Companies can sue for false advertising in various circumstances. If your company is facing revenue losses due to a competitor’s false or misleading statements or omissions in its advertisements, it will be worth ensuring that you are making informed decisions about your company’s next steps. Injunctive relief and monetary damages are both available in appropriate cases, and companies can pursue false or misleading advertising claims under both state and federal law.
Several types of deception in commercial advertising are prohibited. If a company’s misrepresentations—whether by affirmative fraud or omission—confuse or mislead consumers (or have the potential to confuse or mislead consumers), this will justify a claim for false marketing in most cases. While the Federal Trade Commission (FTC) and state attorneys general will pursue enforcement actions against companies that attempt to deceive consumers in some cases, generally speaking, it is up to companies to take legal action and protect their competitive interests when necessary.
“False advertising and other similar types of fraudulent business practices can leave competitors facing significant revenue losses and loss of goodwill. While cease-and-desist demands will be enough in some cases, filing a false advertising lawsuit will often be necessary.” – Dr. Nick Oberheiden, Founding Attorney of Oberheiden P.C.
This article provides a general overview of what business owners and executives need to know about suing for false advertising. If your company is facing competitive or reputational harm due to a competitor’s misrepresentations or omissions, you should consult with your company’s litigation counsel about seeking appropriate remedies in court.
False Advertising Laws with a Private Right of Action
While the FTC has the ability to pursue enforcement actions under the Federal Trade Commission Act (FTC Act), the FTC Act does not provide companies or individuals with a private right of action. However, companies and individuals can rely on other laws to take legal action when warranted. These laws include:
Lanham Act
The Lanham Act establishes a private right of action for false advertising under federal law. It is also the source of trademark protection and enforcement rights at the federal level. For many companies, putting a stop to false advertising and holding competitors accountable for engaging in fraudulent business practices will involve pursuing litigation under the Lanham Act.
State “Little FTC Acts” and UDAP Laws
States from New York to California have adopted “little FTC Acts” that mirror the federal FTC Act’s prohibitions and provide a private right of action for companies to pursue false advertising claims when necessary. State unfair, deceptive, and abusive practices (UDAP) laws provide similar legal options in many cases as well.
State Consumer Protection Laws
State consumer protection laws also provide a private right of action—though businesses will often need to pursue false advertising claims under state “little FTC Act” or UDAP laws instead. State consumer protection laws are more commonly used to pursue class action lawsuits when companies rely on false and misleading claims to sell dangerous, defective, or ineffective products to unsuspecting purchasers.
Common Grounds for False and Misleading Advertising Claims
The Lanham Act, “little FTC Acts,” and UDAP laws establish several potential grounds for companies to pursue false advertising litigation against their competitors. When competitors publish false and misleading claims, omit material information from their advertisements, or misuse trademarks in a way that causes confusion in the marketplace, these are all scenarios in which companies can sue to protect their competitive interests.
With this in mind, some examples of common grounds for companies to pursue false and misleading advertising claims include:
False Statements About a Company’s Product or Service
If a company makes false statements about its own products or services in order to mislead consumers, this can justify litigation from both competitors and consumers. This is easily among the most common forms of false advertising, and it includes everything from making false claims of safety and effectiveness to making false claims about geographic origin (i.e., false “Made in the U.S.A.” claims) and economic stewardship.
Deceptive Claims and Other Means of Deceptive Advertising
False advertising lawsuits can target deceptive claims (even if they are not strictly false) and other means of deceptive advertising as well. This includes practices such as failing to disclose hidden fees and offering warranties that the company has no intention of upholding.
Misleading Statements About Competitors
False statements about competitors can also provide clear grounds to pursue a false advertising lawsuit. If a competitor publishes false statements about your company on the internet or in any other media, this can pose significant commercial risks and require prompt legal action.
Misleading Comparisons of Companies, Products, or Services
While companies are generally permitted to make accurate comparisons in their advertising content, they are not permitted to make misleading comparisons to their competitors or their competitors’ products or services. Misleading comparisons can cause significant immediate and lasting commercial harm as well; and, here too, prompt legal action will often be necessary.
Trademark Misuse and Other Unlawful and Unfair Practices
Trademark infringement, dilution, and counterfeiting are all prohibited under the Lanham Act. When companies use other companies’ trademarks—or when they use trademarks that are confusingly similar to those used by their competitors—this can provide grounds to pursue false advertising-related claims as well. This is true for both registered and unregistered trademarks.
Assessing the Viability of a False Advertising Claim
When deciding whether to pursue false or misleading advertising litigation, there are several important factors to consider. Here are five key questions for assessing the viability of a false advertising claim:
1. Does the False or Misleading Claim Meet the Definition of “False Advertising”?
Not all false and misleading statements amount to “false advertising” under the law. For example, to constitute false advertising under the Lanham Act, an advertiser’s claim must generally satisfy the following three elements:
- The claim contains or constitutes a false or misleading statement;
- The claim had the tendency to deceive (or caused actual deception); and,
- The potential or actual deception is material to customers’ buying decisions.
If a plaintiff can establish these three elements in a false advertising case, then the plaintiff is minimally entitled to injunctive relief. If a plaintiff can establish actual financial losses, then a claim for monetary damages may also be warranted.
2. Does Your Company Have a Claim for Trademark Infringement, Dilution, or Counterfeiting?
Trademark infringement, dilution, and counterfeiting all have different elements under the Lanham Act. Infringement claims are the most common, and they involve proving that a competitor is using a trademark that is either identical or confusingly similar to the plaintiff’s trademark and that is likely to cause confusion (or has caused actual confusion) in the marketplace.
3. Is Your Company Facing Significant Actual or Potential Losses?
Assessing the viability of a false advertising claim involves assessing the value of the available remedies as well. If your company is facing significant actual or potential losses, then pursuing false advertising litigation could be critical for protecting your company’s financial interests in the long-term. If your company’s trademark rights are at risk, pursuing legal action promptly could be critical for protecting your company’s brand value and exclusivity as well.
4. Do You Have Documentation of (or is It Possible to Document) the Grounds for a False Advertising Claim?
As with any type of lawsuit, filing a false advertising lawsuit requires evidence of the grounds for liability. Screenshots, photos or videos, product packaging, and consumer complaints are all examples of types of evidence (among many others) that can be used to prove a company’s deceptive trade practices. When considering a false advertising claim, it is important to consider what documentation may be available.
5. Are You Prepared to Pursue Enforcement To the Extent Necessary?
As mentioned above, in some cases, sending a cease-and-desist letter will be enough to convince competitors to comply with the law. But, if sending a letter is not enough, it is important to be prepared to pursue enforcement to the extent necessary. Experienced litigation counsel will be able to assist with assessing the likelihood of success on the merits in court; but, there are no guarantees, and business owners and executives must be prepared to make strategic decisions based on the information that is available.
Steps to Take if You Think Your Company May Have Grounds to Sue for False Advertising
Given everything we’ve covered above, what should you do if you think your company may have grounds to file a lawsuit for false advertising against a competitor? In this scenario, some key next steps include:
- Document the false advertising or deceptive trade practices to the extent possible;
- Keep any documentation of consumer confusion or complaints;
- Keep any documentation of actual financial losses;
- Talk to a lawyer about filing a false advertising lawsuit; and,
- Make informed decisions about your company’s next steps.
In false advertising cases, time is often of the essence. The longer a company waits to take action, the greater its losses—and risk of future losses—can become. With this in mind, if you need to know more about asserting your company’s legal rights, we strongly recommend consulting with experienced legal counsel promptly.
