TrafficSchool.com v. EDriver

Citation
TrafficSchool.com, Inc. v. EDriver, Inc., 2011 WL 3198226 (9th Cir. July 28, 2011) (full-text).

Factual Background
Defendants operate DMV.org, a website designed to assist in a number of administrative tasks related to operating a motor vehicle, such as license renewal, paying traffic tickets, and buying car insurance. The site generates revenue by selling sponsored links and referring visitors to vendors of traffic school courses and other driver-related services. Plaintiffs market and sell traffic school and driver’s education courses and generally compete with Defendants for ad revenue and referral partners. The primary point of contention, however, is Plaintiffs assertion that Defendants violate federal and state unfair competition and false advertising laws by actively fostering the belief that DMV.org is an official state DMV website, or that it is affiliated or endorsed by a State DMV.

Trial Court Proceedings
After a trial, the district court held that Defendants violated Section 43(a) of the Lanham Act but rejected Plaintiff’s claim under California’s unfair competition statute. The court issued an injunction ordering DMV.org to present every visitor with a splash screen bearing a disclaimer but denied Plaintiff’s requests for monetary relief or attorney’s fees. Both sides appealed.

and the appellate court ruled that Plaintiffs had met their burden for standing and affirmed the district court’s holding with respect to contempt but remanded on the issues of the injunction and attorney’s fees.

Standing
The district court found that Plaintiffs failed to prove that they had suffered an injury in fact and lost money or property as a result of Defendants’ actions. While the Defendants’ argued that this finding divested the district court of jurisdiction, a false advertising plaintiff need only believe that he is likely to be injured in order to bring a Lanham Act claim. In a false advertising suit, a plaintiff establishes Article III injury if “some consumers who bought the defendant[‘s] product under [a] mistaken belief” fostered by the defendant “would have otherwise bought the plaintiff[‘s] product.” Joint Stock Soc’y v. UDV N, Am., Inc., 266 F.3d 164, 177 (3rd Cir. 2001). This injury can be substantiated either by actual market experience or probable market behavior. Because Plaintiffs demonstrated that they were in direct competition with Defendants for ad and referral revenue, the appellate court determined that Plaintiffs had met their burden of standing by presenting evidence that sales gained by one are likely to come at the other’s expense. Furthermore, Plaintiffs were also able to introduce evidence of actual confusion on the part of consumers as well as law enforcement officials and state DMV employees.

False Advertising
An Internet false advertising claim requires a plaintiff to show that a statement made in a commercial advertisement or promotion is false or misleading, that it actually deceives or has the tendency to deceive a substantial segment of the audience, that it’s likely to influence purchasing decisions and that the plaintiff has been or is likely to be injured by the false advertisement. See Southland Sod Farms v. Stover Seed Co., 108 F.3d 1134, 1139 (9th Cir. 1997). In reviewing the evidence presented, the appellate court determined that there was no error in holding that the Defendants violated the Lanham Act; not only was there sufficient evidence of a likelihood of confusion, Plaintiffs were able to present evidence of actual confusion among the relevant visiting public. The splash screen ordered by the district court as a remedy for the Defendants’ violations stated the following: “YOU ARE ABOUT TO ENTER A PRIVATELY OWNED WEBSITE THAT IS NOT OWNED OR OPERATED BY ANY STATE GOVERNMENT AGENCY.” Visitors were then required to click a “CONTINUE” button before being presented with the main site. Defendants argue that the district court abused its discretion by fashioning a “blanket injunction” that is overbroad and violates the First Amendment.

The district court ruled that the splash screen was necessary to (1) “remedy any confusion that consumers have already developed before visiting DMV.ORG for the first time,” (2) “remedy the public interest concerns associated with [confused visitors’] transfer of sensitive information to Defendants,” and (3) “prevent confusion among DMV.ORG’s consumers.” In challenging the splash screen disclaimer as stated, the Defendants presented their own declaration that they had tested alternate disclaimers that they determined were more effective. The appellate court rejected this contention, however, finding that the Defendants’ own declaration failed to challenge the effectiveness of the disclaimer in question and that alternate acceptable remedies were not enough to challenge the remedy ordered by the district court.

With regard to Defendants’ First Amendment argument, the appellate court noted that injunctions against deceptive advertising rarely raise First Amendment concerns because false or misleading commercial statements are not constitutional. See Cent. Hudson Gas & Elec. Corp. v. Pub. Serv. Comm’n of N.Y., 447 U.S. 557, 563 (1980). However, the specific disclaimer in this case is presented before any content of the DMV.ORG site is displayed and therefore affects all content, whether deceptive or not. The district court seems to have considered this result and determined that it was necessary because the deception from the viewpoint of a consumer begins as early as search engine results showing the DMV.ORG site. The appellate court ultimately remanded the issue of the disclaimer back to the district court for a determination of whether the splash screen is still necessary (in light of changes in both content and advertising made by Defendants) or whether a more appropriate injunction would be to enjoin Defendants from “engaging in deceptive marketing or placing misleading statements on DMV.org.” The appellate court was primarily concerned with the possibility of Defendants making sufficient changes to their site such that the disclaimer would present an undue burden to Defendants’ business where the site no longer caused consumer confusion.

The district court denied Plaintiffs’ request for an award of profits because they provided “no evidence [of causation or evidence] quantifying the extent of any. . . harm” they suffered as a result of Defendants’ actions. Nothing in the Lanham Act, however, requires such a showing for an award of profits. The appellate court did note that an award of profits is an uncommon remedy for false advertising cases and that it is more common for false comparative advertising suits. The Lanham Act allows an award of profits only to the extent the award “shall constitute compensation and not a penalty.” 15 U.S.C. § 1117(a). Because Plaintiffs did not present any proof of past injury or causation, the district court did not err in denying damages.

Attorney’s Fees
Section 35 of the Lanham Act permits an award of attorney’s fees to a “prevailing party” in “exceptional cases.” 15 U.S.C. § 1117(a). The district court denied Plaintiffs’ request for attorney’s fees because of its ruling to issue an injunction with no damages and because of its determination that Plaintiff had unclean hands. The district court reasoned that the Plaintiffs had registered domain names the court deemed similar to DMV.org, such as Online-DMV.org and Internet-DMV.org and that they had attempted to advertise their products on DMV.org despite being aware that the site deceived the public. The appellate court, however, remanded the issue of attorney’s fees back to the district court after finding that Defendants’ actions were willful and that the district court had improperly determined the issue of Plaintiffs’ unclean hands. As noted by the appellate court, merely registering a domain name isn’t proof of unclean hands. See 5 McCarthy § 25:76; see also Brookfiled Commc’ns, Inc. v. West Coast Entm’t Corp., 174 F.3d 1036, 1052 (9th Cir. 1999). “Until a domain name is associated with a server that hosts a website, it’s not visible to consumers and thus can’t possibly confuse them. Further, Plaintiffs’ ads on DMV.org ran for only 6 hours, constituting a de minimis period of time.

Contempt
Plaintiffs’ also appealed the district court’s refusal to hold Defendants in contempt for several technical violations of the injunction. The district court had found that the Defendants had “substantially complied” with the injunction and that deviations appeared to be based on a good faith and reasonable interpretation of the court’s order. Because the district court applied the correct legal standard in ruling on the issue of contempt, the appellate court declined to find that it had abused its discretion.