Time Warner Cable Inc. (TWC) and DIRECTV Inc. are major players in the multichannel video service industry. TWC is the second-largest cable company in the United States. TWC and other cable providers are required by law to operate through franchises issued by local government entities. At the time of the litigation described below, TWC was the franchisee in the greater part of New York City. DIRECTV is one of the country’s largest satellite service providers. Because DIRECTV broadcasts directly via satellite, it is not subject to the franchise limitations applicable to cable companies. Therefore, in the markets where TWC is the franchisee, DIRECTV and other satellite providers pose the greatest threat to its market share. Both TWC and DIRECTV offer high-definition (HD) service on some of their respective channels. HD provides the home viewer with theater-like picture quality on a wider screen. The picture quality of HD is governed by standards recommended by an international nonprofit organization that develops voluntary standards for digital television. TWC and DIRECTV meet these standards in their HD programming. To view programming in HD format, customers of either provider must have an HD television set. Evidence adduced in the litigation described below established that the HD programming consumers could see on TWC and DIRECTV was equivalent in picture quality. 

In 2006, DIRECTV launched a multimedia advertising campaign based on the “Source Matters” theme. The campaign was designed to educate consumers that to obtain HD-standard picture quality, it is not enough to buy an HD television set; consumers must also receive HD programming from the “source,” that is, the television service provider. As part of this campaign, DIRECTV began running a television commercial featuring celebrity Jessica Simpson. In the commercial, Simpson, portraying her character of Daisy Duke from the movie The Dukes of Hazzard, says to some of her customers at the local diner: 

"Y’all ready to order? Hey, 253 straight days at the gym to get this body and you’re not gonna watch me on DIRECTV HD? You’re just not gonna get the best picture out of some fancy big screen TV without DIRECTV. It’s broadcast in 1080i [a reference to a technical term dealing with HD resolution]. I totally don’t know what that means, but I want it. "

The commercial concluded with a narrator saying, “For an HD picture that can’t be beat, get DIRECTV.” Another television commercial in the DIRECTV campaign featured actor William Shatner as Captain James T. Kirk, his character from the popular Star Trek television show and film series. The following conversation takes place on the starship Enterprise: 

"Mr. Checkov: Should we raise our shields, Captain? Captain Kirk: At ease, Mr. Chekov. Again with the shields. I wish he’d just relax and enjoy the amazing picture clarity of the DIRECTV HD we just hooked up. With the Starfleet just ponied up for this big screen TV, settling for cable would be illogical."

The commercial ended with the announcer saying, “For an HD picture that can’t be beat, get DIRECTV.” As a further part of its advertising campaign, DIRECTV placed banner advertisements on various websites. The banner ads opened by showing an image so blurry that it was impossible to discern what was being depicted. On top of this indistinct image was superimposed the slogan, “Source Matters.” After about a second, a vertical line split the screen into two parts, one labeled “Other TV” and the other “DIRECTV.” On the other TV side of the line, the picture was extremely distorted, as the opening image had been. In contrast, the picture on the DIRECTV side was exceptionally sharp and clear. The DIRECTV screen revealed that what viewers had been looking at was an image of New York Giants quarterback Eli Manning; in another ad, it was a picture of two women snorkeling in tropical waters. The ads then invited browsers to “[f]ind out why DIRECTV’s picture beats cable” and to “[l]earn more” about a special offer by clicking on a link to the HDTV section of DIRECTV’s website. 

In addition to the banner ads, DIRECTV created an ad that it featured on its own website. The visual content of this was very similar to that of the banner ads. The “Other TV” part of the split screen was later identified in the ad as representing “basic cable.” The very blurry picture on the “Other TV” side was accompanied by the following text: “If you’re hooking up your high-definition TV to basic cable, you’re not getting the best picture on every channel. For unparalleled clarity, you need DIRECTV HD.” 

Shortly after DIRECTV began running the above described television commercials and Internet ads, TWC sued DIRECTV for false advertising in violation of § 43(a) of the Lanham Act. When a federal district court granted TWC a preliminary injunction against the commercials and ads, DIRECTV appealed to the U.S. Court of Appeals for the Second Circuit. How did the Second Circuit rule regarding the respective and Internet ads?