Last month, a Fifth Circuit panel vacated in part a judgment in a false advertising case that disgorged the defendant's profits, awarded corrective advertising damages under the Lanham Act and enjoined the disputed claims. Illinois Tool Works v. Rust-Oleum, 955 F.3d 512 (5th Cir. 2020). The panel held that the plaintiff failed to show the defendant's profits were attributable to the Lanham Act violation, as is required, and that the plaintiff offered no basis for the corrective advertising award.
The origins of the lawsuit lie in an advertisement by defendant Rust-Oleum for its RainBrella windshield water repellant, which claimed that RainBrella lasts for 100 washes and lasts twice as long as Rain-X, a competing product made by Illinois Tool Works (ITW). ITW sued, alleging that Rain-X was all wet in that those claims were false, and a jury awarded ITW $1.3 million, partly in disgorgement of defendant's profits and partly for ITW expenditures for corrective advertising. The district court reduced the corrective advertising award from $925,617 to $329.505.75 (a figure representing a quarter of Rust-Oleum's advertising expenses) and permanently enjoined Rust-Oleum from making its advertising claims. Both parties appealed.
On appeal, ITW defended the disgorged profits award on the ground that the benefit Rust-Oleum derived from the advertising was demonstrated by 1) witness testimony regarding the importance of the advertising claims to Rust-Oleum, 2) the large number of people who saw the commercial, and 3) the fact that RainBrella was placed on nearby shelves in the same stores as Rain-X. The Fifth Circuit panel was unconvinced, holding that none of these facts showed a causal connection between Rust-Oleum's alleged false advertising and its profits, and therefore vacated the disgorgement award.
Not surprisingly, the panel also vacated the award of money for ITW to run future corrective advertising since, as the panel noted, ITW had never asserted that it planned to run corrective advertising. In addition, ITW had presented no information to the jury from which to derive the amount required for corrective advertising, or even to show that its product had suffered a reputational harm such that corrective advertising was necessary. ITW argued that it was not required to show the necessity of an award for corrective advertising in light of Rain-X's "40 years of goodwill and tens of millions of dollars in advertising," as well as Rust-Oleum's expenditures in advertising RainBrella. The panel found these arguments unavailing, as none of them showed any loss to ITW. In such circumstances, the award did not compensate the plaintiff - the goal of a Lanham Act award - but rather provided a windfall.
Finally, the panel vacated the district court's injunction of the "100 washes" claim. In order to obtain injunctive relief, ITW was required to demonstrate not only that the advertisement was misleading to a substantial portion of consumers, but also that the deception was material to consumers' purchasing decisions. The panel rejected ITW's argument that the claim concerned an inherent quality of the product, and therefore did not require a showing of materiality, noting that the argument relied on out-of-circuit cases that conflicted with Fifth Circuit precedent. It also declined to find that the importance of the claim to Rust-Oleum's marketing strategy provided evidence of the claim's materiality.
The case demonstrates that Lanham Act damages cannot be based upon innuendo, but require substantive proof of a connection between the plaintiff's harm and the award. It is also a reminder that not all circuits have adopted the "inherent quality" alternative test for materiality, and in those circuits direct proof that the alleged deception is material to consumers' purchasing decisions is still required.
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