Lanham Act Liability for Native Advertising
Casper Sleep, Inc. v. Mitcham, No. 16 Civ. 3224 (JSR), 2016 WL 4574388 (S.D.N.Y. Sept. 1, 2016); and Vitamins Online, Inc. v. HeartWise, Inc., d/b/a NatureWise, No. 2:13-CV-982-DAK, 2016 WL 5106990 (D. Utah Sept. 19, 2016)
A pair of recent 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 such liability may not be coextensive with liability for violations of the FTC Act, as interpreted in FTC’s enforcement guidelines concerning native advertising.
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” (emphasis added). 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.
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 with 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.
Court Dismisses Lanham Act Challenge to “Safety” Claim as Puffery
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) includes a disclaimer (“[t]he specifics vary depending on what local governments allow”). View the decision.
Failure to Keep Advertising Claims Current Creates Literal Falsity
SharkNinja Operating LLC v. Dyson Inc., --- F. Supp. 3d ---, No. 14-cv-13720-ADB, 2016 WL 4148199 (D. Mass. Aug. 3, 2016)
In this Lanham Act case between rival vacuum cleaner manufacturers asserting false advertising claims in connection with each other’s comparative advertising, SharkNinja challenged an advertising campaign in which Dyson claimed that certain of its vacuums had “twice the suction of any other vacuum on the market,” alleging the claim became literally false “no later than July 2014, when the Shark Lift-Away was introduced, because Dyson vacuums did not, in fact, have ‘twice the suction’ of the Shark Lift-Away.” Prior to the launch of the Shark Lift-Away, SharkNinja’s counsel sent Dyson a series of letters, alerting Dyson that SharkNinja “intended to launch a new vacuum” with “performance capabilities” that would render the “twice the suction” claim literally false. After the launch, Dyson purchased a number of Shark Lift-Away units, testing some internally and sending others to third-party facilities for testing. Test results confirmed that the “Shark Lift-Away had more than half the suction” of the Dyson vacuums about which the claim was made. Dyson conceded that the Shark Lift-Away rendered the “twice the suction” claim literally false upon the release of the Shark Lift-Away but argued that “courts routinely take a ‘reasonableness approach’ that allows” offending advertisers a “reasonable period of time to remove false claims from the market.” The court disagreed, denying summary judgment and holding that both the case law and the plain text of the Lanham Act demonstrate that “an advertiser that puts a claim into the marketplace bears all of the risk of the claim being false or becoming stale.” For its part, Dyson challenged the claim made on the packaging of SharkNinja’s Shark Rocket upright vacuum that it “deep cleans carpets better vs. a Full Size Dyson.” The court denied summary judgment for both parties on this claim, finding a “threshold factual dispute about what message was actually communicated,” and finding that Dyson’s consumer-survey evidence of deception was sufficiently reliable for use at trial. View the decision.
Ninth Circuit: Extraterritorial Application of the Lanham Act Is Merits Question, Does Not Implicate Subject Matter Jurisdiction of Federal Courts
Trader Joe’s Co. v. Hallatt, --- F.3d ---, No. 14-35035, 2016 WL 4488009 (9th Cir. Aug. 26, 2016)
Trader Joe’s sued Michael Hallatt, a Canadian native and U.S. legal permanent resident who purchased Trader Joe’s-branded goods in Washington state, transported them to Canada and resold them in “Pirate Joe’s,” a store that Hallatt designed to mimic a Trader Joe’s store. The Ninth Circuit reversed the district court’s grant of Hallatt’s motion to dismiss for lack of subject matter jurisdiction based on his argument that the Lanham Act did not apply to his conduct in Canada. To determine whether the Lanham Act reaches foreign conduct, the court applied the two-step framework outlined by the Supreme Court in its 2016 decision in RJR Nabisco, Inc. v. European Cmty., 136 S. Ct. 2090, 2101 (2016). In the first step, the court found that Congress had signaled a “clear, affirmative indication” that the statute applies extraterritorially. In the second step, the court considered “the limits Congress has (or has not) imposed on the statute’s foreign application.” Noting that the Lanham Act’s “use in commerce” element – “the element that gives the Act extraterritorial reach” – is not jurisdictional, the Ninth Circuit held that “the extraterritorial reach of the Lanham Act is a merits question that does not implicate federal courts’ subject-matter jurisdiction” and that Trader Joe’s had plausibly alleged that “Hallatt’s conduct impacted American commerce in a manner sufficient to invoke the Lanham Act’s protections.” Pirate Joe’s allegedly charges “inflated prices” and has “inferior customer service,” which Trader Joe’s claimed could cause it to lose the business of Canadian shoppers who visit its northern Washington stores. Hallatt’s “poor quality control practices” could also impact American commerce, the court held, “if consumers who purchase Trader Joe’s-brand products that have been transported to Canada become ill, and news of such illness travels across the border,” as had already happened on at least one occasion. View the decision.