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Online Ad Campaign Held to be False Advertising

8 Oct, 2013 By: Arthur Yoon, Jeffrey Richter


General Steel Corp. filed a lawsuit in a U.S. District Court in Colorado against its competitor, Armstrong Steel Corp., for trademark infringement and false advertising under the Lanham Act. General Steel and Armstrong are in the business of selling prefabricated steel buildings directly to consumers.

Armstrong had been using the phrase “General Steel Buildings” or the lowercase “general steel” in its Google AdWords advertisement copy, as a paid keyword through the AdWords program, and in the text of several websites created by Armstrong. Armstrong apparently determined that using “General Steel” would catch the attention of consumers interested in buying General Steel products. In connection with Armstrong’s online advertising campaign, the court found that the owner of Armstrong was responsible for creating a website entitled generalsteelscam.com. That website purported to be a worldwide online consumer reporting website and publication that allowed customers who believe they have been ripped off by General Steel to file and document complaints about General Steel buildings.

Although General Steel has a valid and protectable registered trademark in the term “General Steel” with the U.S. Patent and Trademark Office, it argued unsuccessfully that intentionally misleading advertisements by Armstrong caused “initial interest confusion” – a bait-and-switch tactic that permits a competitor to lure consumers away from a service provider by passing off products or services as those of another. Evidence at trial showed that steel buildings are expensive, complicated to erect, and are not the type of purchase that would be made without a thorough consideration of the available options. While Armstrong’s use of “general steel” was found by the court to actually refer to the plaintiff, the use was unlikely to cause confusion among consumers in light of all of the surrounding information in the website advertising that identified Armstrong as the source of the website and distinguished Armstrong from General Steel.

Since the degree of care required to purchase a steel building decreases the likelihood that a customer’s choice would be significantly impacted by stumbling across one company’s website before another’s, the court noted that the likelihood of confusion between “General Steel” and Armstrong's use of the term in its AdWords campaign and on websites it had created would be dispelled by the time of sale. In ruling that Armstrong’s uses of “general steel” were not sufficient to support a trademark violation on the theory of initial interest confusion, the court noted that application of an overly restrictive rule could destroy the valuable resource that search engines had become if it prevented them from doing what they are designed to do: present users with the information they seek as well as related information the user may also find helpful or interesting.

Although the court did not find that Armstrong infringed on General Steel’s registered trademark, it did rule that Armstrong was liable for making the following literally false and material statements in a comparative advertising campaign: presenting itself as a manufacturer that fabricates steel buildings; stating that it provided pre-galvanized steel and steel fasteners as standard features and that General Steel did not; and stating that it provides “general steel buildings” and “general steel construction.”

According to the court, injury may be presumed when a defendant’s statements are literally false and the defendant has explicitly compared its product to the plaintiff’s or the plaintiff is an obvious competitor with respect to the misrepresented product. Because Armstrong made materially false statements in the context of advertisements explicitly comparing itself and General Steel, and because Armstrong engaged in a pattern of willful deception, the statements were held to have injured General Steel.

The court determined that injunctive relief barring literally false comparative advertising by Armstrong was proper because General Steel showed that Armstrong’s pattern of willful deception indicated it was likely to cause General Steel future harm, absent injunctive relief; the balance of hardships favored injunctive relief; and an injunction was not adverse to the public interest. Armstrong was enjoined from falsely presenting itself as a manufacturer of steel buildings or falsely stating that it fabricates steel buildings; falsely stating that General Steel does not provide pre-galvanized steel and steel fasteners; and stating that Armstrong provides “general steel buildings” or “general steel construction.” Armstrong was ordered to disgorge profits in the amount of $243,462 it had earned during the time period when it disseminated the false comparative advertising.

Jeffrey Richter and Arthur Yoon are partners at Los Angeles-based Finestone & Richter. They can be reached at (310) 575-0800, or at jrichter@frlawcorp.com and ayoon@frlawcorp.com.


About the Author: Arthur Yoon


About the Author: Jeffrey Richter


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