False Advertising

Any company that publishes an advertisement containing false claims about its own products or the products of a competitor is in violation of the trademark law, and any company that believes it is damaged by that false statement can bring a private suit for damages.  The following elements are necessary to state a cause of action foe false advertising under the Lanham Act, the federal law regulating trademarks:

  • In its advertisements, defendant made false statements of fact about the products or services of itself, plaintiff or another;
  • These advertisements actually deceived or have the tendency to deceive a substantial segment of their audience;
  • Such deception is material in that it is likely to influence the purchasing decision;
  • Defendant caused its false advertisements to enter interstate commerce; and
  • Plaintiff has been or is likely to be injured as the result of the foregoing either by changes in sales or goodwill regarding the products or services at issue.

The Lanham Act prohibits the use of false statements made in the context of “advertising or promotion.” Neither the Lanham Act nor its legislative history define “advertising or promotion,” but courts generally consider certain criteria for determining whether a representation is considered “advertising or promotion” under the Lanham Act. Generally, the plaintiff company must show that there was

  • Commercial speech;
  • By a company that is competing with the plaintiff company;
  • For the purpose of influencing customers to buy the defendant company’s goods or services;
  • By representations that are sufficiently disseminated to the relevant purchasing public to constitute “advertising” or “promotion” within that industry.

When a company’s advertisements are literally or explicitly false, as evidenced by expert testimony or survey evidence, the court may grant relief with a presumption that consumers were deceived by the false advertisements. However, in a situation involving misleading statements and subjective determinations regarding whether the message in an advertisement is deceptive, proof is required that consumers were misled or likely to be misled by the false advertising.

Courts are particularly sensitive to claims that imply surveys or studies to bolster their claims, such as “[s]urveys indicate that doctors prefer our brand ten to one.”  The advertising tactic known as puffing—general, laudatory statements about the superiority of one’s own product—is usually not considered actionable as false advertising under the Lanham Act. The theory is that consumers are accustomed to this type of talk and will not take it literally, and will, therefore, not be harmed by any false or misleading statements.

Another action related to false advertising is called “false designation of origin.” The key element in a false designation of origin action is the creation of a likelihood of confusion by the public as to the source of goods. The issue may arise in cases where the seller implies endorsement or sponsorship of its product by another company or in cases where the seller “copies” another product’s characteristics, and then uses the name of the copied product in its advertising. False designation of origin cases may also involve a false designation of geographic origin.  In a comparative advertisement where one company uses the other company’s trade name in its advertisement, the distinction between a false designation of origin claim and a trademark infringement claim is not always clear. While the likelihood of confusion is the key element in a trademark infringement case, that element may or may not be present in a comparative advertising case.

A company that proves a violation of the Lanham Act is entitled to an injunction prohibiting the offensive conduct in the future. Generally, a plaintiff seeking injunctive relief in a false advertising case under § 43(a) must establish a “reasonable likelihood of success” on the five elements of false advertising and a risk of irreparable harm. In the comparative advertisement context, most courts presume irreparable harm in determining whether to grant injunctive relief. The court may also award lost profits, damages caused to the plaintiff’s goodwill by the false advertising, and corrective advertising.  If the false advertisement, false statement of origin, or trademark infringement has occurred during telemarketing calls, plaintiff also has a civil cause of action pursuant to the Telemarketing and Consumer Fraud and Abuse Prevention Act, codified at 15 U.S.C.A. §§ 6101 to 6108. See Medline Industries, Inc. v. Strategic Commercial Solutions, Inc., 553 F. Supp. 2d 979, 88 U.S.P.Q.2d 1839 (N.D. Ill. 2008).

Consideration should also be given to vicarious liability for false advertising.  Vicarious liability for tortious actions is a well-established common-law doctrine based on the concept of respondent superior. See, e.g., Dobbs’ Law of Torts § 425. Vicarious liability for false advertising extends beyond an employer’s liability for the actions of an employee taken within the scope of the employee’s employment duties to include vicarious liability for defendants when the defendant and the infringer have an actual or apparent partnership, have authority to bind one another in transactions, or exercise joint ownership or control over the infringing product.  Grubbs v. Sheakley Group, Inc., 807 F.3d 785, 117 U.S.P.Q.2d 1209, R.I.C.O. Bus. Disp. Guide (CCH) P 12673, 2015-2 Trade Cas. (CCH) ¶ 79380 (6th Cir. 2015).

In addition, the Eleventh Circuit has recognized the existence of a Lanham Act claim for contributory false advertising. In 2015 it held that a plaintiff who wished to state a claim for contributory false advertising (per the Lanham Act) would need to allege both that (i) a third party in fact directly engaged in false advertising that injured the plaintiff, and (ii) the defendant contributed to that conduct either by knowingly inducing or causing the conduct, or by materially participating in it. To contribute to the conduct found to be false advertising, the defendant would be required to have the requisite state of mind either by intending to participate in that conduct or actually knowing about the false advertising. “Contributing” also requires that the defendant actively and materially further the unlawful conduct—either by inducing it, causing it, or in some other way working to bring it about. See Duty Free Americas, Inc. v. Estee Lauder Companies, Inc., 797 F.3d 1248, 1277–78, 2015-2 Trade Cas. (CCH) ¶ 79257 (11th Cir. 2015).

For further discussion, see Trademarks (§§198.1 et seq.) in Business Transactions Solution on WESTLAW.

Written by agutterman

Founding Director of the Sustainable Entrepreneurship Project

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s