Antitrust Law Daily Wrap Up, ADVERTISING—SDCal: Senior Fitness Facility States False Advertising Counterclaims, (Oct 16, 2012)

By Jody Coultas, J.D.

A company that provides senior fitness benefits stated Lanham Act false advertising counterclaims against a competitor that had originally filed a complaint against the company for intentional/tortious interference with contract/contractual relations and business relations, and for violations of the California Unfair Competition Law, the federal district court in San Diego has held (American Specialty Health Group, Inc. v. Healthways, Inc., October 12, 2012, Benitez, R.).

The companies offer their fitness program to health plans that then provide it to their senior members. The fitness company contacted over 300 of the fitness facilities listed on the competitor’s online directory as facilities that offered the competitor’s services. However, many of the facilities reported that they were not familiar with the competitor and were not in its network. The company filed counterclaims for false advertising.

Standing

To establish standing to assert a Lanham Act false advertising claim, a party must show a commercial injury based on a misrepresentation about a product and that the injury was competitive, or harmful to the party’s ability to compete. A competitive injury is generally presumed where the parties are direct competitors.

The company alleged a plausible discernibly competitive injury and thus had standing, according to the court. Although conclusory allegations are insufficient to assert an injury in most cases, the matter at hand was different because it involved direct competitors. The parties were direct competitors and the false statements at issue allowed the competitor to misrepresent its network.

Materiality

In order to state a Lanham Act false advertising claim, a party must show an advertisement contained a materially false statement, the statement actually deceived or had the tendency to deceive a substantial segment of the audience, the advertiser caused the goods to enter interstate commerce, and an injury stemming from the advertisements.

The company stated a Lanham Act false advertising claim, according to the court. A statement is material if it is likely to influence the purchasing decision of consumers. The statements at issue were material because they concerned the nature of the product. It was unnecessary to show that consumers actually saw the online directory, as the list was available to and designed for customers to view for marketing purposes. The promotional character of the directory made it a commercial advertisement. Disclaimers on the website were insufficient to shield the competitor from liability. Finally, the company’s alleged injury from the competitor’s misleading statements concerning the size of its network was plausible. A consumer may infer the competitor’s network and product superior because of the size of the list of facilities.

Although it is unsettled whether the heightened pleading standard of Federal Rule of Civil Procedure 9(b) applies to Lanham Act false advertising claims, the court found that the company pled enough facts to state a claim. It was unnecessary for the company to identify every improperly listed facility, or name every individual that saw or was misled by the directory.

The case is No. 11-CV-02819 BEN (KSC).

Adam L. Hudes (Mayer Brown LLP) for American Specialty Health Group, Inc. Cindy Zone Reichline (Jones Day) for Healthways, Inc.

Cases: Advertising CaliforniaNews