Eleventh Circuit accepts viability of contributory false advertising claims

Originally published by Katharyn Grant (US).

In an opinion concerning “a question of first impression,” the Eleventh Circuit has held that a plaintiff may bring a claim for contributory false advertising under § 43(a) of the Lanham Act. Duty Free Americas, Inc. v. The Estee Lauder Companies, Inc., Case No. 14-11853, slip op. at 49 (11th Cir. Aug. 7, 2015). However, under the facts presented by the case before it, the Eleventh Circuit concluded that plaintiff Duty Free Americas, Inc. (DFA) had failed to adequately allege that defendant Estée Lauder had induced or knowingly or intentionally participated in any allegedly false statements outlined in the complaint. Id. at 53.

The Lawsuit

DFA operates duty free stores in international airports nationwide. Estée Lauder is the largest manufacturer of beauty products sold in duty free stores in U.S. airports. Although DFA once carried Estée Lauder products in its stores, the two companies ended their business relationship in 2008. Although DFA hoped and sought to revive the relationship, Estée Lauder spurned DFA’s overtures.

DFA subsequently lost leasing opportunities at international airports in Newark, Boston, Orlando and Atlanta. In each instance, DFA’s inability to sell Estée Lauder products was mentioned as a reason for the airport’s rejection of DFA’s bid.

DFA subsequently brought suit against Estée Lauder, alleging violations of the Sherman Act, contributory false advertising in violation of the Lanham Act, and tortious interference with a prospective business relationship in violation of Florida Law. The district court dismissed the lawsuit in its entirety for failure to state a claim.

Contributory false advertising under the Lanham Act

In its complaint, DFA alleged that its competitors – other duty-free concessionaires – made statements to airport authorities that constituted false advertising under § 43(a) of the Lanham Act, and that Estée Lauder could be held liable for those third-party statements on a theory of contributory liability. Compl. (S.D. Fla. Apr. 26, 2012)

In considering the dismissal of those claims on appeal, the Eleventh Circuit noted that “whether § 43(a) of the Lanham Act includes within its ambit a claim for false advertising based on contributory liability is a question of first impression” that “neither the Supreme Court nor any Court of Appeals has explicitly considered and resolved.” Slip op. at 43. The Court then noted that in the “trademark infringement arena, the Supreme Court has long recognized that liability ‘can extend beyond those who actually mislabel goods.’” Id. at 55. Under that authority, “a manufacturer or distributor can be liable if it ‘intentionally induces another to infringe or trademark’ or ‘continues to supply its product to one whom it knows or has reason to know is engaging in trademark infringement.’” Id. at 55 (citing Inwood Labs, Inc. v. Ives Labs., Inc., 456 U.S. 844, 853 (1982)).

The Court went on to find that the rationale for allowing contributory trademark infringement actions also supports recognizing a similar theory of liability in the false advertising context, particularly because “the two causes of action are derived from the same principles and contained in the same statute,” and it “would be odd indeed” for the Court to narrow the class of defendants who might be subject to the statute’s false advertising provisions. Id. at 48-49.

Even while agreeing that contributory false advertising claims are cognizable, the Eleventh Circuit affirmed dismissal of DFA’s claim as inadequately pleaded. The Court noted that for a plaintiff to state a contributory false advertising claim, the plaintiff must plead that:

1. a third party directly engaged in false advertising that injured the plaintiff; and
2. the defendant actively and materially furthered that conduct either by knowingly inducing or causing the conduct, or by materially participating in it.

Id. at 49-51. The Court explained that a plaintiff could meet the second “participation” prong by alleging, e.g., that the defendant directly controlled or monitored the third party’s advertising, or provided “a necessary product or service without which the false advertising would not be possible.” Id. at 51.

In examining the pleadings before it, the Court noted that DFA identified four allegedly false statements by other duty free operators that it contended should be attributed to Estée Lauder. However, the Court found DFA failed to adequately allege facts that would allow the district court to infer that that Estée Lauder induced or knowingly or intentionally participated in any of these alleged false statements. Id. at 52-53. The Court explained that the “mere sale” of Estée Lauder products to other duty free operators was an inadequate basis for holding Estée Lauder liable for misrepresentations those operators might have made in separate business dealings. Id. at 54. The Court further noted the DFA had failed to allege that in selling its products to duty free operators, Estée Lauder had monitored, controlled or participated in any of the operators’ statements to airport authorities. Id.

Commentary

Many district courts have accepted the possibility that a defendant could be contributorily liable for a third party’s false advertising. See e.g., Merck Eprova AG v. Brookstone Pharm., LLC, 920 F. Supp. 2d 404, 425 (S.D.N.Y. 2013). However, the Eleventh Circuit’s pronouncement should solidify the viability of the theory. By setting forth the elements of contributory false advertising claims, the Eleventh Circuit has also provided useful guidance to plaintiffs looking to assert such claims.

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