Lanham Act False Advertising 2016 Highlights, Vol. 2, No. 1

Lanham Act Liability for Native Advertising Violations

A pair of 2016 Lanham Act cases shows that native advertising (embedded advertising that fails to disclose it is commercial speech) may be a basis for Lanham Act liability but that the scope of this liability may not be coextensive with liability for violations of the FTC Act, as interpreted in FTC’s enforcement guidelines concerning native advertising.

Casper Sleep, Inc. v. Mitcham, --- F. Supp. 3d ---, No. 16 Civ. 3224 (JSR), 2016 WL 4574388 (S.D.N.Y. Sept. 1, 2016)

In Casper Sleep, Inc. v. Mitcham, the court denied in part a motion to dismiss a Lanham Act claim brought by a mattress manufacturer against Jack Mitcham, whose website, MattressNerd.com, purported to offer unbiased reviews of various mattresses by a “brand-agnostic and retailer-agnostic” former mattress salesman and disclosed that Mitcham received a “small commission” from various brands of mattresses. At the outset, the court rejected defendant’s argument that Casper’s Lanham Act claim was an improper attempt to create a private right of action to enforce the FTC Act, noting that “courts have held that a ‘plaintiff may and should rely on FTC guidelines as a basis for asserting false advertising under the Lanham Act.’” The court also rejected much of Casper’s claim — including the “nebulous theory” that Mitcham’s statements, “lumped together, create a misleading air of objectivity” — noting that “the Lanham Act does not impose an affirmative duty of disclosure.” The court declined, however, to dismiss Casper’s Lanham Act claim to the extent it was “premised on specific instances in which Mitcham has directly suggested on MattressNerd.com that he has an affiliate relationship with Casper.” Citing an article in which Mitcham compared a Casper mattress with two other mattress brands, the court noted that this “three-way comparison allegedly falsely stated that Mitcham is an ‘affiliate for all of the companies mentioned in the article,’” which could “plausibly mislead[] consumers by . . . suggesting that Mitcham has the same pecuniary interest in pushing sales of Casper that he does in pushing sales of each of the other mattress companies mentioned in the review.” View the decision. Defendant moved for reconsideration of the decision, which was denied, and the case settled shortly thereafter.

Vitamins Online, Inc. v. HeartWise, Inc., d/b/a NatureWise, No. 2:13-CV-982-DAK, 2016 WL 5106990 (D. Utah Sept. 19, 2016)

Similarly, in Vitamins Online, Inc. v. HeartWise, Inc., the court denied summary judgment for a Lanham Act false advertising claim between rival nutritional supplement manufacturers, based on allegations of manipulating consumer reviews on Amazon.com. Employees of defendant NatureWise engaged in a regular practice of voting on the “helpfulness” of positive reviews on its product pages, which “increased the likelihood that potential customers would see positive reviews of its products first.” NatureWise also “encouraged customers to post or repost their positive reviews on Amazon by offering them free products or gift[] cards,” and in some instances made “minor edits to the reviews before asking the customers to post them on Amazon.” The court granted summary judgment for NatureWise on plaintiff’s Lanham Act claim to the extent it was premised on incentivizing customers to write positive reviews by giving them gift cards and free products, noting that plaintiff had adduced no proof any of the reviews “were counter to the actual experience of the customers.” But the court denied summary judgment for NatureWise on the basis of its “attempt to manipulate the prominence of the reviews,” finding that “[t]he representation being made by the placement of these reviews on the product page is that customers wrote, posted, and rated the reviews and that the reviews that appear first in the list are the ones that customers found to be most helpful.” The court noted: “The broad language of Section 43(a) of the Lanham Act should serve as a warning to online retailers that they should leave customer reviews to customers.” View the decision.

Fake Online Reviews May Be Actionable as False Advertising

Romeo & Juliette Laser Hair Removal, Inc. v. Assara I LLC, No. 08 CV 442 (DLC), 2016 WL 815205 (S.D.N.Y. Feb. 29, 2016)

Plaintiff Romeo & Juliette and defendant Assara are competing laser hair-removal businesses. Beginning in early 2006, negative online reviews about Romeo & Juliette began appearing on websites such as Yelp.com, CitySearch.com, HairTell.com and ConsumerBeware.com, including many reviews that promoted Assara’s services after disparaging Romeo & Juliette’s. Evidence linked these disparaging reviews to an internet protocol address associated with Assara’s place of business, and many were attributed to Yelp and HairTell usernames registered to Assara employees. In denying Assara’s motion for summary judgment, the court held that Assara’s “anonymous comments . . . constitute[d] commercial advertising or promotion” under the Lanham Act. “In pursuit of their commercial interests, the defendants repeatedly posted disparaging comments to public fora used by consumers to select laser hair-removal services. By anonymously disparaging the plaintiff’s business and simultaneously promoting Assara, the defendants acted in pursuit of their economic interests.” And because many of the reviews “described persons who were not Romeo & Juliette customers and experiences with the plaintiff’s services that those fictitious customers did not have,” the reviews were literally false. The court did grant summary judgment to a handful of Assara employees whose disparaging comments were limited to statements that could not be proven true or false, such as that Romeo & Juliette’s “service was slow” or that its “employees were rude,” finding that these statements were “largely matters of opinion” and without more were not “actionable as false statements of fact.” View the decision.

Stay tuned: Defendants have appealed the decision to the Court of Appeals for the Federal Circuit; on March 25, 2016, the Federal Circuit transferred the case to the Second Circuit.

The Parameters of Puffery

Tempur Sealy Int’l, Inc. v. WonderGel, LLC, No. 5:16-cv-83, 2016 WL 1305155 (E.D. Ky. Apr. 1, 2016)

A Kentucky federal court issued a temporary restraining order and preliminary injunction against mattress manufacturer WonderGel, finding that its “Goldilocks” online commercial for its Purple mattress included statements that were “likely false or misleading” under the Lanham Act. In the commercial, the Goldilocks character disparages an unnamed mattress (one of Tempur Sealy’s Tempur-Contour mattresses) as a “hard” mattress and a “prison bed.” The court rejected WonderGel’s puffery defense, concluding that the “statements regarding potential negative health effects” of rival mattresses “clearly cross[ed] the line beyond what is permissible advertising.” The court similarly rejected the argument that the commercial was “obviously in jest,” stating that it was “unaware of any ‘humor exception’ that would make literally false statements acceptable under the Lanham Act.” Finding that Tempur Sealy had demonstrated a strong likelihood of success on the merits, the court presumed irreparable harm. View the decision. WonderGel soon posted a modified version of the “Goldilocks” ad, and Tempur Sealy moved for contempt, alleging the new “Goldilocks” violated the injunction. While the motion for contempt was pending, the parties filed a joint notice of settlement and the case was dismissed.

Martin v. Living Essentials, LLC, 160 F. Supp. 3d 1042 (N.D. Ill. 2016), aff’d 653 F. App’x 482 (7th Cir. 2016) (nonprecedential)

An Illinois federal court dismissed the Lanham Act false advertising claims of Johannes “Ted” Martin, the holder of the Hacky Sack “world record for most consecutive kicks,” against Living Essentials, the manufacturer of 5-hour ENERGY drink, finding, among other reasons, that the advertiser’s television commercial was “clearly a comedic farce” — “an obvious joke that employ[ed] hyperbole and exaggeration for comedic effect” — and was therefore nonactionable puffery. In the commercial, an actor claims to have “disprove[n] the theory of relativity, master[ed] origami while beating ‘the record’ for Hacky Sack, sw[u]m the English Channel and back, and f[ou]nd Bigfoot all within the span of five hours . . .” Martin alleged that the commercial falsely represented one could “beat[]‘the record’ for Hacky Sack” by drinking 5 hour ENERGY. Finding the commercial to be “so grossly exaggerated that no reasonable buyer would take it at face value,” the court concluded that it did not matter that the commercial conveyed the literally false message that drinking 5-hour ENERGY would enable one to break the “Hacky Sack record (while mastering origami, no less).” As a result, there was “no danger of consumer deception and hence, no basis for a false advertising claim.” View the decision. The Seventh Circuit affirmed the decision on June 30.

Chobani, LLC v. Dannon Co., 157 F. Supp. 3d 190 (N.D.N.Y. 2016);

Gen. Mills, Inc. v. Chobani, LLC, 158 F. Supp. 3d 106 (N.D.N.Y. 2016)

Yogurt manufacturers moved to enjoin Chobani’s ads that touted its yogurt’s all-natural ingredients and claimed that its competitors’ Greek yogurts contain “bad stuff”: General Mills’ Yoplait Greek 100 contains potassium sorbate (“that stuff is used to kill bugs!”) while Dannon’s Light & Fit contains sucralose [Splenda] (“That stuff has chlorine added to it!”). The court granted the competitors’ motions for a preliminary injunction on the ground that Chobani’s ads were false by necessary implication, i.e., Chobani’s claims conveyed the literally false message that the challengers’ yogurts were “unsafe to eat.” The court rejected Chobani’s contentions that its “no bad stuff” claim was mere puffery and that its claims about its competitors’ ingredients were not false. The court noted that the context in which claims are made matters to an advertiser’s puffery defense, drawing a critical distinction between general statements and comparison claims that disparaged competitors’ products. View the decisions Chobani, LLC v. Dannon Co. and General Mills, Inc. v. Chobani, LLC. After its motions for reconsideration were denied, Chobani consented to the entry of a permanent injunction and the case was dismissed.

XYZ Two Way Radio Serv., Inc. v. Uber Techs., Inc., --- F. Supp. 3d ---, No. 15-cv-3015 (FB) (CLP), 2016 WL 5854224 (E.D.N.Y. Oct. 6, 2016)

Plaintiffs XYZ Two Way Radio Service Inc. and Elite Limousine Plus Inc. brought suit against transportation app Uber, challenging as false advertising statements involving the “safety” of Uber’s services, including that “Uber is committed to connecting you to the safest ride on the road. This means setting the strictest safety standards possible, then working hard to improve them every day,” and that Uber’s drivers “must go through a rigorous background check” that is “often more rigorous than what is required to become a taxi driver.” The court rejected plaintiffs’ claim that the “background check” representation was false because it is not “more rigorous than what is required to become a taxi driver,” in that it did not require “fingerprints, a medical clearance or a drug test, all of which New York City’s Taxi and Limousine Commission (‘TLC’) requires for both yellow-cab and black-car drivers.” The court concluded that the statements are “non-actionable puffery.” The court explained that although the statements “are intended to convey the impression that Uber takes the safety of its passengers seriously,” the tone of the statements was “boastful and self-congratulatory,” and “many of the statements are couched in aspirational terms,” such as “committed to,” “aim to” and “believe deeply,” that “cannot be proven[] true or false.” In concluding that Uber’s description of its background checks is not false or misleading, the court noted the statement was qualified (i.e., Uber represents only that its background checks are often more rigorous than what is required to become a taxi driver) and that Uber’s website, which the court deemed incorporated by reference in the complaint, included the disclaimer “[t]he specifics vary depending on what local governments allow.” View the decision. Plaintiffs have filed a motion for reconsideration of the court’s order granting the motion to dismiss.