Trafficschool.Com Inc. v. Edriver Inc.
| Decision Date | 28 July 2011 |
| Docket Number | 08–56588,Nos. 08–56518,09–55333.,s. 08–56518 |
| Citation | 2011 Daily Journal D.A.R. 11424,653 F.3d 820,99 U.S.P.Q.2d 1628,11 Cal. Daily Op. Serv. 9463,2011 Trade Cases P 77637 |
| Parties | TRAFFICSCHOOL.COM, INC., a California corporation; Drivers Ed Direct, LLC, a California limited liability company, Plaintiffs–Appellees,v.EDRIVER INC., a California corporation; Online Guru, Inc., a California corporation; Find My Specialist, Inc., a California corporation; Seriousnet, Inc., a California corporation; Ravi K. Lahoti, an individual; Raj Lahoti, an individual, Defendants–Appellants.TrafficSchool.com, Inc., a California corporation; Drivers Ed Direct, LLC, a California limited liability company, Plaintiffs–Appellants,v.Edriver Inc., a California corporation; Online Guru, Inc., a California corporation; Find My Specialist, Inc., a California corporation; Seriousnet, Inc., a California corporation; Ravi K. Lahoti, an individual; Raj Lahoti, an individual, Defendants–Appellees.TrafficSchool.com, Inc., a California corporation; Drivers Ed Direct, LLC, a California limited liability company, Plaintiffs–Appellants,v.Edriver Inc., a California corporation; Online Guru, Inc., a California corporation; Find My Specialist, Inc., a California corporation; Seriousnet, Inc., a California corporation; Ravi K. Lahoti, an individual; Raj Lahoti, an individual, Defendants–Appellees. |
| Court | U.S. Court of Appeals — Ninth Circuit |
OPINION TEXT STARTS HERE
Eileen R. Ridley (argued), Andrew B. Serwin and Chad R. Fuller, Foley & Lardner LLP, San Diego, CA, for the defendant-appellants-cross-appellees.David N. Makous (argued), Daniel C. DeCarlo and Mina I. Hamilton, Lewis Brisbois Bisgaard & Smith LLP, Los Angeles, CA, for the plaintiffs-appellees-cross-appellants.Appeal from the United States District Court for the Central District of California, Percy Anderson, District Judge, Presiding. D.C. No. 2:06–cv–07561–PA–CW.Before: ALEX KOZINSKI, Chief Judge, WILLIAM A. FLETCHER, Circuit Judge, and ROBERT W. GETTLEMAN, District 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 selling sponsored links and collecting fees for referring site visitors 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 federal 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 competition 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.
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.” Defendants argue that this finding divested the district court of jurisdiction, 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 competition claim. These findings conclusively establish that plaintiffs didn't have standing to bring their state-law claim; but, because California's unfair competition law defines “injury in fact” more narrowly than does Article III, the findings don't necessarily preclude Article III standing. See Cal. Bus. & Prof.Code § 17204.1
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.” Gerlinger 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 standing 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, 468 U.S. 737, 751, 104 S.Ct. 3315, 82 L.Ed.2d 556 (1984); Levine v. Vilsack, 587 F.3d 986, 991–92 (9th Cir.2009). Defendants contend that plaintiffs lack all three, but their arguments regarding causation and redressability are derivative of the district court's no-injury finding. We therefore construe defendants' challenge to be limited to the injury-in-fact requirement.
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 (3d Cir.2001). The plaintiff can prove his injury using “actual market experience and probable market behavior.” Adams v. Watson, 10 F.3d 915, 923 (1st Cir.1993). This makes sense, because proving a counterfactual is never easy, and is especially difficult when the injury consists of lost sales that are “predicated on the independent decisions of third parties; i.e., customers.” Am. Soc'y of Travel Agents, Inc. v. Blumenthal, 566 F.2d 145, 157 (D.C.Cir.1977) (Bazelon, C.J., dissenting). A plaintiff who can't produce lost sales data may therefore establish an injury by creating a chain of inferences showing how defendant's false advertising could harm plaintiff's business.
Plaintiffs introduced ample evidence that they compete with defendants 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.” Lujan v. Defenders of Wildlife, 504 U.S. 555, 560, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992). Plaintiffs also presented testimonial and survey evidence that a “recommended by DMV” endorsement is an important factor in consumers' choice of traffic schools and driver's ed classes. It stands to reason that defendants will capture a larger share of the referral market—to plaintiffs' detriment—if they mislead consumers into believing that DMV.org's referrals are recommended by their state's DMV. Plaintiffs have therefore established sufficient injury for Article III standing.
B. We set out the test for Lanham Act standing in Jack Russell Terrier Network of Northern California v. 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 plaintiff's ability to compete with the defendant.” 2 Defendants first 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 centuries,” 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).
Defendants also argue that plaintiffs fail the Jack Russell 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. 407 F.3d at 1037 & n. 19. Defendants' confusion is understandable, however, because Jack Russell never explained how a plaintiff should go about proving commercial injury, id., nor did Barrus v. Sylvania, 55 F.3d 468, 470 (9th Cir.1995), the case Jack Russell cited in support of the commercial injury test.
The Lanham Act permits “any person” to sue if he “believes 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 latter to establish...
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