Harold P. Weinberger, Jonathan M. Wagner and Norman C. Simon
Harold P. Weinberger, Jonathan M. Wagner and Norman C. Simon ()

Since its enactment in 1947, Section 43(a) of the Lanham Act—the federal false advertising statute—has rarely been addressed by the Supreme Court. This term, however, the Supreme Court issued two Lanham Act decisions: Lexmark International, Inc. v. Static Control Components1 and POM Wonderful v. Coca-Cola2 These unanimous decisions made it easier for plaintiffs to bring Lanham Act false advertising suits. In both cases, the court focused on the express purpose of Section 43(a), to afford commercial competitors a remedy “for unfair competition through misleading advertising or labeling.”3 The court emphasized the statute’s broad scope and substance, thereby potentially encouraging more competitors to pursue relief under the act.

The Lexmark Decision

Lexmark involved a false advertising claim against printer manufacturer Lexmark by Static Control, a manufacturer of components that third parties use to assemble Lexmark-compatible toner cartridges. Lexmark objected to Static Control’s products on patent and copyright grounds and sent mailings to various third parties to that effect, warning them that using Static Control’s products violated the law. Static Control contended that the notices violated Section 43(a) the Lanham Act.

The salient issue was whether Static Control, as a so-called “indirect” competitor of Lexmark, suffered an injury sufficient to confer standing under the act. The opinion, authored by Justice Antonin Scalia, held that any plaintiff who alleges false or misleading advertising proximately causes injury to its commercial reputation or sales falls within Section 43(a)’s “zone of interests,” and accordingly has standing to seek redress for that injury under the Lanham Act.

The “zone of interest” test articulated in Lexmark is more liberal than various other Section 43(a) standing tests that had been applied in different circuits. One test required parties to plead a “reasonable interest” in protecting their trade from actionable advertising (the Sixth Circuit in Lexmark and the Second Circuit).4 Another limited standing to ostensible “direct competitors” (Seventh, Ninth, and Tenth Circuits).5 Yet another test imputed a “prudential standing” analysis from antitrust law (Third, Fifth, Eighth, and Eleventh Circuits).6 The Lexmark court rejected these alternatives and instead held that the “zone of interests” test is the proper framework for assessing standing under Section 43(a).

Application of the “zone of interests” test means that standing under Section 43(a) turns less on the identity of a plaintiff—e.g., a “direct” or “indirect” competitor—and more on whether a plaintiff can plead facts sufficient to show a defendant caused competitive injury. Under this framework, certain market participants may be more likely to challenge a competitor’s advertising. Specifically, a party can assess its potential claim in a relatively straightforward manner. First, do plaintiff’s alleged injuries relate to commercial interests that Section 43(a) aims to protect, e.g., lost sales and injury to business reputation? Second, did the defendant’s alleged false or misleading advertising proximately cause those injuries? Lexmark confirmed that diversion of sales to a direct competitor is not the only kind of compensable injury for which Section 43(a) provides a remedy. The court’s broad decision may encourage other indirect competitors to pursue Lanham Act litigation.

Lexmark also made clear that to obtain relief under Section 43(a), a party must offer evidence sufficient to prove injury. The decision provided some clarifying guidance on this point. All commercial injuries from false advertising are derivative of consumer injuries, insofar as purportedly false advertising first affects consumers by deceiving them. Before Lexmark, a court might have considered an alleged commercial harm too remote from a defendant’s consumer-directed conduct to be actionable under the Lanham Act. But Lexmark confirms that the “intervening” element of consumer deception does not preclude proving causation.

Static Control sufficiently pleaded a Section 43(a) claim, the court ruled, by adequately alleging (i) Lexmark’s disparagement of Static Control’s business and products by asserting that they were illegal, and (ii) proximate causation inasmuch as Static Control designed, manufactured, and sold microchips that were both necessary for and useless other than for refurbishing Lexmark toner cartridges. As a consequence of the Lexmark ruling, Lanham Act plaintiffs need plead only economic or reputational injury traceable to a defendant’s conduct, and that its effect on consumers negatively affected plaintiff’s trade.

The POM Wonderful Decision

POM Wonderful clarified that false advertising claims relating to food and beverage labeling can proceed despite a plaintiff’s assertion that it had complied with another federal statute, the Federal Food, Drug, and Cosmetic Act (FDCA).7 The Supreme Court’s decision, authored by Justice Anthony Kennedy, concluded that the Lanham Act and FDCA complement rather than conflict with each other, overturning a U.S. Court of Appeals for the Ninth Circuit ruling that the FDCA precluded POM Wonderful’s Lanham Act suit. Like Lexmark, POM Wonderful may portend more false advertising litigation.

POM, a manufacturer and seller of pomegranate juices, including a pomegranate-blueberry juice blend, had sued Coca-Cola over its marketing for a Minute Maid brand juice blend that POM alleged misleads consumers into believing that the product predominantly contains pomegranate and blueberry juice when in fact the product contains just 0.3 percent pomegranate and 0.2 percent blueberry juices.

In support of its claims, POM pointed out that Coca-Cola’s juice blend label prominently features the name “Pomegranate Blueberry” on two lines, followed in much smaller type by “Flavored Blend of 5 Juices” and other qualifying phrases. POM also alleged that Coca-Cola’s label image misleads consumers concerning the blend’s respective fruit component quantities. Coca-Cola successfully argued before the Ninth Circuit that because its label conformed to FDCA labeling regulations, Coca-Cola had insulated itself from liability on preclusion grounds from POM’s private suit under Section 43(a)

The Supreme Court unanimously reversed, largely agreeing with POM’s appeal, which posited that the statutes provide a complementary mechanism for both protecting consumers’ health and safety (via the FDCA), and ensuring business competitors’ ability to challenge claims that cause competitive injury (via the Lanham Act). Accordingly, POM Wonderful may ensure increasingly active Lanham Act litigation in the food and beverage market—and perhaps others, as well—now that preclusion defenses may face closer scrutiny. Three points merit particular attention.

First, the court made clear that neither of the statutes in question expressly limits or bars Lanham Act challenges to labeling regulated under the FDCA. The absence of such a restriction, the court observed, is all the more significant because the statutory schemes “have coexisted since the passage of the Lanham Act” nearly 70 years ago.8 That Congress had since amended both statutes but not found reason to adjust either regulatory framework vis-à-vis the other—even though Congress affirmatively preempted state laws governing misbranding regulated under the FDCA—”is powerful evidence that Congress did not intend [Food and Drug Administration] oversight to be the exclusive means of ensuring proper food and beverage labeling.”9 Accordingly, would-be Section 43(a) litigants assessing whether a claim might be precluded by an applicable regulatory mechanism can apply the analytical structure that the court set out in POM Wonderful, looking to the regulation’s text and history to determine whether, like the FDCA with respect to food and beverage labeling, it has “coexisted” with the Lanham Act.

Second, such an assessment should examine the extent to which the regulatory mechanism in question complements Section 43(a)’s scope and purpose. With respect to Coca-Cola’s defense, the court noted that while both the FDCA and Section 43(a) touch on food and beverage labeling, the Lanham Act protects commercial interests via private suits that turn on companies’ market expertise, and the FDCA protects public health and safety through a detailed regulatory framework overseen by the FDA. The court concluded that the statutes therefore operate together, enhancing both competitor and consumer protection by vindicating different interests based on respective expertise.

Third, POM Wonderful highlights the importance of practical assessment in a preclusion analysis. While acknowledging the FDCA’s greater specificity with respect to labeling regulations, the court found that neither the structure of the two statutes nor any empirical evidence suggested that they cannot be fully enforceable according to their respective terms. At the same time, Section 43(a) claims are not necessarily immune from preclusion. Indeed, in POM Wonderful, the court emphasized that food and beverage labeling is not pre-approved by the FDA, drawing a contrast to drug labeling, which is. A Lanham Act challenge to the labeling of a prescription drug might very well yield a different preemption outcome. Assessing potential preclusion defenses in Lanham Act cases further requires close attention to the fact that certain statutes regulate more expansively in one area than another.

The court’s rejection of a middle-of-the road argument made by the U.S. Solicitor General in POM Wonderful underscores this point. The Solicitor General had argued—on the premise that FDA regulations specifically authorize juice blend names—that POM could not challenge the name of Coca-Cola’s product, but at the same time it could challenge other aspects of the label. The court identified at least two flaws in this position. First, it observed that this approach would require an impossible line-drawing exercise, distinguishing between regulations that specifically authorize certain conduct versus those that merely tolerate it.

Second, it viewed this position, like that of Coca-Cola, as essentially requiring the FDCA and its regulations to be construed as a “ceiling,” when Congress instead intended the FDCA and the Lanham Act to complement one another. Arguably, POM Wonderful can be read to mean that when a regulatory mechanism does not clearly stand in the way of a private litigant’s rights under Section 43(a), courts should permit otherwise-colorable false advertising claims to proceed.

Conclusion

Lexmark shows that Section 43(a) claims can arise from indirect as well as direct market competition. POM Wonderful underscores that private litigants can bring a Section 43(a) claim even when the claim parallels an existing regulatory enforcement mechanism. With these holdings, the Supreme Court bolstered the Lanham Act as a tool to prevent competitive harm in advertising and promotion.

Endnotes:

1. Lexmark Int’l v. Static Control Components, 134 S. Ct. 1377 (2014).

2. POM Wonderful v. Coca-Cola Co., 134 S. Ct. 2228 (2014). Justice Stephen Breyer did not take part in POM Wonderful’s consideration or decision.

3. POM Wonderful, 134 S. Ct. at 2234 (citing Lexmark, 134 S. Ct. at 1389, 1390, 1395).

4. See Static Control Components v. Lexmark Int’l, 697 F.3d 387, 409-11 (6th Cir. 2012); Famous Horse v. 5th Avenue Photo, 624 F.3d 106, 113 (2d Cir. 2010).

5. See L.S. Heath & Son v. AT&T Information Systems, 9 F.3d 561, 575 (7th Cir. 1993); Waits v. Frito–Lay, 978 F.2d 1093, 1108-09 (9th Cir. 1992); Stanfield v. Osborne Industries, 52 F.3d 867, 873 (10th Cir. 1995).

6. See Conte Bros. Automotive v. Quaker State–Slick 50, 165 F.3d 221, 233–234 (3d Cir. 1998); Procter & Gamble Co. v. Amway Corp., 242 F.3d 539, 562–563 (5th Cir. 2001); Gilbert/Robinson v. Carrie Beverage–Missouri, 989 F.2d 985, 990–991 (8th Cir. 1993); Phoenix of Broward v. McDonald’s Corp., 489 F.3d 1156, 1162–1164 (11th Cir. 2007).

7. 21 U.S.C. §§321(f), 331.

8. POM Wonderful, 134 S. Ct. at 2237.

9. POM Wonderful, 134 S. Ct. at 2237 (quotation omitted).