Plaintiff, doing business as Furniture Power, sued defendants, which ran Modernage Furniture Store and Planned Furniture Promotions (PFP), which promotes furniture sales at struggling stores. Furniture Power alleged that defendants misled the public when it advertised a “going out of business” sale, for which new furniture was procured, and artificially hiked retail prices to deceive customers into believing they were getting a better deal. The ads used these phrases: "Going Out of Business," "It's a total liquidation!" "Prices Slashed," "Huge Savings," "No Reasonable Offer Refused!" "Wall-to-Wall Savings!" "Must Sell It All," and "Nothing Held Back! Everything Goes!"
PFP argued that plaintiff lacked standing against it because it isn’t a direct competitor. However, parties not in direct competition may still have standing under Phoenix of Broward. Though the court was skeptical of the complaint’s allegations that the false ads deceived consumers and diverted them to defendants’ stores, it found that they sufficed to allege Article III standing.
Prudential standing, however, was a separate issue. The Phoenix of Broward test asks:
(1) Is the injury of a type that Congress sought to redress in providing a private remedy for violations of the [Lanham Act]?
(2) How direct or indirect is the asserted injury?
(3) Is the plaintiff proximate to or remote from the allegedly harmful conduct?
(4) How speculative is the damage claim?
(5) What are the risks of duplicative damages or complexity in apportioning damages?
(1) focuses on the Lanham Act’s aim: protecting commercial interests that can be harmed by a competitor’s false advertising and preventing diversion of reputation and goodwill. The complaint properly alleged harm to a commercial interest by way of customer diversion under this factor.
On (2), directness counsels in favor of standing when false advertising influences customers to choose defendant’s product over plaintiff’s. The court found the causal chain more attenuated here, because plaintiff alleged (1) false claims about liquidation, (2) false claims about price discounts, and (3) lost sales. But there was no “but for” allegation that the ads diverted consumers from plaintiff as opposed to from one of the many other furniture stores in the area. (Really? This doesn’t seem any more attenuated than any other false advertising claim in a market not dominated by a duopoly.) Thus, the second factor counseled against prudential standing.
Here, we see modern standing doctrine turning the false advertising provisions on their head: they were originally understood to cover statements about the advertiser’s own product, and false statements about competitors weren’t covered in some circuits, such that amendment was required to confirm the availability of that type of claim. But under this new interpretation of standing, it’s much, much harder to proceed against a false statement about the advertiser’s own product. Also of note: the court pointed out that this factor is similar to materiality. Except that the materiality of these allegedly false claims shouldn’t be judged as a matter of law on a motion to dismiss. In fact, materiality is often the type of thing one would want some evidence about; moreover, price claims are generally considered material, and the FTC considers the specific claims at issue here actionable if false. (For a suggestion to the contrary, see here.)
For (3), proximity, the question is whether there’s some other damaged group with a competitive interest that would be better positioned and likely to sue. This factor favored standing.
For (4), speculative damages—well, this one’s almost always going to favor the defendant, especially when we’re talking about a general consumer product rather than a small, concentrated market where single purchases have large dollar values (that is, cases in which the Lanham Act is a lot more useful than a tortious interference claim). And so it did here. Plaintiff’s allegations of lost profits were too speculative to help it here. Though lost profits are available under the Lanham Act, a jury would have to speculate to figure out how many customers chose not to shop at plaintiff’s store because of these ads, as opposed to choosing not to shop there for other reasons. (The court spoke of speculation about whether customers would have gone to still other furniture stores, but that can’t be right: it doesn’t make sense to assume that defendants’ ads would have diverted customers from plaintiff’s store to a third store. For purposes of analyzing plaintiff’s lost profits, non-party stores are irrelevant.) Likewise, plaintiff’s claim for defendants’ profits would also require speculation, because it would be hard to determine what revenues derived from false advertising and what were legitimate.
Again, we can see how the so-called standing test is really about kicking plaintiffs out of court. Except in the rare cases in which there’s a duopoly and every single advertising claim of note is false, these factors always favor defendants, requiring specificity at the pleading stage that is virtually impossible to provide even after a trial on the merits. There’s a reason that profit recovery generally involves burden-shifting when plaintiffs show an entitlement to profits; infringing defendants have the burden of showing what profits didn’t derive from their unlawful acts. But using standing to kick cases out means that defendants never have to face that rule in the first place.
Finally, because every competitor in the market could sue, there was a risk of duplicative damages and apportionment would be complex.
The court considered this a close call, but similar to Phoenix of Broward, which found no standing.
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