The California Court of Appeal (the Court) has affirmed a trial court’s grant of preliminary injunction, enjoining HomeAdvisor’s use of allegedly misleading language in advertisements.  See People ex rel. Gascon v. HomeAdvisor, Inc., No. A154960 (Cal. Ct. App. June 5, 2020).

The lawsuit was brought by the People of the State of California (the People), acting by and through the San Francisco District Attorney.  Specifically, the People claimed that HomeAdvisor’s advertisements were “false and misleading because they are likely to deceive consumers into believing that all service professionals hired through HomeAdvisor who come into their homes have passed criminal background checks.  That is not the case.  The only person who undergoes a background check is the owner/principal of an independently-owned business.”  Id. at *1.

Based on the above, the People sought a preliminary injunction enjoining HomeAdvisor from advertising that its reference listings included only “background-checked pros” (and other, similar variations of the phrase).  After holding five hearings on the matter, the Court issued a preliminary injunction ordering HomeAdvisor to cease broadcasting certain misleading advertisements or to phase them out with a disclaimer that states, “HomeAdvisor Background-Checks Business Owners but Not Employees.”  Id. at *3–*4.

On appeal, HomeAdvisor argued, among other things, that the lower court’s order violated HomeAdvisor’s First Amendment constitutional rights.  The Court of Appeal disagreed, ultimately affirming the preliminary order.  Id. at *6–*10.

The Court explained, “Under the First Amendment, commercial speech is entitled to less protection from governmental regulation than other forms of expression.”  Id. at *6 (citations omitted).  Moreover, the Court noted, misleading commercial speech is not protected under the First Amendment.  And, under the Supreme Court’s standard set forth in Central Hudson, “[t]he government may ban forms of communication more likely to deceive the public than to inform it. . . . Once it is determined that commercial speech is inherently likely to deceive, our inquiry ends because there is no First Amendment interest at stake.”  HomeAdvisor, No. A154960 at *7 (citing Cent. Hudson Gas & Elec. Corp. v. Pub. Serv. Comm’n, 447 U.S. 557, 563–66 (1980)).

Applying this framework, the Court explained that HomeAdvisor’s advertisements were inherently likely to mislead reasonable consumers because the advertisements and descriptions “exploit the ambiguity of the term ‘pro.’ According to HomeAdvisor, it offers a service that connects ‘consumers with providers of home services . . . but, when HomeAdvisor uses the term ‘pros,’ it means ‘service professional businesses,’ not the plumbers, painters, or contractors working for these businesses.”  HomeAdvisor, No. A154960 at *7.

The Court rejected HomeAdvisor’s contention and explained that “[a] reasonable consumer would likely understand ‘pros’ to mean the persons or professionals coming to their home, not the businesses for which they work.  Therefore, the advertisements that refer to ‘background-checked pros,’ or its variants, are inherently likely to deceive.  Accordingly, they are not entitled to First Amendment protection.”  Id.

The takeaway from this decision is that First Amendment protection for commercial speech is considerably limited, and advertisers should be wary of making statements that could be construed as “more likely to deceive the public than to inform it.”  Cent. Hudson, 447 U.S. 557 at 563.  Significantly, actual confusion need not be shown.

As this case demonstrates, the inquiry could take place at the preliminary injunction stage based only on whether a likelihood exists, and this gives courts considerable discretion in restricting commercial speech.

Special thanks to Adam Kwon for contributing to this post.