9th Cir. Directs District Court to Consider Free Speech Implications of Splash Screen

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In requiring that a website using the domain name dmv.org display a splash screen disclaimer to all internet users, a federal district court failed to consider the burdens on protected free speech included in the dmv.org website, the U.S. Court of Appeals for the Ninth Circuit ruled July 28 (TrafficSchool.com Inc. v. Edriver Inc., 9th Cir., No. 08-56518, 7/28/11).

Affirming in part and reversing in part a series of rulings by a federal district court, the court said that the website's competitor did have standing to bring a Lanham Act claim alleging false advertising.

Websites Offer Information to Drivers

Edriver Inc., Online Guru Inc., Find My Specialist Inc., Seriousnet Inc., Ravi K. Lahoti, and Raj Lahoti operate a website, DMV.org, associated with the domain name www.dmv.org that offers information about driving and state driving laws and regulations. The website earns revenue through sponsored links to driving-related services, such as driving lessons.

TrafficSchool.com Inc. and Drivers Ed Direct LLC are providers of traffic school and driver education courses and compete with DMV.org for referral revenue. TrafficSchool sued, alleging that the use of the name “DMV.org” and the domain name constituted unfair competition and false advertising by creating the mistaken impression that the website was affiliated with or sponsored by a governmental agency.

Following a trial, Judge Percy Anderson of the U.S. District Court for the Central District of California ruled that DMV.org had violated Section 43(a) of the Lanham Act, 15 U.S.C. §1125(a), and Cal. Bus. & Prof. Code §17200, and issued an injunction directing DMV.org to display a disclaimer to all website visitors.

However, the district court denied TrafficSchool's plea for monetary damages and attorneys' fees. According to the court, there was no establishment of injury to be remedied by a money award and no evidence of a cause-and-effect relationship between any act of DMV.org and any injury to the plaintiff.

TrafficSchool appealed. DMV.org also appealed, arguing that the findings that there was no establishment of injury or cause meant that TrafficSchool had no standing under the Lanham Act and thus the district court had no jurisdiction to assign liability.

Plaintiff Had Standing to Bring Claims

Chief Judge Alex Kozinski first addressed the standing argument, stating that under Section 1125(a), it is sufficient for a plaintiff to show a likelihood of injury. The court noted that the California state unfair competition law is narrower, requiring establishment of injury in fact, which did preclude standing for purposes of the state claim.

However, according to the court, the district court had failed to address the question of constitutional standing under Article III, which requires “the familiar trio of injury in fact, causation and redressability.” In the context of a Lanham Act claim, such injury can be established directly or by inference with evidence that there is a probability that some consumers enter into a transaction with a mistaken belief regarding the origin of the goods or services. Furthermore, the court said, there was sufficient evidence to support the inference that some revenue generated by DMV.org came at the expense of what otherwise might be revenue for TrafficSchool The court said:


[TrafficSchool] introduced ample evidence that they compete with [DMV.org] for referral revenue—sometimes partnering with the same third-party traffic school or driver's ed course providers. Sales gained by one are thus likely to come at the other's expense. Evidence of direct competition is strong proof that plaintiffs have a stake in the outcome of the suit, so their injury isn't “conjectural” or “hypothetical.”

The court then applied a two-part test for standing under the Lanham Act as set forth in Jack Russell Terrier Network of Northern California v. American Kennel Club Inc.,407 F.3d 1027, 74 USPQ2d 1922 (9th Cir. 2005), which stated: “a plaintiff must show: (1) a commercial injury based upon a misrepresentation about a product; and (2) that the injury is ‘competitive' or harmful to the plaintiff's ability to compete with the defendant.”

According to the court, there was adequate evidence to show that TrafficSchool competed with DMV.org. The court emphasized that the injury in question is a “commercial injury,” which is not necessarily the same as proving “an identifiable injury to themselves.” Again, the court noted that the Lanham Act requires only a likelihood of injury, thus lowering the bar for establishment of a commercial injury.

Waits v. Frito-Lay Inc.,978 F.2d 1093, 23 USPQ2d 1721 (9th Cir. 1992), set the bar for showing commercial injury at “discernibly competitive injury.” According to the court, this means that “when [a] plaintiff competes directly with [a] defendant, a misrepresentation will give rise to a presumed commercial injury that is sufficient to establish standing.”

Having satisfied the competitive injury requirement, the court then turned to the question of whether there was adequate evidence to support a finding of a misrepresentation, and, here, the court pointed to “volumes of evidence showing that [TrafficSchool competes] with [DMV.org] and that DMV.org probably misleads consumers.”

False Advertising Adequately Established

Having resolved the question of standing under the Lanham Act, the court then found no error in the judgment that DMV.org had engaged in false advertising as defined by the statute.

“To succeed on an Internet false advertising claim, a plaintiff must 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 its 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,” the court said.

All these points were adequately supported by evidence and the court found no clear error in the lower court's conclusions.

Injunction Implicates Free Speech Rights

The court then addressed the argument that the injunction imposed by the district court—requiring DMV.org to display a splash screen disclaimer to all website visitors—was overbroad.

A First Amendment issue was triggered by the injunction, the court said, “because it erects a barrier to all content on the DMV.org website, not merely that which is deceptive.” Here, the court faulted the lower court for failing to consider “that its injunction would permanently and unnecessarily burden access to DMV.org's First Amendment-protected content,” which includes information content, as opposed to solely commercial speech.

Although there were justifications for instituting the splash screen in order to remedy confusion, including “lingering confusion caused by [DMV.org's] past deception,” it “will continue to burden DMV.org's protected content, even if all remaining harm has dissipated,” the court said, remanding the First Amendment question for further consideration by the lower court.

The court instructed the district court to consider on remand how to justify an ongoing requirement for the splash screen in the face of dissipating deception and also whether it can formulate any conditions for lifting of the requirement. The court offered the lower court the alternative of merely directing DMV.org not to engage in deceptive marketing or to place misleading statements on the website.

Conduct Was Exceptional

Turning to the issue of monetary remedies, the court found no error in the denial of monetary damages, noting the complete absence of proof of injury or causation.

However, the court vacated the lower court's denial of attorneys' fees, finding error in the finding that DMV.org's conduct was not exceptional.

“There was overwhelming proof that defendants knew their statements confused consumers and did little or nothing to remedy it,” the court said, which supported a conclusion that the violation was willful.

Furthermore, the court rejected the district court's finding that TrafficSchool had unclean hands on the basis that it had registered similar domain names, such as online-dmv.org, internet-dmv.org, and cadmvtrafficschool.com.

“Merely registering a domain name isn't proof of unclean hands,” the court said. The court emphasized that registration by itself does not communicate to the public in any way. Only after a domain name is associated with a website does the possibility of confusion arise.

Additionally, the fact that TrafficSchool itself tried to place advertisements on the DMV.org website did not establish unclean hands, according to the court. The court noted that DMV.org took the ad down quickly, within six hours.

The court's opinion was joined by Judge William A. Fletcher and Senior Judge Robert W. Gettleman, sitting by designation from the U.S. District Court for the Northern District of Illinois.

DMV.org was represented by Eileen R. Ridley of Foley & Lardner, San Diego. TrafficSchool was represented by David N. Makous of Lewis Brisbois Bisgaard & Smith, Los Angeles.

By Anandashankar Mazumdar

Opinion at http://pub.bna.com/ptcj/0856518Jul28.pdf