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The U.S. Court of Appeals for the Ninth Circuit held that even in the absence of an award of damages on a Lanham Act false advertising claim, a party can recover attorneys’ fees after obtaining an injunction that confers substantial benefit to the public. TrafficSchool.com, Inc. v. Edriver Inc., Case No. 08-56518; -56588; 09-55333 (9th Cir., July 28, 2011) (Kozinski, C.J.).
Defendant Edriver operates the website located at DMV.org, which serves as a repository of driving-related information. Edriver receive revenues from selling sponsored links and collecting fees for referring website visitors to other sponsored sites. The plaintiffs market and sell traffic school and drivers’ education courses. The plaintiffs brought claims against the defendants for false advertising under the Lanham Act and violation of California’s unfair competition statute, alleging that defendants actively fostered among consumers the false belief that the defendants’ DMV.org website is an official state website sponsored by the Department of Motor Vehicles or is affiliated with a state DMV. To support their claims, the plaintiffs introduced evidence of consumer communications to the defendants reflecting the mistaken belief that the consumers were communicating with an official state DMV. After a trial, the district court held that the defendants violated the Lanham Act but rejected the claim concerning California’s unfair competition statute. The district court issued a permanent injunction requiring the display of a splash screen warning users that the DMV.org site was not affiliated with any state DMV, but awarded no monetary damages to the plaintiffs and denied the plaintiffs’ request for an award of attorneys’ fees.
After ruling that the permanent injunction was overbroad and had to be modified, the 9th Circuit affirmed the district court’s denial of damages to the plaintiffs, explaining that “[t]he Lanham Act allows an award of profits only to the extent the award ‘shall constitute compensation and not a penalty.’” Noting that the advertising at issue did not directly compare the parties’ respective products, the court reasoned that, “the injury to plaintiff ‘may be a small fraction of the [defendants’] sales, profits or advertising expenses.’” As a result, the court found that the plaintiffs had failed to produce “any proof of past injury or causation” and affirmed the district court’s ruling denying an award of damages.
Notwithstanding the denial of damages to the plaintiffs, the 9th Circuit reversed the district court’s denial of attorneys’ fees under the Lanham Act, which permits the recovery of fees in “exceptional cases.” The court concluded that the district court had applied the incorrect standard by considering only the fact that the plaintiffs recovered no damages and by failing to consider the defendants’ conduct. The court further explained that the district court should have considered the fact that the defendants’ conduct was willful and that the plaintiffs obtained an injunction that conferred substantial benefit on the public by ending the confusion created by the DMV.org website. Accordingly, the court found it would be “inequitable to force plaintiffs to bear the entire cost of enjoining defendants’ willful deception when the injunction confers substantial benefits on the public.”
Practice Note: To support a claim for damages on a false advertising claim, a plaintiff cannot rely solely on evidence of the defendants’ profits; evidence of past injury or causation is also required. Even if no damages are awarded, however, a request for attorneys’ fees should be considered.
© 2013 McDermott Will & Emery
