Thank you for sharing!

Your article was successfully shared with the contacts you provided.
Under � 43(a) of the Lanham Act, 15 U.S.C. 1125(a), standing to sue for false advertising is limited to competitors and others who claim to have suffered a business injury as a result of the defendant’s advertising claims. See, e.g., Telecom Int’l Am. Ltd. v. AT&T Corp., 280 F.3d 175, 197 (2d Cir. 2001). Consumers do not have standing to bring false advertising suits under � 43(a). See, e.g., Serbin v. Ziebart Int’l Corp., 11 F.3d 1163, 1177 (3d Cir. 1993). Historically, this limitation on standing has had a substantial, albeit little recognized, minimizing impact on the litigation risk and costs associated with the advertisement of consumer products. In Lanham Act false advertising jurisprudence, damages are difficult to prove and infrequently awarded. This is largely because it is difficult-indeed, often impossible-to isolate the effect, if any, that the challenged advertisement had on product sales and market share from the many other factors that contribute to changes in sales and market share. Consequently, the principal remedy in these cases is injunctive relief. This in turn has led to the following: Typically, the law firms representing plaintiffs in Lanham Act cases charge by the hour, in part because there has been little attraction for contingent-fee lawyers to become involved in such cases. Therefore, litigating these cases is approximately as expensive for plaintiffs as for defendants. And the prospect of substantial fees frequently causes potential plaintiffs to choose far less expensive advertising challenges before the National Advertising Division of the Council of Better Business Bureaus, the advertising industry self-regulatory body. State law consumer class actions increased recently In the last few years, however, there has been a notable increase in state law-based false advertising class actions brought on behalf of consumers who allegedly were harmed by false advertisements. These recent consumer class actions have received substantial publicity, which will likely cause the number of such suits to rise still further. Consumer class actions create an additional source of possible liability for false advertisements. Perhaps even more significantly, such suits also risk increasing substantially the legal costs of defending false advertising claims. In class actions, class plaintiffs’ counsel typically is retained on a contingency basis. Therefore, unlike in most Lanham Act cases, plaintiffs in false advertising consumer class actions often are not motivated to keep legal fees down, and indeed, could well have the opposite motivation. A recent decision in the 2d U.S. Circuit Court of Appeals, Pelman v. McDonald’s Corp., 396 F.3d 508 (2d Cir. 2005), appears to open the door for false advertising consumer class actions in the New York federal courts, where more Lanham Act false advertising cases have been filed than any other judicial district. In Pelman, the 2d Circuit reversed a lower court decision and reinstated the claims of a consumer class alleging that McDonald’s used deceptive advertising to mask the health risks associated with its products. The suit alleged that McDonald’s created the false impression that its food products are nutritionally beneficial and, as a result, caused health problems for potentially millions of class members. The trial court had dismissed the claims principally because the plaintiffs had failed to allege particularized reliance on the allegedly false statements, which the trial court held was required by � 350 of the New York General Business Law. However, the 2d Circuit, citing precedent from New York’s highest state court, held that � 349 of the General Business Law, under which the plaintiffs also sued, does not require proof of actual reliance, and thus reversed. The 2d Circuit’s reasoning was puzzling. Section 349 authorizes, and primarily addresses, lawsuits by the state attorney general to remedy deceptive acts and practices. See id �� a-g. Section 349(h) does permit private actions to be brought under this statute, but only by persons who “have been injured” by reason of a violation of the statute. Technically, reliance and injury are separate concepts: It is possible for a person to rely on a false advertisement without being injured by it. But it is difficult to understand how a person who does not rely on a false statement in an advertisement can be injured by it. Thus, logic would seem to dictate affirmance of the district court’s ruling. Pelman may best be understood as addressing a plaintiff’s pleading obligations under the General Business Law, rather than the requirements of a plaintiff’s proof at trial. Indeed, commenting on the trial court’s holding that the plaintiffs had “failed to draw an adequate causal connection between their consumption of McDonald’s food and their alleged injuries,” the 2d Circuit explained that this “is the sort of information that is appropriately the subject of discovery,” and therefore permitted the claims to proceed so that the plaintiffs could gather such information. 396 F.3d at 511, 512. In the long term, Pelman may not result in any enhanced liability risk for advertisers in false advertising consumer class actions brought in New York state. Nonetheless, Pelman may well embolden more plaintiffs to bring such suits. By setting a low bar for the successful defense of motions to dismiss in such suits, the decision could well provide class action plaintiffs’ firms with the incentive to sue in New York to pressure advertisers into costly settlements so as to avoid the substantial expense of discovery that the 2d Circuit’s opinion openly invited. State law-based false advertising consumer class actions have recently been filed in increasing numbers in a variety of states, particularly Massachusetts and California. The Massachusetts unfair competition statute (Mass. General Laws, Chapter 93A) has been construed liberally by Massachusetts courts for many years, which appears to have made the state a favorite destination for false advertising class action counsel. The broad reach of Chapter 93A was spelled out in Leardi v. Brown, 394 Mass. 151 (1985), an early case under Chapter 93A that did not involving advertising. There, the Massachusetts Supreme Judicial Court awarded $25-the statutory remedy available to plaintiffs who cannot prove actual damages-to each member of a class of tenants who had received a lease renewal form from their landlord that deviated from the statutorily required lease terms, without requiring any proof that the tenants had even read the noncompliant provisions, much less relied on them to their detriment. Last year, the intermediate Massachusetts Appeals Court concluded that Leardi should be confined to its facts, and that Chapter 93A did not entitle plaintiffs even to the statutory award absent proof of actual injury or loss, because the statute on its face “require[s] actual injury or loss.” Lord v. Commercial Union Ins. Co., 60 Mass. App. Ct. 309, 321 (2004). However, in a Chapter 93A false advertising consumer class action brought against a major cigarette manufacturer, the Massachusetts Supreme Judicial Court recently reaffirmed Leardi‘s broad reach. In Aspinall v. Philip Morris Cos. Inc., 442 Mass. 381, 400 (2004), the defendant was sued for false advertising regarding its Marlboro Light brand of cigarettes. The plaintiff claimed to represent a class of purchasers of the cigarette brand. The court expressly held that proof of reliance on the allegedly false advertisement is not a statutory requirement under Chapter 93A, and further held that while proof of causation is required, deceptive advertising can effect a “per se injury on consumers who purchased” the advertised product, thus satisfying the causation requirement. Id. Aspinall is doubtless just the first chapter in what will likely be many Massachusetts decisions concerning damages for false advertising under Chapter 93A. Hardly surprisingly in light of Aspinall, there have been recent reports in the Massachusetts law media of at least a few seven-figure settlements in false advertising suits brought pursuant to Chapter 93A, including one involving Target Corp. and another involving The Home Depot Inc. Moreover, false advertising consumer class actions against Pfizer Inc. and Gillette Co. have recently been reported as having been brought in Massachusetts following Lanham Act litigation in other jurisdictions in which injunctive relief was granted against those companies. See, e.g., J.M. Lawrence, “False advertising leaves bad taste in mouth,” Boston Herald, April 3, 2005, at 11. California was hospitable to such suits until recently California, like Massachusetts, has also been very receptive to false advertising class actions. The California Supreme Court observed that “[s]tanding to sue under the [California Unfair Competition Law] is expansive.” Korea Supply Co. v. Lockheed Martin Corp., 29 Cal. 4th 1134, 1143 (2003). Thus, it is not surprising that some prominent companies have been subject to false advertising class actions in California, including Sony Pictures Entertainment, Metro-Goldwyn-Mayer Inc., McNeil Nutritionals (makers of Splenda), Dell Computers and AstraZeneca PLC (makers of the drug Nexium). However, California law has recently become less hospitable to false advertising consumer class actions. In November 2004, California voters passed Proposition 64, which limits the private enforcement of the California Unfair Competition Law, including its provisions relating to false advertising, by providing that a private person cannot bring a suit unless he or she has both suffered injury in fact and meets the requirements for a class representative. Thus, a prospective plaintiff must allege an injury in fact and the loss of money or property. Courts have split over the retroactivity of Proposition 64. This split is now before the California Supreme Court and is expected to be decided within the next year. Lawrence I. Weinstein, a litigation partner at New York-based Proskauer Rose, is co-chair of the firm’s trademark and false advertising practice group. Douglas Schneider, a litigation associate at the firm, substantially assisted in the preparation of this article.

This content has been archived. It is available through our partners, LexisNexis® and Bloomberg Law.

To view this content, please continue to their sites.

Not a Lexis Advance® Subscriber?
Subscribe Now

Not a Bloomberg Law Subscriber?
Subscribe Now

Why am I seeing this?

LexisNexis® and Bloomberg Law are third party online distributors of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® and Bloomberg Law customers are able to access and use ALM's content, including content from the National Law Journal, The American Lawyer, Legaltech News, The New York Law Journal, and Corporate Counsel, as well as other sources of legal information.

For questions call 1-877-256-2472 or contact us at [email protected]


ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Copyright © 2021 ALM Media Properties, LLC. All Rights Reserved.