False and Misleading Advertising under Federal “Unfair Competition” Law (Lanham Act)

Introduction

Here is a blog discussing the Federal Lanham Act and how it creates a cause of action for false and misleading advertising (and also false association) by competitors.  Companies should be careful to avoid using the name, image or other identifying characteristic of another person (ex violating another persons right of publicity) in internet marketing and advertising campaigns and even offline marketing like print media, newspapers, magazine ads and the like).  If your business is seeking to feather its own nest while subtly or covertly hoping to injure your competitor(s) and/or impacting their market share, sales, or reputation, you could find yourself in federal court litigating a case.  This blog provides a general legal overview of the federal “unfair competition” law as set forth in The Lanham Act section 43(a) as codified at 15 U.S.C. 1125.  Contact us at the number below if you have any questions.

The Federal Lanham Act

There are two causes of action Under 15 U.S.C. §1125:

(1) Any person who, on or in connection with any goods or services, or any container for goods, uses in commerce any word, term, name, symbol, or device, or any combination thereof, or any false designation of origin, false or misleading description of fact, or false or misleading representation of fact, which–

(A) is likely to cause confusion, or to cause mistake, or to deceive as to the affiliation, connection, or association of such person with another person, or as to the origin, sponsorship, or approval of his or her goods, services, or commercial activities by another person, or

(B) in commercial advertising or promotion, misrepresents the nature, characteristics, qualities, or geographic origin of his or her or another person's goods, services, or commercial activities,

shall be liable in a civil action by any person who believes that he or she is or is likely to be damaged by such act.

For purposes of this blog I will refer to these as section (A) (false endorsement/association) and section (B) (false advertising).  If you are a Plaintiff in a litigation you need to make clear what your grounds for filing suit are.

California 9th Circuit Case Law

This is a unique law that not only protects from improper trademark use, but also false and misleading advertising in general. As noted in POM Wonderful LLC v. Coca-Cola Co., 134 S. Ct. 2228, 2233-34, 189 L. Ed. 2d 141 (2014) the federal court discussed:

“Congress enacted the Lanham Act nearly seven decades ago. As the Court explained earlier this Term, it “requires no guesswork” to ascertain Congress' intent regarding this federal law, for Congress included a “detailed statement of the statute's purposes.  Section 45 of the Lanham Act provides that “the intent of this chapter is to regulate commerce within the control of Congress by making actionable the deceptive and misleading use of marks in such commerce; to protect registered marks used in such commerce from interference by State, or territorial legislation; to protect persons engaged in such commerce against unfair competition; to prevent fraud and deception in such commerce by the use of reproductions, copies, counterfeits, or colorable imitations of registered marks; and to provide rights and remedies stipulated by treaties and conventions respecting trademarks, trade names, and unfair competition entered into between the United States and foreign nations.” 15 U.S.C. § 1127.  Thus, the law clearly protects against unlawful uses of a company's trademarks.  However, the Court continued: “The Lanham Act's trademark provisions are the primary means of achieving these ends. But the Act also creates a federal remedy “that goes beyond trademark protection.” Dastar Corp. v. Twentieth Century Fox Film Corp., 539 U.S. 23, 29, 123 S.Ct. 2041, 156 L.Ed.2d 18 (2003). The broader remedy is at issue here.   The Lanham Act creates a cause of action for unfair competition through misleading advertising or labeling. Though in the end consumers also benefit from the Act's proper enforcement, the cause of action is for competitors, not consumers.  The term “competitor” is used in this opinion to indicate all those within the class of persons and entities protected by the Lanham Act. Competitors are within the class that may invoke the Lanham Act because they may suffer “an injury to a commercial interest in sales or business reputation proximately caused by a defendant's misrepresentations….the petitioner here asserts injury as a competitor. The Court was not done there: “The cause of action the Act creates imposes civil liability on any person who “ uses in commerce any word, term, name, symbol, or device, or any combination thereof, or any false designation of origin, false or misleading description of fact, or false or misleading representation of fact, which … misrepresents the nature, characteristics, qualities, or geographic origin of his or her or another person's goods, services, or commercial activities.” 15 U.S.C. § 1125(a)(1). As the Court held this Term, the private remedy may be invoked only by those who “ allege an injury to a commercial interest in reputation or sales. A consumer who is hoodwinked into purchasing a disappointing product may well have an injury-in-fact cognizable under Article III, but he cannot invoke the protection of the Lanham Act.” The rationale of the law is also clear: “This principle reflects the Lanham Act's purpose of “protecting persons engaged in commerce within the control of Congress, against unfair competition.' So as you can see, this is a broad statute designed to protect competitors against acts of “unfair competition.”

Do I have a Lanham Act trademark case against my competitor?

Here are some things that would need to be shown per the case law.  Do not forget their are certain affirmative defenses that may be raised.

“To prevail on a claim of trademark infringement under the Lanham Act, 15 U.S.C. § 1114, a party “must prove: (1) that it has a protectible ownership interest in the mark; and (2) that the defendant's use of the mark is likely to cause consumer confusion.” Dep't of Parks & Recreation v. Bazaar Del Mundo Inc., 448 F.3d 1118, 1124 (9th Cir.2006).  See Network Automation, Inc. v. Advanced Sys. Concepts, Inc., 638 F.3d 1137, 1144 (9th Cir. 2011).

Some Plaintiff's have tried this in keyword infringement cases such as when using google adwords.  Note, in many trademark cases the Court may look to the Sleekcraft factors.

What is a Plaintiff required to prove in a false advertising case under Section 43(a)?

One California federal court discussed this.  In Southland Sod Farms v. Stover Seed Co., 108 F.3d 1134, 1139 (9th Cir. 1997) the Court noted that the elements of a Lanham Act § 43(a) false advertising claim are:

(1) a false statement of fact by the defendant in a commercial advertisement about its own or another's product; (2) the statement actually deceived or has the tendency to deceive a substantial segment of its audience; (3) the deception is material, in that it is likely to influence the purchasing decision; (4) the defendant caused its false statement to enter interstate commerce; (arguably newspapers, emails, internet, mail, etc.) and (5) the plaintiff has been or is likely to be injured as a result of the false statement, either by direct diversion of sales from itself to defendant or by a lessening of the goodwill associated with its products. Cook, Perkiss and Liehe, Inc. v. Northern Cal. Collection Serv., Inc., 911 F.2d 242, 244 (9th Cir.1990); accord ALPO Petfoods, Inc. v. Ralston Purina Co., 913 F.2d 958, 964 (D.C.Cir.1990).

What if the advertisement is literally true?

Some defendants try this argument “what's the problem, the ad was true and congratulatory.”  Even a “true” advertisement is not always protected, even against a first amendment type of argument.  As one Court noted:

To demonstrate falsity within the meaning of the Lanham Act, a plaintiff may show that the statement was literally false, either on its face or by necessary implication, or that the statement was literally true but likely to mislead or confuse consumers. See Castrol Inc. v. Pennzoil Co., 987 F.2d 939, 943, 946 (3d Cir.1993).

In another important case from the 9th Circuit (which covers CA, and AZ), it was noted:

“Even if an advertisement is not literally false, relief is available under Lanham Act § 43(a) if it can be shown that the advertisement has misled, confused, or deceived the consuming public…..reactions of the public are typically tested through the use of consumer surveys.”  See Southland Sod Farms v. Stover Seed Co., 108 F.3d 1134, 1140 (9th Cir. 1997).

As you can see, the effect of the ads on the viewers is very imporant.  Even if an ad can be claimed to be “technically true” that does not save a company from a Lanham Act claim.

What if an advertisement contains sales “puffing”

This could be protected.  As the Southland Court noted: “Puffing' is exaggerated advertising, blustering, and boasting upon which no reasonable buyer would rely and is not actionable under § 43(a).” See 3 J. Thomas McCarthy, McCarthy on Trademarks and Unfair Competition §27.04[4][d] at 27–52 (3d ed.1994). While product superiority claims that are vague or highly subjective often amount to nonactionable puffery, Cook, Perkiss and Liehe, 911 F.2d at 246, “misdescriptions of specific or absolute characteristics of a product are actionable.” Id. (citation omitted). A specific and measurable advertisement claim of product superiority based on product testing is not puffery.”  See Castrol, 987 F.2d at 946; see also W.L. Gore & Assocs., Inc. v. Totes Inc., 788 F.Supp. 800, 809 (D.Del.1992) (numerical comparison that product is seven times more breathable “gives the impression that the claim is based upon independent testing” and “is not a claim of general superiority or mere puffing”). As you can tell, this creates another question of fact where false and misleading sales charts are used.

Will a jury get to look at the Defendants subjective intentions in running the ads?

Probably.  As one Court noted:

“Willful unfair competition carries a connotation of a deliberate intent to deceive. You therefore must determine whether each Defendant used Bob Marley's persona or identity intentionally, knowing it was likely to cause confusion, or to cause mistake, or to deceive as to the affiliation, connection, or association between Plaintiffs and Defendants, or to cause confusion as to Plaintiffs' participation in the origin, sponsorship, or approval of Defendants' goods or commercial activities with Plaintiffs.  A Defendant's knowledge may be proven by showing that Defendant was willfully blind. A Defendant is willfully blind if it suspects wrongdoing and deliberately fails to investigate or inquire further. Willful blindness may be inferred from the facts and circumstances of the case.”

See Fifty-Six Hope Rd. Music, Ltd. v. A.V.E.L.A., Inc., 915 F. Supp. 2d 1179, 1185-86 (D. Nev. 2013), aff'd, 778 F.3d 1059 (9th Cir. 2015).

What about the obligation to show damages

Of course a Plaintiff in a lawsuit always need to be cognizant of the need to prove its damages (emotional, financial, etc.), however it should be kept in mind that proving damages may not always be required:

“Moreover, although the Ninth Circuit in Harper House stated that “ actual evidence of some injury resulting from the deception is an essential element” in a suit for damages under § 43(a), id. (emphasis omitted), a more recent decision holds that “an inability to show actual damages does not alone preclude a recovery under section 1117.” See  Lindy Pen Co. v. Bic Pen Corp., 982 F.2d 1400, 1411 (9th Cir.1993) (quoting Bandag, Inc. v. Bolser's Tire Stores, 750 F.2d 903, 919 (Fed.Cir.1984)). Under Lindy Pen, the preferred approach allows the district court in its discretion to fashion relief, including monetary relief, based on the totality of the circumstances.  S ee also Badger Meter, Inc. v. Grinnell Corp., 13 F.3d 1145, 1157 (7th Cir.1994) (stating that, even if a plaintiff is unable to demonstrate damages resulting from the defendant's § 43(a) violation, § 1117 allows the district court to award the plaintiff any just monetary award so long as it constitutes “compensation” for the plaintiff's losses or the defendant's unjust enrichment and is not simply a “penalty” for the defendant's conduct). Additionally, when, as in this case, a § 43(a) claim involves false advertising rather than “palming off,” courts have been more willing to allow monetary damages even without a showing of actual consumer confusion. See, e.g., PPX Enterprises v. Audiofidelity Enterprises, 818 F.2d 266, 272–73 (2d Cir.1987) See again, Southland Sod Farms v. Stover Seed Co., 108 F.3d 1134, 1146 (9th Cir. 1997).  The statute demands only proof providing a reasonable basis for the belief that the plaintiff is likely to be damaged as a result of the advertising.  See Carter-Wallace, 631 F.2d at 190; Warner-Lambert Co., 204 F.3d at 93.

What is the “false association” or “false endorsement” prong of 1125?

This is basically where a Defendant uses a Plaintiffs image, or identity in their commercial goods or services, creating an impression to the public that the Plaintiff is connected to, associated with, or endorses Defendants products or services.  Here is one case that discussed this: “Some courts, including the United States Court of Appeals for the Ninth Circuit, have held that under § 1125(a) of the Lanham Act, a celebrity may assert an unfair competition claim where the defendant uses the celebrity's persona without permission to suggest false endorsement or association. For example, in Downing v. Abercrombie & Fitch, a retailer used in its apparel catalog a picture of a famous surfer without his permission. 265 F.3d 994, 1000 (9th Cir.2001). The surfer sued, asserting, among other things, violation of § 1125(a) of the Lanham Act. Id. The Ninth Circuit adapted its test for trademark infringement as set forth in AMF, Inc. v. Sleekcraft Boats, 599 F.2d 341 (9th Cir.1979) (the “ Sleekcraft factors”), indicating that for celebrity cases “the term ‘mark' applies to the celebrity's persona, the ‘strength' of the mark refers to the level of recognition that the celebrity has among the segment of the public to whom the advertisement is directed, and the term ‘goods' concerns the reasons for or source of the celebrity's fame.” Id. at 1007. The Ninth Circuit held a genuine issue of material fact remained concerning a likelihood of confusion as to whether the surfer endorsed the products in the catalog. Id. at 1008–09.” See Fifty-Six Hope Rd. Music, Ltd. v. A.V.E.L.A., Inc., 688 F. Supp. 2d 1148, 1166 (D. Nev. 2010).  So as you can see, in these types of cases the courts may implore a “ likelihood of consumer confusion test.”

Attorney Fees Awards Possible

In some jurisdictions a Court may be empowered to award attorney fees where the Defendants conduct is willful or particularly in bad faith as noted in  U-Haul Int'l, Inc. v. Jartran, Inc., 793 F.2d 1034, 1043-44 (9th Cir. 1986) which held: “U-Haul seeks attorney's fees on appeal under section 35 of the Lanham Act, 15 U.S.C. § 1117. That section states: “The court in exceptional cases may award reasonable attorney fees to the prevailing party. Apparently no panel of this circuit has ever awarded fees under this provision. We have, however, upheld a trial court's grant of attorneys' fees under this provision in a case when the defendant's acts “constituted extraordinary, malicious, wanton, *1044 and oppressive conduct.” Transgo, Inc. v. Ajac Transmission Parts Corp., 768 F. 2d 1001, 1026 (9th Cir.1985), cert. denied, 474 U.S. 1059, 106 S.Ct. 802, 88 L.Ed.2d 778 (1986).

Examples of Unfair Competition under the Lanham Act

1.  Using a persons name, image or likeness in commercial advertising without consent in a manner attempting to mislead consumers
2. Improper use of trademarks
3. False designation of origin
4. Dilution of a protected trademark
5. Reverse passing off
6. False advertising (literal and by omission)
7. Palming off
8. Deceptive marketing by a competitor
9. Cyberpiracy
10. Cybersquatting
11. False association
12. Dilution by blurring

This is just a list of some common examples.  The list is only limited by the creativity of defendants in the marketplace.

Contact a Trademark & IP Law Firm

If your business is involved in a dispute with a competitor, or you need to seek or defend against an injunction or cease and desist letter give us a call.  We can help you ascertain your legal rights and prepare a response or attack strategy.  We represent both Plaintiff's and Defendants in state and business law, real estate, false advertising, federal unfair competition, trademark, copyright and right of publicity litigation.  Call us at (877) 276-5084.