A recent decision by the United States Court of Appeals for the Second Circuit clarified several aspects of false advertising law under the Lanham Act.

In Time Warner Cable, Inc. v. DIRECTV, Inc., No. 07-0468-cv, 2007 WL 2263932 (2d Cir. Aug. 9, 2007), the Court of Appeals considered three separate issues under the Lanham Act: (i) whether an advertisement making no explicitly false claims may nevertheless be found literally “false by implication,” (ii) whether grossly exaggerated visual depictions may qualify as non-actionable “puffery,” and (iii) whether a false advertising plaintiff ’s required showing of irreparable harm on a preliminary injunction motion may be presumed when a challenged comparative advertisement does not reference the plaintiff ’s product by name. After a review of Lanham Act precedent within and outside the Second Circuit, the Court answered all three questions in the affirmative.

This case concerned a dispute between Time Warner Cable and DIRECTV over a multimedia advertising campaign first launched by DIRECTV in 2006. The goal of the DIRECTV’s campaign, consisting of commercial spots on television and banner advertisements on the internet, was to make consumers seeking high-definition (“HD”) programming aware that HD television sets do not display HD-quality images unless and until a consumer purchases HD-programming from service providers like DIRECTV. Id. at *2-3.

In response to the campaign, Time Warner sued DIRECTV for false advertising under Section 43(a) of the Lanham Act, and later sought a preliminary injunction enjoining DIRECTV from airing the commercials in any market in which Time Warner provides cable service. Id. at *3-4.1 Though Time Warner and DIRECTV supply customers with access to multi-channel video service via different means – Time Warner provides cable service and DIRECTV provides satellite service – both companies offer equivalent high-definition (“HD”) service on select channels, and compete for customers in markets where the two companies’ service territories overlap. Id. at *1. Time Warner claimed that certain advertisements used in the campaign made literally false claims that DIRECTV’s HD-programming was superior in quality to service provided by Time Warner. Id. at *4. The District Court agreed, and granted Time Warner’s motion for a preliminary injunction. See Time Warner Cable, Inc. v. DIRECTV, Inc., 475 F. Supp. 2d 299 (S.D.N.Y. 2007).

DIRECTV appealed and sought relief from the district court’s opinion and order on three grounds.

First, DIRECTV argued that its television commercials could not be construed as literally false because none of the commercials explicitly stated that DIRECTV’s HD-programming was superior to that of other cable providers, including Time Warner. 2007 WL 2263932, at *6. The Court of Appeals disagreed and affirmed the district court’s findings. Id. at *6-11.

In doing so, the Court of Appeals adopted the “false by necessary implication” doctrine. While this doctrine has been applied for some time in other circuits and even relied upon by district courts within the Second Circuit, the Court of Appeals had never formally embraced the doctrine. The Court of Appeals described the “false by necessary implication” doctrine in this way: Under this doctrine, a district court evaluating whether an advertisement is literally false must analyze the message conveyed in full context[.] . . . If the words or images, considered in context, necessarily imply a false message, the advertisement is literally false and no extrinsic evidence of consumer confusion is required.

Id. at *10 (internal quotations and citations omitted). Looking at the facts of this case, the Court of Appeals upheld the district court’s finding that statements made in DIRECTV’s television commercials, in context, unambiguously conveyed a literally false claim of superiority regarding HD picture quality. Id. at *11.2

For example, one of the disputed commercials simulated a scene from the science-fiction television and film series Star Trek, with actor William Shatner reprising his role as Captain James T. Kirk. Id. at *2. Both the district court and the Court of Appeals examined each of the statements made in the advertisement in context:

Mr. Chekov: Should we raise our shields, Captain? Captain Kirk: At ease, Mr. Chekov. Again with the shields, I wish he’d just relax and enjoy the amazing picture clarity of the DIRECTV HD we just hooked up. With what Starfleet just ponied up for this big screen TV, settling for cable would be illogical.

On its face, this commercial makes no explicitly false assertions. However, “the District Court found that Shatner’s declaration that “‘settling for cable would be illogical,’ considered in light of the advertisement as a whole, unambiguously made the false claim that cable’s HD picture quality is inferior to that of DIRECTV’s.” Id. at *11. Applying the “false by necessary implication” doctrine, the Court of Appeals agreed, noting the close proximity of Shatner’s “illogical” line to his claims attesting to the “amazing picture clarity of DIRECTV HD.” Id.

As a second argument on appeal, DIRECTV contended that its internet advertisements were not literally false because certain images used in the advertisements constituted non-actionable “puffery.” Specifically, DIRECTV maintained that its blurry and pixilated representations of cable picture quality were so exaggerated that no reasonable consumer would take them to be accurate depictions of cable HD-programming. Id. On this point, the Court of Appeals agreed.

The lower court had voiced concern that “consumers unfamiliar with HD equipment could be led to believe that using an HD television set with an analog cable feed might result in the sort of distorted images showcased in DIRECTV’s Internet Advertisements.” Id. at *12. However, the Court of Appeals found these concerns untenable: “[T]he Internet Advertisements’ depictions of cable are not just inaccurate; they are not even remotely realistic. It is difficult to imagine that any consumer, whatever the level of sophistication, would actually be fooled by the Internet Advertisements” into thinking that cable’s picture quality is as poor as the distorted images used in the ads. Id. at *13. Therefore, there was no risk of consumer confusion or resulting injury to Time Warner.

The court’s discussion of puffery is notable for at least two reasons. First, the analysis represents one of the few times the Court of Appeals has attempted to define the term “puffery” as it concerns images and visual depictions as opposed to words alone. In addition, the Court recognized that puffery may consist of either (i) an overly vague claim expressing mere opinion, or (ii) “an exaggerated, blustering, and boasting statement upon which no reasonable buyer would be justified in relying.” Id. at *12 (citations omitted).

At the end of the opinion, the Court addressed DIRECTV’s third ground for appeal, that Time Warner was not entitled to the presumption of irreparable harm usually afforded a competitor challenging a comparative advertisement because DIRECTV’s advertisements did not explicitly reference Time Warner by name or by product. The Court of Appeals concluded that even though the commercial did not identify Time Warner or its product by name, the presumption could still apply when a Lanham Act plaintiff (i) demonstrates a likelihood of success on the merits, and (ii) establishes that the challenged comparative advertisement can be read to reference plaintiff ’s product, for example when there are no other significant competitors in the marketplace. Id. at *14-15.

As to the latter showing, both the district court and Court of Appeals stressed that consumers essentially have only two choices when purchasing multi-channel video service: cable or satellite. Id. at *15. In markets where Time Warner operates, Time Warner “is ‘cable.’” Id. at *14 (emphasis in original). Therefore, in those markets in which Time Warner’s and DIRECTV’s service territories overlap, the Court of Appeals recognized that DIRECTV’s advertising claims disparaged and injured

Time Warner in the eyes of relevant consumers: “According to a survey in the record, approximately 90% of households have either cable or satellite service. Given the nearly binary structure of the television services market, it would be obvious to consumers that DIRECTV’s claims of superiority are aimed at diminishing the value of cable-which, as discussed above is synonymous with [Time Warner] in the areas covered by the preliminary injunction.” Id. at *15. The Court found neither unreasonable nor erroneous the district court’s finding that DIRECTV’s advertisements necessarily diminish the value of Time Warner’s product in markets where both Time Warner and DIRECTV operate, even through the ads did not explicitly reference Time Warner’s product by name. Id.

Overall, the Court of Appeals’ clarification of Lanham Act false advertising law in Time Warner Cable, Inc. v. DIRECTV, Inc. should prove significant to future Lanham Act litigants. Most notably, the “false by necessary implication” doctrine appears to be an advantageous tool for Lanham Act plaintiffs seeking recovery on the theory that a challenged advertisement is literally false. At the same time, the court’s expansion of “puffery” may afford some Lanham Act defendants an effective affirmative defense. Regardless of its ultimate impact, the decision makes clear that jurisprudence in this area continues to evolve.