Saturday, June 27, 2009

Speedo competitor can't take the heats

TYR Sport Inc. v. Warnaco Swimwear Inc., 2009 WL 1769444 (C.D. Cal.)

Warnaco does business as Speedo, competing with TYR in the high-end swimwear market. The events at issue surrounded Speedo’s promotion of its swimwear; Schubert, a paid spokesperson for Speedo, was also the national and Olympic team head coach. The court refused to dismiss some antitrust claims, and also addressed false advertising and Speedo’s anti-SLAPP motion.

Among other things, TYR alleges that USA Swimming (the entity behind the US Olympic team) falsely promoted Speedo as superior and rivals’ products as inferior, including claiming that Speedo’s LZR Racer provided a 2% advantage over other products; removing logos of competing products from pictures of sponsored athletes; and refusing competitors the ability to advertise in the official magazine, Splash, or to sponsor USA Swimming-sanctioned meets or post signs at meets.

Speedo argued that the Lanham Act claims should be dismissed as mere puffery, and in any event as protected by the First Amendment. The court agreed that many of the statements at issue—general claims about superiority/inferiority and being “far ahead” of competitors—were puffery. It was puffing for Schubert to say that he was going to tell his team to wear Speedo at trials, even if they were sponsored by another company, and that they’d need to choose between sponsorship revenue and gold medals (among other things, he said that swimmers not wearing Speedo “are contracted to an inferior product” and that “There is one manufacturer that's put millions into research while others are more into fashion”). Schubert may be an expert, but his opinion is still just an opinion.

The court took judicial notice of the fact that Schubert’s relationship with Speedo was well-known among competitive swimmers and coaches. Aside from being surprised that this is a proper subject for judicial notice, I’m not sure that cuts it for FTC endorsement guideline purposes, especially if there’s any chance that ordinary consumers will see the endorsements. The court noted, however, that many of the articles reporting Schubert’s endorsements also contained disclosure of his paid-consultant status, which would suffice.

A few allegations survived, though the court thought it was a close case. In particular, specific and measurable claims of superiority based on testing were not puffery; a numerical comparison “gives the impression that the claim is based upon independent testing.” The 2% advantage claim is unambiguous, and not puffery. Given the allegations that the speech was false/misleading commercial speech, the First Amendment argument also failed.

Likewise, in Speedo’s promotional materials, potentially actionable claims were: (1) “Speedo sent team dealers promotional materials that ‘understated the number of athletes wearing TYR equipment (thus overstating the percentage of athletes wearing Speedo)’ in certain races.” (2) Speedo misleadingly used the large majority of swimmers who’ve recently won meets or set records wearing Speedo, because in fact the majority of all participants were wearing Speedo, and Speedo sponsors a disproportionately high number of world-class athletes who are likely to win/set records anyway. (3) Speedo distributed a promotional document to its team dealers misleadingly analyzing the statistics from a particular competition, omitting races with unfavorable results. These were well-pleaded enough to survive a motion to dismiss, though the trade libel claim based on the same facts was dismissed for failure to plead special damages.

Speedo also asserted an anti-SLAPP defense. California’s anti-SLAPP statute doesn’t apply to commercial speech about a competitor. There’s actually an exception to the commercial speech exception for a nonprofit that receives more than half of its annual revenues from government grants or reimbursements, but that’s not true of USA Swimming and the US Olympic Committee, the relevant nonprofits in the case, which make almost all their money from sponsorships and private funding. However, the exception only applies to a person “primarily engaged in the business of selling … goods or services,” and USA Swimming generally isn’t. But it does employ Schubert, a Speedo spokesperson. Thus, applying the commercial exception to these facts is consistent with the legislative history and the purpose of the exception. The allegations primarily involve a commercial dispute featuring an alliance between USA Swimming and Schubert for Speedo’s benefit. USA Swimming argued that granting exclusive rights to a sponsor is standard in sports generally, but that doesn’t negate the allegations of anticompetitive behavior.

1 comment:

  1. Anonymous8:19 AM

    Yikes. My recollection was that it was "fact" that Speedo was better because the media did such alarmist reporting about it during the Olympics, clearly conveying that you'd lose if you weren't wearing Speedo. It surely wasn't clear that the coach was a paid endorser and some swimwear companies had to suffer their athletes wearing a competitive suit. I don't know, it sure seems like something went wrong in the analysis if it didn't consider the "secondary" advertising effect of the news media. Maybe it was just wrong plaintiff, though.