False Advertising, Section 75-1.1, and A Seven-Figure Verdict

by Ellis & Winters LLP

[co-author: Lauren Travers]

In a recent federal case, section 75-1.1 made the difference between the plaintiff recovering nothing and recovering almost two million dollars. This outcome underscores two key features of section 75-1.1:

First, the statute allows businesses, as well as consumers, to sue.

Second, parties can win under section 75-1.1 even when they cannot win on any other claim.

Here’s the jury verdict in SMD Software, Inc. v. EMove, Inc., a case in the U.S. District Court for the Eastern District of North Carolina. SMD Software claimed that a competing software company engaged in false comparative advertising. SMD’s federal claim for false advertising under section 43(a) of the Lanham Act failed. Its parallel claim under section 75-1.1, however, yielded a verdict of 1.7 million dollars.

The SMD case offers several lessons:

  • Section 75-1.1 can create liability for false or misleading advertisements even when the Lanham Act would not. Thus, in any false-advertising case with a foothold in North Carolina, the plaintiff should consider a 75-1.1 claim.
  • Defendants in a case like SMD should try to import the elements of a false-advertising claim under the Lanham Act into the analysis of section 75-1.1.
  • To maximize their chance of recovering treble damages, false-advertising plaintiffs should distinguish harm caused by North-Carolina-based conduct from harm caused by out-of-state conduct.


The SMD case involved competing makers of software for moving and storage facilities.  At trade shows, the defendants handed out brochures with allegedly false comparisons between the competing software programs.

SMD sued, alleging false advertising under section 43(a) of the Lanham Act, tortious product disparagement and defamation, and claims under section 75-1.1. The 75-1.1 claims had both a deception flavor and an “unfair methods of competition” flavor.

The Verdict

Three claims—section 43(a) of the Lanham Act, tortious disparagement, and section 75-1.1—went to the jury. SMD lost on both the Lanham Act claim and the disparagement claim.

On the Lanham Act claim, SMD could have won on either of two paths. First, it could have shown that the defendants’ statements were literally false or made with an intent to deceive consumers. Second, SMD could have shown that the defendants’ statements were merely misleading. For misleading statements, though, SMD would have to go on to show that the misleading statements actually deceived a substantial segment of consumers.

The jury rejected the Lanham Act claim on both of these paths. On the first path, the jury did not find that the defendants’ statements were literally false or made with an intent to deceive.  On the second path, the jury did find that the statements were misleading, but it did not find that a substantial segment of consumers were actually deceived. Thus, SMD’s Lanham Act claim failed.

On the tortious-disparagement claim, the jury found that the defendants had not made the advertising statements with malice, as this theory requires.

SMD, however, had one more weapon in its arsenal: the 75-1.1 claim. Although this claim involved the same conduct that the Lanham Act claim involved, SMD appeared to pursue the 75-1.1 claim as a freestanding claim. None of the publicly available papers suggests that SMD was pursuing a per se theory—that is, a theory that would make the outcome of the section 75-1.1 claim dependent on the outcome of the Lanham Act claim.

SMD benefited considerably from pursuing a freestanding section 75-1.1 claim, as opposed to a per se claim. On the 75-1.1 claim, the district court required SMD to prove far less than it was required to prove in connection with its Lanham Act claim. The section of the verdict form for the 75-1.1 claim asked the jury only (1) whether the defendants made false or misleading representations of fact, and (2) whether SMD “suffered injury as a result of” any false or misleading statements. The jury answered yes to both questions. It went on to value SMD’s injury from the false or misleading statements at 1.7 million dollars.

This verdict—and the underlying jury instructions—are silent on a key issue:  In a non-per-se section 75-1.1 claim that is based on false advertising, what level of consumer response to the advertising does the plaintiff need to show? As noted above, when a plaintiff pursues a Lanham Act claim based on misleading (as opposed to literally false) advertising, it needs to show that the advertising actually deceived a substantial segment of consumers. In addition, after the U.S. Supreme Court’s recent Lexmark decision, a false-advertising plaintiff “ordinarily must show economic or reputational injury flowing directly from the deception wrought by the defendant’s advertising.” Lexmark Int’l, Inc. v. Static Control Components, Inc., 134 S. Ct. 1377, 1391 (2014).

On the 75-1.1 claim in SMD, however, the court did not appear to impose any requirements that resembled actual consumer deception or direct injury. Indeed, the jury instructions on the 75-1.1 claim do not discuss what mechanism of injury—what type of connection between the brochures and SMD’s alleged losses—would be necessary or sufficient.

Reasonable lawyers can debate whether the “consumer results” requirements on a 75-1.1 claim ought to be as demanding as they are on a Lanham Act claim. But it seems likely that when courts decide future false-advertising cases under section 75-1.1, some “consumer results” requirements will emerge.

Treble Damages

The case law under section 75-16 says that courts must automatically treble the damages assessed for a 75-1.1 violation. In SMD, though, the court did not treble the jury’s 1.7-million-dollar award. What happened?

An extraterritoriality problem happened. In American Rockwool, Inc. v. Owens-Corning Fiberglas Corp., the Eastern District had held that applying North Carolina’s treble-damages remedy to a multistate advertising campaign would violate due process and would unduly burden interstate commerce. SMD, too, involved a multistate advertising campaign.  Thus, the court applied American Rockwool and held that SMD could recover only single damages—even on its 75-1.1 claim.

In American Rockwool, the court had left an opening for treble damages—that is, treble damages tailored to the North Carolina conduct that occurs as part of a multistate campaign. In SMD, though, the court held that SMD had not particularized how much of the defendants’ conduct happened in North Carolina. Thus, the court disallowed treble damages entirely. To avoid this result, future false-advertising plaintiffs should separate out the effects of defendants’ North Carolina conduct if they can.

Where Things Stand Now

Earlier this month, the parties in SMD notified the court that they had settled the case in principle. Thus, we’re not likely to see any further substantive rulings in this case.

Even the unfinished symphony that is SMD, however, offers a number of lessons for lawyers in similar cases.

Law student Lauren Travers contributed to this post.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Ellis & Winters LLP | Attorney Advertising

Written by:

Ellis & Winters LLP

Ellis & Winters LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.