Your Trademark Could Be A False Advertisement
June 02, 2015
Proper trademark clearance searches prevent headaches. Many brand owners use trademark counsel to clear new marks with respect to traditional trademark concerns like inherent distinctiveness and likelihood of confusion with prior marks. But some clearance opinions ignore trademark law's unassuming neighbor in the Lanham Act: false advertising.
Trademarks (e.g., brand names, product names, slogans) and trade names must abide by the same general laws against false and misleading advertising as traditional "advertisements" like television commercials and magazine ads. In fact, false advertising disputes target trademarks and trade names more often than some realize.
Trademarks and trade names may be challenged as false or misleading in any of the following scenarios, among others:
1. Competitor challenges in federal court under Section 43(a) of the Lanham Act;
2. Consumer class actions under state deceptive trade practice and unfair competition laws;
3. Competitor challenges before the National Advertising Division of the Council of Better Business Bureaus;
4. "Monitoring" actions initiated by NAD on its own against advertisers; and
5. Regulatory challenges brought by the Federal Trade Commission under Section 5 of the FTC Act.
Under the Lanham Act, the plaintiff must prove, among other things, that the challenged trademark or trade name deceives or has a tendency to deceive a substantial portion of the relevant consumers. In many cases, plaintiffs must submit consumer survey evidence to show consumer deception. Remedies in Lanham Act cases may include temporary and permanent injunctions, damages, profits, corrective advertising, and attorneys' fees and costs. Below are some examples of cases addressing whether marks are false or misleading under the Lanham Act:
Ace Con Blanqueador ("Ace with Whitener") - The First Circuit held that, at the pleading stage, plaintiff stated a claim that the product name "Ace con Blanqueador" ("Ace with Whitener") was literally false for liquid detergent that may have included a "color enhancer" rather than a "whitening agent."
America's Favorite Pasta - The Eighth Circuit held that the slogan "America's Favorite Pasta" was nonactionable puffery.
Barbecue Beans - The Seventh Circuit held that the product name "Barbecue Beans" was not deceptive for a product containing three types of beans but no meat.
Similar standards control under many analogous state deceptive trade practices and unfair competition statutes. Below is an example of a recent class action targeting a trademark under such state laws
Tito's Handmade Vodka - A pending consumer class action alleges that the "Tito's Handmade Vodka" mark is deceptive because the vodka is not made by hand but rather through a mechanized process.
For challenges before NAD, an advertiser is responsible for all reasonable interpretations of its claims, even if a deceptive interpretation was not intended by the advertiser. Unlike in Lanham Act cases, advertisers (defendants) at NAD bear the initial burden to prove that they have a reasonable basis for their advertising claims, i.e., that the claims are truthful, nonmisleading and substantiated. When it comes to trademarks or trade names, however, NAD typically requires the challenger to provide extrinsic evidence (e.g., consumer surveys) showing that consumers are deceived. NAD has also stated that reasonable consumers understand the hyperbolic nature of many trademarks and trade names. If a mark is ultimately found deceptive, remedies at NAD are limited to a "recommendation" that the advertiser modify or discontinue its deceptive claim. The following are examples of NAD decisions addressing trademarks or trade names:
America's Newest Network - NAD recommended that Sprint discontinue use of the slogan/theme "America's Newest Network," holding that it could mislead reasonable consumers into believing that Sprint's network is superior to, or more technologically advanced than, competitors' networks.
Costco Wholesale - NAD declined to recommend discontinuation or modification of the trade name "Costco Wholesale," on the basis that Costco was not a wholesaler and its prices were not wholesale prices, where the challenger did not submit extrinsic evidence showing that consumers were misled by the name and the advertiser submitted evidence that its prices were similar to or lower than wholesale prices in many instances.
Never Snore - NAD declined to recommend discontinuation or modification of the product name "Never Snore," on the basis that the name deceptively promised a cure for snoring, where the challenger did not submit extrinsic evidence showing that consumers were misled by the name.
The federal government also polices deceptive trademarks and trade names. Specifically, FTC may exercise its broad authority under Section 5 of the FTC Act to challenge any "unfair and deceptive acts and practices," including deceptive marks. Remedies under the FTC Act include legally binding cease-and-desist orders, civil monetary penalties, consumer refunds, corrective advertising and modification of future advertising. Some examples of enforcement actions against marks and trade names are as follows:
Stabilizer - FTC ordered that the seller of an automobile shock absorber cease use of "Stabilizer" in its trade name and product name because it deceived consumers into believing that the shock absorber was an effective safety device and/or gave drivers more control over their cars.
Continental Six Month Floor Wax - The Second Circuit upheld FTC's order requiring a seller of floor wax to delete the wording "Six Month" from its "Continental Six Month Floor Wax" product name because consumers were likely to mistakenly believe based on the name that the product would last for six months, and the product was incapable of doing so.
Gold Tone Studios - The Second Circuit upheld FTC's order requiring a photographic business to cease use of the wording "Gold Tone" in its "Gold Tone Studios" trade name because it was not "substantially engaged in" finishing photographs using the gold tone finishing process.
Not all potentially false or misleading trademarks, of course, will be challenged by competitors, consumers, or regulators. But even if use of a potentially false or misleading mark goes unchallenged, the brand owner may still find itself unable to register the mark with the U.S. Patent and Trademark Office.