Your business has been advertising that your product “beats the competition” and has “better ingredients than the competition” for ten years. In year eleven, your competitor launches an advertising campaign targeted directly at your product and names your product directly in comparative advertisements. You cannot allow your product’s name to be smeared to your customers, so you file suit to restrain your competitor from the smear campaign. Your competitor agrees to pull its advertisements from shelves, and you feel like you’ve won. However, a short time later, your competitor files a counterclaim against your business for your product’s own allegedly false or misleading advertising. Whether you win depends on a variety of facts, including whether your competitor’s lawsuit is barred because your competitor waited too long to bring it.
One of the claims that your competitor will assert is that your business’ advertisements that your product “beats the competition” and has “better ingredients than the competition” violate the Lanham Act. The Lanham Act is a federal statute that, among other things, lays out a statutory claim for false or misleading advertising. 15 U.S.C. § 1125(a). A successful false advertising claim has the following elements: (1) the advertisements of the opposing party are false or misleading; (2) the advertisements deceived, or had the capacity to deceive, consumers; (3) the deception had a material effect on customer purchasing decisions; (4) the misrepresented product or service affects interstate commerce; and (5) the movant has been-or is likely to be-injured as a result of the false or misleading advertising. Business owners facing Lanham Act claims must take the potential liability very seriously because damages that the injured party may recover include the opposing party’s profits, damages sustained as a result of the false or misleading advertising, and costs and attorney’s fees for bringing the action. 15 U.S.C. § 1117(a).
There may be a legal way you can defeat your competitor’s Lanham Act claim. It is well established that laches is a valid defense to Lanham Act claims for both monetary damages and injunctive relief. A defendant asserting laches must show: (1) the competitor delayed in asserting a right or claim; (2) that the competitor’s delay was not excusable; and (3) that there is undue prejudice to the party against whom the claim is asserted. Kason Indus. v. Component Hardware Gp., Inc., 120 F.3d 1199, 1203 (11th Cir. 1997). Although the Lanham Act does not contain a statute of limitations, the Eleventh Circuit Court of Appeals applies the limitations period for analogous state law claims as the “touchstone” for laches defenses. Florida’s statute of limitations for analogous state law claims is four years. Therefore, a business owner can argue that its competitor should have asserted its Lanham Act claim within four years of when the competitor knew or should have known that the advertising claims were allegedly false or misleading. If the claim is filed after the analogous limitations period has expired, the presumption is that laches is a bar to suit.
To prevail on laches, a business owner need not establish that its adversary had actual, complete knowledge of the conduct of which it complains. The laches period starts to run when the competitor “knew or should have known about its potential cause of action.” The “knew or should have known” standard allows a laches defense to be based on either actual or constructive knowledge. Constructive knowledge is judged from an objective reasonable person standard, and therefore a Lanham Act claimant is chargeable with the information it might have received had due inquiry been made.
A simple application of this concept appears in Black Diamond Sportswear, Inc. v. Black Diamond Equip, Ltd., 84 U.S.P.Q.2d 1758 (2d Cir. 2007). There, the Second Circuit Court of Appeals affirmed the grant of summary judgment on a laches defense in an action between direct competitors and held that the Lanham Act plaintiff had every reason to know about the infringer’s conduct because the infringer’s products directly competed with the plaintiff’s years before the latter brought its claim, and the two companies marketed their goods in the same magazines and trade shows. Thus, the plaintiff was chargeable with such knowledge as he might have obtained upon inquiry, provided the facts already known by him were such as to put upon a man of ordinary intelligence the duty of inquiry.
It is important to remember that even if your business’ advertising claims are later found to be false or misleading, if your competitor had actual and constructive of knowledge of the alleged false or misleading nature of your business’ advertisements, your competitor’s claims may be barred by the doctrine of laches.