Antitrust Law Daily Wrap Up, ADVERTISING—D.N.J.: “Hoodwinked” purchaser fails to state Lanham Act claim over defective PINs, (Sep 4, 2014)

By Greg Hammond, J.D.

Expansys, Inc.—a company that sells personal identification numbers (PINs) used to add minutes to prepaid cell phones—successfully dodged a Lanham Act claim for false advertising. In dismissing the claim, the federal district court in Newark determined that the injury suffered by the purchaser, who was “hoodwinked into purchasing a disappointing product,” was exactly the type of harm that falls outside the zone of interests of the Lanham Act (Locus Telecommunications, Inc. v. Talk Global, LLC, August 28, 2014, Chesler, S.).

Background. Locus Telecommunications, Inc. is in the business of re-selling prepaid cellphone PINs to distributors. The company alleges that Expansys operated a website called “Prepay Planet,” where consumers could redeem their PINs to refill prepaid plans with various wireless carriers. The website purportedly touted Expansys’ PINs as “The Easiest Way to Refill a USA PrePay Plan.” Locus asserted that this statement influenced the company to purchase Expansys PINs, but a malfunction in the Prepay Planet website prevented purchasers from being able to redeem the PINs. Consequently, Locus alleged that it suffered “injuries in the form of declining sales and loss of good will.” The company filed suit, asserting a false advertising claim under the Lanham Act, along with 15 other state law claims. Expansys moved to dismiss for failure to state a claim upon which relief could be granted.

Scope of Lanham Act. According to the court, the Lanham Act authorizes suit by “any person who believes that he or she is likely to be damaged” by a defendant’s false advertising. However, a plaintiff may only bring a Lanham Act Claim if its “interests fall within the zone of interests protected by the law invoked.” The court decided that, in this case, Locus’ injury was exactly the kind of harm that the Supreme Court in Lexmark Int’l, Inc. v. Static Control Components, Inc., 134 S. Ct. 1377 (2014-1 Trade Cases ¶78,716), distinguished as falling outside the Lanham Act’s purview.

Specifically, it determined that the Lanham Act required deception by Expansys that caused consumers to withhold trade from Locus, but that the injuries in this case arose from Locus’ purchase of the allegedly non-functioning PINs. Because the court found no prospect of amending the claim to plead facts that would state a cognizable false advertising claim under the Lanham Act, the claim was dismissed without leave to amend. The remaining 15 state law claims were also dismissed, as the court declined to exercise jurisdiction over “what is now a purely state law dispute.”

The case number is 14-1205 (SRC).

Attorneys: Ralph Delouis (Duane Morris LLP) for Locus Telecommunications, Inc. Marc D. Haefner (Connell Foley, LLP) for Expansys U.S.A.

Companies: Locus Telecommunications, Inc.; Expansys U.S.A.

Cases: Advertising NewJerseyNews