Companies Can Sue Their Competitors for False Advertising Under State and Federal Law

Convincing consumers to buy a small company’s products over that of a competitor is hard enough. This task only becomes more difficult when a competitor outright lies about the characteristics and benefits of its own products. What many businesses do not know is that they can sue competitors for such false advertisement.

That said, it is important to understand what types of claims are actionable and which are not. No matter the legal theory or statute, “puffery” is never actionable. Puffery has been defined by courts as: exaggerated blustering and boasting upon which no reasonable buyer would rely or a general claim of superiority over comparable goods that is so vague as to be understood as an expression of the seller’s opinion. An example would be labeling a product as “The World’s Best.” Such a statement is simply not capable of being objectively proven. In contrast, statements that a product is “99% effective” or will “leave teeth 4 shades whiter in only 3 days” are not puffery. These claims are specifically measurable and as such can be objectively proven or disproven.

Companies looking to bring false advertising claims against competitors have a few avenues for asserting their claims that they suffered injury, such as lost sales or reputational damage, as a result of the a competitor’s false statements. The first is under state statutes such as the Illinois Uniform Deceptive Trade Practices Act. Some states also have common law claims for unfair competition. The final avenue is under federal law, namely the Lanham Act, 15 U.S.C. § 1125(a).

In a landmark case, the United States Supreme Court clarified in Lexmark Intl., Inc. v. Static Control Components Inc., 572 U.S. 118 (2014), that companies had the right to sue competitors for the competitor’s false claims. Before Lexmark, the circuits were split regarding who exactly had standing to sue under the Lanham Act for false advertising. The Second and Sixth Circuits applied a “reasonable interest” test for standing while the Seventh, Ninth and Tenth Circuits applied a categorical test. The Third, Fifth, Eighth, and Eleventh Circuits used a third “AGC” test derived from an earlier Supreme Court case. The Supreme Court ultimately rejected all three tests followed by the various circuits and created instead a two-prong test for standing under Lanham Act claims, requiring that (1) plaintiff’s interest fall within the “zone of interests” protected by the law invoked; and (2) plaintiff’s “injuries are proximately caused by violations of the statute.” Today, it is generally accepted that a company that can meet both prongs of the Lexmark standing test can sue a competitor for false advertising, alleging damages under a variety of theories, including diminution in sales by the company as the damage caused by the competitor.

Some free market theorists propound that competitors are more efficient regulators than the government when it comes to claims of false advertising. The thought is that competitors have the expertise to identify misleading claims as they know their competition’s products better than almost anyone else. The government conversely may lack the necessary technical expertise and resources needed to identify and prosecute false advertising claims.

For instance, a company may suspect unscrupulous tactics when a competitor’s product is priced lower than its product. This indeed may be due to the competitor’s cutting corners in order to lower prices. By purchasing and testing the competitor’s product, the company may learn that the competitor is able to price its product lower by removing certain ingredients while still including such ingredients on its labeling.

Our Chicago business lawyers have more than thirty-five years of experience helping business clients on unraveling complex business fraud and breach of fiduciary duty cases. Our Chicago business, commercial, and class-action litigation lawyers represent individuals, family businesses and enterprises of all sizes in a variety of legal disputes, including disputes involving false and misleading advertising as well as lawsuits between businesses and consumer rights, auto fraud, and wage claim individual and class action cases. In every case, our goal is to resolve disputes as quickly and successfully as possible, helping business clients protect their investments and get back to business as usual. From offices in Elmhurst and Wilmette, near Waukegan, and Oak Brook, we serve clients throughout Illinois and the Midwest. To set up a consultation with one of our Naperville and Chicago business law attorneys and class action and consumer trial lawyers, please call us toll-free at 630-333-0333 or contact us online.