Advertising is a key driver of sales for many businesses. Marketing teams are encouraged to use creativity and “push the limit” to sell goods and services. But when they cross the line and misrepresent their product, customers can sue them for false advertising.
False advertising laws seek a balance between business and consumer interests. Companies should be given a chance to differentiate their product from competitors. On the other hand, customers should be protected from false claims.
This article looks at false advertising claims in Minnesota and the related litigation issues. If businesses and consumers understand the limits of proper advertising, they can better avoid disputes and civil lawsuits.
What is False Advertising?
“False advertising” is when a business misrepresents its product or service. A company's advertising and statements set customer expectations. When the statements are false and a customer detrimentally relies on them, there is likely to be a false advertising claim.
There are various legal names for false advertising: “deceptive advertising”, “misleading advertising”, “fraudulent advertising”, and “fraudulent misrepresentation”.
For legal purposes, “false advertising” is a limited concept. It is like misrepresentation or fraud. The company uses a false statement to sell more goods to vulnerable consumers.
With false advertising, the context is important. A sophisticated buyer is less likely to show false advertising than a vulnerable consumer who relies heavily on the advertisement. The nature of the product also impacts the context. For example, food labeling must be more exact than statements about a pen or pencil. Regardless of the context, most false advertising comes back to a central issue: is the advertising false from the viewpoint of an objective, reasonable person?
False statements are different than what is called “puffery” ("puffing" up their product). Puffery involves advertising statements that a reasonable customer would not literally believe to be true (i.e., “this is a great product”). People should not rely on “puffery” for technical aspects of a product, but instead should understand puffery as a sales tactic.
What Laws Apply to False Advertising in Minnesota?
While there are many federal laws that regulate advertising issues (food labeling, medical side effects, mortgage disclosures), this article will focus on two primary laws: (1) the federal Lanham Act, and (2) the Minnesota False Statement in Advertising Act (MFSAA).
Be aware that publishers of advertising may have their own guidelines or rules for advertisements. While this is not the law, they might require you to follow their internal rules before they publish your ad. For example, here are the Google guidelines on “advertising misrepresentation”
The Lanham Act (15 U.S.C. § 1051, et. seq.)
The Lanham Act (also known as “The Trademark Act of 1946”) covers a variety of commercial issues related to advertising and trademarks. It has been amended several times since 1946.
Basically, the Lanham Act protects businesses against unfair competition. It is not a consumer law, and individual consumers cannot sue under this law. See Lexmar International, Inc. v. Static Control Components, Inc., 572 U.S. 118, 132 (2014) (plaintiff must be a commercial actor with commercial injuries, not a “consumer who is hoodwinked into purchasing a disappointing product.”).
While claims are often filed in federal court, they can also generally be filed in state courts.
Lanham Act – False Advertising
The Lanham Act at 15 U.S.C. § 1125(a)(1) says:
(1) Any person who, on or in connection with any goods or services, or any container for goods, uses in commerce any word, term, name, symbol, or device, or any combination thereof, or any false designation of origin, false or misleading description of fact, or false or misleading representation of fact, which—
(A) is likely to cause confusion, or to cause mistake, or to deceive as to the affiliation, connection, or association of such person with another person, or as to the origin, sponsorship, or approval of his or her goods, services, or commercial activities by another person, or
(B) in commercial advertising or promotion, misrepresents the nature, characteristics, qualities, or geographic origin of his or her or another person's goods, services, or commercial activities,
shall be liable in a civil action by any person who believes that he or she is or is likely to be damaged by such act.
This is also referred to as “Section 43(a)” of the Lanham Act, or the “deceptive advertising” prong of the law.
As you can see, the Lanham Act prohibits misrepresentation about a company's own products, but also of another person's products. These are very different, but important things to remember, especially if your advertising compares your product to a competitor's product.
Elements of a False Advertising Claim – Lanham Act
Courts generally a plaintiff under the Lanham Act to prove these elements in a false or deceptive advertising claim:
(1) a false statement of fact by the defendant in a commercial advertisement about its own or another's product;
(2) the statement actually deceived or has the tendency to deceive a substantial segment of its audience;
(3) the deception is material, in that it is likely to influence the purchasing decision;
(4) the defendant caused its false statement to enter interstate commerce; and
(5) the plaintiff has been or is likely to be injured as a result of the false statement, either by direct diversion of sales from itself to defendant or by a loss of goodwill associated with its products.
United Indus. Corp. v. Clorox Co., 140 F.3d 1175, 1180 (8th Cir. 1998).
Generally, a plaintiff does not have to show the defendant's intent or willfulness in making the statement. AMCO Ins. Co. v. Inspired Techs., Inc., 648 F.3d 875, 882 (8th Cir. 2011).
Types of False Statements
When courts review advertising under the Lanham Act, they try to classify the statement. Types of statements include (1) literally false claims, (2) misleading claims, and (3) puffery.
“Literally false statements” are those that are “literally false as a factual matter.” United Industries Corp. v. Clorox Co., 140 F. Supp. 3d 1175, 1180 (8th Cir. 1998). For these statements, the deception is presumed by law without the need for the plaintiff to show reliance on the statements. Here are some simple examples:
- “This beer has 2% alcohol content”. (the content is actually 4%)
- “This truck can pull a 2-ton trailer.” (it can only pull a 1-ton trailer)
- “This house has 2,200 square feet.” (it only has 2,000 square feet)
- “This product complies with federal regulation [ABC].” (in reality, it does not comply)
“Misleading statements” are those that “may be literally true or ambiguous but which implicitly convey a false impression, are misleading in context, or likely to deceive consumers.” United Indus. Corp., 140 F.3d at 1182. This “depends on the message that is conveyed to consumers. Public reaction is the measure of a commercial's impact. . . . [T]he success of the claim usually turns on the persuasiveness of a consumer survey.” Id. at 1183. Here are some simple examples:
- “The product lasts 2 years.” (only lasts 2 years under ideal conditions that no ordinary customer could replicate)
- “The engine generates 300 horsepower.” (only if several add-ons are purchased)
- “Increases room temperature by 10 degrees.” (only in rare circumstances in a tiny room)
“Puffery” or “puffing” is not a violation of the Lanham Act, but a defense to a false advertising claim. Puffery is “exaggerated advertising, blustering, and boasting upon which no reasonable buyer would rely[.]” United Indus. Corp., 140 F.3d at 1180. It may include representations of product superiority that are vague or highly subjective.
On the other hand, some types of statements look like puffery but are actually violations of the Lanham Act. These include: (a) false descriptions of specific or absolute characteristics of a product and (b) specific, measurable claims of product superiority based on product testing.
- The product is “better than” competitor's product.
- "This is a great product"
- “You will love this product."
- “Would you prefer to do business with the company with the best technology, lower rates, and better customer service?” Metro Mobile Cts, Inc. v. Newvector Communications, Inc., 643 F.Supp. 1289 (D.Ariz.1986) rev'd without opinion, 803 F.2d 724 (9th Cir. 1986)
- “The most cost-effective prices” and “subscription prices as low as possible.” Gordon and Breach Science Publishers S.A. v. American Institute of Physics, 905 F. Supp. 169, 182 (S.D.N.Y. 1995).
- “The system is completely compatible with every system available today.” Ellison Educational Equip., Inc. v. Tekservices, 903 F.Supp. 1350, 1356 (D.Neb.1995).
Who has “Standing” to Sue Under the Lanham Act?
A common question is who can sue as a plaintiff under the Lanham Act. This is also called “standing” to sue.
Individual consumers cannot make a false advertising claim under the Lanham Act.
Direct competitors can sue. They are a typical plaintiff in Lanham Act claims, often being harmed by another company's statements about their product.
Other businesses can sue. The statute allows a claim for “any person who believes that he or she is or is likely to be damaged[.]” The U.S. Supreme Court has limited claims to those businesses that are within the “zone of interest” and caused by the defendant's acts. Basically, this requires a plaintiff to show an injury to a commercial interest in sales or business reputation that was “proximately caused” by a defendant's misrepresentations.
What does this mean? It means that non-direct competitors, some suppliers, and others can bring claims under the Lanham Act for false advertising. It also means that the concept is flexible, and susceptible to litigation.
Remedies in a Lanham Act Claim
A plaintiff in a false advertising claim under the Lanham Act has options when selecting a remedy.
The plaintiff can seek money damages for their harm, including “disgorgement” of profits the defendant gained by the false statements, the plaintiff's financial harm, costs of the action, and sometimes attorney's fees (generally in “exceptional” cases under 15 U.S.C. 1117(a)).
“Disgorgement” of profits can be a significant blow to a defendant. The plaintiff usually tries to show the defendant's total revenue from the statements. The defendant can counter that with evidence of “costs of goods sold” in order to get a reduction in potential damages. These damage calculations can be complex and require economic expert opinions on the estimated profits and disgorgement.
The plaintiff can also obtain a temporary injunction, which can be made permanent at the end of the case. The injunction can prevent the defendant from continuing to make false statements, and may even require the defendant to correct some aspects of the statements.
The Minnesota False Statement in Advertising Act (MFSAA)
The Minnesota False Statement in Advertising Act (MFSAA) is potentially a better option for Minnesota consumers to use on a false advertising claim. From a business perspective, it is a potential risk.
The MFSAA law directly applies to consumers, whereas the Lanham Act applies to competitors and commercial interests. Buetow v. A.L.S. Enters., Inc., 650 F.3d 1178 (8th Cir. 2011).
The MFSAA requires an advertising statement that was made within Minnesota. As such, these claims will generally be in Minnesota district courts. If the statement was made outside Minnesota, the Lanham Act and other laws may apply.
The MFSAA Law – Minn. Stat. § 325F.67
The MFSAA statute says at Minn. Stat. § 325F.67:
Any person, firm, corporation, or association who, with intent to sell or in anywise dispose of merchandise, securities, service, or anything offered by such person, firm, corporation, or association, directly or indirectly, to the public, for sale or distribution, or with intent to increase the consumption thereof, or to induce the public in any manner to enter into any obligation relating thereto, or to acquire title thereto, or any interest therein, makes, publishes, disseminates, circulates, or places before the public, or causes, directly or indirectly, to be made, published, disseminated, circulated, or placed before the public, in this state, in a newspaper or other publication, or in the form of a book, notice, handbill, poster, bill, label, price tag, circular, pamphlet, program, or letter, or over any radio or television station, or in any other way, an advertisement of any sort regarding merchandise, securities, service, or anything so offered to the public, for use, consumption, purchase, or sale, which advertisement contains any material assertion, representation, or statement of fact which is untrue, deceptive, or misleading, shall, whether or not pecuniary or other specific damage to any person occurs as a direct result thereof, be guilty of a misdemeanor, and any such act is declared to be a public nuisance and may be enjoined as such.
The duty of a strict observance and enforcement of this law and prosecution for any violation thereof is hereby expressly imposed upon the attorney general, and it shall be the duty of the county attorney of any county wherein a violation of this section shall have occurred, upon complaint being made, to prosecute any person violating any of the provisions of this section.
Here are a few things to note about the law:
- The person or company must offer the good or service “to the public”, not merely in a private conversation.
- The seller must intend to “increase the consumption” of the good or service.
- The statute applies broadly to advertising in newspapers, radio, tv, or “in any other way” such as the internet.
- The advertisement must contain a “material assertion, representation, or statement of fact which is untrue, deceptive, or misleading[.]” The consumer has to point to an important statement, not a trivial detail.
- There can be a criminal component to the law. However, usually the statute is simply used in a civil lawsuit by a person, their attorney, or an enforcement action by the Minnesota Attorney General's Office.
Elements of a False Advertising Claim - MFSAA
Generally, a civil plaintiff in a false advertising claim under the Minnesota False Statement in Advertising Act must show:
(2) publication of a statement,
(3) a false or misleading advertisement, and
LensCrafters, Inc. v. Vision World, Inc., 943 F. Supp. 1481, 1490 (D. Minn. 1996).
A plaintiff also needs to show some connection between the statement and decision to buy. Legally, this is called “causation.”
Does the plaintiff have to show that he or she relied on a specific statement in advertising? Not specifically. Minnesota courts have said that “it is not necessary to plead individual consumer reliance on the defendant's wrongful conduct to state a claim for damages.” Group Health Plan, Inc. v. Philip Morris Inc., 621 N.W.2d 2, 12, (Minn. 2001). According to that court, a plaintiff:
[M]ust establish a causal nexus between their alleged damages and the conduct of the defendants alleged to violate the statutes. This causal nexus has a component of reliance that, in the type of case before the court, may be proven by means other than direct evidence of reliance by individual consumers.
On the other hand, when a plaintiff pleads a Complaint, he or she should be careful to describe the claim with particularity and with as must detail as possible. Baker v. Best Buy Stores, LP, 812 N.W.2d 177, 183-84 (Minn. Ct. App. 2012); see Minn. R. Civ. P. 9.02 (“the circumstances constituting fraud or mistake shall be stated with particularity.”).
In some circumstances, the business may have to correct an omission it initially made about a product. This might be required if the business had some “special knowledge” that the consumer did not have. Khoday v. Symantec Corp., 858 F. Supp. 2d 1004, 1018 (D. Minn. 2012).
Defenses to a claim under Minn. Stat. § 325F.67 are similar to those of a Lanham Act claim. The business might argue that the statute was mere “puffery”. A business may also argue that the statement was not “material” or important to the consumer's decision. Likewise, the business might argue that it honestly believed the statement to be true, or that it was true based on the info available to it.
Using the “Private Attorney General Statute” for a MFSAA False Advertising Claim
The Minnesota Attorney General can pursue consumer claims for individuals. However, its resources are limited and it may not take an individual case. If other consumers have the same problem, the AG's Office is more likely to litigate the case.
What if the AG's Office declines to take a case? Sometimes, a consumer can sue under the Minnesota “private attorney general” statute if there is a “public benefit” being served by the litigation. In other words, the consumer is potentially helping other consumers who have or will have the same problem.
Here is what Minn. Stat. § 8.31, subd. 3a says:
Private remedies. In addition to the remedies otherwise provided by law, any person injured by a violation of any of the laws referred to in subdivision 1 may bring a civil action and recover damages, together with costs and disbursements, including costs of investigation and reasonable attorney's fees, and receive other equitable relief as determined by the court. The court may, as appropriate, enter a consent judgment or decree without the finding of illegality. In any action brought by the attorney general pursuant to this section, the court may award any of the remedies allowable under this subdivision.
From a consumer's perspective, a major benefit is that if they win the judge can award them their attorney's fees and other costs. That often gives attorneys the incentive to take on a consumer case (often on a “contingency” basis).
From a business perspective, having to potentially cover a plaintiff's attorney's fees adds risk. The plaintiff's fees might be more than the claimed damages, especially if it sold the consumer a low-value product. This pressure often forces the business to offer a remedy to avoid having to defend the case.
What Other Laws May Apply to False Advertising?
There are potentially many other laws that could apply to a false advertising claim. Minnesota has consumer laws that regulate advertising, along with many federal laws and regulations. Likewise, there are some “common law” claims that a consumer could raise.
Some of these laws and claims include:
- Breach of Contract: Statements made by a seller could become binding under the parties' contract, especially if the written contract lacks a “merger” or “integration” clause that would limit the contract to what is in writing. (See 50 FAQs About Breach of Contract In Minnesota for more info on contract disputes.)
- Fraud, Misrepresentation, and Negligent Misrepresentation Claims: If the seller used fraud or misrepresentation to “induce” a consumer or other person to buy a product, the buyer may have common-law fraud claims to bring against the seller.
- Warranties: Warranties law can be somewhat complicated, but a seller's representations could be viewed as express warranties. If the product fails to meet those expectations, the buyer could force the seller to remedy the issue through a breach of warranty claim. Likewise, a seller's advertising claims could create an implied warranty or a "warranty of fitness for a particular purpose." These could also require the seller to remedy the buyer's expectations about the product or service.
- Financial Regulations: In recent years, new federal laws have put limits on what banks, lenders, and other financial companies can advertise about their loans. Laws include the Uniform Deceptive Trade Practices Act (UDTPA), the Truth in Lending Act (TILA), and other laws and regulations.
- Professional rules: Some professionals may have ethics rules that prohibit false advertising. Lawyers in most states have very tight rules on making misleading statements about their services to potential clients.
- Consumer Laws in Minnesota: Consumers in Minnesota could potentially bring other claims against a seller, including claims under these statutes:
Federal Advertising Laws: Consumers could potentially gain relief for false advertisements under these statutes:
- The Federal Trade Commission Act (15 U.S.C. 41, et. seq.) (“unfair or deceptive acts or practices in or affecting commerce”.)
- The Federal Food, Drug, and Cosmetic Act (21 U.S.C. 301, et. seq.) (labeling of pharmaceutical and nutritional products)
- The federal Fair Packaging and Label Act (FPLA) (15 U.S.C. § 1451, et. seq.) (labeling of “consumer commodities”)
- Organic Foods Production Act (OFPA) (7 U.S.C. 6501, et. seq.)
- Many other laws and regulations.
Tips for Businesses to Avoid False Advertising Claims
- Identify any regulations or laws that govern advertising in your industry. A governmental agency may provide guidance to help companies comply with the regulations.
- Whenever possible, put yourself in the shoes of a potential customer shopping for your product.
- Carefully consider your ad messaging before it is published.
- Internally, support your advertising claims with data, testing, accurate measurements, or other objective support.
- Informally test the message with friends, family, co-workers or other people that are representative of your potential customer group.
- Use “disclaimers” where necessary to clarify or set customer expectations.
- Understand the advertising guidelines for your ad medium, such as Google's ad guidelines.
- Be consistent with your messaging across different ad platforms.
- Make sure statements by your sales staff are consistent with the advertisements.
- If a customer complains about the advertising, work toward a solution with the customer and re-evaluate your advertising message.
- Be accurate with technical aspects and product specifications.
- Take advantage of the “puffery” defense by using creativity to address general aspects of your product or service.
- Be careful to understand your competitor's product and avoid misleading comparisons.
- If you have serious concerns about the messaging, get an attorney's opinion.
Tips for Consumers to Avoid False Advertising Issues
- Do your homework on the seller, the seller's product, and competitors' products before making a purchase.
- Review any necessary guides or “spec sheets” that address your requirements.
- Ask questions before you buy the product and keep any notes from conversations with sales staff.
- Get product information and representations in writing (and keep them for your records).
- For bigger purchases, keep a record of the advertising you relied on to buy the product.
- Consider whether the advertising is “puffery” or whether it is meant to be a technical statement about the product.
- If you think the product fails to meet the ad statements, see if other people in your life (family member, friend, co-worker) have the same impression.
- Check to see if other customers have had similar problems (Better Business Bureau, online reviews, agency complaints, etc.).
- If you have a problem, promptly contact the seller or manufacturer to see if they will remedy the issue (under a warranty or otherwise).
- Speak to an attorney to assess the issue, write a demand letter, or pursue litigation.
- Contact the government agency that enforces consumer protection laws (i.e., the Minnesota Attorney General's Office, the Federal Trade Commission, the Consumer Financial Protection Bureau, etc.).
Businesses should be careful to accurately describe the key aspects of their product or service. It can be helpful to test the messaging before you publish it. At the very least, listen to your customer concerns and try to set appropriate expectations with them.
If you are hit with a false advertising claim, understand the legal requirements and available defenses before you make an offer to settle with a customer. It can be important to develop a legal position and strategy before the matter escalates, or before other customers “come out of the woodwork.” In many cases, working with a customer to address the problem can avoid later claims and lawsuits.
If you need legal advice or representation on a false advertising or business litigation issue, Contact Us for a free consultation. With offices in Shakopee (Scott County) and Litchfield (Meeker County), we serve clients throughout the Twin Cities and Greater Minnesota.