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concluding survey question was "leading and suggestive" because they "provid[ed] the [respondents] with the suggested response," essentially "beg[ging] the results that Plaintiffs ultimately received" and "increase[ing] the likelihood of biased results"
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CASE NO. SACV 07-0603 AG (JTLx).
July 2, 2007.
Jan P. Weir, Jennifer A. Trusso, Stradling Yocca Carlson and Rauth, Newport Beach, CA, Kevin J. McDevitt, Richard B. Biagi, Neal McDevitt LLC, Northfield, IL, for Plaintiffs.
Becky J. Belke, Kathrin A. Wanner, Manatt Phelps Phillips, Los Angeles, CA, Jeffrey S. Edelstein, Manatt, Phelps Phillips, LLP, Gregory A. Clarick, Paul Weiss Rifkind Wharton Garrison, New York, NY, for Defendant.
ORDER DENYING PLAINTIFFS' MOTION FOR PRELIMINARY INJUNCTION
This case concerns the often aggressive and sometimes amusing advertising campaigns for fast food, which might be called the Burger Battles. The full and vigorous communication of product advertisement is an inherent and often helpful part of our free market economy. But there are rules of war in the Burger Battles, and Plaintiffs CKE Restaurants, Inc., Carl Karcher Enterprises, Inc., and Hardee's Food Systems, Inc. ("Plaintiffs") argue that these lines have been crossed.
To defend their territory, Plaintiffs bring their Motion for Preliminary Injunction ("Motion"). Where's the beef? Plaintiffs rely exclusively on the Lanham Act and California Business and Professions Code sections 17500 et seq. and 17200 et seq. in this case, which focuses largely on the source of the beef used in the parties' patties. The meat of the Plaintiffs' motion is that these federal and California statutes are violated by statements and jokes made in hamburger advertisements that appear on prime time television. Plaintiffs contend that these statements are likely to deceive consumers and hurt their customer base. After considering the moving, opposing, reply, and sur-reply papers, and oral argument by the parties, the Court DENIES Plaintiffs' Motion.
BACKGROUND
This Motion centers on Plaintiffs' claim that Defendant Jack in the Box, Inc. ("Defendant") has made false and misleading claims in two television commercials that have caused Plaintiffs irreparable injury. Plaintiffs operate restaurants that offer quick-service and fast casual dining at more than 3,100 locations in 43 states and 13 countries. (Memorandum in Support of Plaintiffs' Preliminary Injunction ("Plaintiffs' Memorandum") 2:4-6.) For several years, Plaintiffs have offered a hamburger sandwich under their Carl's Jr. and Hardee's brands that is made with 100% USDA approved Angus beef ("100% Angus Burger"). (Declaration of Brad Haley ("Haley Decl.") ¶ 5.) The term Angus signifies that the meat is from a specific breed of cattle. Carl's Jr. sells a 100% Angus Burger called the Six Dollar Burger, and Hardee's sells a 100% Angus Burger called a Thickburger. (Haley Decl. ¶ 6.) Both burgers have been the subject of substantial advertising campaigns and have received publicity. (Haley Decl. ¶ 7.)
Defendant operates a network of over 2,000 quick-serve restaurants in the United States. Defendant recently began marketing a new product made from 100% ground sirloin beef ("100% Sirloin Burger"). (Declaration of Terri Graham ("Graham Decl.") ¶ 3.) Sirloin refers to a particular cut of beef rather than a type of cattle. (Graham Decl. ¶ 3.)
To market these new 100% Sirloin Burgers, Defendant has created the two challenged television commercials. In the first commercial, Jack, a clown-headed fictional CEO of Defendant, is making a presentation to his employees.
Jack states:
Okay. Listen up. This is big. We have launched the first 100% sirloin burger in fast-food history. Take a look. That's 100% ground sirloin, seasoned while it cooks. People can choose what kind of cheese and onions they want. But it's the sirloin that has to be tasted to be believed. Now for those of you not from Texas, that's the sirloin area. (Pointing to the area of a cow where the sirloin cut is from.)
Employee states:
Jack, our competitors serve Angus burgers. Could you point to the Angus area?
Jack:
(looks behind him at the rear of the cow and faces Employee:) I'd rather not.
(Plaintiffs' Memorandum, Ex. 6.)
In the second commercial, the camera focuses on employees raucously laughing. First Employee states:
And that completes my report on what our competitor is doing with its Angus burger.
(After the word Angus, the other employees burst into a new round of laughter.)
Jack states:
Alright settle down. Settle down. I've got film of our new Sirloin burger here. As you can see, it's our 100% sirloin patty. We're the only ones in fast food doing that People can choose what kind of cheese and onions they want. But it's the sirloin that makes the burger amazing. Question?
Second Employee states:
Are you saying that people will find our sirloin more attractive than their Angus . . . es? (Laughter erupts.)
(Plaintiffs' Memorandum, Ex. 5.)
The Court now turns to Plaintiffs' claims.
PRELIMINARY INJUNCTION ANALYSIS
A preliminary injunction is a drastic and extraordinary remedy that should not be granted unless the movant, by a clear showing, carries the burden of persuasion. See Mazurek v. Armstrong, 520 U.S. 968, 972 (1997). A plaintiff may meet this burden by "demonstrating either (1) a combination of probable success on the merits and the possibility of irreparable injury or (2) that serious questions are raised and the balance of hardships tips sharply in his favor." Dollar Rent A Car, Inc. v. Travelers Indem. Co., 774 F.2d 1371, 1374-75 (9th Cir. 1985); Prudential Real Estate Affiliates, Inc. v. PRR Realty, Inc., 204 F.3d 867, 874 (9th Cir. 2000).
"These are not separate tests, but outer reaches of a single continuum." Dollar Rent A Car, 774 F.2d at 1374-75 (quoting Benda v. Grand Lodge of the Int'l Ass'n of Machinists Aerospace Workers, 584 F.2d 308, 315 (9th Cir. 1978) (internal quotation marks omitted)). However, in any situation, the court must find that there is at least a fair chance of success on the merits,see Johnson v. California State Bd. of Accountancy, 72 F.3d 1427, 1430 (9th Cir. 1995), and that there is some threat of an immediate irreparable injury. See Big Country Foods, Inc. v. Board of Ed. Of the Anchorage Sch. Dist., 868 F.2d 1085, 1088 (9th Cir. 1989).
1. LIKELIHOOD OF SUCCESS ON THE MERITS
1.1 Lanham Act Claim
To prove a claim for false advertising under the Lanham Act, 15 U.S.C. § 1125(a)(1)(B), Plaintiffs must establish:
1) in advertisements, defendant made false statements of fact about its own or another's product;
2) those advertisements actually deceived or have the tendency to deceive a substantial segment of their audience;
3) such deception is material, in that it is likely to influence the purchasing decision;
4) defendant caused its falsely advertised goods to enter interstate commerce; and
5) plaintiff has been or is likely to be injured as the result of the foregoing either by direct diversion of sales from itself to defendant, or by lessening of the goodwill which its products enjoy with the buying public.Rice v. Fox Broad. Co., 330 F.3d 1170, 1180 (9th Cir. 2003). Plaintiffs contend that it can establish a likelihood of success on each of these factors. Defendant argues that Plaintiffs cannot establish that a false statement was made, or that the advertisements have a tendency to deceive a substantial segment of their audience, or that Plaintiffs have been or are likely to be injured. (Plaintiffs' Memorandum 10:8-12.) The Court examines each argument.
1.1.1 False Advertising Statements and Tendency to Deceive
To establish the first and second prongs, Plaintiffs isolate two statements within the challenged commercials that they claim are false or misleading and have a tendency to deceive consumers. Plaintiffs state that "Defendant explicitly and implicitly claims that the beef used in Defendant's Sirloin Burger is of superior quality to that of the [Plaintiffs'] 100% Angus Hamburger." (Plaintiffs' Memorandum 3:15-17.) Plaintiffs argue that Defendant's claims create the misleading impression that sirloin beef is superior to Angus beef. (Plaintiffs' Memorandum 3:17-20.) Plaintiffs also state "Defendant's Sirloin Burger Commercials create the false impression that the meat used in [Plaintiffs'] 100% Angus Beef Hamburgers comes from the rear-end and/or anus of beef cattle by creating phonetic and aural confusion between the words `Angus' and `anus.'" (Plaintiffs' Memorandum 3:21-24.) Defendant claims that these statements are not literally false, and Plaintiffs have not adequately supported any claim that these statements are misleading. (Defendant Jack in the Box, Inc.'s Opposition to Plaintiffs' Motion for Preliminary Injunction ("Opposition") 11:3-4, 12:19-23.) The Court finds Defendant's arguments persuasive.
To succeed under the Lanham Act, the plaintiff need not establish actual falsity. "[T]he Lanham Act encompasses more than blatant falsehoods. It embraces innuendo, indirect intimations, and ambiguous suggestions evidenced by the consuming public's misapprehension of the hard facts underlying an advertisement."William H. Morris Co. v. Group W, Inc., 66 F.3d 255, 257-258 (9th Cir. 1995) (citing Vidal Sassoon, Inc. v. Bristol-Myers Co., 661 F.2d 272, 277 (2d Cir. 1981)). Thus, "[e]ven if an advertisement is not literally false, relief is available under Lanham Act § 43(a) if it can be shown that the advertisement has misled, confused, or deceived the consuming public." Southland Sod Farms v. Stover Seed Co., 108 F.3d 1134, 1140 (9th Cir. 1997).
Plaintiffs do not argue that statements made in the challenged commercials were literally false, but rather they argue that the statements were misleading. "Where a statement is not literally false and is only misleading in context, . . . proof that the advertising actually conveyed the implied message and thereby deceived a significant portion of the recipients becomes critical." Morris, 66 F.3d at 258. In fact, courts in this circuit have held that where "a plaintiff's theory of recovery is premised upon a claim of implied falsehood, a plaintiff must demonstrate, by extrinsic evidence, that the challenged [advertisements] tend to mislead or confuse consumers." Mut. Pharm. Co. v. Ivax Pharms., 459 F. Supp. 2d 925, 933 (C.D. Cal. 2006). While "a court may find on its own that a statement is literally false, whether a representation is impliedly misleading is not something that is readily susceptible to being evaluated absent `evidence [showing] actual consumer deception.'" Id. (citation omitted).
Here, Plaintiffs provide the Court with a pilot survey as preliminary evidence of consumer deception. The survey questionnaire asked consumers from four different cities to answer various questions after viewing both of Defendant's challenged commercials. The survey involved answering questions "based only on what [the consumer] saw in the commercials, and not based on any independent knowledge [the consumer] might have." (Declaration of Allan T. Popelka ("Popelka Decl."), Ex. A at 24.) The survey asked, "Based on the commercials, does Angus beef refer to where on the cow the meat comes from, a type of cattle, neither statement is true, both statements are true, or you don't know?" (Popelka Decl., Ex. A at 24.) The survey generally asked consumers to select one of four potential answers to the questions posed about what the commercials said. (Popelka Decl., Ex. A at 24.) The survey then asked if the consumer was more likely, less likely, neither more or less likely, or unsure of buying a hamburger with Angus beef. (Popelka Decl., Ex. A at 24.)
Plaintiffs state that "a statistically significant number of participants were misled by the commercials into believing that Angus is a cut of meat rather than a breed of cattle, that Angus beef is an inferior type of meat, and that Angus beef emanates from the rear-end and/or anus of beef cattle." (Reply 3:2-6.) Defendant argues that the survey is unreliable, and these conclusions are therefore baseless. (Defendant Jack In the Box, Inc.'s Sur-Reply in Opposition to Plaintiffs' Motion for Preliminary Injunction ("Sur-Reply") 6:6-10.) The Court agrees with Defendant that the survey should be given very little weight.
The Ninth Circuit has stated that "surveys in trademark cases are to be admitted as long as they are conducted according to accepted principles." E. J. Gallo Winery v. Gallo Cattle Co., 967 F.2d 1280, 1292 (9th Cir. 1992). "Technical unreliability goes to the weight accorded a survey, not its admissibility." Id. The weight and "evidentiary value of a survey's results rest upon the underlying objectivity of the survey itself. This objectivity, in turn, depends upon many factors, such as whether [the survey] is properly `filtered' to screen out those who got no message from the advertisement, whether the questions are directed to the real issues, and whether the questions are leading or suggestive." Johnson Johnson * Merck Consumer Pharms. Co. v. Smithkline Beecham Corp., 960 F.2d 294, 300 (2d Cir. 1992) (internal citations and quotations omitted).
Plaintiffs' survey uses leading and suggestive questions, and consumers were not permitted to articulate their own impressions of the commercials. Typically, consumer perception surveys begin with open-ended questions that permit consumers to identify the primary message of a commercial and any source of deception. (Declaration of Michael B. Mazis ¶¶ 11-12). In Plaintiffs' survey, the questions were unfairly framed as to beg the results that Plaintiffs ultimately received. Consumers were given responses that suggested the answers that Plaintiffs wanted. By providing the consumers with the suggested response, Plaintiffs increased the likelihood of biased results. Further, Plaintiffs' survey is worded in such a way as to obscure whether any inference suggested by the commercial was negated because the consumer understood the joke. These deficiencies in the survey's design weaken the relevance and credibility of the survey evidence to the point where it sheds little if any light on the issue of likelihood of deceiving consumers.
Plaintiffs also argue that a court may presume that consumers were in fact deceived because the alleged false or misleading statements were intentionally created "to persuade customers into misbelieving that any cut of Angus beef is inferior to sirloin beef." (Plaintiffs' Memorandum 6:22-24.) But Defendant's challenged commercials do not support such a finding of intent. At most, the Court finds that Defendant's commercials intend to bolster its own brand and its own product by emphasizing the positive aspects of the Sirloin Burger. The Court does not find that Defendant's commercials alone support a finding that Defendant intended to deceive consumers with false or misleading misstatements, and thus the presumption is inapplicable.
Without substantial extrinsic evidence that a significant potion of the commercial audience has been deceived or evidence of Defendant's intent to mislead consumers, Plaintiffs raise at most only serious questions regarding whether they can establish that the statements are false and have a tendency to deceive consumers. Since Plaintiffs only barely meet the "serious questions" standard in the preliminary injunction continuum, they have a higher standard to meet in the balancing of hardships at Section 2.
1.1.2 Materiality and Likelihood to Harm Plaintiffs
Turning to the third and fifth prongs, Plaintiffs claim that the alleged deception is material and likely to harm Plaintiffs. Again, Plaintiffs support this with its pilot survey evidence. While the Court accepts that Plaintiffs may show that these statements are relevant to a consumer, Plaintiffs' survey does not adequately support Plaintiffs' contention that they are likely to be harmed. In fact, Plaintiffs' survey establishes that consumers are not as unsophisticated and gullible as Plaintiffs suggest. While Plaintiffs' survey indicates that 17% of consumers were less likely to buy hamburgers made with Angus beef, the survey also revealed that 14% of consumers were more likely to buy hamburgers made with Angus beef. (Popelka Decl. ¶ 17.) This result undermines any interpretation of the survey as establishing that Plaintiffs are significantly harmed.
Plaintiffs also argue that harm may be presumed because their claims involve comparative advertising. Plaintiffs rely solely onMutual Pharmaceutical Co. v. Ivax Pharmaceuticals, 459 F. Supp. 2d 925 (C.D. Cal. 2006). That case holds that "[w]hen an advertisement draws an explicit comparison between the competitor's product and plaintiffs', then such a causative link of irreparable injury is presumed because `a misleading comparison to a specific competing product necessarily diminishes that product's value in the minds of the consumer.'" Id. at 944 (citing McNeilab, Inc. v. Am. Home Products Corp., 848 F.2d 34, 38 (2nd Cir. 1988)). But it further holds that this presumption only applies when there is a direct reference to the competitor's product. Id. at 944-945.
Here, there is no such direct comparison to Plaintiffs' product. The challenged commercials merely refer to "our competitor's product." While a non-comparative commercial may produce a valid claim against the entity making the statement, such a commercial does not carry with it the presumption of harm discussed in Mutual Pharmaceutical. The injury in cases involving non-comparative statements "accrue equally to all competitors; none is more likely to suffer from the offending broadcasts than any other." McNeilab, 848 F.2d at 38. "Thus, [courts] require some indication of actual injury and causation to satisfy Lanham Act standing requirements and to ensure a plaintiff's injury was not speculative." Id.
Plaintiffs lack any evidence that establishes actual injury and causation. Plaintiffs' survey does not address whether Plaintiffs will experience any particular harm. Rather, the survey questions ask consumers to give their general feelings about purchasing Angus burgers and do not explore consumers' impressions on whether Plaintiffs, rather than any other competitors, would be damaged. Based on this evidence, the Court cannot conclude that Plaintiffs are harmed specifically by any potentially false or misleading representations in the commercial rather than just the mere advertisement of a competing product that attempts to use effective marketing techniques. Thus, this evidence is not sufficient to make Plaintiffs' necessary showing of actual injury and causation.
Plaintiffs attempt to further bolster their arguments by providing additional evidence that they may be injured in the future. Plaintiffs concede that they have not been able to project the specific damage that will be caused but they estimate that "the figure is likely to be devastating." (Declaration of Andrew F. Puzder ("Puzder Decl.") ¶ 7.) Plaintiffs state that "[e]ven a 1% sales decline of [Plaintiffs'] 100% Angus beef hamburger in [Plaintiffs'] most recent sales period would equate to lost sales of millions of dollars." (Puzder Decl. ¶ 7.) Plaintiffs further assert that they are "still evaluating what type of corrective advertising would be needed" as a result of the challenged commercials, but they believe the cost of such a correction "will be in the millions of dollars." (Second Declaration of Brad R. Haley ¶ 6.)
The Court finds that this evidence is likely to be insufficient to establish a likelihood of harm. While Plaintiffs state that they may experience harm, the damages claimed are too speculative. At the present time, Plaintiffs have not presented any evidence or argument suggesting that they have already been damaged, and rather argue that any harm could be catastrophic. To succeed on a Lanham Act claim, the alleged injury does not necessarily need to be quantifiable, but it does need to appear more certain than Plaintiffs have established. The Court therefore finds that Plaintiffs have at most only raised serious questions about establishing their likelihood of harm, and thus in Section 2 must show that the balance of hardships tips sharply in Plaintiffs' favor.
1.1.3 Interstate Commerce
Neither party disputes that Plaintiffs meet the fourth prong by establishing that the commercials were aired in the national market and that Defendant sells and advertises goods in interstate commerce. Thus, Plaintiffs have demonstrated a likelihood of success on this element.
1.2 Plaintiffs' State Claims
Plaintiffs also seek a preliminary injunction on its state claims under California Business and Professionals Code sections 17200 et seq. and 17500 et seq. Section 17200 et seq. prohibits "any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising and any act prohibited by § 17500." Ariz. Cartridge Remanufacturers Ass'n v. Lexmark Int'l, Inc., 421 F.3d 981, 985 (9th Cir. 2005) (citing Day v. AT T, 63 Cal. App. 4th 325 (1998)). Section 17500 et seq. makes it unlawful for a business to disseminate any statement "which is untrue or misleading, and which is known, or which by the exercise of reasonable care should be known, to be untrue or misleading. . . ."
Plaintiffs state that "the factors under the California state law claims are quite similar to those for § 43(a)" of the Lanham Act. (P A's 5:22-23.) "This Circuit has consistently held that state common law claims of unfair competition and actions pursuant to California Business and Professions Code § 17200 are `substantially congruent' to claims made under the Lanham Act."Cleary v. News Corp., 30 F.3d 1255, 1262-1263 (9th Cir. 1994). Because Plaintiffs do not raise any additional argument and neither party argues that the state claims require consideration of different legal standards, the Court finds that Plaintiffs have not established a likelihood of prevailing on their state claims for the reasons stated in Section 1.1.
1.3 Defendant's Defense of Unclean Hands
In its defense, Defendant argues that Plaintiffs will not succeed on their claims because the doctrine of unclean hands bars them from the relief sought. Defendant states that Plaintiffs have engaged in the same conduct that they challenge in this case. Defendant cites a commercial for Plaintiffs' Chicken Breast Strips that "attacked competitors selling chicken "nuggets" with the exact same tongue-in-cheek style that [Defendant] now is using to challenge competitors selling Angus burgers." (Opposition 17:20-23.) Defendant also cites Plaintiffs' commercial for its milkshakes that "offers additional illustration of [Plaintiffs'] unclean hands." (Opposition 18:12-14.) Plaintiffs state that the messages of these commercials are distinct from the challenged commercials and their previous advertisements do not implicate the doctrine of unclean hands. The Court agrees with Plaintiffs.
"Unclean hands is a defense to a Lanham Act infringement suit."Japan Telecom, Inc. v. Japan Telecom Am., Inc., 287 F.3d 866, 870 (9th Cir. 2002). "To prevail . . . equity requires that those seeking its protection shall have acted fairly and without fraud or deceit as to the controversy in issue." Levi Strauss Co. v. Shilon, 121 F.3d 1309, 1313 (9th Cir. 1997) (citing Fuddruckers, Inc. v. Doc's B.R. Others, Inc., 826 F.2d 837, 847 (9th Cir. 1987) (internal citations and quotations omitted). "To make out an unclean hands defense, a trademark defendant `must demonstrate that the plaintiff's conduct is inequitable and that the conduct relates to the subject matter of its claims.'" Japan Telecom, Inc., 287 F.3d at 870 (internal citations omitted).
Defendant claims that Plaintiffs' commercials engage in the same kind of commentary that Plaintiffs accuse Defendant of creating. But the Court finds that these commercials do not make any false or misleading claims. Plaintiffs' milkshake commercial involves a play on the term milkshake with the humorous image of shaking a cow. Plaintiffs' chicken nuggets commercial also plays on the term nuggets, potentially suggesting that the term signifies testicles. But unlike Defendant's commercial, the message of Plaintiffs' nuggets commercial is that nuggets do not come from a body part of a chicken. Thus, Plaintiffs' commercial denies any implication that their competitors' nuggets come from testicles. This is inherently different than Defendant's commercials, which potentially imply that an Angus burger is made from an unsavory cut of beef.
The implications Defendant attributes to Plaintiffs' commercials are more strained than the implications attributed to Defendant's commercials, however strained. There are limits to the gullibility that can be attributed to American consumers. Defendant's commercials, actionable or not, decidedly go further than any suggestion raised by Plaintiffs' commercials. The Court therefore finds that Defendant's unclean hands defense is not likely to succeed.
2. BALANCE OF HARDSHIPS
If the Plaintiffs only succeed in establishing that "serious questions" exist about the merits, it must meet the more difficult test of showing that "the balance of hardships tips sharply in favor of the moving party." Stuhlbarg Int'l Sales Co. v. John D. Brush Co., 240 F.3d 832, 840 (9th Cir. 2001). "In evaluating the balance of hardships a court must consider the impact granting or denying a motion for a preliminary injunction will have on the respective enterprises." Int'l Jensen v. Metrosound U.S.A., 4 F.3d 819, 827 (9th Cir. 1993) (considering the relative size and strength of the parties).
Defendant claims that an injunction would deprive it of "marketing its new `100% Sirloin Burger' product (and competing against its competitors) in the manner it has chosen to be most effective." (Opposition 21:18-20.) Defendant claims that this would cause extreme hardship because "the two commercials are for a new product that [Defendant] is in the process of branding and that, absent the current advertising campaign, [Defendant] will suffer a period during which only one less focused advertisement for its sirloin hamburger will run." (Opposition 21:20-25.) Further, Defendant states that it would be forced to incur significant expense to create and distribute the necessary replacement commercials. (Graham Decl. ¶¶ 5-8.)
Plaintiffs state that they stand to suffer significantly more harm than Defendant if an injunction does not issue. Plaintiffs state that they will "continue to be irreparably harmed by the false and misleading claims of Defendant intended to divert customers away from CKE." (Plaintiffs' Memorandum 9:18-20.) But to support their argument, Plaintiffs rely on the same speculative statements discussed in Section 1.1.2. Also, Plaintiffs attempt to discredit Defendant's arguments of harm by stating that Defendant has many other commercials that feature its Sirloin burger, and thus it would not have to incur the expense of replacing the challenged commercials. (Reply 16:8-12.) Even if this were true, Plaintiffs have not established sufficient evidence to tip the hardships significantly in their favor.
Thus, Court does not find that Plaintiffs have demonstrated that the balance of hardships tips decidedly in their favor, particularly because Plaintiffs only marginally raised serious questions as to the likelihood of their success in Section 1.1.1.
DISPOSITION
At this time, the Court finds Plaintiffs' Motion is DENIED.