Ninth Circuit accepts declaration testimony as proof of materiality of false advertising

United States of America

Under US law, a plaintiff seeking to prove a defendant’s liability for false advertising can do so by one of two theories:

  • the defendant’s advertising is literally false; or
  • the defendant’s advertising, although literally true, is nevertheless misleading in context.

The distinction between the two is an important one, because literally false advertising is presumed to be material to the purchasing decisions of consumers exposed to it, while merely misleading advertising must be material to be actionable. Plaintiffs seeking to prove the materiality of allegedly misleading advertising traditionally have had to do so through the results of expensive and time-consuming surveys.

In Skydive Ariz Inc v Quattrocchi (No 10-16099, 2012 WL 763545, March 12 2012), however, the US Court of Appeals for the Ninth Circuit has departed from this rule, in the process producing a rare opinion unambiguously accepting declaration testimony as proof of materiality.

That outcome came in litigation between participants in the skydiving industry. The plaintiff hosted skydives, while the defendants provided advertising and booking services for third parties. The plaintiff established that the defendants had misled consumers by suggesting that the defendants themselves operated skydiving facilities and that the plaintiff would honour orders placed with the defendants. Rather than introducing survey evidence, the plaintiff instead relied on a consumer declaration averring that the declarant had personally done business with the defendants based on the defendants’ representations and advertisements that he could redeem his order with the plaintiff; the plaintiff buttressed its showing on this point with “evidence of numerous consumers who telephoned or came to [the plaintiff’s] facility after being deceived by [the plaintiff] and [the defendants]”.

Affirming the district court’s finding of materiality as a matter of law, the appellate court rejected the defendants’ argument that the absence of survey evidence should have been fatal to the plaintiff’s motion for partial summary judgment: “Although a consumer survey could... have proven materiality, we decline to hold that it was the only way.”

Although therefore affirming the plaintiff’s victory on the merits, the appellate court nevertheless reversed the trial court’s doubling of the monetary relief to which the plaintiff was entitled under Section 35(a) of the Lanham Act, 15 USC § 1117(a). That section provides:

"In assessing damages, the court may enter judgment, according to the circumstances of the case, for any sum above the amount found as actual damages, not exceeding three times such amount. If the court shall find that the amount of recovery based on profits is either inadequate or excessive the court may in its discretion enter judgment for such sum as the court shall find to be just, according to the circumstances of the case. Such sum in either of the above circumstances shall compensation and not a penalty."

The Ninth Circuit made clear that the last sentence of this excerpt mattered as much as the first two. Reviewing the trial court’s rationale, it held that “[t]he district court’s focus on [the defendants’] ‘seeming disregard for the people they harmed and the reputation they sullied’ suggests that it enhanced the [monetary relief] in response to [the defendants’] base willfulness”. Specifically, “[i]nstead of discussing the appropriate award to compensate [the plaintiff] or to deter [the defendants], the district court focused on the need for [the defendants] to ‘appreciate’ and ‘accept the wrongfulness of their conduct’”. This preoccupation, the appellate court held, rendered the district court’s action an abuse of discretion, regardless of whatever permissible goals otherwise may have driven it: “The broader context of the court’s enhancement discussion reveals its punitive motivation.”

Theodore H Davis Jr, Kilpatrick Townsend & Stockton LLP, Atlanta

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