false advertising's injury requirement causes reverse passing off claim to fail

Kesters Merchandising Display International, Inc. v. SurfaceQuest, Inc., --- F.4th ----, 2026 WL 35198, No. 24-3112 (10th Cir. Jan. 6, 2026)

SurfaceQuest allegedly marketed its products with photographs of its competitor Kesters’ competing product. Kesters sells “a lightweight, seamless material used in architectural products” called MicroLite, while SurfaceQuest mainly sells “architectural film that goes on surfaces like MicroLite.” Indeed, around 2014, the parties jointly marketed MicroLite samples wrapped in SurfaceQuest film. In connection with that, Kesters supplied SurfaceQuest with products, specification guides, and photographs of Kesters’ products. SurfaceQuest then applied its film to the products.

However, two years later, “SurfaceQuest decided to sell and market its own lightweight beam wrapped in SurfaceQuest film. These marketing efforts included advertisements using photographs of MicroLite.” Kesters alleged that SurfaceQuest “published a video characterizing MicroLite as SurfaceQuest’s product,” “published images from a grocery store renovation and misrepresented them as depicting SurfaceQuest products,” “placed a SurfaceQuest sticker on a MicroLite binder and falsely represented to a Kesters customer that SurfaceQuest had manufactured MicroLite,” “put a SurfaceQuest sticker on a MicroLite sample and falsely told Kesters customers that SurfaceQuest had invented MicroLite,” and “allowed a SurfaceQuest dealer to advertise with an image of MicroLite.”

Kesters lost its Lanham Act claim because “injury isn’t presumed and the plaintiff has not presented evidence of an actual injury.”

Kesters had the burden of showing injury: either a direct diversion of sales or a loss of goodwill. The court of appeals reasoned that a presumption of injury exists when the plaintiff proves material falsity and the “plaintiff and defendant are the only two significant participants in a market or submarket.” But, even presuming literal falsity, Kesters failed to create a genuine dispute of material fact regarding the presence of a limited market.

“[A] market is sparsely populated only when the other participants are insignificant. Otherwise, the court can’t assume that the plaintiff’s lost sales would go to the defendant.”  SurfaceQuest showed the existence of multiple competitors. Kesters had a competing affidavit, but it only offered it in support of its own summary judgment motion, not in opposition to SurfaceQuest’s summary judgment motion, and it only offered the affidavit too late—in a reply brief.

Dipping its toes into antitrust reasoning (always a dangerous move), the court of appeals reasoned that even considering the affidavit wouldn’t have helped. “To determine the scope of the market, we examine ‘cross-elasticity of demand,’ which measures the substitutability of products.” The affidavit didn’t address cross-elasticity of demand, only similarities between the products made by Kesters and SurfaceQuest. “But these similarities didn’t necessarily affect the ability to substitute products,” and “a single market may include companies making dissimilar products.”

Evidence of actual injury was also insufficient. Kesters argued that it lost a bid for work on a grocery store’s health markets, but there was no evidence that SurfaceQuest obtained those projects or that the store had seen SurfaceQuest’s marketing materials, whether directly from SurfaceQuest or otherwise. Thus, the district court couldn’t reasonably infer a causal connection between SurfaceQuest’s false advertising and Kesters’ loss of the bid.