Prudential Standing: Who is ‘Any Person’ Under the Lanham Act?

Prudential Standing: Who is ‘Any Person’ Under the Lanham Act?

Originally published online at mondaq.com

By Ronald D. Coleman

Section 43(a) of the Lanham Act (15 U.S.C 1125(a)) creates a federal cause of action for what has traditionally been called unfair competition: a false designation of origin or other misleading information used in connection with the sale of a good or service, or misleading advertising. This provision allows recovery of damages by “any person who believes he or she is or is likely to be damaged by such an act.” Who, however, is “any person?” Not long ago, the Third Circuit, in Conte Bros. Automotive v. Quaker State-Slick 50, 165 F.3d 221 (3rd Cir., Dec 30, 1998) considered that question under the long-standing judicial doctrine of “prudential standing.” When the court was done, the only ones left standing were the triumphant defendants.

The situation seemed tailor-made for a false advertising action, at least to the plaintiffs. The defendants had advertised their engine treatment, Slick 50, with excessive optimism regarding its benefits. So thought the Federal Trade Commission, which in 1996 challenged the ad campaign. In 1998, the FTC and the defendants settled, resulting in an end to the misleading advertisements and the provision by the defendant of $10 million in consumer rebates, discounts, and free products.

The defendant’s problems were not immediately over, however. Following the announcement of the FTC action, it was sued in the District of New Jersey by the Conte Bros. plaintiffs, who claimed to represent a class of “persons” who believed themselves “likely to be damaged by such an act.” The class was not, however, made up of consumers who had bought the engine treatment and were crestfallen over its disappointing performance. Nor was it comprised of the manufacturers of competing products, alleging that their sales had been artificially depressed by the false advertising of Slick 50. The putative class of plaintiffs consisted instead of retailers and wholesalers that sold products that competed with Slick 50 (though not necessarily exclusively). Now the district court was faced with a novel question: Does the Lanham’s Act’s language, permitting recovery by “any person,” really mean that kind of person? Both the district and circuit courts ruled that it does not and, critically, that Congress never meant it to do so. This conclusion was reached on the basis of the doctrine of “prudential standing.” Prudential standing is a common law or judicial gloss on the plain language of statues that seem to grant standing, or the right to sue, to broad classes of people. The courts look at these judicial grants in the context of the policy the legislature was trying to effectuate when it passed a law, and the class of persons it sought to protect.

Sometimes, explained the circuit, a legislative “any” really does mean “any.” An example is the Endangered Species Act, which gives “any person” the right to institute a suit to enforce its provisions. The U.S. Supreme Court has ruled that because the environment is all pervasive and affects everyone, Congress could indeed have meant that literally any person who is aware of a violation of the Endangered Species Act may appoint himself a “private attorney general” and sue to ensure the law’s enforcement.

Not so, ruled the Third Circuit, when it comes to the Lanham Act. There the term “any person” is, by the statute’s own terms, limited to those persons directly affected by unfair competition. Historically, federal legislation concerning unfair competition has focused on the protection of trademark “good will,” as opposed to a general policy of “doing good.” As a result, the courts have under traditional prudential standing analysis under the Lanham Act, ruled that not even consumers are considered to be directly injured under the Act for purposes of standing, and cannot sue for false adverting.

But the plaintiffs in this case? They were, after all, asserting a commercial injury. For this reason, the court undertook to refine its prudential standing analysis. In the process it instituted an unprecedented test that had been suggested by two leading commentators. The new test borrows from the test used to determine prudential standing under the Clayton Act, an antitrust statute. The court held that it was appropriated to borrow Clayton Act doctrine to develop a refined prudential standing doctrine for the Lanham Act, as both statutes seek to remedy the anti-competitive effect of commercial “cheating.”

Settling on this analysis, the court had no difficulty finding that the purported class in Conte Bros. lacked standing. The plaintiffs had admitted that they were not in direct competition with the defendants. The commercial interest they did assert, while real, was not a competitive one that was directly implicated by the false advertising; it neither affected their ability to compete in their own market nor affected their own good will or reputation. In fact, the court pointed out that the plaintiffs could have made up for lost sales of other brands simply by selling more Slick 50. No public need for a “private attorney general” could be enunciated, inasmuch as competing manufacturers provided a better fit for that role. Besides, noted the court, if consumers — who arguably were directly affected in the pocketbook by the false advertising — could not sue, how could these middlemen?

Finally, noted the court, allowing standing here would grant carte blanche to the creation of a cottage industry of plaintiff’s Lanham Act class actions following in the wake of every FTC enforcement action for unfair competition. The Third Circuit simply could not stand the thought of that much new litigation.

Patent Points

An interesting gloss on Conti Bros. is found in a more recent case decided in the Eastern District of New York. In Spotless Enters., Inc. v. Carlisle Plastics Pty, Ltd., 56 F. Supp. 2d 274 (E.D.N.Y., 1999), the defendant brought a motion to dismiss the Lanham Act claim for false advertising — the “advertised” statement having been, interestingly enough, a claim of patent infringement that, after a full trial on infringement, turned out to be false. Because of the intertwined nature of patent and trademark claims in the case, the Eastern District queried whether the holding of Conti Bros. (which while not binding on that court is clearly an important case) would apply. The question arises because “Patent law, [unlike the Lanham Act], allows suit for infringement against anyone who uses or sells an infringing item.” 56 F. Supp. 2d at 288. The District Court, in what must be regarded as dictum, held that the rule of Conti Bros. nonetheless applies in a false advertising claim grounded in a patent dispute. Retailers, ruled the court, falsely accused of patent infringement do not have standing to sue under the Lanham Act. Id. at 289.

For that, ultimately, the entire intellectual property bar can be grateful. After all, under the rule of Markman v. Westview Instruments, Inc., 52 F.3d 967 (Fed. Cir.), aff’d 517 U.S. 370 (1996), no one but a judge really ever knows if and when a patent has been infringed (“the interpretation and construction of patent claims, which define the scope of the patentee’s rights under the patent, is a matter of law exclusively for the court” -id. at 970). That means that, prospectively, clients who believe their patent has been infringed may be well advised not to say much publicly at least before the Markman hearing in an infringement case. But a “false claim” of infringement may be no more than the infringement suit. There is enough to worry about once that has gone down — thankfully, Lanham Act liability has not been piled on top of all that.