Antitrust Law Daily Wrap Up, ADVERTISING—E.D. N.Y.: Failure to plead relevant market dooms false advertising claims, despite showing of literal and implied falsity, (Apr 28, 2014)

By Jody Coultas, J.D.

SPA World Corporation was granted dismissal of Lanham Act false advertising claims filed by Sussman-Automatic Corp., based on Sussman’s failure to properly plead a relevant market by the federal district court in New York City (Sussman-Automatic Corp. v. SPA World Corporation, April 25, 2014, Spatt, A.). However, Sussman was granted leave to amend the claim, as the court found that Sussman had presented sufficient evidence of literally and impliedly false advertising in commerce by SPA.

Sussman alleged a "bait-and-switch" scheme whereby SPA’s principals purported to sell Sussman’s "Mr. Steam" steam shower and spa products on their website and over the phone, but never actually stocked an inventory of those products. Rather, the principals told customers that ordered the "Mr. Steam" products that they were temporarily out of stock and offered to sell the customer SPA’s SteamSpa product. SPA also allegedly misrepresented material qualities of its products and by disparaged Sussman’s products.

Lanham Act. To state a false advertising claim under the Lanham Act, Sussman was required to show: (1) a false or misleading statement (2) in connection with commercial advertising or promotion that (3) was material, (4) was made in interstate commerce, and (5) damaged or will likely damage Sussman.

SPA failed to cite a single case in which the Circuit courts had applied the heightened pleadings standard of Federal Rule of Civil Procedure 9(b) to Lanham Act claims, and the court declined to impose such a standard.

Sussman alleged that SPA made false statements in its display of "Mr. Steam" products on its website, regarding the availability of "Mr. Steam" products, and about the qualities of both companies’ products. Displaying the "Mr. Steam" products on its website falsely implied that SPA carried that product in its inventory, when it did not. The assertion that the "Mr. Steam" was "temporarily" out of stock also falsely implied that SPA would have it back in stock at some point. SPA’s representations that its products were manufactured in the United States and were "UL" certified were literally false, and not mere puffery. SPA’s alleged representations of the Mr. Steam products were also sufficient basis for a Lanham Act claim. Evidence of phone calls and interactions between the SPA’s employees and prospective "Mr. Steam" consumers and the online display of the Mr. Steam products were sufficient to infer an "organized campaign" on the part of SPA to penetrate the relevant market. Therefore, Sussman had shown that the statements at issue were made in commercial advertisements.

However, the court granted SPA’s motion to dismiss the false advertising claims, as Sussman failed to define or allege a "relevant market." Sussman was granted leave to replead. Because the false advertising claim failed to state a "relevant market," the court declined to consider the remaining elements required to state such a claim.

The court dismissed Sussman’s unfair competition claim under the Lanham Act as duplicative of the trademark infringement and false advertising claims under that statute.

Common law claims. SPA’s motion to dismiss the common law unfair competition law claims was granted by the court. Common law unfair competition claims closely parallel the elements of unfair competition under the Lanham Act, except that a plaintiff must show "either actual confusion or a likelihood of confusion, and there must be ‘some showing of bad faith’ on the part of the defendants." However, the unfair competition claims under the Lanham Act were dismissed as duplicative.

State law claims. The court declined to exercise supplemental jurisdiction over the remaining New York State statutory claims, having dismissed the Lanham Act claims.

The case is No. 13-cv-7352 (ADS)(AKT).

Attorneys: Eleanor Martine Lackman (Cowan, DeBaets, Abrahams & Sheppard LLP) for Sussman-Automatic Corp. Joseph Zelmanovitz (Stahl & Zelmanovitz) for SPA World Corporation.

Companies: Sussman-Automatic Corp.; SPA World Corporation

Cases: Advertising NewYorkNews