Businesses can stop their competitors from using misleading and false statements in the sales process.
The prohibition on false advertising is not limited to the government regulating television commercials; rather, it is a weapon businesses across the United States can use to regulate their markets and ensure fair competition, including in the sales process. This weapon is called the Lanham Act.
Lanham Act
The Lanham Act enables businesses to sue competitors when their competitors make false and misleading sales statements. The law covers any misleading or false "description of fact, or false and misleading representation of fact" that "misrepresents the nature, characteristics, qualities, or geographic origin of [a business's competitor] or another person's goods, services, or commercial activities" which is intended to induce a sale. An injured business may be able to obtain an injunction against their competitor that prevents the competitor from continuing to spread the false or misleading statements, win a monetary award, and recover their attorneys' fees.
As the United States Supreme Court recognized, businesses are more equipped to regulate unfair competition in their own markets than the government regulators. The Supreme Court specifically stated:
Competitors who manufacture or distribute products have detailed knowledge regarding how consumers rely upon certain sales and marketing strategies. Their awareness of unfair competition practices may be far more immediate and accurate than that of agency rulemakers and regulators
The Supreme Court further explained:
[The] Lanham Act draws upon this market expertise by empowering private parties to sue competitors to protect their interests on a case-by-case basis.
B2B Application Generally
It is important to note that the Lanham Act applies equally to competitors selling products or services to the general consuming public and to businesses selling products or services to other businesses. The following are a few general categories of business to business conduct that may trigger liability:
using false or misleading statements during sales pitches to bolster the characteristics of the products or services being sold;
using false or misleading statements during sales pitches to disparage a competitor's comparable products or services;
representations to other participants (upstream or downstream) in the relevant supply chain that contain false or misleading comparative analysis related to the presenting company's competitors;
submitting bid proposals for a government contract containing false or misleading statements; and
website or other written advertising that falsely or misleadingly disparages a competitor's products or services.
This list is certainly not exhaustive. The specific acts that could trigger Lanham Act liability are innumerable and range from national sales campaigns containing false statements to a single letter containing a misleading statement.
Conclusion
The Lanham Act can serve as an important tool for businesses to protect themselves and the market in which they operate. Accordingly, when a business discovers its competitor is utilizing unfair, anti-competitive conduct, such as false advertising, it should consider whether it makes sense to pursue litigation to stop its competitor’s conduct.
The United States Supreme Court case mentioned above is POM Wonderful LLC v. Coca-Cola Co., 134 S. Ct. 2228 (June 12, 2014).
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Disclaimer: This post is for general information purposes only and is not intended to be and should not be taken as legal advice.