Use of competitor's photo in comparative ads caused no (c) damage, appeals court holds

I Dig Texas, LLC v.Creager, --- F.4th ----, 2024 WL 1590590, No. 23-5046 (10th Cir. Apr. 12, 2024)

The district courtfound that use of a competitor’s photos in comparativeadvertising was fair use; the court of appeals affirms on the alternativeground that no copyright damages can be traced to the use of the photos,holding that a plaintiff seeking defendant’s profits must show a nexus betweenthe use of the copyrighted works and the profits. It also affirms theconclusion that it was not literally false to claim that machinery was American-madewhen it was assembled in the US from materials including foreign-sourced components.

Appellee I Dig Texastried to appeal to consumers’ preference for American-made products; it usedCreager’s photographs of its China-made Montana Post Drivers as part of itsadvertising.

Rather than rulingon fair use, the court reached the alternative ground of lack of any nexus to damage,which was fully briefed below.

Profits can be eitherdirect or indirect; indirect profits would include “enhance[ing] operations byinfringing on a copyright or “add[ing] sales because [defendant’s]advertisements included copyrighted images. Appellant Creager “bore the initialburden to show a nexus between I Dig Texas’s infringement and making of aprofit.” Once the nexus has been established, the burden would be on defendant toshow which profits didn’t come from infringement, but that first step stillexists. Showing a nexus requires more than speculation.  

Although the photosdepicted Creager’s products, “there’s no evidence that I Dig Texas sold anymore products because the advertisements had included these photographs.” [Iwill note there’s a subterranean fair use rationale, still, since if the photoshadn’t been used for critical purposes but to show the appeal of defendant’slookalike products no one would have failed to infer a nexus. This might beanother knock-on effect of Goldsmith: courts now afraid to say thatanything is transformative, even straight-up criticism.] There was no showingthat I Dig Texas “made any money from the advertisements bearing thecopyrighted images.” The existence of the ads wasn’t “evidence that anyone hadbought something from I Dig Texas because of these advertisements. And even ifsomeone had bought something from I Dig Texas based on these advertisements,there’s no reason to believe that the two photographs would have made a differenceto any consumers.”

Nor were the adsliterally false (again, an alternative ground: the district court found thatthe components were disclosed, but the court of appeals noted that at leastsome of the ads didn’t contain all the relevant information). “[A]n ambiguousstatement can’t be literally false.”

Some I Dig Texasproducts were assembled in the United States, others in China. “Even for theproducts that I Dig Texas had assembled in the United States, some componentshad come from overseas. For example, I Dig Texas had used a nitrogen power cellmade in China. And some of the nuts and bolts had come from Canada.” The courtof appeals reasoned that “make” “could refer either to the origin of thecomponents or to the assembly of the product itself.” Since some of theproducts were assembled in the US, the ads were ambiguous and not literallyfalse.

What about the onesassembled overseas? Well, the ads didn’t say “all.”  I Dig Texas said on its website: “We Provide100% American Made Skid Steer Attachments.” And a statement can be literallyfalse by necessary implication. But that 100% was still ambiguous: it couldmean “that only some of the products consist entirely of domestic componentsassembled in the United States. Or 100% could refer only to assembly of thefinal product rather than the origin of the components.” [Not discussed: wereeither of these true?] Nor could the court rely on FTC standards in aLanham Act case, especially when the FTC noted that there was no bright line.

Likewise, patrioticsymbols like the American flag could imply US manufacture, but they couldn’t “objectivelybe verified as true or false,” so they couldn’t be literally false. [Actually,that suggests they couldn’t be misleading, either, but the court seems a bitunclear about that.]