Design Res., Inc. v. Leather Indus. of Am.

• Decision Date: 18 June 2015
• Docket Number: No. 14–1990.,14–1990.
• Citation: 789 F.3d 495
• Parties: DESIGN RESOURCES, INC., Plaintiff–Appellant, v. LEATHER INDUSTRIES OF AMERICA; Dr. Nicholas J. Cory; Ashley Furniture Industries, Inc.; Todd Wanek, Defendants–Appellees.
• Court: U.S. Court of Appeals — Fourth Circuit

789 F.3d 495

DESIGN RESOURCES, INC., Plaintiff–Appellant

v.LEATHER INDUSTRIES OF AMERICA; Dr. Nicholas J. Cory; Ashley Furniture Industries, Inc.; Todd Wanek, Defendants–Appellees.

No. 14–1990.

United States Court of Appeals, Fourth Circuit.

Argued: May 13, 2015.

Decided: June 18, 2015.

ARGUED:John Raymond Neeleman, Lane Powell, PC, Seattle, Washington, for Appellant. William Andrew Copenhaver, Womble Carlyle Sandridge & Rice, LLP, Winston–Salem, North Carolina; Richard Dominick Milone, Jr., Kelley Drye & Warren LLP, Washington, D.C., for Appellees. ON BRIEF:Kristin Beneski, Lane Powell, PC, Seattle, Washington, for Appellant. Cameron Argetsinger, Kelley Drye & Warren LLP, Washington, D.C., for Appellees Leather Industries of America and Dr. Nicholas J. Cory; Brent F. Powell, Womble Carlyle Sandridge & Rice, LLP, Winston–Salem, North Carolina, for Appellees Ashley Furniture Industries, Inc. and Todd Wanek.

Before NIEMEYER, DUNCAN and THACKER, Circuit Judges.

Opinion

Affirmed by published opinion. Judge DUNCAN wrote the opinion, in which Judge NIEMEYER and Judge THACKER joined.

DUNCAN, Circuit Judge:

Plaintiff–Appellant Design Resources, Inc. (“DRI”), appeals the district court's entry of summary judgment in favor of Defendants–Appellees Leather Industries of America (“LIA”) and Ashley Furniture Industries, Inc. (“Ashley”), on DRI's false advertising claim under the Lanham Act, 15 U.S.C. § 1125(a). DRI alleged that an advertisement placed in a trade magazine by Ashley (the “Ashley Ad”), as well as two statements by Dr. Nicholas Cory, director of LIA's research laboratory, which ran in articles in the same publication, were false and misleading. The district court granted summary judgment to LIA and Ashley, concluding that DRI had not presented sufficient evidence to establish a Lanham Act claim. For the reasons that follow, we affirm.

I.

A.

Appellee Ashley is the fifth largest furniture manufacturer in the United States. J.A. 116. In addition to manufacturing furniture, Ashley operates and licenses retail locations that bear its name, and it sells its furniture to other retailers, such as Costco and Walmart. J.A. 986–88. Appellee LIA is a leather industry trade association, which owns the Leather Research Laboratory (the “Laboratory”).¹ Dr. Nicholas Cory is a leather chemist and the director of the Laboratory. He and his lab provide labeling advice to companies who market leather and leather-look products, as well as testing services to determine such products' leather content for purposes of federally mandated disclosure to consumers.

Appellant DRI develops furniture coverings and sells its products to furniture manufacturers. In late 2006, DRI developed a “synthetic leather-look furniture covering product, which it initially called ‘Veneto’ ” and later renamed as “NextLeather®.” Appellant's Br. at 8. NextLeather® is “composed of 61% polyurethane, 22% poly/cotton, and 17% leather.”

Id. “[I]t has a polyurethane face on a fabric core and is backed with a thin layer of leather fibers adhered (i.e., bonded) to its base or underside.” Id. The use of leather fibers as backing, as opposed to “single-piece leather ‘splits' ..., represented an improvement in the ability of a leather-look product to mimic real leather ... because it made the material more pliable and allowed it to drape more fluidly over a furniture frame.” Appellant's Br. at 8.

In December 2006 and January 2007, DRI requested labeling advice and composition testing of its NextLeather® product from Dr. Cory at LIA's laboratory. Dr. Cory advised that the product could “ABSOLUTELY NOT!” be characterized or marketed as leather. J.A. 261. He cited the Federal Trade Commission's Guides for Select Leather and Imitation Leather Products (“FTC Guides”), which specify that products containing ground or shredded leather, rather than comprising “wholly the hide of an animal[,] should not be represented, directly or by implication, as being leather.” J.A. 261 (quoting 16 C.F.R. § 24.2(f)² ). Instead, Dr. Cory suggested, DRI could label NextLeather® as “[n]ot leather,” “[r]econstituted leather,” or “[b]onded leather.” J.A. 261.

In early 2007, DRI began marketing NextLeather® as “bonded leather,” disclosing the product's composition on a label in compliance with the FTC Guides. DRI viewed its product as innovative and believed that “NextLeather® was the first and only such product marketed as ‘bonded leather.’ ” J.A. 1289–90. In preparation for the Spring High Point Market in North Carolina—an important, annual furniture industry event—DRI sold samples of NextLeather® to 25 leading furniture manufacturers. Those manufacturers would then debut furniture products made with NextLeather® at the Spring High Point Market, from March 26 to April 1, 2007.

In the weeks leading up to and following the Spring High Point Market, Ashley placed a series of full-page ads in Furniture Today, a widely read trade magazine. According to DRI, one of the ads—which ran in the March 12, March 31, and April 30, 2007 issues—contained false statements about DRI and NextLeather®. In relevant part, the text of the ad read as follows: “Is It REALLY LEATHER? ... Some upholstery suppliers are using leather scraps that are mis-represented as leather.... Know What You Are Buying[.] REMEMBER ... The Overseas Manufacturer Has NO Liability In The U.S.A. You Do!” J.A. 274, 281, 283 (third ellipsis in original).

On July 2, 2007, Furniture Today published an article written by Joan Gunin and entitled, “Chemist fears confusion over imitators may hurt category.” J.A. 86. This article (the “Gunin Article”) quoted Dr. Cory as saying the following: “To call [leather alternatives such as bonded leather] ‘leather’ is outright deception, outright fraud.... It's not leather.... It's a synthetic that has leather fibers glued to the underside.” J.A. 86 (second ellipsis in original).

A week later, on July 9, 2007, Furniture Today published an article written by Susan Andrews and entitled, “For consumers' sake, let's not call it ‘bonded leather.’ ” J.A. 108. This article (the “Andrews Article”) referred to “[n]ew composite fabrics now called ‘bonded leather,’ ” which “have a surface layer of vinyl or polyurethane, a center layer of fabric, and a backing that contains some leather fibers ... glued onto the fabric for a look that is similar to the back of a leather hide.” J.A. 108. The article's author advocated against using the term “bonded leather” to refer to these products by arguing that the term is “bound to confuse consumers, who are likely to hear only the word ‘leather.’ ” J.A. 108. The article then quoted Dr. Cory as saying that 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?” J.A. 108.

B.

In February 2010, DRI filed suit against Ashley, Todd Wanek (Ashley's president and CEO), LIA, and Dr. Cory. It asserted false advertising claims under the Lanham Act, 15 U.S.C. § 1125(a), as well as various violations of North Carolina and Washington law.³ In September 2012, the district court granted Wanek's and Dr. Cory's motions to dismiss for lack of personal jurisdiction. J.A. 161. While these two individuals are listed as Appellees in this case, DRI does not seek review of the district court's September 2012 order. See Appellant's Br. at 26.

DRI made the following arguments before the district court. Regarding the Ashley Ad's statement—that “[s]ome upholstery suppliers are using leather scraps that are mis-represented as leather”—DRI asserted that “[a]ll informed readers” of the Ashley Ad knew that the ad was “referring to DRI and its NextLeather® bonded leather” because DRI was the only company selling the kind of product described. J.A. 47. It argued that the ad was false because DRI was not marketing its product as leather, but rather as “bonded leather.” J.A. 47.

With respect to the Gunin Article, DRI characterized the statement by the LIA Laboratory director, Dr. Cory—that calling bonded leather “leather” is deceptive—as “explicitly accus[ing] DRI of ... selling a counterfeit product.” J.A. 50. DRI maintained that “there could be no doubt” that “Dr. Cory's defamatory statements were referring to DRI and NextLeather®,” J.A. 50, and that the statement was false because DRI was selling NextLeather® as bonded leather, rather than as leather.

DRI also contended that Dr. Cory's statement in the Andrews Article—that the term “bonded leather” is deceptive as applied to some products—was false because the FTC Guides allowed, and Dr. Cory had advised, DRI to label the product as “bonded leather.”

Finally, DRI argued that the defendants' statements damaged DRI's “actual and potential customer relationships.” J.A. 55. It pointed to a decline in sales of NextLeather® to furniture manufacturers following publication of the ad and articles, and it asserted that it was “forced to spend substantial sums to address [the] resulting damage.” J.A. 55.

DRI moved for partial summary judgment, and Ashley and LIA cross-moved for summary judgment. The district court granted Ashley's and LIA's motions for summary judgment in August 2014. Relevant here, the district court determined that DRI failed to present sufficient evidence to establish that the Ashley Ad, the Gunin Article, or the Andrews Article were false or misleading.⁴

Regarding the Ashley Ad, the district court held that DRI failed to establish that the ad was false on either of the grounds DRI presented. As an initial matter, DRI failed to show that the contested statement—that “[s]ome upholstery suppliers are using leather scraps that are mis-represented as leather”—conveyed the message that DRI was selling NextLeather® as leather. See J.A. 1779–84. The court reasoned that “a reader of Ashley's ad would have had to make at least two sizeable inferences” in order to glean this message from the ad. J.A. 1780....