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Courts Define Who Can Sue Over False Advertising and What Counts as False Advertising

Monday, April 28th, 2014

Posted on April 24, 2014.

A couple of recent court decisions provided guidance on who can sue over false advertising and on whether rants on blogs or consumer review sites constitute false advertising.

False advertising is when one business hurts another’s business by making false statements, such as false claims about your own product or someone else’s, and false product comparisons. Mere puffery − “We’re the best!” − doesn’t qualify.

The big decision came from the U.S. Supreme Court. It is universally accepted that a business can sue if its competitor makes a false statement that injures the business. But what if the injured party isn’t a competitor?

In this case, the purportedly injured business made a computer chip that goes into replacement printer toner cartridges to enable those replacements to work with the printers of a certain manufacturer. That manufacturer didn’t like others competing with its own cartridge-replacement program, so it spread the word that using anyone else’s replacement cartridges – ones with the workaround chip – was in legal trouble.

The chip manufacturer sued the printer maker claiming false advertising – that the statements about the legality of using cartridges containing its chip were false and harmful. Could that chip manufacturer sue for false advertising when it isn’t a competitor of the printer company?

The Supreme Court held that the chip maker can sue. It held that, if someone falsely attacks a component in a competitor’s finished goods, the maker of that component can sue in addition to the maker of the competing finished goods.

Along the way, the court clarified who cannot sue for false advertising. An end-user purchaser can’t sue, regardless of whether that end-user is an individual consumer or a business.

Also, someone who suffers economically just because someone else’s business is hurt by false advertising can’t sue. For example, if false advertising damages a business to the extent that the business can’t pay its rent, the landlord can’t sue for false advertising.

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A subsequent federal trial court case in North Carolina added clarity as to what qualifies as false advertising. In that case, someone dissatisfied with the services of a transmission repair shop started a blog to make various accusations about the repair shop, such as bad work and defrauding customers. That blog allowed others to post anonymous comments with more invective.

The transmission shop sued the blogger and the unidentified blog commenters claiming both false advertising and defamation. The court allowed the defamation claim to continue in litigation, but it dismissed the false advertising claim.

It held that a false advertising claim can attack only commercial speech – speech intended to promote the sale of specific products or services. You can’t use a false advertising claim to squelch criticism from disgruntled consumers or advocacy groups even if that criticism is false. It held that a rant blog doesn’t count as commercial speech provided it doesn’t promote a competing product. By implication, most postings on a consumer review site such as Yelp! would not qualify either.

The court noted it’s possible that false criticisms could be anonymously posted by competitors. Yet, it held, unless you can provide evidence at the time you file your suit that competitors are the ones making false criticisms, the court will not allow you to file a false-advertising suit and then use discovery to try to unmask those anonymous posters.

This does not mean consumers can get away with making false statements about a business’s products or services. It also doesn’t mean that a business can post anonymous comments online denigrating a competitor’s products or services. You might be able to attack those situations with a defamation claim, although that sort of claim presents hurdles too. I wrote a column on that issue about three months ago.

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For businesses, the upshot of all of this is that you might be able to make a false advertising claim against someone who denigrates your product or service even if that attacker is not a competitor of yours.

For consumers and other end-users of products and services, the upshot is that you probably can’t pursue a false advertising claim if you are unhappy with what you purchased. You will have to look for other legal remedies, such as a breach of warranty.

Written on April 24, 2014
by John B. Farmer
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