Antitrust Law Daily Wrap Up, ADVERTISING—D. Ore.: Unclean hands barred infrared camera manufacturer from recovering $103,000 jury award for false advertising damages, (Aug 12, 2013)

By Mark Engstrom, J.D.

A jury award of $103,000 to FLIR Systems, based on the company’s successful false advertising claim against Fluke Corporation, was barred because FLIR had engaged in similar false advertising activity, and thus could not benefit from unclean hands, the federal district court in Portland, Oregon, has ruled (FLIR Systems, Inc. v. Sierra Media, Inc., August 8, 2013, Hubel, D.).

FLIR sued Fluke for false advertising under the Lanham Act, challenging representations that Fluke infared cameras could withstand a two-meter drop to a concrete floor. After a jury trial on false advertising claims asserted by both parties, the jury found Fluke liable for false advertising and awarded FLIR $103,000 in damages. In addition, the jury found FLIR liable for false advertising—for asserting the ability of its E-series cameras to pass a two-meter drop test—and awarded Fluke more than $4 million in damages. In its motion for post-trial relief, Fluke asked the court to: (1) adopt the jury’s factual findings regarding Fluke’s unclean hands defense; (2) enter judgment for Fluke; and (3) dismiss FLIR’s false advertising claim. The court granted Fluke’s request.

Unclean hands. In order to prevail on its unclean hands defense, Fluke had to demonstrate that FLIR’s conduct was: (1) inequitable and (2) related to the subject matter of its false advertising claims. FLIR argued that its conduct was not inequitable because it had acted in good faith when it believed, more than six months before its new E-series cameras were offered to the public, that it could meet the two-meter drop test specification. FLIR also argued that its E-series camera ads were not “related in any way, much less directly,” to Fluke’s the drop test video and accompanying methodology because FLIR did not falsely depict the results of a particular drop test, did not deceptively compare FLIR and Fluke’s thermal imaging cameras, and did not deliberately include the “stamp of approval” of a purportedly “independent, third party” like Sierra Media.

The court was not persuaded by FLIR’s arguments. According to the court, there was clear and convincing evidence that FLIR’s conduct was inequitable and was related to the subject matter of its false advertising claims. The jury was asked whether FLIR had engaged in false advertising by falsely touting the ability of its E-series cameras to pass a two-meter drop test. The uncontroverted evidence supported the jury’s finding that FLIR had indeed done so.

The advertisements at issue undoubtedly misrepresented the ability of FLIR’s E-series cameras to withstand a two-meter drop test. Moreover, the false statements had been disseminated to millions of potential customers, including two million individuals who had received W.W. Grainger’s 2011 industrial supply catalogue in hard copy form. FLIR thus falsely advertised its camera’s ability to withstand a two-meter drop, just as FLIR had alleged that Fluke had done so. The fact that FLIR’s Grainger advertisement was not comparative did not make the ad any less related to the subject matter of Fluke’s drop test video, according to the court. Both ads concerned the same product (a thermal imaging camera) and the ability to withstand a two-meter drop test. Perhaps most importantly, in the court’s view was, the fact that FLIR’s ad was made in response to what FLIR perceived as Fluke’s advantage in ruggedness.

Because FLIR’s false ads were related to the subject matter of its false advertising claims against Fluke (the drop test performance of thermal imaging cameras), Fluke’s unclean hands defense was sufficient to bar the jury’s $103,000 damage award to FLIR.

Injunctive relief. FLIR’s unclean hands did not foreclose the possibility of injunctive relief. In this case, the jury found that Fluke had made a literally false statement in a commercial advertisement, that the false statement was material, and that the statement had a tendency to deceive the relevant purchasing public. Rather than leave this wrong at large, the court decided that FLIR was entitled to an injunction. A hearing would be set at a later date to address the injunction’s terms and scope.

Attorney fees and costs. After determining that Lanham Act claims could have more than one prevailing party for the purpose of awarding attorney fees, the court concluded that: (1) FLIR was the prevailing party on its false advertising claim; (2) the case was exceptional; and (3) Fluke’s conduct warranted the imposition of attorney fees.

According to the court, there was “no doubt” that Fluke had deliberately published a literally false advertisement. Ultimately, an “abundance of evidence” supported the unreliability of Fluke’s drop test, including the fact that: (1) Fluke used a home-made drop apparatus; (2) Fluke failed to subject its own comparable camera to the drop test; (3) FLIR’s cameras were placed in “far more precarious” positions on the drop apparatus; (4) Fluke’s own employee had extensively participated in a test that purportedly was conducted by an independent third party; and (5) Fluke was never able to locate the Fluke Ti32 camera that was shown in its drop test video. Therefore, the court exercised its discretion and awarded attorney’s fees and costs to FLIR, which was ordered to submit its fee application with appropriate supporting materials no later than August 19.

Pre-judgment and post-judgment interest. The court concluded that FLIR was not entitled to pre-judgment interest, in light of its unclean hands and the lack of a judgment for damages in FLIR’s favor. As for post-judgment interest, the governing statute provided that “[i]nterest shall be allowed on any money judgment in a civil case recovered in a district court.” That language was mandatory, not discretionary. Therefore, the court noted that it would address post-judgment interest “if and when a judgment for attorney’s fees is entered.”

Sierra’s request for attorney fees. Sierra Media, the company that conducted Fluke’s purportedly independent two-meter drop test, sought attorney’s fees based on the court’s conclusion—at the summary judgment stage of the proceedings—that FLIR lacked prudential standing to sue Sierra for false advertising under the Lanham because the two companies were not competitors.

FLIR opposed Sierra’s motion and relied primarily, either directly or indirectly, on Second Circuit case law. The court had previously agreed with Sierra’s argument that FLIR’s reliance on Second Circuit case law was misplaced and was “tantamount to ignoring Ninth Circuit precedent,” which was in direct conflict with the Second Circuit’s standard. In Jack Russell Terrier Network of Northern California v. American Kennel Club, Inc., 407 F.3d 1027, the Ninth Circuit explained that different causes of action alleged under different subsections of 15 U.S.C. §1125(a) had different standing requirements. More specifically, standing for false advertising claims required an injury that was: (1) based on a misrepresentation about a product and (2) competitive (i.e., harmful to the plaintiff's ability to compete with the defendant). In the Second Circuit, courts used a “reasonable interest” approach. Under that approach, a plaintiff asserting a false advertising claim did not have to be a competitor.

FLIR argued that its reliance on Second Circuit case law was merely a good faith attempt to extend the law of the Ninth Circuit. The court could not disagree. More specifically, the court could not say that FLIR’s false advertising claim was legally groundless or that it rested on “absurd” or “just short of frivolous” contentions of law. In fact, at the summary judgment stage, FLIR cited several cases that provided support for its position, even though the cases were distinguishable from the present case. Accordingly, the court denied Sierra’s request for attorney’s fees because the case was not exceptional.

The case is No. 3:10-cv-00971-HU.

Attorneys: Devon Zastrow Newman (Schwabe, Williamson & Wyatt P.C.) for FLIR Systems, Inc. Kenneth R. Davis II (Lane Powell P.C.) for Fluke Corp. Benjamin N. Souede (Angeli Law Group LLC) for Sierra Media, Inc.

Companies: FLIR Systems, Inc.; Sierra Media, Inc.; Fluke Corp.

Cases: Advertising OregonNews