California Court Tosses Challenge to Gap Outlet Labels

by Manatt, Phelps & Phillips, LLP
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Manatt, Phelps & Phillips, LLP

In a victory for outlet retailers, a California appellate panel recently tossed out a deceptive marketing and advertising suit against Gap.

Linda Rubenstein alleged that the national retailer’s Gap and Banana Republic outlet stores ran afoul of the state’s Unfair Competition Law (UCL), False Advertising Law (FAL) and Consumers Legal Remedies Act (CLRA) by misleading consumers about the quality and authenticity of its products.

By using “Gap” and “Banana Republic” in the names of its outlet stores and on the labels of the clothing sold in the stores, the company failed to disclose that the outlet store items are not sold at traditional stores and are of lesser quality, Rubenstein said. Reasonable consumers expect outlet stores to offer for sale at a discounted price items that were once for sale at retail stores, she claimed, and the use of the labels with retail store names communicated to the public that the outlet stores sold the same products of the same quality.

Gap demurred to the complaint, arguing that no misrepresentations had been made. The company was perfectly within its rights to put a Gap label on products sold at Gap stores, it told the court, and no obligation existed to disclose that the items had not been offered at retail stores.

The court agreed, affirming dismissal of the plaintiff’s complaint. Rubenstein couldn’t point to any statements made by Gap about the quality of its outlet store products or claims that the items were previously sold in retail establishments, the court said.

“As a matter of law, Gap’s use of its own brand name labels on clothing that it manufactures and sells at Gap-owned stores is not deceptive, regardless of the quality of the merchandise or whether it was ever for sale at other Gap-owned stores,” the panel wrote in addressing the FAL claim. “Retailers may harm the value of their brands by selling inferior merchandise at factory stores, but doing so does not constitute false advertising.”

Considering the UCL claim, the court again found that Gap’s use of its own brand names for outlet stores and on clothing labels was not likely to deceive a reasonable consumer “for the simple reason that a purchaser is still getting a Gap or Banana Republic item.” A consumer interested in the retail history of the outlet products can ask an employee, the court noted, and a reasonable consumer “would also inspect the quality of factory store clothing items before buying them and could return items after purchase if they turn out to be unsatisfactory.”

The CLRA claim also failed since Gap made no representation regarding outlet store clothing “other than a true one—the brand of the clothing is Gap or Banana Republic,” the panel said. It affirmed the dismissal without leave to amend.

To read the opinion in Rubenstein v. The Gap, Inc., click here.

Why it matters: At the end of the day, the products purchased at Gap and Banana Republic outlet stores were Gap and Banana Republic products, the court found, so no deception or misrepresentation occurred. The panel also declined to adopt a position advocated by the state’s attorney general as amicus curiae that a defendant may be liable for a fraudulent business practice under the UCL even absent a false or misleading representation or a duty to disclose material information.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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