Rebecca Tushnet

Harbor Breeze Corp. v. Newport Landing Sportfishing, Inc., 2019
WL 4570033, No. SACV 17-01613-CJC(DFMx) (C.D. Cal. Aug. 26, 2019)

Harbor Breeze won a jury verdict of false advertising
against Newport, a competitor in the whale watching tour business, but received
$0 in damages (and $0 in an advisory verdict on disgorgement).  The court declined to order disgorgement of
profits or award attorneys’ fees, but did grant a permanent injunction because
damage had been shown but wasn’t sufficiently quantifiable to allow legal
remedies, making injunctive relief appropriate.

Harbor Breeze operates in Long Beach and San Pedro in Los
Angeles County, and Newport operates in Newport Beach in Orange County.  The false advertising at issue: (1) A
consumer who searched online for “Long Beach whale watching” would get
Newport’s website, which made repeated use of the phrase “Long Beach residents
and visitors,” suggesting that its cruises depart from Long Beach, not Newport
Beach. (2) Newport advertised, for example, a “$10 whale watching special,” but
consumers could never get on its whale watching cruise for only ten dollars;
there was also a $2.50 fuel surcharge and a 2% wharfage fee. “There was also
evidence that calling these extra charges a ‘fuel surcharge’ or ‘wharfage fee’ was
misleading because these fees were a way to get extra revenue, not tied to
actual expenses, and Defendants did not disclose these fees until late in the
process.”

In the Ninth Circuit, unless and until the Supreme Court
changes things, disgorgement under the Lanham Act requires willfulness.  The court agreed with the jury.  It was reasonable to find no willfulness; one
of Newport’s owners testified that Newport made changes to websites and ads
following state court litigation in 2012 over false advertising and afterwards,
they thought they were in compliance. And the evidence indicated an intent to
optimize search results, not to deceive. One change was language on every webpage
that Newport’s boats departed from “beautiful Newport Beach.” Also, a jury
could reasonably find that Newport’s profits weren’t attributable to false
advertising. “There was evidence that, even including the extra fees,
Defendants offered cheaper whale watching cruises than Plaintiffs…. Consumers
might care more about getting a good deal than where the cruise departs or
whether a few dollars get added to the ticket cost.”  And there wasn’t evidence of intent to
mislead about ticket prices because they ultimately disclosed all the fees
prior to purchase, even if that turned out to be misleading.  [Note: this is terrible reasoning. The point
of bait and switch is that you draw the consumer in with one price, then
disclose the extra cost when they’re psychologically and perhaps otherwise
committed to the purchase.  This may not
be an appropriate case for disgorgement, but the fact that they successfully
carried out the bait and switch does not mean they had nondeceptive intent.]

Permanent injunction: The jury found that the false
advertising caused or was likely to cause damage to the plaintiffs. Harbor
Breeze’s VP of operations testified that they regularly received calls from
customers who are confused by the false advertising and who believed that Harbor
Breeze offers Newport’s $16 whale watching special. A customer once attempted
to board Harbor Breeze’s whale watching cruise with a Groupon voucher from Newport
and became upset enough at learning the truth that they let him take the cruise
for free. Other employees similarly testified about confused and angry
customers, harming Harbor Breeze’s business reputation and goodwill.

Legal remedies were inadequate because this kind of harm “is
difficult to quantify,” as the jury’s verdict denying damages demonstrated. The
balance of hardships/public interest also favored an injunction to keep
defendants from returning to their old ways.

However, to protect truthful commercial speech, the court
limited the relief granted. Rather than requiring Newport to put a statement of
its location on all ads or webpages, it would only require disclosure of
Newport’s location for “webpages and advertisements that repeatedly use the
name of another city, making it seem as if Defendants’ whale watching cruises
depart from a city other than Newport Beach. It is not misleading, for example,
for Defendants to state on their website that they are about twenty miles away
from Long Beach. But a repeated reference to Long Beach, without a clear
disclosure regarding Defendants’ location of departure, may mislead or confuse
consumers.”

Nor would Newport have to edit its webpages’ source code to
include the text “Newport Beach Cruise Operator” in the title tag or the phrase
“All Cruises Depart from Newport Beach” in the description tag. To do so, the
court thought, would “significantly burden protected speech,” though it didn’t
explain how.  The analogy was to the splash
screen in the Trafficschool.com case, but that case involved a
clickthrough that interfered with reaching any web page at all on the website;
the proposed mandatory language might not have done much good, but it’s a
standard disclosure that wouldn’t prevent search engine indexing or require a
consumer clickthrough and thus doesn’t appear burdensome at all. The court
thought that the required text would “unfairly impair Defendants’ ability to
optimize their search engine results,” but why? 
If they can only maximize their results by not using the name Newport,
that seems like it’s pretty closely connected to the falsehoods at issue here.

Nor would defendants have to give up domain names with other
city names. There were lawful uses for those; they might want to reserve a
particular domain name, for instance, in case they expand to other cities.

And Newport wouldn’t be enjoined from buying the names of
geographic locations other than Newport Beach on pay-per-click advertising
systems like Google AdWords. There was nothing wrong with that, “so long as
consumers understand the cruises depart from Newport Beach.” There was also
nothing wrong with outbidding other operators for ads.

Finally, the court was “concerned about the administrability
and feasibility of an injunction that attempts to enjoin what appears in
organic Google search results or third-party websites like Groupon,” and thus
the injunction wouldn’t hold Newport responsible for content created by third
parties.

Separately, Newport “must advertise a price for a ticket
that is the entire final cost of the ticket, excluding any legally collected
sales tax or any optional, add-on services or goods.”

For attorneys’ fees, this wasn’t an exceptional case;
defendants turned out to be right that plaintiffs couldn’t prove [the amount
of] any damages. “Although the injunction confers some public benefit, stopping
misleading advertising about whale watching does not ameliorate a serious
public harm.”