The Gap does not falsely advertise in violation of the FAL, UCL or CLRA by placing its regular Gap and Banana Republic labels on clothing it sells in its “factory stores” located in outlet malls, even if the clothing so labeled is never sold in Gap’s regular stores and is of lesser quality than clothing sold in the regular stores.  Sale of Gap-made clothing with Gap labels in Gap stores is not deceptive. Retailers may harm the value of their brands by selling inferior merchandise at factory stores, but doing so does not constitute false advertising.  Gap does not represent that its factory stores carry only merchandise sold in its other stores, and it has no duty to disclose the allegedly lower quality or lack of sales in regular stores.  The court rejects the Attorney General’s amicus argument that a nondisclosure can be a fraudulent business practice under the UCL even if the defendant owed no duty of disclosure under the traditional fraud test explained in LiMandri  v. Judkins (1997) 52 Cal.App.4th 326.  Gap’s practice is not unfair as consumers can detect quality and where similar goods are sold on their own.  Merely by placing its label on clothing, Gap makes no representation as to its quality or characteristics.

California Court of Appeal, Second District, Division 1 (Lui, J.); August 24, 2017; 2017 WL 3634212