DESIGN RES., INC. v. LEATHER IND. OF AMERICA, NO. 14-1990

Decided: June 18, 2015

The Fourth Circuit held that Design Resources, Inc. (DRI) failed to show that Defendants made false or misleading descriptions or representations of facts in commercial advertising about DRI’s leather-like product.  On that basis, the Fourth Circuit affirmed the district court in granting summary judgment for Defendants on DRI’s claim for false advertising under the Lanham Act.  

DRI manufactures furniture coverings for sale to furniture manufacturers.  In 2006, DRI developed a leather-look covering made of polyurethane, poly/cotton, and leather, which it named NextLeather.  In December 2006 and January 2007, DRI asked Dr. Cory with the Leather Industries of America (“LIA”) for advice on labeling and composition testing NextLeather.  Dr. Cory said that the product could not be marketed as leather, but could be labeled, “‘not leather,’ ‘reconstituted leather,’ or ‘[b]onded leather.’”  DRI marketed NextLeather as bonded leather, listed the product’s composition on a label, and sold samples of Next Leather to 25 furniture manufacturers, so they could show furniture made with NextLeather at the 2007 Spring High Point Market.  Prior to the Market, Ashley Furniture (“Ashley”), a leading furniture manufacturer and retailer, placed a series of advertisements in a trade magazine.  One of the advertisements read in part “‘Is it REALLY LEATHER? . . .  Some upholstery suppliers are using leather scraps that are misrepresented as leather . . . .  Know What You Are Buying . . . .’”  In July, 2007, the same trade publication published two articles.  In the first article, entitled “‘Chemist fears confusion over imitators may hurt category,’” Dr Cory was quoted saying that calling leather alternatives, like bonded leather, leather was deceptive and fraudulent, and that bonded leather was not leather, but a synthetic material with leather fibers on the bottom.  The second article advocated against calling bonded leather by that name as being confusing to consumers who would think it to be leather.  Dr. Cory was quoted as saying that calling bonded leather by that name was deceptive and not representative of its vinyl or polyurethane composite nature.  

In February 2010, DRI sued Ashley, Ashley’s president, LIA, and Dr. Cory for false advertising under the Lanham Act, and for violations of various North Carolina and Washington laws.  The district court dismissed Ashley’s president and Dr. Cory for lack of personal jurisdiction.  DRI argued that the Ashley ad targeted DRI because DRI was the only company selling the type of product the advertisement described, and the advertisement was false, because DRI did not market its product as leather.  DRI argued that, in the first article, Dr. Cory accused DRI of selling a fraudulent product, but that they did not sell NextLeather as leather.  Regarding Dr. Cory’s statement in the second article, DRI argued that it was false because marketing NextLeather as bonded leather was both allowed and encouraged.  Finally, DRI argued that the advertisement and articles damaged its customer relationships. DRI moved for partial summary judgment, and Ashley and LIA cross-moved for summary judgment.  The district court granted summary judgment to Ashley and LIA, finding that DRI failed to present sufficient evidence that the advertisement or articles were false or misleading.  

To establish a claim for false advertising under the Lanham Act, the Plaintiff must first show that the Defendants made a false or misleading statement or representation of facts in a commercial advertisement.  The Fourth Circuit found that DRI did not meet that first element, and therefore affirmed the district court without analyzing the other elements of a false advertising claim.

With regard to the advertisement, the Fourth Circuit first found that it could not be literally false, since it referred to products marketed as leather, not as bonded leather, like NextLeather.  The Fourth Circuit also found that the advertisement could not be literally false by implication, since finding falsehood in the advertisement would require going beyond the face of the advertisement to the context of the advertisement.  Finally, the court found that the advertisement could not be impliedly false, because DRI did not show that consumers were confused by the advertisement.

The Fourth Circuit next analyzed the two articles.  In regards to the first article, the Fourth Circuit found that Dr. Cory’s statement could not be false because it was true.  In regards to the second article, the Fourth Circuit found Dr. Cory’s statement was not false advertising, because the statement was a hypothesis rather than implying a fact, and opinions are not actionable under the Lanham Act.

For these reasons, the Fourth Circuit affirmed the district court’s grant of summary judgment to the Defendants.

Full Opinion

Katherine H. Flynn

 

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