True Lies - Duel Between Pizza Hut and Papa John's Comes to an End

True Lies

Duel Between Pizza Hut and Papa John's Comes to an End

Originally published in the Los Angeles Daily Journal, Tuesday, June 26, 2001.

By Donald M. Gindy

With a resounding thud, the pizza wars ended March 19, when the U.S. Supreme Court refused to review the decision of the 5th U.S. Circuit Court of Appeals in PIzza Hut Inc. v Papa John's International Inc., 121 S.Ct. 1355 (2001). The nature of the lawsuit was a claim of false advertising under the Lanham Act allegedly committed by Papa John's when it claimed "Better Ingredients. Better Pizza."

Pizza Hut threw down the gauntlet as its president, from the deck of a World War II aircraft carrier, declared "war" on poor-quality pizza. Pizza Hut "dared" anyone to come up with a better pizza. At about the same time, Papa John's was launching a new advertising campaign proclaiming that it sold a better pizza because it used better ingredients. The matter went to trial in Dallas, resulting in a verdict in favor of Pizza Hut.

Under Section 43(a) of the Lanham Act, "a plaintiff must demonstrate that the commercial advertisement or promotion is either literally false, or that it is likely to mislead and confuse consumers." Pizza Hut relied on a theory that Papa John's ads were deceptive and were intended to mislead purchasers of pizza.

On appeal, the 5th Circuit threw out the verdict. Their decision points out that a prima facie case of false advertising under Section 43(a) (codified at 15 U.S.C. Section 1125) requires that the following occur:

There is a false or misleading statement of fact about a product.
Such a statement either deceives of had the capacity to deceive a substantial segment of potential consumers.
The deception is material, in that it is likely to influence the consumer's purchasing decision.
The product is in interstate commerce.
The plaintiff has been or likely will be injured as a result of the statement at issue.

But was Papa John's ad mere "puffery?" That is to say, was the claim an expression of opinion on which no reasonable person would rely? The court concluded that "Better ingredients. Better Pizza," standing alone, would not mislead consumers. But Papa John's lost its bragging rights when it coupled the slogan with misleading statements of specific differences in the ingredients used.

Pizza Hut asserted that its competitor had placed before the public "a measurable claim, capable of being proved false or of being reasonably interpreted as a statement of objective fact." John's claimed that its "vine ripened tomatoes" were superior to the "remanufactured tomato sauce" used by Pizza Hut and that its fresh dough and filtered water created a better-tasting pizza.

By pointing to specific differences between itself and Pizza Hut and by failing to present at trial any scientific support or the results of independent surveys to substantiate its claims (such as taste tests), Papa John's had, in fact, left the arena of opinion and entered the realm of quantifiable fact. As a result, it subjected itself to a claim that it misled consumers.

However, the burden of proving false advertising falls on the shoulders of the plaintiff. It is essential to a cause of action for false advertising based on misleading ads that the plaintiff prove not how consumers would react but how they actually do react. "[T]he success of a plaintiff's implied falsity claim usually turns on the persuasiveness of consumer survey."

The test thus becomes, assuming that the ads were misleading, whether they actually influence a reasonable consumer in his or her purchasing decision. Since the court found that Pizza HUt had neglected to present such evidence, it had failed to satisfy the element of the cause of action relating to the "materiality" of Papa John's ads. In the absence of such a survey, Pizza Hut's entire action had to fail.

An actionable claim of false advertising also may proceed where a plaintiff is able to prove "literal falsity" of the claim. In S.C. Johnson v. The Clorox Co., 241 F.3d 232 (2nd Cir. 2001), which was rendered Feb. 23, Johnson, the manufacturer of Ziploc Slideloc bags, brought an action under the Lanham Act against Clorox, the manufacturer of GLAD-LOCK resealable storage bags. The suit challenged the truthfulness of a television commercial and a print advertisement.

On television, Clorox presented ads of side-by-side comparisons of its bag and Johnson's. The bags were filled with water and turned upside down while an animated goldfish in a state of distress in the Ziploc bag complained of water dripping from his bag. The Slideloc bag leaks rapidly while the GLAD-LOCK bag does not leak at all. An expert hired by Johnson conducted "torture testing" on the Slideloc bags and proved that a significant number did not leak at all and that other s leaked at a substantially slower rate than depicted in the advertisement. The vice in this presentation, according to the trial court, was "no depiction in the visual images to indicate anything else than the fact that the type of fairly rapid and substantial leakage shown in the commercials is simply characteristic of that kind of bag."

The court concluded that the presentation was literally false. S.C. Johnson was, therefore, entitled to permanent injunctive relief until Clorox is able to portray in a "truthful and fair way" the differences between its product and the Slideloc product.

These cases amply demonstrate the two methods of proving false advertising claims. Literal falsity is proved by demonstrating that the tests employed "are not sufficiently reliable to permit one to conclude with reasonable certainty that they established the claim made." Procter & Gamble Co. v. Cheeseborough-Pond's Inc., 747 F.2d 114 (2nd Cir. 1984). However, there is no need to demonstrate how the particular advertisement had "impact on the buying public." PPX Enterprises Inc. v. Audiofidelity Enterprises Inc., 818 F.2nd 266 (2nd Cir.1987).

However, implied falsity requires extrinsic evidence in the form of consumer surveys that clearly reflect that consumers are misled or confused. "The question in such cases is -- what does the person to whom the advertisement is addressed find to be the message?" Johnson & Johnson v Smithkline Beecham Corp., 960 F.2d 294 (2nd Cir. 1992). It is not for a judge to decide intuitively that the consumer has been misled. Rather, it must be established that a "statistically significant" and "not insubstantial" number of consumers holds the false belief allegedly communicated in the ad. In the absence of such a showing, the claim will fail.

Accordingly, one may conclude that an action based on implied falsity is an expensive endeavor, fraught with statistical problems, conflicting expert testimony and a less-than-certain result whereas seeking relief for literal falsity presents the court with a bright line. The advertising as presented is either true or it is not. In such circumstances, plaintiffs may proceed with more assurance of the outcome of the litigation.

However, the common characteristic in most of these cases is a giant company challenging another of equal strength. Counsel for the proponent of the comparison advertising should encourage their clients to proceed with caution on these head-to-head encounters. Don't expect your opponent to sit back and accept an advertisement that disparages its product. Be circumspect, for the outcome can be costly and embarrassing.