TrafficSchool.com, Inc. v. Edriver Inc. , 653 F.3d 820 ( 2011 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
TRAFFICSCHOOL.COM, INC., a ⎫
California corporation; DRIVERS ED
DIRECT, LLC, a California limited
liability company,
Plaintiffs-Appellees,
v. No. 08-56518
EDRIVER INC., a California
corporation; ONLINE GURU, INC., a ⎬ D.C. No.
2:06-cv-07561-PA-
California corporation; FIND MY CW
SPECIALIST, INC., a California
corporation; SERIOUSNET, INC., a
California corporation; RAVI K.
LAHOTI, an individual; RAJ LAHOTI,
an individual,
Defendants-Appellants.
⎭
9733
9734 TRAFFICSCHOOL.COM, INC. v. EDRIVER INC.
TRAFFICSCHOOL.COM, INC., a ⎫
California corporation; DRIVERS ED
DIRECT, LLC, a California limited
liability company,
Plaintiffs-Appellants,
v. No. 08-56588
EDRIVER INC., a California
corporation; ONLINE GURU, INC., a ⎬ D.C. No.
2:06-cv-07561-PA-
California corporation; FIND MY CW
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. No. 09-55333
D.C. No.
EDRIVER INC., a California
corporation; ONLINE GURU, INC., a ⎬ 2:06-cv-07561-PA-
California corporation; FIND MY CW
SPECIALIST, INC., a California OPINION
corporation; SERIOUSNET, INC., a
California corporation; RAVI K.
LAHOTI, an individual; RAJ LAHOTI,
an individual,
Defendants-Appellees.
⎭
TRAFFICSCHOOL.COM, INC. v. EDRIVER INC. 9735
Appeal from the United States District Court
for the Central District of California
Percy Anderson, District Judge, Presiding
Argued and Submitted
March 3, 2010—Pasadena, California
Filed July 28, 2011
Before: Alex Kozinski, Chief Judge, William A. Fletcher,
Circuit Judge, and Robert W. Gettleman,, District Judge.*
Opinion by Chief Judge Kozinski
*The Honorable Robert W. Gettleman, Senior United States District
Judge for the Northern District of Illinois, sitting by designation.
TRAFFICSCHOOL.COM, INC. v. EDRIVER INC. 9739
COUNSEL
Eileen R. Ridley (argued), Andrew B. Serwin and Chad R.
Fuller, Foley & Lardner LLP, San Diego, California, for the
defendant-appellants-cross-appellees.
David N. Makous (argued), Daniel C. DeCarlo and Mina I.
Hamilton, Lewis Brisbois Bisgaard & Smith LLP, Los Ange-
les, California, for the plaintiffs-appellees-cross-appellants.
OPINION
KOZINSKI, Chief 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 sell-
ing sponsored links and collecting fees for referring site visi-
tors to vendors of traffic school courses, driver’s ed lessons
and other driver-related services. This seems like a legitimate
9740 TRAFFICSCHOOL.COM, INC. v. EDRIVER INC.
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 fed-
eral 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 competi-
tion 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.
Standing
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.” Defen-
dants argue that this finding divested the district court of juris-
diction, 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 competi-
tion claim. These findings conclusively establish that plain-
tiffs didn’t have standing to bring their state-law claim; but,
because California’s unfair competition law defines “injury in
TRAFFICSCHOOL.COM, INC. v. EDRIVER INC. 9741
fact” more narrowly than does Article III, the findings don’t
necessarily preclude Article III standing. See Cal. Bus. &
Prof. Code § 17204.1The 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.” Ger-
linger 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 stand-
ing 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 (1984); Levine v. Vilsack, 587 F.3d
986, 991-92 (9th Cir. 2009). Defendants contend that plain-
tiffs 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.
[1] 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
1
Plaintiffs filing an unfair competition suit must prove a pecuniary
injury, Hall v. Time Inc., 70 Cal. Rptr. 3d 466, 470-71 (Cal. Ct. App.
2008), and “immediate” causation, In re Tobacco II Cases, 207 P.3d 20,
40 (Cal. 2009). Neither is required for Article III standing.
9742 TRAFFICSCHOOL.COM, INC. v. EDRIVER INC.
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 diffi-
cult 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 defen-
dant’s false advertising could harm plaintiff ’s business.
[2] 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 (1992). Plaintiffs
also presented testimonial and survey evidence that a “recom-
mended by DMV” endorsement is an important factor in con-
sumers’ 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 recom-
mended by their state’s DMV. Plaintiffs have therefore estab-
lished sufficient injury for Article III standing.
[3] 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 plain-
tiff ’s ability to compete with the defendant.”2 Defendants first
2
A plaintiff may meet both prongs of Jack Russell and still lack standing
if the purpose of his false advertising suit is to enforce someone else’s
TRAFFICSCHOOL.COM, INC. v. EDRIVER INC. 9743
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 centu-
ries,” 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).
[4] Defendants also argue that plaintiffs fail the Jack Rus-
sell 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’ confu-
sion 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 com-
mercial injury test.
[5] The Lanham Act permits “any person” to sue if he “be-
lieves 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 lat-
ter to establish the commercial injury necessary for Lanham
Act standing. See Johnson & Johnson v. Carter-Wallace, Inc.,
631 F.2d 186, 190 (2d Cir. 1980); see also Harper House, Inc.
v. Thomas Nelson, Inc., 889 F.2d 197, 210 (9th Cir. 1989)
statutory rights. See Sybersound Records, Inc. v. UAV Corp., 517 F.3d
1137, 1143-44 (9th Cir. 2008) (Copyright Act). For example, plaintiffs
couldn’t sue to vindicate the California DMV’s trademark rights. But
Sybersound isn’t implicated here because plaintiffs sued to enforce their
own right to be free of unfair competition.
9744 TRAFFICSCHOOL.COM, INC. v. EDRIVER INC.
(holding that “a competitor need not prove [past] injury when
suing to enjoin conduct that violates section 43(a),” in part
because the “competitor may suffer future injury”).
[6] We have generally presumed commercial injury when
defendant and plaintiff are direct competitors and defendant’s
misrepresentation has a tendency to mislead consumers. In
Waits v. Frito-Lay, Inc., 978 F.2d 1093 (9th Cir. 1992), we
held that a plaintiff bringing a false advertising suit had to
show a “discernibly competitive injury,” and gave the follow-
ing example:
If a film’s distributor wrongfully indicates that a film
is “PG”-rated when in reality it should be “R”-rated,
a competitor with a PG-rated film would have stand-
ing: the misrated film theoretically draws young
audiences away from the competitor’s film because
of the misrepresentation concerning the suitability of
its content.
Id. at 1109. Thus, when plaintiff competes directly with
defendant, a misrepresentation will give rise to a presumed
commercial injury that is sufficient to establish standing.
There are good reasons to presume that a competitor bring-
ing a false advertising claim has suffered a commercial injury.
Competitors “vie for the same dollars from the same con-
sumer group,” and a misleading ad can upset their relative
competitive positions. Kournikova v. Gen. Media Commc’ns,
Inc., 278 F. Supp. 2d 1111, 1117 (C.D. Cal. 2003). Moreover,
the Lanham Act is at heart a consumer protection statute. U-
Haul Int’l, Inc. v. Jartran, Inc., 681 F.2d 1159, 1162 (9th Cir.
1982) (“U-Haul I”); see 5 J. Thomas McCarthy, McCarthy on
Trademarks & Unfair Competition § 27:25 (4th ed. 2010)
[hereinafter McCarthy]; see also Alex Kozinski, Trademarks
Unplugged, 68 N.Y.U. L. Rev. 960, 964 (1993) (“The great
evil the Lanham Act seeks to prevent is that of consumers
being duped into buying a watch they later discover was made
TRAFFICSCHOOL.COM, INC. v. EDRIVER INC. 9745
by someone other than Rolex.” (footnote omitted)). Requiring
proof that defendant’s ads caused plaintiff to lose sales as a
prerequisite to bringing suit would frustrate its ability to act
as the fabled vicarious avenger of the consuming public. 5
McCarthy § 27:31; see Johnson & Johnson, 631 F.2d at 191.
But see B. Sanfield, Inc. v. Finlay Fine Jewelry Corp., 258
F.3d 578, 580-81 (7th Cir. 2001) (competitor “is not a public
prosecutor” and must therefore “prove past or potential inju-
ry”).
[7] We need not decide today whether our presumption of
commercial injury is conclusive or rebuttable because defen-
dants didn’t point to any evidence—such as an increase in
plaintiffs’ sales—that might tend to rebut the presumption.
See B. Sanfield, Inc., 258 F.3d at 581 (finding no past or
future injury in part because plaintiff ’s “sales rose during the
months covered by its claims”). We therefore presume that
plaintiffs suffered a commercial injury.
C. Plaintiffs’ Lanham Act standing thus turns on the second
half of Jack Russell’s commercial injury prong: whether
DMV.org’s ads are misleading. See Jack Russell, 407 F.3d at
1037. After extensively reviewing the evidence, the district
court found that DMV.org’s entire site had a “tendency to
deceive a substantial segment of its audience.” See Southland
Sod Farms v. Stover Seed Co., 108 F.3d 1134, 1139 (9th Cir.
1997).
[8] The court discussed several facets of the website that
were likely to mislead consumers into thinking DMV.org was
affiliated with a government agency. At the time plaintiffs
filed their suit, anyone in California who googled “dmv” or
“drivers ed” would see sponsored listings for “ca.dmv.org” or
“california.dmv.org,” respectively; clicking those listings
would take the googler to DMV.org. While there’s nothing
inherently misleading about sponsored search results, they
can mislead if they are named so as to give a false impression
as to the likely sponsorship of the website to which they refer.
9746 TRAFFICSCHOOL.COM, INC. v. EDRIVER INC.
See Toyota Motor Sales, U.S.A., Inc. v. Tabari, 610 F.3d
1171, 1177-78 (9th Cir. 2010). Defendants’ use of the “ca.”
and “california.” prefixes obviously was designed to suggest
an affiliation with the State of California. DMV.org’s site
design also mimicked an actual DMV site by copying slogans
and state symbols, and by linking to web pages elsewhere on
the site that helped consumers complete DMV-related trans-
actions like applying for a license, registering a car and sign-
ing up for traffic school. DMV.org did disclaim connection
with state DMVs, but this disclaimer was easy to miss
because it was displayed in small font at the bottom of each
page, where many consumers would never scroll.
[9] Plaintiffs also introduced evidence of actual consumer
confusion. They provided two declarations from individuals
who confused DMV.org with an official DMV site and hun-
dreds of emails sent by consumers who contacted DMV.org
thinking it was their state’s DMV. Some of these emails con-
tained sensitive personal information that the typical con-
sumer wouldn’t share with a commercial website. Here’s an
example, with redactions:
My boyfriend George [redacted] . . . got a ticket in
South Carolina in 2006. . . . Mr. [redacted] driver’s
license number is [redacted]. His date of birth is
[redacted]. I have his social security number if
needed, but I don’t want to put all of his personal
information on this e-mail if possible. . . . I was told
by Central Court for Lexington County in South Car-
olina that if we contacted the Arkansas DMV that
y’all would be able to tell us what court this is in and
where to pay the ticket.
Other emails were sent by law enforcement officials and state
DMV employees who were similarly confused by DMV.org.
For example, a Washington state trooper emailed DMV.org
asking:
TRAFFICSCHOOL.COM, INC. v. EDRIVER INC. 9747
Dear Oregon DMV, I am currently involved in a
DUI case in which a driver used his friends [sic] ID
but I remember it having his picture. It is an Oregon
ID in the name of [redacted]. I would like to see if
I can get a copy of the picture/ID e-mailed to me for
identification purposes. The DUI arrest occurred on
September 16, 2006 in Snohomish County, WA.
Plaintiffs also produced evidence that two California cities, a
private law firm in Texas and a number of newspapers mis-
takenly linked their websites to DMV.org instead of a state
DMV website.
[10] In addition to this anecdotal evidence, the district
court examined Internet surveys submitted by the parties.
Plaintiffs’ survey showed that a majority of California resi-
dents searching online for traffic schools believed that (1)
DMV.org’s website was actually the California DMV’s and
(2) a search engine listing for DMV.org was endorsed or
sponsored by the California DMV. The court pointed out sig-
nificant flaws in the survey—including plaintiffs’ failure to
use a control—but found it more credible than defendants’
survey and gave it some weight. We share the district court’s
concerns with plaintiffs’ survey, but can’t find that the court
erred by considering it along with the other evidence.
[11] Plaintiffs introduced volumes of evidence showing
that they compete with defendants and that DMV.org proba-
bly misleads consumers. Because we presume commercial
injury in this case, plaintiffs have met both prongs of Jack
Russell’s test for Lanham Act standing.
False Advertising
[12] A. To succeed on an Internet false advertising claim,
a plaintiff must show that a statement made in a commercial
advertisement or promotion is false or misleading, that it actu-
ally deceives or has the tendency to deceive a substantial seg-
9748 TRAFFICSCHOOL.COM, INC. v. EDRIVER INC.
ment of its audience, that it’s likely to influence purchasing
decisions and that the plaintiff has been or is likely to be
injured by the false advertisement. See Southland Sod Farms,
108 F.3d at 1139.3 As we explained, see pp. 9745-47 supra,
the district court made extensive findings in support of its
conclusion that the DMV.org URL, defendants’ search engine
marketing strategy and the design of DMV.org were likely to,
and did, confuse consumers. None of these findings was
clearly erroneous, and they establish that the DMV.org site
deceives a substantial segment of its audience. Plaintiffs’ evi-
dence also shows that a “recommended by DMV” endorse-
ment will affect purchase decisions, and that plaintiffs are
likely to suffer injury when consumers visit DMV.org instead
of their competing sites. The district court committed no error
in holding that defendants violated the Lanham Act.
B. By way of a remedy, the district court ordered DMV.org
to present every site visitor with a splash screen stating,
“YOU ARE ABOUT TO ENTER A PRIVATELY OWNED
WEBSITE THAT IS NOT OWNED OR OPERATED BY
ANY STATE GOVERNMENT AGENCY.” Visitors can’t
access DMV.org’s content without clicking a “CONTINUE”
button on the splash screen.4 Defendants argue that the district
court abused its discretion by fashioning a “blanket injunc-
tion” that’s overbroad—i.e., restrains conduct not at issue in
plaintiffs’ complaint—and violates the First Amendment.
[13] Overbreadth. The district court reasoned that the
splash screen was necessary to: (1) “remedy any confusion
that consumers have already developed before visiting
DMV.ORG for the first time,” (2) “remedy the public interest
concerns associated with [confused visitors’] transfer of sensi-
3
A plaintiff bringing a false advertising claim must also show that
defendant caused its false or misleading statement to enter interstate com-
merce, see Southland Sod Farms, 108 F.3d at 1139, but this is virtually
automatic for websites.
4
We have reproduced the splash screen at Appendix A.
TRAFFICSCHOOL.COM, INC. v. EDRIVER INC. 9749
tive information to Defendants,” and (3) “prevent confusion
among DMV.ORG’s consumers.” Defendants argue that the
splash screen doesn’t effectuate these stated goals. But their
only evidence is a declaration from DMV.org’s CEO stating
that defendants tested several alternative disclaimers and
found them to be more effective than the splash screen in pre-
venting consumers from emailing DMV.org with sensitive
personal information. To the extent we credit a self-serving
declaration, see SEC v. Phan, 500 F.3d 895, 909-10 (9th Cir.
2007), defendants’ evidence doesn’t prove that the splash
screen is ineffective in this respect, and says nothing about
whether the alternative disclaimers serve the other two inter-
ests identified by the district court. Defendants haven’t carried
their “heavy burden” of showing that their alternative dis-
claimers reduce DMV.org’s likelihood of confusing consum-
ers. Austl. Gold, Inc. v. Hatfield, 436 F.3d 1228, 1243 (10th
Cir. 2006) (citing Home Box Office, Inc. v. Showtime/The
Movie Channel Inc., 832 F.2d 1311, 1316 (2d Cir. 1987)).
The scope of an injunction is within the broad discretion of
the district court, Interstellar Starship Servs., Ltd. v. Epix,
Inc., 304 F.3d 936, 941 (9th Cir. 2002), and the district court
here didn’t abuse that discretion when it concluded that the
splash screen was the optimal means of correcting defendants’
false advertising.
[14] First Amendment. Courts routinely grant permanent
injunctions prohibiting deceptive advertising. See 1 Charles E.
McKenney & George F. Long III, Federal Unfair Competi-
tion: Lanham Act § 43(a) § 10:5 (17th ed. 2010). Because
false or misleading commercial statements aren’t constitution-
ally protected, see Cent. Hudson Gas & Elec. Corp. v. Pub.
Serv. Comm’n of N.Y., 447 U.S. 557, 563 (1980); Dr. Seuss
Enters., L.P. v. Penguin Books USA, Inc., 109 F.3d 1394,
1403 n.11 (9th Cir. 1997), such injunctions rarely raise First
Amendment concerns.
[15] The permanent injunction here does raise such con-
cerns because it erects a barrier to all content on the DMV.org
9750 TRAFFICSCHOOL.COM, INC. v. EDRIVER INC.
website, not merely that which is deceptive. Some of the web-
site’s content is informational and thus fully protected, such
as guides to applying for a driver’s license, buying insurance
and beating traffic tickets. See Mattel, Inc. v. MCA Records,
Inc., 296 F.3d 894, 906 (9th Cir. 2002). The informational
content is commingled with truthful commercial speech,
which is entitled to significant First Amendment protection.
See Cent. Hudson, 447 U.S. at 564. The district court was
required to tailor the injunction so as to burden no more pro-
tected speech than necessary. Madsen v. Women’s Health
Ctr., Inc., 512 U.S. 753, 765 (1994); Nissan Motor Co. v. Nis-
san Computer Corp., 378 F.3d 1002, 1016-17 (9th Cir. 2004).
[16] The district court does not appear to have considered
that its injunction would permanently and unnecessarily bur-
den access to DMV.org’s First Amendment-protected content.
The splash screen forces potential visitors to take an addi-
tional navigational step, deterring some consumers from
entering the website altogether.5 It also precludes defendants
from tailoring DMV.org’s landing page to make it welcoming
to visitors, and interferes with the operation of search engines,
making it more difficult for consumers to find the website and
its protected content.6 All of these burdens on protected
speech are, under the current injunction, permanent.
The district court premised its injunction on its findings
that defendants’ “search engine marketing” and “non-
sponsored natural listings, including the DMV.ORG domain
5
Defendants’ website usability expert submitted a declaration stating
that splash screens typically drive away up to a quarter of potential site
visitors. Plaintiffs cite nothing to rebut this evidence.
6
Defendants introduced unrebutted evidence that splash screens com-
monly interfere with the automated “spiders” that search engines deploy
to “crawl” the Internet and compile the indexes of web pages they use to
determine every page’s search ranking. And splash screens themselves
don’t have high search rankings: Search engines commonly base these
rankings on the web page’s content and the number of other pages linking
to it, and splash screens lack both content and links.
TRAFFICSCHOOL.COM, INC. v. EDRIVER INC. 9751
name,” caused consumers to be confused even before they
viewed DMV.org’s content. The court also identified specific
misleading statements on the website. The splash screen is
justified to remedy the harm caused by such practices so long
as they continue. But website content and advertising prac-
tices can and do change over time. Indeed, the court found
that defendants had already “made some changes to
DMV.ORG and how they marketed it.”
The splash screen is also justified so long as it helps to rem-
edy lingering confusion caused by defendants’ past deception.
But the splash screen will continue to burden DMV.org’s pro-
tected content, even if all remaining harm has dissipated. At
that point, the injunction will burden protected speech without
justification, thus burdening more speech than necessary. See
Madsen, 512 U.S. at 765; Nissan Motor Co., 378 F.3d at
1016-17; see also E. & J. Gallo Winery v. Gallo Cattle Co.,
967 F.2d 1280, 1298 (9th Cir. 1992) (permanent injunction
can’t burden future non-misleading business practices); U-
Haul Int’l, Inc. v. Jartran, Inc., 793 F.2d 1034, 1042-43 (9th
Cir. 1986) (“U-Haul II”) (permanent injunction can’t burden
future truthful advertising).
[17] On remand, the district court shall reconsider the
duration of the splash screen in light of any intervening
changes in the website’s content and marketing practices, as
well as the dissipation of the deception resulting from past
practices. If the district court continues to require the splash
screen, it shall explain the continuing justification for burden-
ing the website’s protected content and what conditions
defendants must satisfy in order to remove the splash screen
in the future. In the alternative, or in addition, the court may
permanently enjoin defendants from engaging in deceptive
marketing or placing misleading statements on DMV.org. See
U-Haul II, 793 F.2d at 1043 (modifying injunction to prohibit
only false or misleading advertising).
C. The district court denied plaintiffs’ request for an award
of profits because they provided “no evidence [of causation or
9752 TRAFFICSCHOOL.COM, INC. v. EDRIVER INC.
evidence] quantifying the extent of any . . . harm” they suf-
fered as a result of DMV.org’s actions. Nothing in the Lan-
ham Act conditions an award of profits on plaintiff ’s proof
of harm, and we’ve held that profits may be awarded in the
absence of such proof. See Southland Sod Farms, 108 F.3d at
1146; U-Haul II, 793 F.2d at 1040-42. But an award of profits
with no proof of harm is an uncommon remedy in a false
advertising suit. It’s appropriate in false comparative advertis-
ing cases, where it’s reasonable to presume that every dollar
defendant makes has come directly out of plaintiff ’s pocket.
See, e.g., U-Haul II, 793 F.3d at 1041; U-Haul I, 681 F.2d at
1159 (newspaper ad falsely stated that defendant’s rental
trucks were bigger, newer and more fuel-efficient than trucks
in plaintiff ’s fleet). It’s also appropriate where ordinary dam-
ages won’t deter unlawful conduct: for example, when defen-
dant associates its product with plaintiff ’s noncompetitive
product to appropriate good will or brand value. See, e.g.,
Maier Brewing Co. v. Fleischmann Distilling Corp., 390 F.2d
117, 120, 123-24 (9th Cir. 1968) (brewer of Black & White
beer forced to pay profits to distiller of Black & White
scotch). The reason there is that plaintiff is unlikely to have
lost any sales or sale contracts to defendant, and the damages
must be measured by defendant’s gains from the illicit use.
[18] But neither the comparative advertising nor good will
cases are relevant here, where plaintiffs claim that “defen-
dant[s] advertised a different (and allegedly better) product
than they delivered.” Harper House, Inc., 889 F.2d at 209 n.8.
The Lanham Act allows an award of profits only to the extent
the award “shall constitute compensation and not a penalty.”
15 U.S.C. § 1117(a). But “when advertising does not directly
compare defendant’s and plaintiff ’s products,” the injury to
plaintiff “may be a small fraction of the defendant’s sales,
profits, or advertising expenses.” Harper House, Inc., 889
F.2d at 209 n.8. Plaintiffs didn’t produce any proof of past
injury or causation, so the district court had no way to deter-
mine with any degree of certainty what award would be com-
pensatory. See ALPO Petfoods, Inc. v. Ralston Purina Co.,
TRAFFICSCHOOL.COM, INC. v. EDRIVER INC. 9753
913 F.2d 958, 969 (D.C. Cir. 1990) (“[T]he court must ensure
that the record adequately supports all items of damages . . .
lest the award become speculative or violate [the Lanham
Act’s] prohibition against punishment.”); see also 5 McCarthy
§ 27:42 (explaining that “some quantum of lost sales must be
proven”). The district court didn’t err in denying damages.
Attorney’s Fees
Section 35 of the Lanham Act permits an award of attor-
ney’s fees to a “prevailing party” in “exceptional cases.” 15
U.S.C. § 1117(a). The district court denied plaintiffs attor-
ney’s fees and gave the following justification:
While Plaintiffs have obtained injunctive relief, they
have been awarded no damages. Accordingly, and in
light of Plaintiffs’ unclean hands, the Court does not
find that this case is exceptional and declines to
award attorney’s fees for the Lanham Act claim.
We review the denial of attorney’s fees for abuse of discre-
tion, see Polo Fashions, Inc. v. Dick Bruhn, Inc., 793 F.2d
1132, 1133 (9th Cir. 1986), and must affirm unless the district
court applied the wrong legal standard or its findings were
illogical, implausible or without support in the record, see
United States v. Hinkson, 585 F.3d 1247, 1262 (9th Cir. 2009)
(en banc).7
[19] A. Lanham Act cases generally consider whether
defendants’ conduct was “fraudulent, deliberate, or willful.”
Horphag Research Ltd. v. Garcia, 475 F.3d 1029, 1039 (9th
7
In Gracie v. Gracie, 217 F.3d 1060 (9th Cir. 2000), we stated that a
“party alleging that the district court erred by failing to award attorneys’
fees under [section] 1117 faces an uphill battle.” Id. at 1071; see 5 McCar-
thy § 30:105. Of course, every party alleging an abuse of discretion faces
an “uphill battle,” because Hinkson requires us to give significant defer-
ence to a district court’s findings.
9754 TRAFFICSCHOOL.COM, INC. v. EDRIVER INC.
Cir. 2007); see Earthquake Sound Corp. v. Bumper Indus.,
352 F.3d 1210, 1216-17 (9th Cir. 2003) (summarizing case
law on exceptionality); see also Lindy Pen Co. v. Bic Pen
Corp., 982 F.2d 1400, 1409 (9th Cir. 1993) (“[G]enerally a
trademark case is exceptional for purposes of an award of
attorneys’ fees when the infringement is malicious, fraudu-
lent, deliberate or willful.”). By examining only the relief
awarded to plaintiffs, and failing to consider defendants’ con-
duct, the district court applied the wrong legal standard. See
Lahoti v. Vericheck, Inc., 636 F.3d 501, 511 (9th Cir. 2011).
[20] No doubt, the court may take plaintiffs’ failure to
recover damages into account when exercising its discretion
to award fees, but it must also consider that plaintiffs obtained
a judgment and an injunction that ameliorate a serious public
harm. In addition, the court must weigh the unlawfulness of
defendants’ conduct. It would be inequitable to force plain-
tiffs to bear the entire cost of enjoining defendants’ willful
deception when the injunction confers substantial benefits on
the public. See Comm. for Idaho’s High Desert, Inc. v. Yost,
92 F.3d 814, 818-19, 825 (9th Cir. 1996) (plaintiff was enti-
tled to attorney’s fees when district court awarded injunction
but not damages); Audi AG v. D’Amato, 469 F.3d 534, 550-51
(6th Cir. 2006) (same). Plaintiffs put an end to the confusion
created by DMV.org and stopped consumers from mistakenly
transferring sensitive personal information to a commercial
website. This conferred significant benefits on third parties
and also vindicated plaintiffs’ right to a “market free of false
advertising.” Johnson & Johnson, 631 F.2d at 192. The dis-
trict court abused its discretion by failing to consider these
substantial benefits or defendants’ bad acts in determining
whether to award attorney’s fees.
B. Defendants challenge the district court’s finding that
their deception was willful—and thus “exceptional” under
Horphag and Lindy Pen. But the district court’s willfulness
finding is supported by evidence that defendants planned to
mislead site visitors and knew that their conduct confused
TRAFFICSCHOOL.COM, INC. v. EDRIVER INC. 9755
consumers. See Playboy Enters., Inc. v. Baccarat Clothing
Co., 692 F.2d 1272, 1276 (9th Cir. 1982) (agreeing with claim
that defendants who hired a manufacturer to produce counter-
feit goods were “flagrant and willful” infringers); Earthquake
Sound Corp., 352 F.3d at 1218 (holding that “ample evidence
of actual confusion” was the most important support for dis-
trict court’s finding of willfulness). Defendants associated
their website with URLs and search terms that falsely implied
DMV.org was a government site. They had in their possession
hundreds of emails sent by consumers who contacted
DMV.org thinking it was a state agency. And DMV.org’s
director of customer service testified that he voiced concerns
about these emails to senior management.
Defendants claim that they reacted by “explain[ing] away
any confusion” and adding disclaimers to the bottom of each
web page.8 But defendants knew that the disclaimers were
ineffective, because adding them didn’t end the stream of
emails sent by consumers who thought they’d contacted their
state DMV. There was overwhelming proof that defendants
knew their statements confused consumers and did little or
nothing to remedy it. The district court could reasonably infer
that they willfully deceived the public. See Audi AG, 469 F.3d
at 551.
Nor can defendants prevail by claiming that their deception
wasn’t “egregious.” We rejected a similar theory in Earth-
quake Sound, where we held that exceptionality doesn’t
require egregious conduct. 352 F.3d at 1217. The two cases
defendants cite, Johnson & Johnson-Merck Consumer Pharm.
Co. v. Smithkline Beecham Corp., 960 F.2d 294, 298-99 (2d
Cir. 1992), and Johnson & Johnson-Merck Consumer Pharm.
Co. v. Rhone-Poulenc Rorer Pharm., Inc., 19 F.3d 125,
8
Defendants argue that the district court shouldn’t have considered one
defendant’s “pattern of registering misleading domain names,” but this
evidence is in fact relevant to defendants’ intent to deceive consumers. See
Polo Fashions, Inc., 793 F.2d at 1134.
9756 TRAFFICSCHOOL.COM, INC. v. EDRIVER INC.
131-32 (3d Cir. 1994), suggested only that egregious conduct
could be probative of willfulness, not that it’s a prerequisite.
C. Defendants point to the district court’s finding that
plaintiffs had unclean hands as an independent basis for deny-
ing attorney’s fees. But that finding is clearly erroneous.9 The
district court gave two reasons why it thought plaintiffs had
unclean hands: (1) they registered domain names the court
deemed similar to DMV.org, such as Online-DMV.org,
Internet-DMV.org and cadmvtrafficschool.com; and (2) they
attempted to advertise their products on DMV.org despite
being aware that the site deceived the public. Neither amounts
to “clear, convincing evidence,” Citizens Fin. Grp., Inc. v.
Citizens Nat’l Bank of Evans City, 383 F.3d 110, 129 (3d Cir.
2004), that “plaintiff[s’] conduct [wa]s inequitable” and “re-
late[d] to the subject matter of” their false advertising claims,
Japan Telecom, Inc. v. Japan Telecom Am. Inc., 287 F.3d
866, 870 (9th Cir. 2002).
Merely registering a domain name isn’t proof of unclean
hands. See 5 McCarthy § 25:76; see also Brookfield
Commc’ns, Inc. v. West Coast Entm’t Corp., 174 F.3d 1036,
1052 (9th Cir. 1999). Until a domain name is associated with
a server that hosts a website, it’s not visible to consumers and
thus can’t possibly confuse them. And plaintiffs’ ads on
9
It’s not clear that the award of attorney’s fees is subject to equitable
doctrines such as unclean hands. The provision of the Lanham Act autho-
rizing attorney’s fees doesn’t use the word “equity.” Compare 15 U.S.C.
§ 1117(a) (“The court in exceptional cases may award reasonable attorney
fees to the prevailing party.”), with id. (“[T]he plaintiff shall be entitled,
subject to . . . the principles of equity, to recover (1) defendant’s profits,
(2) any damages sustained by the plaintiff, and (3) the costs of the
action.”), and 15 U.S.C. § 1116(a) (“[C]ourts . . . shall have power to grant
injunctions according to the principles of equity . . . .”). Arguably, Con-
gress displaced courts’ “general equity power” when it “meticulously
detailed the remedies available” under the Lanham Act. Fleischmann Dis-
tilling Corp. v. Maier Brewing Co., 386 U.S. 714, 719-20 (1967). Never-
theless, we need not reach this issue because we reverse the unclean hands
finding.
TRAFFICSCHOOL.COM, INC. v. EDRIVER INC. 9757
DMV.org ran for just six hours, a de minimis period of time.
Our review of the record reveals no evidence of actual decep-
tion caused by plaintiffs’ advertising. See Japan Telecom,
Inc., 287 F.3d at 870.
Defendants argue that the district court’s unclean hands
finding can be sustained based on plaintiffs’ bad intentions,
pointing to an email from plaintiffs’ co-founder that recom-
mended taking an “[i]f you can’t join ‘em, shut ‘em down
approach” to DMV.org. But the doctrine is unclean hands, not
impure thoughts. It’s doubtful that bad intentions that are
never put into effect could support a finding of unclean hands.
See Perfumebay.com, Inc. v. eBay, Inc., 506 F.3d 1165, 1178
(9th Cir. 2007) (holding that the record must “affirmatively
demonstrate” consumer deception). And the email here actu-
ally undermines the rationale for finding unclean hands.
Plaintiffs acquired information showing that defendants con-
fused the public; using litigation to shut down a competitor
who uses unfair trade practices is precisely what the Lanham
Act seeks to encourage. See 5 McCarthy § 27:25.
[21] Because the district court erred in finding that defen-
dants’ conduct wasn’t exceptional and that plaintiffs had
unclean hands, its denial of attorney’s fees was an abuse of
discretion. We remand for the district court to consider the
award of attorney’s fees anew in light of the considerations
discussed above.
Joint Liability
[22] After plaintiffs presented their case at trial, defendants
filed a Rule 52(c) motion arguing that the evidence was insuf-
ficient to hold liable any defendant other than Online Guru.
The district court delayed ruling on the motion until the close
of trial, when it held that all defendants were jointly and sev-
erally liable. In its ruling, the district court explained in great
detail each defendant’s role in creating, developing or dis-
seminating DMV.org’s misleading advertising. These find-
9758 TRAFFICSCHOOL.COM, INC. v. EDRIVER INC.
ings aren’t clearly erroneous, and we agree with the district
court that they’re sufficient to hold defendants liable as joint
tortfeasors. See 4 McCarthy § 25:23.
Contempt
[23] Plaintiffs also appeal the district court’s refusal to
hold DMV.org in contempt for several technical violations of
the injunction. We review this ruling for abuse of discretion.
See Hallett v. Morgan, 296 F.3d 732, 749 (9th Cir. 2002). The
district court found that defendants “substantially complied”
with the injunction and any deviations appeared to be based
on “a good faith and reasonable interpretation of the [court’s
order].” (Alteration in original.) Plaintiffs argue that the dis-
trict court erred when it credited defendants’ explanation for
the technical violations. But the district court applied the cor-
rect legal standard, see In re Dual-Deck Video Cassette
Recorder Antitrust Litig., 10 F.3d 693, 695 (9th Cir. 1993), so
we cannot overturn its ruling unless its factual findings are
illogical, implausible or without support in the record. See
Hinkson, 585 F.3d at 1262. We cannot say that the district
court’s decision to accept defendants’ explanations for what
turned out to be technical breaches of the injunction come
anywhere near satisfying the Hinkson standard for abuse.
AFFIRMED in part and REVERSED in part.
REMANDED with instructions. No costs.
TRAFFICSCHOOL.COM, INC. v. EDRIVER INC. 9759
Appendix A