Salons Can Pursue False Ad Suit Against Makers of “Salon Only” Products

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

Hair salon operators have standing to pursue a Lanham Act false advertising suit against manufacturers of “salon-only” hair products alleged to be widely available at mass retailers, the federal district court in New York City has ruled.

Constitutional Standing

The salon operators’ class action complaint satisfied the case-or-controversy requirement under Article III of the U.S. Constitution by asserting (1) a concrete and particularized injury, (2) causally connected to the conduct complained of, and (3) likely to be redressed by a favorable decision, the court held.

The manufacturers argued that any injury caused by the diversion of salon-only products to mass retailers did not flow from the false “salon-only” advertising.

The salon operators identified an injury separate from the injury created by the diversion, the court found. They asserted that their reputation was damaged because customers associated the “salon-only” advertising with the salons and therefore may stop patronizing the salons when they discover the falsity of the statements at issue.

The claimed causation was fairly straightforward: it was plausible that consumers would associate false advertising claims with the seller of the product, in addition to (or instead of) the product’s manufacturer, according to the court. Although the consumer’s decision ultimately caused injury to the salon operators, the manufacturers’ allegedly false statements had a “determinative or coercive effect” on the consumer’s decision.

If the manufacturers had engaged in false advertising, it was unlikely that they could successfully defend this action by showing that the salon operators could have avoided the effect of that violation of law by exiting the market for the manufacturers’ hair products. In any event, the operators sufficiently alleged the existence of a causal connection between the false advertising and the injury to their reputation based on past practices to establish standing, the court determined.

Statutory Standing

The salon operators had statutory standing under the Lanham Act because they had a reasonable interest in protecting themselves from the reputational damage allegedly resulting from the manufacturers’ advertising.

In Famous Horse Inc. v. 5th Avenue Photo Inc. (CCH Advertising Law Guide ¶64,046), the Second Circuit had held that a retail chain had alleged a “reasonable interest” and a reasonable basis for believing that its interest could be harmed by the supplier’s false advertising; the chain had an interest in maintaining its customers’ perception that its branded jeans, though discounted, were genuine, and the supplier’s false statements tended to undercut that perception.

Materiality

The salon operators stated a Lanham Act false advertising claim because the allegedly false statements related sufficiently to an inherent and material characteristic of the product to be actionable, the court decided. The claim that the products were sold only in salons went directly to a highly relevant aspect of the product. The “salon-only” claim differentiated these products from products sold at mass retailers and also indicated the superiority and cachet of the professional products.

Consumers might be willing to pay a premium for products sold exclusively through salons because they associated these products with professional expertise. The salon operators alleged facts sufficient to show that the false advertising claims were material to consumers’ purchasing decisions, the court concluded.

The decision in Salon FAD v. L’Oreal USA, Inc. appears at CCH Advertising Law Guide ¶64,162.