Balance Dynamics Corp. v. Schmitt Industries

Balance Dynamics Corporation (plaintiff) and Schmitt Industries (defendant) manufactured balancing products for industrial grinders. Balance Dynamics’ balancer used halon gas, while Schmitt’s balancing system used metal weights. In 1993, Schmitt sent a letter to 3,200 customers and potential customers indicating that products containing ozone-depleting substances (e.g., halon) were being banned. The letter indicated that Schmitt’s balancing system did not use ozone-depleting substances and said that if halon-balancer users wanted to dispose of their balancers before they were banned, Schmitt’s balancing system would be an easy replacement. Balance Dynamics learned about Schmitt’s letter and discussed the letter with 12 customers, including some who had contacted Balance Dynamics with concerns. After investigating, Balance Dynamics concluded that its halon balancer was not slated to be banned. Balance Dynamics personnel made customer visits to discuss the issue and sent a fact sheet to concerned customers. Balance Dynamics subsequently sued Schmitt for violating the Lanham Act’s prohibition of false advertising. Balance Dynamics conceded that it had not experienced any lost sales or lost profits. However, Balance Dynamics sought damages including damage-control costs incurred in responding to Schmitt’s false advertising, disgorgement of Schmitt’s profits, and compensation for loss of goodwill. The district court ultimately entered judgment in Schmitt’s favor, concluding that Balance Dynamics had failed to prove actual confusion in the marketplace based on Schmitt’s communication. Balance Dynamics appealed. The appellate court reversed the judgment, holding that Schmitt could be liable under the Lanham Act because its communication had had a tendency to deceive. The court then analyzed what relief might be available to Balance Dynamics on remand.