Damages Soar from False Advertising About Skydiving

In 2005, SA sued Skyride under ” 43(a) and 43(d) of the Lanham Act for false advertising and cybersquatting respectively, and under 15 USC ' 1125(a) for trademark infringement. SA claimed that Skyride's advertisements falsely misled consumers who wished to skydive in Arizona into thinking they were contracting with an
Arizona skydiving company. In particular, they alleged that Skyride traded upon SA's goodwill and misled customers into believing that SA would accept Skyride's certificates.

The factual record showed that Skyride owned and operated numerous websites that referenced Arizona cities and the term “skydiving” in their domain names, such as “PhoenixSkydiving” or “Scottsdale-Skydiving,” even though Skyride did not own or operate any skydiving facilities in Arizona. They also operated sites that specifically referenced SA by using domains such as “Skydivearizona.net,” “arizona-
skydive.com” and “skydivingarizona.com.” In fact, SA did not advertise on any of these websites nor did it accept Skyride's certificates. In short, it had no business dealings with Skyride, despite Skyride's use of these domain names. The record included factual showings of a strategic decision by Skyride to use these advertising tactics to attract more customers. SA also submitted evidence of actual confusion among customers and a loss of goodwill in the public eye.

In 2009, the district court entered partial summary judgment for SA on its false advertising claim. Later that year, at trial, a jury awarded the following damages: $1 million as damages for willful false advertising, $2.5 million in actual damages for willful trademark infringement, $2,500,004 in lost profits and $100,000 in statutory damages for cybersquatting. SA was the complete victor at the trial level.

Skyride moved for a new trial, reduction of the jury award, remittitur, and judgment notwithstanding the verdict. The district court not only denied Skyride's motions, it also went further to double the actual damages awards for false advertising and trademark infringement to $5 million and $2 million respectively. It did not increase the jury's other awards but confirmed them.

The Ninth Circuit's Opinion

Both parties appealed, to the circuit court, and in March, 2012, the Ninth Circuit reversed the district court's increase of damages, but let the remainder of the trial court's and district court's decisions stand. The opinion noted that the circuit appeals court had reviewed the lower court decision only for abuse of discretion. In so doing, it looked to see if “the jury's award was supported by reasonable inferences and assessments, based on substantial evidence in the record.”

The Partial Summary Judgment for False Advertising

While the factual record was not in dispute, the circuit court outlined the five elements to a ' 43(a) advertising claim: 1) advertising containing a false statement of fact about defendant's or another's product; 2) a showing that the statement deceived or has the tendency to deceive a substantial portion of the audience; 3) a showing that the deception materially influences a purchase decision; 4) proof that the advertiser used the statement in interstate commerce; and 5) proof that the plaintiff has been or is likely to be injured by the false statement by lessening sales or goodwill.

Skyride had disputed only the district court's materiality finding on appeal. The circuit court upheld the district court's finding that Skyride's false statements materially influenced customers. In so doing, the circuit court noted that materiality did not require a survey as evidence. Instead, it recognized declarations from confused customers as a showing of materiality. It noted that a survey is useful for literally true but misleading statements, but declarations are sufficient for false statements that are misleading. As such, the circuit court upheld the partial summary judgment finding by the district court.

The Damages Awards

The circuit court examined four categories of damages awarded by the district court.

Actual Damages: Skyride contended that SA did not present enough evidence to prove its actual damages. The circuit court looked to the language of the Lanham Act for a standard to judge the sufficiency of the evidence. The statute allows a court to act in its discretion to award damages based on a number of factors including “any damages sustained by the plaintiff.” The Ninth Circuit focused on proving “any damages” as a tort, even in a trademark action. First, a plaintiff needs to show causation. Then, the plaintiff “need[s] only [show] substantial evidence to permit the jury to draw reasonable inferences and make a fair and reasonable assessment.”

In the instant case, the Ninth Circuit was not concerned that SA had not provided a specific formula for measuring the harm to its goodwill. It was satisfied that SA had presented a factual record that had led the jury to infer reasonably what damages SA had sustained. SA's showing had included evidence of the original value of the goodwill through SA's advertising expenditures over a 10-year period. It also had provided a clear factual record showing that customers blamed SA for their injuries caused by Skyride. Finally, SA had provided testimony about its corrective advertising. Consequently, the circuit court refused to interfere with the jury award, finding it supported by reasonable inferences and assessments of the evidence. The court noted its “willingness to accept 'crude' measures of damages in cases of intentional infringement.”

Lost Profits: In evaluating the award of lost profits, the circuit court refused to question underlying evidence but again looked for a reasonable basis for the award in the record. Because Skyride did not challenge SA's methodology at trial, it no longer had standing to do so. The court accepted the expert's report and upheld the jury's finding of lost profits based on that report.

District Court's Enhancement of Damages: In this one instance, the circuit court took issue with the district court's findings. It held that the district court had doubled the damages to punish Skyride's willfulness, and that goal was an abuse of discretion. The Ninth Circuit opinion cited underlying case law to remind readers of the rule: “In a Lanham Act case, to penalize defendants for 'opprobrious conduct' is an abuse of discretion.” Damages are meant to compensate, not punish. Accordingly, the circuit court reversed the damage enhancement and restored the original jury verdict.

Skyride's Request for Vacatur: Skyride requested the circuit court vacate the entire judgment as “grossly excessive and punitive.” The circuit court refused. It was unmoved by Skyride's claim that the judgment was out of proportion to Skyride's gross revenues because it represented nearly half of its gross revenues. The court noted, “Skyride fails to present us with any authority, however, allowing a defendant to escape liability for trademark infringement and false advertising damages by claiming, essentially, that it is too small to justify such a large award.”

SA's Request for Nationwide Injunction

After a thorough examination of the damages, the circuit court rejected SA's request to broaden the geographic scope of the injunction beyond Arizona. It found no evidence in the record that the specific harm caused by Skyride went beyond Arizona's borders or that Skyride's illegal activity went beyond Arizona.

Significance of the Circuit Court Opinion

The dollar amounts in this case are high, even after the circuit court's reversal of the district court's doubling of damages. Consequently, the case suggests significant consequences for violating the Lanham Act and for trademark infringement. It seems, however, that the factual record in this case clearly proved willfulness, a showing that is not always so clearly available.

The case is also important in its explanation of what kind of evidence a plaintiff must have at trial. Where the false advertising has been willful and involves clearly false statements, plaintiffs do not need a survey to prove materiality. In addition, they do not have to show precise measurements of actual damages. Instead, they may provide an evidentiary road map for a jury to draw a reasonable inference of actual damages.

Finally, this case provides a refresher course on how appellate review works. The circuit court repeatedly discussed how it was looking for an abuse of discretion but refused to parse the factual record. It only found an abuse of discretion in the district court's seeming desire to punish Skyride for its malfeasance rather than just seeking to compensate SA. Nonetheless, the case produced a large damages award that should be a caution to other wrongdoers and serve as a useful precedent to plaintiffs in seeking significant damages.

'

Kyle-Beth Hilfer, a member of this newsletter's Board of Editors, specializes in advertising, marketing, promotions, intellectual property and new media law. She advises clients regularly on their advertising strategies and campaigns to ensure compliance with the Lanham Act and other related statutes. For more information about her law practice, please visit http://www.kbhilferlaw.com/. ' Kyle-Beth Hilfer, P.C. 2012.

In March 2012, the Ninth Circuit in Skydive Arizona, Inc. v. Quattrocchi, et al., No. 10-16099 (9th Cir. March 12, 2012) upheld a $6.6 million judgment for trademark infringement, false advertising, and cybersquatting, while overturning the district court's doubling of actual damages. The opinion succinctly outlines appellate review standards while offering insights into how to prove a Lanham Act and cybersquatting case.

The case arose out of a dispute between “Skydive Arizona” (“SA”), the famous owner and operator of one of the largest skydiving centers in the world, and a group of defendants, collectively referred to as “Skyride,” the operators of an internet and phone-based advertising and booking service. Skyride's advertising service made skydiving arrangements for its customers, issuing certificates for redemption at various locations around the country.

Procedural and Factual Background

In 2005, SA sued Skyride under ” 43(a) and 43(d) of the Lanham Act for false advertising and cybersquatting respectively, and under 15 USC ' 1125(a) for trademark infringement. SA claimed that Skyride's advertisements falsely misled consumers who wished to skydive in Arizona into thinking they were contracting with an
Arizona skydiving company. In particular, they alleged that Skyride traded upon SA's goodwill and misled customers into believing that SA would accept Skyride's certificates.

The factual record showed that Skyride owned and operated numerous websites that referenced Arizona cities and the term “skydiving” in their domain names, such as “PhoenixSkydiving” or “Scottsdale-Skydiving,” even though Skyride did not own or operate any skydiving facilities in Arizona. They also operated sites that specifically referenced SA by using domains such as “Skydivearizona.net,” “arizona-
skydive.com” and “skydivingarizona.com.” In fact, SA did not advertise on any of these websites nor did it accept Skyride's certificates. In short, it had no business dealings with Skyride, despite Skyride's use of these domain names. The record included factual showings of a strategic decision by Skyride to use these advertising tactics to attract more customers. SA also submitted evidence of actual confusion among customers and a loss of goodwill in the public eye.

In 2009, the district court entered partial summary judgment for SA on its false advertising claim. Later that year, at trial, a jury awarded the following damages: $1 million as damages for willful false advertising, $2.5 million in actual damages for willful trademark infringement, $2,500,004 in lost profits and $100,000 in statutory damages for cybersquatting. SA was the complete victor at the trial level.

Skyride moved for a new trial, reduction of the jury award, remittitur, and judgment notwithstanding the verdict. The district court not only denied Skyride's motions, it also went further to double the actual damages awards for false advertising and trademark infringement to $5 million and $2 million respectively. It did not increase the jury's other awards but confirmed them.

The Ninth Circuit's Opinion

Both parties appealed, to the circuit court, and in March, 2012, the Ninth Circuit reversed the district court's increase of damages, but let the remainder of the trial court's and district court's decisions stand. The opinion noted that the circuit appeals court had reviewed the lower court decision only for abuse of discretion. In so doing, it looked to see if “the jury's award was supported by reasonable inferences and assessments, based on substantial evidence in the record.”

The Partial Summary Judgment for False Advertising

While the factual record was not in dispute, the circuit court outlined the five elements to a ' 43(a) advertising claim: 1) advertising containing a false statement of fact about defendant's or another's product; 2) a showing that the statement deceived or has the tendency to deceive a substantial portion of the audience; 3) a showing that the deception materially influences a purchase decision; 4) proof that the advertiser used the statement in interstate commerce; and 5) proof that the plaintiff has been or is likely to be injured by the false statement by lessening sales or goodwill.

Skyride had disputed only the district court's materiality finding on appeal. The circuit court upheld the district court's finding that Skyride's false statements materially influenced customers. In so doing, the circuit court noted that materiality did not require a survey as evidence. Instead, it recognized declarations from confused customers as a showing of materiality. It noted that a survey is useful for literally true but misleading statements, but declarations are sufficient for false statements that are misleading. As such, the circuit court upheld the partial summary judgment finding by the district court.

The Damages Awards

The circuit court examined four categories of damages awarded by the district court.

Actual Damages: Skyride contended that SA did not present enough evidence to prove its actual damages. The circuit court looked to the language of the Lanham Act for a standard to judge the sufficiency of the evidence. The statute allows a court to act in its discretion to award damages based on a number of factors including “any damages sustained by the plaintiff.” The Ninth Circuit focused on proving “any damages” as a tort, even in a trademark action. First, a plaintiff needs to show causation. Then, the plaintiff “need[s] only [show] substantial evidence to permit the jury to draw reasonable inferences and make a fair and reasonable assessment.”

In the instant case, the Ninth Circuit was not concerned that SA had not provided a specific formula for measuring the harm to its goodwill. It was satisfied that SA had presented a factual record that had led the jury to infer reasonably what damages SA had sustained. SA's showing had included evidence of the original value of the goodwill through SA's advertising expenditures over a 10-year period. It also had provided a clear factual record showing that customers blamed SA for their injuries caused by Skyride. Finally, SA had provided testimony about its corrective advertising. Consequently, the circuit court refused to interfere with the jury award, finding it supported by reasonable inferences and assessments of the evidence. The court noted its “willingness to accept 'crude' measures of damages in cases of intentional infringement.”

Lost Profits: In evaluating the award of lost profits, the circuit court refused to question underlying evidence but again looked for a reasonable basis for the award in the record. Because Skyride did not challenge SA's methodology at trial, it no longer had standing to do so. The court accepted the expert's report and upheld the jury's finding of lost profits based on that report.

District Court's Enhancement of Damages: In this one instance, the circuit court took issue with the district court's findings. It held that the district court had doubled the damages to punish Skyride's willfulness, and that goal was an abuse of discretion. The Ninth Circuit opinion cited underlying case law to remind readers of the rule: “In a Lanham Act case, to penalize defendants for 'opprobrious conduct' is an abuse of discretion.” Damages are meant to compensate, not punish. Accordingly, the circuit court reversed the damage enhancement and restored the original jury verdict.

Skyride's Request for Vacatur: Skyride requested the circuit court vacate the entire judgment as “grossly excessive and punitive.” The circuit court refused. It was unmoved by Skyride's claim that the judgment was out of proportion to Skyride's gross revenues because it represented nearly half of its gross revenues. The court noted, “Skyride fails to present us with any authority, however, allowing a defendant to escape liability for trademark infringement and false advertising damages by claiming, essentially, that it is too small to justify such a large award.”

SA's Request for Nationwide Injunction

After a thorough examination of the damages, the circuit court rejected SA's request to broaden the geographic scope of the injunction beyond Arizona. It found no evidence in the record that the specific harm caused by Skyride went beyond Arizona's borders or that Skyride's illegal activity went beyond Arizona.

Significance of the Circuit Court Opinion

The dollar amounts in this case are high, even after the circuit court's reversal of the district court's doubling of damages. Consequently, the case suggests significant consequences for violating the Lanham Act and for trademark infringement. It seems, however, that the factual record in this case clearly proved willfulness, a showing that is not always so clearly available.

The case is also important in its explanation of what kind of evidence a plaintiff must have at trial. Where the false advertising has been willful and involves clearly false statements, plaintiffs do not need a survey to prove materiality. In addition, they do not have to show precise measurements of actual damages. Instead, they may provide an evidentiary road map for a jury to draw a reasonable inference of actual damages.

Finally, this case provides a refresher course on how appellate review works. The circuit court repeatedly discussed how it was looking for an abuse of discretion but refused to parse the factual record. It only found an abuse of discretion in the district court's seeming desire to punish Skyride for its malfeasance rather than just seeking to compensate SA. Nonetheless, the case produced a large damages award that should be a caution to other wrongdoers and serve as a useful precedent to plaintiffs in seeking significant damages.

'

Kyle-Beth Hilfer, a member of this newsletter's Board of Editors, specializes in advertising, marketing, promotions, intellectual property and new media law. She advises clients regularly on their advertising strategies and campaigns to ensure compliance with the Lanham Act and other related statutes. For more information about her law practice, please visit http://www.kbhilferlaw.com/. ' Kyle-Beth Hilfer, P.C. 2012.