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15-Second Advertising Law Alert: Blue-Sky Decision on Materiality and Damages Enhancement

Date: Mar 15, 2012

How to prove the essential element of materiality and the standard for enhancing damage awards were among several key issues in a recent 9th Circuit Lanham Act false advertising case decision.* (Not covered here are trademark and cybersquatting issues in the case).

BACKGROUND

Plaintiff is one of the largest and best known skydiving centers in the world. Defendants are associated with an unrelated advertising and booking service, which sells skydivers certificates for redemption at diving centers.

The trial court granted Plaintiff summary judgment on its allegations that Defendants misled consumers into thinking that Defendants owned skydiving facilities in Arizona and that Plaintiff would redeem Defendants' certificates.

In finding that Defendants' claims were material, the trial court credited a consumer's declaration that he was misled. It also cited supporting evidence of some consumers who told Plaintiff that they believed Defendants were affiliated with Plaintiff. No materiality surveys were introduced.

The jury awarded Plaintiff $1 million in damages for willful false advertising. The trial court doubled that under the Act's discretionary enhancement clause. In doing so, that court emphasized "the purposefully deceptive nature of Defendants' conduct" and the "seeming disregard for the people they harmed."

Defendants appealed the materiality finding on grounds that the single consumer declaration was ambiguous, apparently alleging that consumer materiality surveys were needed. Defendants also argued that the enhancement was a punitive award, expressly barred by the Act.

DECISION

The appeals court affirmed the materiality finding, holding that consumer surveys are not the only way to prove materiality, and this declaration was adequate under the circumstances. But it reversed the damages enhancement, finding that it was an abuse of discretion based on a punitive motivation.

For more information on this and other Advertising Law matters, please contact Dick J. Leighton at +1 202.434.4220 or at leighton@khlaw.com.

* Skydive Arizona, Inc. v. Cary Quattrocchi, et al., No. 10-16099 (9th Cir.; Mar. 12, 2012).