NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
______________
No. 20-3379
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FEDERAL TRADE COMMISSION,
Appellant
v.
INNOVATIVE DESIGNS, INC.
______________
Appeal from the United States District Court
for the Western District of Pennsylvania
(D.C. Civil No. 2-16-cv-001669)
District Judge: Honorable Nora B. Fischer
______________
Argued July 8, 2021
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Before: SHWARTZ, KRAUSE, and RENDELL, Circuit Judges
(Filed: July 22, 2021)
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OPINION
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This disposition is not an opinion of the full Court and, pursuant to I.O.P. 5.7,
does not constitute binding precedent.
Imad D. Abyad [ARGUED]
Katherine Johnson
Omolara B. Joseney
Alejandro G. Rosenberg
Federal Trade Commission
600 Pennsylvania Avenue, N.W.
Washington, DC 20580
Counsel for Appellant
Anthony E. Patterson [ARGUED]
Anthony E. Patterson & Associates
304 Ross Street
Suite 505
Pittsburgh, PA 15219
Counsel for Appellee
SHWARTZ, Circuit Judge.
The Federal Trade Commission (“FTC”) sued Innovative Designs, Inc. (“IDI”)
under Section 5(a) of the Federal Trade Commission Act (“FTCA”), 15 U.S.C. § 45(a),
alleging that IDI made misrepresentations about its house wrap product. Because the
FTC failed to prove that IDI’s claims were false or unsubstantiated, the District Court
correctly granted IDI’s motion for judgment on partial findings, and we will therefore
affirm.
I
A1
1
The facts are based on the parties’ joint stipulations and evidence admitted at
trial.
2
IDI manufactures and sells Insultex House Wrap, a weather-resistant barrier used
in building construction. IDI’s advertisements include Insultex’s R-value, a numeric
measure of the product’s ability to restrict the flow of heat. The higher the R-value, the
better the product’s insulating ability. One way to determine a product’s R-value is to
use testing approved by the American Society for Testing and Materials (“ASTM”).2 The
standard test for insulation is set forth in ASTM C518. See 16 C.F.R. § 460.5(a).
IDI advertises that ASTM C518 testing revealed that Insultex has an R-value of
either R-3 or R-6, but “standard” ASTM C518 testing conducted on Insultex has not
yielded those results. Instead, IDI’s claimed R-values derive from “modified” ASTM
C518 testing conducted by BRC Laboratory, Inc. (“BRC”). BRC’s testing unit is
“modified” because it has ¾-inch air gaps built into the sides of the unit. BRC provided
IDI with Certificates of Analysis documenting the test results and noting that the test
material was “prepared and analyzed as outlined in,” among other things, “ASTM
Guidelines.” App. 599, 603. IDI also advertises that Insultex provides energy savings to
its users based upon its claimed R-values, but it has conducted no energy savings studies.
2
ASTM is a Pennsylvania nonprofit corporation that “provide[s] a forum for
volunteer technical experts to develop and publish standards for materials, products,
systems, and services.” Am. Soc’y for Testing & Materials v. Corrpro Cos., Inc., 478
F.3d 557, 559 (3d Cir. 2007). “ASTM also develops methods for testing different
properties and materials.” Id. Its members include “individuals from academic
institutions, government agencies, consulting groups, testing laboratories, and private
corporations.” Id. Its numerous “technical committees . . . develop[] standards,” and its
board “governs the standard-setting process.” Id.
3
B
The FTC sued IDI under 15 U.S.C. § 53(b),3 seeking permanent injunctive relief
and other equitable remedies because IDI’s promotion of Insultex allegedly violated 15
U.S.C. § 45(a). The FTC asserted three counts, specifically that (1) IDI’s representations
about Insultex’s R-values, and hence its performance, were false or unsubstantiated since
IDI did not use the standard ASTM C518 test to yield its purported R-values; (2) the
represented R-values were false since standard ASTM C518 testing did not yield IDI’s
claimed results and thus its claims were not established; and (3) IDI’s promotional
materials, which allegedly contained false or misleading representations, were the means
and instrumentalities constituting deceptive acts affecting commerce.
In a pretrial ruling, the District Court held that R-value testing results could be
admitted only with expert testimony explaining them. In response, the FTC represented
that expert Dr. David Yarbrough would testify about the test results.
Dr. Yarbrough was the FTC’s only trial witness. Following his testimony, the
FTC rested its case and IDI moved to exclude or strike portions of the testimony. The
District Court granted IDI’s motion to strike, finding that Dr. Yarbrough’s opinions were
not reliable or fit pursuant to Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579
(1993). See FTC v. Innovative Designs, Inc., No. 2:16-cv-01669-NBF, 2020 WL
758727, at *1, 10-11, 14-15 (W.D. Pa. Feb. 14, 2020).
3
Title 15 U.S.C. § 53(b) permits the FTC to sue any corporation or entity in a
United States District Court to enjoin its trade practices if the FTC believes that the
corporation “is violating . . . any provision of law enforced by [the FTC]” and that “the
enjoining thereof . . . would be in the interest of the public.”
4
The District Court then granted IDI’s motion for judgment on partial findings. See
FTC v. Innovative Designs, Inc., 489 F. Supp. 3d 378, 402 (W.D. Pa. 2020). The Court
explained that: (1) the FTC’s experts were not reliable or credible, id. at 398-400; (2) the
FTC did not produce expert testimony showing that BRC’s testing did not conform with
the ASTM C518 standard, id. at 400; (3) without expert testimony, the Court could not
evaluate the testing, id.; and (4) the FTC produced no evidence showing that IDI’s
advertisements were false, id. at 398.
The District Court also concluded that: (1) the FTC failed to demonstrate that
IDI’s substantiation lacked a reasonable basis, id. at 402; (2) the FTC did not demonstrate
that IDI lacked substantiation for its energy saving claims because the FTC did not rebut
IDI’s substantiation representations concerning its R-values or explain why it was
improper for IDI to rely on the Federal Register statement that a high R-value leads to
energy savings, id. (citing 70 Fed. Reg. 31258 (2005)4); and (3) because the FTC failed to
establish that IDI’s representations were misleading, its means and instrumentalities
count also failed, id.
The FTC appeals.5
4
That statement, from an FTC notice of final rulemaking, provides that “R-value
is the numerical measure of the ability of an insulation product to restrict the flow of heat
and, therefore, to reduce energy costs.” 70 Fed. Reg. 31258.
5
Because the FTC presented no arguments challenging the order striking Dr.
Yarbrough’s opinions relating to the R-value of Insultex, it has waived any appeal of that
order. See United States v. Pelullo, 399 F.3d 197, 222 (3d Cir. 2005).
5
II6
A
The District Court properly granted IDI’s motion for judgment on partial findings
pursuant to Federal Rule of Civil Procedure 52(c). That Rule provides:
If a party has been fully heard on an issue during a nonjury trial and the court
finds against the party on that issue, the court may enter judgment against the
party on a claim . . . that, under the controlling law, can be maintained or
defeated only with a favorable finding on that issue.
Fed. R. Civ. P. 52(c). “In considering whether to grant judgment under Rule 52(c), the
district court applies the same standard of proof and weighs the same evidence as it
would at the conclusion of the trial,” so “the court does not view the evidence through a
particular lens or draw inferences favorable to either party.” EBC, Inc. v. Clark Bldg.
Sys., Inc., 618 F.3d 253, 272 (3d Cir. 2010) (citation omitted). “[I]f the district court’s
account of the evidence is plausible in light of the record viewed in its entirety,” we will
affirm, “even if we would have weighed that evidence differently.” Id. at 273 (quotation
marks and citation omitted).
B
1
We first identify the FTC’s theory of liability. The FTC did not sue IDI for
violating a specific regulation regarding how R-value testing is to be performed. At the
6
The District Court had jurisdiction pursuant to 15 U.S.C. § 45 and 28 U.S.C.
§§ 1331, 1337(a), and 1345. We have jurisdiction pursuant to 28 U.S.C. § 1291. We
review the District Court’s factual findings for clear error and its legal conclusions de
novo. EBC, Inc. v. Clark Bldg. Sys., Inc., 618 F.3d 253, 273 (3d Cir. 2010).
6
time IDI made its advertising claims, Section 460.5 provided that R-values in labels and
promotional materials “must be based on tests done under the methods listed below.” 16
C.F.R. § 460.5 (2005). Subsection (a) stated one of those methods is “ASTM C 518[],”
and that such a test “must be done on the insulation material alone (excluding any
airspace).”7 Id. § 460.5(a) (2005). Subsection (e) incorporated the ASTM standard into
the regulation. Id. § 460.5(e) (2005). ASTM C518 provided that “[s]tandardization of
[the ASTM C518] test method is not intended to restrict in any way the future
development of improved or new methods or procedures by research workers.” App.
566.
The FTC does not dispute that a modified test may be used. Nor does the FTC
assert that IDI “br[oke] any of [the Act’s] rules,” which itself can constitute a deceptive
act or practice under the FTCA.8 16 C.F.R. § 460.1 (2005). Rather, the FTC argues that
IDI’s admission that a standard ASTM C518 test never returned the purported R-values
7
The version of ASTM C518 in effect at the time the FTC filed its complaint in
this case was ASTM C518-15, with the “15” referring to the year the version in effect
was approved. The current version of Section 460.5, effective in 2020, refers to ASTM
C518-17. This difference has no impact on our ruling.
8
The FTC does not base any of its claims on the fact that the modified testing
used air gaps or allege that IDI’s R-values violated 16 C.F.R. § 460.5. Moreover, at trial,
the FTC admitted that its issue with IDI’s testing methods was not “about whether [the
testing] can add air gaps or add layers or stack or sandwich,” since “[a]ll of those things
are acceptable alterations of the parameters of the test method if you understand what you
are doing and how to interpret the results.” App. 499. This admission indicates not only
that the FTC’s theory of liability is not premised on the air gaps used in BRC’s modified
testing, but also that a test’s use of air gaps does not constitute a per se violation of the
FTCA.
7
establishes that IDI’s claims about its test results are false and that IDI did not adequately
substantiate its R-value claims.
2
We next examine what the FTC must prove under the substantiation theory of
liability. When the FTC brings a deceptive advertising claim based on the theory that the
advertiser lacked substantiation, that is, a reasonable basis for its claim, the FTC must
show the claim was material, POM Wonderful, LLC v. FTC, 777 F.3d 478, 490 (D.C.
Cir. 2015), and must also “(1) demonstrate what evidence would in fact establish such a
claim in the relevant scientific community; and (2) compare [] the advertisers’
substantiation evidence to that required by the scientific community to see if the claims
have been established,” FTC v. Direct Mktg. Concepts, Inc., 624 F.3d 1, 8 (1st Cir. 2010)
(alteration in original) (quotation marks and citation omitted); see also POM Wonderful,
777 F.3d at 491 (“The Commission . . . determines what evidence would in fact establish
such a claim in the relevant scientific community and then compares the advertisers’
substantiation evidence to that required by the scientific community.” (quotation marks
and citation omitted)); FTC v. Pantron I Corp., 33 F.3d 1088, 1096 (9th Cir. 1994) (“In
determining whether an advertiser has satisfied the reasonable basis requirement, the . . .
court must first determine what level of substantiation the advertiser is required to have
for his advertising claims. Then, the adjudicator must determine whether the advertiser
possessed that level of substantiation.”). Therefore, to prevail, the FTC must identify the
evidence that the advertiser should have to support its claim in the relevant scientific
community, see POM Wonderful, 777 F.3d at 491, and then prove that the substantiation
8
evidence the advertiser claims to possess would not satisfy the relevant scientific
community, see Direct Mktg. Concepts, 624 F.3d at 10. If an advertising claim “states a
specific type of substantiation,” as some of IDI’s claims at issue here, the “advertiser
must possess the specific substantiation claimed.” POM Wonderful, 777 F.3d at 491
(quoting Removatron Int’l Corp. v. FTC, 884 F.3d 1489, 1492 n.3 (1st Cir. 1989)).
“Where the advertiser[] lack[s] adequate substantiation evidence, [it] necessarily lack[s]
any reasonable basis for [its] claims,” and therefore its “ads are deceptive as a matter of
law.” Direct Mktg. Concepts, 624 F.3d at 8.
The FTC’s substantiation theory has two components. First, the FTC asserts that
IDI lacked substantiation because it did not conduct a standard ASTM C518 test and did
not disclose that it used a modified test. The FTC, however, failed to prove that use of a
modified ASTM test is not ASTM C518 testing. ASTM C518 sets forth a standard test
and explicitly contemplates that variations of the standard method may be acceptable.
Moreover, the FTC concedes that alternative tests, including those with air gaps, are not
barred by ASTM C518.9 Thus, modified testing, including tests with air gaps, is captured
within ASTM C518 and the use of such testing could provide substantiation that satisfies
ASTM C518. If the FTC took the position that consumers confronted with IDI’s
representations that it tested the product “as outlined in . . . ASTM Guidelines,” App.
9
At argument, the FTC asserted that the modification-permitting language of the
ASTM Guidance was intended to cover future standards developed by “standard-setting
bodies” and “research workers,” not any modifications that “individual marketers” might
wish to make. Oral Arg. 45:27-45:37, July 8, 2021. That may well be the case, but the
FTC has not met its burden of proof in that respect.
9
599, understood them to mean standard ASTM C518 and not modified ASTM C518, the
FTC would have the burden to prove those claims had the capacity or tendency to cause
such a misunderstanding. See Am. Home Prods. Corp. v. FTC, 695 F.2d 681, 687 n.10
(3d Cir. 1982). In the absence of expert testimony or even lay testimony, for that matter,
the FTC cannot carry this burden.
Second, the FTC asserts that IDI failed to prove that the relevant scientific
community would accept the use of the modified test, which yielded R-values of R-3 and
R-6, as constituting adequate substantiation evidence. That argument conflates the FTC’s
burden to “compare [IDI’s] substantiation evidence to that required by the scientific
community,” with IDI’s obligation only to “possess evidence sufficient to satisfy the
relevant scientific community of the claim’s truth.” POM Wonderful, 777 F.3d at 491
(quotation marks and citation omitted). In other words, the FTC had the burden to show
IDI’s substantiation evidence would not satisfy the relevant scientific community. See
Direct Mktg. Concepts, 624 F.3d at 10-11 (concluding that the FTC carried its burden of
proof by comparing the defendant’s substantiation evidence to the available scientific
literature). The FTC neither proved that the modified test would not satisfy the scientific
community, see id., nor showed that the modified test yielded inaccurate results. Thus,
the FTC’s substantiation theory fails.
3
The FTC’s falsity theory fails for similar reasons. To establish a falsity claim, the
FTC must prove: (1) there was a representation; (2) the representation was material; and
(3) the representation was likely to mislead a reasonable consumer under the
10
circumstances.10 See FTC v. Tashman, 318 F.3d 1273, 1277 (11th Cir. 2003). The
parties do not dispute the R-value representations are material. First, to show that IDI
falsely claimed that its R-values were based on ASTM C518 testing specifically, the FTC
needed to establish that the modified test did not comply with ASTM standards, which,
for the reasons discussed above, it failed to do. Second, to show that IDI falsely claimed
that scientific tests, generally, supported its R-values, the FTC needed to prove that the
modified ASTM C518 unit did not accurately measure Insultex’s R-values. See Pantron,
33 F.3d at 1097 (stating that an efficacy claim is “false” under the FTCA “if evidence
developed under accepted standards of scientific research” so demonstrates). Because the
FTC did not demonstrate, through expert testimony or otherwise, that the modified
ASTM C518 test resulted in false R-values and did not show that IDI’s energy savings
claims were therefore false, see 70 Fed. Reg. 31258 (2005), the FTC cannot prove
falsity.11
III
For the foregoing reasons, we will affirm.
10
Although a party claiming false advertising need not always prove actual falsity,
see Am. Home. Prods. Corp. v. FTC, 695 F.2d 681, 683-84 (3d Cir. 1982), here, the
FTC’s falsity theory is based on its argument that IDI’s claimed R-values are false.
11
Because the FTC did not establish that IDI’s R-value and energy savings claims
were false or misleading, it cannot establish that IDI’s promotional materials were a
means and instrumentality to mislead the public. Cf. FTC v. Five-Star Auto Club, Inc.,
97 F. Supp. 2d 502, 530-31 (S.D.N.Y. 2000) (concluding that the defendant provided the
public with the means and instrumentalities to deceive others by distributing deceptive
marketing materials).
11