Antitrust Law Daily Wrap Up, ADVERTISING—10th Cir.: Summary judgment on copyright, Lanham Act claims affirmed for lack of profit nexus, ambiguity, (Apr 15, 2024)

By Justin Marcus Smith, J.D.

The court said it could have presumed all defendant profits came from copyright infringement if the plaintiff had showed a profit-making nexus; and, despite Federal Trade Commission policy, made in America representations were not literally false.

Creager Services, LLC (Creager), a construction equipment manufacturer, was not entitled to summary judgment on a Copyright Act claim about the use of copyrighted photos in competing advertising, affirmed the U.S. Court of Appeals for the Tenth Circuit on the alternative ground that Creager failed to show a nexus with profit making. The court similarly affirmed summary judgment for defendant I Dig Texas, LLC (I Dig Texas), a direct competitor, on Creager’s Lanham Act claim, where I Dig Texas made various comparative advertising statements asserting that its own products were made in the United States, not China. The court concluded the I Dig Texas statements were ambiguous and did not support Creager’s claim of literal falsity for Lanham Act purposes, despite Federal Trade Commission policy about Made in USA labeling. Last, the Tenth Circuit affirmed the district court did not abuse its discretion in declining supplemental jurisdiction over Creager’s state law claims, remanded to state court (I Dig Texas v. Creager, April 12, 2024, Bacharach, R.).

I Dig Texas aimed some of its construction equipment advertisements at those seeking U.S.-made products by incorporating copyrighted photos of competing Creager products to underscore the latter products’ ostensible connection to China. Creager sued I Dig Texas claiming that: 1) use of the Creager photographs constituted copyright infringement in violation of the Copyright Act; and, 2) accompanying text misrepresented the origin of I Dig Texas’ products in violation of the Lanham Act. Creager also asserted state-law claims for deceptive trade practices, tortious interference, and unfair competition. I Dig Texas asserted counterclaims for deceptive trade practices, tortious interference, unfair competition, and defamation.

The district court granted summary judgment to I Dig Texas on Creager’s federal claims. Specific to copyright infringement, the district court relied on I Dig Texas’ affirmative defense of fair use and declined to address any nexus between the use of Creager’s photographs and the making of any profit. The district court remanded all of the state-law claims to state court.

On Creager’s appeal, the questions the Tenth Circuit identified were: 1) whether Creager could show indirect profits without tying the copyrighted images to any I Dig Texas profits; and, 2) whether I Dig Texas’ characterization of the products as “American-made” was true or literally false given that I Dig Texas assembled products in the U.S. with foreign components.

Copyright infringement. The Tenth Circuit affirmed the district court’s award of summary judgment to I Dig Texas on the copyright infringement claim on the alternative ground that Creager failed to establish any nexus between I Dig Texas’ use of Creager’s copyrighted photographs and I Dig Texas’ profits. The Tenth Circuit found, as in applicable case law, that Creager presented no evidence that I Dig Texas had made any money from the advertisements bearing the copyrighted images. Creager only established that I Dig Texas had included the copyrighted images in its advertising. Moreover, even if the advertisements caused additional sales, the court said there was no evidence of such in the record. The court acknowledged that the photos Creager presented certainly depicted Creager skid steer attachments, but it found no evidence in the record below that I Dig Texas sold any more products due to inclusion of the photos.

The court cited that the primary or threshold burden of establishing profits attributable to infringement often gets confused with the secondary or subsequent burden of apportioning the profits between the various factors that contributed to them. In any event, Creager relied on a theory of indirect profits; therefore, it bore the burden of establishing them. The Tenth Circuit explained that if Creager had carried that threshold burden, it could have presumed that all of I Dig Texas’ profits came from infringement, even without evidence that some of the profits came from other sources.

The Tenth Circuit explained it could exercise its discretion to affirm on alternative grounds based on the record below, provided that: 1) the parties briefed the issue; 2) the issue involved a question of law rather than fact; and, 3) the parties had an opportunity to develop the record bearing on I Dig Texas’ profits in connection with summary judgment. The court determined all three factors supported consideration of affirmation on alternative grounds.

Lanham Act. Concluding again that it could affirm on alternative grounds, the Tenth Circuit also found the record below did not support a finding of literal falsity on Creager’s Lanham Act claim. Creager had only argued literal falsity.

Creager challenged the district court’s finding that the I Dig Texas advertisements explained the use of foreign componentry. Creager said that was incorrect with respect to the advertisements underlying the claims. I Dig Texas urged affirmance on alternative grounds because the advertisements were not literally false.

The Tenth Circuit found that I Dig Texas was entitled to summary judgment because, first of all, the statements about place of manufacture in America or in the United States were ambiguous as a matter of law. The record reflected that some I Dig Texas’ products were assembled in the United States, others in China. The products assembled in the United States incorporated some foreign componentry, but even so, the Tenth Circuit found the advertisements were ambiguous when they said the products were “made” in the United States or in America.

The court footnoted here that Creager invoked a Federal Trade Commission policy statement about designation of U.S. origin, but the court concluded: 1) it was not binding with respect to false advertising claims under the Lanham Act; and, 2) even the FTC said there was no “bright line” test that would remove the ambiguity. Given that ambiguity, the Tenth Circuit held it could not say the advertisements were literally false under the Lanham Act.

Creager urged that I Dig Texas represented that all of its products had been made in the United States, based at least in part on an I Dig Texas website statement, “We Provide 100% American Made Skid Steer Attachments.” The court acknowledged that a statement can be literally false by necessary implication, but here, the reference to “100%” was ambiguous. It could variously mean the products were assembled in America with American components; that only some of the products consisted of entirely domestic components assembled in the United States; or, it could also refer only to place of assembly rather than origin of the components. The court concluded the statement was just as ambiguous as the advertisements, so it did not necessarily imply literal falsity about product origin. The court footnoted here that I Dig Texas contended it sold some products made entirely in the United States, inclusive of componentry, but the Tenth Circuit said I Dig Texas relied on evidence not included in its statement of undisputed material facts and made this argument for the first time in its reply brief for summary judgment. The court continued that the use of patriotic symbols, e.g., the American flag, could not be objectively verified as true or false. Such things also involved ambiguity such that the court could not find literal falsity.

Supplemental jurisdiction. The Tenth Circuit affirmed the district court had discretion to decline supplemental jurisdiction where it had considered: 1) the parties’ efforts to prepare for a federal trial; and, 2) the novelty of the issues raised under Oklahoma law. The Tenth Circuit accordingly affirmed: 1) the district court’s decision to decline supplemental jurisdiction over the remaining state law claims; and; 2) remand of those claims to state court.

The Case is No. 23-5046.

Attorneys: Zachary A.P. Oubre (McAfee & Taft's Labor and Employment) for I Dig Texas, LLC. Jim John (Ryan Whaley) for Kerry Creager and Creager Services, LLC.

Companies: I Dig Texas, LLC; Creager Services, LLC

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