Antitrust Law Daily Wrap Up, ADVERTISING—M.D.N.C.: Court couches Lanham Act claims against Ashley Furniture, (Aug 21, 2014)

By Greg Hammond, J.D.

Ashley Furniture Industries, Inc. and Leather Industries of America defeated Lanham Act false advertising claims based on statements they made about other companies’ use of the terms “leather” and “bonded leather” in marketing materials. In granting the two companies’ motions for summary judgment, the federal district court in Greensboro, North Carolina determined that none of the challenged representations were false or misleading statements of fact (Design Resources, Inc. v. Leather Industries of America, August 19, 2014, Osteen, W.).

Background. Design Resources, Inc. (DRI) filed suit against Leather Industries of America (LIA) and Ashley Furniture Industries (Ashley), alleging that the two companies ran ads or made statements falsely stating that DRI’s new bonded leather product—NextLeather®—was marketed as “bonded leather” in violation of federal law. The statements DRI complains of were published in Furniture Today magazine and include: (1) “To call it ‘leather’ is outright deception, outright fraud,” and “it’s not real leather…It’s a synthetic that has leather fibers glued to the underside” (Gunin article statements); and (2) “Calling these products bonded leather ‘is deceptive because it does not represent its true nature. It’s a vinyl, or a polyurethane laminate or a composite, but it’s not leather. If you tar and feather someone, does that make them a chicken?’” (Andrews article statement). Both LIA and Ashley moved for summary judgment on the Lanham Act claims.

LIA statements. According to the court, for liability to arise under the false advertising provisions of the Lanham Act, the alleged statement or misrepresentation “must be either false on its face or, although literally true, likely to mislead and to confuse consumers given the merchandising context.” The court determined that the LIA’s statements were neither false nor misleading statements of fact. First, with regard to the Gunin article statements, the court found that the statements—calling bonded leather by the unqualified term “leather” was deceptive and fraudulent—were true. Further, there was no evidence that the statements caused customers to not purchase NextLeather, or to support DRI’s claim of consumer confusion.

Second, the court concluded that the Andrews article statement was merely an expression of opinion, not an assertion of fact. Although DRI argued that the statement was literally false because the FTC regulations “were clear at the time the statement was given,” the court found that the surrounding facts and larger context of the article showed the speaker was giving his opinion on how a customer would perceive the term “bonded leather.” Further, the court noted that the FTC guidance on the leather labeling question was not issued until after the statements were made in Furniture Today. Consequently, it determined that the statements—at most—“represented a lay opinion on an unsettled matter of law.”

Ashley statements. In opposition to Ashley’s motion for summary judgment, DRI alleged that the furniture company’s “Is It REALLY LEATHER?” ad was literally false by necessary implication or, alternatively, impliedly false because it misled consumers. The court disagreed with both arguments, finding that the ad was not false by implication, as it would require readers to make “at least two sizeable inferences” to arrive at DRI’s conclusion: (1) that the ad references bonded leather, which it did not; and (2) that the ad referred solely to DRI’s NextLeather product, even though the ad specifically identified other companies.

In support of its implied falsehood argument, DRI argued that consumers were deceived by the ads, as many of them refused to purchase bonded leather due to their idea that they could face legal liability for selling it. The court was not persuaded by this argument, finding that there was no evidence that any consumers were misled by the ads. Specifically, it determined that two depositions containing vague references to general market confusion were not enough to demonstrate consumer confusion.

The case number is 1:10CV157.

Attorneys: Grover Gray Wilson (Wilson Helms & Cartledge, LLP) and John R. Neeleman (Lane Powell PC) for Design Resources, Inc. Cameron R. Argetsinger (Kelley Drye & Warren LLP) for Leather Industries of America. W. Andrew Copenhaver (Womble Carlyle Sandridge & Rice) for Ashley Furniture Industries, Inc.

Companies: Design Resources, Inc.; Leather Industries of America; Ashley Furniture Industries, Inc.

Cases: Advertising NorthCarolinaNews