Thursday, June 19, 2008

Marketer of Discontinued Product Could Not Challenge “First and Only” Ad Claim

This posting was written by William Zale, Editor of CCH Advertising Law Guide.

An herbal supplements marketer (Natural Answers), which had sold a smoking cessation lozenge from 2000 until 2002, lacked standing to pursue Lanham Act false advertising claims against a drug company (GlaxoSmithKline) that later promoted its product as “the first and only stop smoking lozenge,” the U.S. Court of Appeals in Atlanta has ruled.

In March 2002, after GlaxoSmithKline declined an offer to form a joint promotional venture, Natural Answers discontinued its lozenge. Seven months later, GlaxoSmithKline launched its product. Later efforts by Natural Answers to find another joint venture partner failed.

Lanham Act Standing

Five factors should be weighed to determine whether a plaintiff has prudential standing to bring a Lanham Act false advertising claim, under the court’s earlier decision in Phoenix of Broward, Inc. v. McDonald’s Corp. (CCH Advertising Law Guide ¶62,598): (1) nature of the alleged injury, (2) directness of the injury, (3) proximity to the allegedly injurious conduct, (4) speculativeness of damages, and (5) risk of duplicative damages or complexity in apportioning damages.

Injury Requirement

None of the five factors favored Natural Answers. Because it was no longer selling smoking cessation lozenges at the time of the alleged injury from GlaxoSmithKline's allegedly false advertising, the court found that Natural Answers did not suffer the type of commercial injury that Congress sought to prevent. A claim of direct injury could not be based on the theory that GlaxoSmithKline's conduct would weaken the value of Natural Answers' unregistered HERBAQUIT LOZENGES trademark if the product was reintroduced.

GlaxoSmithKline's allegedly injurious conduct obviously affected companies that actually sell smoking cessation products far more directly than it could affect Natural Answers, according to the court. The amount of damages was entirely speculative because Natural Answers had not lost any sales or market share. Finally, allowing Natural Answers to sue would present a risk of duplicative damages.

If Natural Answers had standing to bring this claim, then any company that ever had, will have, or possibly might have a smoking cessation product whose associated trademark could potentially be “weakened” would have standing, the court said.

The June 13, 2008 decision in Natural Answers, Inc. v. SmithKline Beecham Corp. will be reported in CCH Trade Regulation Reports and CCH Advertising Law Guide.

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