot relies on its vendors to enter accurate
information in the system without independently auditing that information; that
Tricam expected and intended that customers would use the information it
entered into the IDM system to make purchasing decisions; and that Tricam could
request changes to the information after it was posted on the website.

I don’t understand how Home Depot’s “potential”
control could allow a reasonable jury to conclude that Tricam didn’t “use”
this information.

Anyway, a reasonable jury could also find literal falsity.
Literal falsity requires a clear answer to the question “what message is being
conveyed?” because “[o]nly an unambiguous message can be literally false.” Is
this a question of fact or of law? The Eighth Circuit cases are not clear, with
at least one case treating it as a factual question by applying the clearly
erroneous standard of review to an appeal of a preliminary injunction, and
another stating that “[a] literally false statement can be determined as a
matter of law, but whether a statement is misleading is considered a matter of
fact.” The majority approach in district courts and other circuits is to treat what
message is being conveyed as a question of fact, like the question of whether
that message is false. The court found that the better approach was that potential
ambiguity is a question of fact; the former Eighth Circuit case was decided
first and the weight of authority was on this side.

Again, the court gives weight to what I would have dismissed
as mere chutzpah: Tricam argued that the only reasonable reading of its
statements was that its ladders were tested for ANSI compliance, not
that they passed, and they undisputedly were tested. This was a genuine
dispute over what it means to “certify” ANSI conformance or to claim an ANSI
“certification.” Although Tricam thus posited competing meanings, there would
only be ambiguity if there were multiple “reasonable” interpretations of the
advertisement, and a jury could find that all reasonable interpretations were
just different ways of saying the same thing: ANSI conformance.

Actual deception: The Eighth Circuit has held that once a
plaintiff has proved that a statement is literally false, “the court may
presume that consumers were misled … without requiring consumer surveys or
other evidence of the ad’s impact on the buying public.” Tricam argued that this
rule only applied to comparative statements, but cases saying this are talking
about presumptions of harm to the plaintiff/irreparable injury, not
presumptions of consumer deception.

Injury: “Relying primarily on cases involving money damages,
Tricam asserts that the record lacks evidence to support Wing’s claimed
injuries—diversion of sales, price erosion, and loss of business
opportunities—and that Wing has not adequately tied those injuries to Tricam’s
statements, as opposed to other market factors.” But the nature of a plaintiff’s
burden on the injury-and-causation element depends on the type of remedy that
it seeks. There’s no presumption of causation when the parties compete
directly, though courts will presume injury and causation “in comparative
advertising cases where money damages are sought and where there exists proof
of willful deception.” The plaintiff’s burden is highest when it seems money
damages, and lower (now of course presumptive) when it seeks injunctive relief.
Given the congressional policy in favor of protecting consumer rights, “courts
are not and should not be reluctant to allow a commercial plaintiff to obtain
an injunction even where the likelihood of provable impact on the plaintiff may
be subtle and slight.”

Important move: “The burden is similarly low when a
plaintiff seeks the equitable remedy of disgorgement of profits. That is
because, rather than aiming to compensate the plaintiff for specific,
identifiable losses, this remedy ‘exists to deter would-be infringers and to
safeguard against unjust enrichment.’” Once a plaintiff has shown the likely
harm necessary to establish an underlying Lanham Act violation—and remember, a
plaintiff also seeking injunctive relief now gets a presumption of irreparable
harm, so courts now have to decide whether that counts— the plaintiff must
“prove defendant’s sales only; defendant must prove all elements of cost or deduction
claimed.” Willfulness, while a relevant factor, is not an “inflexible
precondition to recovery” of profits under the Lanham Act—the court quoted
McCarthy for the proposition that Romag should also apply to false
advertising claims.

Wing seeks injunctive relief and disgorgement, and thus “does
not need to meet the heightened injury-and-causation burden that applies when a
plaintiff seeks money damages.” Although Wing didn’t provide sufficient
evidence of its alleged lost opportunity to sell ladders in Home Depot stores,
it created a genuine issue of material fact on lost sales/market share and price
erosion. (It didn’t show lost opportunity to sell ladders because the evidence
showed a previous falling out between Wing and Home Depot leading Home Depot to
blacklist Wing. Even though this dispute provided Tricam “an opportunity to get
back into the business” of multi-position ladders, and even though Wing
eventually returned to Home Depot with some other products, Home Depot’s former
ladder merchant declined to speculate about whether she would have invited Wing
back into Home Depot’s retail stores if Tricam had not represented itself as
conforming to ANSI A14.2, saying only that she “would probably reach internal,
to existing suppliers, before [she] reached external, to new suppliers.” Under
these circumstances, including the fact that Home Depot merely accepted Tricam’s
offer rather than conducting a search for a new supplier, the causal chain was
too speculative.)

Sales/market share: Wing argued that Tricam could not have
entered the market if it had not represented that its ladders conformed to the ANSI
standard, and that such ANSI-certification statements made customers more
likely to purchase Tricam’s ladders than Wing’s. There was a close but triable
issue of fact. The parties were in direct competition, including on Home Depot’s
website, and Tricam sold over 565,000 ladders in the first year and a half that
they were on the market. “The combination of the competitive relationship
between the two companies and the volume of Tricam’s sales led Wing’s expert …
to conclude that the introduction of Tricam’s ladders cost Wing sales and
market share.” Add to that testimony that Home Depot likely would not have
continued selling Tricam’s ladders if it had attempted to change its
ANSI-compliance statements and the evidence of materiality accepted by the
Federal Circuit, and you get a triable issue.

There was evidence in the record pointing the other way;
Wing had higher sales on the Home Depot website than projected, and, after
Tricam’s ladders had entered the market, Wing obtained a substantial new line
of business by selling its ladders at Lowe’s. But Wing does not need to
identify “specific damage,” and the jury should resolve the question.

So too with Wing’s evidence of price erosion:

[A] reasonable juror could find
that Tricam’s false ANSI-compliance statements allowed it to enter and remain
in the market by selling its ladders at Home Depot. Once in the market, Tricam
consistently charged a lower price than Wing for its ladders. One of the
reasons Tricam was able to do this was that the crimped design of its ladder
rungs—the source of the dispute over ANSI compliance in this case—made its
ladders cheaper to manufacture.… And this led several of Wing’s retail
partners, particularly Lowe’s, to repeatedly pressure Wing to lower its prices
to compete with Tricam. On one occasion, Wing agreed, at the urging of Lowe’s,
to a 27% promotional discount on 75,000 ladders in order to compete with
Tricam, and the “[e]very day” price of Wing’s ladders “[e]asily” dropped by $40
or $50.

The court cautioned that, while Wing was entitled to go to the
jury, “there is no guarantee that Wing will ultimately be able to obtain the
monetary relief—disgorgement of profits—that it seeks,” given courts’ broad discretion
under the principles of equity. The Eighth Circuit recently suggested that
disgorgement is only appropriate in “exceptional” cases. (Does that survive Romag?)
Given the new presumption of irreparable injury, however, and the possibility
that ANSI certification is necessary in this market, an injunction alone might
be worthwhile for Wing.

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