Case Information
*1 FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT ⎫
S , I NC ., a California corporation; D RIVERS E D D IRECT , LLC, a California limited liability company,
Plaintiffs-Appellees, v. No. 08-56518 ⎬ E NC ., a California D.C. No. corporation; O NLINE G URU , I NC ., a 2:06-cv-07561-PA- California corporation; F IND M Y CW PECIALIST , I ., a California corporation; S ERIOUSNET ., a
California corporation; R AVI K.
L AHOTI , an individual; R AJ L AHOTI , an individual, Defendants-Appellants. ⎭ T RAFFIC S CHOOL.COM , I NC DRIVER I NC ⎫ T RAFFICSCHOOL.COM , I NC ., a California corporation; D RIVERS E D D IRECT , LLC, a California limited liability company,
Plaintiffs-Appellants, v. No. 08-56588 ⎬ E DRIVER I NC ., a California D.C. No. corporation; O NLINE G URU , I NC ., a 2:06-cv-07561-PA- California corporation; F IND M Y CW S PECIALIST , I NC ., a California corporation; S ERIOUSNET , I NC ., a
California corporation; R AVI K.
L AHOTI , an individual; R AJ L AHOTI , an individual, Defendants-Appellees. ⎭ ⎫ S , I NC ., a California corporation; D RIVERS E D D IRECT , LLC, a California limited liability company,
Plaintiffs-Appellants, No. 09-55333 v. D.C. No. ⎬ E NC ., a California 2:06-cv-07561-PA- corporation; O NLINE G URU , I NC ., a CW California corporation; F IND M Y PECIALIST , I ., a California OPINION corporation; S ERIOUSNET ., a
California corporation; R AVI K.
L AHOTI , an individual; R AJ L AHOTI , an individual, Defendants-Appellees. ⎭ Appeal from the United States District Court for the Central District of California Percy Anderson, District Judge, Presiding Argued and Submitted March 3, 2010—Pasadena, California Filed July 28, 2011 Before: Alex Kozinski, Chief Judge, William A. Fletcher, Circuit Judge, and Robert W. Gettleman,, District Judge.*
Opinion by Chief Judge Kozinski
*The Honorable Robert W. Gettleman, Senior United States District Judge for the Northern District of Illinois, sitting by designation. COUNSEL Eileen R. Ridley (argued), Andrew B. Serwin and Chad R. Fuller, Foley & Lardner LLP, San Diego, California, for the defendant-appellants-cross-appellees.
David N. Makous (argued), Daniel C. DeCarlo and Mina I. Hamilton, Lewis Brisbois Bisgaard & Smith LLP, Los Ange- les, California, for the plaintiffs-appellees-cross-appellants. OPINION
KOZINSKI, Chief Judge:
Defendants own and manage DMV.org, a for-profit website with a mission to save you “time, money and even a trip to the DMV!” DMV.org, Home Page, http://www.dmv.org (last visited Feb. 28, 2011). Consumers visit DMV.org for help renewing driver’s licenses, buying car insurance, viewing driving records, beating traffic tickets, registering vehicles, even finding DUI/DWI attorneys. The more eyeballs DMV.org attracts, the more money defendants earn from sell- ing sponsored links and collecting fees for referring site visi- tors to vendors of traffic school courses, driver’s ed lessons and other driver-related services. This seems like a legitimate and useful business, except that some visitors mistakenly believe the site is run by their state’s department of motor vehicles (DMV).
Plaintiffs TrafficSchool.com, Inc. and Drivers Ed Direct, LLC market and sell traffic school and driver’s ed courses directly to consumers. They also compete with DMV.org for referral revenue. Plaintiffs claim that defendants violated fed- eral and state unfair competition and false advertising laws by actively fostering the belief that DMV.org is an official state DMV website, or is affiliated or endorsed by a state DMV.
After a trial, the district court held that defendants violated section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a), but rejected plaintiffs’ claim under California’s unfair competi- tion statute, Cal. Bus. & Prof. Code § 17200. The court issued an injunction ordering DMV.org to present every site visitor with a splash screen bearing a disclaimer. Unhappily for plaintiffs, the court denied monetary relief and declined to award attorney’s fees. Both sides appeal.
Standing
The district court found that plaintiffs “failed to prove . . . that they have suffered an injury in fact and lost money or property as a result of Defendants’ actions,” and that they “provided no evidence showing a causal connection between Defendants’ actions and any harm Plaintiffs incurred.” Defen- dants argue that this finding divested the district court of juris- diction, and also that plaintiffs lacked standing under the Lanham Act. The latter contention is wrong because a false advertising plaintiff need only believe that he is likely to be injured in order to bring a Lanham Act claim. 15 U.S.C. § 1125(a). Moreover, the district court made its findings of no injury when it analyzed plaintiffs’ state-law unfair competi- tion claim. These findings conclusively establish that plain- tiffs didn’t have standing to bring their state-law claim; but, because California’s unfair competition law defines “injury in 9741 fact” more narrowly than does Article III, the findings don’t necessarily preclude Article III standing. See Cal. Bus. & Prof. Code § 17204.
The district court, however, failed to analyze Article III standing, which “is required to establish a justiciable case or controversy within the jurisdiction of the federal courts.” Ger- linger v. Amazon.com Inc. , 526 F.3d 1253, 1256 (9th Cir. 2008). We have held that the absence of standing under the antitrust laws “affects a plaintiff ’s ability to recover, but does not implicate the subject matter jurisdiction of the court,” as the absence of Article III standing would. Id. This is equally true for false advertising claims, so the district court should have undertaken an independent analysis of Article III stand- ing before determining standing under the Lanham Act. See Ford v. NYLCare Health Plans of Gulf Coast, Inc. , 301 F.3d 329, 332 n.1 (5th Cir. 2002).
A.
Constitutional standing calls for the familiar trio of
injury in fact, causation and redressability.
See Allen
v.
Wright
,
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 UDV N. Am., Inc.
,
[3] B. We set out the test for Lanham Act standing in Jack Russell Terrier Network of Northern California American Kennel Club, Inc. , 407 F.3d 1027, 1037 (9th Cir. 2005), where we held that “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 plain- tiff ’s ability to compete with the defendant.” [2] Defendants first [2] A plaintiff may meet both prongs of Jack Russell and still lack standing if the purpose of his false advertising suit is to enforce someone else’s argue that plaintiffs fail the competitive prong of Jack Russell because DMV.org is “the Internet incarnation of the basic publishing [business] that has existed for decades if not centu- ries,” while plaintiffs’ websites are self-promotional tools. But plaintiffs introduced evidence that they compete with DMV.org in the traffic school and driver’s ed referral markets in a number of states. Based on this evidence, the district court found that “Plaintiffs and Defendants are competitors, with at least a portion of Plaintiffs’ business.” This finding isn’t clearly erroneous. See Polykoff v. Collins , 816 F.2d 1326, 1331 (9th Cir. 1987).
[4]
Defendants also argue that plaintiffs fail the
Jack Rus-
sell
test because the only injury the district court identified
was to the public. We agree that plaintiffs have not proven an
identifiable injury to themselves, but proof of such injury isn’t
the same as proof of “commercial injury,” which is what
Jack
Russell
requires.
lieves that he . . . is
likely
to be damaged.” 15 U.S.C.
§ 1125(a) (emphasis added). Because a likely injury is far less
certain than an actual injury, plaintiffs need not prove the lat-
ter to establish the commercial injury necessary for Lanham
Act standing.
See Johnson & Johnson Carter-Wallace, Inc.
,
(holding that “a competitor need not prove [past] injury when suing to enjoin conduct that violates section 43(a),” in part because the “competitor may suffer future injury”). We have generally presumed commercial injury when defendant and plaintiff are direct competitors and defendant’s misrepresentation has a tendency to mislead consumers. In Waits Frito-Lay, Inc. , 978 F.2d 1093 (9th Cir. 1992), we held that a plaintiff bringing a false advertising suit had to show a “discernibly competitive injury,” and gave the follow- ing example:
If a film’s distributor wrongfully indicates that a film is “PG”-rated when in reality it should be “R”-rated, a competitor with a PG-rated film would have stand- ing: the misrated film theoretically draws young audiences away from the competitor’s film because of the misrepresentation concerning the suitability of its content.
Id. at 1109. Thus, when plaintiff competes directly with defendant, a misrepresentation will give rise to a presumed commercial injury that is sufficient to establish standing.
There are good reasons to presume that a competitor bring-
ing a false advertising claim has suffered a commercial injury.
Competitors “vie for the same dollars from the same con-
sumer group,” and a misleading ad can upset their relative
competitive positions.
Kournikova Gen. Media Commc’ns,
Inc.
,
[7] We need not decide today whether our presumption of commercial injury is conclusive or rebuttable because defen- dants didn’t point to any evidence—such as an increase in plaintiffs’ sales—that might tend to rebut the presumption. See B. Sanfield, Inc. , 258 F.3d at 581 (finding no past or future injury in part because plaintiff ’s “sales rose during the months covered by its claims”). We therefore presume that plaintiffs suffered a commercial injury.
C.
Plaintiffs’ Lanham Act standing thus turns on the second
half of
Jack Russell
’s commercial injury prong: whether
DMV.org’s ads are misleading.
See Jack Russell
,
were likely to mislead consumers into thinking DMV.org was affiliated with a government agency. At the time plaintiffs filed their suit, anyone in California who googled “dmv” or “drivers ed” would see sponsored listings for “ca.dmv.org” or “california.dmv.org,” respectively; clicking those listings would take the googler to DMV.org. While there’s nothing inherently misleading about sponsored search results, they can mislead if they are named so as to give a false impression as to the likely sponsorship of the website to which they refer. See Toyota Motor Sales, U.S.A., Inc. Tabari , 610 F.3d 1171, 1177-78 (9th Cir. 2010). Defendants’ use of the “ca.” and “california.” prefixes obviously was designed to suggest an affiliation with the State of California. DMV.org’s site design also mimicked an actual DMV site by copying slogans and state symbols, and by linking to web pages elsewhere on the site that helped consumers complete DMV-related trans- actions like applying for a license, registering a car and sign- ing up for traffic school. DMV.org did disclaim connection with state DMVs, but this disclaimer was easy to miss because it was displayed in small font at the bottom of each page, where many consumers would never scroll. Plaintiffs also introduced evidence of actual consumer confusion. They provided two declarations from individuals who confused DMV.org with an official DMV site and hun- dreds of emails sent by consumers who contacted DMV.org thinking it was their state’s DMV. Some of these emails con- tained sensitive personal information that the typical con- sumer wouldn’t share with a commercial website. Here’s an example, with redactions:
My boyfriend George [redacted] . . . got a ticket in South Carolina in 2006. . . . Mr. [redacted] driver’s license number is [redacted]. His date of birth is [redacted]. I have his social security number if needed, but I don’t want to put all of his personal information on this e-mail if possible. . . . I was told by Central Court for Lexington County in South Car- olina that if we contacted the Arkansas DMV that y’all would be able to tell us what court this is in and where to pay the ticket.
Other emails were sent by law enforcement officials and state DMV employees who were similarly confused by DMV.org. For example, a Washington state trooper emailed DMV.org asking:
Dear Oregon DMV, I am currently involved in a DUI case in which a driver used his friends [sic] ID but I remember it having his picture. It is an Oregon ID in the name of [redacted]. I would like to see if I can get a copy of the picture/ID e-mailed to me for identification purposes. The DUI arrest occurred on September 16, 2006 in Snohomish County, WA.
Plaintiffs also produced evidence that two California cities, a private law firm in Texas and a number of newspapers mis- takenly linked their websites to DMV.org instead of a state DMV website.
[10] In addition to this anecdotal evidence, the district court examined Internet surveys submitted by the parties. Plaintiffs’ survey showed that a majority of California resi- dents searching online for traffic schools believed that (1) DMV.org’s website was actually the California DMV’s and (2) a search engine listing for DMV.org was endorsed or sponsored by the California DMV. The court pointed out sig- nificant flaws in the survey—including plaintiffs’ failure to use a control—but found it more credible than defendants’ survey and gave it some weight. We share the district court’s concerns with plaintiffs’ survey, but can’t find that the court erred by considering it along with the other evidence. Plaintiffs introduced volumes of evidence showing that they compete with defendants and that DMV.org proba- bly misleads consumers. Because we presume commercial injury in this case, plaintiffs have met both prongs of Jack Russell ’s test for Lanham Act standing.
False Advertising
[12] A. 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 actu- ally deceives or has the tendency to deceive a substantial seg- ment 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. See Southland Sod Farms , 108 F.3d at 1139. [3] As we explained, see pp. 9745-47 supra , the district court made extensive findings in support of its conclusion that the DMV.org URL, defendants’ search engine marketing strategy and the design of DMV.org were likely to, and did, confuse consumers. None of these findings was clearly erroneous, and they establish that the DMV.org site deceives a substantial segment of its audience. Plaintiffs’ evi- dence also shows that a “recommended by DMV” endorse- ment will affect purchase decisions, and that plaintiffs are likely to suffer injury when consumers visit DMV.org instead of their competing sites. The district court committed no error in holding that defendants violated the Lanham Act.
B. By way of a remedy, the district court ordered DMV.org to present every site visitor with a splash screen stating, “YOU ARE ABOUT TO ENTER A PRIVATELY OWNED WEBSITE THAT IS NOT OWNED OR OPERATED BY ANY STATE GOVERNMENT AGENCY.” Visitors can’t access DMV.org’s content without clicking a “CONTINUE” button on the splash screen. [4] Defendants argue that the district court abused its discretion by fashioning a “blanket injunc- tion” that’s overbroad—i.e., restrains conduct not at issue in plaintiffs’ complaint—and violates the First Amendment. Overbreadth . The district court reasoned 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 sensi- [3] A plaintiff bringing a false advertising claim must also show that defendant caused its false or misleading statement to enter interstate com- merce, see Southland Sod Farms , 108 F.3d at 1139, but this is virtually automatic for websites.
[4]
We have reproduced the splash screen at Appendix A.
tive information to Defendants,” and (3) “prevent confusion
among DMV.ORG’s consumers.” Defendants argue that the
splash screen doesn’t effectuate these stated goals. But their
only evidence is a declaration from DMV.org’s CEO stating
that defendants tested several alternative disclaimers and
found them to be more effective than the splash screen in pre-
venting consumers from emailing DMV.org with sensitive
personal information. To the extent we credit a self-serving
declaration,
see SEC Phan
,
[14] First Amendment . Courts routinely grant permanent injunctions prohibiting deceptive advertising. See 1 Charles E. McKenney & George F. Long III, Federal Unfair Competi- tion: Lanham Act § 43(a) § 10:5 (17th ed. 2010). Because false or misleading commercial statements aren’t constitution- ally protected, see Cent. Hudson Gas & Elec. Corp. v. Pub. Serv. Comm’n of N.Y. , 447 U.S. 557, 563 (1980); Dr. Seuss Enters., L.P. Penguin Books USA, Inc. , 109 F.3d 1394, 1403 n.11 (9th Cir. 1997), such injunctions rarely raise First Amendment concerns. The permanent injunction here does raise such con-
cerns because it erects a barrier to
all
content on the DMV.org
website, not merely that which is deceptive. Some of the web-
site’s content is informational and thus fully protected, such
as guides to applying for a driver’s license, buying insurance
and beating traffic tickets.
See Mattel, Inc.
v.
MCA Records,
Inc.
, 296 F.3d 894, 906 (9th Cir. 2002). The informational
content is commingled with truthful commercial speech,
which is entitled to significant First Amendment protection.
See Cent. Hudson
, 447 U.S. at 564. The district court was
required to tailor the injunction so as to burden no more pro-
tected speech than necessary.
Madsen Women’s Health
Ctr., Inc.
,
The district court premised its injunction on its findings that defendants’ “search engine marketing” and “non- sponsored natural listings, including the DMV.ORG domain [5] Defendants’ website usability expert submitted a declaration stating that splash screens typically drive away up to a quarter of potential site visitors. Plaintiffs cite nothing to rebut this evidence.
[6] Defendants introduced unrebutted evidence that splash screens com- monly interfere with the automated “spiders” that search engines deploy to “crawl” the Internet and compile the indexes of web pages they use to determine every page’s search ranking. And splash screens themselves don’t have high search rankings: Search engines commonly base these rankings on the web page’s content and the number of other pages linking to it, and splash screens lack both content and links.
name,” caused consumers to be confused even before they viewed DMV.org’s content. The court also identified specific misleading statements on the website. The splash screen is justified to remedy the harm caused by such practices so long as they continue. But website content and advertising prac- tices can and do change over time. Indeed, the court found that defendants had already “made some changes to DMV.ORG and how they marketed it.”
The splash screen is also justified so long as it helps to rem-
edy lingering confusion caused by defendants’ past deception.
But the splash screen will continue to burden DMV.org’s pro-
tected content, even if all remaining harm has dissipated. At
that point, the injunction will burden protected speech without
justification, thus burdening more speech than necessary.
See
Madsen
, 512 U.S. at 765;
Nissan Motor Co.
, 378 F.3d at
1016-17;
see also E. & J. Gallo Winery
v.
Gallo Cattle Co.
,
967 F.2d 1280, 1298 (9th Cir. 1992) (permanent injunction
can’t burden future non-misleading business practices);
U-
Haul Int’l, Inc. Jartran, Inc.
,
duration of the splash screen in light of any intervening
changes in the website’s content and marketing practices, as
well as the dissipation of the deception resulting from past
practices. If the district court continues to require the splash
screen, it shall explain the continuing justification for burden-
ing the website’s protected content and what conditions
defendants must satisfy in order to remove the splash screen
in the future. In the alternative, or in addition, the court may
permanently enjoin defendants from engaging in deceptive
marketing or placing misleading statements on DMV.org.
See
U-Haul II
,
C.
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 suf-
fered as a result of DMV.org’s actions. Nothing in the Lan-
ham Act conditions an award of profits on plaintiff ’s proof
of harm, and we’ve held that profits may be awarded in the
absence of such proof.
See Southland Sod Farms
,
Attorney’s Fees
Section 35 of the Lanham Act permits an award of attor- ney’s fees to a “prevailing party” in “exceptional cases.” 15 U.S.C. § 1117(a). The district court denied plaintiffs attor- ney’s fees and gave the following justification:
While Plaintiffs have obtained injunctive relief, they have been awarded no damages. Accordingly, and in light of Plaintiffs’ unclean hands, the Court does not find that this case is exceptional and declines to award attorney’s fees for the Lanham Act claim.
We review the denial of attorney’s fees for abuse of discre-
tion,
see Polo Fashions, Inc.
v.
Dick Bruhn, Inc.
, 793 F.2d
1132, 1133 (9th Cir. 1986), and must affirm unless the district
court applied the wrong legal standard or its findings were
illogical, implausible or without support in the record,
see
United States
v.
Hinkson
,
[19] A.
Lanham Act cases generally consider whether
defendants
’ conduct was “fraudulent, deliberate, or willful.”
Horphag Research Ltd. Garcia
,
Cir. 2007);
see Earthquake Sound Corp.
v.
Bumper Indus.
,
352 F.3d 1210, 1216-17 (9th Cir. 2003) (summarizing case
law on exceptionality);
see also Lindy Pen Co. Bic Pen
Corp.
, 982 F.2d 1400, 1409 (9th Cir. 1993) (“[G]enerally a
trademark case is exceptional for purposes of an award of
attorneys’ fees when the infringement is malicious, fraudu-
lent, deliberate or willful.”). By examining only the relief
awarded to
plaintiffs
, and failing to consider defendants’ con-
duct, the district court applied the wrong legal standard.
See
Lahoti
v.
Vericheck, Inc.
,
B.
Defendants challenge the district court’s finding that
their deception was willful—and thus “exceptional” under
Horphag
and
Lindy Pen
. But the district court’s willfulness
finding is supported by evidence that defendants planned to
mislead site visitors and knew that their conduct confused
consumers.
See Playboy Enters., Inc.
v.
Baccarat Clothing
Co.
,
Defendants claim that they reacted by “explain[ing] away any confusion” and adding disclaimers to the bottom of each web page. [8] But defendants knew that the disclaimers were ineffective, because adding them didn’t end the stream of emails sent by consumers who thought they’d contacted their state DMV. There was overwhelming proof that defendants knew their statements confused consumers and did little or nothing to remedy it. The district court could reasonably infer that they willfully deceived the public. See Audi AG , 469 F.3d at 551.
Nor can defendants prevail by claiming that their deception
wasn’t “egregious.” We rejected a similar theory in
Earth-
quake Sound
, where we held that exceptionality doesn’t
require egregious conduct. 352 F.3d at 1217. The two cases
defendants cite,
Johnson & Johnson-Merck Consumer Pharm.
Co.
v.
Smithkline Beecham Corp.
,
131-32 (3d Cir. 1994), suggested only that egregious conduct could be probative of willfulness, not that it’s a prerequisite.
C.
Defendants point to the district court’s finding that
plaintiffs had unclean hands as an independent basis for deny-
ing attorney’s fees. But that finding is clearly erroneous.
[9]
The
district court gave two reasons why it thought plaintiffs had
unclean hands: (1) they registered domain names the court
deemed similar to DMV.org, such as Online-DMV.org,
Internet-DMV.org and cadmvtrafficschool.com; and (2) they
attempted to advertise their products on DMV.org despite
being aware that the site deceived the public. Neither amounts
to “clear, convincing evidence,”
Citizens Fin. Grp., Inc.
v.
Citizens Nat’l Bank of Evans City
,
Merely registering a domain name isn’t proof of unclean
hands.
See
5
McCarthy
§ 25:76;
see also Brookfield
Commc’ns, Inc.
v.
West Coast Entm’t Corp.
,
DMV.org ran for just six hours , a de minimis period of time. Our review of the record reveals no evidence of actual decep- tion caused by plaintiffs’ advertising. See Japan Telecom, Inc. , 287 F.3d at 870.
Defendants argue that the district court’s unclean hands
finding can be sustained based on plaintiffs’ bad intentions,
pointing to an email from plaintiffs’ co-founder that recom-
mended taking an “[i]f you can’t join ‘em, shut ‘em down
approach” to DMV.org. But the doctrine is unclean hands, not
impure thoughts. It’s doubtful that bad intentions that are
never put into effect could support a finding of unclean hands.
See Perfumebay.com, Inc. eBay, Inc.
,
[21] Because the district court erred in finding that defen- dants’ conduct wasn’t exceptional and that plaintiffs had unclean hands, its denial of attorney’s fees was an abuse of discretion. We remand for the district court to consider the award of attorney’s fees anew in light of the considerations discussed above.
Joint Liability After plaintiffs presented their case at trial, defendants
filed a Rule 52(c) motion arguing that the evidence was insuf- ficient to hold liable any defendant other than Online Guru. The district court delayed ruling on the motion until the close of trial, when it held that all defendants were jointly and sev- erally liable. In its ruling, the district court explained in great detail each defendant’s role in creating, developing or dis- seminating DMV.org’s misleading advertising. These find- ings aren’t clearly erroneous, and we agree with the district court that they’re sufficient to hold defendants liable as joint tortfeasors. See 4 McCarthy § 25:23.
Contempt Plaintiffs also appeal the district court’s refusal to
hold DMV.org in contempt for several technical violations of
the injunction. We review this ruling for abuse of discretion.
See Hallett Morgan
,
AFFIRMED in part and REVERSED in part.
REMANDED with instructions. No costs.
Appendix A