U.S. Supreme Court Expands Scope of Potential Plaintiffs in Lanham Act False Advertising Claims – No Longer Limited to Actual Competitors

By: Kollin J. Zimmermann

One of the several claims available to plaintiffs under the Lanham Act is a claim for “false advertising.” Section 1125(a)(1)(B) of the Lanham Act states that:
(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—

(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.

Prior to the U.S. Supreme Court’s recent holding in Lexmark Int'l, Inc. v. Static Control Components, Inc., 134 S. Ct. 1377 (2014), the appellate courts were in a three-way split regarding the issue of which potential plaintiffs have standing to file a false advertising claim under the Lanham Act. The Seventh, Ninth, and Tenth Circuits used a categorical test, permitting only “actual competitors” to pursue Lanham Act false advertising claims. The Third, Fifth, Eighth, and Eleventh Circuits used a multi-factor balancing test, referred to as “antitrust standing” or the Associated General Contractors factors, in deciding this issue. Lastly, the Second Circuit applied a “reasonable interest approach”, which required the plaintiff to demonstrate a reasonable interest to be protected against the alleged false advertising, and a reasonable basis for believing that the interest is likely to be damaged by the alleged false advertising.

In Lexmark, the Supreme Court rejected all three of these tests, and formulated a new one, based on a two-part analysis. As a result, there is now only one test to determine whether a plaintiff may file a false advertising claim under the Lanham Act, and this test has broadened the scope of potential plaintiffs that may do so.

As the Supreme Court succinctly held: “To invoke the Lanham Act's cause of action for false advertising, a plaintiff must plead (and ultimately prove) an injury to a commercial interest in sales or business reputation proximately caused by the defendant's misrepresentations.” Lexmark, 134 S. Ct. at 1395. The Court explained that there are two elements that must be established to satisfy this test. First, the plaintiff’s interests must “fall within the zone of interests protected by the [Lanham Act].” Id. at 1388-89. Based on the explanation of the purpose of the Lanham Act provided by Congress in Section 1127, the Court held that “to come within the zone of interests in a suit for false advertising under § 1125(a), a plaintiff must allege an injury to a commercial interest in reputation or sales.” Id. at 1390. Second, the plaintiff’s injuries must have been “proximately caused” by the defendant’s Lanham Act violation. Although the Court acknowledged that proximate cause can be difficult to define, it offered guidance by holding that “a plaintiff suing under § 1125(a) ordinarily must show economic or reputational injury flowing directly from the deception wrought by the defendant's advertising; and that that occurs when deception of consumers causes them to withhold trade from the plaintiff.” Id. at 1391.

In light of this new test established by the Supreme Court, the scope of potential plaintiffs that can bring false advertising claims has been expanded. This is particularly true in the Ninth Circuit because plaintiffs no longer need to be “actual competitors” of the defendant to support their claim. The Supreme Court’s holding in Lexmark is a critical development in Lanham Act false advertising jurisprudence. Companies alleging false advertising claims, and those defending themselves from such claims, should monitor this development as the district and appellate courts begin to interpret and apply this new test.

For the Supreme Court’s full written opinion, please click on this link.