Does Materiality Still Matter?

“Literally False”Advertising Underthe Lanham Act

by Eric H. Singer

Materiality is basic to the common law tort of deceit or fraud. A misrepre-sented “matter is material if a reasonable [person] would attach importanceto its existence or nonexistence in determining his choice of action in thetransaction in question…” Restatement (Second) of Torts §538. Section 43(a)of the Lanham Act, 15 U.S.C. §1125(a), in no way codified the common law ofdeceit or false advertising; rather, it “created a new statutory tort of false rep-resentation of goods in commerce.” See PPX Enterprises, Inc. v. Audiofidelity,Inc., 746 F.2d 120, 124 (2d Cir. 1984). However, materiality has long been a coreelement of a false advertising cause of action under Section 43(a). See, e.g.,Skil Corp. v. Rockwell International Corp., 375 F.Supp. 777, 783 (N.D.Ill. 1974).

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To sustain a false advertising cause of ac-tion, the plaintiff must prove—whether bydirect testimony, consumer survey data, ormore liberally by a showing that the falsityrelates to an “inherent quality or character-istic” of the good at issue—that the misrep-resentation likely influences the purchasingdecisions of a substantial portion of the tar-get audience. Id.; National Basketball Asso-ciation v. Motorola, Inc., 105 F.3d 841, 855(2d Cir. 1997).

The element of materiality appears tohave partially eroded, however, in the con-text of Lanham Act actions involving adver-tisements deemed “literally false,” and it hasdone so for no apparent reason.

Background Legal FrameworkSection 43(a) of the Lanham Act imposesliability on “any person who… uses incommerce any… false or misleading repre-sentation of fact, which… in commercialadvertising or promotion, misrepresents thenature, characteristics, qualities, or geographicorigin of his or her or another person’s goods,service, or commercial activities.” 15 U.S.C.§1125(a)(1)(B). Traditionally, to prevail ona claim for false advertising liability underthis section, a plaintiff must establish fiveelements:1) The defendant has made false or mis-

leading statements of fact concerning itsor another firm’s product;

2) The false or misleading statement actu-ally deceived or tended to deceive a sub-stantial portion of the intended audience;

3) The statement is material in that it will

likely influence the deceived customer’spurchasing decisions;

4) The challenged statements caused harmto the plaintiff; and

5) The advertisements were introduced intointerstate commerce.

See, e.g., American Council of Certified Podi-atric Physicians and Surgeons v. AmericanBoard of Podiatric Surgery, Inc., 185 F.3d606, 614 (6th Cir. 1999).

Within the first of the five elements listedabove, section 43(a)(1)(B) of the LanhamAct covers two types of statements or claims.The first includes statements that are faciallyor “literally false”—statements that have anunambiguous meaning in the context of theadvertisement and are shown to be false. Anadvertisement that states that certain coatscontain 50 percent cashmere, when they donot contain any cashmere, is literally false.See Camel Hair and Cashmere Institute ofAmerica v. Associated Dry Goods Corp., 799F.2d 6 (1st Cir. 1986). Where an over-the-counter heartburn medication calls itself“Night Time Strength” and yet no evidencesubstantiates that the product is speciallyformulated to prevent or relieve nighttimeheartburn, the claim is likely literally false.See Novartis Consumer Health, Inc. v. Johnson& Johnson-Merck Consumer PharmaceuticalsCo., 290 F.3d 578, 589-90 (3d Cir. 2002).

“Literally true but misleading” claims arethe other type of statements covered by sec-tion 43(a)(1)(B). Such claims may provemisleading because, in the overall context ofthe advertisement, they convey a false im-pression or they may fail to disclose impor-tant qualifying information. For example, acommercial touting Anacin’s superiority overTylenol in reducing inflammation faster mayprove misleading inasmuch as consumersare led to believe that Anacin is superior inreducing actual pain or providing pain re-lief faster than Tylenol. See American Home

Products Corp. v. Johnson & Johnson, 577F.2d 160, 162-67 (2d Cir. 1978).

Where a literally true but misleading ad-vertising claim is at issue, the plaintiff main-tains the heavy burden of producing evidenceshow to that, in fact, the challenged state-ment tends to deceive a substantial portionof the intended audience. Sometimes theevidence takes the form of direct testimonyof members of the purchasing public. Moreoften, it consists of consumer perceptionsurvey data that must reliably show that asignificant percentage of the respondents,usually 15 percent or above, was misled bythe challenged claim. See Novartis ConsumerHealth v. Johnson & Johnson, supra, 290 F.3dat 590-94.

That is not what happens with claimsthat are shown to be literally false. There, aplaintiff need not prove that the audience isactually deceived or would likely be deceivedby the literally false representation. The lawpresumes that a literally false advertisementdeceives the intended audience. See AvisRent-a-Car System, Inc. v. Hertz Corp., 782F.2d 381, 386 (2d Cir. 1986). Because of thispresumption, plaintiffs have a strong incen-tive to try to make a case, in the first in-stance, that a challenged statement is bothunambiguous in meaning or message andalso untrue, and hence literally false.

May a plaintiff who can show that a claimis literally false skirt not just the second ele-ment of a section 43(a)(1)(B) case—actualor likely deception—but also the third ele-ment—materiality? I.e., may he get aroundthe requirement that the falsity have a mea-surable impact on the purchasing decisionsof the presumably deceived audience?

The Traditional View:Materiality is RequiredIn confronting the question of whether aplaintiff must show that the false or mislead-ing statement has had a material impact, inthat it will likely influence the deceived cus-tomer’s purchasing decision, the majorityof courts have consistently answered “Yes.” Toestablish liability, a plaintiff must prove thatthe claim is material, notwithstanding that itis also literally false. In William H. Morris Co.v. Group W., Inc., 66 F.3d 255 (9th Cir. 1995),for example, the district court held that the

Eric H. Singer is an associate with Keller and Heckman LLP in Washington,D.C. His practice focuses on advertising and labeling counseling and litiga-tion. The views expressed here do not represent those of the law firm or itsclients. Mr. Singer’s article, “The Consumer Product Safety Act and Com-mon Law Product Liability,” appeared in the February 2001 issue of ForThe Defense.

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24 For The Defense

Regardless of the falsity

of the representation, no

claim lies if the plaintiff

does not show that the

representation affects the

audience’s decisions with

respect to the product.

one manufacturer’s notice to retailers that ithad filed three lawsuits charging unfair tradepractices against a rival that was selling analleged substitute product was literally false,because only two, not three, of the lawsuitsinvolved the product at issue; the court ruledthat the manufacturer violated section 43(a).The Ninth Circuit, however, reversed on thegrounds that the literal falsity had no mar-ginal impact on the retailer’s purchasingdecisions. Id. at 257.

In Cincinnati Sub-Zero Products, Inc. v.Augustine Medical, Inc., 800 F.Supp. 1549(S.D.Ohio 1992), the district court madesure to determine that both parties’ literallyfalse statements, at least some of which in-volved express comparisons to each other’smedical products, were likely to be materialto the hospitals buying the products. Id. at1558-59.

When Abbott Laboratories claimed thatOrtho Diagnostic Systems had secured acontract to supply blood screening tests tothe American Red Cross by falsely telling RedCross that it expected FDA approval for ablood screening test by a certain date, thecourt scrutinized whether such a literal falsityabout the dates of FDA approval was even afactor in the Red Cross’s decision to awardOrtho the contract. See Ortho DiagnosticSystems, Inc. v. Abbott Laboratories, Inc., 920F.Supp. 455, 475-76 (S.D.N.Y. 1996).

In Derby Industries, Inc. v. Chestnut RidgeFoam, 202 F.Supp.2d 818 (N.D.Ind. 2002), amattress producer alleged that a competitor’svideotape comparing the flammability testperformance of the two firms’ mattresseswas literally false. The court ruled that, evenassuming the videotape were literally false,the plaintiff had utterly failed to show thatthe videotape influenced any potential cus-tomer’s purchasing decisions. Id. at 826.

The traditional view embodied in DerbyIndustries and these other decisions seemssensible and shows a healthy respect for cau-sation. The decisions recognize, explicitly orimplicitly, that regardless of the falsity of therepresentation, no claim lies if the plaintiffdoes not show that the representation affectsthe audience’s decisions with respect to theproduct. Suppose Black and Decker’s com-petitor advertises that its mitre saw has amotor speed of 4,000 rpm, when in fact it

has a motor speed of 3,650 rpm, and sup-pose, therefore, that this advertisement isdeemed literally false. Under the traditionalview, Black & Decker cannot establish lia-bility for the false statement unless the 350rpm difference in motor speed actually in-fluences consumers’ purchasing behavior,just as Black & Decker cannot prove dam-ages absent a showing that its competitor’sincreased sales resulted from those false-hoods. See Black & Decker (U.S.) Inc. v. Pro-

Tech Power Inc., 26 F.Supp.2d 834, 863-64(E.D.Va. 1998). If a plaintiff can present noevidence that customers in part based, orwould likely base, their purchasing deci-sions on the alleged literally false statement,where is the harm?

Further, suppose that seller A labels sweat-ers as 40 percent cashmere and 60 percent silk,but in fact the contents are 40 percent cash-mere, 40 percent silk, and 20 percent merino.Does it automatically follow that having 20percent less silk (and 20 percent more me-rino) is material to a substantial percentageof the intended consumers? Consumers maybe unaware of the label; they may not believeit; they may not be influenced by it; or theymay have made their purchases in the sameway, for other reasons. The question, it seems,should be resolved by resort to empiricalevidence presented by the plaintiff, not bythe say-so or intuition of a court.

New View I:Materiality is PresumedNevertheless, enough courts have decidedthat literally false statements are presumedmaterial that one treatise states categorically:

“False statements are presumed to be mate-rial.” 1 McKenney & Long, Federal UnfairCompetition, “Lanham Act §43(a)” §6.03[1],at 6-22 and n.26.1 (West 2000).

Perhaps the most salient decision to adoptthis view is that of a panel of the UnitedStates Court of Appeals for the Fifth Circuitin Pizza Hut, Inc. v. Papa John’s International,Inc., 227 F.3d 489 (5th Cir. 2000). There,Pizza Hut had sued Papa John’s under section43(a)(1)(B) of the Lanham Act over the lat-ter’s use of the slogan, “Better Ingredients,Better Pizza.” The slogan was the tag line atthe end of Papa John’s radio and televisionadvertisements. These advertisements in-cluded ones that asserted that Papa John’ssauce was made from “fresh, vine-ripenedtomatoes,” whereas its competitors’ wasmade from remanufactured tomato paste,and its dough used “clear, filtered water,”whereas its competitors used tap water.

The district court concluded that standingalone, the slogan, “Better Ingredients, BetterPizza,” was what is known as non-actionablepuffery; that is, an example of non-quantifia-ble exaggeration or boasting upon which noconsumer would reasonably rely. However,the court concluded that the slogan was mis-leading in view of the fact that the fact-basedcomparative claims regarding sauce and doughthat preceded the slogan were misleading.The court permanently enjoined Papa John’sfrom using the slogan or a recognizable vari-ant and awarded Pizza Hut almost a half amillion dollars for having had to run cor-rective advertisements.

The Fifth Circuit agreed that the sloganwas misleading in the context of the mis-leading dough and sauce claims. However,the court reversed for lack of materiality.Pizza Hut, the court ruled, “has failed to ad-duce any evidence demonstrating that thefacts conveyed by the slogan were material tothe purchasing decisions of the consumersto which the slogan was directed.” Id. at 491.

In discussing Lanham Act doctrine, theFifth Circuit panel drew a sharp distinctionbetween materiality in the context of liter-ally false statements and materiality in thecontext of misleading statements. It stated(id. at 497):

With respect to materiality, when the state-ments of fact at issue are shown to be liter-

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ally false, the plaintiff need not introduceevidence on the issue of the impact thestatements had on consumers… In sucha circumstance, the court will assumethat the statements actually misled con-sumers.In making this statement, it appeared that

the Pizza Hut court was inadvertently con-fusing the term “materiality” with that of “de-ception.” All the authorities cited by the courtstand for the well-settled proposition that ifadvertising is literally false, no evidence ofconsumer deception is required; literally falsestatements generate a presumption of decep-tion, not materiality. However, if the panelwas really conflating terminology only byaccident, it should be noted that it repeatedthis “error” consistently. The Fifth

Circuit panel could not have been muchclearer that, in its view, literally false state-ments were presumed to be not just decep-tive, but also material, whereas misleadingstatements required evidence of both decep-tion and materiality. It stated (id. at 502):

As previously discussed, none of theunderlying facts supporting Papa John’sclaims of ingredient superiority made inconnection with the slogan [“Better In-gredients, Better Pizza”] were literallyfalse. Consequently, in order to satisfy itsprima facie case, Pizza Hut was requiredto submit evidence establishing that theimpliedly false or misleading statementswere material to, that is, they had a ten-dency to influence the purchasing deci-sions of the consumers to which theywere directed.Pizza Hut provides no rationale for its

view that, in order to establish liability, aLanham Act plaintiff must prove that mis-leading statements are material, but that heneed not provide such proof when the state-ments are literally false.

The Fifth Circuit explicitly faulted two ofPizza Hut’s consumer perception surveysfor altogether failing to address whether theslogan, “Better Ingredients, Better Pizza,” wasmaterial. Id. at 503. However, according tothe court’s logic, if Pizza Hut had shown, forexample, that Papa John’s underlying claimthat its dough was made from “clear filteredwater” was literally false (as opposed to mis-leading), then, somehow, its inability to show

that the slogan or the claim even matteredto consumers would be suddenly irrelevant.That distinction is not compelling. It wouldnot be followed by, at a minimum, the First,Second, or Eleventh Circuit, all of whichhave concluded that “the plaintiff must es-tablish materiality even when a defendant’sadvertisement has been found literally false.”See Johnson & Johnson Vision Care, Inc. v. 1-800 Contacts, Inc., 299 F.3d 1242, 1250-51(11th Cir. 2002), following Cashmere & CamelHair Manufacturers Institute v. Saks FifthAvenue, 284 F.3d 302, 312 n.10, and S.C.Johnson & Son, Inc. v. Clorox Co., 241 F.3d232, 238 (2d Cir. 2001).

New View II:Materiality Does Not MatterAt least one case has decided that materialitydoes not matter at all for purposes of liabil-ity under the Lanham Act where the chal-lenged statements are literally false. The caseis Edmark Industries SDN.BHD. v. SouthAsia International (H.K.) Ltd., 89 F.Supp.2d840 (E.D.Tex. 2000). There the court pro-nounced: “Materiality is not an element un-der section 1125 when a false statement ismade—at best, it is a damage issue for thejury.” Id. at 846.

In Edmark, a manufacturer of certainvegetable slicers sued the importer for plac-ing the phrase “Features fine german [sic]surgical steel blades” on the slicers’ boxes. Infact, the slicers used Japanese, not German,steel, as the defendant conceded.

The importer offered three defensesagainst being held liable for the erroneousphrase, each of which the court rejected.First, it contended that it sold the slicer onlyto two distributors, both of whom alreadyknew that the knives were made of Japa-nese steel. The court stated what the twodistributors already knew was irrelevant;consumers in retail shops where the slicerwould be sold would not know this; they“would see and presumably read the box inmaking purchasing decisions.” Id. at 846.

Second, the importer contended the phraseon the box was inconspicuous. The courtruled that argument went to damages, notliability; section 43 made no distinction be-tween conspicuous and inconspicuous falsestatements for liability purposes. Id.

Third, the importer argued that the phrasewas not material. Here, as noted above, thecourt stated that when a false statement ismade, materiality is not an element of lia-bility; rather, it is, at best, a damage issue forthe jury. Id.

Edmark stands traditional Lanham Actjurisprudence on materiality on its head.Perhaps the court was correct to supposethat consumers “would see and presumablyread the box in making their purchasing de-cisions.” Id. (emphasis added). However, thecourt assumed, with no evidentiary basis,that consumers would read the phrase “fea-tures fine german [sic] surgical steel blades”in particular and that the representation of“German” would affect their purchasing be-havior. How did the court know this partic-ular falsity made it appreciably more likelythat consumers would buy, or not buy, theproduct than if the box omitted any referenceto “German,” or if it contained the correctreference to “Japanese”? What if a consumerperception study showed that the false ref-erence to German steel blades made a dif-ference for fewer than two percent of therespondents? What if a consumer percep-tion study showed that an overwhelmingmajority of respondents failed to notice theword “German” or to have any associationwith it?

Under Edmark, these questions do notmatter. Because an advertiser has made aclaim that is shown to be literally false, theclaim must ipso facto be material. Empiricalresearch as to what consumers believe aboutthe claim or how it affects their purchasingbehavior is of no import. The plaintiff car-ries no burden as to materiality; he skipsover liability, and goes directly to damages.

Origins of the New ViewsWhat are the origins, if any, of the new viewson materiality under the Lanham Act? Thereappear to be two, both court decisions.

One is ALPO Petfoods, Inc. v. Ralston Pur-ina Co., 720 F.Supp. 194 (D.D.C. 1989), aff ’din part and vac’d on other grounds, 913 F.2d958 (D.C.Cir. 1990). Several cases cite toALPO for the proposition that materiality ispresumed when there is a literally false state-ment. See, e.g., Telebrands Corp. v. E. Mishan

continued on page 59

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one, much less the local law enforcement orstate ABC authorities. The town and statewere grossly remiss in their licensing andinspecting duties. The town and state’s re-newal of and/or failure to revoke Traina’spackage liquor license and failure to in-spect his retail outlet led to the free-wheel-ing, wild west operation of the Ebony Cluband the shooting of the plaintiff. Not onlyshould the town and state authorities haverecognized the danger involved, they in factdid. Neither, however, acted, but continuedto drive by with “a wink and a smile.”

Personal Injuries, from page 40“Literally False” Advertising, from page 25& Sons, 1997 Westlaw 232595 (S.D.N.Y.), at*22; Energy Four, Inc. v. Dornier Medical Sys-tems, Inc., 765 F.Supp. 724, 731 (N.D.Ga. 1991).In ALPO, Ralston’s claim that Ralston PuppyChow reduced canine hip dysplasia provedliterally false. The court further found evi-dence that Ralston’s false claim was materialto consumers’ purchasing behavior. In addi-tion, however, the court remarked that sincethe claims were literally false, “their material-ity may thus be presumed.” ALPO v. Purina,720 F.Supp. at 214. The D.C. Circuit made nomention of the statement when it partially af-firmed the district court’s decision.

The other source is PPX Enterprises, Inc. v.Audiofidelity Enterprises, Inc., 818 F.2d 266(2d Cir. 1987). This case is cited by, amongother decisions, Edmark Industries, EnergyFour, and ALPO, noted above. PPX held fi-nancial interests in sales of recordings featur-ing the late rock star Jimi Hendrix as the leadperformer. Audiofidelity, a manufacturer ofrecord albums, “marketed eight albums pur-porting to contain feature performances byJimi Hendrix, but which either did not containperformances at all or contained perform-ances in which Hendrix was merely a back-ground performer or undifferentiated sessionplayer.” Id. at 268. PPX sued for both injunc-tive relief and damages under the LanhamAct. The district court granted injunctive re-lief but denied PPX damages because it hadfailed to provide any evidence of actual con-sumer deception.

The Second Circuit partially reversed, rul-ing that PPX was entitled to damages and was“not required to provide evidence of actualconsumer confusion by resort to witness tes-timony, consumer surveys, or other such evi-dence…” Id. at 273. It was enough that theadvertising was false on its face and the al-bums sold successfully. The court repeatedlylimited its holding to the “circumstances inthis case,” which, it made clear, were that “Au-diofidelity’s products were patently fraudu-lent, and the advertising accompanying thoseproducts was the vehicle employed to perpe-trate the fraud.” Id. Audiofidelity’s actionswere “egregious,” and the only possible con-clusion to be derived from its conduct wasthat consumers actually were deceived by themisrepresentations.” Id. at 272.

The PPX Enterprises opinion does not ad-dress materiality per se, only actual deceptionand damages. However, it clearly implies thatliterally false statements arising out of delib-

erately deceptive conduct carry a presump-tion that the statements are material as well.See Ortho Diagnostic Systems v. Abbott Labs,supra, 920 F.Supp. at 476-77. Opinions likethose in Edmark and Energy Four that cite toPPX for the general proposition that literallyfalse statements are presumed material ignorePPX’s very restricted holding.

Even PPX’s restricted holding will strikesome as improperly patronizing. If the plain-tiffs (or the courts) were public prosecutorsunder the Lanham Act, then the presumptionof deception and materiality based on inten-tionally fraudulent conduct in PPX might beappropriate. But they are not. They are neitherthe Federal Trade Commission, nor AttorneysGeneral; they are, by and large, competitors.See B. Sanfield, Inc. v. Finlay Fine JewelryCorp., 258 F.3d 578, 580 (7th Cir. 2001). How-ever ill-intentioned the challenged state-ments, plaintiffs should be required to presentevidence that the intended public relied onthe literally false statements, just as they mustpresent evidence that they have suffered or arelikely to suffer actual injury as a result of thestatements. Id. at 581-82 (plaintiff must stillprove past or potential injury for injunctiverelief where promotions were literally falseand fraudulent).

ConclusionDoes materiality still matter in the face of lit-erally false statements? Demonstrating mate-riality is not onerous. The requirement is stillmeaningful in the eyes of most courts in mostfederal circuits. Notwithstanding some caselaw in apparent support of his or her view,one’s opponent will be hard-pressed to findgood reasons why materiality no longer doesor should matter.

How Clients Choose, from page 52increase their use of outside law firms, 19 per-cent plan to decrease and 50 percent will re-main the same.

When asked to identify the most importantthings a general counsel does for his or her or-ganization, recent U.S. business headlines wereclearly on their mind. Most general counselsaid that their most important functions wereto “candidly assess the risks of various sourcesof action,” “ensure appropriate corporate gov-ernance,” and ensure “sound corporate com-pliance programs.” Chief Legal Officers’ mostfrequent response regarding the value that alaw department provides to its organizationwas “minimizing risk.”

Full results of both surveys are posted onAltman Weil’s website, www.altmanweil.com.

ConclusionWhere potential negligence for premises lia-bility accidents arguably extends beyond justthe non-governmental premises owner, mu-nicipality entities will remain viable targets oflitigation. In light of the recent, devastatingclub fire and trampling tragedies in Rhode Is-land and Chicago, where the combined deathtoll has exceeded 100 patrons, the plaintiff ’sbar will undoubtedly strive to maintain claimsagainst state and local authorities. Therefore,municipalities will continue to be the focus ofliability actions due to the perceived “deeppockets” of such potential defendants.

SAVE THE DATE!

Cross BorderCorporate Issues:Defending the

Corporate Insured in

the New Millennium

October 30–31, 2003

Hilton Toronto

Toronto, Canada

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