United States: The Lanham Act In The Entertainment Industry – 2017 Highlights

Last year saw two major Lanham Act cases in the entertainment industry: Incarcerated Entm't, LLC v. Warner Bros. Pictures, 261 F. Supp. 3d 1220 (M.D. Fla. 2017) and Twentieth Century Fox Television v. Empire Distribution, Inc., 875 F.3d 1192 (9th Cir. 2017). Both of these cases involved alleged violations of the Lanham Act: Incarcerated Entertainment dealing with a false advertising claim and Twentieth Century Fox Television dealing with a trademark infringement claim. Both also dealt with the First Amendment implications of Lanham Act liability in the industry. We summarize and review each case in turn.

Incarcerated Entertainment

According to the complaint in Incarcerated Entertainment, in 2011, Efraim Diveroli agreed to allow Guy Lawson, a well- known journalist and author, to publish an article about his true story of having engaged in, and been imprisoned for, illegal arms trafficking. Lawson later expanded the article into a book and optioned the movie rights for the article to Warner Brothers (hereinafter "Warner"). In 2014, Diveroli decided to market the movie rights to his own memoir through his company, Incarcerated Entertainment. He pitched the story to Warner, but Warner declined and instead hired Lawson as producer and David Packouz (a former associate of Diveroli's) as a consultant, with the intention of cinematizing Lawson's book.1 Warner made the movie, titled War Dogs, and released it in 2016.

Incarcerated Entertainment sued Warner in the Middle District of Florida, alleging false advertising in violation of the Lanham Act and unfair competition in violation of Florida state law. The complaint challenged a number of promotional statements in trailers, social media, and interviews that implied War Dogs was Diveroli's "true story." Warner moved to dismiss the complaint for failure to state a claim,2 claiming that the First Amendment protected the statements at issue and, more generally, that the complaint failed to allege sufficient facts to support a plausible claim for relief.3

The court denied the motion, with limited exceptions. The case turned on two questions: (1) whether the statements were "commercial speech" and (2) whether the statements constituted false advertising.

Commercial Speech

Warner argued that the statements at issue were not "commercial speech." If this were true, then (i) the First Amendment would likely protect the statements,4 and (ii) the Lanham Act would not reach them.5 Applying Supreme Court precedent, the court disagreed with Warner and ruled that the challenged statements could plausibly be commercial because (1) the complaint alleged that the statements were used for promotional purposes, (2) the statements referred to a specific product, and (3) Warner had an economic motivation for making the statements.6

Warner argued that the statements deserve blanket protection because they relate to a movie, which is a protected expressive work. However, the court held that, even though movies themselves are protected expressive works, they are also products sold in the commercial marketplace and, therefore, advertisements for movies do not deserve the same First Amendment protection as the movies themselves.7

Warner also argued that the statements should not be treated as commercial speech because they were intertwined with non-commercial speech, including political and artistic commentary. But the court held that, in these circumstances (which the court saw as analogous to challenging the title of an artistic work), the outcome depends on balancing the public interest in avoiding consumer confusion against the public interest in free expression—a balancing test not suitable for resolution on a motion to dismiss. Because Warner did not contend that the statements were themselves artistic works, and the complaint plausibly alleged that they were separate promotions for the movie, the court denied the motion on this ground.8 This is likely to be a major point of contention as the litigation progresses.

False Advertising

In the Eleventh Circuit, to succeed on a claim for false advertising, the plaintiff must show that "(1) the advertisements of the opposing party were false or misleading; (2) the advertisements deceived, or had the capacity to deceive, consumers; (3) the deception had a material effect on purchasing decisions; (4) the misrepresented product or service affects interstate commerce; and (5) the movant has been—or is likely to be—injured as a result of the false advertising."9

The first question for the court was whether the challenged statements were plausibly alleged to be either false or, although true, misleading, when viewed in context. Each challenged advertisement must be evaluated separately.10

The court declined to dismiss the complaint as to most of the challenged statements. The most notable statements to survive the motion to dismiss were the phrase "based on a true story" in the trailers and various interviews with cast members, the director, Lawson, and Packouz that implied War Dogs is a true story. These statements survived because the court found that the question of whether the statements read in full context falsely or misleadingly portrayed the movie as a true story was too in depth for a motion to dismiss. Warner also argued that some statements by Lawson and Packouz were mere opinion, but the court ruled that this issue also needed to be decided at trial, as a reasonable person could infer that there was a factual basis for their opinions.11

Warner also challenged the elements of deception and materiality. The court disagreed with Warner, finding that factual evidence of consumer deception was not required at the pleading stage. As to materiality, Incarcerated Entertainment's assertion that consumers are drawn to true stories was enough to support an inference that the movie's truthfulness was an "inherent quality or characteristic" of the product, which is sufficient at the pleading stage.

Last, Warner challenged the causation element. The Court held that Incarcerated Entertainment's allegation that it lost sales because consumers are more likely to buy a heavily marketed movie ticket than a book was enough to support an inference of damages and causation.

This decision may cause a stir in the filmmaking industry. Movies that are "based on" true stories but partially fictionalized are common, and the Incarcerated Entertainment decision makes such movies potentially subject to Lanham Act liability and, with it, the potential for disgorgement of profits, enhanced damages, and attorney fees. Look for similar suits to be filed in the future.

Footnotes

1 Incarcerated Entm't., 261 F. Supp. at 1225–26.

2 See Fed. R. Civ. P. 12(b)(6).

3 See Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 561–62 (2007).

4 See Central Hudson Gas & Elec. Corp. v. Pub. Serv. Comm'n of N.Y., 447 U.S. 557, 562–63 (1980) ("The Constitution therefore accords a lesser protection to commercial speech than to other constitutionally guaranteed expression.").

5 See 15 U.S.C. § 1125(a)(1)(B) (limiting scope of false advertising to "commercial advertising or promotion"); Edward Lewis Tobinick, MD v. Novella, 848 F.3d 935, 950 (11th Cir. 2017) (holding that "commercial speech" is an element of "commercial advertising or promotion").

6 Incarcerated Entm't, 261 F. Supp. 3d at 1227–28 (citing Bolger v. Youngs Drug Prods. Corp., 463 U.S. 60, 66–67 (1983)).

7 Id. at 1228–29 (citing, inter alia, Rogers v. Grimaldi, 875 F.2d 994, 997 (2d Cir. 1989) and Charles v. City of Los Angeles, 697 F.3d 1146, 1152 (9th Cir. 2012)).

8 Id. at 1229 (citing Rogers, 875 F.2d at 999).

9 Id. at 1230 (quoting Hickson Corp. v. N. Crossarm Co., 357 F.3d 1256, 1260 (11th Cir. 2004)). 10 Id. at 1229–30.

11 Id. at 1230–32.

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