CHW Group, Inc. v. Better Business Bureau of New Jersey,
Inc., 2012 WL 426292 (D.N.J.)
CHW sells home warranties, and objected to the BBB’s rating
system, which was allegedly a two-tier pay-to-play system where “donating” to
the BBB automatically improved a company’s ratings. CHW also alleged that the BBB’s letter
grading system unfairly evaluated companies, for example by counting a
consumer-induced delay in dispute resolution as delay by CHW. CHW has consistently had a BBB rating of D-
or F, despite its appeals and its request to be unrated. It alleged that the BBB told CHW that if CHW
paid for accreditation, the letter grade “would dramatically improve.” It also
alleged that the bad grades harmed its business.
It sued for Lanham Act and state law violations. The court found that the BBB statements at
issue didn’t appear in “commercial advertising or promotion” according to the
widely adopted Gordon & Breach test: (1) commercial speech; (2) by a
defendant who is in commercial competition with the plaintiff; (3) for the
purpose of influencing consumers to buy defendant's goods or services; (4)
disseminated sufficiently to the relevant purchasing public.
Though the Third Circuit hasn’t yet adopted the test, it’s
quite popular. CHW argued, quite
correctly, that Gordon & Breach
is inconsistent with Conte Bros. Automotive, Inc. v. Quaker State–Slick 50,
Inc., 165 F.3d 221 (3d Cir. 1998), which explicitly holds out the possibility
(though not the reality) that noncompetitors might have standing to allege
false advertising under the Lanham Act, which would seem to imply that
competition is not an element. If Gordon & Breach applies plus Conte
Bros., then Conte Bros. serves
only to strip competitors of standing and to make analysis more difficult. Of course, this just goes to show that Conte Bros. is wrong to apply antitrust
standing tests to Lanham Act cases and that Gordon
& Breach serves all the worthwhile plaintiff-limiting functions to be
had from a standing test. But the court
here was having none of it, for the kind of bad reason endemic to Conte Bros. standing analysis: “Considering
the Third Circuit's Lanham Act prudential standing test asks whether the
parties are in commercial competition, it would likely endorse [the] second
element of the Gordon & Breach
test.” Um, no. Conte
Bros. purports to be a balancing test, such that strength on one element
can balance out weakness on another. Gordon & Breach requires each factor
to be satisfied. Just because they’re
both called “tests” doesn’t make them consistent.
At least the court’s error doesn’t get in the way of the
right result here. The parties aren’t
competitors either for warranty services or business rating services. Moreover, CHW didn’t allege that CHW’s bad grade
was generated for the purpose of influencing CHW’s customers to buy the services of the BBB, as required for
prong three of Gordon & Breach.
After dismissing the Lanham Act claim, the court declined to exercise its supplemental jurisdiction
over the remaining state law claims.
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