Don’t Be Pinocchio: Avoid Liability for False Advertising

Are you at risk of being sued for false advertising? In our media-saturated and highly competitive commercial environment, companies use a wide range of creative strategies to capture and retain consumer interest. These strategies often include making statements about other companies’ products or services. But when does such advertising go too far?

The Lanham Act is the primary federal law that prohibits “unfair competition,” including false advertising. Companies may assert claims under the Lanham Act based on deceptive or misleading statements made about their products, services, or commercial activities. A company injured by false advertising may seek a court order preventing improper conduct, requiring corrective advertising, and granting a monetary recovery.

On March 25, 2014, the U.S. Supreme Court in Lexmark International, Inc. v. Static Control Components, Inc. ruled that companies are not limited to asserting false advertising claims against their direct competitors. Instead, these claims can be brought by any company likely to be harmed by false or misleading advertising. The Supreme Court also reiterated the longstanding principle that individual consumers or purchasers of products or services cannot assert false advertising claims under the Lanham Act.

The facts in the Lexmark decision are instructive. As a manufacturer of computer printers, Lexmark designed replacement printer cartridges that prevented consumers from sending empty cartridges to other companies for refilling or resale. Static Control, however, designed special microchips that circumvented Lexmark’s design. These microchips allowed other companies to refill and resell empty Lexmark printer cartridges. Predictably, Lexmark was upset with this development and sued Static Control for copyright infringement. Static Control fought back with false advertising and antitrust claims. The false advertising claim was premised on Lexmark’s statements to consumers that Static Control’s microchips were illegal and violated Lexmark’s intellectual property rights. The Supreme Court held that Static Control could assert a false advertising claim against Lexmark, although Static Control still had the burden of proving this claim at trial.

As the Lexmark decision highlights, companies should exercise self-discipline in their business communications and advertising. In monitoring their own communications, companies should consider the following general principles:

  • Be Accurate: Advertising and public statements should be factually accurate and should not deceive or mislead the public.
  • Avoid Confusion: Advertising and public statements should avoid creating any potential confusion with other companies’ products or brands. In addition, other companies’ trademarks should be used in advertisements only to the limited extent necessary to identify a specific product or service for purposes of making a comparison.
  • Avoid False Associations: Companies should avoid creating or implying false or misleading associations between their products or services and those from other companies.
  • Avoid Unwarranted Criticism: Companies should avoid making false or malicious statements about other companies’ products or services, or accusing other companies of engaging in fraud or deception or violating laws.
  • Identify Sources: When making comparisons with other products or services, or statements about other companies’ products or services, companies should clearly identify the source of that information. Similarly, when a company makes factual claims about products or services, those claims should be supported by legitimate tests and studies.

Although these general principles provide an initial framework for assessing advertising and public statements, false advertising claims are highly fact specific. Therefore, companies should consider these principles and seek legal advice when appropriate—before being confronted with a lawsuit.

Related topics: Compliance, Liability, Retail