yellow pages

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On March 1, 2012, the Ontario Superior Court put an end to a deceptive marketing scam that had resulted in thousands of Canadians falling victim to false and misleading representations, to the tune of an estimated $7 million. In response to an application filed by the Commissioner of Competition, the court held that representations made to the public about a business directory service with a similar name and website to the well-established Yellow Pages business directory were false or misleading in a material respect, contrary to Section 74.01(1)(a) of the Competition Act. The court imposed an administrative monetary penalty (AMP) of $8 million on the related companies, and AMPs of $500,000 on each of the companies’ two principals. The court also ordered that restitution be paid to the individuals that had been victimized by the scam.

Playing on Canadians’ familiarity with the Yellow Pages business directory operated by the real Yellow Pages Group, the respondents had been marketing themselves under a similar name and offering online business directory services to Canadians since January 2010, leading many Canadians to believe that they were receiving communications from the established Yellow Pages Group. Through those communications, recipients were asked to “update” their existing records in order to obtain an additional free Google advertisement. A review of the fine print, however, revealed that it was actually an agreement to sign a new two-year contract for a fee of $2,856. If recipients did not respond and/or pay the requested fee, they were subsequently sent as many as three additional invoices, reminder notices or letters. The communications contained a logo similar to that of the real Yellow Pages Group, and referenced “Yellow Page” (no “s”) in large font.  In reality, the communications were coming from companies and individuals that were in no way related to Yellow Pages Group or its business directory service.

In its decision, the court held that the communications had intentionally been designed to mislead recipients to believe that they were updating information on their existing Yellow Page Group listing. This was evidenced by the language in the communication that instructed recipients to “correct and add any additional information”, and also referenced an alleged account number that signalled an existing business relationship. In its decision, the court considered both the materiality of the misrepresentations, as well as the general impression, finding that the communications were clearly designed to appear to have been sent by Yellow Pages Group, and that the majority of recipients would not have paid had they known the entities were not affiliated. The court noted that the reference in the legislation to promoting any “business interest” should be given wider meaning than just reference to sales, such that threats made in relation to collecting fees met the threshold of a “business interest”. The court also found that the fine print, which stated that the recipient would be entering into a two-year contract, did not reduce the false or misleading nature of the representation in the broader communication.

In the court’s order for AMPs, an important aggravating factor was that the companies had engaged in identical conduct in other jurisdictions, including Australia (where the Federal Court imposed a $2.7 million (Australian) AMP, and with which the companies have yet to comply), and continued to engage in offensive conduct in Canada even after an interim injunction was issued in July 2011. The scam also targeted charities and other non-profit organizations, which the court described as vulnerable individuals likely to be adversely affected. These factors, coupled with its scepticism that the responsible persons would self-correct their behaviour in the marketplace, led the court to impose the largest AMPs ordered to date in contested proceedings under the Competition Act.

The international aspect to this case is noteworthy, particularly given the breadth of foreign authorities and consumer organizations that were involved in related investigations. The Competition Bureau acknowledged working with the U.S. Federal Trade Commission, The Australian Competition and Consumer Commission, and the National Fraud Intelligence Bureau of the UK, in addition to the International Consumer Protection and Enforcement Network and consumer protection organizations in almost 40 countries. These investigations were directly referenced in the court decision in Canada as evidence of the extent and severity of the offensive conduct.  The case clearly evidences both a willingness of competition and consumer protection authorities to work together when investigating misleading marketing and advertising practices in multiple jurisdictions, and a willingness of courts to consider a company’s conduct and compliance record in other jurisdictions when assessing potential fines under Canadian law.

For more information, see Commissioner of Competition v. Yellow Page Marketing.

This posting was written by John W. Arden.

An Internet and telephone-based advertising service for skydiving customers (Skyride) was properly held liable for trademark infringement, cybersquatting, and false advertising against a skydiving center (Skydive Arizona, Inc.), justifying a total award of $6.6 million, according to the U.S. Court of Appeals in San Francisco.

The court of appeals upheld jury awards of $2.5 million in actual damages for trademark infringement, $2.5 million in disgorged profits from trademark infringement, $600,000 for cybersquatting, and $1 million in actual damages for false advertising. It overturned the district court’s doubling of actual damages.

Skydive Arizona, Inc. has operated under the SKYDIVE ARIZONA mark sine 1986, becoming one of the most well known skydiving centers in the world. It hosts between more than 145,000 skydives per year, furnishing airplanes and personnel for skydiving events in 30 states outside Arizona. The company has been featured in television programs and advertises on the Internet and in Yellow Pages, magazines, and newspapers.

Skyride essentially acts as a third-party advertising and booking service for skydiving centers, providing national telephone and Internet promotional services to skydiving “drop zones” around the U.S. Customers pay Skyride for certificates that can be redeemed at various drop zones around the country. Upon redemption, Skyride must pay the skydiving facility used by the customer.

Skyride owned and operated numerous websites, describing skydiving opportunities in multiple locations without reference to specific drop zones, in addition to websites referencing Arizona, including PhoenixSkydiving, ScottsdaleSkydiving, TucsonSkydiving, skydivearizona.net, skydivingarizona.com, and skydivingarizona.com.

Skydive Arizona brought an action against Skyride, asserting claims of (1) false designation of origin and unfair competition under Section 43(a) of the Lanham Act; (2) trademark infringement, and (3) cybersquatting. Skydive Arizona alleged that Skyride misrepresented ownership in skydiving facilities in Arizona in order to attract customers and sold skydiving certificates by trading on Skydive Arizona’s goodwill and misleading customers into believing that Skydive Arizona would accept its certificates.

The federal district court in Phoenix entered summary judgment in favor of Skydive Arizona for false advertising. A jury subsequently found in favor of Skydive Arizona on the remaining claims, awarding the $6.6 million in damages. The district court doubled the actual damages for false advertising and trademark infringement, resulting in $5 million for trademark infringement and $2 million for false advertising.

False Advertising

On appeal, Skyride challenged the summary judgment ruling on the false advertising claim, contending that the evidence on materiality was ambiguous. The Ninth Circuit disagreed, finding that a declaration of consumer James Flynn constituted direct evidence that Skyride’s statements were likely to influence consumers’ purchasing decisions. Flynn stated that he purchased Skyride certificates based on false representations that he could redeem them at Skydive Arizona. Skyride’s advertisements were misleading and false and had actually confused a consumer, the court held. Skyride further challenged the award of damages.

Actual Damages

In awarding actual damages for infringement, the jury considered “an array of customer service evidence and three different financial record exhibits.” The district court referred to “voluminous evidence” concerning Skydive Arizona’s stellar business reputation and the hundreds of thousands of dollars it spent in developing and advertising its business. Its failure to provide a specific mathematical formula for the jury to use in calculating actual harm to its goodwill did not undermine the jury’s finding, according to the appeals court..

Disgorgement of Profits

When reviewing an award of lost profits, a court does not ask whether the substance of the evidence was correct or even credible, but only whether the award was based on reasonable inferences and a fair assessment of the evidence. Questions of evidentiary admissibility or credibility must be raised before or during trial, the court held.

In the lost profits analysis, Skydive Arizona’s expert estimated Skyride’s revenues from Arizona by calculating the number of Arizona residents in Skyride’s records, increasing that number to account for files missing residence information, and multiplying that number by an average transaction amount. He added an interest factor of 10 percent as allowed by Arizona law.

On appeal, Skyride alleged that the calculations were clearly erroneous because they did not deduct vendor payments or overhead costs. However, Skyride did not raise these arguments until after trial. The district court held these untimely, and the appellate court agreed.

Damages Enhancement

The Ninth Circuit did reverse the award of double damages for the trademark infringement and false advertising claims. Although the Lanham Act permits a district court to enter damages not exceeding three times the amount, such an enhancement must constitute compensation rather than a penalty.

In this instance, the district court emphasized the purposefully deceitful nature of Skyride’s conduct. “Instead of discussing the appropriate award to compensate Skydive Arizona or to deter SKYRIDE, the district court focused on the need for SKYRIDE to ‘appreciate’ and ‘accept the wrongfulness of their conduct’ ”

Accordingly, the award of twice actual damages was reversed and the jury’s original award was reinstated.

The decision is Skydive Arizona, Inc. v. Quattrocchi, No. 10-16196, March 12, 2012.

I found out today that a private equity firm has purchased the majority of the Yellow Pages from AT&T. Which prompts me to ask: when was the last time you used the yellow pages? A pay phone? In a similar vein, Google And The Death Of Getting Lost. In 10 years (2001 to 2011) wireless penetration in the USA went from ~40 percent to ~100 percent.* This is the difference between arranging a rendezvous ahead of time in precise detail, and being confident that you can just end it with “I’ll call you.”

Image credit: Wikipedia

* This is actually calculated by comparing the number of phones to people. Since some people have multiple phones, and businesses purchase them for their employees, “real” penetration is somewhat less than this. I suspect that it is a larger underestimate for 2001, as a larger proportion of phones were probably business-related.

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