In the
United States Court of Appeals
For the Seventh Circuit

No. 99-4234

B. Sanfield, Incorporated,

Plaintiff-Appellant,

v.

Finlay Fine Jewelry Corporation,

Defendant-Appellee.

Appeal from the United States District Court
for the Northern District of Illinois, Western Division.
No. 93 C 20149--Philip G. Reinhard, Judge.

Argued September 14, 2000--Decided July 10, 2001



  Before Cudahy, Easterbrook, and Ripple,
Circuit Judges.

  Easterbrook, Circuit Judge. Finlay Fine
Jewelry, which sells inexpensive items
containing gold at kiosks in department
stores nationwide, regularly offers its
products at 50% off. Half off what?, one
may ask. A discount supposes a regular
price, and it developed in a bench trial
in this suit under sec.43(a) of the
Lanham Act, 15 U.S.C. sec.1125(a), and
related state laws, that Finlay does not
have one. Every once in a while (but
never on a Saturday or during December)
Finlay removes the "sale" signs and tries
to sell its items at higher prices, but
less than 3% of its sales are made that
way--and if a customer asks for the 50%
discount during regular-price days,
Finlay is happy to oblige. Nonetheless,
the district court found that Finlay’s
50%-off and sale signs are not false or
even misleading, because customers see
through the ruse. 999 F. Supp. 1102 (N.D.
Ill. 1998). We vacated that judgment,
observing that the judge appeared to
confuse falsity with injury from the lie.
The district court had not discussed
state and federal regulations that define
phony "discounts" as misleading or false,
and thus prohibit the practice. 168 F.3d
967, 970-75 (7th Cir. 1999). We directed
the district court to evaluate Finlay’s
conduct under these rules but noted that
plaintiff needs to establish injury if it
is to obtain relief. Id. at 975-76.

  Our opinion identified two regulations
for particular attention. The first is 14
Ill. Admin. Code sec.470.220, which
provides:

It is an unfair or deceptive act
for a seller to compare current
price with its former (regular)
price for any product or service, .
. . unless one of the following
criteria is met:

(a) the former (regular) price is
equal to or below the price(s) at
which the seller made a substantial
number of sales of such products in
the recent regular course of its
business; or

(b) the former (regular) price is
equal to or below the price(s) at
which the seller offered the product
for a reasonably substantial period
of time in the recent regular course
of its business, openly and actively
and in good faith, with an intent
to sell the product at that
price(s).

The second is 16 C.F.R. sec.233.1, issued
by the Federal Trade Commission under
sec.5 of the Federal Trade Commission
Act, 15 U.S.C. sec.45, which courts often
consult when applying the Lanham Act:

(a) One of the most commonly used
forms of bargain advertising is to
offer a reduction from the
advertiser’s own former price for an
article. If the former price is the
actual, bona fide price at which the
article was offered to the public on
a regular basis for a reasonably
substantial period of time, it
provides a legitimate basis for the
advertising of a price comparison.
Where the former price is genuine,
the bargain being advertised is a
true one. If, on the other hand,
the former price being advertised is
not bona fide but fictitious--for
example, where an artificial,
inflated price was established for
the purpose of enabling the
subsequent offer of a large
reduction--the "bargain" being
advertised is a false one; the
purchaser is not receiving
theunusual value he expects. In such
a case, the "reduced" price is, in
reality, probably just the seller’s
regular price.

(b) A former price is not
necessarily fictitious merely
because no sales at the advertised
price were made. The advertiser
should be especially careful,
however, in such a case, that the
price is one at which the product
was openly and actively offered for
sale, for a reasonably substantial
period of time, in the recent,
regular course of his business,
honestly and in good faith--and, of
course, not for the purpose of
establishing a fictitious higher
price on which a deceptive
comparison might be based. And the
advertiser should scrupulously avoid
any implication that a former price
is a selling, not an asking price
(for example, by use of such
language as, "Formerly sold at $--
"), unless substantial sales at that
price were actually made.

(c) The following is an example of
a price comparison based on a
fictitious former price. John Doe is
a retailer of Brand X fountain pens,
which cost him $5 each. His usual
markup is 50 percent over cost; that
is, his regular retail price is
$7.50. In order subsequently to
offer an unusual "bargain", Doe
begins offering Brand X at $10 per
pen. He realizes that he will be
able to sell no, or very few, pens
at this inflated price. But he
doesn’t care, for he maintains that
price for only a few days. Then he
"cuts" the price to its usual level-
-$7.50--and advertises: "Terrific
Bargain: X Pens, Were $10, Now Only
$7.50!" This is obviously a false
claim. The advertised "bargain" is
not genuine.

The district court concluded that
Finlay’s prices are "unfair or deceptive"
under the Illinois regulation because 3%
of sales is not "substantial" for
purposes of subsection (a), and Finlay
does not "in good faith" have the "intent
to sell the product" at the "regular"
price for purposes of subsection (b). 76
F. Supp. 2d 868, 872 (N.D. Ill. 1999). As
for the Lanham Act: Relying on the ftc’s
guideline, the district court concluded
that Finlay’s sales are deceptive, but
not false, for essentially the reasons
Finlay has violated the state regulation.
Id. at 874. None of this did plaintiff
any good, however, because the court
added that it had not established either
financial injury in the past or any
likelihood of future business losses. Id.
at 872-74. Finlay thus prevailed a second
time.

  Words such as "unfair," "misleading,"
and "deceptive" understate the gravity of
Finlay’s misconduct. "False" and
"fraudulent" are more accurate labels. 16
C.F.R. sec.233.1(c). The "sale" price is
Finlay’s regular price, so the claim that
it offers a 50% reduction from some
higher price is false. See FTC v.
Colgate-Palmolive Co., 380 U.S. 374, 387
(1965). The district court found that
Finlay lacks any bona fide intent to make
transactions at the higher price, which
justifies the appellation "fraud." If the
ftc or the Attorney General of Illinois
were to bring an action against Finlay,
the court would issue an injunction in a
trice. But B. Sanfield, Inc., the
plaintiff in this case, is not a public
prosecutor. It is a jewelry store, one of
Finlay’s rivals in Rockford, Illinois,
and to prevail it must show injury, as we
observed the first time this case was
here.

  Sanfield offered two theories of
financial loss. One was that, in order to
counter Finlay’s deceit, Sanfield had to
place additional advertisements to inform
the public that absolute prices for
jewelry, and not percentage discounts
from phantom prices, are what matter.
This is a plausible theory, but one the
district judge thought unsubstantiated.
Sanfield did not introduce copies of
these advertisements, bills for them, or
any other documentary support for its
claim. Although Sanfield’s ceo testified
that such an advertising campaign had
been run, the district judge found this
testimony not credible. 76 F. Supp. 2d at
873. That finding is not clearly
erroneous. See Anderson v. Bessemer City,
470 U.S. 564, 570 (1985). Sanfield’s
other contention was that it must have
lost some sales to Finlay because some
customers demanded that Sanfield’s clerks
discount its merchandise by 50% and, when
they would not do so, left the store. The
district judge found this evidence
insufficient because Sanfield could not
establish a causal connection between
these episodes and Finlay’s promotions.
76 F. Supp. 2d at 873. Many people who
walk through Sanfield’s door would fish
for discounts even if Finlay were to
change its business methods. What the
district judge sought was some evidence
that Sanfield’s sales were influenced by
Finlay’s practices. For example, did
Sanfield’s sales rise on weekdays, when
Finlay was most likely to take down its
"sale" signs? The district judge observed
that Sanfield’s sales rose during the
months covered by its claims and that
attributing any particular lost business
to Finlay is difficult: "Finlay and
Sanfield did not compete exclusively with
each other; rather, there were numerous
other competitors for sales of the gold
jewelry at issue." Ibid. If these other
rivals sold for less than Finlay, then
they would be the likely source of
diverted business; yet Sanfield did not
put in the record a comparison of
jewelers’ prices in Rockford.

  Sanfield’s inability to upset the
district court’s conclusion that it
suffered no loss drives it to argue that
proof of loss is unnecessary. If Finlay’s
promotions were actually false (as we
believe), then actual injury is simply
unnecessary, Sanfield contends. It relies
for this proposition on cases such as
United Industries Corp. v. Clorox Co.,
140 F.3d 1175 (8th Cir. 1998), and Coca-
Cola Co. v. Tropicana Products, Inc., 690
F.2d 312, 317 (2d Cir. 1982), which
indeed say that when an advertisement is
false a court may grant injunctive relief
without proof that the ad deceived any
particular member of the buying public.
If Sanfield reads these cases aright,
then these decisions can’t be squared
with Article III of the Constitution,
which makes injury in fact an essential
component of a case or controversy. See
Steel Co. v. Citizens for a Better
Environment, 523 U.S. 83, 107-08 (1998);
Lujan v. Defenders of Wildlife, 504 U.S.
555, 560-62 (1992); Lujan v. National
Wildlife Federation, 497 U.S. 871, 883-89
(1990). Fortunately, Sanfield has
misunderstood the decisions, which do not
transgress Article III.
  The circuits whose opinions Sanfield
cites do not quarrel with the need to
prove past or potential injury. What
Clorox said is that a private plaintiff
must show, among other things, that it
"has been or is likely to be injured as
a result of the false statement, either
by direct diversion of sales from itself
to defendant or by a loss of goodwill
associated with its products." 140 F.3d
at 1180. A plaintiff unable to show
actual injury in the past may be able to
demonstrate impending injury; and,
because "likely" is the most anyone can
say about future events, prospective
relief is available to reduce the
probability of loss. Every other circuit
that has addressed the question takes the
same view. See, e.g., Hutchinson v.
Pfiel, 211 F.3d 515, 522 (10th Cir.
2000); Balance Dynamics Corp. v. Schmitt
Industries, Inc., 204 F.2d 683, 691-92
(6th Cir. 2000); Johnson & Johnson v.
Carter-Wallace, Inc., 631 F.2d 186, 190
(2d Cir. 1980). Cf. August Storck K.G. v.
Nabisco, Inc., 59 F.3d 616, 618-19 (7th
Cir. 1995) (a "likelihood" is enough to
support relief; a "possibility" is not,
because even the very improbable is
"possible").

  Likelihood of future injury is no less
a "fact" than likelihood of confusion,
another issue that often comes up in Lan
ham Act cases, and appellate review is
correspondingly deferential. See Scandia
Down Co. v. Euroquilt, Inc., 772 F.2d
1423, 1427-28 (7th Cir. 1985); Sunmark,
Inc. v. Ocean Spray Cranberries, Inc., 64
F.3d 1055, 1060 (7th Cir. 1995). The
district court believed that Sanfield is
no more likely to suffer loss in the
future than in the past--that the past is
the best guide to what will happen in the
future if Finlay does not change its
business methods. Sanfield does not argue
otherwise; indeed it produced no evidence
of likely future harm and argues only
that it need not do so. Sanfield fancies
itself a private attorney general, but it
has not been appointed to that office,
and as a private litigant must show
injury, which it did not.

Affirmed
