Thursday, May 21, 2009

Another note on standing

Gerald P. Meyer, Standing Out: A Commonsense Approach to Standing for False Advertising Suits Under Lanham Act Section 43(a), 2009 U. Illinois L. Rev. 295.

The proposal:

To address the concerns and criticisms of the current approaches to standing under section 43(a), courts should adopt a three-prong bright-line standard under which a plaintiff must show: (1) the injury is of the type contemplated by Congress when it enacted section 43(a) (i.e., it is commercial or competitive in nature); (2) there is a causal link between the injuries and the alleged false advertising; and (3) no other party is better suited to bring the action.

The proposal has some appeal, but the last prong suffers from vagueness: how might it be pled or proved? What if a third market participant has a bigger market share than the plaintiffs: is the plaintiff then worse than the third party such that only the market leader (or second-place finisher, if the market leader is engaging in false advertising) should be allowed to sue? If not, why not? Shouldn’t the burden be on the defendant to show someone better suited to sue for competitive injury?

And the note adds some odd ideas about using standing to get rid of cases where someone other than the plaintiff thinks the injury doesn’t justify the cost of litigation, which is particularly unnecessary in the contest of Lanham Act litigation, where attorneys’ fees awards are relatively rare. The conclusion that Phoenix of Broward was rightly decided for the wrong reasons is particularly troubling, and indicates that the proposed test isn’t nearly as clear-cut as the author thinks it is.

Here’s the basic idea, also endorsed by the Phoenix of Broward court: the false advertising at issue was that McDonald’s falsely advertised that high-value prizes were available in its contests. In fact, due to fraud by employees of the agency employed by McDonald’s to administer the contest, high-value prizes weren’t available, though lower-value prizes were. The court thought that the small chance of winning the high-value prizes couldn’t have been a big factor in driving sales to McDonald’s, thus the causation was too attenuated.

The problem is that the court made this fact-intensive determination in deciding a motion to dismiss. Subfactors of the problem: First, plaintiffs should have been entitled to a presumption that the high-value prizes were important to consumer decisions, given the prominence of the high-value prizes in the advertising; McDonald’s thought the high-value prizes mattered. Second, plaintiffs should have been allowed to submit evidence that small chances of winning big prizes have a powerful impact, whether you want to call this the result of consumers’ taste for risk or of their weakness in correctly evaluating low-probability but high-payoff events. Though there certainly are cases where causation is sufficiently implausible that a case can be resolved on the pleadings, this wasn’t one of them.

2 comments:

Anonymous said...

You wrote:

"The court thought that the small chance of winning the high-value prizes couldn’t have been a big factor in driving sales to McDonald’s, thus the causation was too attenuated.

The problem is that the court made this fact-intensive determination in deciding a motion to dismiss. Subfactors of the problem: First, plaintiffs should have been entitled to a presumption that the high-value prizes were important to consumer decisions, given the prominence of the high-value prizes in the advertising; McDonald’s thought the high-value prizes mattered. Second, plaintiffs should have been allowed to submit evidence that small chances of winning big prizes have a powerful impact, whether you want to call this the result of consumers’ taste for risk or of their weakness in correctly evaluating low-probability but high-payoff events."

I don't think anyone could disagree with that statement. It seems the reason that the games are so successful is because of the large prizes they offer. People get excited at the prospect of winning a 5k entertainment system, not a free Big Mac. I also agree that, at the very least, evidence for one should mean evidence for the other--though, if it was a motion to dismiss, I'm not sure why the court engaged in a fact intensive inquiry at all (I haven't read the case, though).

gmeyer2 said...

Hi,

I'm the author of the note, and I really appreciate your above criticisms. I agree that the third prong could be explored a little bit more.

My ideas about using standing to dispose of cases where the injury doesn't justify the cost of litigation were based on concern over businesses possibly using litigation to bully its competitors, which there is some evidence of in the case law. Also, I was concerned about competitors suing to obtain "windfall" damages when their injury has already been addressed in some other way.

I think that Phoenix is a challenging case because the opinion could be more straightforward. Maybe my standard wouldn't clear up 100% of these problems, but I do think that the real reason the 11th Circuit affirmed dismissal of the case was because there was no real injury. And I think that it's right that there was no real injury because the false advertising had already been addressed outside of the Phoenix case.

Thanks!

-Gerald