Damages Soar from False Advertising About Skydiving

In March 2012, the Ninth Circuit in Skydive Arizona, Inc. v. Quattrocchi, et al., No. 10-16099 (9th Cir. March 12, 2012) upheld a $6.6 million judgment for trademark infringement, false advertising, and cybersquatting, while overturning the district court's doubling of actual damages. The opinion succinctly outlines appellate review standards while offering insights into how to prove a Lanham Act and cybersquatting case.

The case arose out of a dispute between “Skydive Arizona” (“SA”), the famous owner and operator of one of the largest skydiving centers in the world, and a group of defendants, collectively referred to as “Skyride,” the operators of an internet and phone-based advertising and booking service. Skyride's advertising service made skydiving arrangements for its customers, issuing certificates for redemption at various locations around the country.

Procedural and Factual Background

In 2005, SA sued Skyride under ” 43(a) and 43(d) of the Lanham Act for false advertising and cybersquatting respectively, and under 15 USC ' 1125(a) for trademark infringement. SA claimed that Skyride's advertisements falsely misled consumers who wished to skydive in Arizona into thinking they were contracting with an
Arizona skydiving company. In particular, they alleged that Skyride traded upon SA's goodwill and misled customers into believing that SA would accept Skyride's certificates.

The factual record showed that Skyride owned and operated numerous websites that referenced Arizona cities and the term “skydiving” in their domain names, such as “PhoenixSkydiving” or “Scottsdale-Skydiving,” even though Skyride did not own or operate any skydiving facilities in Arizona. They also operated sites that specifically referenced SA by using domains such as “Skydivearizona.net,” “arizona-
skydive.com” and “skydivingarizona.com.” In fact, SA did not advertise on any of these websites nor did it accept Skyride's certificates. In short, it had no business dealings with Skyride, despite Skyride's use of these domain names. The record included factual showings of a strategic decision by Skyride to use these advertising tactics to attract more customers. SA also submitted evidence of actual confusion among customers and a loss of goodwill in the public eye.

In 2009, the district court entered partial summary judgment for SA on its false advertising claim. Later that year, at trial, a jury awarded the following damages: $1 million as damages for willful false advertising, $2.5 million in actual damages for willful trademark infringement, $2,500,004 in lost profits and $100,000 in statutory damages for cybersquatting. SA was the complete victor at the trial level.

Skyride moved for a new trial, reduction of the jury award, remittitur, and judgment notwithstanding the verdict. The district court not only denied Skyride's motions, it also went further to double the actual damages awards for false advertising and trademark infringement to $5 million and $2 million respectively. It did not increase the jury's other awards but confirmed them.

The Ninth Circuit's Opinion

Both parties appealed, to the circuit court, and in March, 2012, the Ninth Circuit reversed the district court's increase of damages, but let the remainder of the trial court's and district court's decisions stand. The opinion noted that the circuit appeals court had reviewed the lower court decision only for abuse of discretion. In so doing, it looked to see if “the jury's award was supported by reasonable inferences and assessments, based on substantial evidence in the record.”

The Partial Summary Judgment for False Advertising

While the factual record was not in dispute, the circuit court outlined the five elements to a ' 43(a) advertising claim: 1) advertising containing a false statement of fact about defendant's or another's product; 2) a showing that the statement deceived or has the tendency to deceive a substantial portion of the audience; 3) a showing that the deception materially influences a purchase decision; 4) proof that the advertiser used the statement in interstate commerce; and 5) proof that the plaintiff has been or is likely to be injured by the false statement by lessening sales or goodwill.

Skyride had disputed only the district court's materiality finding on appeal. The circuit court upheld the district court's finding that Skyride's false statements materially influenced customers. In so doing, the circuit court noted that materiality did not require a survey as evidence. Instead, it recognized declarations from confused customers as a showing of materiality. It noted that a survey is useful for literally true but misleading statements, but declarations are sufficient for false statements that are misleading. As such, the circuit court upheld the partial summary judgment finding by the district court.

The Damages Awards