Antitrust Law Daily Wrap Up, ADVERTISING—D. Colo.: Finding of literally false comparative advertising not amended, (Mar 3, 2014)

By Jody Coultas, J.D.

Atlantic Building Systems, LLC, doing business as Armstrong Steel Corporation (“Armstrong”), was denied alteration of the court’s previous holding that General Steel Domestic Sales, LLC had stated Lanham Act false advertising claims against Armstrong based on a literally false, comparative advertisement, the federal district court in Denver has held (General Steel Domestic Sales, LLC v. Chumley, February 27, 2014, Brimmer, P.). The court also denied both parties’ requests for attorney’s fees.

On May 7, 2013, the court held that Armstrong made the following literally false and material statements in the context of its comparative advertising campaign: (1) presenting itself as a manufacturer that fabricates steel buildings; (2) stating that it provided pregalvanized steel and steel fasteners as standard features and that General Steel did not; and (3) stating that it provides “general steel buildings” and “general steel construction.”

There was no clear error in the finding that Armstrong’s advertising was literally false, according to the court. The message of the advertising was that pregalvanized steel and steel fasteners were available as standard features in Armstrong buildings, but not available in General Steel buildings. This implication was false because both companies provided those features at additional cost. Courts may presume that a plaintiff has been harmed by false comparative advertising that specifically targets its company or brand. Armstrong argued that statements made on its website were separate advertisements and could not be considered comparative advertising. The first full paragraph of text on the webpage indicated consumers should compare Armstrong and General Steel, while the rest of the webpage contained multiple paragraphs discussing Armstrong’s offerings of “general steel buildings” and “general steel construction.” Armstrong was unable to show why the court should consider the statements made on the website as anything other than one, comparative advertisement.

Attorney’s fees. General Steel was denied attorney’s fees and costs by the court based on the narrow segment of the asserted claims on which General Steel prevailed—the failure to produce any evidence of damages and the amount that General Steel has already recovered on the basis of defendants’ willful conduct.

Armstrong was also denied attorney’s fees and costs based on a failure to show that General Steel’s Lanham Act and Colorado Consumer Protection Act claims were without merit or filed in bad faith, according to the court.

Disgorgement. The court also did not err in finding that General Steel was entitled to a portion of Armstrong’s profits. Many courts have held that a plaintiff need only establish the defendant’s gross sales of an infringing product or a product that was falsely advertised, in order to shift the burden onto the defendant to show appropriate deductions from those profits. The evidence presented by General Steel was sufficient to show a link between Armstrong’s false advertising and its profits derived from selling falsely advertised buildings.

General Steel was denied alteration of the court’s disgorgement award and prejudgment interest. A disgorgement award was appropriate because the defendants benefitted from the unlawful conduct, other remedies appeared to be inadequate, Armstrong’s president played a lead role in creating and disseminating the false advertisements, and there was no evidence that General Steel sat on its rights, according to the court.

The case is No. 10-cv-01398-PAB-KLM.

Attorneys: David Samuel Fein (Building Services Group, LLC) for General Steel Domestic Sales, LLC. Paul Matthew Grant (Goodreid Grant & Kuhn, LLC) for Ethan Daniel Chumley, and Atlantic Building Systems, LLC.

Companies: Atlantic Building Systems, LLC: General Steel Domestic Sales, LLC

Cases: Advertising ColoradoNews