Official Journal of the International Trademark Association

Confusion, Dilution and Speech: First Amendment Limitations on the Trademark Estate: An Update

Michael K. Cantwell

Materiality and Puffing in Lanham Act False Advertising Cases: The Proofs, Presumptions, and Pretexts

Richard J. Leighton

Preventing Loss of Trademark Rights: Quantitative and Qualitative Assessments of “Use” and Their Impact on

Abandonment Determinations Christopher T. Micheletti

Considerations Regarding Dilution in Argentina Iris Quadrio and Veronica Canese

The Use of Arbitration and Mediation for Protecting Intellectual Property Rights: A German Perspective

Erik Schäfer

Brief of Amicus Curiae the International Trademark Association in Support of Petitioner in

KP Permanent Make-Up, Inc. v. Lasting Impression I Inc. and MCN International Inc.

Vol. 94 May-June, 2004 No. 3

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Vol. 94 TMR 585

MATERIALITY AND PUFFING IN LANHAM ACT FALSE ADVERTISING CASES:

THE PROOFS, PRESUMPTIONS, AND PRETEXTS

By Richard J. Leighton∗

I. INTRODUCTION Several decades after enactment of the U.S. Trademark

(Lanham) Act of 1946, the courts opened the Lanham Act Section 43(a) bottle and, much to the surprise of Congress, a litigation genie escaped.1 A new federal tort of false advertising was on the loose to fulfill the wishes of businesses for a greatly expanded private right of action to challenge competitors� false advertising claims.2 The courts soon developed the elements of the cause of action, and Lanham Act Section 43(a) litigation expanded dramatically.3

It took Congress over 30 years to catch up with the courts. The Trademark Law Revision Act of 1988 amended Section 43(a) of the Lanham Act to ratify the robust false advertising cause of action that had been developed judicially.4 The amended Section 43(a) now reads, in relevant part, as follows:

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

∗ Partner, Keller and Heckman LLP, Washington, D.C., Associate Member of the International Trademark Association, Member (former Chair) of the INTA Alternative Dispute Resolution Committee and Member of the INTA/CPR Panel of Neutrals. The author is grateful for the research assistance of Kayin A. Saunders and Delanee Wijesekera of Keller and Heckman LLP, and Adam Rayman, formerly of Keller and Heckman LLP. 1. For a history of Lanham Act Section 43(a), 15 U.S.C. § 1125(a), see 4 J. Thomas McCarthy, McCarthy on Trademarks and Unfair Competition §§ 27:7-8 at 27-12 to 27-18 (4th ed. 2003) [hereinafter McCarthy] and the works cited therein. 2. The term �false advertising� as used here includes advertising and promotion that is literally false or that is misleading (i.e., deceptive) by implication or ambiguity. 3. Bruce P. Keller, It Keeps Going and Going and Going: The Expansion of False Advertising Litigation Under the Lanham Act, 59 Law & Contemp. Probs. 131, 132-37 (1996). 4. Pub. L. No. 100-667, amending the U.S. Trade Mark (Lanham) Act of 1946, 15 U.S.C. §§ 1501, et seq. For the intent to ratify prior court cases, see 133 Cong. Rec. S16533 (daily ed. Nov. 19, 1987) (statement of Sen. DeConcini); 134 Cong. Rec. S16972 (daily ed. Oct. 20, 1988) (statement of Sen. DeConcini); Senate Judiciary Comm. Rep. on S. 1883, S. Rep. No. 100-515 at 40 (Sept. 15, 1988); see also 4 McCarthy, supra note 1, § 27:10 at 27-19 to 27-21.

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description of fact, or false or misleading representation of fact, which�

*** (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. In the past decade or so, however, the courts have been

retrenching with regard to the growth in tort litigation in general,5 and with regard to Section 43(a) advertising tort litigation in particular.6 As part of that retrenchment, the courts have increasingly applied what have become known as �materiality� and �puffery� constraints in Lanham Act false advertising cases and in other cases where the importance of a defendant�s representations to others is at issue.7 The application of these gate-keeping constraints, as in much judge-made law, appears to be determined less by precedent than by the perception of the latest judicial beholder. It also seems that the concepts of materiality and puffing, especially, have been adopted by many courts as judicial shortcuts to dispose of cases very efficiently, but often without exercising the intellectual rigor that particular cases may deserve.

Materiality was an element of common law torts and crimes well before the courts grafted it onto the elements of proof that a Lanham Act false advertising plaintiff must satisfy. The materiality element invariably requires proof or court presumption of the likelihood (sometimes, a substantial likelihood) that the alleged falsity or deception will affect the decisionmaking of the intended audience. When materiality has to be proven under the Lanham Act, it usually must be shown that the claim at issue likely would affect purchase decisions of a significant percentage of the intended audience. As will be seen, this is a somewhat narrower standard than would be applied to Federal Trade Commission and common law false advertising claims applicable to the same goods or services. In all cases, of course, proof that the

5. See Weisgram v. Marley Co., 528 U.S. 440 (2000); Kumho Tire Co., Ltd. v. Carmichael, 526 U.S. 137 (1999); General Elec. Co. v. Joiner, 522 U.S. 136 (1997); Daubert v. Merrill Dow Pharm., Inc., 509 U.S. 579 (1993); see also Richard J. Leighton, Using Daubert-Kumho Gatekeeping to Admit and Exclude Surveys in Lanham Act Advertising and Trademark Cases, 92 TMR 743, 745-49 (2002). 6. See Jean W. Burns, Confused Jurisprudence: False Advertising Under the Lanham Act, 79 B.U. L. Rev. 807, 835, 846-73 (1999). 7. See, e.g., Burns, id. at 835, 846-73; Sarah K. Lee, The Puffery Defense: From Used Car Salesman to CEO, 30 Sec. Reg. L. J. 440, 440-441 (2002).

Vol. 94 TMR 587 offending claim actually did affect a substantial number of purchasing decisions will be more than sufficient.

Courts often will presume materiality in Lanham Act cases where the offending claim relates to the essential characteristics, nature or quality of the advertised product or service. In practice, these criteria usually seem to equate to what the court thinks reasonable members of the intended audience (such as the judge) would find to be important in considering whether to purchase what was being advertised. Such presumptions, of course, are often reinforced by the fact that the representation at issue was introduced into commerce by a knowledgeable advertiser who likely thought that the claim was important to purchasers of the product or service at issue.

In that vein, courts often will simply presume materiality as a matter of law where the claim at issue is literally false, citing case law but saying little more.8 The apparent historic reason for this presumption is that the knowledgeable advertiser knew or should have known of the falsity of the representation and therefore intended the false claim to affect sales. Similar presumptions are made where certain other judicially-created indicia of materiality are present. Such presumptions, of course, are subject to rebuttal by the defending advertiser.

If materiality is heads on the judicial referee�s coin, then puffery is tails. Puffery is one of the few remaining vestiges of the doctrine of caveat emptor (let the buyer beware).9 The courts and regulatory agencies find a claim to be mere puffery when it obviously is not material to reasonable potential purchasers, although the court holdings often are not phrased in such words. In some cases, puffery appears to be a I-know-it-when-I-see-it phenomenon to which the closest broad definition of the concept is then applied after the fact.10 Thus, there is a significant amount of 8. See, e.g., ALPO Petfoods, Inc. v. Ralston Purina Co., 720 F. Supp. 194, 214 (D.D.C. 1989) (�Since this court has found that Ralston�s CHD claims are actually false, their materiality thus may be presumed. This bolsters the court�s earlier finding that Ralston�s claims were material in fact.�), aff�d in relevant part, rev�d in part on other grounds, 913 F.2d 958 (D.C. Cir. 1990). 9. Ivan L. Preston, The Great American Blow-Up: Puffery in Advertising and Selling at 27-46 (U. Wis. Press Rev. ed. 1975); see also W. Page Keeton, et al., Prosser and Keeton on the Law of Torts § 109, at 756 (5th ed. 1984) (citing early articles and cases for the proposition that a buyer relies on exaggerated opinion at his or her own risk). The latest edition of this Hornbook, although not inconsistent, does not contain a historical perspective. See Dan B. Dobbs, The Law of Torts § 478, at 1366-68 (6th ed. 2000); see also Jennifer O�Hare, The Resurrection of the Dodo: The Unfortunate Re-emergence of the Puffery Defense in Private Securities Fraud Actions, 59 Ohio St. L.J. 1697, 1705-06, 1716 (1998). 10. Compare U-Haul Int�l, Inc. v. Jartran, Inc., 522 F. Supp. 1238, 1244 (D. Ariz. 1981), aff�d, 681 F.2d 1159 (9th Cir. 1982) (�By Defendants� perception, puffery is as difficult to define as pornography, although they appear to share Justice Stewart�s ability to �know it when [they] see it.�� (citation omitted)).

588 Vol. 94 TMR inconsistency in the cases. Nonetheless, puffery is a complete defense in Lanham Act false advertising cases because it represents a conclusion that the claim at issue is not actionable.

This article attempts to identify and to rationalize the varying and sometimes inconsistent approaches to proving and presuming materiality and puffery in false advertising cases under the Lanham Act, as potentially influenced by other authorities that relate to the materiality of representations. It then suggests that courts should discourage the current indiscriminate use of a generalized and conclusory puffery defense (e.g., �the claim is the seller�s opinion and therefore mere non-actionable puffery�). A puffery defense in that form is an outdated and counterproductive concept that is at odds with the purposes of the Lanham Act and with good judicial decisionmaking. Finally, this article suggests that the courts in Lanham Act false advertising cases treat materiality issues (including puffing determinations) as mixed questions of fact and law for the purpose of deciding dispositive motions. This is a basic principle held by the Supreme Court of the United States to be applicable to materiality in other areas of the law on representations.

II. MATERIALITY AS A LANHAM ACT CAUSE OF ACTION ELEMENT

J. Thomas McCarthy, in his preeminent treatise, does not vary from the statutory terms in setting forth the elements of a prima facie Lanham Act false advertising case.11 As a separate requirement, however, he states, �Plaintiff must make some showing that the defendant�s misrepresentation was �material� in the sense that it would have some effect on consumers� purchasing decisions.�12 Nonetheless, most courts view proof of materiality as one of the formalized elements of the prima facie Lanham Act false advertising case, even though it is not found in the statute. The Sixth Circuit stated the elements of proof, in typical fashion, as follows:13

To state a cause of action for misleading advertisement under the Lanham Act, a plaintiff must establish the following: 1) the defendant has made false or misleading statements of fact concerning his own product or another�s; 2) the statement

11. 4 McCarthy, supra note 1, § 27:24 at 27-41. 12. Id. § 27:35 at 27-63. McCarthy assumes that materiality is part of the plaintiff�s standing requirement, which is a questionable assumption. 13. Am. Council of Certified Podiatric Physicians & Surgeons v. Am. Bd. of Podiatric Surgery, Inc., 185 F.3d 606, 613 (6th Cir. 1999) (citing U.S. Healthcare, Inc. v. Blue Cross of Greater Phila., 898 F.2d 914, 922-23 (3d Cir. 1990); ALPO Petfoods, 913 F.2d at 964) (emphasis added).

Vol. 94 TMR 589

actually or tends to deceive a substantial portion of the intended audience; 3) the statement is material in that it will likely influence the deceived consumer�s purchasing decisions; 4) the advertisements were introduced into interstate commerce; and 5) there is some causal link between the challenged statements and harm to the plaintiff.

A. Historic Development The materiality element of the Lanham Act false advertising

cause of action evolved surrealistically over a 25-year period. It grew from a handful of disparate cases to the point at which virtually all courts coalesced around a realistic suggestion by a prescient trademark and advertising attorney. All of these developments involved Lanham Act Section 43(a), which never mentioned advertising, much less materiality, but did purport to create a right of action against a false description or representation:

Any person who shall affix, apply, or annex, or use in connection with any goods or services, or any container or containers for goods, a false designation of origin, or any false description or representation, including words or other symbols tending falsely to describe the same, . . . shall be liable to a civil action by any person doing business in the locality falsely indicated as that of origin or the region in which said locality is situated, or by any person who believes that he is or is likely to be damaged by the use of any such false description or representation. In 1949, a U.S. District Court in Massachusetts dismissed

Samson Crane Corp. v. Union National Sales, Inc.,14 which was a historic false advertising case between two clothing retailers. One of the grounds supporting dismissal indicated an early judicial concern for requiring a showing of materiality, and it did so in words that were to reappear in the 1988 amendments to Section 43(a):15

All that is alleged is conduct by which members of the public are led to purchase clothing at a certain retail store not because they have been deceived in any way as to the nature, quality, or origin of the goods offered for sale there, but because they have been led to a false belief that by such purchases they would be conferring a benefit upon a labor

14. 87 F. Supp. 218, 222 (D. Mass. 1949), aff�d, 180 F.2d 896 (1st Cir. 1950) (per curium), superseded by statute as stated in Kasco Corp. v. General Servs., 905 F. Supp. 29 (D. Mass. 1995). 15. Id. (emphasis added).

590 Vol. 94 TMR

organization to which they were disposed to give their support. Such a practice does not fall within the scope of Section 43(a) of the Lanham Trade Mark Act.

Soon courts were ignoring the unambiguous wording of the original Section 43(a), and were taking it upon themselves to further limit the scope of Section 43(a) to classic trademark unfair competition in which the defendant used the offending claims to pass off its products or services as those of the plaintiff.16

Five years later, the Third Circuit issued its landmark decision in L�Aiglon Apparel, Inc. v. Lana Lobell, Inc., a dispute between two dress manufacturers.17 The most important feature of this decision was its view that Lanham Act Section 43(a) false advertising plaintiffs need not prove passing off.18 In so holding, the court noted that the complaint in that case had alleged that defendant�s advertising caused sales to be diverted from plaintiff to defendant. It then found that damages from such diversion �may well be demonstratable within the normal requirements of legal proof.�19 The concept of sales loss from competitive deceit was the forerunner of (and, some would say, inclusive of) the requirement that the deceit must arise from a material claim. Importantly, the court noted a parallel between Section 43(a) and the original Restatement of Torts� false advertising provisions, which prohibited material misrepresentations of the ingredients or qualities of goods where the advertiser knew or should have known that such deceptions would divert trade from a competitor.20

In 1956, in S.C. Johnson & Son, Inc. v. Gold Seal Co., et al., the D.C. Circuit adopted the Third Circuit�s L�Aiglon approach by affirming the district court�s decision �for the reasons given� in that decision.21 This case was a dispute between manufacturers of cleaning and polishing products in which the counterclaim-plaintiff alleged that the trademark GLASS WAX was a literally false description or representation in violation of Lanham Act Section 43(a) because the product contained no wax. The district court held that L�Aiglon �expresses correct law� as to the scope of Section

16. See, e.g., Chamberlain v. Columbia Pictures Corp., 186 F.2d 923 (9th Cir. 1951). 17. 214 F.2d 649 (3d Cir. 1954). 18. See id. at 650-51. 19. Id. at 650. 20. Id. at 651 (referencing and quoting Restatement of Torts § 761 (1939) (�Original Restatement of Torts�), which has been deleted from that text and treated in the Restatement (Third) of Unfair Competition §§ 2, 3 (1993) (�Restatement of Unfair Competition�). 21. Gold Seal Co. v. Weeks, 129 F. Supp. 928, 940 (D.D.C. 1955), aff�d sub nom., S.C. Johnson & Son v. Gold Seal Co., 230 F.2d 832 (D.C. Cir. 1956) (per curium), cert. denied, 352 U.S. 829 (1956).

Vol. 94 TMR 591 43(a), but dismissed the counterclaim.22 The importance of the case to the development of the materiality criteria is found in its reasons for dismissal. The counterclaim-plaintiff failed to show �damage due to the fact that a substantial number of reasonable customers were misled or likely to be misled . . . or that, if they had known the true facts, they most likely would have purchased a different product. . . .�23 Thus, the decision not only recognized the need for a showing of the materiality of what was actually deceptively said, but it also recognized that actionable deception could arise from what the advertisement did not say�the omission of a material fact.

Immediately following the issuance of the S.C. Johnson & Son decision, trademark and advertising attorney Gilbert H. Weil published a prophetic law review article extolling the case and L�Aiglon as indicia of the future of federal false advertising litigation free of the passing off shackle.24 Inspired by L�Aiglon and S.C. Johnson, Weil proposed a set of elements for a Lanham Act Section 43(a) prima facie false advertising cause of action. He suggested that a plaintiff should be required to prove, among other things, that the claim at issue �actually deceives or has the tendency to deceive a substantial segment of its audience� and �that the deception is material, in the sense that it is likely to make a difference in the purchasing decision.� 25

More than a decade later, in 1969, the Seventh Circuit decided Bernard Foods Indus., Inc. v. Dietene Co., 26 a case that became infamous in the legislative history of the 1988 amendments to the Lanham Act. The dispute in this case was between two custard makers and was decided by an opinion that quoted Samson Crane at great length. With regard to materiality, the court in Bernard Foods found that the plaintiff was unable to prove that a single custard sale had been lost because of the allegedly false representations.27 However, that was not the reason given for the dismissal of the action (and later Congressional concern). The only holding in Bernard Foods on Section 43(a)�the one that expressly adopted the view of Samson Crane�found that the allegedly false representations were outside the scope of Section 43(a) because those claims were about the plaintiff�s product, not the defendant�s

22. Gold Seal, 129 F. Supp. at 939-40. 23. Id. at 940 (emphasis added). 24. See Gilbert H. Weil, Protectability of Trademark Values Against False Competitive Advertising, 44 Cal. L. Rev. 527, 536 (1956). 25. Id. at 537. 26. 415 F.2d 1279, 1283-84 (7th Cir. 1969) (quoting Samson Crane Corp. v. Union National Sales, Inc., 87 F. Supp. 218, 222 (D. Mass 1949). 27. See id. at 1281.

592 Vol. 94 TMR product.28 This was indeed a questionable interpretation of Samson Crane, but judicial progress is hardly ever made in a straight line.

The major breakthrough on materiality came five years later, in 1974, from a district court within the Seventh Circuit that delicately distinguished the Seventh Circuit�s Bernard Foods decision in ruling on a motion to dismiss. The case, Skil Corp. v. Rockwell Int�l Corp., involved expressly comparative advertisements relating to the parties� competing electronic tools.29 The sole question before the district court was: �Does Section 43(a) of the Lanham Act give rise to a cause of action whereby a manufacturer may sue its competitor who, in its advertisements, has made false descriptions and representations of material facts concerning its own product and that of the plaintiff in comparing their relative attributes[?]�30 The question was answered in the affirmative.31

More important for this article, the district court set forth, sua sponte, and as an apparent aid to future litigators, the elements that a plaintiff must allege to state a false advertising claim upon which relief may be granted under Lanham Act Section 43(a).32 Most of these elements were variations of the Weil elements, and the Weil article was the only source cited.33 Two of the elements that a plaintiff had to prove were (1) that the claims at issue �actually deceived or have the tendency to deceive a substantial segment of their audience,� and (2) �such deception is material, in that it is likely to influence the purchasing decision.�34 Those elements soon were adopted in numerous Lanham Act cases, which cited Skil Corp. or subsequent cases as authority.35 The elements survive substantially intact to this day as judge-made law in most jurisdictions.36

28. Id. at 1283. Whether Section 43(a) covered false representations about another�s products was a lively issue that finally was resolved in the affirmative by the 1988 amendments to the section. 29. 375 F. Supp. 777, 779-80 (N.D. Ill. 1974). 30. Id. at 781. 31. Id. at 782-83. 32. Id. at 783. 33. Id. The court credited the Weil article, preceded by a �see� signal. 34. Id. 35. See, e.g., Toro Co. v. Textron, Inc., 499 F. Supp. 241, 251 (D. Del. 1980) (holding that plaintiff must show �that the false or deceptive statement is �material, in that it is likely to influence the purchasing decision��) (quoting Skil Corp.); see also supra note 13. 36. It should be noted that actionable claims are not limited to those made to the general consuming public. Actionable claims include those made to commercial consumers (so-called business-to-business marketing) and to those who can influence the purchase decisions of others (such as physicians, veterinarians and certain retailers).

Vol. 94 TMR 593

B. Presuming Materiality From Quality and Characteristics Claims

Certain judicial presumptions have lightened a plaintiff�s materiality burden. These presumptions may be triggered by proofs that are far short of showing that purchasers are likely to rely on the claim in the marketplace. As with all presumptions, they are subject to being rebutted by the defendant.

The 1949 presumption in Samson Crane that claims were material if they related to the inherent nature or quality of the subject goods or services continues in substantially the same form as a way of satisfying the materiality element in many jurisdictions.37 The First Circuit stated the presumption succinctly,38 as follows:

The materiality component of a false advertising claim requires a plaintiff to prove that the defendant�s deception is �likely to influence the purchasing decision.� One method of establishing materiality involves showing that the false or misleading statement relates to an �inherent quality or characteristic� of the product. Some have questioned the long-term viability of the �inherent

quality or characteristics� presumption,39 while others have found the presumption to be implicit in the pre-1988 statute itself.40 The

37. See, e.g., Nat�l Basketball Ass�n v. Motorola, Inc., 105 F.3d 841, 855 (2d Cir. 1997) (holding that even if the statements at issue are false, they �are not material and do not misrepresent an inherent quality or characteristic of the product�) (quoting Nat�l Assoc. of Pharm. Mfrs. v. Ayerst Lab., 850 F.2d 904, 917 (2d Cir. 1988)) (internal quotations omitted); Cincinnati Sub-Zero Prods., Inc. v. Augustine Med. Inc., 800 F. Supp. 1549, 1558-59 (S.D. Ohio 1992) (holding that the misrepresentations were material, in part, because they concerned �essential characteristic[s]� or �inherent qualit[ies] or characteristic[s]� of the products at issue), abrogated on other grounds, Balance Dynamics Corp. v. Schmitt Indus., Inc., 204 F.3d 683, 697-98 (6th Cir. 2000); Vidal Sassoon, Inc. v. Bristol-Myers Co., 661 F.2d 272, 278 (2d Cir. 1981); Fur Info. & Fashion Council, Inc. v. E. F. Timme & Sons, Inc., 501 F.2d 1048, 1051 (2d Cir. 1974) (citing Samson Crane, 87 F. Supp. at 221-22; Bernard Foods Indus., Inc., 415 F.2d at 1283-84); 4 McCarthy, supra note 1, § 27:35 at 27-64 (quoting Nat�l Basketball Ass�n and noting that the Second Circuit held that its �requirement that there be a misrepresentation of an �inherent quality or characteristic� of a product is �essentially one of materiality.��). 38. Cashmere & Camel Hair Mfrs. Inst. v. Saks Fifth Ave., 284 F.3d 302, 311-12 (1st Cir. 2002) (quoting Clorox Co. P.R. v. Procter & Gamble Commercial Co., 228 F.3d 24, 33 n.6 (1st Cir. 2000); Nat�l Basketball Ass�n v. Motorola, Inc., 105 F.3d 841, 855 n.10 (2d Cir. 1997)) (citations omitted). 39. 4 McCarthy, supra note 1, § 27:64 at 27-118. (citing B. Sanfield v. Finlay Fine Jewelry Corp., 857 F. Supp. 1241 (N.D. Ill. 1994), vacated on other grounds, 168 F.3d 967 (7th Cir. 1999)). 40. See Coca-Cola Co. v. Procter & Gamble Co., 822 F.2d 28, 31 (6th Cir. 1987) (holding, in the context of a Section 43(a) false advertising quality claim, that �[t]he plain meaning� of the statutory phrase ��any false description or representation� . . . clearly encompasses a false description or misrepresentation about the characteristics or qualities or overall

594 Vol. 94 TMR revised Section 43(a), of course, made misrepresentations of �the nature, characteristics, qualities, or geographic origin� the express focal point of the advertising cause of action, but it says nothing about presuming such claims to be material.41 This statutory wording would appear to be designed to capture the �inherent quality or characteristic� concept from the pre-existing advertising case law, perhaps with the word �nature� being a cautious redundancy to capture claims that encapsulate all or at least more than one characteristic.42 A review of the extensive pre- and post-1988 case law on point indicates that there is no authoritative one-size-fits-all definition of the inherent quality or characteristics presumption. In sum, these courts appear to be saying that they will presume materiality where the offending claim targets the essence of what the court thinks potential purchasers are looking for (or trying to avoid) with respect to the relevant type of product or service.

Thus, the inherent quality or characteristics presumption has been explained as referring to a claim that �relates to a characteristic that defines the product at issue, as well as the market in which it is sold.�43 If the misleading term is central to the marketability of the product at issue, the inherent quality or characteristic requirement is met.44 It also is met if the claim �impugn[s] . . . feature[s] of the products [at issue] themselves.�45 One must �examin[e] the subject matter of the advertisement�46 or determine whether the misleading statement concerns an integral part of the product in order to decide whether a misrepresentation relates to an inherent quality or characteristic.47

In addition, materiality may be presumed from claims that �highlight[ ] the unique virtues of a product,� such as the product�s quality of a product�) (pre-1988 Section 43(a), but words are identical) (emphasis in original). 41. 15 U.S.C § 1125(a) (2004). 42. The addition of the wording to Section 43(a) is not explained in the legislative history, but it is clear that the advertising portion of the new section �codifies what the courts are now interpreting section [43(a)] to mean.� 134 Cong. Rec. H10422 (daily ed. Oct. 19, 1988) (statement of Rep. Moorhead); see also 134 Cong. Rec. S5869 (daily ed. May 13, 1988) (statement of Sen. Grassley) (�The changes, however, will only codify the law laid down by our Federal courts. The modified section 43 will entitle a suit to be brought for �use . . . of a false or misleading description or representation [that] misrepresents the nature, characteristics, or qualities. . . .��). 43. Cashmere & Camel Hair Mfrs., 284 F.3d at 312. 44. See id. 45. Procter & Gamble Co. v. Haugen, 222 F.3d 1262, 1270 (10th Cir. 2000). 46. In re Century 21-RE/MAX Real Estate Adver. Claims Litig., 882 F. Supp. 915, 923-24 (C.D. Cal. 1994) (interpreting the Second Circuit�s decision in Vidal Sassoon, 661 F.2d at 278.). 47. Cincinnati Sub-Zero Prods., Inc., 800 F. Supp. at 1558-59.

Vol. 94 TMR 595 identity, and �actually create[ ] the desire for the product in the mind of the consumer.�48 Claims relating to price, regulatory approval, scope of copyright and substitutability for another product have been presumed to be material under this essential characteristics or qualities rubric.49 So have claims relating to health, safety and other areas of obvious consumer concern.50 Some of these types of claims are treated as virtually per se material because of their obvious potential effect on purchasing decisions, such as price claims51 and safety claims for products that are purchased in part for their safety characteristics.52

Perhaps not so obvious is the presumed materiality of consumer inquiries or complaints related to the offending advertising. The Sixth Circuit noted that these �may suffice to show that the deception was material and likely to influence a purchasing decision.�53 On the other hand, a paucity of consumer inquiries or complaints about the offending claim does not necessarily mean that it lacks materiality; it may indicate the very opposite to a court�the effectiveness of the deception.54

48. See, e.g., Telebrands Corp. v. Wilton Indus., Inc., 983 F. Supp. 471, 475-76 (S.D.N.Y. 1997) (citing Project Strategies Corp. v. Nat�l Communications Corp., No. CV-94-4925, 1995 U.S. Dist. LEXIS 21066, at *10-11 (E.D.N.Y. Oct. 27, 1995); Popeil Bros., Inc. v. Morris, No. 1250-69, 1972 U.S. Dist. LEXIS 10618, at *25-26 (D.N.J. Dec. 20, 1972)). 49. See Haugen, 222 F.3d at 1270 (noting �price,� �regulatory approval,� �scope of copyright� and �substitutability for another product� as examples of message that �impugn[ ] . . . feature[s] of the products [at issue] themselves�) (citing Cottrell, Ltd. v. Biotrol Int'l, Inc., 191 F.3d 1248, 1255-56 (10th Cir. 1999); Rhone-Poulenc Rorer Pharm., Inc. v. Marion Merrell Dow, Inc., 93 F.3d 511, 516 (8th Cir. 1996); American Broad. Co. v. Maljack Prods., Inc., 34 F. Supp. 2d 665, 678 (N.D. Ill. 1998)). 50. Kraft, Inc. v. FTC, 970 F.2d 311, 322-23 (7th Cir. 1992); Cincinnati Sub-Zero, 800 F. Supp. at 1559 (citing U.S. Healthcare, 898 F.2d at 922); Federal Trade Commission, �Enforcement Policy Statement on Food Advertising� (May 1994), available at http://www.ftc.gov/bcp/policystmt/ad-food.htm. 51. See, e.g., Haugen, 222 F.3d at 1270 (�We agree with the district court that the subject message did not implicate the nature, characteristics, or qualities of P&G�s products because it impugned no feature of the products themselves, such as price�); B. Sanfield, 857 F. Supp. at 1246 n.7; Herman Miller, Inc. v. Teknion Furniture Sys., Inc., No. 93 C 7810, 1996 U.S. Dist. LEXIS 8585, at *11 (N.D. Ill. June 19, 1996) (noting that representations about pricing and quality are �of primary importance to consumers� and are �aspects of the goods themselves, which the potential customers were considering purchasing�) (citing B. Sanfield, 857 F. Supp. at 1249); B. Sanfield, Inc. v. J.C. Penney, Inc., No. 93 C 20150, 1994 U.S. Dist. LEXIS 9836, at *17 n.7 (N.D. Ill. Jul. 12, 1994) (holding that a �misrepresentation in regard to price would obviously satisfy� the �inherent quality� materiality requirement). 52. See, e.g., Janda v. Riley-Meggs Indus., Inc., 764 F. Supp. 1223, 1228-29 (E.D. Mich. 1991) (detachable baseball bases intended to prevent injury). 53. Balance Dynamics Corp. v. Schmitt Indus., Inc., 204 F.3d 683, 696 (6th Cir. 2000). 54. See PPX Enters., Inc. v. Audiofidelity Enters., Inc., 818 F.2d 266, 273 (2d Cir. 1987) (�[T]hat no consumers have complained merely is testament to the efficacy of Audiofidelity�s fraud.�).

596 Vol. 94 TMR

C. Presuming Materiality From Literal Falsity Some additional background might be useful at this point.

Lanham Act Section 43(a) now makes advertisers liable for using in commerce substantive �false or misleading� representations (emphasis added).55 False advertising claims often are redundantly called literally, actually, facially or baldly false. A simplified example of a literally false claim might be �Tests prove consumers prefer brand x over brand y,� where no such tests ever were conducted.56 A claim that is �false by necessary implication� is one that reasonably admits only to false interpretation.57 Necessarily implied falsity is treated as a literal falsity by many courts, and sometimes the courts hedge their bets and find claims to be literally false and/or false by necessary implication.58 For such literally false (as opposed to misleading) claims, the court must be able to determine the falsity of the claim in the context of the total advertisement from the known facts, without the need for extrinsic evidence of what third parties infer from the communication.59

Where the offending claim is literally false, a violation of Lanham Act Section 43(a) may be established without evidence that the statements actually misled consumers because �[a]ctual deception is presumed.�60 Based on this presumption, an impressive array of courts found it logical to hold that the related element of materiality may be presumed from a literally false

55. The term �substantive� is used to exclude claims that are trivial on their face, puffery, an obvious typographical error, or otherwise plainly not what reasonable viewers would credit as fact. In such situations, the courts will not presume materiality. See, e.g., Borden, Inc. v. Kraft, Inc., No. 84C5295, 1984 U.S. Dist. LEXIS 23719, at *34 (N.D. Ill. Sept. 28, 1984) (�miniscule difference� between actual and advertised cheese slice not material). 56. See, e.g., Am. Home Prods. Corp. v. Johnson & Johnson, 654 F. Supp. 568, 590 (S.D.N.Y. 1987) (ad violates Section 43(a) if it cites authorities that do not support claim). A misleading (sometimes called �deceptive�) claim can be ambiguous or literally true, but it is one from which a significant proportion of its audience infers a false message. A simplified example might be �Tests prove consumers prefer brand X over brand Y,� where the tests show that two consumers did prefer X, 80 consumers preferred Y, and 18 had no preference. 57. See, e.g., Gillette Co. v. Wilkinson Sword, Inc., No. 89 Civ. 3586 (KMW), 1989 U.S. Dist. LEXIS 8276, at *1 (S.D.N.Y. Jul. 6, 1989). Some courts likely would view the example in the preceding footnote to be a claim that is false by necessary implication. 58. See, e.g., Johnson & Johnson-Merck Consumer Pharms. Co. v. Procter & Gamble Co., 285 F. Supp. 2d 389, 391-92 (S.D.N.Y. 2003), aff�d, No. 03-7951(L) & 03-9009(CON), 2003 U.S. App. LEXIS 25304, at *1 (2d Cir. Dec. 16, 2003) (claim of �One Pill. 24 Hours. Zero Heartburn� for a pill that took five hours to relieve heartburn). 59. See, e.g., Johnson & Johnson-Merck Consumer Pharms. Co. v. Rhone-Poulenc Rorer Pharms., Inc., 19 F.3d 125, 129 (3d Cir. 1994) (citing Sandoz Pharms. Corp. v. Richardson-Vicks, Inc., 735 F. Supp. 597, 600 (D. Del. 1989), aff�d, 902 F.2d 222 (3d Cir. 1990)). 60. Am. Council, 185 F.3d at 614. Note also that the plaintiff is presumed to have been harmed where the offending claim expressly references the plaintiff�s product or service, whether the claim is literally false or just misleading. See, e.g., McNeilab, Inc. v. Am. Home Prods., Inc., 348 F.2d 34, 38 (2d Cir. 1988).

Vol. 94 TMR 597 claim.61 These presumptions appear to be based, at least in part, on the theory that the knowledgeable advertiser knew or should have known that the claim was literally false, and thus made the claim intending that it would have a sales-related effect on the audience (thereby creating a presumptive likelihood).62 Recent cases show a split among the federal circuits and even within the Second Circuit on whether courts may presume materiality from literal falsity.63

One case within the Second Circuit presents a bit of an anomaly, albeit an instructive one. In National Basketball Ass�n v. Sports Team Analysis, the NBA sued a maker of a wireless device that reported sports scores.64 Without mentioning the presumption issue, the district court found that two challenged claims were not shown to be material even assuming they were literally false.65 61. See, e.g., Pizza Hut, Inc. v. Papa John�s Int�l, Inc., 227 F.3d 489, 497 (5th Cir. 2000) (�With respect to materiality, when the statements of fact at issue are shown to be literally false, the plaintiff need not introduce evidence on the issue of the impact the statements had on consumers.�) (citing Avila v. Rubin, 84 F.3d 222, 227 (7th Cir. 1996); Castrol, Inc. v. Quaker State Corp., 977 F.2d 57, 62 (2d Cir. 1992)); PPX Enters., 818 F.2d at 272 (�If a statement is actually false, relief can be granted on the court�s own findings without reference to the reaction of the buyer or consumer of the product�) (emphasis added) (internal quotations and citations omitted)); ALPO Petfoods, 720 F. Supp. at 214 (�Since this court has found that Ralston�s CHD claims are actually false, their materiality thus may be presumed�). See also Coca-Cola Co. v. Tropicana Prods., Inc., 690 F.2d 312, 317 (2d Cir. 1982); Am. Home Prods. Corp. v. Johnson & Johnson, 577 F.2d 160, 165 (2d Cir. 1978) (same as PPX Enters.); Telebrands Corp. v. Wilton Indus., Inc., 983 F. Supp. 471, 474-75

(S.D.N.Y. 1997) (�If an advertisement is literally false, it may be enjoined without reference to its impact on the consumer.�) (emphasis added) (citing McNeil-P.C.C., Inc. v. Bristol-Myers Squibb Co., 938 F.2d 1544, 1549 (2d Cir. 1991); SmithKline Beecham Consumer Healthcare, L.P. v. Johnson & Johnson-Merck Consumer Pharms. Co., 906 F. Supp. 178, 181 (S.D.N.Y. 1995), aff�d, 100 F.3d 943 (2d Cir. 1996)); Am. Brands, Inc. v. R.J. Reynolds Tobacco Co., 413 F. Supp. 1352, 1356 (S.D.N.Y. 1976) (same as PPX Enters.); Honeywell, Inc. v. Control Solutions, Inc., No. 3:94 CV7358, 1994 U.S. Dist. LEXIS 20461, at *9 (N.D. Ohio filed Sept. 7, 1994) (holding that the advertisement at issue was �deemed material� because plaintiff demonstrated by a preponderance of the evidence that the advertisement was false and made in interstate commerce in connection with defendants� advertising of its own goods and services); Gillette Co. v. Wilkinson Sword, Inc., No. 89 CV 3586 (KMW), 1992 U.S. Dist. LEXIS 1265, at *3 (S.D.N.Y. Jan. 31, 1992) (quoting PPX Enters.) (internal quotations omitted). 62. Such a basis is found in Federal Trade Commission�s enforcement actions against false advertising and in the common law, both discussed below. 63. For those finding no presumption, see Johnson & Johnson Vision Care v. 1-800 Contacts, 299 F.3d 1242, 1250-51 (11th Cir. 2002); Cashmere & Camel Hair Mfrs. Inst. v. Saks Fifth Ave., 284 F.3d 302, 312 n.10 (1st Cir. 2002); S.C. Johnson & Son, Inc. v. Clorox Co., 241 F.3d 232, 238 (2d Cir. 2001). Cf. IQ Prods. Co. v. Pennzoil Prods. Co., 305 F.3d 368, 375-76 (5th Cir. 2002) (court must assume literally false claim actually misled consumers, but summary judgment granted because plaintiff failed to prove it was harmed by consumers being misled). 64. 939 F. Supp. 1071 (S.D.N.Y. 1996) (amending original decision at 931 F. Supp. 1124), aff�d in part and rev�d in part sub nom., Nat�l Basketball Ass�n v. Motorola, 105 F.3d 841 (2d Cir. 1997). 65. 939 F. Supp. at 1109-10.

598 Vol. 94 TMR The court engaged in an extensive Lanham Act materiality analysis based in significant part on the plaintiff�s failure to show that the claims, in context, misrepresented an inherent quality or characteristic of defendant�s product or service or otherwise might affect purchase decisions.66 The claims were �updated game information direct from each arena� (on a single press release) and �[scores] from each arena� (within the copy on a side panel of the product�s packages and on a retail display stand).67 Apparently, the lack of materiality of the claims was obvious to the district court and the plaintiff offered no objective proof otherwise. The court characterized the claims as �minutiae� that had a �lack of prominence in the advertisements� and that amounted to �insignificance.�68 The Second Circuit agreed with the district court, without reference to the presumption of materiality from literal falsehoods.69 It agreed that the claims were minutiae, found them irrelevant and held that they were �not material and do not misrepresent an inherent quality or characteristic of the product.�70 The lack of any such inherent nature played a significant part in the Second Circuit�s analysis. It noted that its decision likely would be different if the NBA had been marketing an electronic device that reported scores from the arenas, especially if the NBA reporting device were faster.71

The presumption of materiality from literal falsity has primarily been applied in determining whether to issue injunctive relief.72 However, the Second Circuit has extended the presumption to claims for damages on the ground that �the distinction drawn between stating a claim for injunctive relief and establishing entitlement to damages has less relevance in the context of false advertising.�73 One commentator who influenced the Second Circuit in this regard proclaimed that �[h]aving established falsity, the plaintiff should be entitled to both injunctive and monetary relief, regardless of the extent of impact on consumer purchasing decisions� and �[i]t is reasoning backwards to permit the kind of relief the plaintiff is seeking to

66. See id. 67. Id. at 1109. 68. Id. at 1110. 69. Nat�l Basketball Ass�n, 105 F.3d at 855. 70. Id. 71. Id. 72. See, e.g., Max Daetwyler Corp. v. Input Graphics, Inc., 608 F. Supp. 1549, 1552 (E.D. Pa. 1985). 73. PPX Enters., 818 F.2d at 272 (�[W]e perceive no reason why the same logic should not apply in regard to claims for damages, given the circumstances of this case�).

Vol. 94 TMR 599 affect the underlying characterization of the defendant�s conduct.�74

D. Presuming Materiality From Defendant�s Intent or Conduct

Courts may presume that advertising claims are material based on the intent or actions of the knowledgeable advertiser. For example, the court in ALPO Petfoods held that the claims at issue were material, in part, on these bases: (1) The extent of the planning of an advertiser�s campaign; (2) the extent of the advertiser�s �prepublication review of the �effectiveness� of the claims�; (3) the advertiser�s �own enthusiastic support of [its advertising] campaign�; (4) �its evaluation of the success of the campaign,� and (5) the advertiser�s intent to �exert a substantial effect on consumer purchasing decisions.�75 Where intent to deceive has been shown, �a powerful inference may be drawn that the defendant has succeeded in confusing [deceiving] the public.�76

Courts have gone so far as to presume materiality from the amount of resources expended by an advertiser in defending a challenged claim. In Royal Appliance Manufactured Co. v. Hoover Co., the court held that �materiality . . . may be inferred from the considerable resources [defendant] . . . exhausted defending [its advertising] campaign.�77 The judicial concern here may have been that the advertiser was trying to keep a profitable claim in the marketplace by stalling the litigation. Thus, one court issued a preliminary injunction against a large advertiser based, in part, on the apparent brag by the advertiser�s chief executive officer that using a false advertising claim gave his company a competitive advantage that outweighed the costs of eventually losing the Lanham Act case.78 Similar concerns about an advertiser�s attitude of liability as a cost of doing business appear in the Federal Trade Commission Act authorities.79

74. Joseph P. Bauer, A Federal Law of Unfair Competition: What Should Be the Reach of Section 43(a) of the Lanham Act? 31 UCLA L. Rev. 671, 744 n.277 (1984); see also PPX Enters., 818 F.2d at 272-73 (quoting Bauer) (internal quotations omitted). 75. 720 F. Supp. at 209. 76. Resource Developers, Inc. v. Statue of Liberty-Ellis Island Found., Inc., 926 F.2d 134, 140 (2d Cir. 1991) (emphasis added); see also Gillette, 1992 U.S. Dist. LEXIS 1265, at *2 (quoting Resource Developers). 77. 845 F. Supp. 469, 472 (N.D. Ohio 1994). 78. Johnson & Johnson-Merck Consumer Pharms., 285 F. Supp. 2d at 394. 79. See, e.g., Kraft, 970 F.2d at 324, discussed below.

600 Vol. 94 TMR

E. Presuming Materiality From Plaintiff�s Injury Some courts equate proof of materiality with its sister

element, proof of injury.80 Others recognize the relationship, but distinguish the two Lanham Act Section 43(a) cause of action elements. In American Council of Certified Podiatric Physicians and Surgeons v. American Board of Podiatric Surgery, Inc., the court stated,

The third and fifth elements�deception [previously termed by the court as materiality] and injury�are both components of causation generally. The deception element asks whether the misstatements caused the consumer to be deceived. The injury element asks whether the defendant�s deception of the consumer caused harm to the plaintiff. The sort of proof of these elements a plaintiff must show varies depending upon whether damages or injunctive relief is sought. 81

Nonetheless, it has been suggested that a separate materiality element is unnecessary because it is �merely [a] different way[ ] of paraphrasing the statutory requirement that the plaintiff show injury or likely injury caused by a false or misleading statement.�82

F. Deceit by Omission of Material Information As will be seen below, authorities, under the Federal Trade

Commission Act, securities laws and common law of torts, historically have found literally true claims to be deceptive if they omit one or more facts that would, or likely would, have been countervailingly material to the intended audience had they been disclosed in the literally true claims. For a simplified example, a claim of 1999 FORD F 150 FOR SALE without any disclaimer likely would be considered deceptive if the seller had run the odometer back 50,000 miles to enhance the apparent value of the vehicle. The omitted material fact (or �half truth�) concept often holds true for Lanham Act authorities as well.83 However, there is some legislative history that has to be addressed in this regard. 80. See, e.g., Nordale, Inc. v. Samsco, Inc., 830 F. Supp. 1263, 1272 (D. Minn. 1993) (analogizing the Minnesota Unlawful Trade Practices Act to Section 43(a) of the Lanham Act and holding that the counterclaimant could neither establish materiality nor injury because it offered �no persuasive evidence concerning loss stemming from the alleged misrepresentations.�). 81. Am. Council, 185 F.3d 606, 613-14 (6th Cir. 1999). The last sentence apparently refers to the need to prove to obtain an injunction that the offending claim only will likely influence purchase decisions and cause potential of harm to the plaintiff. Id. at 613. 82. Michael A. Albert & Robert L. Bocchino Jr., Trade Libel: Theory and Practice Under the Common Law, the Lanham Act, and the First Amendment, 89 TMR 826, 853 n.165 (1999). 83. See, e.g., ALPO Petfoods, 720 F. Supp. at 212 (�The [Lanham] act creates a cause of action for representations and statements that are [among others] . . . untrue due to a

Vol. 94 TMR 601

The Senate bill that was the primary proposal for the Trademark Law Revision Act of 1988 sought to amend Section 43(a) to make liable any person who,

by use of a . . . false or misleading description or representation, or by omission of material information, misrepresents the nature, characteristics, or qualities of his or another person�s goods, services, commercial activities or their geographic origin . . . .84

The bill�s sponsor acknowledged that the material omission terminology was well within the law of Lanham Act Section 43(a) as it had been judicially developed, but the provision was deleted, purportedly to avoid misunderstandings and to allow the courts to further develop the concept:

[T]his deletion was made to respond to concerns that it could be misread to require that all facts material to a consumer�s decision to purchase a product or service be contained in each advertisement. . . . Recent court decisions and commentators have suggested that omissions may give rise to a cause of action regardless of whether any affirmative misrepresentations have been made. The [Senate Judiciary] committee does not condone deceptive advertising whether by affirmative misrepresentation or material omission, and leaves to the courts the task of further developing and applying this principle under section 43(a).85 It would appear from this unedifying legislative history that,

all else being equal, an advertisement would not be actionable just because it did not contain all the facts that might be important to a potential purchaser of the advertised product or service. However, it would be actionable if the omission of a fact likely would influence a significant number of potential purchasers who would not have been influenced were the fact known. In other words, similar to the concept of falsity by necessary implication, the omission of material information can give rise to a claim of implied failure to disclose information. . . .�) (citing U-Haul Int�l, Inc. v. Jartran, Inc., 601 F. Supp. 1140, 1149 (D. Ariz. 1984), aff�d in part and rev�d in part, 793 F.2d 1034 (9th Cir. 1986)). However, see the vexing opinion in Am. Home Prods. Corp., 654 F. Supp. at 580, 586, 588, 591-92 (court finds actionable the omission of side effects in list of analgesic attributes, but then decides to call each party�s additional and similar claims non-actionable in apparent annoyance at both parties for issuing false ads: defendant claimed that hospitals dispensed more TYLENOL, but did not mention hospitals also chose TYLENOL because it was given to them at reduced costs, and plaintiff claimed that 70,000 doctors recommended ANACIN-3, but did not mention that these were free samples given away). 84. 133 Cong. Rec. S16550 (daily ed. Nov. 19, 1987) (statement of Sen. DeConcini) (regarding S. 1883, sec. 28) (emphasis added). 85. 134 Cong. Rec. S5869 (daily ed. May 13, 1988) (statement of Sen. DeConcini); see also S. Judiciary Comm. Rep. No. 100-515, at 3, 41 (1988) (regarding S. 1883); see also supra note 4.

602 Vol. 94 TMR misrepresentation of material facts. For a simplified example, the price of a product often is considered to be material, yet the failure to disclose the price of a brand of beer in an advertisement about the superior taste of that product likely would not be actionable. On the other hand, an advertisement of extraordinarily low rates for long-distance telephone services might very well be actionable if it does not disclose that the rates will be increased significantly after 30 days. Thus, it would appear that a claim is actionable if it omits a statement of fact that would act as an important disclaimer�a fact that, if known, would make the advertised product or service significantly less attractive to potential purchasers.

G. Methods of Proving (or Disproving) Materiality A number of the methods of proving (or disproving)

materiality, or gaining evidence to convince a court that it should (or should not) presume materiality, are explicit and implicit in the above discussion. This section of the article outlines additional major avenues of gaining such proof.

Obviously, evidence of the intended audience�s perception of the importance of the offending claim should be probative. The results of perception surveys, introduced through experts, have become standard fare in Lanham Act false advertising cases when the offending claim is not literally false.86 It is also not unusual to see such surveys used to help prove that a substantial portion of the intended audience considers (or does not consider) the claim at issue to be important with respect to buying the relevant product or service.87

Failure to conduct a materiality survey or otherwise obtain evidence designed to show materiality prior to trial can lead to a later unsuccessful scramble through existing exhibits for such evidence when the materiality issue is raised on a motion for dismissal or summary judgment.88 In jury trials, failure to obtain instructions (or special interrogatories) on materiality can be fatal.89

86. See generally Leighton, supra note 5, at 756-89 for a history of perception survey use in Lanham Act cases and the criteria for determining their reliability and relevancy; see also Richard J. Leighton, Using and Not Using the Hearsay Rules to Admit and Exclude Surveys in Lanham Act False Advertising and Trademark Cases, 92 TMR 1305, 1306-07 (2002). 87. See, e.g., ALPO Petfoods, 720 F. Supp. at 209; see also Kraft, 970 F.2d at 324. 88. See Pizza Hut, 227 F.3d at 502-04 (reviewing and rejecting various surveys and other exhibits that apparently were not created to measure materiality, but were proffered as showing materiality). 89. See id. at 504 n.15.

Vol. 94 TMR 603

If the trial court will allow it, materiality evidence from potential or actual purchasers who were exposed to the claim at issue can be very persuasive support for dispositive motions or at trial. Sources for such evidence are recorded focus groups, depositions or original trial testimony. In ALPO Petfoods, the successful plaintiff covered all bets by introducing a consumer perception survey, the results of the defendant�s own focus group research, and portions of videotape deposition testimony of purchasers who relied on the claim. The court cited all three forms of evidence in finding the claims to be material.90 Other courts have also indicated the viability of using purchaser testimony.91 In addition to perception survey experts, the courts may allow testimony on the materiality issue from experts in purchaser decisionmaking or those who perform regression analyses or otherwise measure the sales data relative to relevant variables.92

Additional guidance from the Supreme Court on how materiality is to be judged is found in TSC Industries, Inc. v. Northway, Inc.,93 the seminal, unanimous opinion on materiality in federal securities laws. The substantive teachings of that important case are discussed below in Section III.D. Materiality Under Federal Security Laws and Regulations. However, there is one aspect of the opinion that is instructive with respect to motions for dismissal or summary judgment in Lanham Act false advertising cases because the concepts and terms would appear equally applicable to such cases. The Supreme Court emphasized that the issue of materiality to investors must be viewed as a mixed question of law and fact, and it did so in terms that would seem equally applicable to potential purchasers viewing advertising claim challenges under the Lanham Act.94 Thus, �The [materiality] determination requires delicate assessments of the inferences a �reasonable shareholder� would draw from a given set of facts and the significance of those inferences to him, and these assessments are peculiarly ones for the trier of fact.�95 Only if the

90. 720 F. Supp. at 199, 209. (The court�s references to the testimony from purchasers did not mention that such testimony came into evidence via videotape depositions. However, the author of this article, who was lead trial counsel for the plaintiff in that case, has personal knowledge of this fact.) 91. See, e.g., PPX Enters., 818 F.2d at 271; see also Pizza Hut, 227 F.3d at 497 (quoting PPX Enters.). 92. See, e.g., ALPO Petfoods, 913 F.2d at 965 (affirming the district court�s finding that plaintiff�s expert�s regression analyses were sufficient to show that the advertising at issue had a material effect). 93. 426 U.S. 438 (1976). (Justice Stevens did not participate.) 94. Id. at 450.

604 Vol. 94 TMR offending claim is ��so obviously important to an investor, that reasonable minds cannot differ on the question of materiality� is the ultimate issue of materiality appropriately resolved �as a matter of law� by summary judgment.�96

Research has found no reported Lanham Act false advertising decision expressly stating that materiality is a mixed question of fact and law that is not to be summarily disposed of as a conclusion of law. Nonetheless, the Tenth Circuit has indicated that the failure to submit materiality as a fact issue to the jury can be fatal.97 In bench trials there have been oblique references to the role of the court as fact finder to determine if people were misled.98 The implicit acceptance of the mixed law/fact principle in Lanham Act cases is most often seen when the courts grant defendants� dispositive motions on the basis of a puffing defense and use the magic words that justify taking fact determinations about materiality away from the fact finder��no reasonable purchaser could find the claim material��or words to that effect.99

III. MATERIALITY IN RELATED AUTHORITIES A. Materiality Under the

Federal Trade Commission Act Enforcement of the Federal Trade Commission Act100 can

provide persuasive authority for Lanham Act advertising cases in

95. Id. (brackets added to show potential Lanham Act applicability). For a similar holding with regard to a federal criminal statute, see United States v. Gaudin, 515 U.S. 506, 511-23 (1995) (court must submit question of materiality of false statement to the jury under 18 U.S.C. § 1001). 96. TSC Indus., 426 U.S. at 450 (quoting Johns Hopkins Univ. v. Hutton, 422 F.2d 1124, 1129 (4th Cir. 1970)). A warning might be appropriate here: it has been held in a criminal case that �the characterization of a mixed question of law and fact for one purpose does not govern its characterization for all purposes.� Gaudin, 515 U.S. at 522. 97. See Pizza Hut, 227 F.3d at 504 n.15. 98. See, e.g., Am. Home Prods. Corp., 654 F. Supp. at 590 (�Once the meaning of the advertisement to the target audience has been determined, the Court, as the finder of fact, must then judge for itself whether the evidence establishes that readers are likely to be misled.�); McNeilab, Inc. v. Am. Home Prods. Corp., 501 F. Supp. 517, 525 (S.D.N.Y. 1980) (�as finder of fact it [the court] is obliged to judge for itself whether the evidence of record established that others are likely to be misled or confused�) (emphasis in original). 99. See, e.g., Cook, Perkiss & Liehe, Inc. v. N. Cal. Collection Serv., Inc., 911 F.2d 242, 245-46 (9th Cir. 1990) (��It is beyond the realm of reason to assert, as plaintiffs do, that a reasonable consumer would interpret this as a factual claim upon which he or she could rely��) (quoting with approval the decision of the district court); see also Interactive Prods. v. a2z Mobile Office Solutions, Inc., 326 F.3d 687, 699 (6th Cir. 2003) (�[N]o reasonable juror could conclude that the� challenged claim would be interpreted as plaintiff alleges). 100. 15 U.S.C. §§ 41, et seq. (2004).

Vol. 94 TMR 605 general,101 and materiality issues in such cases in particular.102 The FTC Act contains no private right of action, but most �Little FTC Acts� patterned after the federal statute in the various states do.103 Section 5(a) of the FTC Act prohibits unfair methods of competition and unfair or deceptive acts or practices in or affecting commerce.104 Although now applied to all goods and services and often invoked to protect the ultimate purchaser (i.e., �the consumer�), such was not always the case. Section 5 was based in large part on traditional unfair methods of competition. Because of this origin, over 70 years ago, the Supreme Court held that the Commission could not protect consumers directly from a deceptive act or practice; it must first find that one or more businesses were adversely affected.105

In large part to correct this narrow interpretation, the Wheeler-Lea Amendments of 1938 added Section 12 to the FTC Act.106 Section 12 now makes it a prohibited act or practice under Section 5 to publish a �false advertisement� relating to foods, drugs, medical devices, cosmetics, or services associated with such products.107 A false advertisement for Section 12 purposes is �an advertisement other than labeling, which is misleading in a material respect.�108 To determine whether such an advertisement is misleading, the statute mandates that the FTC take into account a number of factors: (1) All representations made or suggested by statement, word, design, device, sound or any combination thereof; (2) the extent to which the advertisement fails to reveal facts that are material in the light of such 101. See, e.g., B. Sanfield, 168 F.3d at 973 (�[A]s the administrative agency charged with preventing unfair trade practices, the [Federal Trade] Commission�s assessment of what constitutes deceptive advertising commands deference from the judiciary�); id. at 975 n.7 (holding that an FTC guideline may �guide, without constraining, the court�s analysis under [Section 43(a) of] the Lanham Act�). 102. See Nat�l Basketball Ass�n, 939 F. Supp. at 1110. 103. The model state act is the Unfair Trade Practices and Consumer Protection Act, 29 Suggested State Legis. 141 (1970); it was developed by the FTC and all or part of it has been enacted in all states. Citations to the state statutes are found in the Restatement of Unfair Competition, supra note 20, at 13-14. 104. 15 U.S.C. § 45(a) (2004). 105. FTC v. Raladam Co., 283 U.S. 643, 649 (1931). 106. 15 U.S.C. § 52 (2004) (Section 12 originally added Mar. 21, 1938, ch. 49, § 4, 52 Stat. 114). 107. Id. 108. 15 U.S.C. § 55(a) (2004). The FTC has primary responsibility for regulating advertising other than �labeling� (information on labels or accompanying a product) of foods, drugs, medical devices, and cosmetics, except for prescription drugs; the FDA has primary responsibility for preventing falsity and deception with respect to labels and labeling for these products and with regard advertising of prescription drugs. See Memorandum of Understanding Between the Federal Trade Commission and the Food and Drug Administration, 36 Fed. Reg. 18,538 (1971), as amended.

606 Vol. 94 TMR representations; and (3) the extent to which the advertisement misrepresents or fails to represent information that is material with respect to consequences from the use of the thing to which the advertisement relates under the conditions prescribed in said advertisement or under such conditions as are customary or usual.109

Under the FTC Act, deception generally is defined as a �material� representation, omission or practice that is likely to mislead the consumer acting reasonably under the circumstances.110 The FTC considers a statement or practice to be material if it likely would affect a consumer�s choice of, or conduct regarding, any product or service.111 The FTC recognizes that a material claim may be actionable if it affects conduct other than purchase decisions.112

The FTC categorizes some claims as presumptively material, although it will consider evidence to rebut such presumptions. Paralleling those courts that presume literally false claims to be material under the Lanham Act, the Commission presumes �express� (as opposed to implied) commercial claims to be material under the FTC Act on the theory that the businesses making them know or should know what is of interest to consumers of their products or services.113 On the same basis, an intended implied claim would be considered material by the FTC.114

Where the advertiser knows or should have known that an ordinary consumer would need omitted information to evaluate a product or service, or to determine that its advertising claim is false, materiality will be presumed on the theory that the advertiser intended the omission or falsity to have an effect.115 In Kraft v. FTC,116 the Seventh Circuit upheld the FTC�s presumption of materiality based on �internal company documents showing that Kraft designed the ads to deliver an imitation [cheese] superiority 109. 15 U.S.C. § 55(a). 110. FTC�s Policy Statement on Deception (Oct. 14, 1983) (�FTC Deception Policy Statement�), as transmitted to the Chairman, Senate Commerce, Science and Transportation Committee and House Energy and Commerce Committee, reprinted in 45 Antitrust & Trade Reg. Rep. (BNA) 689, 690-91 (Oct. 14, 1983); see also id. at 695, 696 (Oct. 21, 1983) (dissents by Commissioners Michael Pertschuk and Patricia Bailey). 111. FTC Deception Policy Statement at 693. 112. Id. at 694. See, e.g., In re Volkswagen of Am., 99 F.T.C. 446 (1982) (FTC complaint based on inaccurate instructions for installing oil filters that could damage already-purchased cars). As shown above, most courts interpret the materiality requirement of Lanham Act Section 43(a) more narrowly, limiting its applicability to actual or likely purchasing decisions. 113. FTC Deception Policy Statement at 694. 114. Id. 115. Id. 116. 970 F.2d 311, 324 (7th Cir. 1992).

Vol. 94 TMR 607 message� and, thus, intended to make this claim. According to the court, the FTC reasonably inferred that Kraft believed its ads induced consumers to purchase its product because Kraft continued to run the challenged ads after it received repeated warnings about the deceptive nature of Kraft�s claim from television stations, Kraft�s own ad agency, a consumer group, the FTC and the California Attorney General�s Office.117 In finding the FTC�s inference reasonable, the court also noted that the evidence showed that �Kraft designed the ads with the intent to capitalize on consumer . . . concerns.�118 The court also upheld the FTC�s finding that Kraft�s advertising was material, in part, because Kraft�s sales and market share increased for the advertised product and such increase corresponded directly with Kraft�s ad campaign.119

The Commission also presumes materiality for claims or omissions that significantly involve health, safety, or other areas of concern to a reasonable consumer.120 Depending on the facts, claims relating to the central characteristics, purpose, efficacy or cost of the product or service also will be presumed material by the FTC.121 Claims relating to durability, performance, warranties or quality also are likely to be found material by the Commission.122 Finally, information relating to another agency�s findings regarding a product or service may be considered as evidence of materiality by the FTC.123

B. Materiality Under Common Law Principles Federal and state unfair competition statutes, such as the

Lanham and FTC Acts and state versions thereof, �generally rely without significant elaboration on concepts derived from the common law.�124 The common law action for unfair competition evolved originally to protect business people against a competitor�s misrepresentation of the source of goods or services.125 However, with considerable help from the courts, unfair competition has evolved into a wide array of legal actions between business competitors, including claims for passing off, false and deceptive 117. See id. at 323. 118. Id. 119. Id. at 324. Kraft�s increase in market share also came at a time when its product was priced approximately forty percent higher than certain competitors. Id. 120. Id. at 322; see also FTC Deception Policy Statement at 694. 121. FTC Deception Policy Statement at 694. 122. Id. 123. Id. 124. Restatement of Unfair Competition, supra note 20, at XI (Foreword). 125. Id.

608 Vol. 94 TMR advertising, infringement or dilution of trademarks and protection of trade secrets and publicity rights.126 These are now treated in the Restatement of Unfair Competition, which replaces and expands upon the original Restatement of Torts� treatment of unfair competition including the common law action for deceptive marketing.127

The common law action for deceit also spawned various relevant causes of action, including fraudulent misrepresentation and injurious falsehood, which includes trade libel. These are treated in the current Restatement of Torts.128 Many courts have cited one or more of the above restated causes of actions as historical bases or persuasive authorities for materiality and puffing determinations in false advertising cases under the Lanham Act, FTC Act, various federal securities statutes, the Uniform Commercial Code and related state statutes.

The common law action for deceptive marketing, as applied to advertising, requires �a representation relating to the [advertiser�s] own goods, services, or commercial activities that is likely to deceive or mislead prospective purchasers to the likely detriment of another. . ..�129 That representation, in turn, also must be

(a) . . . material, in that it is likely to affect the conduct of prospective purchasers; and [there must be]

(b) . . .there is a reasonable basis for believing that the representation has caused or is likely to cause a diversion of trade from the other [the plaintiff competitor] or harm to the other�s reputation or good will.130 The comments and case-based illustrations on actual

materiality in the Restatement of Unfair Competition emphasize the following:

• Materiality must be determined from the perspective of a significant number of the representation�s intended audience of prospective purchasers.

• Those potential purchasers must be likely to attach importance to that representation in determining whether to engage in a proposed transaction.

• However, the representation need not be the only, or the predominant, factor influencing the potential

126. Id. 127. Original Restatement of Torts, supra note 20, § 761; see also id.: Division 9. 128. Restatement (Second) of Torts: Title E Scope Note at 54 (1977). See generally id.: Division 4, Division 6. 129. Restatement of Unfair Competition, supra note 20, § 2. 130. Id. at § 3.

Vol. 94 TMR 609

purchasers; it need only likely influence them to some substantial degree.

• Nor must it be shown that potential purchasers acted to their detriment in reliance on the representation.

• Nor must it be shown that the advertiser (or other originator of the representation) foresaw, or should have foreseen, that the claim likely would influence potential purchasers.131

With regard to presumed materiality in deceptive marketing, the Restatement of Unfair Competition states that �[e]vidence indicating an intent to deceive . . . may justify an inference that the representation is material since a seller will not ordinarily make a fraudulent representation without believing that the representation is likely to influence prospective purchasers.�132 Also, a presumption of materiality may arise from �representations that related to matters that the purchasers ordinarily consider important.�133 On the other hand, where the falsity of the representation would be obvious to the purchasers or they are likely to rely on their own investigations, there is no materiality because reliance on the representation would be unreasonable.134 These principles form a basis for recognizing a puffery defense, as discussed below.

We must turn to the Restatement of Torts for common law causes of action brought by those deceived by advertising and other representations (as contrasted with causes of action for competitors whose goods or services are advertised to such people). The tort of fraudulent misrepresentation, which includes misrepresentation by concealment or nondisclosure, has its origins in the common law action for deceit.135 Recipients of the misrepresentation whose actions or inactions resulted from �justifiable� reliance on the misrepresentation generally have a cause of action.136 Such reliance �is not justifiable unless the matter misrepresented is material.�137 The matter is material, in turn, if

(a) a reasonable man would attach importance to its existence or nonexistence in determining his choice of action in the transaction in question; or

131. Id. at cmt. b. 132. Id. 133. Id. 134. Id. 135. Restatement (Second) of Torts: Title E Scope Note at 54 (1977). 136. Id. at § 537. 137. Id. at § 538.

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(b) the maker of the representation knows or has reason to know that its recipient regards or is likely to regard the matter as important in determining his choice of action, although a reasonable man would not so regard it.138

Note that under subsection (b) above, even where a reasonable person would not attach any importance to the misrepresented matter, that representation is material if its maker knows that the recipient is likely to attach importance to it because of special peculiarities.139 An example would be preying upon those who will unreasonably rely on astrology-based claims when making purchase decisions.140

Of course, the recipient of a misrepresentation is not justified in relying on it if the recipient knows that it is false or its falsity should be obvious to that person under the circumstances.141 Whether a reasonable person would regard the matter represented to be of such importance is a question for the jury. However, �[t]he court may withdraw the case from the jury if the fact misrepresented is so obviously unimportant that the jury could not reasonably find that a reasonable man would have been influenced by it.�142

With regard to the overlapping tort of injurious falsehood about the quality of goods or other commercial aspects, sometimes called trade libel, the plaintiff must prove that the circumstances under which the falsehood was published made a third person�s reliance on it reasonably foreseeable.143 Although the plaintiff has to prove damages caused by third parties� reliance on the disparagement, there apparently is no additional requirement that the disparagement be shown to be important to the choices made by those third parties.144

C. Materiality Under the Uniform Commercial Code The importance of proving purchaser reliance on advertising

claims is addressed in the Uniform Commercial Code, a model law that has been adopted in some form in virtually all of the United States. Important advertising-related revisions to the U.C.C. appeared in 2004,145 applying to a seller�s statements to an 138. Id. 139. Id. at cmt. f. 140. See id. 141. Id. at § 541 cmt. a. 142. Id. at § 538 cmt. e. 143. Id. at § 651(1)(e). 144. See generally id. at Division Six. 145. As of this writing, the 2004 version is not generally available. For the 2003 version, see Uniform Commercial Code Official Text and Comments, American Law Institute (ALI)

Vol. 94 TMR 611 �immediate buyer,� one who enters a contract with the seller where there is no intervening seller such as a retailer; and to a �remote purchaser� where there is no contractual privity and there is one or more intervening sellers, such as a retailer.146

A seller�s claim about goods that is an affirmation of fact, promise, remedial promise or product description and that becomes part of the basis of the bargain creates an express warranty when made to an immediate buyer.147 With regard to new goods, any such claim made to a remote buyer in a package insert, labeling or other accompanying form creates a legal �obligation� on the part of the seller to conform to the claim if the seller reasonably expects the claim to be communicated to the remote purchaser, �unless a reasonable person in the position of the remote purchaser would not believe� that the claim created an obligation.148 Any such claim about new goods made in �advertising or a similar communication to the public� creates a legal �obligation� on the part of the seller to conform to the claim if the remote purchaser buys the product with knowledge and an expectation that the goods or the seller will perform as so advertised.149 There also is an important puffery exception to all of these claims that is discussed below in the following section on puffery.

D. Materiality Under Federal Security Laws and Regulations

The legislative and judicial developments of federal securities laws and regulations are similar to those of Lanham Act false advertising law. One important difference is that many of the securities requirements are in large part based upon the perceived need for full disclosure of all material information to protect consumers of securities (i.e., investors).150 Yet, as with the judicial and National Conference of Commissioners on Uniform State Laws (West 2003) (U.C.C.). ALI has provided the author with an advance copy of the copyrighted 2004 U.C.C. text and Official Comments, which are the sources of the quotations and citations below. 146. U.C.C. §§ 2-313, 313A, 313B. 147. U.C.C. § 2-313(2), (4). The warranty is that the goods will conform to the fact or promise. If the claim is a remedial promise to the immediate buyer, the seller has an obligation to perform the promised repair or other remedy upon the happening of the specified triggering event. U.C.C. § 2-313(4). 148. U.C.C. § 2-313A(2), (3) (emphasis added). Included here are goods sold or leased as new goods in a transaction in the normal chain of distribution. U.C.C. § 2-313A(1). This would include resold returned goods or �new� goods (e.g., automobiles) bought by one dealership from another and then resold. 149. U.C.C. § 2-313B(3). 150. Compare the Congressional intent when revising the Lanham Act in 1988 to avoid a provision that could be interpreted as requiring all advertising to contain all material facts. See supra note 84.

612 Vol. 94 TMR development of the Lanham Act, there is a growing concern that in reacting to crowded dockets and frivolous investor litigation, the courts are eroding the bases for securities laws by dismissing too many cases on materiality and puffing grounds without sufficient analysis.151

Materiality is a basic criterion under many provisions of the federal securities statutes. For example, Section 11 of the Securities Exchange Act of 1934 creates a cause of action for investors in a stock if that security �contained an untrue statement of material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading.�152 Under Section 10(b) of that Act,153 the elements that a securities fraud action plaintiff must prove are: �(1) the defendant made a false statement or omission of material fact (2) with scienter (3) upon which the plaintiff justifiably relied [in purchasing a security or taking another related action or inaction] (4) that proximately caused the plaintiff�s damages.�154

The Securities and Exchange Commission has defined �material� for purposes of enforcing the securities laws as follows:155

The term material, when used to qualify a requirement for the furnishing of information as to any subject, limits the information required to those matters to which there is a substantial likelihood that a reasonable investor would attach importance in determining whether to purchase the security registered.

Note the heightened (substantial) likelihood requirement under the SEC regulatory definition. The Lanham Act only requires a mere likelihood under the case law.

The origin of, and reasons for, the heightened standard is the holding in the Supreme Court�s illuminating TSC Industries opinion on proxy solicitation, which was extended by the Court to

151. See generally Stephen M. Bainbridge & G. Mitu Gulati, How Do Judges Maximize? (The Same Way Everybody Else Does�Boundedly): Rules Of Thumb in Securities Fraud Opinions, 51 Emory L.J. 83 (2002); O�Hare, supra note 9; see also Lee, supra note 7, at 441, 478-80. 152. 15 U.S.C. § 77k (a) (2003). A person who, at the time of the acquisition, knew of the untruth or admission has no right to sue. See id. See, e.g., 15 U.C.C. §§ 77l (prospectuses and communications), 78r (applications, reports, registration statements, documents), 80b-7 (registrations, applications, reports). 153. 15 U.S.C. § 78j(b) (2003). 154. Hillson Partners Ltd. P�ship v. Adage, Inc., 42 F.3d 204, 208 (4th Cir. 1994) (quoting Cooke v. Manufactured Homes, Inc., 998 F.2d 1256, 1260-61 (4th Cir. 1993) (emphasis added). 155. 17 C.F.R. § 230.405 (2003) (italics in original, underscoring added).

Vol. 94 TMR 613 securities fraud actions under Section 10(b) of the Act.156 The Supreme Court in TSC Industries reversed the Seventh Circuit materiality standard on the ground that it was too low a threshold. That unacceptable standard found facts to be material if �a reasonable shareholder might consider [them] important.�157 The Supreme Court noted that other circuit courts that had also considered the standard too low had adopted the much higher common law tort standard under which �a reasonable man would attach importance to the fact misrepresented or omitted.�158 One of these appeals courts also approved, with respect to proxy statements, the in-between �substantial likelihood� standard.159

The Supreme Court gave the following reasons for adopting the substantial likelihood standard:160

Some information is of such dubious significance that insistence on its disclosure may accomplish more harm than good. . . . [I]f the standard of materiality is unnecessarily low, not only may the corporation and its management be subjected to liability for insignificant omissions or misstatements, but also management�s fear of exposing itself to substantial liability may cause it simply to bury the shareholders in an avalanche of trivial information�a result that is hardly conducive to informed decisionmaking.

The Supreme Court hastened to point out that the substantial likelihood standard does not require proof that the claim in question caused the reasonable person to act or not act in a certain way. It requires a showing of substantial likelihood that, under the circumstances, the claim would have assumed actual significance in the decisionmaking of the person.161 �Put another way, there must be a substantial likelihood that the disclosure of the omitted fact [or the correction of the misstatement] would have been viewed by the reasonable investor as having significantly altered the �total mix� of information made available.�162

This materiality concept was clarified in Basic Inc. v. Levinson,163 in which the Supreme Court warned that a per se 156. Basic Inc. v. Levinson, 485 U.S. 224, 232 (1988). 157. TSC Indus. v. Northway, Inc., 426 U.S. 438 (1976) (emphasis in original); see also Northway, Inc. v. TSC Indus., Inc., 512 F.2d 324, 330 (7th Cir. 1975). That standard had also been found to be too low by two other federal circuit courts. 158. Id. at 445 (emphasis in original) (citing Gerstle v. Gamble-Skogmo, Inc., 478 F.2d 1281, 1301-02 (2d Cir. 1973); Smallwood v. Pearl Brewing Co., 489 F.2d 579, 603-04 (5th Cir. 1974); Restatement (Second) of Torts, supra note 128, § 538(2)(a). 159. Gerstle, 478 F.2d at 1302. 160. TSC Indus., 426 U.S. at 448-49. 161. See id. at 449. 162. Id. 163. 485 U.S. 224, 236 (1988).

614 Vol. 94 TMR approach to materiality would be improper: �Any approach that designates a single fact or occurrence as always determinative of an inherently fact-specific finding such as materiality, must necessarily be overinclusive or underinclusive.� The Supreme Court endorsed the case-by-case approach advocated to the SEC by the Advisory Committee on Corporate Disclosure.164 The Supreme Court held that �materiality depends on the significance the reasonable investor would place on the withheld or misrepresented information,� and noted that there was no authority �for varying the standard of materiality depending on who brings the action or whether insiders are alleged to have profited.�165

E. Materiality in Responding to Government Inquiries The Supreme Court has struggled with the concept of

materiality under a variety of government investigational statutes, thereby providing guidance on how a court can approach the subject analytically, if not providing actual definitional borders. In one such case, the Supreme Court traced the 17th Century common law antecedents that used the term �material� in the prosecution of false statements to public officials, including Lord Coke on perjury (by �any person . . . who sweareth absolutely and falsely in a matter material to the issue�) and Blackstone on the same subject (the falsity �must be in some point material to the question in dispute [not] only be some trifling collateral circumstance, to which no regard is paid�).166

One of the most litigated federal statutes that expressly requires a materiality showing is 18 U.S.C. § 1001. This is a criminal statute that expressly prohibits the use of �materially false� statements or documents, or the concealment of any �material fact,� with regard to any matter under the jurisdiction of a federal agency and in certain legislative and judicial contexts. The Supreme Court�s broad standard for interpreting materiality under that statute, which has been consistently followed in other contexts involving representations to the government, is that a concealment or misrepresentation is material if it �has a natural tendency to influence, or was capable of influencing, the decision of� the entity being addressed.167 The Supreme Court also has 164. See id. 165. Id. at 240. 166. Kungys v. United States, 485 U.S. 759, 769 (1988) (citing 3 Edward Coke, Institutes 164 (n.p. 6th ed. 1680); 4 William Blackstone, Commentaries *137). 167. Weinstock v. United States, 231 F.2d 699, 701-02 (D.C. Cir. 1956); cf. United States v. Goldfine, 538 F.2d 815, 820-21 (9th Cir. 1976) (material falsehoods under 18 U.S.C. § 1001 include statements known by recipient to be false and therefore not capable of influencing the decision, because the intrinsic capabilities of the false statement, itself, rather than the possibility of actual attainment of its end, is the criterion).

Vol. 94 TMR 615 issued guidance on the process for determining materiality under its broad standard:

Deciding whether a statement is �material� requires the determination of at least two subsidiary questions of purely historical fact: (a) �what statement was made?� and (b) �what decision was the agency trying to make?� The ultimate question: (c) �whether the statement was material to the decision,� requires applying the legal standard of materiality (quoted above) [natural tendency to influence or be capable of influencing the audience] to these historical facts.168 Under 18 U.S.C. § 1041, it is a crime to knowingly make any

�false statement� to influence federally insured banks or certain other entities, but the provision does not use the term �material� to modify �false statement.� This makes that statute unlike 18 U.S.C. § 1001, but like the Lanham Act, which only speaks of any �false or misleading description of fact or false or misleading representation of fact.�169 In United States v. Wells, the Supreme Court was presented with the issue whether the materiality of a falsehood had to be considered an element of the crime under 18 U.S.C. § 1041, given that the statute never mentioned materiality.170 The Court found that such materiality was not a required element.171 Much of the Court�s extensive and multifaceted reasoning in this regard may be instructive, especially when considering the parallels to the Lanham Act. First, the Court noted that the statute never mentions materiality and �the term �false statement� carries no general suggestion of influential significance;� thus, materiality would not be an element under a �natural reading of the full text.�172 Second, there is no indication that the term �false statement� acquired any implication of materiality at common law that Congress could have implicitly incorporated.173 Third, there was no legislative history indicating an implied materiality requirement. In fact, Congress included such a requirement in some false representation statutes and not in others, leading to the inference that a materiality requirement was deliberately avoided.174 Fourth, the fact that Congress amended the statute 168. Gaudin, 515 U.S. at 512 (materiality standard at 509). 169. 15 U.S.C. § 1125(a). 170. 519 U.S. 482, 484 (1997). 171. Id. 172. Id. at 490. 173. Id. at 491. But see the discussion above of materiality under the common law as reflected in the Restatements of Unfair Competition and Torts relating to such terms as �deceptive� and �misleading.� 174. Id. at 492-93. There is no specific Lanham Act legislative history on materiality, although there were references in the debate on the 1988 revisions generally ratifying the existing case law, which usually included a materiality element.

616 Vol. 94 TMR without rejecting decisions of the lower courts that had imposed a materiality requirement on the provisions does not mean that Congress ratified those decisions by implication, as ��it is at best treacherous to find in congressional silence alone the adoption of a controlling rule of law.��175

In Kungys v. United States,176 the Supreme Court also used the well-recognized �natural tendency� or �capability� standard for materiality to interpret Section 340 of the Immigration and Nationality Act of 1952, 8 U.S.C. §1451. That statute has an express materiality provision that provides for the denaturalization of citizens whose citizenship papers �were illegally procured or procured by concealment of a material fact or by willful misrepresentation.� In so interpreting that statute�s materiality requirement, the Supreme Court noted, �Where Congress uses terms that have accumulated settled meaning under either equity or the common law, a court must infer, unless the statute otherwise dictates, that Congress means to incorporate the established meaning of these terms.�177 Also, the Court found that there would be a presumption of disqualification where a person procures citizenship through material misrepresentations or concealments, but that the presumption may be overcome by proof by a preponderance of evidence that the misrepresentation had a natural tendency to produce a proper decision (as contrasted with the likelihood that the misrepresentation would produce an improper decision).178

IV. PUFFERY AS A DEFENSE TO A LANHAM ACT CAUSE OF ACTION

A concept that became a basis of the puffery exclusion predates 1534, when a compiler of English law gave the following example about the potential sale of a horse. �If he be tame and have been rydden upon [by the potential buyer], then caveat emptor [let the buyer beware].�179 The strange legal terms �puffer� and �puffery� apparently became associated with commercial

175. Id. at 495-96 (quoting NLRB v. Plasterers� Local Union No. 79, 404 U.S. 116 (1971)) (further citation omitted). See preceding note. 176. 485 U.S. 759, 770, 772 (1988). 177. Id. at 770 (quoting NLRB v. Amax Coal Co., 453 U.S. 322, 329 (1981)). 178. Id. at 777. However, the Supreme Court added: �In any case, it will assuredly be rare that a lie which has been shown, clearly, unequivocally, and convincingly, to have a natural tendency to produce the conclusion that the applicant was qualified, will have a �completely innocent explanation.�� (quoting concurrence). 179. Anthony Fitzherbert, Boke of Husbandrie § 118 (1534), quoted in Preston, supra note 9, at 29.

Vol. 94 TMR 617 activities in the mid- to late-18th Century.180 A �puffer� was a person secretly hired by a seller to bid up auction prices (�puffing�), thereby creating a deliberate and material deception that was outlawed by statute in many jurisdictions.181 By the 19th Century, the term �puffery� (sometimes called �sales talk� or �dealer�s talk�) had transmogrified into a contrary connotation as a legal defense for vindicating salespeople accused of common law fraud and deceit.182

The defense was founded on two related caveat emptor presumptions: (1) the potential purchaser can inspect what is to be purchased and thereby determine the truthfulness of any statements made by the seller, and (2) everyone knows that you should not rely on what sellers say because they �will naturally overstate the value and qualities of the articles which they have to sell.�183 As Judge Learned Hand taught, the intended audience can make a difference as to whether a claim is actionable or a puff, but a fundamental basis of puffery is the notion that no one usually believes a seller�s opinion:

[I]t makes much difference whether the parties stand �on an equality.� For example, we should treat very differently the expressed opinion of a chemist to a layman about the properties of a composition from the same opinion between chemist and chemist, when the buyer had full opportunity to examine. The reason for the rule lies, we think, in this: There are some kinds of talk which no sensible man takes seriously, and if he does he suffers from his credulity. If we were all scrupulously honest, it would not be so; but, as it is, neither party usually believes what the seller says about his own opinions [sic], and each knows it.184 The central point of a successful puffery defense today is that

it must be obvious from the challenged claim itself that reasonable minds could not differ as to the alleged puff�s lack of materiality to the claim�s intended audience. Otherwise, a judge would have to allow the jury to weigh the evidence of the claim�s potential 180. Vol. XII Oxford English Dictionary (2d ed. 1989). 181. Id. 182. Prosser and Keeton, supra note 9, § 109 at 756 (citing early articles and cases for the proposition that buyer relies on exaggerated opinion at his or her own risk). 183. Kimball v. Bangs, 11 N.E. 113, 114 (Mass. 1887); Norville v. Alton Bigtop Rest., Inc., 317 N.E.2d 384, 389 (Ill. App. Ct. 1974). Kimble v. Bangs is quoted on this point in Prosser and Keeton, supra note 9, § 109 at 757 & n.25. 184. Vulcan Metals Co. v. Simmons Mfg. Co., 248 F. 853, 856 (2d Cir. 1918). But see, as to securities laws where puffing is recognized, Anschutz Corp. v. Kay Corp., 507 F. Supp. 72, 74 (S.D.N.Y. 1981) (�we strongly doubt whether Judge Hand would have adopted the same approach today in view of the heightened standards of disclosure established by the federal securities laws�).

618 Vol. 94 TMR importance in the purchase decision or other related action (or weigh such evidence in a bench trial).185

A puff can be a slight misrepresentation or an outright lie, a silly situation or a sublime statement. The puffery range includes THE BEST PART OF WAKING UP IS FOLGER�S[®] IN YOUR CUP and BAYER[®] IS 100% ASPIRIN�THE WORLD�S BEST ASPIRIN, with many a claim in between and beyond.186 Whatever a claim states, however, it is not actionable as false or misleading advertising if the adjudicator holds that it is puffery. Unfortunately, what is puffery in one court and one context may not be puffery in another court in the same or a different context. Thus, puffery, as with beauty, often is only in the eye of the beholder; also, as with beauty, reliance on the puffery defense to overcome the natural consequences of one�s statements can be very risky.

A. Overview of Puffery Under the Lanham Act The 1988 amendments to Section 43(a) of the Lanham Act

added two key words to clarify that to be actionable, a claim had to be a �false or misleading description of fact or false or misleading representation of fact.�187 This 1988 clarification was, in major part, designed to help avoid a constitutional challenge over whether Section 43(a) made opinions, ideas and political speech actionable.188 It also serves as a basis for a puffing defense for claims that arguably cannot be construed as statements of fact.189 �[A] statement of fact is one that (1) admits of being adjudged true or false in a way that (2) admits of empirical verification.�190 In other words, facts are statements about what actually exists or

185. See TSC Indus., 426 U.S. at 450 (materiality a mixed question of fact and law that may not be resolved as a matter of law unless reasonable minds cannot differ on the importance). 186. These are found in Preston, supra note 9, at 13, 134, along with many other examples. 187. (Emphasis added.) The 1946 version of Section 43(a) applied just to a �false description or representation.� 188. 134 Cong. Rec. H10420 (daily ed. Oct. 19, 1988) (statement of Rep. Kastenmeir) (citing Gertz v. Robert Welch, Inc., 418 U.S. 323 (1974)). Although not quoted in Congress, Gertz is notable for Justice Powell�s elegant statement for the majority: �Under the First Amendment there is no such thing as a false idea. . . . But there is no constitutional value in false statements of fact.� Gertz, 418 U.S. at 339-40. 189. See, e.g., Pizza Hut, 227 F.3d at 495-96. 190. Id. (quoting Presidio Enters., Inc. v. Warner Bros. Distrib. Corp., 784 F.2d 674, 679 (5th Cir. 1986)); see also Southland Sod Farms v. Stover Seed Co., 108 F.3d 1134, 1145 (9th Cir. 1997) (a fact statement makes �a specific and measurable advertisement claim of product superiority�).

Vol. 94 TMR 619 existed, and they are representations of reality and truth.191 A Lanham Act false advertising case will be dismissed for failure to state a cause of action where, ��It is beyond the realm of reason to assert, as plaintiffs do, that a reasonable consumer would interpret this as a factual claim upon which he or she could rely.��192 The puffery defense may also be the basis for a summary judgment motion.193

The difficulty of trying to use prior court definitions to distinguish between assertions of fact and puffery has been long recognized.194 When defined by the courts, puffery usually has been described within a range of overlapping characterizations, for example, �exaggerated advertising, blustering, and boasting upon which no reasonable buyer would rely and is not actionable under § 43(a);�195 or �an outrageous generalized statement, not making specific claims, so exaggerated as to preclude reliance by consumers;�196 or �generalized statements of product superiority, that are expressed in broad, vague, and commendatory language.�197 Similarly, puffing has been viewed as claims that are not capable of measurement.198 Prosser and Keeton cynically defined puffing as �a seller�s privilege to lie his head off, so long as he says nothing specific, on the theory that no reasonable man would believe him, or that no reasonable man would be influenced by such talk.�199 Courts have adopted or rejected this conclusion based on their attitude toward the claims before them.200

Ivan L. Preston, in his historic work on puffery, tried his hand at deriving one definitional statement based on existing authorities:

By legal definition, puffery claims praise the advertised item by using subjective terms, stating no fact explicitly, and thus

191. Webster�s Encyclopedic Unabridged Dictionary of the English Language (Gramercy/Random House 1996). 192. Cook, 911 F.2d at 245-46 (quoting with approval the decision of the district court). 193. Laitram Mach., Inc. v. Carnitech A/S, 884 F. Supp. 1074, 1083 (E.D. La. 1995). 194. U-Haul, 522 F. Supp. at 1245. 195. United Indus. Corp. v. Clorox Co., 140 F.3d 1175, 1180 (8th Cir. 1998) (quoting Southland Sod Farms, 108 F.3d at 1145. 196. Sara Lee Corp. v. Conagra, Inc., No. 1:92-CV-646, 1993 WL 597141, at *2 (W.D. Mich. 1993) (citing Cook, 911 F.2d at 246.) 197. LensCrafters, Inc. v. Vision World, Inc., 943 F. Supp. 1481, 1489 (D. Minn. 1996). 198. See Castrol, Inc. v. Pennzoil Co., 987 F.2d 939, 946 (3d Cir. 1993) (claim not puffing because it is �specific and measurable by comparative research�). 199. Prosser and Keaton, supra note 9, § 109 at 757. 200. Compare Pizza Hut, 227 F.3d at 496 (citing the Prosser and Keeton conclusion favorably and dismissing most claims as puffery), with U-Haul, 522 F. Supp. at 1244 n.2, 1245 (noting that, �The rationale for this conclusion is suspect� and holding that the false claims in the case were not puffs).

620 Vol. 94 TMR

representing no factual content to consumers and so creating no basis for them to believe anything about the item that would affect their purchasing decision.201

The Fifth Circuit also tried to capture the various published characterizations this way in a Lanham Act false advertising case.

Drawing guidance from the writings of our sister circuits and the leading commentators, we think that non-actionable �puffery� comes in at least two forms: (1) an exaggerated, blustering, and boasting statement upon which no reasonable buyer would be justified in relying; or (2) a general claim of superiority over comparable products that is so vague that it can be understood as nothing more than a mere expression of opinion.202 Implicit in the above definitions of typical puffery, of course, is

a humorous statement that gets across the advertiser�s message through exaggeration, parody or implying the witty opinion of the advertiser. There are relatively few cases that involve disputes over whether humorous claims are puffery.203 This is probably so because, in most instances, giving the audience a good laugh cannot be equated with giving them a material fact. That is, jokes usually are not taken seriously. Finally, there also are mystifying cases that, upon close study, are hard to rationalize as anything more than a court deciding �It�s Puffery Because I Say It�s Puffery.�204

Even though a puffing claim should be addressed within the confines of a definition recognized in the relevant jurisdiction, the advocate of such a claim should stress the common denominator for all puffing: the claim is not one on which a substantial portion of the reasonable members of the intended audience would rely as a statement of material fact. A few illustrative examples of cases that fall within the overlapping court definitions follow.

1. Puffery by Exaggeration, Bluster, Boast or Humor After defining puffing, in part, as claims �that are so

exaggerated as to preclude reliance by consumers,� the following statement in an advertisement was found to be puffery: WE ASK YOU: WOULD YOU PREFER TO DO BUSINESS WITH THE PHONE COMPANY WITH THE BEST TECHNOLOGY, LOWER

201. Preston, supra note 9, at 12. 202. Pizza Hut, 227 F.3d at 497. 203. For one such case, see American Express Travel Related Serv. v. MasterCard, 776 F. Supp. 787 (S.D.N.Y. 1991). 204. See some of the cases reported by Burns, supra note 6, at 870. Others are cited below in the discussion on the need for moderate change.

Vol. 94 TMR 621 RATES, AND BETTER CUSTOMER SERVICE?205 Similarly, the claim by a lens manufacturer that it uses THE MOST ADVANCED EQUIPMENT AVAILABLE, assumed by the court to be false for purposes of a motion for summary judgment, was held to be puffing. The court felt that the claim was �a generalized exaggeration or overstatement of superiority, which is expressed in broad, vague, and commendatory terms.�206

One can find seemingly contradictory conclusions by other courts in this category, and in all others as well.207 For example, a car dealer�s exaggerated claim to be the NUMBER ONE SELLER OF CADILLACS was considered by one court to be actionable, not puffing.208 On the other hand, a claim by a real estate brokerage to be the # 1 REAL ESTATE COMPANY IN THE U.S.A. was considered by another court to be too ambiguous to be actionable. In addition, an advertisement that represented the company�s chairman as declaring RE/MAX # 1 IN THE UNITED STATES�AND THE WORLD was also considered puffery.209

Effective humorous claims about the competition often are not taken lightly by their commercial victims, even though humor is a well-recognized basis for a puffery defense. Having millions of people laugh at biting representations about one�s product or service, even if potential purchasers may not be deceived, can drive a seething competitor to challenge the claim, no matter the odds of winning. Sometimes, a challenge to a humorous advertisement can result in the claims being toned down a bit, even though they might continue in slightly revised form. That is what happened when American Express sued MasterCard over a campaign that used funny 30-second commercials to depict frenzied American Express Card holders rushing madly around unsuccessfully trying to find an ATM that would take their card. After a temporary restraining order was granted against it, MasterCard made two small but significant changes in the commercials, then won the subsequent preliminary injunction motion on the ground that what was left was puffing.210 Perhaps the humor in one such

205. Metro Mobile CTS, Inc. v. Newvector Communications, 643 F. Supp. 1289, 1292-93 (D. Ariz. 1986) (preliminary injunction action) (citing for the definition Toro Co. v. Textron, Inc., 499 F. Supp. 241, 253 n.23 (D. Del. 1980)), rev�d without opinion, 803 F.2d 724 (9th Cir. 1986), but this finding was approvingly cited by the Ninth Circuit in Cook, 911 F.2d at 246. 206. LensCrafters, 943 F. Supp. at 1498. 207. For a small collection of inconsistent holdings on puffery and materiality, see Burns, supra note 6, at 869-70, 873 n.299. 208. Potamkin Cadillac Corp. v. Towne Cadillac Corp., 592 F. Supp. 801, 802-03 (S.D.N.Y. 1984). 209. In re Century 21-RE/MAX Real Estate Adv. Claims, 882 F. Supp. 915, 922, 928 (C.D. Cal. 1994). 210. American Express, 776 F. Supp. at 789-90.

622 Vol. 94 TMR MasterCard commercial can be inferred from the rather straight-faced holding that served as the premise to finding the commercial an �exaggeration� that was �mere �puffing��:

In the new commercial, the strangers try to help the American Express Card holder find a location where he can get cash with his card. Although he is pointed in several directions, must drive his car, and is told by Woman # 4 that he should �go through a corset store� where �in back, there�s a dirt road,� none of the depictions are literally false or misleading. Again, since fewer [American Express] locations means that they may be harder to locate, the explicit message is truthful.211

2. Puffery by Vagueness and/or Seller�s Opinion When a claim is �obviously a statement of [the seller�s]

opinion,� it cannot �reasonably be seen as stating or implying provable facts� and, therefore, is not actionable under the Lanham Act.212 Some claims obviously are not actionable because they express pure sellers� opinions that are not capable of objective, fact-based proof or disproof, such as: IT�S THE SMART THING TO DO, or MAKES YOU LOOK SEXY, or THE MOST BEAUTIFUL CAR ON THE MARKET.213

Even where there are some facts implied, a general claim of superiority over a competitive product may be viewed as so vague that the court will interpret it as the mere opinion of the advertiser.214 Thus, claiming that a competitor was TOO SMALL to handle certain insurance business has been found to be puffery because it was a matter of opinion and not likely to be relied upon.215 Generalized superlatives about one�s own product or service, such as BEST TECHNOLOGY, LOWER RATES AND BETTER CUSTOMER SERVICES or just BETTER than the competition, have been found to be puffery for the same reasons, as well as their being exaggerations.216

211. Id. at 790. 212. Groden v. Random House, 61 F.3d 1045, 1051-52 (2d Cir. 1995). 213. Compare Dobbs, supra note 9, § 478 at 1366: �The content of such an opinion statement, itself, however, could seldom ever be proved false by application of the senses; a witness could not see, hear, or touch anything that would contradict the opinion. Such opinions, then, are not likely to be actionable.� 214. McCarthy, supra note 1, § 27:38 at 27-66.1. 215. Coastal Abstract Serv. Inc. v. First Am. Title Ins. Co., 173 F.3d 725, 731 (9th Cir. 1999). 216. Cook, 911 F.2d at 246; Nikkal Indus. Ltd. v. Salton, Inc., 735 F. Supp. 1227, 1234 n.3 (S.D.N.Y. 1990) (citing Bose Corp. v. Linear Design Labs, Inc., 467 F.2d 304, 310-11 (2d Cir. 1972); Brignoli v. Balch Hardy & Scheinman, Inc., 645 F. Supp. 1201, 1209 (S.D.N.Y 1986)).

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However, words that are held to be mere generalized sellers� opinions in one context may be found to be factual assertions in another. The slogan BETTER INGREDIENTS. BETTER PIZZA was found to be a generalized statement of opinion, hence puffery, in most of the many contexts it was used, notwithstanding the clear implication that the advertiser�s pizzas were better than others because of the better ingredients.217 However, in the context of two commercials that focused on the advertiser�s ingredients, the court agreed that the tag-on slogan was an implied, unsubstantiated superiority claim with the characteristics of a statement of fact.218 The claim FAR BRIGHTER THAN ANY [HOME MOVIE] LAMP EVER BEFORE was puffery, until the advertiser added a fact about its lamp that could be comparatively measured: 35,000 CANDLE POWER.219

Finally, the source of the opinion and the knowledge of its recipient can be important, as shown by Judge Learned Hand�s statement in the Vulcan Metals case, quoted above. However, in that case, the Judge took a more restrictive view than some modern judges who fail to distinguish between what may be a nonactionable seller�s �opinion� and what may be an actionable statement of �fact� in the form of a seller�s �belief:�

An opinion is a fact, and it may be a very relevant fact; the expression of an opinion is the assertion of a belief, and any rule which condones the expression of a consciously false opinion condones a consciously false statement of fact. When the parties are so situated that the buyer may reasonably rely upon the expression of the seller�s opinion, it is no excuse to give a false one [opinion].220

Thus, an opinion about a painting, I THINK THIS IS AN EARLY PICASSO, may not be material coming from an uninformed houseguest, but it may be material coming from an art dealer who is trying to sell the piece to an uninformed person.221 Similarly, THAT�S A VALUABLE PIECE OF PROPERTY THAT WILL APPRECIATE FAST may be a puff if stated by a friend (or even the owner of the property under some case law), but it is an open question whether a court would view it as material if it were

217. Pizza Hut, 227 F.3d at 498-99, 502. The court indicated that the following similar claims by competing pizza companies also were opinion puffs: �The Best Pizza Under One Roof�; �Nobody Delivers Better [Pizza]�; �Best Pizza on the Block�; �Best Pizza in Town: Honest!�; �Best Pizza Ever,� and �The Best Tasting Pizza.� Id. at 498 n.8. 218. See id. at 501-02. 219. Smith-Victor Corp. v. Sylvania Elect. Prods., Inc., 242 F. Supp. 302, 308-09 (N.D. Ill. 1965). 220. Vulcan Metals Co. v. Simmons Mfg. Co., 248 F. 853, 856 (2d Cir. 1918). 221. Dobbs, supra note 9, § 478 at 1367, uses a similar example.

624 Vol. 94 TMR stated by a real estate agent, especially if made to a person who hired the agent to find the property.222

V. PUFFING IN RELATED AUTHORITIES A. Puffery Under the Federal Trade Commission Act

The FTC Act authorities on puffing parallel fairly well those under the Lanham Act, although an argument might be made that the FTC�s view of puffing as a defense is somewhat more guarded than most courts deciding Lanham Act cases. Nonetheless, the legislative history of the significant Wheeler-Lea advertising amendments to the FTC Act recognizes a �seller�s puff� and �trade puffing� as exceptions to deceptive acts and practices.223

The FTC�s official policy is: �The Commission generally will not pursue cases involving obviously exaggerated or puffing representations, i.e., those that the ordinary consumers do not take seriously. Some exaggerated claims may be taken seriously by consumers and are actionable.�224 One such exaggerated claim describing a television antenna as an ELECTRONIC MIRACLE was found actionable by the FTC on the ground that the claim, in context, gave added credence to the unsubstantiated overall implication that the respondent�s antenna was superior to other types sold by competitors.225

Puffing has been further defined in an FTC case as follows: The term �puffing� refers generally to an expression of opinion not made as a representation of fact. A seller has some latitude in puffing his goods, but he is not authorized to misrepresent them or to assign them benefits they do not possess. Statements made for the purpose of deceiving prospective purchasers cannot properly be characterized as mere puffing.226

The FTC also unremarkably defined puffery as �claims [that] are either vague or highly subjective� and gave as an example BAYER® WORKS WONDERS.227 Similarly, claims that are not 222. It also may be questionable as to whether a Lanham Act case could be based on such a claim. Perhaps such a case could be initiated between competing real estate agents trying to sell the property. 223. 80 Cong. Rec. S6592 (daily ed. May 4, 1936) (statement of Sen. Wheeler), quoted at length in Preston, supra note 9, at 127. 224. FTC Deception Policy Statement at 693 (citing In re Pfizer, Inc., 81 F.T.C. 23, 64 (1972); In re Wilmington Chem. Corp., 69 F.T.C. 826, 865 (1966)). 225. In re Jay Norris Corp., 91 F.T.C. 751, 847 n.20 (1978), aff�d, 598 F.2d 1244 (2d Cir.), cert. denied, 444 U.S. 980 (1979). 226. Wilmington, 69 F.T.C. at 865 (citations omitted). 227. Sterling Drug, Inc. v. FTC, 741 F.2d 1146, 1150 (9th Cir. 1984).

Vol. 94 TMR 625 capable of measurement are viewed as puffing by the FTC, such as THE SEXIEST EUROPEAN [referring to a sports car].228

B. Puffery Under Common Law Principles (The Restatements)

The Restatement of Unfair Competition discusses puffing as part of the materiality requirement of the deceptive marketing cause of action, and it does so in a matter of fact way that adds little to the discussion above.229 It concludes, �The ultimate issue [related to puffery] in each case is whether the representation, regardless of form, is likely to affect to some substantial degree the conduct of a significant number of prospective purchasers� who were exposed to the claim at issue.230

The current Restatement of Torts declares that a recipient of a fraudulent misrepresentation that is solely the opinion of the maker [or sponsor] of that claim is not justified in relying on it in a transaction with that maker, unless the fact to which the opinion relates is material, and the maker:

• Purports to have special knowledge of the matter that the recipient does not have; or

• Is a fiduciary, or stands in a similar relationship of trust and confidence, to the recipient; or

• Has successfully endeavored to secure the confidence of the recipient; or

• Has another special reason to expect that the recipient will rely on his opinion.231

The Restatement of Torts� puffing comment to this section adds little to the discussion above.232

C. Puffery Under the New Uniform Commercial Code The 2004 version of the Uniform Commercial Code retains a

significant and controversial puffing exception to the substantive provisions under which otherwise actionable false or misleading advertising would be protected: �[A]n affirmation [by the seller to an immediate buyer or a remote purchaser] merely of the value of the goods or a statement purporting to be merely the seller�s opinion or commendation of the goods does not create a 228. In re Bristol-Myers Co., 102 F.T.C. 21, 321 (1983), aff�d, 738 F.2d 554 (2d Cir. 1984), cert. denied, 469 U.S. 1189 (1985). 229. See Restatement of Unfair Competition, supra note 20, § 3 cmt. d. 230. Id. 231. Restatement of Torts, supra note 128, § 542. 232. See id. cmt. e.

626 Vol. 94 TMR warranty.�233 The official comment on this exception continues to state, in relevant part, that it was added because �common experience discloses that some statements or predictions cannot fairly be viewed as entering into the bargain. Even as to false statements of value, however, the possibility is left open that a remedy may be provided by the law in fraud or misrepresentation.�234 Nonetheless, if the seller�s affirmation or representation �is unequivocal and clearly distinguishable from seller�s mere puffing of the product� and the buyer understands the seller�s statement to be a warranty and relies on it as part of the purchase decision, the seller may not avoid liability merely by arguing that a warranty was not intended.235

In recent years, a significant but unsuccessful effort was made by consumer-oriented reformers to turn the materiality/puffing exception on its head, and to make a seller�s puffing and opinions presumptively material and actionable, subject to rebuttal by the seller.236 As noted, although the new U.C.C. provisions continue to incorporate the existing exception, they also create a new cause of action for remote purchasers based on the seller�s package inserts, labeling or advertising.

D. Puffery Under Federal Securities Fraud Law There is some degree of overlap between the Lanham Act and

the securities laws in the circumstances under which the puffing defense may come into play: It is not unusual for corporations to make competitive comparisons when promoting new products or services in press releases and other public statements, thereby potentially making themselves liable for misrepresentations to harmed competitors and investors.237

233. U.C.C. §§ 2-313(3), 2-313A(3), 2-313B(3). 234. Id. § 2-313 cmt. 10; see also § 2-313A cmt. 8; § 2-313B cmt. 2. 235. Deborah L. Nelson & Jennifer L. Howicz, 2 Williston on Sales § 15-6 at 382 (5th ed. 1995) (referring to identical provision in prior version of the U.C.C.). 236. See, e.g., 17 Multinational Monitor No. 4 (April 1996) available at http://multinationalmonitor.org/hyper/mm0496.10.html. 237. See, e.g., Vosgerichian v. Commodore Int�l, 832 F. Supp. 909 (E.D. Pa. 1993) (�revolutionary� new compact disc television can �change the world� claims are puffing); In re Storage Tech. Corp. Sec. Litig., 804 F. Supp. 1368, 1371-72 (D. Colo. 1992) (computer data storage and retrieval computer widely promoted as outclassing the competition; puffing defense accepted as to one defendant); see also Robert A. Prentice & John H. Langmore, Beware of Vaporware: Product Hype and the Securities Fraud Liability of High-Tech Companies, 8 Harv. J.L. & Tech. 1 (1994) (�Beyond the law of false advertising, antitrust, and product liability, corporate executives and their counsel now have this perilous new hazard [securities fraud suits] to contend with when promoting products�); id. at 10, 11 (promoting potential new products �can also slow down the buying of competitors� products� and companies often exaggerate the progress being made on new products �to discourage customers from buying from competitors�) (footnotes omitted).

Vol. 94 TMR 627

The Securities and Exchange Commission has emphatically rejected puffing defenses in enforcement actions, sometimes emphasizing the inappropriateness of such caveat emptor arguments in actions under consumer protection statutes.238 Nonetheless, the courts have long accepted puffery defenses by brokers and non-brokers in securities cases.239 These defenses are now most often seen in response to actions alleging fraud under Section 10(b) of the Securities Exchange Act of 1934.240 In such cases, �Puffery is generally agreed to be a vague, optimistic statement that no reasonable investor would rely on. However, courts differ significantly upon what qualifies as just a �vague, optimistic� statement.�241

Similar to puffing cases under the Lanham Act, the securities cases recognize that vague sellers� opinions are nonactionable puffing when they contain no quantifiable or otherwise measurable information, but the addition of such information may make them actionable. Thus, it is puffing when a broker tells an investor that a stock is �marvelous,� or �red hot,� or even that it is one with which the investor �could not lose.�242 However, it is not puffery when the broker quantifies the opinion to an investor by saying that there will be a risk-free return of 20 to 30 percent.243

In a large number of cases, the puffery defense is offered at the motion to dismiss stage, when the court is asked to find the statement at issue to be �so obviously unimportant to a reasonable investor that reasonable minds could not differ� on its unimportance.244 Of concern to some commentators is the apparent increased use of puffery to dismiss private securities fraud actions against company officials and other non-brokers, as well as the expansion of the types of statements that are being found to constitute puffery.245 238. See, e.g., In re John Brick, 46 S.E.C. 43, 52 n.23 (1975) (�puffing has no place in these consumer-protection statutes�); In re Irving Friedman, 43 S.E.C. 314, 319 (1967) (�the doctrine of caveat emptor, from which the concept of �puffing� is derived, can have little application to the merchandizing of securities�); see also O�Hare, supra note 9, at 1708 n.56 (collecting these and many other cases on point). 239. See generally O�Hare, supra note 9; Lee, supra note 7. 240. 15 U.S.C. § 78j(b) (2003); Lee, supra note 7, at 444. Other private rights of action for fraud exist under that 1934 Act and under the Securities Act of 1933, 15 U.S.C. §§ 77a-77aa. See O�Hare, supra note 9, at 1697 n.4. 241. Lee, supra note 7, at 446 (citations omitted); see also, O�Hare, supra note 9, at 1698 (puffery is a statement that is �too vague, promotional, or hyperbolic�). 242. Newman v. L.F. Rothschild, 651 F. Supp. 160, 163 (S.D.N.Y. 1986). 243. Newman v. L.F. Rothschild, 662 F. Supp. 957, 959 (S.D.N.Y. 1987). 244. Bainbridge and Gulati, supra note 151, at 119-20 (quoting Ganino v. Citizens Utils. Co., 228 F.3d 154, 162 (2d Cir. 2000) (quoting Goldman v. Belden, 754 F.2d 1059, 1067 (2d Cir. 1985)). 245. O�Hare, supra note 9, at 1699; see also Lee, supra note 7, at 440-42.

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VI. THE NEED FOR MODERATE CHANGE A. What�s Wrong With This Picture?

Consider the plight of all those involved in American Home Products Corp. v. Johnson & Johnson.246 This was a Lanham Act false advertising complaint and counterclaim that was decided after a four-week bench trial that involved considerable scientifically complex documentation and expert testimony.247 Thus, it was similar to many Lanham Act false advertising cases that go to trial. The resulting decision on liability, running more than 20 Federal Supplement pages, begins with this paragraph:

This lawsuit represents a major battle in an endless war between two titans of the over-the-counter (�OTC�) drug industry, in which each accuses the other of falsity in its advertising claims of efficacy and safety. Small nations have fought for their survival with less resources and resourcefulness than these antagonists have brought to their epic struggle for commercial primacy in the OTC analgesic field.248

The hyperbole and cynicism evidenced in that paragraph were sprinkled liberally throughout the opinion.

The judgment in American Home Products enjoined seven advertising claims by the defendant and three by the plaintiff (counterclaim defendant) for violating Section 43(a) of the Lanham Act. In doing so, however, the court did not address the materiality of any of those claims, even though many were made to physicians whose specialized knowledge and decisionmaking the court would have had to infer in reaching its conclusions.249 Moreover, the court found two health-implicating advertising claims to be nonactionable puffery without any citation to legal authority and in reliance on its own questionable interpretation of how the claims might be perceived by their intended audiences. The first of these judicial shortcuts involved a television commercial to the general public about which the court simply concluded:

246. See 654 F. Supp. 568 (S.D.N.Y 1987). 247. See id. at 572. 248. Id. At 571-72. 249. See generally id. at 571-91. Surveys of physician perceptions of one ad were done by both parties and rejected as being fatally flawed. See id. at 581-83. Three surveys of consumers were given similar short shrift as being unnecessary or flawed, while a fourth was credited. See id. at 586, 587, 588-89. The court complained that the amount of evidence and written argument �would require an opinion thousands of pages in length which would never be read by anyone other than the parties,� one of which had requested an expedited resolution. Thus, the court was stating its findings of fact summarily. Id. at 572.

Vol. 94 TMR 629

The Court finds that Anacin�s �no stomach upset� advertising is within the acceptable and expectable limits of commercial puffery and is therefore unlikely to mislead consumers.250

The second advertisement was a four-page technical brochure/ checklist for physicians, as to which the court hedged its bet:

The Court therefore finds that [defendant�s] claim of a superior safety profile is either true or at least within the tolerable range of commercial puffery. The consuming public is conditioned to view such generalized comparisons with healthy skepticism, and medical professionals are not likely any more susceptible to being misled by promotional materials directed at them.251

That is a particularly disappointing example of shortcut decisionmaking. It neither decides whether the plaintiff met its burden of proving the claim to be false or misleading (not to mention material), nor does it adequately explain how the court could conclude that reasonable physicians would not find the claim reliable in its context. If the claim of being safer was true (as the court says it might be), that would appear on its face to be material information to physicians. On the other hand, if the claim was a vague and overstated puff (as the court implied it was), it would not be material to physicians. Such an expressly comparative claim cannot reasonably be seen to be �either� material or not material. It is one or the other, and the court should have told the parties which it is and why. Moreover, the court�s reasoning is faulty. It first assumes that consumers would be skeptical of scientific, research-based claims of a type and form that consumers never see. Then, it uses that assumption as the only basis for

250. Id. at 587. The claim was made by an actor portrayed as an ordinary ANACIN user, who said in essence, �My headache�s gone and Anacin didn�t upset my stomach.� Id. The defendant alleged that the commercial implied that ANACIN caused less upset than competing pain relievers. Id. In the court�s view, the claim in question was literally true and not misleading. It rejected a survey offered by defendant to show that the claim was misleading. Id. 251. Id. at 580. The claim was that Extra-Strength TYLENOL has a �Safety profile superior to both aspirin and ibuprofen.� Id. This was a conclusory part of a preceding checklist of products and their side effects, which cited �eight technical publications in purported support of the representations as to the adverse side effects of the [compared] analgesics.� Id. at 574-75. Thus, one has to wonder how the claim, in context, could fairly be characterized as a �generalized comparison.� The court found that �the evidence tends to show that acetaminophen [the active ingredient in the TYLENOL product] is somewhat superior to ibuprofen (and even more superior to aspirin)� with respect to certain side effects, and that there was no difference with respect to other side effects. Id. Inconsistently, that holding immediately followed a finding that the same advertisement was misleading for its failure to disclose unhealthy side effects caused by acetaminophen. See id.

630 Vol. 94 TMR further assuming that physicians would view such information the same way as the general consuming public.252

Consider Interactive Products v. a2z Mobile Office Solutions, a Sixth Circuit de novo review of an advertising claim under Section 43(a) of the Lanham Act.253 The plaintiff alleged that the offending claim deceptively implied that defendant�s competitive product was an improved version of plaintiff�s product. The district court granted summary judgment for the defendant, even though it had to assume for purposes of the summary judgment motion that the claim was misleading as alleged.254 The totality of what the Sixth Circuit held, which was virtually the same as what the district court had held, was as follows:

As the district court correctly held, calling the Mobile Desk �redesigned and improved� is mere puffery, which is not actionable under the Lanham Act. See Pizza Hut, Inc. v. Papa John�s Int�l, Inc., 227 F.3d 489, 496-497 (5th Cir. 2000) [�a general claim of superiority over comparable products that is so vague that it can be understood as nothing more than an expression of opinion� is non-actionable puffery]. It is undisputed [and stated in the challenged ad] that [defendant�s designer] Mayer was involved in the design of [plaintiff�s] Lap Traveler [product] and that Mayer later developed a competing product with a different design called The Mobile Desk. The [defendant�s challenged] Announcement�s suggestion that the redesign is improved is mere opinion, which is not actionable under the Lanham Act. See American Council of Certified Podiatric Physicians & Surgeons, 185 F.3d at 614 [�a Lanham Act claim must be based upon a statement of fact not opinion.� (citations omitted)].255

With those few words, and without weighing evidence, the appellate court barred an action based on an expressly comparative superiority claim for a �redesigned and improved� (i.e., new and better) product made by a knowledgeable party. Other recent cases have followed the same shortcut approach to

252. Note that with physicians and other influencing audiences, materiality usually relates to the effect on decisions to prescribe or recommend that products or services be purchased or used. 253. 326 F.3d 687, 693, 699-700 (6th Cir. 2003), aff�g, Interactive Prods. Corp. v. a2z Mobile Office Solutions, Inc., 195 F. Supp. 2d 1024, 1033 n.6 (S.D. Ohio 2001). 254. See Interactive Prods., 195 F. Supp. 2d at 1033 & n.6. 255. Interactive Prods., 326 F.3d at 699-700. The district court supplied the quotations in its version, Interactive Prods., 195 F. Supp. 2d at 1033 n.6 (bracketed quotations added to supply the wording of the cited materials and explanatory information).

Vol. 94 TMR 631 dispose of allegations without adequate case-specific factual findings.256

Let�s face it�judges and their law clerks are human, and they sometimes take inappropriate shortcuts in deciding cases, and especially those shortcuts that are familiar and viewed as institutional prerogatives. They do this because they are under pressure to clear dockets, or they view the evidence and argument as having been excessive and/or overly complex, or the attorneys before them have been unhelpful (if not counterproductive), or for a myriad of additional reasons.257 In Lanham Act false advertising cases, the additional reasons can include (1) uncertainty or lack of concern over the legal standards to be applied to materiality and puffing allegations; (2) a cynical or uninformed attitude toward advertising and those who view it; (3) overreaching by fiercely competitive advertisers; (4) overlitigating by combative lawyers; as well as (5) proffered scientifically complex substantiations for simple claims. The results, in too many of these cases, are inconsistent decisions on materiality and puffing issues without adequately reasoned or explained opinions.

B. The Courts Should Discourage Indiscriminate Use of the Puffing Defense

As we have seen, Lanham Act plaintiffs who allege deception must prove that the challenged advertising claim actually deceives or tends to deceive a substantial portion of its intended audience and that the claim is material in that it actually or likely will affect purchase decisions.258 It is inconceivable that a claim could be a puff where the plaintiff has satisfied those virtually redundant burdens. Stated another way, the primary role of the wrongly-accused defendant in this regard is to counter and attack plaintiff�s evidence of materiality with facts and expert opinion that show plaintiff�s evidence to be irrelevant or unreliable. Instead, many defendants who have created the claim at issue for their own benefit merely wave a general puffery defense before the judge (e.g., �the claim is non-actionable puffery because it is a mere

256. See, e.g., Fieldturf v. Southwest Recreational Indus., 235 F. Supp. 2d 708, 726 & n.16 (E.D. Ky. 2002) (On summary judgment, defendant�s various disparaging statements about plaintiff�s artificial turf being unsafe were found to be nonactionable opinions or predictions. Defendant�s statements about its own product being supported by ratings in appropriate tests are �little more than the type of �puffery� one anticipates in any competitive sales environment.�). 257. For an analysis of the bases for judicial decisionmaking, including judicial shortcuts relating to puffing and other issues, see generally, Bainbridge and Gulati, supra note 151. 258. See, e.g., Am. Council, 185 F.3d at 613. The same conclusion would not necessarily pertain to a case based on literal falsity.

632 Vol. 94 TMR seller�s opinion�).259 All too often the court unthinkingly puts its head down, charges and tosses the claim out. This practice is especially questionable when used to argue and decide dispositive motions based on caveat emptor notions about non-represented buyers always being vigilant and disdainful.

As we have seen, the historic legal bases for allowing a court to dismiss an alleged deceptive advertising claim as puffery are (1) the potential purchaser can inspect what is to be purchased and thereby determine the truthfulness of the claim; and (2) everyone knows that you should not rely on what sellers say because they will naturally overstate the value and qualities of what they sell.260 No court should dismiss a claim on these antediluvian bases, at least not without asking for and seriously considering any evidence relating to whether (1) the alleged deceived purchasers were in a realistic position to discover the deception; and/or (2) the claim, in its full context, was one on which reasonable purchasers would never rely. Such evidence would be unnecessary by definition if the plaintiff could meet its materiality burden. Where the plaintiff cannot meet that burden with evidence that is at least sufficient to support a valid presumption of materiality, the court need not invoke judicial omniscience about what potential purchasers know and think. The court should determine that the claim is not actionable for failure of factual proof.

It is worth remembering that the Lanham Act is based on concepts of fair competition, and has been almost universally interpreted as not granting a right of action to members of the consuming public. It does not advance the purposes of the Act when judges and advertisers� attorneys implicitly embrace the stereotype that advertisers usually misrepresent the value of their goods and services, or when courts and advertisers� lawyers propagate the myth that everybody has the opportunity and inclination to closely inspect advertised goods and services before they make a purchase decision. Moreover, borrowing from Judge Hand, sometimes opinions may be reasonably perceived as being fact-based. When a major pharmaceutical researcher and manufacturer widely promotes a new drug as providing the �fastest relief on the market,� for example, how can a court properly determine without extrinsic evidence that a significant part of the intended audience for the claim would consider such a representation to be unreliable? The courts should focus on plaintiff�s burden to show materiality, which is the real issue

259. Of course, defendants will (and should) continue using the defense as long as it is recognized. 260. Kimball, 11 N.E. at 114; Norville, 317 N.E.2d at 389; Prosser and Keeton, supra note 9, § 109 at 757 & n.25.

Vol. 94 TMR 633 under current law, not on outdated puffery shortcuts that diminish the legal significance of materiality.

C. The Courts Should Adopt a Basic Materiality Principle for Section 43(a)

Issues of materiality and lack of materiality (puffing) in Lanham Act false advertising cases should be recognized expressly as mixed questions of fact and law, as the Supreme Court has found with respect to securities claims and as has been long recognized with respect to the common law tort of misrepresentation.261 The reasoning in TSC Industries is sound and fully consistent with the development of Lanham Act law. Only if the facts show that the challenged advertising claim is unquestionably likely to affect (or not affect, for puffing) relevant purchase decisions should the issue of Lanham Act materiality be resolved as a matter of law in deciding dispositive motions. Where a court finds such unquestionable likelihood, it should articulate the facts supporting the finding. Where there is a reasonable possibility that the evidence might show that the challenged advertising claim was likely to affect (or not affect, for puffing) relevant purchase decisions, such motions should be denied.

VII. CONCLUSION Congress has never clarified how to address materiality and

puffing in Lanham Act false advertising cases, despite decades of decisions in which the courts have struggled with the concepts or have taken questionable shortcuts to resolve these cases. It is unlikely that Congress will review the implementation of the Lanham Act�s advertising provisions any time soon. Thus, it is time for the courts, once again, to take the initiative and to adjust the implementation of those provisions to rid them of outdated puffery concepts and to improve decisionmaking with regard to materiality determinations.

261. TSC Indus., 426 U.S. at 450; see also the discussion on misrepresentation, including the material cited at supra note 142. Again, until the courts adopt these principles, lawyers in court would be expected to endorse or oppose them as the interests of their clients dictate.