Friday, April 24, 2015

Ad agency liability for false advertising without scienter

Nestlé Purina Petcare Co. v. Blue Buffalo Co., No. 4:14 CV 859, 2015 WL 1782661 (E.D. Mo. Apr. 20, 2015)
Purina sued Blue Buffalo for false advertising of its dog food as “grain free” and containing “no chicken by-product.” Purina issued press releases about the suit and launched, criticizing Blue Buffalo for its alleged false advertising. Blue Buffalo denied the allegations and alleged that the “independent testing” Purina relied upon for its claims against Blue Buffalo was unreliable.  Blue Buffalo countersued Purina for false advertising and defamation, and added the ad agencies working with Purina. began with an “open letter” to pet owners from Purina describing Blue Buffalo’s allegedly false advertising. Blue Buffalo alleged that a number of statements about Blue Buffalo and the content of Blue Buffalo’s dog food were false, e.g., “[T]esting conducted by an independent laboratory revealed that several of Blue Buffalo’s top-selling ‘Life Protection’ pet food products actually contain substantial amounts of poultry by-product meal” and “Blue Buffalo is not being honest about the ingredients in its pet food.” Blue Buffalo made similar allegations about Purina’s Facebook and Twitter pages, with content developed by ad agency Blue State Digital.  Purina also allegedly promoted its Honesty website through Google ads developed by Blue State Digital, e.g., “A dog food company is lying about its ingredients. Learn the facts.”
Under Lexmark, Lanham Act false advertising liability isn’t limited to direct competitors. And those who work with competitors to produce false ads can also be liable.  There isn’t much caselaw on this, but what there is has held that ad agencies can be liable under the Lanham Act as joint tortfeasors for knowing participation.  The ad agency defendants argued that they weren’t active participants in preparing the ads and didn’t know or have reason to know of its falsity. 
Blue Buffalo pointed out that the Lanham Act doesn’t have a scienter requirement, but the ad agency defendants argued that the law “silently” imposes such a requirement as to ad agencies. But the main case supporting that, Gillette v. Wilkinson Sword, relied on the pre-1988 version of the Lanham Act, which did have a knowledge requirement for false advertising claims. Thus, given the express removal of “knowing” as an element of Lanham Act false advertising, knowledge was not required.
The ad agency defendants also argued that Blue Buffalo failed to satisfy Rule 9(b). Blue Buffalo pled that defendant PRCG Haggerty “designed and built” the Honesty website, and that Blue State Digital “developed the content” of the ads on Purina’s Facebook & Twitter accounts and “arranged for these links to to appear when users search for terms related to Blue Buffalo.”
There’s a split over whether 9(b) applies to Lanham Act claims “grounded in fraud,” but only one bound the court here: In re NationsMart Corp. Sec. Litig., 130 F.3d 309 (8th Cir.1997). The Eighth Circuit held that Rule 9(b) does not apply to § 11 Securities Act claims for false statements and misrepresentations because proof of fraud is “not a prerequisite to establishing liability,” and it would be unjust to dismiss a case because plaintiffs alleged more than was necessary to recover under the law.  So too here, because Lanham Act liability doesn’t require fraud, even if Blue Buffalo did include fraud allegations.  (This has always eemed to me to be the right approach.)
Blue Buffalo’s Lanham Act claim met the notice pleading standards of Rule 8(a). Blue Buffalo attached and cited several examples of allegedly false statements and advertisements from Purina’s Honesty website, Facebook page, Twitter account, and Google search results. Blue Buffalo also alleged that the ad agencies participated in the design and creation of those ads.  These allegations weren’t “particularly robust,” but “it would be difficult for Blue Buffalo to plead many additional facts at this time without the benefit of discovery.” And even if 9(b) did apply, Blue Buffalo alleged sufficient details to put the ad agency defendants on notice, quoting language from specific ads, and noting the dates on which those ads ran.
PRCG/Haggerty argued that it was immune under CDA § 230.  The court rejected this for two reasons: (1) CDA immunity is an affirmative defense that a plaintiff is not required to plead around (yikes!), and (2) given the allegations of the complaint, PRCG/Haggerty was an “information content provider” for the content it created for the Honesty website—allegations that PRCG/Haggerty “designed and built” the advertising campaign were sufficient.
The court dismissed claims for false advertising under Missouri common law, concluding that no such claim exists under Missouri law. Unfair competition and unjust enrichment claims survived for the same reason as the Lanham Act claims. The ad agency defendants also didn’t get the injurious falsehood and defamation claims kicked out, because scienter can be alleged generally even under Rule 9(b).
Unfair competition under Connecticut common law: the ad agency argued that this claim could only be maintained against competitors. Blue Buffalo said the state law tracked the Lanham Act, but under Connecticut law, “the word ‘competition’ as used in ‘unfair competition’ limits coverage to claims by competitors.”  (This language came from an insurance case but provided guidance.)  Although state trademark law follows the Lanham Act, false advertising/unfair competition isn’t the same thing. Claim dismissed.

Finally, the court dismissed claims for violation of trade practice statutes of different states because the counterclaim “summarily lists citations to statutes of twenty-six different states,” which wasn’t enough to make a plausible claim or provide notice.

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