If a business advertises that your business is a satisfied customer of theirs, and it isn’t, you can sue for violation of the Lanham Act. In broad strokes, that is the Second Circuit’s recent holding in Famous Horse v. 5th Avenue Photo.
The salient facts as alleged by Famous Horse were as follows. Famous Horse operates the V.I.M. stores in New York City, retailers of discount jeans and sneakers. Famous Horse alleged that it ordered a quantity of Rocawear jeans from 5th Avenue, a wholesaler, but the jeans turned out to be counterfeit. V.I.M. stopped selling the counterfeit jeans and stopped doing business with 5th Avenue. 5th Avenue, nevertheless, told other retailers that V.I.M. was a satisfied customer. Famous Horse brought claims for violations of Lanham Act Sections 32(a) (registered trademark infringement) and 43 (a) (false endorsement).
The Court ruled that Famous Horse sufficiently stated a false endorsement claim, and that such claims can constitute violations of section 43(a). The court rejected arguments that the Lanham Act only addresses confusion concerning the source of the goods themselves. Although 5th Avenue never affixed the V.I.M. trademark to any goods, the court held that by advertising V.I.M. as a satisfied customer, 5th Avenue wrongfully used the V.I.M. mark in connection with advertising for 5th Avenue’s services.
Famous Horse als asserted an unfair compettion claim under Section 43(a). With respect to that claim, the court ruled that, although Famous Horse is not the owner of the Rocawear trademark, and the parties are not direct competitors because one is a wholesaler and one a retailer, Famous Horse had standing to sue for 5th Avenue’s alleged counterfeiting of the Rocawear mark. The court reasoned that the counterfeit jeans sold for lower prices than even discounted Rocawear jeans. Therefore, the court reasoned, V.I.M. could be injured by the counterfeiting both because it might lose sales and because consumers might think that V.I.M. did not offers Rocawear jeans at significantly discounted prices. Although the court recognized that damages for such injury might be difficult to prove, the court declined to limit standing for such claims to direct competitors, rejecting the rule it discerned in the 7th, 9th and 10th circuits that only direct competitors have standing, and lining up with the more flexible approach it discerned in the 3rd , 5th and 11th Circuits. The Second Circuit referred to its standing test as the “reasonable interest” test, requiring (1) a reasonable interest to be protected against false advertising and (2) a reasonable basis for believing that the reasonable interest will be damaged.