If you thought Lanham Act false advertising cases were just about getting a company to stop saying something untrue, think again. A group of salons is attempting to use the Lanham Act to stop its suppliers’ alleged false advertising, or, in the alternative, to pressure the suppliers to make changes to their distribution practices that would actually make the advertising … true!
A group of professional salons, led by Salon FAD, a non-profit organization dedicated to fighting against the diversion of professional hair-care products into non-professional retail channels, filed a class action lawsuit against several large hair-care product manufacturers, alleging that defendants advertise their hair-care products as “Sold Only in Professional Salons,” and other similar claims, to boost consumers’ perception of the quality of the product, all the while turning a blind-eye to what plaintiffs claim is the wide-spread diversion of these “salon-only” products into retail chains such as CVS and Walgreens. Plaintiffs contend that after the defendant-manufacturers ship product to wholesalers, the defendants are not doing enough to stop the wholesalers from diverting these supposedly “salon-only” products to large retail chains. According to the complaint, more than $1 billion of the $5 billion in annual sales of “salon-only” products are from diverted products.
Last week, the SDNY denied defendants’ motion to dismiss the suit. Defendants had challenged plaintiffs’ standing under both Article III and the Lanham Act, arguing that it is the diversion of the product by wholesalers that is the cause of plaintiffs’ injury, not the alleged false advertising. With respect to Article III constitutional standing, Judge Cote rejected defendants’ arguments on the grounds that the salons’ reputations could be harmed if consumers, after purchasing these “salon-only” products from salons, later discovered that they were also available through non-professional channels. Under the Lanham Act, defendants also argued that plaintiffs did not have standing to sue because there is a heightened standard for showing causation and injury where the products are not in obvious competition. The Court, however, relied on its recent decision in Famous Horse Inc. v. 5th Ave. Photo, and held that even where retailers and manufacturers are not in direct competition, the retailer still has a “reasonable interest” and a “reasonable basis” for believing that the manufacturers’ false advertising could cause the retailers reputational harm.
Despite the win on this motion, is this a “be careful what you sue for” situation? While an injunction preventing defendants from using the phrase, "salon-only," may be a win on the docket for plaintiffs, it could lead to an outcome inconsistent with their stated goal of keeping professional products out of retail chains like CVS and Walgreens. After all, if defendants are forced to choose between altering their distribution practices or dropping the “salon-only” marketing slogan, they could decide that mass retail distribution is more valuable.
This article was taken from Consumer Advertising Law Blog