Stop what you’re doing and go read the Lanham Act! I’m kidding, but only slightly. Let’s get right to it: Lots of folks have no idea what the Lanham Act does. If they know it at all, they say, “Oh, it covers trademark infringement.” But that’s not even half of the story. The Lanham Act is an incredibly powerful weapon. It goes way beyond protecting trademarks. It also protects against false advertising. Let’s focus on that:
The false advertising provisions of the Lanham Act prohibit two types of false advertising: (1) advertising that is literally false and (2) advertising that while technically true is nonetheless deceptive. Let’s break out some examples:
Literally False Advertising – Hypothetical Number One
You own a company called Southern Beef Company. Your main product is grass fed beef. You raise the cattle, process the beef, etc. Everything is completely grass fed and grass finished. You meet the highest standards. You have a marketplace rival called Tom’s Natural Beef. Tom’s is a big supplier to dozens of local restaurants. You’ve been trying to break into those restaurants but they have a long-standing relationship with Tom’s. And Tom’s gives them great prices. Tom’s advertises to the public that it is “100% Grass Fed Beef.” You get a call one day from a former Tom’s employee. As it turns out, Tom’s is a massive lie. Tom’s beef is mostly corn-fed.
Southern now has a Lanham Act claim. We’ll hit the remedies later on in this post.
Technically True but Misleading – Hypothetical Number Two
Same players as above. But this time: All of the grass fed beef producers in the state of Florida can seek certification by the Florida Grass Fed Beef Association. The producer goes through a screening process, submits a bunch of documents to the association, and then they get certified. Tom’s does not advertise its beef as “100% Grass Fed”. Instead, it sells its beef as “all natural” and advertises, “Certified by the Florida Grass Fed Beef Association.” It includes the Association logo on its packaging (which it’s allowed to do because it’s certified). As above, it turns out that Tom’s really isn’t grass fed.
Southern still has a Lanham Act claim! How? Although it’s technically true that Tom’s is certified by the Grass Fed Association, and Tom’s is technically allowed to display the Association logo, the advertising is deceptive. Folks are buying Tom’s beef and assuming that it really is grass fed because it’s certified. How did Tom’s get that certification? It defrauded the Grass Fed Association.
Lanham Act Standing – Broader than You Think
Standing under the Lanham Act is very loose. Back to the hypothetical: Some would argue that Southern Beef Company can’t possibly have standing. After all, Tom’s didn’t make any false representations about Southern Beef. Let me be clear: That doesn’t matter. Southern and Tom’s are marketplace rivals. Tom’s got certain business based on false advertising. But for Tom’s conduct, Southern could have vied for and won that business.
Again, most practitioners don’t understand this. Why? It’s worth explaining: In a word, causation. Lawyers often make the mistake of assuming that causation operates the same way in every cause of action. That’s a bogus assumption. Causation under the Lanham Act is completely different than, say, loss causation under the securities laws. The upshot: Southern has a viable false advertising claim and can recover damages.
For anybody who doubts that this type of Lanham Act claim is viable, I beat a motion to dismiss this type of claim just a few weeks ago. See ESP Systems, LLC v. Nightingale Nurses, 16-CV-81263 (SDFL).
Remedies for False Advertising
As the above makes clear, the Lanham Act is powerful weapon against false advertising. But damages and remedies are where it really gets crazy: The Lanham Act allows for a range of damages: actual damages, lost profits, disgorgement of the defendant’s profits, injunctive relief, corrective advertising and attorney’s fees.
Bottom line: In any situation where (1) a marketplace rival is making false representations about either your products or their products and (2) there is serious money at issue, evaluate all of your options under the Lanham Act.
Jonathan Pollard is a competition lawyer based in Fort Lauderdale, Florida. His office can be reached at 954-332-2380.