False Advertising: Do You Know It When You See It?

Section 43(a) of the Lanham Act, codified at 15 U.S.C. § 1125, imposes liability on individuals and entities that, “in a commercial advertising or promotion, misrepresent[] the nature, characteristics, qualities, or geographic origin of [their] or another person’s goods, services, or commercial activities.” The principal purpose of the Act is to provide remedies to enterprises damaged by a wide variety of false statements made in such “commercial advertising or promotion.” As the Second Circuit noted in a seminal opinion, the passage of the Lanham Act “marked the creation of a ‘new statutory tort’ intended to secure a market-place free from deceitful marketing practices.” Johnson & Johnson v. Carter-Wallace, Inc., 631 F.2d 186, 189 (2d Cir. 1980) (citations omitted).

What exactly are these “deceitful marketing practices”? Answering this question—and avoiding Lanham Act liability—is crucial for businesses and individuals that intend to engage in significant marketing activity. For example, consider a business that gives its salespeople wide latitude to engage customers at the point of sale. Could that business be held responsible for the conduct of an errant salesperson who makes inaccurate disparaging statements about competitors’ products or services in an attempt to close the deal? What about a business that has specifically instructed its employees to contrast its product with competing products at the point of sale—could that business find itself facing liability if its employees make false statements to customers about the competition?

The Second Circuit has provided a framework to answer questions like those posed above. In Fashion Boutique of Short Hills, Inc. v. Fendi USA, Inc., 314 F.3d 48, 57 (2d Cir. 2002), the court held that the “touchstone of whether a defendant’s actions may be considered ‘commercial advertising or promotion’ under the Lanham Act is that the contested representations [were] part of an organized campaign to penetrate the relevant market.” By so holding, the Second Circuit excluded from the scope of the Act isolated or sporadic misrepresentations made by businesses and their employees. Post-Fendi Lanham Act claimants may only invoke the Act’s protections where they can demonstrate that there was an “organized campaign” of misrepresentations aimed at their products or services.

The “organized campaign” language, however, is imprecise. Whether false statements may be considered part of such a campaign depends how frequently and widely they are disseminated, according to the Second Circuit in Fendi. The fluid nature of the “widespread dissemination” inquiry can often make this question difficult for courts to resolve as a matter of law. Indeed, as one judge in the Southern District of New York noted, “[w]idespread dissemination is a fact-specific question that varies from case to case and industry to industry.” In re Connecticut Mobilecom, Inc., No. 02-1725 REG, 02-02519 WHP, 2003 WL 23021959, at *11 (S.D.N.Y. Dec. 23, 2003).

A recent Lanham Act counterclaim, dismissed at the pleading stage, illustrates the principles underpinning the dissemination inquiry. In Solmetex, LLC v. Dental Recycling of N. Am., Inc., No. 17-CV-860 (JSR), 2017 WL 2840282 (S.D.N.Y. June 26, 2017), the court dismissed a § 43(a) claim on the grounds that the counterclaim plaintiff had failed to adequately allege the existence of “commercial advertising or promotion.” Solmetex and Dental Recycling of North America (“DRNA”) are dental products businesses that “sell competing devices for removing particulate from dental office wastewater.” Id. at *1. In January 2017, Solmetex contacted a dental trade organization to claim that DRNA’s dental recycling device was untested and did not comply with industry safety standards. According to DRNA, these representations were false, as its product underwent testing and did in fact meet industry standards. Around the same time, Solmetex also contacted a representative of a dental products distributor to claim that DNRA’s competing product was not approved by the EPA. Id. at *2. DNRA’s lawsuit against Solmetex claimed that DRNA lost sales due to these misrepresentations. Id.

The court dismissed DRNA’s Lanham Act counterclaim. It held that DNRA failed to plead the “commercial advertising or promotion” required by the statute. Id. at *3. The court noted that although Solmetex may have made misrepresentations, those misrepresentations were “isolated.” DRNA failed to plead that the trade organization had actually repeated the Solmetex misrepresentations to its membership. Similarly, DRNA failed to plead that the misrepresentations to the dental distributor’s representative became widely disseminated, as the pleadings indicated that the representative passed along the falsehoods to only one purchaser.

Although courts in the Second Circuit have long been hesitant to characterize such isolated misrepresentations as “commercial advertising or promotion,” courts have been quick to emphasize that the inquiry is not one-size-fits-all. Businesses concerned about potential liability for false advertising under the Lanham Act should review their advertising policies and consult with counsel in the event that false representations have been disseminated to customers in the relevant market. Addressing and correcting misrepresentations before they become widespread is often the most prudent course of action for business owners concerned about the actions of their employees.

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