Monday, March 18, 2013

Publisher Could Not Base False Advertising Action on Newspaper’s Inflated Circulation Claims

This posting was written by John W. Arden.

A newspaper’s inflated circulation claims could not form the basis of a Lanham Act false advertising action brought by the publisher of a free television guide because the publisher did not begin soliciting advertisers until after the newspaper publicly acknowledged its misstatements and revised its circulation claims and because the inflated circulation figures were not part of a commercial campaign, according to the federal district court in Central Islip, New York (Conte v. Newsday, Inc., March 13, 2013, Bianco, J.).

Background. In December 2003, Anthony Conte founded I Media, which published and distributed TV Time Magazine, a free, weekly television listings publication containing articles and features relating to television, as well as crossword puzzles, cartoons, and word games. I Media was financed in large part through the sale of delivery routes to independent distributors. TV Time was published from November 2004 through May 2005.

In the summer of 2004, Conte learned, from a story on the Internet, that Newsday newspaper had misstated its circulation figures for 2002 and 2003. The newspaper issued a press release to that effect on June 17, 2004. The newspaper’s parent, Tribune Publishing, announced the revision of Newsday’s circulation figures for 2003 and 2004 on September 10, 2004. It also sent a letter informing Newsday’s advertisers of the revised figures.

Conte spoke with potential clients about paying to advertise in TV Time only after the date that he learned about Newsday’s circulation misstatements, sometime in February or March of 2005, the court found. However, he claimed to have spoken with a long list of potential clients about advertising in TV Time throughout 2003 and 2004, before he learned of the circulation misstatements.

Newsday had its own television-related publication, called TV Picks, which was published as a stand-alone magazine and distributed inside the Sunday editions of Newsday. In February 2004, Newsday started to include TV Picks in the pages of the newspaper, but later that spring resumed printing it as a stand-alone magazine.

In late May or June of 2005, some of Conte’s route distributors allegedly contacted Newsday reporter Mark Harrington, who researched and wrote stories about Conte. Newsday editors and executives testified that they did not authorize or instruct Harrington to conduct the investigation. On August 2, 2005, thirty-three route distributors filed a class action in Nassau County, alleging that I Media was a scheme perpetrated by Conte to defraud them of the money they paid for their delivery routes. Harrington received a copy of the distributors’ complaint and published an article about Conte in Newsday on September 7, 2005, along with a follow up on September 14, 2005.

In September 2006, Conte brought this action, claiming that Newsday and Conte’s distributors violated federal RICO, the Lanham Act, the Sherman Act, and the Electronic Privacy Act and committed various state law torts in attempting to monopolize and dominate the print advertising sales and pre-printed, free standing insert distribution sales markets on Long Island. The court dismissed the RICO, Sherman Act, and Electronic Privacy Act claims, as well as some state law claims in March 2010. In March 2012, the Newsday defendants filed a motion for summary judgment with respect to the Lanham Act claims.

Lanham Act False Advertising Claims

Conte had alleged that Newsday’s inflated circulation figures constituted false advertising in violation of Section 43(a) of the Lanham Act, inducing advertisers to purchase space from Newsday rather than TV Time and causing a direct loss of print advertising and insert distribution service sales. The court, however, granted Newsday’s motion for summary judgment, holding that (1) Conte lacked standing to bring the Section 43(a) claims and (2) the report of the inflated circulation figures was not commercial advertising, promotion, or commercial speech under the Lanham Act.

Section 43(a) of the Lanham Act prohibits false representations in advertising about the qualities of goods and services. To establish a false advertising claim, a plaintiff must prove that (1) the defendant made a false or misleading statement, (2) the false or misleading statement actually deceived or had the capacity to deceive a substantial portion of the intended audience, (3) the deception was material as likely to influence purchasing decisions, (4) there was a likelihood of injury to the plaintiff, such as declining sales or loss of goodwill, and (5) the goods traveled in interstate commerce.

The court noted that it was undisputed that a false or misleading statement was made by Newsday and that the inflated circulation figures were operating in the marketplace until June 17, 2004, when Newsday publicly reported that the figures were incorrect.

Standing to sue. The uncontroverted evidence indicated that I Media’s TV Time and Newsday’s TV Picks were not in competition during the period when Newsday’s inflated circulation figures were operative in the marketplace—that is, prior to June 17, 2004. Conte had not yet released TV Time to the public. Because Conte’s TV Time was not obviously in competition with Newsday’s products during the period when Newsday misstated its circulation figures, Conte was required to make a more substantial showing of injury and causation to establish standing to bring a false advertising action. While Conte’s stated injury related to his advertising efforts, the uncontroverted evidence showed that Newsday’s circulation-related misstatements were retracted before Conte started to actively solicit advertisers for TV Time.

A further claim that the inflated circulation figures were in effect during a time when Conte attempted to solicit advertisers for TV Week, a prior publication, was unavailing on the ground that Conte failed to establish a likelihood of injury and causation.

Deceptive advertising. Conte’s deceptive advertising claim—alleging that the Newsday defendants repeatedly disseminated false material statements about its business, goodwill, and reputation—failed on the ground that there was no evidence that the Newsday defendants misrepresented Conte’s goods as part of a commercial campaign. Section 43(a) of the Lanham Act imposes liability on any person who misrepresents the nature, characteristics, qualities, or geographic origin of another person’s goods or services in commercial advertising or promotion. To be actionable, the misrepresentation must occur in “commercial advertising or promotion.”

In this case, Harrington’s articles could not give rise to a Lanham Act deceptive advertising claim, since articles published by journalists are not considered “commercial advertising, commercial promotion, or commercial speech.” Such articles are traditionally granted full protection under the First Amendment, the court observed.

To survive summary judgment, Conte was required to produce sufficient evidence for a reasonable jury to conclude that the Newsday defendants made other allegedly false statements as part of an organized campaign to penetrate the market. However, he failed to identify any concrete, allegedly deceptive statements about his product or commercial activities. Even assuming that there was evidence that Newsday employees or agents made deceptive statements about Conte or his company, no rational juror could conclude that the statements were made as part of an organized campaign to penetrate the relevant market, the court concluded.

Conte’s further claim that Newsday committed trade dress infringement was rejected on a finding that TV Time’s trade dress—consisting of “a glossy paper cover,” particular fonts and font sizes, and an advertising footer—was not worthy of protection.

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