Is disgorgement the new normal in Lanham Act cases?

Grasshopper
House, LLC v. Clean & Sober Media, LLC, 2021 WL 3702243, No. 19-56008, No.
19-56072, — Fed.Appx. —- (9th Cir. Aug. 20, 2021)

The
TMA’s injunctive relief changes are probably going to make it even more clear
that courts aren’t entirely sure whether damage is part of the cause of action
for false advertising; since it isn’t for trademark infringement, trademark
plaintiffs never have to show damage at all to get relief and even
disgorgement, which has now become much more readily available. Is that true
for false advertising plaintiffs?

Here,
the parties compete in the market for addiction treatment. A jury found
defendants liable for false advertising through a purportedly unbiased,
independent site. The district court entered a permanent injunction against defendants
but denied disgorgement of profits, attorneys’ fees and costs. The panel, over
two separate dissents, sends it back for reassessment of disgorgement,
attorneys’ fees and costs (and still doesn’t publish the opinion).

The
district court excluded the plaintiff’s damages expert, finding that he didn’t
apply a reliable methodology in assessing causation of damages because he
discounted competing causal factors without an adequate basis and lacked the
necessary expertise to make those judgments. The district court acted within
its discretion in doing so, and properly cancelled the damages phase of the
jury trial because no other witness had been disclosed on damages. Plaintiff
argued that it should have been able to use the testimony of its principal, but
even during deposition, plaintiff’s counsel stated that he “was not [there] to
talk about causation and damages” and objected to questions directed to him
about damages, declaring that this topic would be exclusively “within the scope
of expert opinion.” He himself acknowledged at his deposition that it was
“beyond his scope of understanding” to explain how plaintiff was damaged.

Disgorgement
had to be sent back because the law on willfulness being required for
disgorgement changed after the court ruled. But watch this language: “On
remand, the district court should consider Defendants’ mental state — whatever
that may be — when determining what award of profits is appropriate.” So
plaintiff is apparently entitled to disgorgement without ever having shown that
it was damaged by the false advertising. So, is damage to the plaintiff part of
the cause of action or no?

The
court said further: “it was an abuse of discretion for the district court to
deny Plaintiff’s request for disgorgement on the ground that Plaintiff had not
established causally, and to a reasonable certainty, the ‘financial benefit’ that
Defendants received from their false advertisement as to Plaintiff.” The trial
court was certain that the defendants had profited to some degree from false
statements about the neutrality of the review and from a review that
represented that it was “based on surveys of former [Plaintiff] clients.” Both
parties’ experts calculated that each of the 192,434 visits to the relevant
webpage had some value, though they disagreed about whether it was $40
or $1.80 per click. Even the lower bound would yield a disgorgement amount at
least five times that of the ‘hypothetical’ alternative amount of $60,000
reached by the district court.” Because even defendants’ expert recognized some
benefit to defendants, it was an abuse of discretion to find that the financial
benefit to them could not be established to a reasonable certainty.

One of
the dissents argued that, because the plaintiff’s theory of falsity was focused
on the falsity of the process by which the review was repaired, the
disgorgement theory needed to account for the possibility that the plaintiff’s
facility deserved its review. That overstates a plaintiff’s burden. “Having
presented sufficient evidence to show that the highly negative review was not
generated by the process that was represented, Plaintiff amply established that
the review was unreliable and therefore false and misleading. At the very
least, Plaintiff demonstrated that the review falsely augmented its own
trustworthiness and persuasiveness.”

The
court vacated the attorneys’ fees award in case its ruling on disgorgement on
remand affected its ruling on the award of attorney fees. And it reversed the
denial of costs because successful plaintiffs are entitled to them; it wasn’t
enough to say that the litigation was “excessively-protracted” or that they
weren’t entitled to attorneys’ fees, which are judged by a different standard.

One
partial dissent thought the district court prejudicially erred in cancelling
the damages phase of the trial for civil procedure reasons.

The
other partial dissent was on disgorgement. In its view, the jury only found
falsity as to the procedure followed by the review and the statement of the
process by which it was developed, not by any particular statement in the
review itself or its ultimate star rating. Thus, damages would have to relate “to
relate to people who were dissuaded from seeking treatment at [plaintiff’s
facility] because of the failure to base the review on former clients’
assessments of the services, as set forth in the Process Statement.” 

from Blogger https://ift.tt/3zRZSbz

This entry was posted in Uncategorized and tagged , , . Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s