Cashmere & Camel Hair Manufacturers Institute v. Saks Fifth Avenue
284 F.3d 302 (2002)
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Rule of Law:
In a Lanham Act false advertising case, a presumption of consumer deception arises when a defendant's statement is literally false or made with an intent to deceive, relieving the plaintiff of the burden of producing direct evidence of deception. Evidence of a competitor's lost sales due to the defendant's lower prices, made possible by the misrepresentation, is sufficient to create a triable issue of fact on causation.
Facts:
- In 1993, Harve Benard, Ltd. began manufacturing women's blazers with labels stating they contained 10 percent cashmere and were 'A Luxurious Blend of Cashmere and Wool.'
- Harve Benard sold these blazers to retailers including Saks Fifth Avenue and Filene's Basement.
- In 1995, L.W. Packard & Co. and the Cashmere & Camel Hair Manufacturers Institute had samples of the blazers tested by two independent experts.
- Both experts concluded the garments contained no cashmere, or at most, only trace amounts.
- One expert also found that fibers in the garments were recycled, meaning they were reconstituted from previously used clothing, which affects quality.
- One of Harve Benard's mills sent a letter to the company's president in 1995 stating it was using recycled cashmere in the fabric.
- Packard's customers, who were garment manufacturers, informed Packard's sales agent that they were reducing purchases of Packard's legitimate cashmere-blend fabric because they could not compete with Harve Benard's lower-priced blazers.
Procedural Posture:
- L.W. Packard & Co. and the Cashmere & Camel Hair Manufacturers Institute sued Harve Benard, Ltd., Saks Fifth Avenue, and Filene's Basement in U.S. District Court for false advertising under the Lanham Act and state law.
- Defendants moved for summary judgment, arguing plaintiffs could not prove consumer deception or causation.
- The district court granted partial summary judgment in favor of defendants, dismissing Packard's claims for money damages and the Institute's claim regarding recycled cashmere.
- To expedite its appeal of the adverse summary judgment rulings, the Institute voluntarily dismissed its one remaining claim with prejudice.
- Plaintiffs-appellants Packard and the Institute appealed the district court's grant of summary judgment to the U.S. Court of Appeals for the First Circuit.
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Issue:
Does a plaintiff present a genuine issue of material fact on the elements of consumer deception and causation in a Lanham Act false advertising suit, sufficient to survive summary judgment, when the defendant's product claims are literally false and the plaintiff offers evidence that its customers were lost due to the defendant's lower prices?
Opinions:
Majority - Torruella, Circuit Judge.
Yes. A plaintiff presents a genuine issue of material fact on consumer deception and causation sufficient to survive summary judgment under these circumstances. When a defendant's advertising is literally false, a court will presume consumers were deceived, and the plaintiff does not need to present evidence like consumer surveys to prove deception. This presumption applies to claims for both injunctive relief and monetary damages. Furthermore, a plaintiff can establish a triable issue on causation by presenting evidence that the defendant's mislabeling led to lower production costs, which in turn enabled lower sale prices that caused the plaintiff to lose customers. Here, Harve Benard's claim of '10% cashmere' when there was none was literally false, triggering the presumption of deception. The court also found that a jury could conclude that labeling the fabric 'cashmere' without disclosing its recycled nature was literally false by 'necessary implication' due to federal labeling laws. Packard provided sufficient evidence of causation by showing its own customers stopped buying its fabric because they could not compete with the low price of Harve Benard's falsely advertised garments.
Analysis:
This decision reinforces the power of the literal falsity doctrine in Lanham Act litigation, significantly lowering the evidentiary burden for plaintiffs at the summary judgment stage. By extending the presumption of consumer deception to claims for money damages, the court makes it easier for competitors to seek compensation for harm caused by overtly false advertising. The court's acceptance of a 'necessary implication' theory to establish literal falsity, based on consumer expectations shaped by other federal laws, broadens the scope of what constitutes a literally false claim. This precedent strengthens protections for businesses against competitors who gain an unfair advantage by misrepresenting the basic composition of their products.
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