The U.S. Green Building Council (“USGBC”) and its Leadership in Energy and Environmental Design (“LEED”) program recently scored a victory in the case of Gifford et al. v. U.S. Green Building Council et al.  On August 15, 2011, Judge Leonard Sand of the U.S. District Court for New York’s Southern District granted the USGBC’s motion to dismiss the plaintiffs’ amended complaint, which alleged violations of the Lanham Act and New York law.  A copy of the Memorandum & Order issued by Judge Sand can be found here.

The amended complaint was premised on the USGBC’s advertising and promotion of the LEED certification systems, which have been previously detailed on GreenEsq.  The plaintiffs, who were professionals in the environmental engineering and design industry, alleged that the USGBC had made “false statements regarding the energy and money-saving aspects of LEED certification.”  One allegedly false statement was contained in a press release stating that the results of a 2008 study “indicate that new buildings certified under the [USGBC’s] LEED certification system are, on average, performing 25–30% better than non-LEED certified buildings in terms of energy use.”  The plaintiffs alleged that this statement “harms consumers who may spend significant amounts of money on LEED certification but will not experience energy savings” and that such statement will “divert customers from plaintiffs’ businesses to LEED accredited professionals” leading to lost sales, profits and good will for the plaintiffs.

The plaintiffs’ federal claim was raised under Section 43(a) of the Lanham Act, which creates a statutory tort of false representation of goods or services in commerce.  The Second Circuit applies two tests to assess whether a plaintiff has standing under the Lanham Act: the strong categorical test provides that “the plaintiff must be a competitor of the defendant and allege a competitive injury” in order to establish standing; and the reasonable commercial interest approach requires that a plaintiff seeking to establish standing “must demonstrate (1) a reasonable interest to be protected against the alleged false advertising and (2) a reasonable basis for believing that the interest is likely to be damaged by the alleged false advertising.”  The court ruled that plaintiffs could not establish standing under either test. 

Regarding the first test, the court held that plaintiffs were not competitors of USGBC:

Plaintiffs plainly do not compete with USGBC in the certification of “green” buildings or the accreditation of professionals.  Rather, they purport to compete with USGBC in what they call the “market for energy efficient building expertise.”  This broad label does little to obviate the clear differences between the two “products.”  Plaintiffs are alleged to provide “real estate developers and other clients advice about how to design and construct energy efficient buildings.”  USGBC does not provide clients with advice about energy-efficient design; nor does it provide design services relating to any of the fields in which Plaintiffs specialize.  Rather, it is a not-for profit organization that reviews and rates designs created by others.

The second test also was not met, as the court held that plaintiffs did not demonstrate a reasonable basis for believing that their interests were likely to be damaged by the alleged false advertising:

The “reasonable basis” prong requires the plaintiff to show “both likely injury and a causal nexus to the false advertising.”  As to likely injury, Plaintiffs’ allegation that “LEED has begun to subsume the Plaintiffs’ roles” is entirely speculative.  Plaintiffs do not allege that LEED certified buildings do not require [their] services or that those services must be provided by a LEED-accredited professional in order to attain certification.  Because there is no requirement that a builder hire LEED-accredited professionals at any level, let alone every level, to attain LEED certification, it is not plausible that each customer who opts for LEED certification is a customer lost to Plaintiffs.

Judge Sand dismissed the Lanham Act claims with prejudice, and as a result they cannot be raised again.  The plaintiffs also brought false advertising and deceptive trade practices claims under New York’s General Business Law §§ 349, 350.  However, because the federal claims upon which jurisdiction was predicated were dismissed, plaintiffs’ state law claims were dismissed as well.

Thus, the court did not address the merits of whether LEED certification in fact results in more energy savings for a building.  The District Court’s decision suggests that a plaintiff could establish standing to sustain a Lanham Act claim if it was an organization that reviews and rates energy efficiency and/or sustainable building designs created by others.  There are several competitors to LEED that conceivably could qualify under the court’s analysis.  The decision appears to preclude standing for a professional building contractor, engineer or similar service provider.

To read the USGBC’s press release issued in response to the court’s favorable decision, click here